What changed in this filing

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Item 2. Management’s Discussion and Analysis

2020-08-07 compared with 2020-05-11 · 1078 added, 451 removed, 626 unchanged (71% of the section changed)

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• 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 and the direct and indirect impact of such measures on our and our tenants' businesses, financial condition, results of operation, cash flows, liquidity and performance, and the U.S.

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 and performance, and the U.S.

and international economy and economic activity generally;

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• the ability of our joint venture partners to satisfy their obligations;

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• 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);

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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 rapidly developing circumstances relating to COVID-19.

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.

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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.

BXP is one of the largest publicly-traded office real estate investment trusts (REIT) (based on total market capitalization) as of March 31, 2020 in the United States that develops, owns and manages primarily Class A office properties concentrated in five markets in the United States - Boston, Los Angeles, New York, San Francisco and Washington, DC.

BXP is one of the largest publicly-traded office real estate investment trusts (REIT) in the United States (based on total market capitalization as of June 30, 2020) that develops, owns and manages primarily Class A office properties concentrated in five markets in the United States - Boston, Los Angeles, New York, San Francisco and Washington, DC.

BPLP is the entity through which BXP conducts substantially all of its business and owns (either directly or through subsidiaries) substantially all of its assets.

We generate revenue and cash primarily by leasing Class A office space to our tenants.

When making leasing decisions, we consider, among other things, the

creditworthiness of the tenant, the length of the lease, the rental rate to be paid at inception and throughout the lease term, the costs of tenant improvements and other landlord concessions, anticipated operating expenses and real estate taxes, current and anticipated vacancy, current and expected future demand for the space, the impact of any expansion rights and general economic factors.

When making leasing decisions, we consider, among other things, the creditworthiness of the tenant, the length of the lease, the rental rate to be paid at inception and throughout the

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lease term, the costs of tenant improvements and other landlord concessions, anticipated operating expenses and real estate taxes, current and anticipated vacancy, 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.

Our tenant base is diverse across market sectors and the weighted-average lease term for our in-place leases was approximately 8.3 years, as of March 31, 2020, including leases at our unconsolidated joint ventures.

Our tenant base is diverse across market sectors and the weighted-average lease term for our in-place leases was approximately 8.2 years, as of June 30, 2020, including leases at our unconsolidated joint ventures.

The weighted-average lease term for our top 20 office tenant leases was approximately 11.6 years.

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• our relationships with local brokers.

In the first quarter of 2020 macroeconomic conditions were favorable and positive until COVID-19 began to escalate into a national and global pandemic in mid-March.

In the first two months of the quarter, U.S.

GDP remained stable and job creation remained steady.

Starting in March, COVID-19 caused a precipitous drop in economic activity globally with significant negative impacts on businesses across the U.S.

As the number of unemployment claims rose and the economy slowed, the Federal Reserve and U.S.

Treasury implemented aggressive monetary and fiscal stimulus policies, including the CARES Act, to bring needed financial support to small businesses, individuals and industries most affected by the crisis.

Also, the Federal Reserve quickly reduced the federal funds rate to zero.

The effects of COVID-19 began to have an impact on us and our tenants near the end of the first quarter.

As governments across all of our regions implemented social distancing and stay-at-home policies, we and our tenants migrated employees to a work-from-home model.

All office properties throughout our portfolio remain open for tenants, although physical occupancy remains low due to these measures.

By the end of March, construction of our development projects paused in Boston, New York and San Francisco to comply with municipal social distancing policies , although construction continued in the Washington, DC region.

Despite the work-stoppages at our development projects, we remain on schedule to meet all required delivery milestones in our leases and within budget.

In the second quarter of 2020, macroeconomic conditions continued to be negatively impacted by the COVID-19 pandemic and the resulting economic slowdown.

Businesses across the U.S.

experienced significant job losses and other recessionary effects as U.S.

GDP fell 33% from April through June 2020.

As the number of unemployment claims rose and the economy slowed, the Federal Reserve continued its aggressive monetary and fiscal stimulus policies implemented in the first quarter and maintained the federal funds rate between 0% and 0.25%.

The effects of COVID-19 continued to negatively impact us and our tenants during the second quarter of 2020.

Although governments in some of our regions began easing their social distancing and stay-at-home policies later in the second quarter, the physical occupancy of our properties remained low as employees of our tenants adhered to their local government restrictions and their employers’ protocols for working from home during the pandemic.

Despite the pandemic-related slowdown in the quarter, we signed more than 940,000 square feet of leases and renewals during the second quarter, including a large 400,000 square foot lease in Reston, Virginia with Microsoft Corporation.

However, while leasing discussions remained active for leases that were in negotiation prior to COVID-19 and some long-range space planning continued, we have experienced a decrease in new leasing activity as existing and prospective tenants are focused on their employees’ safety and on the uncertainty of the impact of the economic shutdown on their businesses.

As a result, there continues to be minimal new leasing transactions except in the instances where tenants have a near-term expiration.

Development of primarily pre-leased properties in supply-constrained markets with the strongest economic growth over time has been a cornerstone of our long-term growth strategy.

We have approximately 5.0 million square feet of active developments and redevelopments in our pipeline, which are 74% pre-leased, as of August 3, 2020, to credit-strong tenants with long lease terms.

We experienced work-stoppages at some of our development projects early in the second quarter.

Work has since resumed at all projects and we remain on schedule to meet all required delivery milestones in our leases and also remain within budget.

Our broad and deep experience as developers extends to our budgeting and planning, which have left us with ample time in our development schedules.

However, we cannot be certain that work-stoppages will not extend beyond current expectations or, if they do, that we will meet the milestones and budgets.

Leasing discussions remained active for leases that were in negotiation prior to COVID-19, but we have experienced a decrease in new leasing requirements and physical tours are on hold.

Our most important activity at this time is planning for the health and safety of our tenants and employees and preparing our buildings in accordance with the policies, protocols and applicable legal requirements in our regions.

In early April 2020, we formed an internal Health Security Task force composed of Boston Properties’ employees, as well as outside experts in health care, industrial hygiene, cleaning and security.

We designed standard operating procedures that include, but are not limited to, air filtration, water quality, janitorial products and procedures, social separation and screening during building access and use of vertical transportation, the use of personal protective equipment, signage, and management of construction activities.

We began communicating the operating procedures with tenants in early May.

The health and safety of our employees, tenants, service providers and visitors continues to be one of our highest priorities.

In the second quarter, we published our Health Security Plan, which was developed by our Health Security Task Force composed of our employees, as well as outside experts in health care, industrial hygiene, cleaning and security.

We also conducted group and one-on-one conversations with our tenants regarding their plans to bring their work-force back to the office.

We implemented health safety protocols in all in-service properties across our portfolio to provide a safe environment for tenants and employees in accordance with the policies and applicable legal requirements in our regions.

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Rent Collections

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Cash rent amounts are based on all rent billed by us, including all amounts from consolidated operations and all unconsolidated joint ventures, other than Gateway Commons for which we do not handle billing.

Our April 2020 rent collections among all tenants were approximately 93%, a reduction from prior levels as a result of COVID-19, primarily due to certain retail tenants.

Collections from our office tenants in April remained strong.

During the first quarter of 2020, approximately 87% of the aggregate amount of our consolidated revenues were derived from office leases.

For the month of April, we collected approximately 97% of our total commercial rent payments due April 1 from office tenants.

In some of these cases, the tenant paid its rent, but reserved its right to assert that the terms of its lease do not require the tenant to pay.

Office tenants in the flexible office use and manufacturing/retail industries, which represent 3% and 5% of our office rents, respectively, present a heightened concern for rent collection, as we collected approximately 78% and 73%, respectively, from these tenants for the month of April.

Unpaid April rent was approximately $1.3 million and $2.9 million for flexible office and manufacturing/retail, respectively.

In addition, our share of the accrued rent for tenants in these groups is approximately $3.9 million and $7.2 million, respectively.

For clarity, manufacturing/retail includes retail and consumer products office tenants.

In addition, during the first quarter of 2020, approximately 7.2% of the aggregate amount of our consolidated revenues were derived from retail leases.

For the month of April, we collected approximately 36% of our total commercial rent payments due from retail tenants for rents due April 1.

We are actively working on lease amendments with retail tenants in this category that we believe have justifiable financial needs.

Of the retail tenants that did not pay rent for April, our share of the accrued rent balance for these tenants is approximately $25.1 million.

We continue to analyze our accounts receivable, tenant creditworthiness and current economic trends to evaluate the adequacy of the collectability of our tenants’ total accounts receivable balances, including lease revenue, and if considered uncollectible, we will write-off the receivable and accrued rent balances associated with the leases, and record future lease revenue on a cash basis.

During 2019, our total parking revenue was approximately $100 million and our share of total parking revenue from unconsolidated joint ventures was approximately $13 million.

Approximately $40 million of this aggregate amount of consolidated and unconsolidated parking revenue was derived from hourly/daily parking.

The remainder of the aggregate amount of parking revenue was derived from monthly parking revenues, some of which are contractual agreements embedded in our leases, and some are at will individual agreements.

In April, with stay-at-home orders and business closures, we generated minimal hourly/daily parking revenue and this trend may continue for as long as these stay-at-home orders and business closures continue.

Approximately 2% of our total revenue in 2019 was from our hotel, the Boston Marriott Cambridge.

The hotel property has been closed since March 22, 2020 and is currently running at a monthly deficit.

It is unclear when the hotel will open.

As a result of the impact of the current environment, we expect our 2020 revenues to be impacted from (1) lower collections, primarily from our retail tenants, parking and hotel operators, (2) a slowdown in new leasing activity for vacant and expiring space and (3) delayed revenue recognition related to tenants who are currently building out space as a result of construction delays.

Our second quarter rent collections among all tenants were approximately 96%.

Approximately 96% of our cash rent billings were derived from office tenants in the second quarter of 2020.

Our second quarter rent collections among office tenants was strong at 99%.

Approximately $603 million, or $2.4 billion annualized, of our lease revenue was from our office portfolio.

Our office portfolio has long-term lease contracts and modest rollover exposure over the next few years.

Approximately 4% of our cash rent billings were derived from retail leases in the second quarter of 2020.

Our second quarter rent collections among retail tenants was 45% .

Management analyzes accrued rent and accounts receivable balances by considering tenant creditworthiness, current economic trends, including the impact of COVID-19 on tenants’ businesses, and changes in tenants’ payment patterns when evaluating the collectability of the tenant’s receivable balance, including the accrued rent receivable, on a lease-by-lease basis.

In the second quarter, we recorded write-offs totaling approximately $41.0 million.

This amount equals the write-offs in our consolidated portfolio, plus our share of the write-offs from the unconsolidated joint ventures (calculated based on our ownership percentage), minus our partners’ share of write-offs from our consolidated joint ventures (calculated based upon the partners’ percentage ownership interests).

Approximately 95% of these write-offs related to tenants in the retail sector and approximately one-third related to Ann Taylor, whose parent company filed for bankruptcy in July 2020.

The remainder of the write-offs primarily related to tenants in the soft goods retail, restaurant and entertainment categories that have been notably impacted by COVID-19.

We have been and continue to actively work on lease modification amendments with retail tenants in the categories that we believe have justifiable financial needs.

Cash rent abatements and deferrals primarily related to COVID-19 were approximately $16.6 million in the second quarter.

This amount represented our consolidated cash rent abatements and deferrals plus our share of the cash rent abatements and deferrals from the unconsolidated joint ventures (calculated based on our ownership percentage) minus our partners’ share of cash rent abatements and deferrals from our consolidated joint ventures (calculated based upon the partners’ percentage ownership interests).

In the second quarter, our parking and other revenue was approximately $13.9 million, a decline of approximately $10.6 million from the first quarter of 2020.

The decline was largely due to the decline in transient parking revenue as employees adhered to government and employers’ stay-at-home orders during the pandemic.

Our hotel property, the Boston Marriott Cambridge, has been closed since March 2020 and operated at an approximately $1.9 million loss for the second quarter of 2020, which is approximately $7.6 million less than the second quarter of 2019.

It is unclear when the hotel will re-open .

As a result of the impact of the current environment, we expect our 2020 revenues to be adversely effected due to (1) our retail tenants, parking and hotel operator, (2) a slowdown in new leasing activity for vacant and expiring space and (3) write-offs of accounts receivable and accrued rent balances.

Despite the near-term challenges of COVID-19, we remain confident in our ability to weather the current market downturn and manage our business throughout uncertain future market conditions.

As a leading developer, owner and manager of marquee Class A office properties in the U.S., our priorities during and following COVID-19 remain focused on the following:

As a leading developer, owner and manager of marquee Class A office properties in the United States, our priorities during and following COVID-19 remain focused on the following:

• ensuring tenant satisfaction by keeping our properties safe, open and available for occupancy;

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• leasing available space in our in-service and development properties;

resuming and completing the construction of our development properties as conditions allow;

continuing and completing the redevelopment and repositioning of several key properties to increase future revenue and asset values over the long-term;

• completing the construction of our development properties as conditions allow;

• completing the redevelopment and repositioning of several key properties to increase future revenue and asset values over the long-term;

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• maintaining our conservative balance sheet and managing our near-term debt maturities;

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• maintaining discipline in our underwriting of investment opportunities.

Following is an overview of portfolio activity and leasing activity in the first quarter of 2020, recognizing that both leasing activities and construction activities had slowed in the majority of our regions by the end of the first quarter due to COVID-19.

The overall occupancy of our in-service office and retail properties was 92.9% at March 31, 2020, a slight decrease of 10 basis points as compared to December 31, 2019.

During the first quarter of 2020, we signed leases across our portfolio totaling approximately 702,000 square feet and we commenced revenue recognition on approximately 995,000 square feet of leases in second generation space.

Of these second generation leases, approximately 727,000 square feet had been vacant for less than one year and, in the aggregate, they represent an increase in net rental obligations (gross rent less operating expenses) of approximately 93% over the prior leases.

The increase in net rental obligations included the commencement of a retail lease in the New York region that had a significant impact on net rents.

Excluding this lease, increase in net rental obligations in the first quarter of 2020 was 25%.

Following is an overview of portfolio activity and leasing activity in the second quarter of 2020, recognizing that both leasing activities and construction activities had slowed in the majority of our regions throughout the second quarter due to COVID-19.

The overall occupancy of our in-service office and retail properties was 92.0% at June 30, 2020, a decrease of 90 basis points as compared to March 31, 2020.

During the second quarter of 2020, we signed leases across our portfolio totaling approximately 942,000 square feet and we commenced revenue recognition on approximately 1.3 million square feet of leases in second generation space, including lease modifications.

Of these second generation leases, approximately 1.2 million square feet had been vacant for less than one year and, in the aggregate, they represent a decrease in net rental obligations (gross rent less operating expenses) of approximately 1% over the prior leases.

A brief overview of each of our markets follows.

Our Boston central business district (“CBD”) in-service portfolio was approximately 99% leased as of March 31, 2020.

During the first quarter of 2020, we executed approximately 93,000 square feet of leases and had approximately 267,000 square feet of leases commence in the Boston region.

Our Boston central business district (“CBD”) in-service portfolio was approximately 99% leased as of June 30, 2020, including approximately 343,000 square feet of leases that we terminated, due to the nonpayment of rent, where the tenants have yet to vacate.

During the second quarter of 2020, we executed approximately 143,000 square feet of leases and had approximately 68,000 square feet of leases commence in the Boston region.

Approximately 61,000 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 22% over the prior leases.

For the majority of the first quarter of 2020, we continued development of 100 Causeway Street, an approximately 632,000 net rentable square foot office tower located in Boston, Massachusetts, of which we own 50%, that is 95% pre-leased, as of May 5, 2020 .

Our approximately 2.0 million square foot in-service office portfolio in Cambridge was 99.5% leased, as of March 31, 2020.

For the majority of the first quarter of 2020, we continued the development of 325 Main Street at Kendall Center in Cambridge, Massachusetts, which is 90% pre-leased to a tenant for a term of 15 years.

In our suburban Waltham/Lexington portfolio, we continued the redevelopment of a portion of 200 West Street, an approximately 261,000 net rentable square foot Class A office property in Waltham, Massachusetts.

In May 2020, we resumed development of 100 Causeway Street, which had been paused earlier in the quarter due to stay-at-home orders.

100 Causeway Street is an approximately 632,000 net rentable square foot office tower located in Boston, Massachusetts, of which we own 50%, that is 94% pre-leased, as of August 3, 2020.

Our approximately 2.0 million square foot in-service office portfolio in Cambridge was nearly 100% leased, as of June 30, 2020.

In June of 2020, we resumed development of 325 Main Street at Kendall Center in Cambridge, Massachusetts, which is 90% pre-leased to a tenant for a term of 15 years.

Development was paused earlier in the quarter due to stay-at-home orders, but we anticipate delivering the project on time.

In our suburban Waltham/Lexington portfolio, we completed and fully placed in-service 20 CityPoint, an approximately 211,000 square foot Class A office development in Waltham, Massachusetts that is 62% leased as of August 3, 2020.

We continue the redevelopment of a portion of 200 West Street, an approximately 261,000 net rentable square foot Class A office property in Waltham, Massachusetts.

The redevelopment is a conversion of a portion of the property to laboratory space to meet growing demand in the life sciences sector.

Construction of our Boston and Cambridge developments/redevelopments has temporarily stopped to comply with the social distancing policies and directives of the cities.

Waltham continues to be a desirable submarket of Boston where a cluster of many technology and life sciences organizations are located.

Our Los Angeles (“LA”) portfolio is currently focused on West LA and includes an approximately 1.1 million square foot property, Colorado Center, of which we own 50%, and Santa Monica Business Park, a 21-building, approximately 1.2 million square foot property of which we own 55%.

We believe both properties provide us with ample opportunity for future growth, as a majority of the current leases are at below-market rents.

As of March 31, 2020, our LA in-service properties was approximately 96% leased.

Depending on market conditions, we expect to continue to explore opportunities to increase our presence in the LA market by seeking investments where our financial, operational, redevelopment and development expertise provide the opportunity to achieve accretive returns.

As of March 31, 2020, our New York CBD in-service portfolio was approximately 96% leased.

In the first quarter of 2020, we commenced approximately 263,000 square feet of leases in the New York region.

Of these leases, approximately 143,000 square feet had been vacant for less than one year and represent an increase in net rental obligations of approximately 205% over the prior leases.

Excluding the commencement of a retail lease that had a significant impact on leases, the increase in net rental obligations was 3.9%.

Although the pace of new leasing activities in our New York region slowed by the end of the first quarter due to COVID-19, in April 2020, we signed an approximately 24,000 square foot lease at 399 Park Avenue bringing the office portion of that property to 100% leased, and we also signed an approximately 27,000 square foot lease at Times Square Tower with a law firm.

As of June 30, 2020, our LA in-service properties was approximately 96% leased.

Since our initial entry in the West LA market in 2016, we have continued to explore opportunities to increase our presence in the LA market by seeking investments where our financial, operational, redevelopment and development expertise provide the opportunity to achieve accretive returns.

In July 2020, we announced the acquisition of a 50% interest in Beach Cities Media Center, a 6.4-acre land site on the Rosecrans Corridor of the El Segundo submarket of Los Angeles, California for a purchase price of $21.2 million.

The site is fully entitled to support the future development of approximately 275,000 square feet of Class A creative office space and is located in one of the most in-demand creative office areas in the South Bay of Los Angeles where several Fortune 500 and emerging office tenants in the technology, entertainment and financial sectors are located.

In conjunction with the

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acquisition, BXP entered into a joint venture with Continental Development Corporation, a premier developer and owner of Class A properties primarily in the El Segundo and Manhattan Beach submarkets with more than 500 tenants across its portfolio.

As of June 30, 2020, our New York CBD in-service portfolio was approximately 94% leased, including approximately 374,000 square feet of leases that we terminated due to the nonpayment of rent, where the tenants have yet to vacate.

In the second quarter of 2020, we commenced approximately 682,000 square feet of leases in the New York region.

Of these leases, approximately 638,000 square feet had been vacant for less than one year and represent a decrease in net rental obligations of approximately 2% over the prior leases.

San Francisco

Our San Francisco CBD in-service properties were approximately 98% leased as of March 31, 2020.

During the first quarter of 2020, we commenced approximately 169,000 square feet of leases in the San Francisco region.

Our San Francisco CBD in-service properties were approximately 97% leased as of June 30, 2020.

During the second quarter of 2020, we commenced approximately 135,000 square feet of leases in the San Francisco region.

Of these leases, approximately 123,000 square feet had been vacant for less than one year and represent an increase in net rental obligations of approximately 32% over the prior leases.

In our Silicon Valley portfolio, on February 20, 2020, we completed the acquisition of land underlying the ground lease at Platform 16 in San Jose.

Platform 16 is a joint venture in which we own 55% and consists of a parcel of land totaling approximately 5.6 acres that is expected to support the development of approximately 1.1 million square feet of commercial office space.

On January 28, 2020, the joint venture commenced site preparation work at Platform 16.

Due to the uncertainty related to COVID-19, and in consultation with our partner, the joint venture has paused construction activities and will revisit its plans once the economic impact of COVID-19 becomes clearer.

On January 28, 2020, we entered into a joint venture with a partner to own, operate and develop approximately 1.1 million square feet of existing office and lab properties in South San Francisco, California, with the opportunity for approximately 640,000 square feet of additional future development.

Upon completion, the joint venture is expected to own an approximately 1.7 million square foot life sciences campus, including a mix of office and lab buildings.

Under the joint venture agreement, we contributed 601, 611 and 651 Gateway Boulevard, three existing office properties that total approximately 768,000 net rentable square feet, and developable land for our 50% ownership interest in the joint venture.

The partner contributed approximately 313,000 square feet of properties (including one property under construction) consisting of lab, office and amenity buildings, and developable land and will contribute cash totaling approximately $69.2 million in the future for its 50% ownership interest in the joint venture.

As a result of the partner’s deferred contribution, we have an initial approximately 55% interest in the joint venture.

The South San Francisco market has experienced strong demand from companies in the life sciences sector.

Depending on market conditions, we expect this joint venture will allow us to expand the amount of developable land on the combined site and efficiently capitalize on tenant demand in the life sciences sector.

On June 26, 2020, we completed the acquisition of property at 777 Harrison Street (known as Fourth + Harrison and formerly known as 425 Fourth Street), in San Francisco, California for a purchase price of approximately $140.1 million.

Fourth + Harrison, is a fully-entitled site that can support the development of approximately 804,000 square feet of primarily office space.

Washington, DC

In the Washington, DC region, our focus remains on (1) expanding our development potential in Reston, Virginia, where demand from technology and cybersecurity tenants remains strong, (2) divesting of assets in Washington, DC and select suburban markets and (3) matching development sites with tenants to begin development with significant pre-leasing commitments.

During the first quarter of 2020, we commenced approximately 600,000 square feet of leases in the Washington, DC region.

Of these leases, approximately 275,000 square feet had been vacant for less than one year and represent an increase in net rental obligations of approximately 13% over the prior leases.

In our Reston, Virginia portfolio, in the first quarter of 2020, we placed in service 17Fifty Presidents Street, a build-to-suit project with approximately 276,000 net rentable square feet of Class A office space that is 100% leased to an affiliate of Leidos Holdings, Inc.

We also continued development of Reston Gateway, our mixed-use development project, which will consist of an aggregate of approximately 4.5 million net rentable square feet.

The initial phase is approximately 1.1 million net rentable square feet, of which approximately 72% is pre-leased to Fannie Mae.

Our Reston, Virginia in-service portfolio was approximately 87% leased as of March 31, 2020 and continues to be the strongest submarket in the region.

In the first quarter of 2020, we completed the sale of New Dominion Technology Park located in Herndon, Virginia for a gross sale price of $256.0 million, resulting in net proceeds of approximately $254.0 million and reported gain on sale of 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.

Our Washington, DC CBD in-service properties were approximately 85% leased, as of March 31, 2020, with modest near-term exposure and we have reduced our exposure in the Washington, DC CBD market significantly over the past few years through dispositions of assets.

In the Washington, DC region, our focus remains on (1) expanding our development potential in Reston, Virginia, where demand from technology and cybersecurity tenants remains strong, (2) divesting of certain assets in Washington, DC and select suburban markets and (3) matching development sites with tenants to begin development with significant pre-leasing commitments.

During the second quarter of 2020, we commenced approximately 372,000 square feet of leases in the Washington, DC region.

Of these leases, approximately 316,000 square feet had been vacant for less than one year and represent a decrease in net rental obligations of approximately 19% over the prior leases.

During the quarter, we also signed a new, 12-year lease with Microsoft Corporation for approximately 400,000 square feet at Reston Town Center in Reston, Virginia.

Our Washington, DC CBD in-service properties were approximately 83% leased, as of June 30, 2020, with modest near-term exposure and we have reduced our exposure in the Washington, DC CBD market significantly over the past few years through dispositions of assets.

During the second quarter of 2020, we continued this strategy through the sale of a portion of our Capital Gallery office building comprised of approximately 455,000 square feet for approximately $254 million.

Also, a joint venture in which we have a 50% ownership interest sold Annapolis Junction Building Eight, an approximately 126,000 square foot office building, and two land parcels for approximately $47.0 million.

Our Washington, DC suburban properties, which includes our significant presence in Reston, Virginia, was approximately 86% leased as of June 30, 2020.

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Leasing Statistics

The table below details the leasing activity, including 100% of the unconsolidated joint ventures, that commenced during the three months ended March 31, 2020 :

Three Months Ended March 31, 2020

The table below details the leasing activity, including 100% of the unconsolidated joint ventures, that commenced during the three and six months ended June 30, 2020:

Three months ended June 30, 2020 Six months ended June 30, 2020

Total Square Feet

Vacant space available at the beginning of the period 3,185,072 3,135,170

Property dispositions/properties taken out of service (1) (150,193) (150,193)

Vacant space in properties acquired — —

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1 st generation leases

20,551 342,007

2 nd generation leases with new tenants

490,659 1,056,795

2 nd generation lease renewals

787,799 1,216,686

Total space leased (3) 1,299,009 2,615,488

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Leases commencing during the period, in square feet 1,278,458 2,273,481

Weighted Average Lease Term

Weighted Average Free Rent Period

Weighted Average Lease Term 129 Months 116 Months

Weighted Average Free Rent Period 184 Days 151 Days

Total Transaction Costs Per Square Foot (6) $102.33 $89.03

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__________________

Total square feet of properties placed (and partially placed) in-service during the three months ended March 31, 2020 consists of 5,156 at 145 Broadway and 275,809 at 17Fifty Presidents Street.

Represents leases for which lease revenue recognition has commenced in accordance with GAAP during the three months ended March 31, 2020 .

Represents leases executed during the three months ended March 31, 2020 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 months ended March 31, 2020 is 244,020 .

(1) Total square feet of property dispositions/properties taken out of service during the three and six months ended June 30, 2020 consists of 24,508 due to the sale of a portion of Capital Gallery and 125,685 due to the sale of Annapolis Junction Building Eight.

(2) Total square feet of properties placed (and partially placed) in-service during the three months ended June 30, 2020 consists of 79,527 at 20 CityPoint and 4,330 at 685 Gateway.

Total square feet of properties placed (and partially placed) in-service during the six months ended June 30, 2020 consists of 79,527 at 20 CityPoint, 4,330 at 685 Gateway, 5,156 at 145 Broadway and 275,809 at 17Fifty Presidents Street.

(3) Represents leases for which lease revenue recognition has commenced in accordance with GAAP during the three and six months ended June 30, 2020.

(4) Represents leases executed during the three and six months ended June 30, 2020 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 ended June 30, 2020 is 262,368 and 506,388, respectively.

Amounts for the three and six months ended June 30, 2020 exclude lease modifications related to COVID-19 covering an aggregate of 3,099,343 square feet that were executed in the three and six months ended June 30, 2020 to provide cash rent deferrals and/or abatements.

Of these lease modifications, the lease terms associated with 296,989 square feet were extended for a period of 12 or more months.

(5) Second generation leases are defined as leases for space that had previously been leased by us.

Of the 995,023 square feet of second generation leases that commenced during the three months ended March 31, 2020 , leases for 756,159 square feet were signed in prior periods.

Of the 1,278,458 and 2,273,481 square feet of second generation leases that commenced during the three and six months ended June 30, 2020, respectively, leases for 1,016,090 and 1,772,249 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.

Represents the increase in gross rent (base rent plus expense reimbursements) on the new versus expired leases on the 727,342 square feet of second generation leases that had been occupied within the prior 12

months for the three months ended March 31, 2020 ;

(7) Represents the increase in gross rent (base rent plus expense reimbursements) on the new versus expired leases on the 1,178,430 and 1,905,772 square feet of second generation leases that had been occupied within

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the prior 12 months for the three and six months ended June 30, 2020, respectively;

excludes leases that management considers temporary because the tenant is not expected to occupy the space on a long-term basis.

Represents the increase in net rent (gross rent less operating expenses) on the new versus expired leases on the 727,342 square feet of second generation leases that had been occupied within the prior 12 months for the three months ended March 31, 2020 ;

(8) Represents the increase in net rent (gross rent less operating expenses) on the new versus expired leases on the 1,178,430 and 1,905,772 square feet of second generation leases that had been occupied within the prior 12 months for the three and six months ended June 30, 2020, respectively;

excludes leases that management considers temporary because the tenant is not expected to occupy the space on a long-term basis.

Transactions during the three months ended March 31, 2020 included the following:

Development/redevelopment

On January 28, 2020, we exercised our option to acquire real property at 425 Fourth Street located in San Francisco, California for a purchase price totaling approximately $134.1 million .

425 Fourth Street is expected to support the development of approximately 804,000 square feet of primarily commercial office space.

There can be no assurance that the acquisition will be consummated on the terms currently contemplated or at all.

On March 26, 2020, we completed and fully placed in-service 17Fifty Presidents Street located in Reston, Virginia.

17Fifty Presidents Street is a build-to-suit project with approximately 276,000 net rentable square feet of Class A office space that is 100% leased.

On January 28, 2020, we entered into a joint venture with a third party to own, operate and develop properties at our Gateway Commons complex located in South San Francisco, California.

We contributed our 601, 611 and 651 Gateway properties and development rights with an agreed upon value aggregating approximately $350.0 million for our 50% interest in the joint venture.

601, 611 and 651 Gateway consist of three Class A office properties aggregating approximately 768,000 net rentable square feet.

The partner contributed three properties and development rights with an agreed upon value aggregating approximately $280.8 million at closing and will contribute cash totaling approximately $69.2 million in the future for its 50% ownership interest in the joint venture.

As a result of the partner’s deferred contribution, we have an initial approximately 55% interest in the joint venture.

Future development projects will be owned 49% by us and 51% by the partner.

We recognized a gain on the retained and sold interest in the real estate contributed to the joint venture totaling approximately $217.7 million for BXP and $222.4 million for BPLP during the three months ended March 31, 2020, within Gains (Losses) on Sales of Real Estate on the respective Consolidated Statements of Operations, as the fair value of the real estate exceeded its carrying value (See Notes 3 and 5 to the Consolidated Financial Statements).

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.

Unconsolidated joint venture activities

On January 28, 2020, we entered into a joint venture with a third party to own, operate and develop properties at its Gateway Commons complex located in South San Francisco, California.

We will have a 50% interest in the joint venture.

See “ Dispositions” above for additional information.

On January 28, 2020, a joint venture in which we have a 55% interest commenced development of the first phase of its Platform 16 project located in San Jose, California.

The first phase of the Platform 16 development project consists of an approximately 390,000 net rentable square foot Class A office building and a below-grade parking garage.

Though the joint venture has completed site preparation work, in consultation with our partner, the joint venture has paused construction activities and it will revisit its plans once the economic impact of COVID-19 becomes clearer.

On February 20, 2020, the joint venture acquired the land underlying the ground lease for a purchase price totaling approximately $134.8 million.

The joint venture had previously made a deposit totaling $15.0 million,

which deposit was credited against the purchase price.

Platform 16 consists of a parcel of land totaling approximately 5.6 acres that is expected to support the development of approximately 1.1 million square feet of commercial office space.

On March 18, 2020, a joint venture in which we have a 50% interest extended the mortgage loan collateralized by Annapolis Junction Building Seven and Building Eight.

At the time of the extension, the outstanding balance of the loan totaled approximately $34.6 million, bore interest at a variable rate equal to LIBOR plus 2.35% per annum and matured on March 6, 2020.

The extended loan matures on June 30, 2020.

Annapolis Junction Building Seven and Building Eight are Class A office properties with approximately 127,000 and 126,000 net rentable square feet, respectively, located in Annapolis, Maryland.

Transactions completed subsequent to March 31, 2020 included the following:

On April 22, 2020, a joint venture in which we have a 20% interest extended the mortgage loan collateralized by Metropolitan Square located in Washington, DC.

At the time of the extension, the outstanding balance of the loan totaled approximately $156.4 million and was scheduled to mature on May 5, 2020.

The extended loan continues to bear interest at a fixed rate of 5.75% per annum and matures on August 5, 2020.

Metropolitan Square is a Class A office property with approximately 654,000 net rentable square feet.

Transactions during the three months ended June 30, 2020 included the following:

Capital markets

• On May 5, 2020, BPLP completed a public offering of $1.25 billion in aggregate principal amount of its 3.250% unsecured senior notes due 2031.

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The notes will mature on January 30, 2031, unless earlier redeemed.

The aggregate net proceeds from the offering were approximately $1.24 billion after deducting underwriting discounts and estimated transaction expenses.

The aggregate net proceeds from the offering were approximately $1.24 billion after deducting underwriting discounts and transaction expenses.

• On May 22, 2020, BXP renewed its “at the market” (“ATM”) stock offering program through which it may sell from time to time up to an aggregate of $600.0 million of its common stock through sales agents over a three-year peri od.

Under the ATM stock offering program, BXP may also engage in forward sale transactions with affiliates of certain sales agents for the sale of its common stock on a forward basis.

This program replaced BXP’s prior $600.0 million ATM stock offering program that was scheduled to expir e on June 2, 2020.

BXP intends to use the net proceeds from any offering for general business purposes, which may include investment opportunities and debt reduction.

No shares of common stock have been issued under this ATM stock offering program.

• On June 1, 2020, we completed and fully placed in-service 20 CityPoint, a Class A office project with approximately 211,000 net rentable square feet located in Waltham, Massachusetts that is 62% leased.

• 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.

• 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 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 containing approximately 176,000 net rentable square feet at the property.

Unconsolidated joint venture activities

• On June 9, 2020, a joint venture in which we have a 20% interest refinanced with a new lender the mortgage loan collateralized by its Metropolitan Square property located in Washington, DC.

The outstanding balance of the loan totaled approximately $155.9 million, bore interest at a fixed rate of 5.75% per annum and was scheduled to mature on August 5, 2020.

The new mortgage loan totaling $325.0 million, of which $288.0 million was advanced at closing, bears interest at a variable rate equal to LIBOR plus 4.75% per annum and matures on July 7, 2022, with two, one-year extension options, subject to certain conditions.

The joint venture entered into an interest rate cap agreement with a financial institution to limit its exposure to increases in the LIBOR portion of interest costs to 3.00% per

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annum on a notional amount of $325.0 million through July 7, 2022.

The joint venture distributed excess loan proceeds from the new mortgage loan totaling approximately $112.7 million, of which our share totaled approximately $22.5 million.

Metropolitan Square is a Class A office property with approximately 654,000 net rentable square feet.

• On Jun e 25, 2020, a joint venture in which we have a 50% interest completed the sale of Annapolis Junction Building Eight and two land parcels located in Annapolis, Maryland for a gross sale price of $47.0 million.

Net cash proceeds totaled approximately $45.8 million after the payment of transaction costs.

We recognized a gain on sale of real estate totaling approximately $5.8 million, which is included in Income from Unconsolidated Joint Ventures in the accompanying Consolidated Statements of Operations.

The joint venture distributed approximately $36.8 million of available cash and the net proceeds from the sale after the pay down of the mortgage loan, of which our share totaled approximately $18.4 million.

Annapolis Junction Building Eight is an approximately 126,000 net rentable square foot Class A office property which is vacant.

The two land parcels will support the development of approximately 300,000 square feet of commercial office space with one parcel currently containing surface parking for approximately 511 vehicles.

In conjunction with the joint venture’s sale of Annapolis Junction Building Eight, the joint venture modified the mortgage loan collateralized by Annapolis Junction Building Seven and Building Eight with the release of Annapolis Junction Building Eight as collateral under the loan in exchange for a principal pay down of approximately $16.1 million using a portion of the net proceeds from the sale of the property.

At the time of the modification, the outstanding balance of the loan totaled approximately $34.5 million, bore interest at a variable rate equal to LIBOR plus 2.35% per annum and was scheduled to mature on June 30, 2020.

The modified mortgage loan totaling approximately $18.4 million is collateralized by Annapolis Junction Building Seven, continues to bear interest at a variable rate equal to LIBOR plus 2.35% per annum and matures on March 25, 2021.

Annapolis Junction Building Seven is a Class A office property with approximately 127,000 net rentable square feet located in Annapolis, Maryland.

Transaction completed subsequent to June 30, 2020 included the following:

• On July 23, 2020, we acquired a 50% interest in a joint venture entity that owns Beach Cities Media Center, a 6.4-acre parcel of land located in El Segundo, California, for a purchase price of approximately $21.2 million.

Beach Cities Media Center is expected to support the development of approximately 275,000 square feet of Class A office space.

Critical Accounting Policies

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Management discusses and reviews our critical accounting policies and management’s judgments and estimates with BXP’s Audit Committee.

Results of Operations for the Three Months Ended March 31, 2020 and 2019

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Results of Operations for the Six Months Ended June 30, 2020 and 2019

The impact that COVID-19 has had on our business, financial position and results of operations during the second quarter of 2020 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.

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 effect on these parties could also have a material adverse effect on us.

The impact of COVID-19 on our revenue, in particular lease and parking revenue for the second quarter of 2020 and thereafter, also cannot be determined at present.

any material adverse effect on these parties could also have a material adverse effect on us.

The situation surrounding COVID-19 remains fluid, and we are actively managing our response in collaboration with tenants, government officials and joint venture partners and assessing potential impacts to our financial position and operating results, as well as potential adverse developments in our business.

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Net income attributable to Boston Properties, Inc.

common shareholders and net income attributable to Boston Properties Limited Partnership common unitholders increased approximately $399.4 million and $453.0 million for the three months ended March 31, 2020 compared to 2019 , respectively, as detailed in the following tables and for the reasons discussed below under the heading “ Comparison of the three months ended March 31, 2020 to the three months ended March 31, 2019 ” within “ Item 2—Management’s Discussion and Analysis of Financial Condition and Results of Operations .”

common shareho lders and net income attributable to Boston Properties Limited Partnership common unitholders increased approximately $501.8 million and $569.2 million for the six months ended June 30, 2020 compared to 2019, respectively, as detailed in the following tables and for the reasons discussed below under the heading “ Comparison of the six months ended June 30, 2020 to the six months ended June 30, 2019” within “ Item 2—Management’s Discussion and Analysis of Financial Condition and Results of Operations .”

The following are reconciliations of Net Income Attributable to Boston 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 three months ended March 31, 2020 and 2019 (in thousands):

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 ended June 30, 2020 and 2019 (in thousands):

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Boston Properties, Inc.

Three months ended March 31,

Six months ended June 30,

2020 2019 Increase/

Net Income Attributable to Boston Properties, Inc.

Common Shareholders

$ 764,232 $ 262,431 $ 501,801 191.21 %

Preferred dividends

5,250 5,250 — — %

Net Income Attributable to Boston Properties, Inc.

769,482 267,681 501,801 187.46 %

Net Income Attributable to Noncontrolling Interests:

Noncontrolling interest—common units of the Operating Partnership

87,525 30,627 56,898 185.78 %

Noncontrolling interests in property partnerships

18,719 36,312 (17,593) (48.45) %

Net Income 875,726 334,620 541,106 161.71 %

Other Expenses:

Interest expense

208,733 203,366 5,367 2.64 %

Impairment loss

— 24,038 (24,038) (100.00) %

Other Income:

Gains (losses) from investments in securities

Interest and other income

Gains (losses) on sales of real estate

Income (loss) from unconsolidated joint ventures

(893) 4,134 (5,027) (121.60) %

Interest and other income (loss)

4,322 7,368 (3,046) (41.34) %

Gains on sales of real estate

613,932 781 613,151 78,508.45 %

Income from unconsolidated joint ventures

1,463 48,177 (46,714) (96.96) %

Other Expenses:

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Transaction costs

947 877 70 7.98 %

Payroll and related costs from management services contracts

5,721 5,798 (77) (1.33) %

General and administrative expense

74,197 76,833 (2,636) (3.43) %

Other Revenue:

Direct reimbursements of payroll and related costs from management services contracts

5,721 5,798 (77) (1.33) %

Development and management services revenue

16,004 19,263 (3,259) (16.92) %

Net Operating Income $ 874,057 $ 902,016 $ (27,959) (3.10) %

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Boston Properties Limited Partnership

Three months ended March 31,

Six months ended June 30,

2020 2019 Increase/

Net Income Attributable to Boston Properties Limited Partnership Common Unitholders

$ 868,308 $ 299,097 $ 569,211 190.31 %

Preferred distributions

5,250 5,250 — — %

Net Income Attributable to Boston Properties Limited Partnership 873,558 304,347 569,211 187.03 %

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Noncontrolling interests in property partnerships

18,719 36,312 (17,593) (48.45) %

Net Income 892,277 340,659 551,618 161.93 %

Other Expenses:

Interest expense

208,733 203,366 5,367 2.64 %

Impairment loss

— 22,272 (22,272) (100.00) %

Other Income:

Gains (losses) from investments in securities

Interest and other income

Gains (losses) on sales of real estate

Income (loss) from unconsolidated joint ventures

(893) 4,134 (5,027) (121.60) %

Interest and other income (loss)

4,322 7,368 (3,046) (41.34) %

Gains on sales of real estate

626,895 930 625,965 67,308.06 %

Income from unconsolidated joint ventures

1,463 48,177 (46,714) (96.96) %

Other Expenses:

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Transaction costs

947 877 70 7.98 %

Payroll and related costs from management services contracts

5,721 5,798 (77) (1.33) %

General and administrative expense

74,197 76,833 (2,636) (3.43) %

Other Revenue:

Direct reimbursements of payroll and related costs from management services contracts

5,721 5,798 (77) (1.33) %

Development and management services revenue

16,004 19,263 (3,259) (16.92) %

Net Operating Income $ 874,057 $ 902,016 $ (27,959) (3.10) %

At March 31, 2020 and 2019 , we owned or had interests in a portfolio of 196 commercial real estate properties (in each case, the “Total Property Portfolio”).

At June 30, 2020 and 2019, we owned or had interests in a portfolio of 195 and 193 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 months ended March 31, 2020 and 2019 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.

Therefore, the comparison of operating results for the three and six months ended June 30, 2020 and 2019 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.

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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.

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Net operating income (“NOI”) is a non-GAAP financial measure equal to net income attributable to Boston Properties, Inc.

common shareholders and net income attributable to Boston Properties Limited Partnership common unitholders, as applicable, the most directly comparable GAAP financial measures, plus (1) preferred dividends/distributions, net income attributable to noncontrolling interests, interest expense, impairment loss, 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, gains (losses) 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.

common shareholders and net income attributable to Boston Properties Limited Partnership common unitholders, as applicable, the most directly comparable GAAP financial measures, plus (1) preferred dividends/distributions, net income attributable to noncontrolling interests, interest expense, impairment loss, 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 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 to Boston Properties, Inc.

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For additional information see the Explanatory Note that follows the cover page of this Quarterly Report on Form 10-Q.

Comparison of the three months ended March 31, 2020 to the three months ended March 31, 2019

Comparison of the six months ended June 30, 2020 to the six months ended June 30, 2019

The table below shows selected operating information for the Same Property Portfolio and the Total Property Portfolio.

The Same Property Portfolio consists of 139 properties totaling approximately 38.5 million net rentable square feet, excluding unconsolidated joint ventures.

The Same Property Portfolio includes properties acquired or placed in-service on or prior to January 1, 2019 and owned and in service through March 31, 2020 .

The Total Property Portfolio includes the effects of the other properties either acquired, placed in-service, in development or redevelopment after January 1, 2019 or disposed of on or prior to March 31, 2020 .

This table includes a reconciliation from the Same Property Portfolio to the Total Property Portfolio by also providing information for the three months ended March 31, 2020 and 2019 with respect to the properties that were acquired, placed in-service, in development or redevelopment or sold.

Same Property Portfolio

Acquired Portfolio

The Same Property Portfolio includes properties acquired or placed in-service on or prior to January 1, 2019 and owned and in service through June 30, 2020.

This table includes a reconciliation from the Same Property Portfolio to the Total Property Portfolio by also providing information for the six months ended June 30, 2020 and 2019 with respect to the properties that were acquired, placed in-service, in development or redevelopment or sold.

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Same Property Portfolio Properties Acquired Portfolio Properties

Placed In-Service

Properties in

Development or

Redevelopment

Properties Sold Portfolio

Total Property Portfolio

Portfolio Properties in Development or Redevelopment Portfolio Properties Sold Portfolio Total Property Portfolio

2020 2019 Increase/

Change 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 Increase/

(dollars in thousands)

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Lease Revenue (Excluding Termination Income)

$ 1,257,343 $ 1,280,730 $ (23,387) (1.83) % $ 6,893 $ — $ 28,326 $ — $ 1,224 $ 5,359 $ 21,698 $ 45,061 $ 1,315,484 $ 1,331,150 $ (15,666) (1.18) %

Termination Income

5,648 11,527 (5,879) (51.00) % — — — — — — 59 318 5,707 11,845 (6,138) (51.82) %

Lease Revenue

1,262,991 1,292,257 (29,266) (2.26) % 6,893 — 28,326 — 1,224 5,359 21,757 45,379 1,321,191 1,342,995 (21,804) (1.62) %

Parking and Other

36,128 49,329 (13,201) (26.76) % 1 — 1,058 — 12 112 932 1,514 38,131 50,955 (12,824) (25.17) %

Total Rental Revenue (1) 1,299,119 1,341,586 (42,467) (3.17) % 6,894 — 29,384 — 1,236 5,471 22,689 46,893 1,359,322 1,393,950 (34,628) (2.48) %

Real Estate Operating Expenses 476,109 485,648 (9,539) (1.96) % 2,852 — 4,931 — 2,697 4,528 8,135 17,415 494,724 507,591 (12,867) (2.53) %

Net Operating Income, Excluding Residential and Hotel

Net Operating Income (Loss), Excluding Residential and Hotel

823,010 855,938 (32,928) (3.85) % 4,042 — 24,453 — (1,461) 943 14,554 29,478 864,598 886,359 (21,761) (2.46) %

Residential Net Operating Income (2)

Hotel Net Operating Income (2)

Net Operating Income

11,329 8,818 2,511 28.48 % — — — — — — — — 11,329 8,818 2,511 28.48 %

Hotel Net Operating Income (Loss) (2) (1,870) 6,839 (8,709) (127.34) % — — — — — — — — (1,870) 6,839 (8,709) (127.34) %

Net Operating Income (Loss)

$ 832,469 $ 871,595 $ (39,126) (4.49) % $ 4,042 $ — $ 24,453 $ — $ (1,461) $ 943 $ 14,554 $ 29,478 $ 874,057 $ 902,016 $ (27,959) (3.10) %

_______________

(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.

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(2) For a detailed discussion of NOI, including the reasons management believes NOI is useful to investors, see page 57.

Residential Net Operating Income for the three months ended March 31, 2020 and 2019 is comprised of Residential Revenue of $9,956 and $7,715 less Residential Expenses of $4,064 and $3,774 , respectively.

Hotel Net Operating Income for the three months ended March 31, 2020 and 2019 is comprised of Hotel Revenue of $6,825 and $8,938 less Hotel Expenses of $6,821 and $7,863 , respectively, per the Consolidated Statements of Operations.

Residential Net Operating Income for the six months ended June 30, 2020 and 2019 is comprised of Residential Revenue of $19,358 and $16,714 less Residential Expenses of $8,029 and $7,896, respectively.

Hotel Net Operating Income for the six months ended June 30, 2020 and 2019 is comprised of Hotel Revenue of $6,924 and $23,782 less Hotel Expenses of $8,794 and $16,943, respectively, per the Consolidated Statements of Operations.

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Same Property Portfolio

Lease Revenue (Excluding Termination Income)

Lease revenue from the Same Property Portfolio increased by approximately $27.8 million for the three months ended March 31, 2020 compared to 2019 .

The increase was a result of our average revenue per square foot increasing by approximately $2.32, contributing approximately $22.4 million, and an approximately $5.4 million increase due to our average occupancy increasing from 93.6% to 94.4%.

Upon the adoption of Accounting Standards Codification (“ASC”) 842 - Leases, any write-off for bad debt, including accrued rent, will be shown as a reduction to lease revenue.

However, the degree to which our tenants’ businesses are negatively impacted by COVID-19 could result in a reduction in our cash flows or require that we write-off a tenant’s accrued rent balance and this could have a material adverse effect on lease revenue.

Lease revenue from the Same Property Portfolio decreased by approximately $23.4 million for the six months ended June 30, 2020 compared to 2019.

Approximately $53.3 million of the decrease was related to write-offs, which are discussed below.

The decrease was offset by an increase in our average revenue per square foot by approximately $1.35, contributing approximately $27.3 million and an approximately $2.6 million increase due to our average occupancy increasing from 93.80% to 93.99%.

Under Accounting Standards Codification (“ASC”) 842 - “Leases” (“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 ended June 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.

In addition, as a result of COVID-19, for the Same Property Portfolio, during the second quarter of 2020, we executed lease modification agreements for approximately 2.4 million square feet and granted approximately $25.0 million of cash rent abatements and deferrals, of which approximately $14.0 million related to rental charges for the second quarter of 2020.

Although some of the lease modifications were deferrals under which we expect the tenant will pay us in full primarily in 2021, the majority of the lease modifications involved extending the lease term (in some cases for a year or more).

As a result of the lease modification agreements, that extended the lease term we expect to see an increase in cash rent received in the future.

In April 2020, the Financial Accounting Standards Board (“FASB”) staff issued a question and answer document (“Lease Modification Q & A”) related to the application of lease accounting guidance for lease concessions, in accordance with ASC 842, as a result of COVID-19.

We did not utilize the guidance provided in the Lease Modification Q & A and instead elected to continue to account for the COVID-19 lease concessions on a lease-by-lease basis in accordance with the existing lease modification accounting framework (See Note 4 to the Consolidated Financial Statements).

As such, our accrued rent balances, which are a component of lease revenue, include the accounting impact (adjusted for write-offs) from the rent abatements, deferrals and extensions that were executed during the second quarter of 2020.

We expect to continue to execute lease modification agreements as a result of COVID-19.

However, the degree to which our tenants’ businesses are negatively impacted by COVID-19 could leave some tenants still unable to meet their rental payment obligations and result in a reduction in our cash flows.

We may write off additional accrued rent or accounts receivable balances and this could have a material adverse effect on lease revenue.

“Risk Factors” for additional details .

Termination Income

Termination income decreased by approximately $4.6 million for the three months ended March 31, 2020 compared to 2019 .

Termination income for the three months ended March 31, 2020 related to 15 tenants across the Same Property Portfolio and totaled approximately $2.4 million , which was primarily related to tenants that terminated leases early in New York City and the Boston region.

Termination income for the three months ended March 31, 2019 related to 11 tenants across the Same Property Portfolio and totaled approximately $7.0 million, of which approximately $4.9 million is from two tenants that terminated leases early at 399 Park Avenue in New York City.

Termination income decreased by approximately $5.9 million for the six months ended June 30, 2020 compared to 2019.

Termination income for the six months ended June 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 in New York City and the Boston region.

Termination income for the six months ended June 30, 2019 related to 19 tenants across the Same Property Portfolio and totaled approximately $11.5 million, of which approximately $6.8 million is from two tenants that terminated leases early at 399 Park Avenue in New York City.

Parking and Other Revenue

Parking and other revenue decreased by approximately $0.9 million for the three months ended March 31, 2020 compared to 2019 , primarily due to a decrease in transient parking.

Due to COVID-19, we expect to see a decrease in parking revenue, for fiscal year 2020, as a result of mandatory business closures and “stay-at-home” orders.

“Risk Factors” for additional details.

Parking revenue generally consists of two primary components:

revenue from monthly passes and hourly/daily parking revenue.

During 2019, total parking revenue was approximately $100 million and our share of total parking revenue from unconsolidated joint ventures was approximately $13 million.

Approximately $40 million of this aggregate amount of consolidated and unconsolidated parking revenue was derived from hourly/daily parking.

Parking and other revenue decreased by approximately $13.2 million for the six months ended June 30, 2020 compared to 2019.

Parking revenue decreased by approximately $14.1 million while other revenue increased by approximately $0.9 million.

The decrease in parking revenue was primarily due to a decrease in transient and monthly parking.

During the second quarter of 2020, with stay-at-home orders in effect, business closures and people working remotely in a majority of regions in which our properties are located, we generated minimal hourly/daily parking

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revenue and this trend may continue for as long as these conditions exist.

However, as these conditions shift, and “stay-at-home” orders are partially or fully lifted, businesses begin to open and people begin to return to working in an office setting, we expect to and have begun to see an increase in parking revenue.

As a result, for the six months ended June 30, 2020, transient and monthly parking decreased by approximately $9.8 million and $2.3 million, respectively.

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 $6.1 million , or 2.5% , for the three months ended March 31, 2020 compared to 2019 , due primarily to increases in real estate taxes and other real estate operating expenses of approximately $5.3 million, or 4.2%, and $0.8 million, or 0.7%, respectively.

The increase in real estate taxes was primarily experienced in the New York CBD properties.

Real estate operating expenses from the Same Property Portfolio decreased by approximately $9.5 million, or 2.0%, for the six months ended June 30, 2020 compared to 2019, due primarily to a decrease in utility expense of approximately $9.9 million, or 18.6%, partially offset by an increase in other real estate operating expenses of $0.4 million, or 0.1%.

The decrease in utility expense was experienced across the portfolio and was primarily driven by a decrease in physical tenant occupancy, which led to lower demand for electricity and HVAC.

Properties Acquired Portfolio

The table below lists the properties acquired between January 1, 2019 and March 31, 2020 .

Rental revenue and real estate operating expenses increased by approximately $3.6 million and $1.5 million , respectively, for the three months ended March 31, 2020 compared to 2019 , as detailed below.

Rental Revenue

Real Estate Operating Expenses

Date acquired

The table below lists the properties acquired between January 1, 2019 and June 30, 2020.

Rental revenue and real estate operating expenses increased by approximately $6.9 million and $2.9 million, respectively, for the six months ended June 30, 2020 compared to 2019, as detailed below.

Square Feet Rental Revenue Real Estate Operating Expenses

Name Date acquired 2020 2019 Change 2020 2019 Change

(dollars in thousands)

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August 27, 2019 392,568 $ 6,878 $ — $ 6,878 $ 2,851 $ — $ 2,851

Fourth + Harrison (1) June 26, 2020 N/A 16 — 16 1 — 1

392,568 $ 6,894 $ — $ 6,894 $ 2,852 $ — $ 2,852

_______________

(1) Located at 777 Harrison Street in San Francisco, California (known as Fourth + Harrison and formerly known as 425 Fourth Stree t) .

Properties Placed In-Service Portfolio

The table below lists the properties that were placed in-service or partially placed in-service between January 1, 2019 and March 31, 2020 .

Rental revenue and real estate operating expenses from our Properties Placed In-Service Portfolio increased by approximately $13.4 million and $2.0 million , respectively, for the three months ended March 31, 2020 compared to 2019 , as detailed below.

Quarter Initially Placed In-Service

Quarter Fully Placed In-Service

Rental Revenue

Real Estate Operating Expenses

The table below lists the properties that were placed in-service or partially placed in-service between January 1, 2019 and June 30, 2020.

Rental revenue and real estate operating expenses from our Properties Placed In-Service Portfolio increased by approximately $29.4 million and $4.9 million, respectively, for the six months ended June 30, 2020 compared to 2019, as detailed below.

Quarter Initially Placed In-Service Quarter Fully Placed In-Service Rental Revenue Real Estate Operating Expenses

Name Square Feet 2020 2019 Change 2020 2019 Change

(dollars in thousands)

Second Quarter, 2019

Fourth Quarter, 2019

20 CityPoint Second Quarter, 2019 Second Quarter, 2020 211,476 $ 3,624 $ — $ 3,624 $ 1,322 $ — $ 1,322

Fourth Quarter, 2019 Fourth Quarter, 2019 488,862 21,817 — 21,817 2,333 — 2,333

17Fifty Presidents Street

First Quarter, 2020

First Quarter, 2020 First Quarter, 2020 275,809 3,943 — 3,943 1,276 — 1,276

976,147 $ 29,384 $ — $ 29,384 $ 4,931 $ — $ 4,931

Properties in Development or Redevelopment Portfolio

The table below lists the properties that were in development or redevelopment between January 1, 2019 and March 31, 2020 .

Rental revenue and real estate operating expenses from our Properties in Development or Redevelopment Portfolio decreased by approximately $2.2 million and $0.8 million , respectively, for the three months ended March 31, 2020 compared to 2019 .

Rental Revenue

Real Estate Operating Expenses

Date Commenced Development / Redevelopment

The table below lists the properties that were in development or redevelopment between January 1, 2019 and June 30, 2020.

Rental revenue and real estate operating expenses from our Properties in Development or Redevelopment Portfolio decreased by approximately $4.2 million and $1.8 million, respectively, for the six months ended June 30, 2020 compared to 2019.

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Rental Revenue Real Estate Operating Expenses

Name Date Commenced Development / Redevelopment Square Feet 2020 2019 Change 2020 2019 Change

(dollars in thousands)

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325 Main Street (2)

May 9, 2019 115,000 36 (753) 789 74 1,040 (966)

200 West Street (3)

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596,000 $ 1,236 $ 5,471 $ (4,235) $ 2,697 $ 4,528 $ (1,831)

Real estate operating expenses for the three months ended March 31, 2020 includes approximately $0.1 million of demolition costs.

Rental revenue and real estate operating expenses for the three months ended March 31, 2019 are related to the entire building.

_______________

(1) Rental revenue for the six months ended June 30, 2020 includes an approximately $2.9 million write-off of accrued rent and accounts receivable balances for a terminated tenant.

(2) Rental revenue for the six months ended June 30, 2019 includes the acceleration and write-off of accrued rent associated with the early termination of a lease at the property.

Real estate operating expenses for the six months ended June 30, 2020 and 2019 includes approximately $0.1 million and $0.4 million of demolition costs, respectively.

(3) Rental revenue and real estate operating expenses for the six months ended June 30, 2019 are related to the entire building.

The redevelopment is a conversion of a 126,000 square foot portion of the property to laboratory space.

Properties Sold Portfolio

The table below lists the properties we sold between January 1, 2019 and March 31, 2020 .

Rental revenue and real estate operating expenses from our Properties Sold Portfolio decreased by approximately $8.9 million and $3.7 million , respectively, for the three months ended March 31, 2020 compared to 2019 , as detailed below.

Rental Revenue

Real Estate Operating Expenses

Property Type

The table below lists the properties we sold between January 1, 2019 and June 30, 2020.

Rental revenue and real estate operating expenses from our Properties Sold Portfolio decreased by approximately $24.2 million and $9.3 million, respectively, for the six months ended June 30, 2020 compared to 2019, as detailed below.

Rental Revenue Real Estate Operating Expenses

Name Date Sold Property Type Square Feet 2020 2019 Change 2020 2019 Change

(dollars in thousands)

2600 Tower Oaks Boulevard

January 24, 2019

One Tower Center

164 Lexington Road

June 28, 2019

Washingtonian North

December 20, 2019

January 24, 2019 Office 179,000 $ — $ 159 $ (159) $ — $ 189 $ (189)

One Tower Center June 3, 2019 Office 410,000 — 2,100 (2,100) — 2,080 (2,080)

164 Lexington Road June 28, 2019 Office 64,000 — — — — 82 (82)

Washingtonian North December 20, 2019 Land N/A — — — — 76 (76)

601, 611 and 651 Gateway (1)

January 28, 2020

January 28, 2020 Office 768,000 1,946 14,546 (12,600) 881 4,971 (4,090)

New Dominion Technology Park

February 20, 2020

For additional information on the sale of the above properties and land parcel refer to “Results of Operations—Other Income and Expense Items - Gains (Losses) on Sales of Real Estate” within “Item 2—Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

February 20, 2020 Office 493,000 2,551 9,780 (7,229) 772 2,910 (2,138)

Capital Gallery (2) June 25, 2020 Office 631,000 18,192 20,308 (2,116) 6,482 7,107 (625)

2,545,000 $ 22,689 $ 46,893 $ (24,204) $ 8,135 $ 17,415 $ (9,280)

_______________

(1) Rental revenue for the six months ended June 30, 2019 includes approximately $0.5 million of termination income (See Notes 3 and 5 to the Consolidated Financial Statements).

(2) We completed the sale of a portion of our Capital Gallery property located in Washington, DC.

Capital Gallery is an approximately 631,000 net rentable square foot Class A office property.

The portion sold was comprised of approximately 455,000 net rentable square feet of commercial office space.

We continue to own the land, underground parking garage and remaining commercial office and retail space.

The amounts shown represent the entire property and not just the portion sold (See Note 3 to the Consolidated Financial Statements).

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 increased by approximately $2.0 million for the three months ended March 31, 2020 compared to 2019 .

The following reflects our occupancy and rate information for The Lofts at Atlantic Wharf, The Avant at Reston Town Center, Signature at Reston and Proto Kendall Square for the three months ended March 31, 2020 and 2019 .

The Lofts at Atlantic Wharf

The Avant at Reston Town Center

Signature at Reston

Proto Kendall Square

Net operating income for our residential same properties increased by approximately $2.5 million for the six months ended June 30, 2020 compared to 2019.

The following reflects our occupancy and rate information for The Lofts at Atlantic Wharf, The Avant at Reston Town Center, Signature at Reston and Proto Kendall Square for the six months ended June 30, 2020 and 2019.

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The Lofts at Atlantic Wharf The Avant at Reston Town Center Signature at Reston Proto Kendall Square

2020 2019 Change (%) 2020 2019 Change (%) 2020 2019 Change (%) 2020 2019 Change (%)

Average Monthly Rental Rate (1)

$ 4,520 $ 4,457 1.4 % $ 2,395 $ 2,379 0.7 % $ 2,331 $ 2,319 0.5 % $ 2,959 $ 2,785 6.2 %

Average Rental Rate Per Occupied Square Foot

$ 5.02 $ 4.89 2.7 % $ 2.63 $ 2.60 1.2 % $ 2.48 $ 2.52 (1.6) % $ 5.44 $ 5.22 4.2 %

Average Physical Occupancy (2)

93.4 % 94.8 % (1.5) % 90.5 % 92.3 % (2.0) % 81.9 % 58.8 % 39.3 % 94.0 % 71.1 % 32.2 %

Average Economic Occupancy (3)

93.0 % 95.2 % (2.3) % 89.3 % 91.5 % (2.4) % 76.8 % 52.5 % 46.3 % 93.5 % 67.1 % 39.3 %

_______________

(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.

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Hotel Net Operating Income

Net operating income for the Boston Marriott Cambridge hotel property decreased by approximately $1.1 million for the three months ended March 31, 2020 compared to 2019 .

The following reflects our occupancy and rate information for the Boston Marriott Cambridge hotel for the three months ended March 31, 2020 and 2019 .

Average daily rate

As a result of COVID-19, the Boston Marriott Cambridge was closed in March 2020 and is running at a monthly deficit.

We do not know when the hotel will re-open and its closure will have a material adverse effect on the hotel’s contribution to our results of operations during the closure.

Net operating income for the Boston Marriott Cambridge hotel property decreased by approximately $8.7 million for the six months ended June 30, 2020 compared to 2019.

As a result of COVID-19, we closed the Boston Marriott Cambridge in March 2020 and it did not re-open during the second quarter of 2020.

We do not know when the hotel will re-open.

The hotel is operating at a monthly deficit and its continued closure has had and will continue to have, a material adverse effect on the hotel’s contribution to our results of operations during the closure.

"Risk Factors" for additional details.

The following reflects our occupancy and rate information for the Boston Marriott Cambridge hotel for the six months ended June 30, 2020 and 2019.

Occupancy 29.8 % 84.7 % (64.8) %

Average daily rate $ 211.29 $ 272.65 (22.5) %

REVPAR $ 62.98 $ 230.97 (72.7) %

Other Operating Revenue and Expense Items

Development and Management Services Revenue

Development and management services revenue decreased by approximately $1.4 million for the three months ended March 31, 2020 compared to 2019 .

Development and management services revenue decreased by approximately $3.3 million for the six months ended June 30, 2020 compared to 2019.

Development services revenue decreased by approximately $3.9 million while management services revenue increased by approximately $0.6 million.

The decrease in development services revenue was primarily related to a decrease of approximately $2.7 million in development fees and fees associated with tenant improvement projects earned in the Boston region offset by an increase of $0.6 million in development fees earned in the San Francisco region and an increase of $0.6 million in development fees associated with a tenant improvement project earned in the Washington, DC region.

The increase in management services revenue was primarily related to an increase in property management fees earned from the Los Angeles region.

The decrease in development services revenue was primarily related to a decrease of approximately $4.5 million in development fees and fees associated with tenant improvement projects earned in the Boston and New York regions offset by an increase of approximately $0.6 million in development fees earned in the San Francisco region.

The increase in management services revenue was primarily related to an increase in property management fees earned from our Gateway Commons unconsolidated joint venture, which was deconsolidated on January 28, 2020.

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General and Administrative Expense

General and administrative expense decreased by approximately $5.3 million for the three months ended March 31, 2020 compared to 2019 primarily due to a decrease in compensation expense.

The decrease in compensation expense was related to an approximately $8.4 million decrease in the value of our deferred compensation plan partially offset by an approximately $3.1 million increase in other compensation expense, which includes the expense associated with our equity compensation programs, which includes the acceleration of amortization that occurred for employees that reached a certain age and number of years of service and therefore became vested in these awards sooner.

General and administrative expense decreased by approximately $2.6 million for the six months ended June 30, 2020 compared to 2019 primarily due to a decrease in compensation expense of approximately $3.2 million, partially offset by an approximately $0.6 million increase in other general and administrative expenses.

The decrease in compensation expense was related to (1) an approximately $5.0 million decrease in the value of our deferred compensation plan, (2) an approximately $0.8 million decrease in health care costs and (3) an approximately $0.7 million increase in capitalized wages, which decreases general and administrative expenses.

These increases were partially offset by an approximately $3.3 million increase in other compensation expense, which includes the expense associated with our equity compensation programs, which includes the acceleration of amortization that occurred for employees that reached a certain age and number of years of service and therefore became vested in these awards sooner.

The increase in other general and administrative expenses was primarily related to the write-off of the remaining fees associated with BXP’s prior ATM stock offering program that was scheduled to expire on June 2, 2020 and an increase in other 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 March 31, 2020 and 2019 were approximately $2.8 million and $2.9 million, respectively.

Capitalized wages for the six months ended June 30, 2020 and 2019 were approximately $6.2 million and $5.5 million, respectively.

These costs are not included in the general and administrative expenses discussed above.

Transaction Costs

Transaction costs increased by approximately $0.2 million for the three months ended March 31, 2020 compared to 2019 due primarily to transaction costs related to the pursuit and formation of new joint ventures.

Transaction costs increased by approximately $70,000 for the six months ended June 30, 2020 compared to 2019 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.

1 unchanged sentence

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

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.

1 unchanged sentence

Boston Properties, Inc.

Depreciation and amortization expense increased by approximately $6.5 million for the three months ended March 31, 2020 compared to 2019 , as detailed below.

Depreciation and Amortization for the three months ended March 31,

Depreciation and amortization expense increased by approximately $7.3 million for the six months ended June 30, 2020 compared to 2019, as detailed below.

Portfolio Depreciation and Amortization for the six months ended June 30,

2020 2019 Change

(in thousands)

4 unchanged sentences

Properties Sold Portfolio 3,285 8,454 (5,169)

$ 349,282 $ 342,005 $ 7,277

_______________

(1) On May 9, 2019, we commenced development of 325 Main Street in Cambridge, Massachusetts.

As a result, during the six months ended June 30, 2019, we recorded approximately $9.9 million of accelerated depreciation expense for the demolition of the building, of which approximately $0.4 million related to the step-up of real estate assets.

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Boston Properties Limited Partnership

Depreciation and amortization expense increased by approximately $6.6 million for the three months ended March 31, 2020 compared to 2019 , as detailed below.

Depreciation and Amortization for the three months ended March 31,

Depreciation and amortization expense increased by approximately $7.8 million for the six months ended June 30, 2020 compared to 2019, as detailed below.

Portfolio Depreciation and Amortization for the six months ended June 30,

2020 2019 Change

(in thousands)

4 unchanged sentences

Properties Sold Portfolio 3,285 8,454 (5,169)

$ 345,694 $ 337,881 $ 7,813

_______________

(1) On May 9, 2019, we commenced development of 325 Main Street in Cambridge, Massachusetts.

As a result, during the six months ended June 30, 2019, we recorded approximately $9.5 million of accelerated depreciation expense for the demolition of the building.

Direct Reimbursements of Payroll and Related Costs From Management Services Contracts and Payroll and Related Costs From Management Service Contracts

2 unchanged sentences

Other Income and Expense Items

Income (Loss) from Unconsolidated Joint Ventures

For the three months ended March 31, 2020 compared to 2019 , income (loss) from unconsolidated joint ventures decreased by approximately $0.6 million primarily due to the addition of our Gateway Commons joint venture and the partial placing in-service of the Hub50House joint venture in South San Francisco, CA and Boston, MA, respectively.

These joint ventures reduced our net income by approximately $1.4 million for the three months ended March 31, 2020.

At March 31, 2020, the Hub50House was only 28% leased and is not expected to be stabilized until the first quarter of 2022.

Income from Unconsolidated Joint Ventures

For the six months ended June 30, 2020 compared to 2019, income from unconsolidated joint ventures decreased by approximately $46.7 million primarily due to an approximately $47.8 million gain on sale of real estate from the sale of 540 Madison Avenue during the six months ended June 30, 2019 and the resulting loss of income thereafter, along with the addition of our Gateway Commons joint venture and the partial placing in-service of the Hub50House joint venture in South San Francisco, CA and Boston, MA, respectively.

These joint ventures reduced our net income by approximately $4.0 million for the six months ended June 30, 2020.

At June 30, 2020, the Hub50House was only 35% leased and we do not expect it to be stabilized until the first quarter of 2022.

The decrease in net income from the Gateway Commons joint venture was primarily related to depreciation and amortization.

These decreases were offset by an approximately $0.8 million increase related to our share of net income from our other unconsolidated joint ventures.

Gains (Losses) on Sales of Real Estate

These decreases were partially offset by an approximately $5.8 million gain on sale of real estate from the sale of Annapolis Junction Building Eight and two land parcels during the six months ended June 30, 2020 (See Note 5 to the Consolidated Financial Statements).

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 six months ended June 30, 2020, for our unconsolidated joint ventures, we wrote off our share of the accrued rent and accounts receivable balances of approximately $0.7 million and $1.0 million, respectively.

In addition, as a result of COVID-19, for properties owned by our unconsolidated joint ventures, during the second quarter of 2020, the joint ventures executed lease modification agreements for approximately 674,000 square feet.

As a result of these lease modification agreements, our share of the total cash rent abatements and deferrals granted was approximately $5.3 million, of which approximately $2.5 million was related to rental charges for the second quarter of 2020.

Although some of the lease modifications were deferrals where we expect the tenant will pay the joint venture in full primarily in 2021, the majority of the lease modifications involved extending the lease term (in some cases for longer than a year).

As a result of the lease modification agreements that extended the lease term, we expect to see an increase in cash rent received in the future.

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In April 2020, the FASB staff issued the Lease Modification Q & A related to the application of lease accounting guidance for lease concessions, in accordance with ASC 842, as a result of COVID-19.

As such, the accrued rent balances, which are a component of lease revenue, include the accounting impact (adjusted for write-offs) from the rent abatements, deferrals and extensions that were executed during the second quarter of 2020.

The joint ventures expect to continue to execute lease modification agreements as a result of COVID-19.

However, the degree to which tenants’ businesses are negatively impacted by COVID-19 could leave some tenants still unable to meet their rental payment obligations and result in a reduction in cash flows.

Our unconsolidated joint ventures may write-off additional accrued rent or accounts receivable balances and this could have a material adverse effect on lease revenue.

“Risk Factors” for additional details .

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.

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Boston Properties, Inc.

Gains (losses) on sales of real estate increased by approximately $411.1 million for the three months ended March 31, 2020 compared to 2019 , as detailed below.

Property Type

Net Cash Proceeds

Gain (Loss) on Sale of Real Estate

Gains on sales of real estate increased by approximately $613.2 million for the six months ended June 30, 2020 compared to 2019, as detailed below.

Name Date Sold Property Type Square Feet Sale Price Net Cash Proceeds Gain (Loss) on Sale of Real Estate

(dollars in millions)

601, 611 and 651 Gateway

January 28, 2020

January 28, 2020 Office 768,000 $ 350.0 $ — $ 217.7 (1)

New Dominion Technology Park

February 20, 2020

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 (2)

$ 859.7 $ 500.9 $ 613.8 (3)

2600 Tower Oaks Boulevard

January 24, 2019

January 24, 2019 Office 179,000 $ 22.7 $ 21.4 $ (0.6)

One Tower Center June 3, 2019 Office 410,000 38.0 36.6 (0.8)

164 Lexington Road June 28, 2019 Office 64,000 4.0 3.8 2.5

$ 64.7 $ 61.8 $ 1.1 (4)

(1) On January 28, 2020, we entered into a joint venture with a third party to own, operate and develop properties at our Gateway Commons complex located in South San Francisco.

We contributed our 601, 611 and 651 Gateway properties and development rights with an agreed upon value aggregating approximately $350.0 million for our 50% interest in the joint venture (See Notes 3 and 5 to the Consolidated Financial Statements).

Excludes approximately $0.1 million of gains on sales of real estate recognized during the three months ended March 31, 2020 related to gain amounts from sales of real estate occurring in the prior year.

Excludes approximately $0.3 million of losses on sales of real estate recognized during the three months ended March 31, 2019 related to loss amounts from sales of real estate occurring in prior years.

(2) We completed the sale of a portion of our Capital Gallery property located in Washington, DC.

Capital Gallery is an approximately 631,000 net rentable square foot Class A office property.

The portion sold was comprised of approximately 455,000 net rentable square feet of commercial office space.

We continue to own the land, underground parking garage and remaining commercial office and retail space (See Note 3 to the Consolidated Financial Statements).

(3) Excludes approximately $0.1 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.

(4) Excludes approximately $0.3 million of losses on sales of real estate recognized during the six months ended June 30, 2019 related to loss amounts from sales of real estate occurring in prior years.

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Boston Properties Limited Partnership

Gains (losses) on sales of real estate increased by approximately $420.6 million for the three months ended March 31, 2020 compared to 2019 , as detailed below.

Property Type

Net Cash Proceeds

Gain (Loss) on Sale of Real Estate

Gains on sales of real estate increased by approximately $626.0 million for the six months ended June 30, 2020 compared to 2019, as detailed below.

Name Date Sold Property Type Square Feet Sale Price Net Cash Proceeds Gain (Loss) on Sale of Real Estate

(dollars in millions)

601, 611 and 651 Gateway

January 28, 2020

January 28, 2020 Office 768,000 $ 350.0 $ — $ 222.4 (1)

New Dominion Technology Park

February 20, 2020

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 (2)

$ 859.7 $ 500.9 $ 626.7 (3)

2600 Tower Oaks Boulevard

January 24, 2019

January 24, 2019 Office 179,000 $ 22.7 $ 21.4 $ (0.6)

One Tower Center

June 3, 2019 Office 410,000 38.0 36.6 (0.8)

164 Lexington Road

June 28, 2019 Office 64,000 4.0 3.8 2.6

$ 64.7 $ 61.8 $ 1.2 (4)

(1) On January 28, 2020, we entered into a joint venture with a third party to own, operate and develop properties at our Gateway Commons complex located in South San Francisco.

Interest and Other Income

Interest and other income decreased by approximately $0.7 million for the three months ended March 31, 2020 compared to 2019 due primarily to a decrease in interest rates.

(2) We completed the sale of a portion of our Capital Gallery property located in Washington, DC.

Capital Gallery is an approximately 631,000 net rentable square foot Class A office property.

The portion sold was comprised of approximately 455,000 net rentable square feet of commercial office space.

We continue to own the land, underground parking garage and remaining commercial office and retail space (See Note 3 to the Consolidated Financial Statements).

Interest and Other Income (Loss)

Interest and other income (loss) decreased by approximately $3.0 million for the six months ended June 30, 2020 compared to 2019.

Interest income and the credit loss allowance decreased by approximately $2.5 million and $0.5 million, respectively.

The decrease in interest income is primarily due to a decrease in interest rates.

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 a credit loss allowance related to our outstanding (1) related party note receivable, (2) notes receivable and (3) off-balance sheet credit exposures (See Note 2 to the Consolidated Financial Statements).

Gains (Losses) from Investments in Securities

Gains (losses) from investments in securities for the three months ended March 31, 2020 and 2019 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 non-employee directors.

Gains (losses) from investments in securities for the six months ended June 30, 2020 and 2019 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 non-employee directors under our deferred compensation plans with equivalent assets and thereby limit our market risk.

The performance of these investments is recorded as gains (losses) from investments in securities.

During the three months ended March 31, 2020 and 2019 , we recognized gains (losses) of approximately $(5.4) million and $3.0 million , respectively, on these investments.

By comparison, our general and administrative expense increased (decreased) by approximately $(5.4) million and $3.0 million during the three months ended March 31, 2020 and 2019 , 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 non-employee directors of BXP participating in the plans.

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

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investments is recorded as gains (losses) from investments in securities.

During the six months ended June 30, 2020 and 2019, we recognized gains (losses) of approximately $(0.9) million and $4.1 million, respectively, on these investments.

By comparison, our general and administrative expense increased (decreased) by approximately $(0.9) million and $4.1 million during the six months ended June 30, 2020 and 2019, 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.

Impairment Loss

1 unchanged sentence

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.

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One Tower Center is an approximately 410,000 net rentable square foot Class A office property.

We did not have any impairments during the six months ended June 30, 2020.

Interest Expense

Interest expense increased by approximately $0.6 million for the three months ended March 31, 2020 compared to 2019 , as detailed below.

Change in interest expense for the three months ended March 31, 2020

March 31, 2019

Interest expense increased by approximately $5.4 million for the six months ended June 30, 2020 compared to 2019, as detailed below.

Component Change in interest expense for the six months ended June 30, 2020 compared to June 30, 2019

(in thousands)

2 unchanged sentences

Issuance of $700 million in aggregate principal of 2.900% senior notes due 2030 on September 3, 2019

Issuance of $1.25 billion in aggregate principal of 3.250% senior notes due 2031 on May 5, 2020

Increase in interest due to finance leases

Decrease in capitalized interest related to development projects

Other interest expense (excluding senior notes)

2 unchanged sentences

Redemption of $700 million in aggregate principal of 5.625% senior notes due 2020 on September 18, 2019

Increase in capitalized interest related to development projects that had finance leases

Decrease in interest rates for the 2017 Credit Facility

Increase in capitalized interest related to development projects that had finance leases

Repayment of a bond financing collateralized by New Dominion Technology Building One

Increase in capitalized interest related to development projects

Total decreases to interest expense (29,057)

Total change in interest expense $ 5,367

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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 ended March 31, 2020 and 2019 was approximately $14.1 million and $11.8 million, respectively.

Interest capitalized for the six months ended June 30, 2020 and 2019 was approximately $27.9 million and $25.1 million, respectively.

These costs are not included in the interest expense referenced above.

At March 31, 2020 , our outstanding variable rate debt consisted of BPLP’s $2.0 billion unsecured revolving credit facility (the “2017 Credit Facility”), which includes the $500.0 million delayed draw term loan facility (the “Delayed Draw Facility”) and the $1.5 billion revolving line of credit (the “Revolving Facility”).

The Delayed Draw Facility and Revolving Facility had $500.0 million and $250.0 million outstanding as of March 31, 2020 , respectively.

For a summary of our consolidated debt as of March 31, 2020 and March 31, 2019 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.

At June 30, 2020, our outstanding variable rate debt consisted of BPLP’s $2.0 billion unsecured revolving credit facility (the “2017 Credit Facility”), which includes the $500.0 million delayed draw term loan facility (the “Delayed Draw Facility”) and the $1.5 billion revolving line of credit (the “Revolving Facility”).

The Delayed Draw Facility had $500.0 million outstanding as of June 30, 2020.

The Revolving Facility did not have an outstanding balance as of June 30, 2020.

For a summary of our consolidated debt as of June 30, 2020 and June 30, 2019 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.

On May 5, 2020, BPLP completed a public offering of $1.25 billion in aggregate principal amount of its 3.250% unsecured senior notes due 2031 (See Note 6 to the Consolidated Financial Statements).

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Noncontrolling Interests in Property Partnerships

Noncontrolling interests in property partnerships increased by approximately $0.7 million for the three months ended March 31, 2020 compared to 2019 , as detailed below.

Noncontrolling Interests in Property Partnerships for the three months ended March 31,

Noncontrolling interests in property partnerships decreased by approximately $17.6 million for the six months ended June 30, 2020 compared to 2019, as detailed below.

Property Noncontrolling Interests in Property Partnerships for the six months ended June 30,

2020 2019 Change

(in thousands)

6 unchanged sentences

$ 18,719 $ 36,312 $ (17,593)

_______________

(1) On April 1, 2019, we acquired our partner’s 5% interest and subsequently own 100%.

The decrease was primarily due to a decrease in lease revenue from our tenants.

(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 $14.7 million represents our share of the write-offs.

(3) 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 $1.6 million represents our share of the write-offs.

(4) The increase was primarily due to an increase in lease revenue from our tenants.

Noncontrolling Interest—Common Units of the Operating Partnership

For BXP, noncontrolling interest—common units of the Operating Partnership increased by approximately $45.9 million for the three months ended March 31, 2020 compared to 2019 due primarily to an increase in allocable income, which was the result of recognizing a greater gain on sales of real estate amount during 2020 partially offset by a decrease in the noncontrolling interest’s ownership percentage.

For BXP, noncontrolling interest—common units of the Operating Partnership increased by approximately $56.9 million for the six months ended June 30, 2020 compared to 2019 due primarily to an increase in allocable income, which was the result of recognizing a greater gain on sales of real estate amount during 2020 partially offset by a decrease in the noncontrolling interest’s ownership percentage.

Due to our ownership structure, there is no corresponding line item on BPLP’s financial statements.

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Results of Operations for the Three Months Ended June 30, 2020 and 2019

The impact that COVID-19 has had on our business, financial position and results of operations during the second quarter of 2020 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.

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.

“Risk Factors” for additional details.

Net income attributable to Boston Properties, Inc.

common shareholders and net income attributable to Boston Properties Limited Partnership common unitholders increased approximately $102.2 million and $116.3 million for the three months ended June 30, 2020 compared to 2019, respectively, as detailed in the following tables and for the reasons discussed below under the heading “ Comparison of the three months ended June 30, 2020 to the three months ended June 30, 2019” 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, 2020 and 2019.

For a detailed discussion of NOI, including the reasons management believes NOI is useful to investors, see page 57.

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Boston Properties, Inc.

Three months ended June 30,

2020 2019 Increase/

(in thousands)

Net Income Attributable to Boston Properties, Inc.

Common Shareholders

$ 266,525 $ 164,318 $ 102,207 62.20 %

Preferred dividends

2,625 2,625 — — %

Net Income Attributable to Boston Properties, Inc.

269,150 166,943 102,207 61.22 %

Net Income Attributable to Noncontrolling Interests:

Noncontrolling interest—common units of the Operating Partnership

30,197 19,036 11,161 58.63 %

Noncontrolling interests in property partnerships

( 767 ) 17,482 (18,249) (104.39) %

Net Income 298,580 203,461 95,119 46.75 %

Other Expenses:

Interest expense

107,142 102,357 4,785 4.67 %

Other Income:

Gains from investments in securities

4,552 1,165 3,387 290.73 %

Interest and other income (loss)

1,305 3,615 (2,310) (63.90) %

Gains on sales of real estate

203,767 1,686 202,081 11,985.82 %

Income from unconsolidated joint ventures

1,832 47,964 (46,132) (96.18) %

Other Expenses:

Depreciation and amortization expense 178,188 177,411 777 0.44 %

Transaction costs

332 417 (85) (20.38) %

Payroll and related costs from management services contracts

2,484 2,403 81 3.37 %

General and administrative expense

37,743 35,071 2,672 7.62 %

Other Revenue:

Direct reimbursements of payroll and related costs from management services contracts

2,484 2,403 81 3.37 %

Development and management services revenue

8,125 9,986 (1,861) (18.64) %

Net Operating Income $ 402,404 $ 454,301 $ (51,897) (11.42) %

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Boston Properties Limited Partnership

Three months ended June 30,

2020 2019 Increase/

(in thousands)

Net Income Attributable to Boston Properties Limited Partnership Common Unitholders

$ 301,975 $ 185,715 $ 116,260 62.60 %

Preferred distributions

2,625 2,625 — — %

Net Income Attributable to Boston Properties Limited Partnership 304,600 188,340 116,260 61.73 %

Net Income Attributable to Noncontrolling Interests:

Noncontrolling interests in property partnerships

( 767 ) 17,482 (18,249) (104.39) %

Net Income 303,833 205,822 98,011 47.62 %

Other Expenses:

Interest expense

107,142 102,357 4,785 4.67 %

Other Income:

Gains from investments in securities

4,552 1,165 3,387 290.73 %

Interest and other income (loss)

1,305 3,615 (2,310) (63.90) %

Gains on sales of real estate

207,241 1,835 205,406 11,193.79 %

Income from unconsolidated joint ventures

1,832 47,964 (46,132) (96.18) %

Other Expenses:

Depreciation and amortization expense 176,409 175,199 1,210 0.69 %

Transaction costs

332 417 (85) (20.38) %

Payroll and related costs from management services contracts

2,484 2,403 81 3.37 %

General and administrative expense

37,743 35,071 2,672 7.62 %

Other Revenue:

Direct reimbursements of payroll and related costs from management services contracts

2,484 2,403 81 3.37 %

Development and management services revenue

8,125 9,986 (1,861) (18.64) %

Net Operating Income $ 402,404 $ 454,301 $ (51,897) (11.42) %

Comparison of the three months ended June 30, 2020 to the three months ended June 30, 2019

The table below shows selected operating information for the Same Property Portfolio and the Total Property Portfolio.

The Same Property Portfolio consists of 139 properties totaling approximately 38.5 million net rentable square feet, excluding unconsolidated joint ventures.

The Same Property Portfolio includes properties acquired or placed in-service on or prior to April 1, 2019 and owned and in-service through June 30, 2020.

The Total Property Portfolio includes the effects of the other properties either acquired, placed in-service, in development or redevelopment after April 1, 2019 or disposed of on or prior to June 30, 2020.

This table includes a reconciliation from the Same Property Portfolio to the Total Property Portfolio by also providing information for the three months ended June 30, 2020 and 2019 with respect to the properties that were acquired, placed in-service, in development or redevelopment or sold.

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Same Property Portfolio Properties

Acquired Portfolio Properties

Placed In-Service

Portfolio Properties in

Development or

Redevelopment

Portfolio Properties Sold Portfolio Total Property Portfolio

2020 2019 Increase/

Change 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 Increase/

(dollars in thousands)

Rental Revenue:

Lease Revenue (Excluding Termination Income)

$ 591,581 $ 643,001 $ (51,420) (8.00) % $ 3,341 $ — $ 15,484 $ — $ (924) $ 1,028 $ 8,084 $ 22,388 $ 617,566 $ 666,417 $ (48,851) (7.33) %

Termination Income

3,264 4,572 (1,308) (28.61) % — — — — — — 45 338 3,309 4,910 (1,601) (32.61) %

Lease Revenue

594,845 647,573 (52,728) (8.14) % 3,341 — 15,484 — (924) 1,028 8,129 22,726 620,875 671,327 (50,452) (7.52) %

Parking and Other

13,006 25,228 (12,222) (48.45) % — — 543 — 6 106 233 848 13,788 26,182 (12,394) (47.34) %

Total Rental Revenue (1) 607,851 672,801 (64,950) (9.65) % 3,341 — 16,027 — (918) 1,134 8,362 23,574 634,663 697,509 (62,846) (9.01) %

Real Estate Operating Expenses 227,295 243,083 (15,788) (6.49) % 1,386 — 2,922 — 1,142 2,168 3,077 8,598 235,822 253,849 (18,027) (7.10) %

Net Operating Income (Loss), Excluding Residential and Hotel

380,556 429,718 (49,162) (11.44) % 1,955 — 13,105 — (2,060) (1,034) 5,285 14,976 398,841 443,660 (44,819) (10.10) %

Residential Net Operating Income (2)

5,437 4,877 560 11.48 % — — — — — — — — 5,437 4,877 560 11.48 %

Hotel Net Operating Income (Loss) (2) (1,874) 5,764 (7,638) (132.51) % — — — — — — — — (1,874) 5,764 (7,638) (132.51) %

Net Operating Income (Loss)

$ 384,119 $ 440,359 $ (56,240) (12.77) % $ 1,955 $ — $ 13,105 $ — $ (2,060) $ (1,034) $ 5,285 $ 14,976 $ 402,404 $ 454,301 $ (51,897) (11.42) %

_______________

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 57.

Residential Net Operating Income for the three months ended June 30, 2020 and 2019 is comprised of Residential Revenue of $ 9,402 and $ 8,999 less Residential Expenses of $ 3,965 and $ 4,122 , respectively.

Hotel Net Operating Income for the three months ended June 30, 2020 and 2019 is comprised of Hotel Revenue of $ 99 and $ 14,844 less Hotel Expenses of $ 1,973 and $ 9,080 , respectively, per the Consolidated Statements of Operations.

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Same Property Portfolio

Lease Revenue (Excluding Termination Income)

Lease revenue from the Same Property Portfolio decreased by approximately $51.4 million for the three months ended June 30, 2020 compared to 2019.

Approximately $51.1 million of the decrease was related to write-offs, which are discussed below.

The remaining decrease was a result of an approximately $4.1 million decrease due to our average occupancy decreasing from 94.4% to 93.8%, partially offset by our average revenue per square foot increasing by approximately $0.21, contributing approximately $3.8 million.

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 ended June 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.

In addition, as a result of COVID-19, for the Same Property Portfolio, during the second quarter of 2020, we executed lease modification agreements for approximately 2.4 million square feet and granted approximately $25.0 million of cash rent abatements and deferrals, of which approximately $14.0 million was related to rental charges for the second quarter of 2020.

As a result of the lease modification agreements, that extended the lease term, we expect to see an increase in cash rent received in the future.

In April 2020, the FASB staff issued the Lease Modification Q & A related to the application of lease accounting guidance for lease concessions, in accordance with ASC 842, as a result of COVID-19.

We expect to continue to execute lease modification agreements as a result of COVID-19.

We may write off additional accrued rent or accounts receivable balances and this could have a material adverse effect on lease revenue.

“Risk Factors” for additional details .

Termination Income

Termination income decreased by approximately $1.3 million for the three months ended June 30, 2020 compared to 2019.

Termination income for the three months ended June 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 in the New York City region.

Termination income for the three months ended June 30, 2019 related to 10 tenants across the Same Property Portfolio and totaled approximately $4.6 million, of which approximately $2.0 million is from a tenant that terminated a lease early at 399 Park Avenue in New York City.

Parking and Other Revenue

Parking and other revenue decreased by approximately $12.2 million for the three months ended June 30, 2020 compared to 2019.

Parking revenue decreased by approximately $12.9 million while other revenue increased by approximately $0.7 million.

The decrease in parking revenue was primarily due to a decrease in transient and monthly parking.

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As a result, for the three months ended June 30, 2020, transient and monthly parking decreased by approximately $8.5 million and $2.3 million, respectively.

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 decreased by approximately $15.8 million, or 6.49%, for the three months ended June 30, 2020 compared to 2019, due primarily to decreases in utility expense and other real estate operating expenses of approximately $7.0 million, or 29.2%, and $8.8 million, or 4.0%, respectively.

The decrease in utility expense was experienced across the portfolio and was primarily driven by a decrease in physical tenant occupancy, which led to lower demand for electricity and HVAC.

Properties Acquired Portfolio

The table below lists the properties acquired between April 1, 2019 and June 30, 2020.

Rental revenue and real estate operating expenses increased by approximately $3.3 million and $1.4 million, respectively, for the three months ended June 30, 2020 compared to 2019, as detailed below.

Square Feet Rental Revenue Real Estate Operating Expenses

Name Date acquired 2020 2019 Change 2020 2019 Change

(dollars in thousands)

880 and 890 Winter Street

August 27, 2019 392,568 $ 3,325 $ — $ 3,325 $ 1,385 $ — $ 1,385

Fourth + Harrison (1) June 26, 2020 N/A 16 — 16 1 — 1

392,568 $ 3,341 $ — $ 3,341 $ 1,386 $ — $ 1,386

_______________

(1) Located at 777 Harrison Street in San Francisco, California (known as Fourth + Harrison and formerly known as 425 Fourth Stree t) .

Properties Placed In-Service Portfolio

The table below lists the properties that were placed in-service or partially placed in-service between April 1, 2019 and June 30, 2020.

Rental revenue and real estate operating expenses from our Properties Placed In-Service Portfolio increased by approximately $16.0 million and $2.9 million, respectively, for the three months ended June 30, 2020 compared to 2019, as detailed below.

Quarter Initially Placed In-Service Quarter Fully Placed In-Service Rental Revenue Real Estate Operating Expenses

Name Square Feet 2020 2019 Change 2020 2019 Change

(dollars in thousands)

20 CityPoint Second Quarter, 2019 Second Quarter, 2020 211,476 $ 1,775 $ — $ 1,775 $ 734 $ — $ 734

Fourth Quarter, 2019 Fourth Quarter, 2019 488,862 10,907 — 10,907 1,145 — 1,145

17Fifty Presidents Street

First Quarter, 2020 First Quarter, 2020 275,809 3,345 — 3,345 1,043 — 1,043

976,147 $ 16,027 $ — $ 16,027 $ 2,922 $ — $ 2,922

Properties in Development or Redevelopment Portfolio

The table below lists the properties that were in development or redevelopment between April 1, 2019 and June 30, 2020.

Rental revenue and real estate operating expenses from our Properties in Development or Redevelopment Portfolio decreased by approximately $2.1 million and $1.0 million, respectively, for the three months ended June 30, 2020 compared to 2019.

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Rental Revenue Real Estate Operating Expenses

Name Date Commenced Development / Redevelopment Square Feet 2020 2019 Change 2020 2019 Change

(dollars in thousands)

One Five Nine East 53rd Street (1)

August 19, 2016 220,000 $ (2,279) $ 989 $ (3,268) $ 279 $ 395 $ (116)

325 Main Street (2)

May 9, 2019 115,000 36 (1,953) 1,989 (75) 547 (622)

200 West Street (3)

September 30, 2019 261,000 1,325 2,098 (773) 938 1,226 (288)

596,000 $ (918) $ 1,134 $ (2,052) $ 1,142 $ 2,168 $ (1,026)

_______________

(1) Rental revenue for the three months ended June 30, 2020, includes an approximately $2.9 million write-off of accrued rent and accounts receivable balances for a terminated tenant.

(2) Rental revenue for the three months ended June 30, 2019 includes the acceleration and write-off of accrued rent associated with the early termination of a lease at the property.

Real estate operating expenses for the three months ended June 30, 2019 includes approximately $0.4 million of demolition costs.

(3) Rental revenue and real estate operating expenses for the three months ended June 30, 2019 are related to the entire building.

The redevelopment is a conversion of a 126,000 square foot portion of the property to laboratory space.

Properties Sold Portfolio

The table below lists the properties we sold between April 1, 2019 and June 30, 2020.

Rental revenue and real estate operating expenses from our Properties Sold Portfolio decreased by approximately $15.2 million and $5.5 million, respectively, for the three months ended June 30, 2020 compared to 2019, as detailed below.

Rental Revenue Real Estate Operating Expenses

Name Date Sold Property Type Square Feet 2020 2019 Change 2020 2019 Change

(dollars in thousands)

One Tower Center June 3, 2019 Office 410,000 $ — $ 895 $ (895) $ — $ 904 $ (904)

164 Lexington Road June 28, 2019 Office 64,000 — — — — 39 (39)

Washingtonian North December 20, 2019 Land N/A — — — — 40 (40)

601, 611 and 651 Gateway (1)

January 28, 2020 Office 768,000 — 7,410 (7,410) — 2,507 (2,507)

New Dominion Technology Park

February 20, 2020 Office 493,000 — 4,918 (4,918) — 1,506 (1,506)

Capital Gallery (2) June 25, 2020 Office 631,000 8,362 10,351 (1,989) 3,077 3,602 (525)

2,366,000 $ 8,362 $ 23,574 $ (15,212) $ 3,077 $ 8,598 $ (5,521)

_______________

(1) Rental revenue for the three months ended June 30, 2019 includes approximately $0.3 million of termination income (See Notes 3 and 5 to the Consolidated Financial Statements).

(2) We completed the sale of a portion of our Capital Gallery property located in Washington, DC.

Capital Gallery is an approximately 631,000 net rentable square foot Class A office property.

The portion sold was comprised of approximately 455,000 net rentable square feet of commercial office space.

We continue to own the land, underground parking garage and remaining commercial office and retail space.

The amounts shown represent the entire property and not just the portion sold (See Note 3 to the Consolidated Financial Statements).

Residential Net Operating Income

Net operating income for our residential same properties increased by approximately $0.6 million for the three months ended June 30, 2020 compared to 2019.

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The Lofts at Atlantic Wharf The Avant at Reston Town Center Signature at Reston Proto Kendall Square

2020 2019 Change (%) 2020 2019 Change (%) 2020 2019 Change (%) 2020 2019 Change (%)

Average Monthly Rental Rate (1)

$ 4,530 $ 4,481 1.1 % $ 2,371 $ 2,405 (1.4) % $ 2,320 $ 2,378 (2.4) % $ 2,891 $ 2,864 0.9 %

Average Rental Rate Per Occupied Square Foot

$ 5.01 $ 4.92 1.8 % $ 2.60 $ 2.63 (1.1) % $ 2.45 $ 2.57 (4.7) % $ 5.31 $ 5.37 (1.1) %

Average Physical Occupancy (2)

91.9 % 95.0 % (3.3) % 89.5 % 94.2 % (5.0) % 81.5 % 64.4 % 26.6 % 92.5 % 78.8 % 17.4 %

Average Economic Occupancy (3)

91.7 % 95.4 % (3.9) % 88.4 % 93.8 % (5.8) % 76.7 % 58.7 % 30.7 % 91.9 % 75.9 % 21.1 %

_______________

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

(3) Average Economic Occupancy is defined as (1) total possible revenue less vacancy loss divided by (2) total possible revenue, expressed as a percentage.

Total possible revenue is determined by valuing average occupied units at contract rates and average vacant units at Market Rents.

Vacancy loss is determined by valuing vacant units at current Market Rents.

By measuring vacant units at their Market Rents, Average Economic Occupancy takes into account the fact that units of different sizes and locations within a residential property have different economic impacts on a residential property’s total possible gross revenue.

Market Rents used by us in calculating Economic Occupancy are based on the current market rates set by the managers of our residential properties based on their experience in renting their residential property’s units and publicly available market data.

Actual market rents and trends in such rents for a region as reported by others may vary materially from Market Rents used by us.

Market Rents for a period are based on the average Market Rents during that period and do not reflect any impact for cash concessions.

Hotel Net Operating Income

Net operating income for the Boston Marriott Cambridge hotel property decreased by approximately $7.6 million for the three months ended June 30, 2020 compared to 2019.

As a result of COVID-19, we closed the Boston Marriott Cambridge in March 2020 and it did not re-open during the second quarter of 2020.

We do not know when the hotel will re-open.

"Risk Factors" for additional details.

The following reflects our occupancy and rate information for the Boston Marriott Cambridge hotel for the three months ended June 30, 2020 and 2019.

Occupancy — % 89.1 % (100.0) %

Average daily rate $ — $ 318.28 (100.0) %

REVPAR $ — $ 283.73 (100.0) %

Other Operating Revenue and Expense Items

Development and Management Services Revenue

Development and management services revenue decreased by approximately $1.9 million for the three months ended June 30, 2020 compared to 2019.

Development services revenue decreased by approximately $2.4 million while management services revenue increased by approximately $0.5 million.

The decrease in development services revenue was primarily related to a decrease of approximately $1.8 million in development fees earned in the Boston and New York regions and a decrease of approximately $0.6 million in fees associated with tenant improvement projects earned in the Boston region.

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General and Administrative Expense

General and administrative expense increased by approximately $2.7 million for the three months ended June 30, 2020 compared to 2019 primarily due to increases in compensation expense and other general and administrative expenses of approximately $2.3 million and $0.4 million, respectively.

The increase in compensation expense was primarily due to an approximately $3.4 million increase in the value of our deferred compensation plan, partially offset by a decrease in other compensation expenses.

Capitalized wages for the three months ended June 30, 2020 and 2019 were approximately $3.4 million and $2.6 million, respectively.

These costs are not included in the general and administrative expenses discussed above.

Transaction Costs

Transaction costs decreased by approximately $85,000 for the three months ended June 30, 2020 compared to 2019 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

This accounting resulted in a step-up of the real estate assets at BXP that was allocated to certain properties.

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 $0.8 million for the three months ended June 30, 2020 compared to 2019, as detailed below.

Portfolio Depreciation and Amortization for the three months ended June 30,

2020 2019 Change

(in thousands)

Same Property Portfolio $ 170,133 $ 162,416 $ 7,717

Properties Acquired Portfolio 2,329 — 2,329

Properties Placed In-Service Portfolio 4,084 — 4,084

Properties in Development or Redevelopment Portfolio (1) 456 11,187 (10,731)

Properties Sold Portfolio 1,186 3,808 (2,622)

$ 178,188 $ 177,411 $ 777

_______________

(1) On May 9, 2019, we commenced development of 325 Main Street in Cambridge, Massachusetts.

As a result, during the three months ended June 30, 2019, we recorded approximately $9.9 million of accelerated depreciation expense for the demolition of the building, of which approximately $0.4 million related to the step-up of real estate assets.

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Boston Properties Limited Partnership

Depreciation and amortization expense increased by approximately $1.2 million for the three months ended June 30, 2020 compared to 2019, as detailed below.

Portfolio Depreciation and Amortization for the three months ended June 30,

2020 2019 Change

(in thousands)

Same Property Portfolio $ 168,354 $ 160,583 $ 7,771

Properties Acquired Portfolio 2,329 — 2,329

Properties Placed In-Service Portfolio 4,084 — 4,084

Properties in Development or Redevelopment Portfolio (1) 456 10,808 (10,352)

Properties Sold Portfolio 1,186 3,808 (2,622)

$ 176,409 $ 175,199 $ 1,210

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(1) On May 9, 2019, we commenced development of 325 Main Street in Cambridge, Massachusetts.

As a result, during the three months ended June 30, 2019, we recorded approximately $9.5 million of accelerated depreciation expense for the demolition 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 three months ended June 30, 2020 compared to 2019, income from unconsolidated joint ventures decreased by approximately $46.1 million primarily due to an approximately $47.8 million gain on sale of real estate from the sale of 540 Madison Avenue during the three months ended June 30, 2019 and the resulting loss of income thereafter, along with the addition of our Gateway Commons joint venture and the partial placing in-service of the Hub50House joint venture in South San Francisco, CA and Boston, MA, respectively.

These joint ventures reduced our net income by approximately $2.5 million for the three months ended June 30, 2020.

At June 30, 2020, the Hub50House was only 35% leased and we do not expect it to be stabilized until the first quarter of 2022.

The decrease in net income from the Gateway Commons joint venture was primarily related to depreciation and amortization.

These decreases were partially offset by an approximately $5.8 million gain on sale of real estate from the sale of Annapolis Junction Building Eight and two undeveloped land parcels during the three months ended June 30, 2020 (See Note 5 of the Consolidated Financial Statements).

Under ASC 842, any write-off for bad debt, including accrued rent, will be recorded as a reduction to lease revenue.

As a result, during the three months ended June 30, 2020, for our unconsolidated joint ventures, we wrote off our share of the accrued rent and accounts receivable balances of approximately $0.7 million and $1.0 million, respectively.

As a result of the lease modification agreements that extended the lease term, we expect to see an increase in cash rent received in the future.

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In April 2020, the FASB staff issued the Lease Modification Q & A related to the application of lease accounting guidance for lease concessions, in accordance with ASC 842, as a result of COVID-19.

The joint ventures expect to continue to execute lease modification agreements as a result of COVID-19.

Our unconsolidated joint ventures may write-off additional accrued rent or accounts receivable balances and this could have a material adverse effect on lease revenue.

“Risk Factors” for additional details.

Gains on Sales of Real Estate

This accounting resulted in a step-up of the real estate assets at BXP that was allocated to certain properties.

For additional information, see the Explanatory Note that follows the cover page of this Quarterly Report on Form 10-Q.

Boston Properties, Inc.

Gains on sales of real estate increased by approximately $202.1 million for the three months ended June 30, 2020 compared to 2019, as detailed below.

Name Date Sold Property Type Square Feet Sale Price Net Cash Proceeds Gain (Loss) on Sale of Real Estate

(dollars in millions)

Capital Gallery June 25, 2020 Office 455,000 $ 253.7 $ 246.9 $ 203.8 (1)

One Tower Center

June 3, 2019 Office 410,000 $ 38.0 $ 36.6 $ (0.8)

164 Lexington Road

June 28, 2019 Office 64,000 4.0 3.8 2.5

$ 42.0 $ 40.4 $ 1.7

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(1) We completed the sale of a portion of our Capital Gallery property located in Washington, DC.

Capital Gallery is an approximately 631,000 net rentable square foot Class A office property.

The portion sold was comprised of approximately 455,000 net rentable square feet of commercial office space.

We continue to own the land, underground parking garage and remaining commercial office and retail space (See Note 3 to the Consolidated Financial Statements).

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Boston Properties Limited Partnership

Gains on sales of real estate increased by approximately $205.4 million for the three months ended June 30, 2020 compared to 2019, as detailed below.

Name Date Sold Property Type Square Feet Sale Price Net Cash Proceeds Gain (Loss) on Sale of Real Estate

(dollars in millions)

Capital Gallery June 25, 2020 Office 455,000 $ 253.7 $ 246.9 $ 207.2 (1)

One Tower Center

June 3, 2019 Office 410,000 $ 38.0 $ 36.6 $ (0.8)

164 Lexington Road

June 28, 2019 Office 64,000 4.0 3.8 2.6

$ 42.0 $ 40.4 $ 1.8

(1) We completed the sale of a portion of our Capital Gallery property located in Washington, DC.

Capital Gallery is an approximately 631,000 net rentable square foot Class A office property.

The portion sold was comprised of approximately 455,000 net rentable square feet of commercial office space.

We continue to own the land, underground parking garage and remaining commercial office and retail space (See Note 3 to the Consolidated Financial Statements).

Interest and Other Income (Loss)

Interest and other income (loss) decreased by approximately $2.3 million for the three months ended June 30, 2020 compared to 2019.

Interest income and the credit loss allowance decreased by approximately $1.8 million and $0.5 million, respectively.

The decrease in interest income is primarily due to a decrease in interest rates.

On January 1, 2020, we adopted ASU 2016-13 and, as a result, were required to record a credit loss allowance related to our outstanding (1) related party note receivable, (2) notes receivable and (3) off-balance sheet credit exposures (See Note 2 to the Consolidated Financial Statements).

Gains from Investments in Securities

Gains from investments in securities for the three months ended June 30, 2020 and 2019 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.

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, 2020 and 2019, we recognized gains of approximately $4.6 million and $1.2 million, respectively, on these investments.

By comparison, our general and administrative expense increased by approximately $4.6 million and $1.2 million during the three months ended June 30, 2020 and 2019, 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.

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Interest Expense

Interest expense increased by approximately $4.8 million for the three months ended June 30, 2020 compared to 2019, as detailed below.

Component Change in interest expense for the three months ended June 30, 2020 compared to June 30, 2019

(in thousands)

Increases to interest expense due to:

Issuance of $850 million in aggregate principal of 3.400% senior notes due 2029 on June 21, 2019

Issuance of $1.25 billion in aggregate principal of 3.250% senior notes due 2031 on May 5, 2020

Issuance of $700 million in aggregate principal of 2.900% senior notes due 2030 on September 3, 2019

Increase in interest due to finance leases

Decrease in capitalized interest related to development projects

Other interest expense (excluding senior notes)

Total increases to interest expense 20,659

Decreases to interest expense due to:

Redemption of $700 million in aggregate principal of 5.625% senior notes due 2020 on September 18, 2019

Decrease in interest rates for the 2017 Credit Facility

Increase in capitalized interest related to development projects that had finance leases

Repayment of bond financing collateralized by New Dominion Technology Building One

Total decreases to interest expense (15,874)

Total change in interest expense $ 4,785

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 ended June 30, 2020 and 2019 was approximately $13.7 million and $13.3 million, respectively.

These costs are not included in the interest expense referenced above.

At June 30, 2020, our outstanding variable rate debt consisted of BPLP’s $2.0 billion 2017 Credit Facility, which includes the $500.0 million Delayed Draw Facility and the $1.5 billion Revolving Facility.

The Delayed Draw Facility had $500.0 million outstanding as of June 30, 2020.

The Revolving Facility did not have an outstanding balance as of June 30, 2020.

On May 5, 2020, BPLP completed a public offering of $1.25 billion in aggregate principal amount of its 3.250% unsecured senior notes due 2031 (See Note 6 to the Consolidated Financial Statements).

We used a portion of the net proceeds from this offering for the repayment of borrowings outstanding under the Revolving Facility.

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Noncontrolling Interests in Property Partnerships

Noncontrolling interests in property partnerships decreased by approximately $18.2 million for the three months ended June 30, 2020 compared to 2019, as detailed below.

Property Noncontrolling Interests in Property Partnerships for the three months ended June 30,

2020 2019 Change

(in thousands)

767 Fifth Avenue (the General Motors Building) $ 441 $ 73 $ 368

Times Square Tower (1) (10,216) 7,028 (17,244)

601 Lexington Avenue (2) 3,115 4,871 (1,756)

100 Federal Street 3,648 3,129 519

Atlantic Wharf Office Building 2,245 2,381 (136)

$ (767) $ 17,482 $ (18,249)

_______________

(1) 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 $14.7 million represents our share of the write-offs.

(2) During the three 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 $1.6 million represents our share of the write-offs.

Noncontrolling Interest—Common Units of the Operating Partnership

For BXP, noncontrolling interest—common units of the Operating Partnership increased by approximately $11.2 million for the three months ended June 30, 2020 compared to 2019 due primarily to an increase in allocable income, which was the result of recognizing a greater gain on sales of real estate amount during 2020 partially offset by a decrease in the noncontrolling interest’s ownership percentage.

Due to our ownership structure, there is no corresponding line item on BPLP’s financial statements.

Liquidity and Capital Resources

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• fund normal recurring expenses;

meet debt service and principal repayment obligations;

• meet debt service and principal repayment obligations, including balloon payments on maturing debt;

• fund development/redevelopment costs;

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• sales of real estate;

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• issuances of BXP equity securities and/or additional preferred or common units of partnership interest in BPLP.

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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.

The following table presents information on properties under construction as of March 31, 2020 (dollars in thousands):

Construction Properties

Estimated Stabilization Date

# of Buildings

Estimated Square Feet

Investment to Date (1)(2)(3)

Estimated Total Investment (1)(2)

Total Available (1)

Outstanding at 3/31/2020 (1)

Estimated Future Equity Requirement (1)(2)(4)

Percentage Leased (5)

First Quarter, 2021

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The following table presents information on properties under construction and redevelopment as of June 30, 2020 (dollars in thousands):

Construction Properties Estimated Stabilization Date Location # of Buildings Estimated Square Feet Investment to Date (1)(2)(3) Estimated Total Investment (1)(2) Total Available (1) Outstanding at 6/30/2020 (1) Estimated Future Equity Requirement (1)(2)(4) Percentage Leased (5)

Dock 72 (50% ownership)

Third Quarter, 2021

Third Quarter, 2021 Brooklyn, NY 1 670,000 $ 203,461 $ 243,150 $ 125,000 $ 93,322 $ 8,011 33 % (6)

325 Main Street

Third Quarter, 2022

Cambridge, MA

Third Quarter, 2022 Cambridge, MA 1 420,000 124,477 418,400 — — 293,923 90 %

100 Causeway Street (50% ownership)

Third Quarter, 2022

Third Quarter, 2022 Boston, MA 1 632,000 145,419 267,300 200,000 71,513 — 94 %

7750 Wisconsin Avenue (Marriott International Headquarters) (50% ownership)

Third Quarter, 2022

Reston Gateway

Fourth Quarter, 2023

Third Quarter, 2022 Bethesda, MD 1 734,000 117,558 198,900 127,500 46,933 775 100 %

Reston Next (formerly Reston Gateway)

Fourth Quarter, 2023 Reston, VA 2 1,062,000 266,640 715,300 — — 448,660 72 %

2100 Pennsylvania Avenue

Third Quarter, 2024

Washington, DC

Third Quarter, 2024 Washington, DC 1 469,000 88,223 356,100 — — 267,877 61 %

Total Office Properties under Construction

7 3,987,000 945,778 2,199,150 452,500 211,768 1,019,246 75 %

Hub50House (440 units) (50% ownership)

First Quarter, 2022

First Quarter, 2022 Boston, MA 1 320,000 144,507 153,500 90,000 81,428 421 47 % (7)

The Skylyne (402 units)

First Quarter, 2022

First Quarter, 2022 Oakland, CA 1 324,000 235,496 263,600 — — 28,104 — (8)

Total Residential Properties under Construction

2 644,000 380,003 417,100 90,000 81,428 28,525 47 %

Redevelopment Properties

One Five Nine East 53rd Street (55% ownership)

Fourth Quarter, 2020

First Quarter, 2021 New York, NY — 220,000 133,482 150,000 — — 16,518 96 % (9)

200 West Street

Fourth Quarter, 2021

Fourth Quarter, 2021 Waltham, MA — 126,000 10,826 47,800 — — 36,974 — % (10)

Total Redevelopment Properties under Construction

— 346,000 144,308 197,800 — — 53,492 61 %

Total Properties under Construction and Redevelopment

9 4,977,000 $ 1,470,089 $ 2,814,050 $ 542,500 $ 293,196 $ 1,101,263 74 % (11)

(1) Represents our share.

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 through March 31, 2020 .

(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 through June 30, 2020.

(3) Includes approximately $103.4 million of unpaid but accrued construction costs and leasing commissions.

(4) Excludes approximately $103.4 million of unpaid but accrued construction costs and leasing commissions.

Represents percentage leased as of May 5, 2020 , including leases with future commencement dates.

This property is 65% placed in-service as of March 31, 2020 .

This property is 34% placed in-service as of March 31, 2020 .

This property is 81% placed in-service as of March 31, 2020 .

(5) Represents percentage leased as of August 3, 2020, including leases with future commencement dates.

(6) This property is 34% placed in-service as of June 30, 2020.

(7) This property is 81% placed in-service as of June 30, 2020.

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

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(11) Percentage leased excludes residential units.

Lease revenue (which includes recoveries from tenants), other income from operations, available cash balances, mortgage financings 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.

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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.

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Material adverse changes in one or more sources of capital, including from the impacts of COVID-19, may adversely affect our net cash flows.

For example, we may experience a decrease in cash rent collections resulting from restrictions implemented to limit the spread of COVID-19, including delays in tenant improvements and decreases in parking and hotel revenue.

In turn, these changes could adversely affect our ability to fund operating expenses, dividends and distributions, debt service payments, maintenance and repositioning capital expenditures and tenant improvements.

In addition, a material adverse change in the cash provided by our operations may affect our ability to comply with the financial covenants under BPLP’s 2017 Credit Facility and unsecured senior notes.

Our primary uses of capital will be the completion of our current and committed development and redevelopment projects.

As of March 31, 2020 , our share of the remaining development and redevelopment costs that we expect to fund through 2024 is approximately $1.2 billion .

As of May 5, 2020 , we have approximately $1.6 billion of cash and cash equivalents, of which approximately $124 million is attributable to our consolidated joint venture partners, as well as approximately $151 million held in escrow for 1031 exchanges.

Our cash and cash equivalents balance includes the proceeds from BPLP’s issuance of $1.25 billion of 3.250% unsecured senior notes due 2031, which generated net proceeds of approximately $1.24 billion.

We used $250.0 million of the net proceeds from this offering for the repayment of borrowings outstanding under the Revolving Facility.

In addition, during the first quarter of 2020, we enhanced our liquidity with the sale of our New Dominion Technology Park property located in Herndon, Virginia, which generated net cash proceeds of approximately $254 million .

Although the full extent to which COVID-19 impacts our liquidity and capital resources will depend on future developments, which are highly uncertain and cannot be predicted with confidence at this time, we believe that our strong liquidity, including, as of May 5, 2020, the approximately $1.5 billion available under the Revolving Facility, and proceeds from debt financings and asset sales will provide sufficient liquidity to fund our remaining capital requirements on existing development and redevelopment projects, fund pending new developments and still be able to act opportunistically on attractive investment opportunities.

We have not sold any shares under BXP’s $600.0 million at the market (ATM) program and intend to renew the program prior to its expiration in June 2020.

For example, during the second quarter of 2020, our rent collections remained strong as we collected 99% of rents from our office tenants and 96% of rents from all tenants, including retail tenants.

However, COVID-19 resulted in the write-off of accrued rent and accounts receivable balances for primarily retail tenants, decreases in parking and other revenue and the closure of our hotel, which reduced our revenue.

In turn, if these impacts are material, they could adversely affect our ability to fund operating expenses, dividends and distributions, debt service payments, maintenance and repositioning capital expenditures and tenant improvements.

In addition, a material adverse change in the cash provided by our operations may affect our ability to comply with the financial covenants under BPLP’s 2017 Credit Facility or its unsecured senior notes.

Our primary uses of capital over the next twelve months will be the completion of our current and committed development and redevelopment projects and the repayment of $850 million aggregate principal amount of BPLP’s 4.125% senior unsecured notes that mature in May 2021.

As of June 30, 2020, our share of the remaining development and redevelopment costs that we expect to fund through 2024 is approximately $1.1 billion.

To satisfy these capital needs, as of August 3, 2020 we had approximately $1.4 billion of cash and cash equivalents, of which approximately $103 million is attributable to our consolidated joint venture partners, as well as approximately $250 million held in escrow for 1031 exchanges.

On May 5, 2020, we enhanced our liquidity through BPLP’s issuance of $1.25 billion of 3.250% unsecured senior notes due 2031.

We used $250.0 million of the net proceeds from the offering to repay borrowings outstanding under the Revolving Facility.

In addition, during the second quarter of 2020, (1) we sold a portion of our Capital Gallery property which was comprised of approximately 455,000 net rentable square feet of commercial office space for approximately $254 million, which resulted in net proceeds of approximately $247 million and (2) a joint venture in which we own 50% sold Annapolis Junction Building Eight, a vacant 126,000 square foot office building, and two additional land parcels at Annapolis Junction Business Park for approximately $47 million which resulted in net proceeds to us of approximately $15 million, after the repayment of the debt.

Although the full extent to which COVID-19 will impact our liquidity and capital resources, as well as the duration of such impact, will depend on a wide range of factors, all of which are highly uncertain and cannot be predicted with confidence at this time, we believe tha t our strong liquidity, including the approximately $1.5 billion available under the Revolving Facility and available cash, as of August 3, 2020, is sufficient to fund our remaining capital requirements on existing development and redevelopment projects, repay our maturing indebtedness when due and still allow us to act opportunistically on attractive investment opportunities.

We also renewed BXP’s $600.0 million “at the market” (“ATM”) equity offering program in May 2020 through which BXP may sell from time to time up to an aggregate of $600.0 million of its common stock through sales agents over a three-year period.

Under the ATM stock offering program, BXP may also engage in forward sale transactions with affiliates of certain sales agents for the sale of its common stock on a forward basis.

BXP has not sold any shares under the renewed program.

We may seek to enhance our liquidity to provide sufficient capacity to fund our remaining capital requirements on existing development/redevelopment projects, fund our foreseeable potential development activity, pursue additional attractive investment opportunities and refinance or repay indebtedness.

Our unconsolidated joint ventures have approximately $313.8 million of debt maturing in 2020, of which our share is approximately $156.9 million.

We have no debt maturing until BPLP’s $850 million of 4.125% senior unsecured notes mature in May 2021, and we intend to continue to evaluate the costs associated with an early refinancing or redemption of all or a portion of this maturity.

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 BPLP’s use of the proceeds, which would increase our net interest expense and be dilutive to our earnings.

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.

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REIT Tax Distribution Considerations

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Our policy is for BXP to distribute at least 100% of its taxable income, including capital gains, to avoid paying federal tax.

On December 17, 2019, the Board of Directors of BXP increased our regular quarterly

dividend from $0.95 per common share to $0.98 per common share, or 3%, beginning with the fourth quarter of 2019.

On December 17, 2019, the Board of Directors of BXP increased our regular quarterly dividend from $0.95 per common share to $0.98 per common share, or 3%, beginning with the fourth quarter of 2019.

Common and LTIP unitholders of limited partnership interest in BPLP, received the same total distribution per unit.

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The following summary discussion of our cash flows is based on the Consolidated Statements of Cash Flows and is not meant to be an all-inclusive discussion of the changes in our cash flows for the periods presented below.

Cash and cash equivalents and cash held in escrows aggregated approximately $858.6 million and $432.3 million at March 31, 2020 and 2019 , respectively, representing an increase of approximately $426.3 million .

Cash and cash equivalents and cash held in escrows aggregated approximately $2.0 billion and $1.2 billion at June 30, 2020 and 2019, respectively, representing an increase of approximately $0.8 billion.

The following table sets forth changes in cash flows:

Three months ended March 31,

Six months ended June 30,

2020 2019 Increase

(in thousands)

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Net cash used in investing activities (120,522) (327,952) 207,430

Net cash provided by (used in) financing activities

Net cash provided by financing activities 866,019 286,081 579,938

Our principal source of cash flow is related to the operation of our properties.

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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 effect on these parties could also have a material adverse effect on us.

any material adverse effect on these parties could also have a material adverse effect on us.

“Risk Factors” for additional details.

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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 three months ended March 31, 2020 consisted primarily of development projects, building and tenant improvements and capital contributions to unconsolidated joint ventures, partially offset by the proceeds from the sales of real estate.

used in investing activities for the three months ended March 31, 2019 consisted primarily of the acquisition of real estate, development projects, building and tenant improvements and capital contributions to unconsolidated joint ventures, partially offset by the proceeds from the sale or real estate, as detailed below:

Three months ended March 31,

Cash used in investing activities for the six months ended June 30, 2020 consisted primarily of acquisitions of real estate, development projects, building and tenant improvements and capital contributions to unconsolidated joint ventures, partially offset by the proceeds from the sales of real estate and capital distributions from unconsolidated joint ventures.

Cash used in investing activities for the six months ended June 30, 2019 consisted primarily of the acquisition of real estate, development projects, building and tenant improvements and capital contributions to unconsolidated joint ventures, partially offset by the proceeds from the sale of real estate and capital distributions from unconsolidated joint ventures, as detailed below:

Six months ended June 30,

(in thousands)

Acquisition of real estate (1)

Acquisitions of real estate (1) $ (133,406) $ (43,061)

Construction in progress (2) (247,615) (203,259)

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Capital contributions to unconsolidated joint ventures (4) (106,168) (50,068)

Capital distributions from unconsolidated joint ventures (5) 54,413 105,000

Issuance of notes receivable, net (6) (9,800) —

Investments in securities, net 3,006 (1,079)

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Cash used in investing activities changed primarily due to the following:

(1) 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.

On January 10, 2019, we acquired land parcels at our Carnegie Center property located in Princeton, New Jersey for a gross purchase price of approximately $51.5 million, which includes an aggregate of approximately $8.6 million of additional amounts that are payable in the future to the seller upon the development or sale of each of the parcels.

The land parcels will support approximately 1.7 million square feet of development.

Construction in progress for the three months ended March 31, 2020 includes ongoing expenditures associated with 17Fifty Presidents Street, which was completed and placed in-service during the three months ended March 31, 2020 and 20 CityPoint, which was partially placed in-service during the year ended December 31, 2019.

In addition, we incurred costs associated with our continued development/redevelopment of One Five Nine East 53rd Street, Reston Gateway, 2100 Pennsylvania Avenue, 200 West Street, The Skylyne and 325 Main Street.

Construction in progress for the three months ended March 31, 2019 includes ongoing expenditures associated with Salesforce Tower, which was placed in-service during the year ended December 31, 2018.

In addition, we incurred costs associated with our continued development/redevelopment of One Five Nine East 53rd Street, 145 Broadway, 20 CityPoint, 17Fifty Presidents Street, Reston Gateway and The Skylyne.

(2) 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 fully 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 (formerly Reston Gateway), 2100 Pennsylvania Avenue, 200 West Street, The Skylyne and 325 Main Street.

Construction in progress for the six months ended June 30, 2019 includes ongoing expenditures associated with Salesforce Tower, which was placed in-service during the year ended December 31, 2018.

(3) 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.

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New Dominion Technology Park is comprised of two Class A office properties aggregating approximately 493,000 net rentable square feet.

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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 January 24, 2019, we completed the sale of our 2600 Tower Oaks Boulevard property located in Rockville, Maryland for a gross sale price of approximately $22.7 million.

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2600 Tower Oaks Boulevard is an approximately 179,000 net rentable square foot Class A office property.

Capital contributions to unconsolidated joint ventures for the three months ended March 31, 2020 consisted primarily of cash contributions of approximately $64.5 million, $16.8 million and $4.0 million to our Platform 16, 3 Hudson Boulevard and Metropolitan Square joint ventures, respectively.

Capital contributions to unconsolidated joint ventures for the three months ended March 31, 2019 consisted primarily of cash contributions of approximately $23.3 million to our 100 Causeway Street joint venture.

Cash provided by financing activities for the three months ended March 31, 2020 totaled approximately $65.3 million .

This consisted primarily of the proceeds from borrowing under the Revolving Facility, partially offset by the payment of our regular dividends and distributions to our shareholders and unitholders.

On June 3, 2019, we completed the sale of our One Tower Center property located in East Brunswick, New Jersey for a gross sale price of $38.0 million.

Net cash proceeds totaled approximately $36.6 million.

One Tower Center is an approximately 410,000 net rentable Class A office property.

On June 28, 2019, we completed the sale of our 164 Lexington Road property located in Billerica, Massachusetts for a gross sale price of $4.0 million.

Net cash proceeds totaled approximately $3.8 million, resulting in a gain on sale of real estate totaling approximately $2.5 million for BXP and approximately $2.6 million for BPLP.

164 Lexington Road is an approximately 64,000 net rentable square foot Class A office property.

(4) 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.

Capital contributions to unconsolidated joint ventures for the six months ended June 30, 2019 consisted primarily of cash contributions of approximately $36.2 million and $8.6 million to our Hub on Causeway and Dock 72 joint ventures, respectively.

(5) Capital distributions from unconsolidated joint ventures for the six months ended June 30, 2020 consisted of (1) a cash distribution totaling approximately $22.5 million from our Metropolitan Square joint venture resulting from the excess proceeds from the refinancing of the mortgage loan on the property, (2) a cash distribution totaling approximately $17.9 million from our Annapolis Junction joint venture resulting from available cash and the net proceeds from the sale of Annapolis Junction Building Eight and two land parcels after the pay down of the mortgage loan and (3) a cash distribution totaling approximately $14.0 million from our Colorado Center joint venture resulting from the excess proceeds from the mortgage financing on the property that occurred during 2017, which proceeds were released from lender reserves.

Capital distributions from unconsolidated joint ventures for the six months ended June 30, 2019 consisted of a cash distribution totaling approximately $105.0 million from our 540 Madison Avenue joint venture resulting from the net proceeds from the sale of the property.

(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 provided by financing activities for the six months ended June 30, 2020 totaled approximately $866.0 million.

This consisted primarily of the proceeds from the issuance by BPLP of $1.25 billion in aggregate principal amount of its 3.250% senior unsecured notes due 2031, partia lly offset by the payment of our regular dividends and distributions to our shareholders and unitholders.

Future debt payments are discussed below under the heading “ Capitalization—Debt Financing .”

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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):

March 31, 2020

Shares / Units Outstanding

Common Stock Equivalent

Equivalent Value (1)

June 30, 2020

Shares / Units Outstanding Common Stock Equivalent Equivalent Value (1)

Common Stock 155,622 155,622 $ 14,065,116

Common Operating Partnership Units

17,470 17,470 1,578,939 (2)

5.25% Series B Cumulative Redeemable Preferred Stock

Total Equity 173,092 $ 15,844,055

Consolidated Debt $ 13,048,579

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Except for the Series B Cumulative Redeemable Preferred Stock, which is valued at the liquidation preference of $2,500 per share, values are based on the closing price per share of BXP’s Common Stock on the New York Stock Exchange on March 31, 2020 of $92.23 .

(1) Except for the Series B Cumulative Redeemable Preferred Stock, which is valued at the liquidation preference of $2,500 per share, values are based on the closing price per share of BXP’s Common Stock on the New York Stock Exchange on June 30, 2020 of $90.38.

(2) Includes long-term incentive plan units (including 2012 OPP Units and 2013 - 2017 MYLTIP Units), but excludes MYLTIP Units granted between 2018 and 2020.

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(1) our consolidated debt;

(2) the product of (x) the closing price per share of BXP common stock on March 31, 2020 , as reported by the New York Stock Exchange, multiplied by (y) the sum of:

the number of outstanding shares of common stock of BXP,

the number of outstanding OP Units in BPLP (excluding OP Units held by BXP),

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

the number of OP Units issuable upon conversion of 2012 OPP Units, 2013 - 2017 MYLTIP Units that were issued in the form of LTIP Units;

(2) the product of (x) the closing price per share of BXP common stock on June 30, 2020, as reported by the New 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 - 2017 MYLTIP Units that were issued in the form of LTIP Units;

(3) the aggregate liquidation preference ($2,500 per share) of the outstanding shares of BXP’s 5.25% Series B Cumulative Redeemable Preferred Stock.

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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, 2018 - 2020 MYLTIP Units are not included in this calculation as of March 31, 2020 .

Because their three-year performance periods have not yet ended, 2018 - 2020 MYLTIP Units are not included in this calculation as of June 30, 2020.

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.

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Debt Financing

As of March 31, 2020 , we had approximately $12.1 billion of outstanding consolidated indebtedness, representing approximately 42.73% of our Consolidated Market Capitalization as calculated above consisting of approximately (1) $8.4 billion (net of discount and deferred financing fees) in publicly traded unsecured senior notes having a GAAP weighted-average interest rate of 3.76% per annum and maturities in 2021 through 2030 (See Note 12 to the Consolidated Financial Statements), (2) $2.9 billion (net of deferred financing fees) of property-specific mortgage debt having a GAAP weighted-average interest rate of 3.90% per annum and weighted-average term of 6.1 years and (3) $749.1 million (net of deferred financing fees) outstanding under BPLP’s 2017 Credit Facility that matures on April 24, 2022.

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 at March 31, 2020 and March 31, 2019 .

As of June 30, 2020, we had approximately $13.0 billion of outstanding consolidated indebtedness, representing approximately 45.16% 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 3.71% per annum and maturities in 2021 through 2031 (See Note 6 to the Consolidated Financial Statements), (2) $2.9 billion (net of deferred financing fees) of property-specific mortgage debt having a GAAP weighted-average interest rate of 3.90% per annum and a weighted-average term of 5.8 years and (3) $499.2 million (net of deferred financing fees) outstanding under BPLP’s 2017 Credit Facility that matures on April 24, 2022.

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(dollars in thousands)

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Percent of total debt:

Fixed rate 96.17 % 95.79 %

Variable rate 3.83 % 4.21 %

Total 100.00 % 100.00 %

GAAP Weighted-average interest rate at end of period:

Fixed rate 3.75 % 3.98 %

Variable rate 1.24 % 3.43 %

Total 3.66 % 3.95 %

Coupon/Stated Weighted-average interest rate at end of period:

Fixed rate 3.65 % 3.87 %

Variable rate 1.15 % 3.34 %

Total 3.55 % 3.85 %

Weighted-average maturity at end of period (in years):

Fixed rate 6.0 5.9

Variable rate 1.8 2.8

Total 5.9 5.8

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(2) See page 92 for additional information.

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Unsecured Credit Facility

On April 24, 2017, BPLP entered into the 2017 Credit Facility.

Among other things, the 2017 Credit Facility (1) increased the total commitment of the Revolving Facility from $1.0 billion to $1.5 billion, (2) extended the maturity date from July 26, 2018 to April 24, 2022, (3) reduced the per annum variable interest rates, and (4) added a $500.0 million Delayed Draw Facility that permitted BPLP to draw until the first anniversary of the closing date.

Based on BPLP’s current credit rating, (1) the applicable Eurocurrency margins for the Revolving Facility and Delayed Draw Facility are 82.5 basis points and 90 basis points, respectively, and (2) the facility fee on the Revolving Facility commitment is 0.125% per annum.

0 million Delayed Draw Facility that permitted BPLP to draw until the first anniversary of the closing date.

Based on BPLP’s current credit rating, (1) the applicable Eurocurrency margins for the Revolving Facility and Delayed Draw Facility are 87.5 basis points and 95 basis points, respectively, and (2) the facility fee on the Revolving Facility commitment is 0.15% per annum, which represent slight increases from the margins in effect during the six months ended June 30, 2020 due to a change in BPLP’s credit rating that occurred on August 3, 2020.

On April 24, 2018, BPLP exercised its option to draw $500.0 million on its Delayed Draw Facility.

The Delayed Draw Facility bears interest at a variable rate equal to LIBOR plus 0.90% per annum based on BPLP’s March 31, 2020 credit rating and matures on April 24, 2022.

As of March 31, 2020 , BPLP had $500.0 million of borrowings outstanding under its Delayed Draw Facility, $250.0 million borrowings under its Revolving Facility and letters of credit totaling approximately $2.5 million outstanding with the ability to borrow approximately $1.2 billion under the Revolving Facility.

As of May 5, 2020, BPLP had $500.0 million of borrowings outstanding under its Delayed Draw Facility, no borrowings under its Revolving Facility and letters of credit totaling approximately $2.5 million outstanding with the ability to borrow approximately $1.5 billion under the Revolving Facility.

The Delayed Draw Facility bears interest at a variable rate equal to LIBOR plus 0.90% per annum based on BPLP’s June 30, 2020 credit rating and matures on April 24, 2022.

As of June 30, 2020 and August 3, 2020, BPLP had $500.0 million of borrowings outstanding under its Delayed Draw Facility, no borrowings under its Revolving Facility and letters of credit totaling approximately $2.5 million outstanding with the ability to borrow approximately $1.5 billion under the Revolving Facility.

Unsecured Senior Notes, Net

The following summarizes BPLP’s outstanding unsecured senior notes as of March 31, 2020 (dollars in thousands) (See Note 12 to the Consolidated Financial Statements):

Maturity Date(2)

10 Year Unsecured Senior Notes

11 Year Unsecured Senior Notes

February 1, 2023

10.5 Year Unsecured Senior Notes

September 1, 2023

10.5 Year Unsecured Senior Notes

February 1, 2024

7 Year Unsecured Senior Notes

January 15, 2025

10 Year Unsecured Senior Notes

February 1, 2026

10 Year Unsecured Senior Notes

October 1, 2026

10 Year Unsecured Senior Notes

December 1, 2028

10 Year Unsecured Senior Notes

June 21, 2029

10.5 Year Unsecured Senior Notes

March 15, 2030

Total principal

Net unamortized discount

Deferred financing costs, net

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Yield on issuance date including the effects of discounts on the notes, settlements of interest rate contracts and the amortization of financing costs.

No principal amounts are due prior to maturity.

For a description of BPLP’s outstanding unsecured senior notes as of June 30, 2020, see Note 6 to the

Consolidated Financial Statements.

On May 5, 2020, BPLP completed a public offering of $1.25 billion in aggregate principal amount of its 3.250% unsecured senior notes due 2031.

The notes were priced at 99.850% of the principal amount to yield an effective rate (including financing fees) of approximately 3.343% per annum to maturity.

The notes will mature on January 30, 2031, unless earlier redeemed.

The aggregate net proceeds from the offering were approximately $1.24 billion 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 March 31, 2020 , BPLP was in compliance with each of these financial restrictions and requirements.

At June 30, 2020, BPLP was in compliance with each of these financial restrictions and requirements.

Mortgage Notes Payable, Net

The following represents the outstanding principal balances due under the mortgage notes payable at March 31, 2020 :

Interest Rate

Interest Rate (1)

Principal Amount

Deferred Financing Costs, Net

Carrying Amount

Carrying Amount (Partners ’ Share)

The following represents the outstanding principal balances due under the mortgage notes payable at June 30, 2020:

Properties Stated

Interest Rate GAAP

Interest Rate (1) Stated

Principal Amount Deferred Financing Costs, Net Carrying Amount Carrying Amount (Partners ’ Share)

Maturity Date

(dollars in thousands)

University Place

August 1, 2021

University Place 6.94 % 6.99 % $ 2,580 $ (15) $ 2,565 N/A August 1, 2021

Consolidated Joint Ventures

767 Fifth Avenue (the General Motors Building)

601 Lexington Avenue

April 10, 2022

3.43 % 3.64 % 2,300,000 (24,225) 2,275,775 $ 910,396 (2)(3)(4) June 9, 2027

601 Lexington Avenue 4.75 % 4.79 % 638,097 (585) 637,512 286,880 (5) April 10, 2022

2,938,097 (24,810) 2,913,287 1,197,276

Total $ 2,940,677 $ (24,825) $ 2,915,852 $ 1,197,276

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(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).

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The partners’ share of the carrying amount has been adjusted for basis differentials.

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(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 March 31, 2020 , the maximum funding obligation under the guarantee was approximately $57.1 million .

As of June 30, 2020, the maximum funding obligation under the guarantee was approximately $48.9 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 7 to the Consolidated Financial Statements).

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See also Note 5 to the Consolidated Financial Statements.

At March 31, 2020 , the aggregate carrying amount of debt, including both our and our partners’ share, incurred by these ventures was approximately $2.3 billion (of which our proportionate share is approximately $1.0 billion ).

The table below summarizes the outstanding debt of these joint venture properties at March 31, 2020 .

At June 30, 2020, the aggregate carrying amount of debt, including both our and our partners’ share, incurred by these ventures was approximately $2.5 billion (of which our proportionate share is approximately $1.1 billion).

The table below summarizes the outstanding debt of these joint venture properties at June 30, 2020.

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.

Nominal % Ownership

Stated Interest Rate

GAAP Interest Rate (1)

Stated Principal Amount

Deferred Financing Costs, Net

Carrying Amount

Carrying Amount (Our share)

Maturity Date

Properties Nominal % Ownership Stated Interest Rate GAAP Interest Rate (1) Stated Principal Amount Deferred Financing Costs, Net Carrying Amount Carrying Amount (Our share) Maturity Date

(dollars in thousands)

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50 % 2.28 % 2.43 % 12,266 (9) 12,257 6,128 (4) November 17, 2020

Annapolis Junction Building Seven and Eight

June 30, 2020

Annapolis Junction Building Seven

50 % 2.92 % 3.27 % 18,420 (47) 18,373 9,187 (5) March 25, 2021

1265 Main Street

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500 North Capitol Street, NW

30 % 4.15 % 4.20 % 105,000 (173) 104,827 31,448 (2) June 6, 2023

901 New York Avenue

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Metropolitan Square

20 % 5.40 % 6.90 % 288,000 (9,810) 278,190 55,638 (2)(12) July 7, 2022

Total $ 2,490,280 $ (25,241) $ 2,465,039 $ 1,067,400

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(3) The loan bears interest at a variable rate equal to LIBOR plus 1.28% per annum and matures on July 19, 2025.

A subsidiary of the joint venture entered into interest rate swap contracts with notional amounts aggregating $300.0 million through April 1, 2025, resulting in a fixed rate of approximately 4.063% per annum through the expiration of the interest rate swap contracts.

A subsidiary of the joint venture entered into interest rate swap contracts with notional amounts

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aggregating $300.0 million through April 1, 2025, resulting in a fixed rate of approximately 4.063% per annum through the expiration of the interest rate swap contracts.

(4) The loan bears interest at a variable rate equal to LIBOR plus 2.00% per annum and matures on November 17, 2020.

The loan bears interest at a variable rate equal to LIBOR plus 2.35% per annum and matures on June 30, 2020.

(5) Annapolis Junction Building Eight was sold on June 25, 2020 (See Note 5 to the Consolidated Financial Statements).

Simultaneously with the sale of Annapolis Junction Building Eight, the joint venture modified the mortgage loan to release Annapolis Junction Building Eight as collateral under the loan in exchange for a principal pay down of approximately $16.1 million using a portion of the net proceeds from the sale of the property.

(6) The construction financing has a borrowing capacity of $250.0 million.

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The loan has been reflected as Related Party Note Receivable, Net on our Consolidated Balance Sheets.

On April 22, 2020, the maturity date was extended to August 5, 2020.

(12) On June 9, 2020, the joint venture obtained new mortgage financing with a new lender.

The new mortgage loan totaling $325.0 million (of which $288.0 million was advanced at closing) bears interest at a variable rate equal to LIBOR plus 4.75% per annum and matures on July 7, 2022, with two, one-year extension options, subject to certain conditions.

In conjunction with the new mortgage financing, the joint venture entered into an interest rate cap agreement with a financial institution to limit its exposure to increases in the LIBOR portion of interest costs to 3.0% per annum on a notional amount of $325.0 million through July 7, 2022.

State and Local Tax Matters

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Pursuant to the revised definition of Funds from Operations adopted by the Board of Governors of the National Association of Real Estate Investment Trusts (“Nareit”), we calculate Funds from Operations, or “FFO,” for each of BXP and BPLP by adjusting net income (loss) attributable to Boston Properties, Inc.

common shareholders and net income (loss) attributable to Boston Properties Limited Partnership common unitholders (computed in accordance with GAAP), respectively, for gains (or losses) from sales of properties, impairment losses on depreciable real estate consolidated on our balance sheet, impairment losses on our investments in unconsolidated joint ventures driven by a measurable decrease in the fair value of depreciable real estate held by the unconsolidated joint ventures and our share of real estate-related depreciation and amortization.

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ventures and our share of real estate-related depreciation and amortization.

FFO is a non-GAAP financial measure.

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common shareholders or net income attributable to Boston Properties Limited Partnership common unitholders (determined in accordance with GAAP) or any other GAAP financial measures and should only be considered together with and as a supplement to our financial information prepared in accordance with GAAP.

The impact that COVID-19 has had on our business, financial position and results of operations during the second quarter of 2020 is discussed throughout this report.

The full extent of the impact of COVID-19 on our business, o perations and financial results will depend on numerous evolving factors that we may not be able to accurately predict.

The impact of COVID-19 on our revenue, in particular lease, parking and hotel revenue was negatively impacted by COVID-19 for the three and six months ended June 30, 2020, thus negatively impacting our FFO.

These decreases are discussed under the heading “ Comparison of the six months ended June 30, 2020 to the six months ended June 30, 2019 ” within “ Item 2—Management’s Discussion and Analysis of Financial Condition and Results of Operations ” and under the heading “ Comparison of the three months ended June 30, 2020 to the three months ended June 30, 201 9” within “ Item 2—Management’s Discussion and Analysis of Financial Condition and Results of Operations .”

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Boston Properties, Inc.

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common shareholders to FFO attributable to Boston Properties, Inc.

common shareholders for the three months ended March 31, 2020 and 2019 :

Three months ended March 31,

common shareholders for the three months ended June 30, 2020 and 2019:

Three months ended June 30,

(in thousands)

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common shareholders

$ 266,525 $ 164,318

Preferred dividends 2,625 2,625

Noncontrolling interest—common units of the Operating Partnership

30,197 19,036

Noncontrolling interests in property partnerships

Net income 298,580 203,461

Depreciation and amortization 178,188 177,411

Noncontrolling interests in property partnerships’ share of depreciation and amortization

(22,480) (17,869)

BXP’s share of depreciation and amortization from unconsolidated joint ventures

21,012 14,778

Corporate-related depreciation and amortization

Impairment loss

Gains (losses) on sales of real estate

Gain on sale of real estate included within income from unconsolidated joint ventures

Gains on sales of real estate 203,767 1,686

Noncontrolling interests in property partnerships

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Funds from Operations (FFO) attributable to the Operating Partnership common unitholders (including Boston Properties, Inc.)

263,243 307,819

Noncontrolling interest—common units of the Operating Partnership’s share of funds from operations

26,335 31,544

Funds from Operations attributable to Boston Properties, Inc.

common shareholders

$ 236,908 $ 276,275

Our percentage share of Funds from Operations—basic

90.00 % 89.75 %

Weighted average shares outstanding—basic 155,386 154,555

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Reconciliation to Diluted Funds from Operations:

Three months ended March 31,

(Denominator)

Three months ended June 30,

(Numerator) Shares/Units

(Denominator) Income

(Numerator) Shares/Units

(Denominator)

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Noncontrolling interest—common units of the Operating Partnership’s share of diluted Funds from Operations

26,331 17,273 31,486 17,647

Diluted Funds from Operations attributable to Boston Properties, Inc.

$ 236,912 155,407 $ 276,333 154,874

BXP’s share of diluted Funds from Operations was 89.85% and 89.79% for the three months ended March 31, 2020 and 2019 , respectively.

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(1) BXP’s share of diluted Funds from Operations was 90.00% and 89.77% for the three months ended June 30, 2020 and 2019, respectively.

Boston Properties Limited Partnership

The following table presents a reconciliation of net income attributable to Boston Properties Limited Partnership common unitholders to FFO attributable to Boston Properties Limited Partnership common unitholders for the three months ended March 31, 2020 and 2019 :

Three months ended March 31,

Three months ended June 30,

(in thousands)

Net income attributable to Boston Properties Limited Partnership common unitholders

$ 301,975 $ 185,715

Preferred distributions

Noncontrolling interests in property partnerships

Net income 303,833 205,822

Depreciation and amortization

176,409 175,199

Noncontrolling interests in property partnerships’ share of depreciation and amortization

(22,480) (17,869)

BPLP’s share of depreciation and amortization from unconsolidated joint ventures

21,012 14,778

Corporate-related depreciation and amortization

Impairment loss

Gains (losses) on sales of real estate

Gain on sale of real estate included within income from unconsolidated joint ventures

Gains on sales of real estate

207,241 1,835

Noncontrolling interests in property partnerships

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Funds from operations attributable to Boston Properties Limited Partnership common unitholders (1)

$ 263,243 $ 307,819

Weighted average units outstanding—basic

172,659 172,202

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(1) Our calculation includes OP Units and vested LTIP Units (including vested 2012 OPP Units and vested 2013 - 2017 MYLTIP Units).

Reconciliation to Diluted Funds from Operations:

Three months ended March 31,

(Denominator)

Three months ended June 30,

(Numerator) Shares/Units

(Denominator) Income

(Numerator) Shares/Units

(Denominator)

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Contract terms are generally between three and five years.

During the three months ended March 31, 2020 , we paid approximately $81.9 million to fund tenant-related obligations, including tenant improvements and leasing commissions.

In addition, during the three months ended March 31, 2020 , we and our unconsolidated joint venture partners incurred approximately $36 million of new tenant-related obligations associated with approximately 702,000 square feet of second generation leases, or approximately $52 per square foot.

We did not sign any first generation leases.

During the three months ended June 30, 2020, we paid approximately $74.0 million to fund tenant-related obligations, including tenant improvements and leasing commissions.

In addition, during the three months ended June 30, 2020, we and our unconsolidated joint venture partners incurred approximately $120 million of new tenant-related obligations associated with approximately 1.2 million square feet, which included approximately 297,000 square feet of lease modifications related to COVID-19, of second generation leases, or approximately $97 per square foot.

We signed approximately 5,000 square feet of 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.” In aggregate during the second quarter of 2020, we signed leases for approximately 1.2 million square feet of space and incurred aggregate tenant-related obligations of approximately $121 million, or approximately $98 per square foot.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis