BXP, Inc. 10-Q

ITEM 2—Management’s Discussion and Analysis of Financial Condition and Results of Operations The following discussion should be read in conjunction with the financial statements and notes thereto appearing elsewhere in this report. This Quarterly Report on Form 10-Q, including the documents incorporated by reference, contain forward -looking statements within the meaning of the federal securities laws, Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. We intend these forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995 and are including this statement for purposes of complying with those safe harbor provisions, in each case, to the extent applicable. Such statements are contained principally, but not only, under the captions “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” We caution investors that any such forward-looking statements are based on current beliefs or expectations of future events and on assumptions made by, and information currently available to, our management. When used, the words “anticipate,” “believe,” “budget,” “estimate,” “expect,” “intend,” “may,” “might,” “plan,” “project,” “should,” “will” and similar expressions that do not relate solely to historical matters are intended to identify forward-looking statements. Such statements are subject to risks, uncertainties and assumptions and are not guarantees of future performance or occurrences, which may be affected by known and unknown risks, trends, uncertainties and factors that are, in some cases, beyond our control. Should one or more of these known or unknown risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those expressed or implied by the forward-looking statements. We caution you that, while forward-looking statements reflect our good-faith beliefs when we make them, they are not guarantees of future performance or occurrences and are impacted by actual events when they occur after we make such statements. Accordingly, investors should use caution in relying on forward-looking statements, which are based on results and trends at the time they are made, to anticipate future results or trends. One of the most significant factors that may cause actual results to differ materially from those expressed or implied by the forward-looking statements is the ongoing impact of the global COVID-19 pandemic on the U.S. and global economies, which has impacted, and is likely to continue to impact, us and, directly or indirectly, many of the other important factors below and the risks described in (i) our Annual Report on Form 10-K for the fiscal year ended December 31, 2019 including those described under the caption “Risk Factors,” (ii) our subsequent filings under the Exchange Act and (iii) the risk factors set forth in this Form 10-Q in Part II, Item 1A. Some of the risks and uncertainties that may cause our actual results, performance or achievements to differ materially from those expressed or implied by forward-looking statements include, among others, the following: • the risks and uncertainties related to the impact of the COVID-19 global pandemic, including the duration, scope and severity of the pandemic domestically and internationally; federal, state and local government actions or restrictive measures implemented in response to COVID-19, the effectiveness of such measures, as well as the effect of any relaxation of current restrictions, and the direct and indirect impact of such measures on our and our tenants' businesses, financial condition, results of operations, cash flows, liquidity and performance, and the U.S. and international economy and economic activity generally; whether new or existing actions and measures continue to result in increasing unemployment that impacts the ability of our residential tenants to generate sufficient income to pay, or make them unwilling to pay rent in a timely manner, in full or at all; the health, continued service and availability of our personnel, including our key personnel and property management teams; and the effectiveness or lack of effectiveness of governmental relief in providing assistance to individuals and large and small businesses, including our tenants, that have suffered significant adverse effects from COVID-19; • volatile or adverse global economic and political conditions, health crises and dislocations in the credit markets could adversely affect our access to cost-effective capital and have a resulting material adverse effect on our business opportunities, results of operations and financial condition; • general risks affecting the real estate industry (including, without limitation, the inability to enter into or renew leases, tenant space utilization, dependence on tenants’ financial condition, and competition from other developers, owners and operators of real estate); • failure to manage effectively our growth and expansion into new markets and sub-markets or to integrate acquisitions and developments successfully; • the ability of our joint venture partners to satisfy their obligations; 47 Table of Conte n ts • risks and uncertainties affecting property development and construction (including, without limitation, construction delays, increased construction costs, cost overruns, inability to obtain necessary permits, tenant accounting considerations that may result in negotiated lease provisions that limit a tenant’s liability during construction, and public opposition to such activities); • risks associated with the availability and terms of financing and the use of debt to fund acquisitions and developments or refinance existing indebtedness, including the impact of higher interest rates on the cost and/or availability of financing; • risks associated with forward interest rate contracts and the effectiveness of such arrangements; • risks associated with downturns in the national and local economies, increases in interest rates, and volatility in the securities markets; • risks associated with actual or threatened terrorist attacks; • costs of compliance with the Americans with Disabilities Act and other similar laws; • potential liability for uninsured losses and environmental contamination; • risks associated with the physical effects of climate change; • risks associated with security breaches through cyber attacks, cyber intrusions or otherwise, as well as other significant disruptions of our information technology (IT) networks and related systems, which support our operations and our buildings; • risks associated with BXP’s potential failure to qualify as a REIT under the Internal Revenue Code of 1986, as amended; • possible adverse changes in tax and environmental laws; • the impact of newly adopted accounting principles on our accounting policies and on period-to-period comparisons of financial results; • risks associated with possible state and local tax audits; • risks associated with our dependence on key personnel whose continued service is not guaranteed; and • the other risk factors identified in our most recently filed Annual Report on Form 10-K for the fiscal year ended December 31, 2019 or described herein, including those under the caption “Risk Factors.” The risks set forth above are not exhaustive. Other sections of this report may include additional factors that could adversely affect our business and financial performance. Moreover, we operate in a very competitive and rapidly changing environment, particularly in light of the circumstances relating to COVID-19. New risk factors emerge from time to time and it is not possible for management to predict all risk factors, nor can we assess the impact of all risk factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Given these risks and uncertainties, investors should not place undue reliance on forward-looking statements as a prediction of actual results. Investors should also refer to our most recent Annual Report on Form 10-K and our Quarterly Reports on Form 10-Q for future periods and Current Reports on Form 8-K as we file them with the SEC, and to other materials we may furnish to the public from time to time through Current Reports on Form 8-K or otherwise, for a discussion of risks and uncertainties that may cause actual results, performance or achievements to differ materially from those expressed or implied by forward-looking statements. We expressly disclaim any responsibility to update any forward-looking statements to reflect changes in underlying assumptions or factors, new information, future events, or otherwise, and you should not rely upon these forward-looking statements after the date of this report. Overview BXP is one of the largest publicly-traded office real estate investment trusts (REITs) in the United States (based on total market capitalization as of September 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 48 Table of Conte n ts 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 7.5 years, as of September 30, 2020, including leases at our unconsolidated joint ventures. The weighted-average lease term for our top 20 office tenant leases was approximately 10.8 years. Historically, these factors have minimized our exposure in weaker economic cycles and enhanced revenues as market conditions improve. To be successful in any leasing environment, we believe we must consider all aspects of the tenant-landlord relationship. In this regard, we believe that our competitive advantage is based on the following attributes: • our understanding of tenants’ short- and long-term space utilization and amenity needs in the local markets; • our reputation as a premier developer, owner and manager of primarily Class A office properties; • our financial strength and our ability to maintain high building standards; • our focus on developing and operating in a sustainable and responsible manner; and • our relationships with local brokers. Outlook In the third quarter of 2020, the COVID-19 pandemic continued to negatively impact global macroeconomic conditions, and businesses across the United States experienced job losses and other recessionary effects. Although U.S. GDP improved 33% on an annualized basis in the third quarter of 2020 as compared to the 31% decline in the second quarter of 2020, the pace of improvement has slowed. The federal stimulus programs that provided much of the economic lift last quarter have either expired or are expiring, and it is unclear if additional fiscal stimulus will be forthcoming. The U.S. economic recovery remains heavily impacted by the pandemic. The health of the overall economy and employment trends among professional workers have been, and we expect will continue to be, one of the most important drivers of office market conditions. Beginning in March 2020, public health officials and governmental authorities, including those in all of the markets in which we operate, reacted to the spread of the COVID-19 pandemic by imposing regulatory measures such as prohibiting people from congregating in heavily populated areas, instituting quarantines, restricting travel, issuing “stay-at-home” orders, restricting the types of businesses that could continue to operate (including the types of construction projects that could proceed) and closing schools, among many others. Although the state and local authorities in all of our regions except Los Angeles and New Jersey have eased those regulations to allow for the return to work, the physical occupancy of our properties remains well below capacity as most employers continued their COVID-19 response protocols and encouraged employees to work from home when possible during the pandemic. The short and long term impact the pandemic will have on the use of office space is unknown as companies consider the recessionary impact on their business and their demand for labor while, at the same time, consider the space requirements associated with social distancing. We believe our strategically located, high quality product will continue to be a component of today’s forward thinking organization that desires to drive culture and productivity. Because of the uncertainty regarding the length and severity of the pandemic, many existing and prospective tenants are deferring decisions on their office space needs as they focus on their employees’ safety, their companies’ liquidity and managing their businesses through the recession and economic recovery. As a result, new leasing activity was lower in the third quarter of 2020 than it was prior to March 2020. Despite the slowdown in tour activity during the quarter, we signed approximately 811,000 square feet of leases and renewals during the third quarter with an average lease term of seven years, indicating that many prospective and existing tenants are committed to long-term office space and view our properties as their preferred choice for premium, Class A office. Included in our third quarter leasing activity was a lease extension and an expansion with a tenant totaling approximately 186,000 square feet in Reston, Virginia and a new lease for approximately 82,000 square feet with a tenant in Boston, Massachusetts. 49 Table of Conte n ts 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 4.3 million square feet of active developments and redevelopments in our pipeline, which are 80% pre-leased, as of November 3, 2020, to primarily credit-strong tenants with long-lease terms. All development projects remain on schedule to meet all required delivery milestones in our leases. The health and safety of our employees, tenants, service providers and visitors continues to be our highest priority. In the third quarter, we continued to implement our 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. Rent Collections Cash rent payments for a particular month are generally due on the first day of that month (although tenants have varying grace periods). 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. During the third quarter of 2020, our rent collections as a percentage of the total amounts billed to all tenants were 97%. • Approximately 96% of these billings were made to office tenants. Our third quarter rent collections from office tenants continued to be strong at 99%. Approximately $612 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 these billings related to retail leases. Our third quarter rent collections from retail tenants was 62%. When evaluating the collectability of a tenant’s accrued rent and accounts receivable balances, management analyzes the tenant’s creditworthiness, current economic trends, including the impact of COVID-19 on a tenant’s business, and changes in the tenant’s payment patterns on a lease-by-lease basis. In the third quarter, we recorded write-offs totaling approximately $10 million, of which approximately $6 million were associated with accrued rent and approximately $4 million were associated with accounts receivable. These amounts represent 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). The majority of these write-offs related to tenants in the retail, fitness and entertainment sectors. Cash rent abatements and deferrals primarily related to COVID-19 were approximately $18.2 million in the third quarter. This amount represents 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 third quarter, our parking and other revenue was approximately $16.3 million, an increase of $2.4 million, or 17%, from the second quarter of 2020, but a decrease of approximately $9.3 million, or 36%, as compared to the third quarter of 2019. The year-over-year decline was largely due to the decline in transient parking revenue as employees continue to work from home during the pandemic. Our hotel property, the Boston Marriott Cambridge, remained closed throughout the third quarter and therefore operated at an approximately $3.1 million loss. As a result, net operating income declined approximately $7.3 million as compared to the third quarter of 2019. The hotel re-opened on October 2, 2020, but occupancy remains low due to reduced demand as a result of COVID-19 and we expect demand to remain low for the foreseeable future. As a result of the impact of the current environment, we expect our 2020 revenues to be adversely affected due to (1) declines in revenue from 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. 50 Table of Conte n ts 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; • implementing measures to ensure tenant and employee health security; • communicating openly with tenants to provide assurance before and during re-occupancy; • leasing available space in our in-service and development properties; • 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; • maintaining our conservative balance sheet and managing our near-term debt maturities; • actively managing our operations in a safe, sustainable and responsible manner; and • maintaining discipline in our underwriting of investment opportunities. Following is an overview of portfolio activity and leasing activity in the third quarter of 2020. The overall occupancy of our in-service office and retail properties was 91.1% at September 30, 2020, a decrease of 90 basis points as compared to June 30, 2020. During the third quarter of 2020, we signed leases across our portfolio totaling approximately 811,000 square feet and we commenced revenue recognition on approximately 1.2 million square feet of leases in second generation space, including lease modifications. Of these second generation leases, approximately 895,000 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 20% over the prior leases. A brief overview of each of our markets follows. Boston Our Boston central business district (“CBD”) in-service portfolio was approximately 98% leased as of September 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 third quarter of 2020, we executed approximately 96,000 square feet of leases and had approximately 262,000 square feet of leases commence in the Boston region. Approximately 222,000 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 15% over the prior leases. During the quarter, a joint venture in which we own 50% fully placed in-service Hub50House, a 440 unit residential property that is part of the 1.3 million square foot mixed-use Hub on Causeway development in Boston, Massachusetts. Our approximately 2.0 million square foot in-service office portfolio in Cambridge was approximately 99% leased, as of September 30, 2020. In addition, during the third quarter of 2020, one of our large tenants in Cambridge had the contractual right to terminate a lease for 190,000 square feet but the tenant did not exercise that right and its lease now expires in 2037. During the quarter, we continued our 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. The redevelopment is a conversion of a portion of the property to laboratory space to meet growing demand in the life sciences sector. In November 2020, we signed an approximately 138,000 square-foot, 10-year lease with a new tenant at this building. With this lease, the property is 100% leased. During the third quarter of 2020, we also entered into an agreement with an existing joint venture partner for the future development of a 1.2 million square foot site in Waltham. The agreement allows for the phased development of office and lab properties across 41-acres. We expect to serve as the development manager. As part of this development, we expect to complete new exit/interchange improvements onto I-95/Route 128, enhancing access to our entire Waltham portfolio. Waltham and the surrounding Route 128 Mass Turnpike area continues to be a popular submarket of Boston for leading and emerging companies in the life sciences, biotechnology and technology sectors. This agreement builds on our current footprint of approximately 4.3 million square feet of office and lab properties in this submarket. 51 Table of Conte n ts Los Angeles Our Los Angeles (“LA”) in-service portfolio is currently focused on West LA and includes approximately 2.3 million square feet, including a 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 increased our occupancy in LA in the third quarter by 80 basis points due to an approximately 46,000 square foot expansion by one of our existing technology tenants. As of September 30, 2020, our LA in-service properties were approximately 97% 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 the third quarter of 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 acquisition, we 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. New York As of September 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. We are negotiating a reinstatement and renewal agreement with one of these tenants for approximately 150,000 square feet. In addition, we have executed approximately 249,000 square feet of leases that we expect will commence by the end of the first quarter of 2021. In the third quarter of 2020, we commenced approximately 210,000 square feet of leases in the New York region. Of these leases, approximately 129,000 square feet had been vacant for less than one year and represent an increase in net rental obligations of approximately 14% over the prior leases. San Francisco Our San Francisco CBD in-service properties were approximately 96% leased as of September 30, 2020. During the third quarter of 2020, we commenced approximately 387,000 square feet of leases in the San Francisco region. Of these leases, approximately 354,000 square feet had been vacant for less than one year and represent an increase in net rental obligations of approximately 29% over the prior leases. During the third quarter, we placed in service The Skylyne, a 402 unit residential property in Oakland, California, which was 9% leased as of November 3, 2020. 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 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 third quarter of 2020, we commenced approximately 273,000 square feet of leases in the Washington, DC region. Of these leases, approximately 163,000 square feet had been vacant for less than one year and represent an increase in net rental obligations of approximately 1% over the prior leases. Our Washington, DC CBD in-service properties were approximately 85% leased, as of September 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. Our Washington, DC suburban properties, which includes our significant presence in Reston, Virginia, were approximately 84% leased as of September 30, 2020. During the third quarter of 2020, we signed a lease extension and an expansion with a tenant totaling approximately 186,000 square feet in Reston, Virginia. In October 2020, we signed an approximately 196,000 square foot, 20-year lease with a tenant at Reston Next, our 52 Table of Conte n ts approximately 1.1 million square foot development, the new phase of Reston Town Center in Reston, Virginia. With this new lease, the Reston Next development is 85% pre-leased. Leasing Statistics The table below details the leasing activity, including 100% of the unconsolidated joint ventures, that commenced during the three and nine months ended September 30, 2020: Three months ended September 30, 2020 Nine months ended September 30, 2020 Total Square Feet Vacant space available at the beginning of the period 3,570,356 3,135,170 Property dispositions/properties taken out of service (1) — (150,193) Properties placed (and partially placed) in-service (2) 12,825 377,647 Leases expiring or terminated during the period 1,597,697 4,433,742 Total space available for lease 5,180,878 7,796,366 1 st generation leases — 342,007 2 nd generation leases with new tenants 613,534 1,670,329 2 nd generation lease renewals 574,937 1,791,623 Total space leased (3) 1,188,471 3,803,959 Vacant space available for lease at the end of the period 3,992,407 3,992,407 Leases executed during the period, in square feet (4) 810,972 2,454,913 Second generation leasing information : (5) Leases commencing during the period, in square feet 1,188,471 3,461,952 Weighted Average Lease Term 89 Months 107 Months Weighted Average Free Rent Period 144 Days 149 Days Total Transaction Costs Per Square Foot (6) $66.57 $81.32 Increase in Gross Rents (7) 13.65 % 17.48 % Increase in Net Rents (8) 20.14 % 26.70 % __________________ (1) Total square feet of property dispositions/properties taken out of service during the nine months ended September 30, 2020 consists of 24,508 square feet due to the sale of a portion of Capital Gallery and 125,685 square feet 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 September 30, 2020 consists of 12,825 at The Skylyne. Total square feet of properties placed (and partially placed) in-service during the nine months ended September 30, 2020 consists of 12,825 at The Skylyne, 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 nine months ended September 30, 2020. (4) Represents leases executed during the three and nine months ended September 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 nine months ended September 30, 2020 is 174,187 and 680,575, respectively. Amounts for the three and nine months ended September 30, 2020 exclude lease modifications related to COVID-19 covering an aggregate of 667,000 and 3,766,343 square feet that were executed in the three and nine months ended September 30, 2020, respectively, to provide cash rent deferrals and/or abatements. Of these lease modifications, the lease terms associated with 176,787 and 473,776 square feet were extended for a period of 12 or more months during the three and nine months ended September 30, 2020, respectively. (5) Second generation leases are defined as leases for space that had previously been leased by us. Of the 1,188,471 and 3,461,952 square feet of second generation leases that commenced during the three and nine months ended September 30, 2020, respectively, leases for 1,014,284 and 2,786,533 square feet, respectively, were signed in prior periods. 53 Table of Conte n ts (6) Total transaction costs include tenant improvements and leasing commissions but exclude free rent concessions and other inducements in accordance with GAAP. (7) Represents the increase in gross rent (base rent plus expense reimbursements) on the new versus expired leases on the 894,966 and 2,800,738 square feet of second generation leases that had been occupied within the prior 12 months for the three and nine months ended September 30, 2020, respectively; excludes leases that management considers temporary because the tenant is not expected to occupy the space on a long-term basis. (8) Represents the increase in net rent (gross rent less operating expenses) on the new versus expired leases on the 894,966 and 2,800,738 square feet of second generation leases that had been occupied within the prior 12 months for the three and nine months ended September 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 September 30, 2020 included the following: Developments • On July 31, 2020, we acquired an undivided ownership interest in real property at 759 Harrison Street located in San Francisco, California, which is expected to be included in the Fourth + Harrison development project, for a purchase price totaling approximately $2.3 million. Fourth + Harrison is expected to support the development of approximately 804,000 square feet of primarily commercial office space. • On August 15, 2020, we completed and fully placed in-service The Skylyne, an approximately 331,000 square foot project comprised of 402 residential units and retail space located in Oakland, California that was 9% leased, as of November 3, 2020. Unconsolidated joint venture activities • 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. • On July 24, 2020, a joint venture in which we have a 50% interest completed and fully placed in-service Hub50House, an approximately 320,000 square foot project comprised of 440 residential units located in Boston, Massachusetts, that was 53% leased, as of November 3, 2020. • On September 1, 2020, we entered into an agreement with our partner in the joint venture that owns 1265 Main Street located in Waltham, Massachusetts to (1) form additional joint ventures to own and develop a mixed-use property containing approximately 1,200,000 square feet to be developed in phases on an approximately 41-acre site adjacent to 1265 Main Street and (2) share the costs of certain offsite infrastructure improvements with our joint venture partner and other third party abutting land owners. We will serve as the development manager and expect to own a 50% interest in each of the joint ventures. • On September 30, 2020, a joint venture in which we have a 50% interest extended the mortgage loan collateralized by its Market Square North property. At the time of the extension, the outstanding balance of the loan totaled approximately $114.2 million, bore interest at a fixed rate of 4.85% per annum and was scheduled to mature on October 1, 2020. The extended loan matures on November 1, 2020. Market Square North is a Class A office property with approximately 418,000 net rentable square feet located in Washington, DC. Transactions completed subsequent to September 30, 2020 included the following: • On October 1, 2020, a joint venture in which we have a 50% interest completed and fully placed in-service Dock 72, a Class A office project with approximately 670,000 net rentable square feet located in Brooklyn, New York. • On October 30, 2020, a joint venture in which we have a 50% interest refinanced the mortgage loan collateralized by its Market Square North property located in Washington, DC. The outstanding balance of the loan totaled approximately $114.2 million, bore interest at a fixed rate of 4.85% per annum and was scheduled to mature on November 1, 2020. The new mortgage loan totals 54 Table of Conte n ts $125.0 million, bears interest at a variable rate equal to (1) the greater of (x) LIBOR or (y) 0.50%, plus (2) 2.30% per annum, and matures on November 10, 2025, with one, one-year extension option, subject to certain conditions. • On November 3, 2020, we signed an approximately 138,000 square-foot, 10-year lease with a new tenant at 200 West Street in Waltham, Massachusetts. We are currently redeveloping a portion of 200 West Street into lab space with expected completion in 2021. With this lease, the property is 100% leased. Critical Accounting Policies Management’s Discussion and Analysis of Financial Condition and Results of Operations discuss our Consolidated Financial Statements, which have been prepared in accordance with generally accepted accounting principles (“GAAP”). The preparation of these financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Certain accounting policies are considered to be critical accounting policies, as they require management to make assumptions about matters that are highly uncertain at the time the estimate is made and changes in accounting estimate are reasonably likely to occur from period to period. Management bases its estimates and assumptions on historical experience and current economic conditions. On an on-going basis, management evaluates its estimates and assumptions including those related to revenue, impairment of long-lived assets and the allowance for doubtful accounts. Actual results may differ from those estimates and assumptions. Our Annual Report on Form 10-K for the year ended December 31, 2019 contains a discussion of our critical accounting policies, except for our policies established following the adoption of Accounting Standards Update (“ASU”) ASU 2016-13, ASU 2018-13, ASU 2018-17 and ASU 2020-04. The adoption of each of the pronouncements is discussed in Note 2 to our Consolidated Financial Statements. Management discusses and reviews our critical accounting policies and management’s judgments and estimates with BXP’s Audit Committee. Results of Operations for the Nine Months Ended September 30, 2020 and 2019 The impact that COVID-19 has had on our business, financial position and results of operations during the second and third quarters 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. 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. See Item 1A: “Risk Factors” for additional details. Net income attributable to Boston Properties, Inc. common shareho lders and net income attributable to Boston Properties Limited Partnership common unitholders increased approximately $484.3 million and $548.7 million for the nine months ended September 30, 2020 compared to 2019, respectively, as detailed in the following tables and for the reasons discussed below under the heading “ Comparison of the nine months ended September 30, 2020 to the nine months ended September 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 nine months ended September 30, 2020 and 2019 (in thousands): 55 Table of Conte n ts Boston Properties, Inc. Nine months ended September 30, 2020 2019 Increase/ (Decrease) % Change Net Income Attributable to Boston Properties, Inc. Common Shareholders $ 854,541 $ 370,200 $ 484,341 130.83 % Preferred dividends 7,875 7,875 — — % Net Income Attributable to Boston Properties, Inc. 862,416 378,075 484,341 128.11 % Net Income Attributable to Noncontrolling Interests: Noncontrolling interest—common units of the Operating Partnership 97,090 43,133 53,957 125.09 % Noncontrolling interests in property partnerships 34,280 54,782 (20,502) (37.42) % Net Income 993,786 475,990 517,796 108.78 % Other Expenses: Add: Interest expense 319,726 309,837 9,889 3.19 % Loss from early extinguishment of debt — 28,010 (28,010) (100.00) % Impairment loss — 24,038 (24,038) (100.00) % Other Income: Less: Gains from investments in securities 965 4,240 (3,275) (77.24) % Interest and other income (loss) 4,277 14,546 (10,269) (70.60) % Gains on sales of real estate 613,723 766 612,957 80,020.50 % Income (loss) from unconsolidated joint ventures (5,410) 47,528 (52,938) (111.38) % Other Expenses: Add: Depreciation and amortization expense 515,738 507,867 7,871 1.55 % Transaction costs 1,254 1,415 (161) (11.38) % Payroll and related costs from management services contracts 8,617 8,227 390 4.74 % General and administrative expense 102,059 107,980 (5,921) (5.48) % Other Revenue: Less: Direct reimbursements of payroll and related costs from management services contracts 8,617 8,227 390 4.74 % Development and management services revenue 23,285 29,566 (6,281) (21.24) % Net Operating Income $ 1,295,723 $ 1,358,491 $ (62,768) (4.62) % 56 Table of Conte n ts Boston Properties Limited Partnership Nine months ended September 30, 2020 2019 Increase/ (Decrease) % Change Net Income Attributable to Boston Properties Limited Partnership Common Unitholders $ 969,932 $ 421,214 $ 548,718 130.27 % Preferred distributions 7,875 7,875 — — % Net Income Attributable to Boston Properties Limited Partnership 977,807 429,089 548,718 127.88 % Net Income Attributable to Noncontrolling Interests: Noncontrolling interests in property partnerships 34,280 54,782 (20,502) (37.42) % Net Income 1,012,087 483,871 528,216 109.16 % Other Expenses: Add: Interest expense 319,726 309,837 9,889 3.19 % Loss from early extinguishment of debt — 28,010 (28,010) (100.00) % Impairment loss — 22,272 (22,272) (100.00) % Other Income: Less: Gains from investments in securities 965 4,240 (3,275) (77.24) % Interest and other income (loss) 4,277 14,546 (10,269) (70.60) % Gains on sales of real estate 626,686 915 625,771 68,390.27 % Income (loss) from unconsolidated joint ventures (5,410) 47,528 (52,938) (111.38) % Other Expenses: Add: Depreciation and amortization expense 510,400 501,901 8,499 1.69 % Transaction costs 1,254 1,415 (161) (11.38) % Payroll and related costs from management services contracts 8,617 8,227 390 4.74 % General and administrative expense 102,059 107,980 (5,921) (5.48) % Other Revenue: Less: Direct reimbursements of payroll and related costs from management services contracts 8,617 8,227 390 4.74 % Development and management services revenue 23,285 29,566 (6,281) (21.24) % Net Operating Income $ 1,295,723 $ 1,358,491 $ (62,768) (4.62) % At each of September 30, 2020 and 2019, we owned or had joint venture interests in a portfolio of 196 commercial real estate properties (in each case, the “Total Property Portfolio”). As a result of changes within our Total Property Portfolio, the financial data presented below shows significant changes in revenue and expenses from period-to-period. Accordingly, we do not believe that our period-to-period financial data with respect to the Total Property Portfolio is meaningful. Therefore, the comparison of operating results for the three and nine months ended September 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. We refer to properties acquired or placed in-service prior to the beginning of the earliest period presented and owned by us and in-service through the end of the latest period presented as our Same Property Portfolio. The Same Property Portfolio therefore excludes properties acquired, placed in-service or in development or redevelopment after the beginning of the earliest period presented or disposed of prior to the end of the latest period presented. 57 Table of Conte n ts 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, loss from early extinguishment of debt, 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 from investments in securities, interest and other income (loss), 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. 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. common shareholders and net income attributable to Boston Properties Limited Partnership common unitholders. For example, interest expense is not necessarily linked to the operating performance of a real estate asset and is often incurred at the corporate level as opposed to the property level. Similarly, interest expense may be incurred at the property level even though the financing proceeds may be used at the corporate level (e.g., used for other investment activity). In addition, depreciation and amortization expense, because of historical cost accounting and useful life estimates, may distort operating performance measures at the property level. NOI presented by us may not be comparable to NOI reported by other REITs or real estate companies that define NOI differently. We believe that, in order to facilitate a clear understanding of our operating results, NOI should be examined in conjunction with net income attributable to Boston Properties, Inc. common shareholders and net income attributable to Boston Properties Limited Partnership common unitholders as presented in our Consolidated Financial Statements. NOI should not be considered as a substitute for net income attributable to Boston Properties, Inc. common shareholders or net income attributable to Boston Properties Limited Partnership common unitholders (determined in accordance with GAAP) or any other GAAP financial measures and should only be considered together with and as a supplement to our financial information prepared in accordance with GAAP. The gains on sales of real estate, depreciation expense and impairment losses may differ between BXP and BPLP as a result of previously applied acquisition accounting by BXP for the issuance of common stock in connection with non-sponsor OP Unit redemptions by BPLP. This accounting resulted in a step-up of the real estate assets at BXP that was allocated to certain properties. The difference between the real estate assets of BXP as compared to BPLP for certain properties having an allocation of the real estate step-up will result in a corresponding difference in gains on sales of real estate, depreciation expense and impairment losses, when those properties are sold. For additional information see the Explanatory Note that follows the cover page of this Quarterly Report on Form 10-Q. Comparison of the nine months ended September 30, 2020 to the nine months ended September 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 38.6 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 September 30, 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 September 30, 2020. This table includes a reconciliation from the Same Property Portfolio to the Total Property Portfolio by also providing information for the nine months ended September 30, 2020 and 2019 with respect to the properties that were acquired, placed in-service, in development or redevelopment or sold. 58 Table of Conte n ts 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/ (Decrease) % Change 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 Increase/ (Decrease) % Change (dollars in thousands) Rental Revenue: (1) Lease Revenue (Excluding Termination Income) $ 1,886,518 $ 1,934,860 $ (48,342) (2.50) % $ 10,518 $ 1,298 $ 46,161 $ 1,576 $ 2,614 $ 7,935 $ 24,067 $ 65,898 $ 1,969,878 $ 2,011,567 $ (41,689) (2.07) % Termination Income 8,363 13,226 (4,863) (36.77) % — — — — — — 59 580 8,422 13,806 (5,384) (39.00) % Lease Revenue 1,894,881 1,948,086 (53,205) (2.73) % 10,518 1,298 46,161 1,576 2,614 7,935 24,126 66,478 1,978,300 2,025,373 (47,073) (2.32) % Parking and Other 51,556 73,858 (22,302) (30.20) % 4 — 1,579 — 16 119 1,150 2,412 54,305 76,389 (22,084) (28.91) % Total Rental Revenue (1) 1,946,437 2,021,944 (75,507) (3.73) % 10,522 1,298 47,740 1,576 2,630 8,054 25,276 68,890 2,032,605 2,101,762 (69,157) (3.29) % Real Estate Operating Expenses 721,455 736,203 (14,748) (2.00) % 4,558 649 8,733 477 3,995 6,454 9,289 25,401 748,030 769,184 (21,154) (2.75) % Net Operating Income (Loss), Excluding Residential and Hotel 1,224,982 1,285,741 (60,759) (4.73) % 5,964 649 39,007 1,099 (1,365) 1,600 15,987 43,489 1,284,575 1,332,578 (48,003) (3.60) % Residential Net Operating Income (Loss) (2) 16,809 14,803 2,006 13.55 % — — (717) — — — — — 16,092 14,803 1,289 8.71 % Hotel Net Operating Income (Loss) (2) (4,944) 11,110 (16,054) (144.50) % — — — — — — — — (4,944) 11,110 (16,054) (144.50) % Net Operating Income (Loss) $ 1,236,847 $ 1,311,654 $ (74,807) (5.70) % $ 5,964 $ 649 $ 38,290 $ 1,099 $ (1,365) $ 1,600 $ 15,987 $ 43,489 $ 1,295,723 $ 1,358,491 $ (62,768) (4.62) % _______________ (1) Rental Revenue is equal to Revenue less Development and Management Services Revenue and Direct Reimbursements of Payroll and Related Costs from Management Services Revenue per the Consolidated Statements of Operations, excluding the residential and hotel revenue that is noted below. We use Rental Revenue internally as a performance measure and in calculating other non-GAAP financial measures (e.g., NOI), which provides investors with information regarding our performance that is not immediately apparent from the comparable non-GAAP measures and allows investors to compare operating performance between periods. (2) For a detailed discussion of NOI, including the reasons management believes NOI is useful to investors, see page 58. Residential Net Operating Income for the nine months ended September 30, 2020 and 2019 is comprised of Residential Revenue of $29,076 and $26,710 less Residential Expenses of $12,984 and $11,907, respectively. Hotel Net Operating Income for the nine months ended September 30, 2020 and 2019 is comprised of Hotel Revenue of $7,014 and $36,796 less Hotel Expenses of $11,958 and $25,686, respectively, per the Consolidated Statements of Operations. 59 Table of Conte n ts Same Property Portfolio Lease Revenue (Excluding Termination Income) Lease revenue from the Same Property Portfolio decreased by approximately $48.3 million for the nine months ended September 30, 2020 compared to 2019. Approximately $60.8 million of the decrease was related to write-offs, which are discussed below. Excluding the impact of the write-offs, the average revenue per square foot increased by approximately $0.49, contributing approximately $17.9 million, offset by an approximately $5.4 million decrease due to our average occupancy decreasing from 93.8% to 93.5%. 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 nine months ended September 30, 2020 , for our Same Property Portfolio, we wrote off approximately $39.2 million and $21.6 million of accrued rent and accounts receivable balances, respectively. These write-offs related to tenants, primarily in the retail sector, that either terminated their leases or for which 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 and third quarters of 2020, we executed lease modification agreements for approximately 2.9 million square feet and granted approximately $46.9 million of cash rent abatements and deferrals, of which approximately $31.2 million related to rental charges for the second and third quarters 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 and third quarters 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. See Item 1A: “Risk Factors” for additional details . Termination Income Termination income decreased by approximately $4.9 million for the nine months ended September 30, 2020 compared to 2019. Termination income for the nine months ended September 30, 2020 related to 34 tenants across the Same Property Portfolio and totaled approximately $8.4 million, which was primarily related to tenants that terminated leases early in the New York region. Termination income for the nine months ended September 30, 2019 related to 29 tenants across the Same Property Portfolio and totaled approximately $13.2 million, of which approximately $7.8 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 $22.3 million for the nine months ended September 30, 2020 compared to 2019. Parking revenue decreased by approximately $24.4 million while other revenue increased by approximately $2.1 million. The decrease in parking revenue was primarily due to a decrease in transient and monthly parking. 60 Table of Conte n ts During the second and third quarters 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 revenue and this trend may continue for as long as these conditions exist. However, as these conditions shifted, and stay-at-home orders were partially or fully lifted, businesses began to open and people began to return to working in an office setting, we expected, and have begun to see, an increase in parking revenue. As a result, for the nine months ended September 30, 2020 , transient and monthly parking decreased by approximately $15.2 million and $5.1 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 $14.7 million, or 2.0%, for the nine months ended September 30, 2020 compared to 2019, due primarily to decreases in utility and cleaning expense of approximately $15.6 million, or 18.7%, and $7.5 million, or 11.7%, respectively, partially offset by an increase in other real estate operating expenses of $8.4 million, or 1.4%. The decreases in utility and cleaning expense were experienced across the portfolio and were primarily driven by a decrease in physical tenant occupancy, which led to lower demand for electricity, HVAC, and cleaning. Properties Acquired Portfolio The table below lists the properties acquired between January 1, 2019 and September 30, 2020. Rental revenue and real estate operating expenses increased by approximately $9.2 million and $3.9 million, respectively, for the nine months ended September 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 392,576 $ 10,222 $ 1,298 $ 8,924 $ 4,122 $ 649 $ 3,473 Fourth + Harrison (1) June 26, 2020 N/A 300 — 300 436 — 436 392,576 $ 10,522 $ 1,298 $ 9,224 $ 4,558 $ 649 $ 3,909 _______________ (1) Located at 777 Harrison Street in San Francisco, California (known as Fourth + Harrison and formerly known as 425 Fourth Stree t) . 61 Table of Conte n ts 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 September 30, 2020. Rental revenue and real estate operating expenses from our Properties Placed In-Service Portfolio increased by approximately $46.2 million and $9.0 million, respectively, for the nine months ended September 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) Office 20 CityPoint Second Quarter, 2019 Second Quarter, 2020 211,476 $ 5,485 $ 1,576 $ 3,909 $ 2,053 $ 477 $ 1,576 145 Broadway Fourth Quarter, 2019 Fourth Quarter, 2019 490,086 33,377 — 33,377 4,104 — 4,104 17Fifty Presidents Street First Quarter, 2020 First Quarter, 2020 275,809 8,878 — 8,878 2,576 — 2,576 Total Office 977,371 47,740 1,576 46,164 8,733 477 8,256 Residential The Skylyne Third Quarter, 2020 Third Quarter, 2020 330,996 23 — 23 740 — 740 Total Residential 330,996 23 — 23 740 — 740 1,308,367 $ 47,763 $ 1,576 $ 46,187 $ 9,473 $ 477 $ 8,996 Properties in Development or Redevelopment Portfolio The table below lists the properties that were in development or redevelopment between January 1, 2019 and September 30, 2020. Rental revenue and real estate operating expenses from our Properties in Development or Redevelopment Portfolio decreased by approximately $5.4 million and $2.5 million, respectively, for the nine months ended September 30, 2020 compared to 2019. 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 $ (1,232) $ 2,781 $ (4,013) $ 1,149 $ 1,430 $ (281) 325 Main Street (2) May 9, 2019 115,000 36 (704) 740 281 1,338 (1,057) 200 West Street (3) September 30, 2019 261,000 3,826 5,977 (2,151) 2,565 3,686 (1,121) 596,000 $ 2,630 $ 8,054 $ (5,424) $ 3,995 $ 6,454 $ (2,459) _______________ (1) Rental revenue for the nine months ended September 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 nine months ended September 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 nine months ended September 30, 2020 and 2019 includes approximately $0.3 million and $0.7 million of demolition costs, respectively. (3) Rental revenue and real estate operating expenses for the nine months ended September 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. 62 Table of Conte n ts Properties Sold Portfolio The table below lists the properties we sold between January 1, 2019 and September 30, 2020. Rental revenue and real estate operating expenses from our Properties Sold Portfolio decreased by approximately $43.6 million and $16.1 million, respectively, for the nine months ended September 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 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 — — — — 117 (117) 601, 611 and 651 Gateway (1) January 28, 2020 Office 768,000 1,946 21,495 (19,549) 881 7,682 (6,801) New Dominion Technology Park February 20, 2020 Office 493,000 2,551 14,593 (12,042) 772 4,328 (3,556) Capital Gallery (2) June 25, 2020 Office 631,000 20,779 30,543 (9,764) 7,636 10,923 (3,287) 2,545,000 $ 25,276 $ 68,890 $ (43,614) $ 9,289 $ 25,401 $ (16,112) _______________ (1) Rental revenue for the nine months ended September 30, 2019 includes approximately $0.8 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 nine months ended September 30, 2020 compared to 2019. Net operating income for the nine months ended September 30, 2020 includes approximately $0.7 million of termination income from a retail tenant. The following reflects our occupancy and rate information for The Lofts at Atlantic Wharf, The Avant at Reston Town Center, Signature at Reston and Proto Kendall Square for the nine months ended September 30, 2020 and 2019. 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) $ 4,424 $ 4,471 (1.1) % $ 2,381 $ 2,401 (0.8) % $ 2,327 $ 2,339 (0.5) % $ 2,865 $ 2,847 0.6 % Average Rental Rate Per Occupied Square Foot $ 4.89 $ 4.92 (0.6) % $ 2.61 $ 2.62 (0.4) % $ 2.46 $ 2.53 (2.8) % $ 5.26 $ 5.31 (0.9) % Average Physical Occupancy (2) 89.0 % 95.0 % (6.3) % 90.2 % 92.5 % (2.5) % 82.0 % 64.0 % 28.1 % 91.2 % 79.4 % 14.9 % Average Economic Occupancy (3) 88.9 % 95.2 % (6.6) % 89.2 % 92.0 % (3.0) % 77.3 % 58.0 % 33.3 % 90.0 % 76.8 % 17.2 % _______________ (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. 63 Table of Conte n ts (2) Average Physical Occupancy is defined as (1) the average number of occupied units divided by (2) the total number of units, expressed as a percentage. (3) Average Economic Occupancy is defined as (1) total possible revenue less vacancy loss divided by (2) total possible revenue, expressed as a percentage. Total possible revenue is determined by valuing average occupied units at contract rates and average vacant units at Market Rents. Vacancy loss is determined by valuing vacant units at current Market Rents. By measuring vacant units at their Market Rents, Average Economic Occupancy takes into account the fact that units of different sizes and locations within a residential property have different economic impacts on a residential property’s total possible gross revenue. Market Rents used by us in calculating Economic Occupancy are based on the current market rates set by the managers of our residential properties based on their experience in renting their residential property’s units and publicly available market data. Actual market rents and trends in such rents for a region as reported by others may vary materially from Market Rents used by us. Market Rents for a period are based on the average Market Rents during that period and do not reflect any impact for cash concessions. Hotel Net Operating Income (Loss) Net operating income (loss) for the Boston Marriott Cambridge hotel property decreased by approximately $16.1 million for the nine months ended September 30, 2020 compared to 2019. The Boston Marriott Cambridge closed in March 2020 due to COVID-19 and did not re-open until October 2, 2020. The hotel is operating at a monthly deficit. The closing of the hotel for more than two fiscal quarters, weak demand and low occupancy since its re-opening, have had, and are expected to continue to have, a material adverse effect on the hotel’s operations. See Item 1A: “Risk Factors” for additional details. The following reflects our occupancy and rate information for the Boston Marriott Cambridge hotel for the nine months ended September 30, 2020 and 2019. 2020 2019 Change (%) Occupancy 19.8 % 86.7 % (77.2) % Average daily rate $ 211.36 $ 280.18 (24.6) % REVPAR $ 41.85 $ 242.98 (82.8) % Other Operating Revenue and Expense Items Development and Management Services Revenue Development and management services revenue decreased by approximately $6.3 million for the nine months ended September 30, 2020 compared to 2019. Development services revenue decreased by approximately $6.5 million, while management services revenue increased by approximately $0.2 million. The decrease in development services revenue was primarily related to a decrease of approximately $7.3 million in development fees and fees associated with tenant improvement projects earned from our unconsolidated joint ventures in the Boston and New York regions partially offset by an increase of approximately $0.8 million in development fees earned in the San Francisco region. The increase in management services revenue was primarily related to property management fees earned from third-party owned buildings in the Washington, DC region and our Gateway Commons unconsolidated joint venture, which was deconsolidated on January 28, 2020, partially offset by a decrease in leasing commissions earned from our unconsolidated joint ventures in the Boston region. General and Administrative Expense General and administrative expense decreased by approximately $5.9 million for the nine months ended September 30, 2020 compared to 2019 primarily due to a decrease in compensation expense of approximately $6.1 million, partially offset by an approximately $0.2 million increase in other general and administrative expenses. The decrease in compensation expense was related to (1) an approximately $3.2 million decrease in the value of our deferred compensation plan, (2) an approximately $1.3 million decrease in health care costs and (3) an approximately $1.6 million decrease in other compensation-related expenses. The increase in other general and administrative expenses was primarily related to the write-off of the remaining fees associated with BXP’s prior “at the market” stock offering program that was scheduled to expire on June 2, 2020 and an increase in other professional fees. 64 Table of Conte n ts Wages directly related to the development of rental properties are capitalized and included in real estate assets on our Consolidated Balance Sheets and amortized over the useful lives of the applicable asset or lease term. Capitalized wages for the nine months ended September 30, 2020 and 2019 were approximately $9.6 million and $8.1 million, respectively. These costs are not included in the general and administrative expenses discussed above. Transaction Costs Transaction costs decreased by approximately $0.2 million for the nine months ended September 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 Depreciation expense may differ between BXP and BPLP as a result of previously applied acquisition accounting by BXP for the issuance of common stock in connection with non-sponsor OP Unit redemptions by BPLP. This accounting resulted in a step-up of the real estate assets at BXP that was allocated to certain properties. The difference between the real estate assets of BXP as compared to BPLP for certain properties having an allocation of the real estate step-up will result in a corresponding difference in depreciation expense. For additional information see the Explanatory Note that follows the cover page of this Quarterly Report on Form 10-Q. Boston Properties, Inc. Depreciation and amortization expense increased by approximately $7.9 million for the nine months ended September 30, 2020 compared to 2019, as detailed below. Portfolio Depreciation and Amortization for the nine months ended September 30, 2020 2019 Change (in thousands) Same Property Portfolio $ 491,747 $ 482,196 $ 9,551 Properties Acquired Portfolio 7,108 873 6,235 Properties Placed In-Service Portfolio 11,897 632 11,265 Properties in Development or Redevelopment Portfolio (1) 1,374 12,070 (10,696) Properties Sold Portfolio 3,612 12,096 (8,484) $ 515,738 $ 507,867 $ 7,871 _______________ (1) On May 9, 2019, we commenced development of 325 Main Street in Cambridge, Massachusetts. As a result, during the nine months ended September 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. Boston Properties Limited Partnership Depreciation and amortization expense increased by approximately $8.5 million for the nine months ended September 30, 2020 compared to 2019, as detailed below. Portfolio Depreciation and Amortization for the nine months ended September 30, 2020 2019 Change (in thousands) Same Property Portfolio $ 486,409 $ 476,609 $ 9,800 Properties Acquired Portfolio 7,108 873 6,235 Properties Placed In-Service Portfolio 11,897 632 11,265 Properties in Development or Redevelopment Portfolio (1) 1,374 11,691 (10,317) Properties Sold Portfolio 3,612 12,096 (8,484) $ 510,400 $ 501,901 $ 8,499 65 Table of Conte n ts _______________ (1) On May 9, 2019, we commenced development of 325 Main Street in Cambridge, Massachusetts. As a result, during the nine months ended September 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 (loss) from Unconsolidated Joint Ventures For the nine months ended September 30, 2020 compared to 2019, income (loss) from unconsolidated joint ventures decreased by approximately $52.9 million primarily due to an approximately $47.5 million gain on sale of real estate from the sale of 540 Madison Avenue during the nine months ended September 30, 2019 and the resulting loss of income thereafter, along with the addition of our Gateway Commons joint venture and the placing in-service of the Hub50House joint venture in South San Francisco, California and Boston, Massachusetts, respectively. These joint ventures reduced our net income by approximately $5.9 million for the nine months ended September 30, 2020. During the nine months ended September 30, 2020, Hub50House was fully placed in-service 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. The decrease in our net income was also driven by a $2.1 million reduction at our Colorado Center joint venture, primarily due to a write-off of lease revenue during the nine months ended September 30, 2020. 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 nine months ended September 30, 2020. 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 nine months ended September 30, 2020, for our unconsolidated joint ventures, we wrote off our share of the accrued rent and accounts receivable balances of approximately $2.6 million and $1.5 million, respectively. These write-offs related to tenants that either terminated their leases or for which 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 properties owned by our unconsolidated joint ventures, during the second and third quarters of 2020, the joint ventures executed lease modification agreements for approximately 855,000 square feet. As a result of these lease modification agreements, our share of the total cash rent abatements and deferrals granted was approximately $5.8 million, of which approximately $4.4 million was related to rental charges for the second and third quarters 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. 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 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, 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 and third quarters 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. See Item 1A: “Risk Factors” for additional details . 66 Table of Conte n ts Gains on Sales of Real Estate Gains on sales of real estate may differ between BXP and BPLP as a result of previously applied acquisition accounting by BXP for the issuance of common stock in connection with non-sponsor OP Unit redemptions by BPLP. This accounting resulted in a step-up of the real estate assets at BXP that was allocated to certain properties. The difference between the real estate assets of BXP as compared to BPLP for certain properties having an allocation of the real estate step-up will result in a corresponding difference in the gains on sales of real estate when those properties are sold. For additional information, see the Explanatory Note that follows the cover page of this Quarterly Report on Form 10-Q. Boston Properties, Inc. Gains on sales of real estate increased by approximately $613.0 million for the nine months ended September 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) 2020 601, 611 and 651 Gateway January 28, 2020 Office 768,000 $ 350.0 $ — $ 217.7 (1) New Dominion Technology Park February 20, 2020 Office 493,000 256.0 254.0 192.3 Capital Gallery June 25, 2020 Office 455,000 253.7 246.6 203.6 (2) $ 859.7 $ 500.6 $ 613.6 (3) 2019 2600 Tower Oaks Boulevard 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). (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 nine months ended September 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 nine months ended September 30, 2019 related to loss amounts from sales of real estate occurring in prior years. 67 Table of Conte n ts Boston Properties Limited Partnership Gains on sales of real estate increased by approximately $625.8 million for the nine months ended September 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) 2020 601, 611 and 651 Gateway January 28, 2020 Office 768,000 $ 350.0 $ — $ 222.4 (1) New Dominion Technology Park February 20, 2020 Office 493,000 256.0 254.0 197.1 Capital Gallery June 25, 2020 Office 455,000 253.7 246.6 207.0 (2) $ 859.7 $ 500.6 $ 626.5 (3) 2019 2600 Tower Oaks Boulevard 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. 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). (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 nine months ended September 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 nine months ended September 30, 2019 related to loss amounts from sales of real estate occurring in prior years. Interest and Other Income (Loss) Interest and other income (loss) decreased by approximately $10.3 million for the nine months ended September 30, 2020 compared to 2019. Interest and other income decreased by approximately $8.3 million due primarily 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 an allowance for current expected credit losses related to our outstanding (1) related party note receivable, (2) notes receivable and (3) off-balance sheet credit exposures (See Note 2 to the Consolidated Financial Statements). For the nine months ended September 30, 2020 the allowance for current expected credit losses was $2.0 million. Gains from Investments in Securities Gains from investments in securities for the nine months ended September 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 68 Table of Conte n ts to generally match our liabilities to BXP’s officers or former non-employee directors under our deferred compensation plans with equivalent assets and thereby limit our market risk. The performance of these investments is recorded as gains from investments in securities. During the nine months ended September 30, 2020 and 2019, we recognized gains of approximately $1.0 million and $4.2 million, respectively, on these investments. By comparison, our general and administrative expense increased by approximately $1.0 million and $4.2 million during the nine months ended September 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. Impairment Loss Impairment loss may differ between BXP and BPLP as a result of previously applied acquisition accounting by BXP for the issuance of common stock in connection with non-sponsor OP Unit redemptions by BPLP. This accounting resulted in a step-up of the real estate assets at BXP that was allocated to certain properties. The difference between the real estate assets of BXP as compared to BPLP for certain properties having an allocation of the real estate step-up will result in a corresponding difference in depreciation expense. For additional information see the Explanatory Note that follows the cover page of this Quarterly Report on Form 10-Q. At March 31, 2019, we evaluated the expected hold period of our One Tower Center property located in East Brunswick, New Jersey and, based on a shorter-than-expected hold period, we reduced the carrying value of the property to its estimated fair value at March 31, 2019 and recognized an impairment loss totaling approximately $24.0 million for BXP and approximately $22.3 million for BPLP. Our estimated fair value was based on a pending offer from a third party to acquire the property and the subsequent execution of a purchase and sale agreement on April 18, 2019 for a gross sale price of approximately $38.0 million. On June 3, 2019, we completed the sale of the property. One Tower Center is an approximately 410,000 net rentable square foot Class A office property. We did not have any impairments during the nine months ended September 30, 2020. Loss From Early Extinguishment of Debt On September 18, 2019, BPLP completed the redemption of $700.0 million in aggregate principal amount of its 5.625% senior notes due November 15, 2020. The redemption price was approximately $740.7 million. The redemption price included approximately $13.5 million of accrued and unpaid interest to, but not including, the redemption date. Excluding the accrued and unpaid interest, the redemption price was approximately 103.90% of the principal amount being redeemed. We recognized a loss from early extinguishment of debt totaling approximately $28.0 million, which amount included the payment of the redemption premium totaling approximately $27.3 million. 69 Table of Conte n ts Interest Expense Interest expense increased by approximately $9.9 million for the nine months ended September 30, 2020 compared to 2019, as detailed below. Component Change in interest expense for the nine months ended September 30, 2020 compared to September 30, 2019 (in thousands) Increases to interest expense due to: Issuance of $1.25 billion in aggregate principal of 3.250% senior notes due 2031 on May 5, 2020 $ 16,425 Issuance of $850 million in aggregate principal of 3.400% senior notes due 2029 on June 21, 2019 13,714 Issuance of $700 million in aggregate principal of 2.900% senior notes due 2030 on September 3, 2019 13,666 Decrease in capitalized interest related to development projects 2,834 Increase in interest due to finance leases 2,758 Other interest expense (excluding senior notes) 527 Total increases to interest expense 49,924 Decreases to interest expense due to: Redemption of $700 million in aggregate principal of 5.625% senior notes due 2020 on September 18, 2019 (28,172) Decrease in interest rates for the 2017 Credit Facility (7,361) Increase in capitalized interest related to development projects that had finance leases (2,834) Repayment of a bond financing collateralized by New Dominion Technology Building One (1,668) Total decreases to interest expense (40,035) Total change in interest expense $ 9,889 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 each of the nine months ended September 30, 2020 and 2019 was approximately $41.3 million. These costs are not included in the interest expense referenced above. At September 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 September 30, 2020. The Revolving Facility did not have an outstanding balance as of September 30, 2020. For a summary of our consolidated debt as of September 30, 2020 and September 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). We used a portion of the net proceeds from this offering for the repayment of borrowings outstanding under the Revolving Facility. 70 Table of Conte n ts Noncontrolling Interests in Property Partnerships Noncontrolling interests in property partnerships decreased by approximately $20.5 million for the nine months ended September 30, 2020 compared to 2019, as detailed below. Property Noncontrolling Interests in Property Partnerships for the nine months ended September 30, 2020 2019 Change (in thousands) Salesforce Tower (1) $ — $ 116 $ (116) 767 Fifth Avenue (the General Motors Building) (2) 4,205 2,811 1,394 Times Square Tower (3) 198 20,680 (20,482) 601 Lexington Avenue (4) 12,317 14,909 (2,592) 100 Federal Street (5) 10,874 9,187 1,687 Atlantic Wharf Office Building (6) 6,686 7,079 (393) $ 34,280 $ 54,782 $ (20,502) _______________ (1) On April 1, 2019, we acquired our partner’s 5% interest and subsequently own 100%. (2) The increase during the nine months ended September 30, 2020 was related to above-/below-market lease assets that were fully amortized in 2020. (3) During the nine months ended September 30, 2020, we wrote off approximately $26.8 million of accrued rent and accounts receivable balances for tenants that either terminated their leases or for which we determined their accrued rent and/or accounts receivable balances, primarily retail tenants, were no longer probable of collection. Approximately $14.7 million represents our share of the write-offs. As a result of these terminations, lease revenue decreased for the nine months ended September 30, 2020. (4) During the nine months ended September 30, 2019, 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. As a result of these terminations, lease revenue decreased for the nine months ended September 30, 2020. (5) The increase was primarily due to an increase in lease revenue from our tenants. (6) During the nine months ended September 30, 2020, we wrote off approximately $0.5 million of accrued rent and accounts receivable balances for tenants whose balances we determined were no longer probable of collection. Approximately $0.3 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 $54.0 million for the nine months ended September 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. Results of Operations for the Three Months Ended September 30, 2020 and 2019 The impact that COVID-19 has had on our business, financial position and results of operations during the third 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. 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. See Item 1A: “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 decreased approximately $17.9 million and $20.5 million for the three months ended September 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 September 30, 2020 to the 71 Table of Conte n ts three months ended September 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 September 30, 2020 and 2019. For a detailed discussion of NOI, including the reasons management believes NOI is useful to investors, see page 58. Boston Properties, Inc. Three months ended September 30, 2020 2019 Increase/ (Decrease) % Change (in thousands) Net Income Attributable to Boston Properties, Inc. Common Shareholders $ 89,854 $ 107,771 $ (17,917) (16.63) % Preferred dividends 2,625 2,625 — — % Net Income Attributable to Boston Properties, Inc. 92,479 110,396 (17,917) (16.23) % Net Income Attributable to Noncontrolling Interests: Noncontrolling interest—common units of the Operating Partnership 10,020 12,504 (2,484) (19.87) % Noncontrolling interests in property partnerships 15,561 18,470 (2,909) (15.75) % Net Income 118,060 141,370 (23,310) (16.49) % Other Expenses: Add: Interest expense 110,993 106,471 4,522 4.25 % Loss from early extinguishment of debt — 28,010 (28,010) (100.00) % Losses on sales of real estate 209 15 194 1,293.33 % Loss from unconsolidated joint ventures 6,873 649 6,224 959.01 % Other Income: Less: Gains from investments in securities 1,858 106 1,752 1,652.83 % Interest and other income (loss) ( 45 ) 7,178 (7,223) (100.63) % Other Expenses: Add: Depreciation and amortization expense 166,456 165,862 594 0.36 % Transaction costs 307 538 (231) (42.94) % Payroll and related costs from management services contracts 2,896 2,429 467 19.23 % General and administrative expense 27,862 31,147 (3,285) (10.55) % Other Revenue: Less: Direct reimbursements of payroll and related costs from management services contracts 2,896 2,429 467 19.23 % Development and management services revenue 7,281 10,303 (3,022) (29.33) % Net Operating Income $ 421,666 $ 456,475 $ (34,809) (7.63) % 72 Table of Conte n ts Boston Properties Limited Partnership Three months ended September 30, 2020 2019 Increase/ (Decrease) % Change (in thousands) Net Income Attributable to Boston Properties Limited Partnership Common Unitholders $ 101,624 $ 122,117 $ (20,493) (16.78) % Preferred distributions 2,625 2,625 — — % Net Income Attributable to Boston Properties Limited Partnership 104,249 124,742 (20,493) (16.43) % Net Income Attributable to Noncontrolling Interests: Noncontrolling interests in property partnerships 15,561 18,470 (2,909) (15.75) % Net Income 119,810 143,212 (23,402) (16.34) % Other Expenses: Add: Interest expense 110,993 106,471 4,522 4.25 % Loss from early extinguishment of debt — 28,010 (28,010) (100.00) % Losses on sales of real estate 209 15 194 1,293.33 % Loss from unconsolidated joint ventures 6,873 649 6,224 959.01 % Other Income: Less: Gains from investments in securities 1,858 106 1,752 1,652.83 % Interest and other income (loss) ( 45 ) 7,178 (7,223) (100.63) % Other Expenses: Add: Depreciation and amortization expense 164,706 164,020 686 0.42 % Transaction costs 307 538 (231) (42.94) % Payroll and related costs from management services contracts 2,896 2,429 467 19.23 % General and administrative expense 27,862 31,147 (3,285) (10.55) % Other Revenue: Less: Direct reimbursements of payroll and related costs from management services contracts 2,896 2,429 467 19.23 % Development and management services revenue 7,281 10,303 (3,022) (29.33) % Net Operating Income $ 421,666 $ 456,475 $ (34,809) (7.63) % Comparison of the three months ended September 30, 2020 to the three months ended September 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 38.6 million net rentable square feet, excluding unconsolidated joint ventures. The Same Property Portfolio includes properties acquired or placed in-service on or prior to July 1, 2019 and owned and in-service through September 30, 2020. The Total Property Portfolio includes the effects of the other properties either acquired, placed in-service, in development or redevelopment after July 1, 2019 or disposed of on or prior to September 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 September 30, 2020 and 2019 with respect to the properties that were acquired, placed in-service, in development or redevelopment or sold. 73 Table of Conte n ts 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/ (Decrease) % Change 2020 2019 2020 2019 2020 2019 2020 2019 2020 2019 Increase/ (Decrease) % Change (dollars in thousands) Rental Revenue: (1) Lease Revenue (Excluding Termination Income) $ 629,175 $ 654,129 $ (24,954) (3.81) % $ 3,625 $ 1,298 $ 17,835 $ 1,576 $ 1,390 $ 2,577 $ 2,369 $ 20,837 $ 654,394 $ 680,417 $ (26,023) (3.82) % Termination Income 2,715 1,698 1,017 59.89 % — — — — — — — 262 2,715 1,960 755 38.52 % Lease Revenue 631,890 655,827 (23,937) (3.65) % 3,625 1,298 17,835 1,576 1,390 2,577 2,369 21,099 657,109 682,377 (25,268) (3.70) % Parking and Other 15,428 24,529 (9,101) (37.10) % 3 — 521 — 4 7 218 898 16,174 25,434 (9,260) (36.41) % Total Rental Revenue (1) 647,318 680,356 (33,038) (4.86) % 3,628 1,298 18,356 1,576 1,394 2,584 2,587 21,997 673,283 707,811 (34,528) (4.88) % Real Estate Operating Expenses 245,346 250,554 (5,208) (2.08) % 1,706 649 3,802 477 1,298 1,926 1,154 7,986 253,306 261,592 (8,286) (3.17) % Net Operating Income, Excluding Residential and Hotel 401,972 429,802 (27,830) (6.48) % 1,922 649 14,554 1,099 96 658 1,433 14,011 419,977 446,219 (26,242) (5.88) % Residential Net Operating Income (Loss) (2) 5,480 5,985 (505) (8.44) % — — (717) — — — — — 4,763 5,985 (1,222) (20.42) % Hotel Net Operating Income (Loss) (2) (3,074) 4,271 (7,345) (171.97) % — — — — — — — — (3,074) 4,271 (7,345) (171.97) % Net Operating Income $ 404,378 $ 440,058 $ (35,680) (8.11) % $ 1,922 $ 649 $ 13,837 $ 1,099 $ 96 $ 658 $ 1,433 $ 14,011 $ 421,666 $ 456,475 $ (34,809) (7.63) % _______________ (1) Rental Revenue is equal to Revenue less Development and Management Services Revenue and Direct Reimbursements of Payroll and Related Costs from Management Services Revenue per the Consolidated Statements of Operations, excluding the residential and hotel revenue that is noted below. We use Rental Revenue internally as a performance measure and in calculating other non-GAAP financial measures (e.g., NOI), which provides investors with information regarding our performance that is not immediately apparent from the comparable non-GAAP measures and allows investors to compare operating performance between periods. (2) For a detailed discussion of NOI, including the reasons management believes NOI is useful to investors, see page 58. Residential Net Operating Income for the three months ended September 30, 2020 and 2019 is comprised of Residential Revenue of $ 9,718 and $ 9,996 less Residential Expenses of $ 4,955 and $ 4,011 , respectively. Hotel Net Operating Income for the three months ended September 30, 2020 and 2019 is comprised of Hotel Revenue of $ 90 and $ 13,014 less Hotel Expenses of $ 3,164 and $ 8,743 , respectively, per the Consolidated Statements of Operations. 74 Table of Conte n ts Same Property Portfolio Lease Revenue (Excluding Termination Income) Lease revenue from the Same Property Portfolio decreased by approximately $25.0 million for the three months ended September 30, 2020 compared to 2019. Approximately $7.5 million of the decrease was related to write-offs, which are discussed below. Excluding the write-offs, the remaining decrease was a result of an approximately $9.8 million decrease due to our average occupancy decreasing from 94.0% to 92.6%, and our average revenue per square foot decreasing by approximately $1.11, contributing approximately $7.7 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 September 30, 2020, for our Same Property Portfolio, we wrote off approximately $4.1 million and $3.4 million of accrued rent and accounts receivable balances, respectively. These write-offs related to tenants, primarily in the retail sector, that either terminated their leases or for which 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 third quarter of 2020, we executed lease modification agreements for approximately 479,000 square feet and granted approximately $21.9 million of cash rent abatements and deferrals, of which approximately $11.7 million was related to rental charges for the third 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 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 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 third 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. See Item 1A: “Risk Factors” for additional details . Termination Income Termination income increased by approximately $1.0 million for the three months ended September 30, 2020 compared to 2019. Termination income for the three months ended September 30, 2020 related to 10 tenants across the Same Property Portfolio and totaled approximately $2.7 million, which was primarily related to tenants that terminated leases early in the New York and Washington DC regions. Termination income for the three months ended September 30, 2019 related to 17 tenants across the Same Property Portfolio and totaled approximately $1.7 million, of which approximately $1.0 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 $9.1 million for the three months ended September 30, 2020 compared to 2019. Parking revenue decreased by approximately $10.4 million while other revenue increased by approximately $1.3 million. The decrease in parking revenue was primarily due to a decrease in transient and monthly parking. 75 Table of Conte n ts During the third quarter of 2020, with stay-at-home orders in effect in certain regions, business closures and people working remotely in a majority of regions in which our properties are located, we generated minimal hourly/daily parking revenue and this trend may continue for as long as these conditions exist. However, as these conditions shifted, and stay-at-home orders were partially or fully lifted, businesses began to open and people began to return to working in an office setting, we expected, and have begun to see, an increase in parking revenue. As a result, for the three months ended September 30, 2020, transient and monthly parking decreased by approximately $5.4 million and $2.9 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 $5.2 million, or 2.1%, for the three months ended September 30, 2020 compared to 2019, due primarily to decreases in utility and cleaning expense of approximately $5.6 million, or 18.7%, and $4.5 million, or 20.7%, respectively, partially offset by an increase in other real estate operating expenses of approximately $4.9 million, or 2.5%. The decreases in utility and cleaning expense were experienced across the portfolio and were primarily driven by a decrease in physical tenant occupancy, which led to lower demand for electricity, HVAC, and cleaning. Properties Acquired Portfolio The table below lists the properties acquired between July 1, 2019 and September 30, 2020. Rental revenue and real estate operating expenses increased by approximately $2.3 million and $1.1 million, respectively, for the three months ended September 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 392,576 $ 3,344 $ 1,298 $ 2,046 $ 1,271 $ 649 $ 622 Fourth + Harrison (1) June 26, 2020 N/A 284 — 284 435 — 435 392,576 $ 3,628 $ 1,298 $ 2,330 $ 1,706 $ 649 $ 1,057 _______________ (1) Located at 777 Harrison Street in San Francisco, California (known as Fourth + Harrison and formerly known as 425 Fourth Stree t) . 76 Table of Conte n ts Properties Placed In-Service Portfolio The table below lists the properties that were placed in-service or partially placed in-service between July 1, 2019 and September 30, 2020. Rental revenue and real estate operating expenses from our Properties Placed In-Service Portfolio increased by approximately $16.8 million and $4.1 million, respectively, for the three months ended September 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) Office 20 CityPoint Second Quarter, 2019 Second Quarter, 2020 211,476 $ 1,861 $ 1,576 $ 285 $ 731 $ 477 $ 254 145 Broadway Fourth Quarter, 2019 Fourth Quarter, 2019 490,086 11,560 — 11,560 1,771 — 1,771 17Fifty Presidents Street First Quarter, 2020 First Quarter, 2020 275,809 4,935 — 4,935 1,300 — 1,300 Total Office 977,371 18,356 1,576 16,780 3,802 477 3,325 Residential The Skylyne Third Quarter, 2020 Third Quarter, 2020 330,996 23 — 23 740 — 740 Total Residential 330,996 23 — 23 740 — 740 1,308,367 $ 18,379 $ 1,576 $ 16,803 $ 4,542 $ 477 $ 4,065 Properties in Development or Redevelopment Portfolio The table below lists the properties that were in development or redevelopment between July 1, 2019 and September 30, 2020. Rental revenue and real estate operating expenses from our Properties in Development or Redevelopment Portfolio decreased by approximately $1.2 million and $0.6 million, respectively, for the three months ended September 30, 2020 compared to 2019. 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 August 19, 2016 220,000 $ 161 $ 919 $ (758) $ 307 $ 476 $ (169) 325 Main Street (1) May 9, 2019 115,000 — 49 (49) 207 298 (91) 200 West Street (2) September 30, 2019 261,000 1,233 1,616 (383) 784 1,152 (368) 596,000 $ 1,394 $ 2,584 $ (1,190) $ 1,298 $ 1,926 $ (628) _______________ (1) Real estate operating expenses for the three months ended September 30, 2020 and September 30, 2019 includes approximately $0.2 million and $0.3 million of demolition costs, respectively. (2) Rental revenue and real estate operating expenses for the three months ended September 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. 77 Table of Conte n ts Properties Sold Portfolio The table below lists the properties we sold between July 1, 2019 and September 30, 2020. Rental revenue and real estate operating expenses from our Properties Sold Portfolio decreased by approximately $19.4 million and $6.8 million, respectively, for the three months ended September 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) Washingtonian North December 20, 2019 Land N/A $ — $ — $ — $ — $ 41 $ (41) 601, 611 and 651 Gateway (1) January 28, 2020 Office 768,000 — 6,949 (6,949) — 2,711 (2,711) New Dominion Technology Park February 20, 2020 Office 493,000 — 4,813 (4,813) — 1,418 (1,418) Capital Gallery (2) June 25, 2020 Office 631,000 2,587 10,235 (7,648) 1,154 3,816 (2,662) 1,892,000 $ 2,587 $ 21,997 $ (19,410) $ 1,154 $ 7,986 $ (6,832) _______________ (1) Rental revenue for the three months ended September 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). For additional information on the sales of the above properties and land parcel refer to “Results of Operations—Other Income and Expense Items - Losses on Sales of Real Estate” within “Item 2—Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Residential Net Operating Income Net operating income for our residential same properties decreased by approximately $0.5 million for the three months ended September 30, 2020 compared to 2019. Net operating income for the three months ended September 30, 2020 includes approximately $0.7 million of termination income from a retail tenant. The following reflects our occupancy and rate information for The Lofts at Atlantic Wharf, The Avant at Reston Town Center, Signature at Reston and Proto Kendall Square for the three months ended September 30, 2020 and 2019. 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) $ 4,231 $ 4,498 (5.9) % $ 2,352 $ 2,447 (3.9) % $ 2,319 $ 2,379 (2.5) % $ 2,676 $ 2,972 (10.0) % Average Rental Rate Per Occupied Square Foot $ 4.62 $ 4.99 (7.4) % $ 2.57 $ 2.66 (3.4) % $ 2.42 $ 2.56 (5.5) % $ 4.91 $ 5.49 (10.6) % Average Physical Occupancy (2) 80.2 % 95.4 % (15.9) % 89.7 % 92.9 % (3.4) % 82.2 % 74.5 % 10.3 % 85.7 % 96.0 % (10.7) % Average Economic Occupancy (3) 80.7 % 95.2 % (15.2) % 88.9 % 93.0 % (4.4) % 78.2 % 68.9 % 13.5 % 83.1 % 96.1 % (13.5) % _______________ (1) Average Monthly Rental Rate is calculated as the average of the quotients obtained by dividing (A) rental revenue as determined in accordance with GAAP, by (B) the number of occupied units for each month within the applicable fiscal period. (2) Average Physical Occupancy is defined as (1) the average number of occupied units divided by (2) the total number of units, expressed as a percentage. (3) Average Economic Occupancy is defined as (1) total possible revenue less vacancy loss divided by (2) total possible revenue, expressed as a percentage. Total possible revenue is determined by valuing average occupied units at contract rates and average vacant units at Market Rents. Vacancy loss is determined by valuing vacant units at current Market Rents. By measuring vacant units at their Market Rents, Average Economic Occupancy takes into account the 78 Table of Conte n ts fact that units of different sizes and locations within a residential property have different economic impacts on a residential property’s total possible gross revenue. Market Rents used by us in calculating Economic Occupancy are based on the current market rates set by the managers of our residential properties based on their experience in renting their residential property’s units and publicly available market data. Actual market rents and trends in such rents for a region as reported by others may vary materially from Market Rents used by us. Market Rents for a period are based on the average Market Rents during that period and do not reflect any impact for cash concessions. Hotel Net Operating Income (Loss) Net operating income (loss) for the Boston Marriott Cambridge hotel property decreased by approximately $7.3 million for the three months ended September 30, 2020 compared to 2019. The Boston Marriott Cambridge closed in March 2020 due to COVID-19 and did not re-open until October 2, 2020. The hotel is operating at a monthly deficit. The closing of the hotel for more than two fiscal quarters, weak demand and low occupancy since its re-opening, have had, and are expected to continue to have, a material adverse effect on the hotel’s operations. See Item 1A: “Risk Factors” for additional details. The following reflects our occupancy and rate information for the Boston Marriott Cambridge hotel for the three months ended September 30, 2020 and 2019. 2020 2019 Change (%) Occupancy — % 90.7 % (100.0) % Average daily rate $ — $ 293.45 (100.0) % REVPAR $ — $ 266.31 (100.0) % Other Operating Revenue and Expense Items Development and Management Services Revenue Development and management services revenue decreased by approximately $3.0 million for the three months ended September 30, 2020 compared to 2019. Development services revenue and management services revenue decreased by approximately $2.6 million and $0.4 million, respectively. The decrease in development services revenue was primarily related to a decrease of approximately $2.3 million in development fees earned in the Washington, DC and Boston regions and a decrease of approximately $0.3 million in fees associated with tenant improvement projects earned in the San Francisco region. The decrease in management services revenue was primarily related to a decrease in leasing commissions earned from our unconsolidated joint ventures in the Boston region, partially offset by property management fees earned from third-party owned buildings in the Washington, DC region. General and Administrative Expense General and administrative expense decreased by approximately $3.3 million for the three months ended September 30, 2020 compared to 2019 primarily due to decreases in compensation expense and other general and administrative expenses of approximately $2.9 million and $0.4 million, respectively. The decrease in other general and administrative expenses was primarily related to a decrease in meals and travel expense. Wages directly related to the development of rental properties are capitalized and included in real estate assets on our Consolidated Balance Sheets and amortized over the useful lives of the applicable asset or lease term. Capitalized wages for the three months ended September 30, 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 $0.2 million for the three months ended September 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. 79 Table of Conte n ts Depreciation and Amortization Expense Depreciation expense may differ between BXP and BPLP as a result of previously applied acquisition accounting by BXP for the issuance of common stock in connection with non-sponsor OP Unit redemptions by BPLP. This accounting resulted in a step-up of the real estate assets at BXP that was allocated to certain properties. The difference between the real estate assets of BXP as compared to BPLP for certain properties having an allocation of the real estate step-up will result in a corresponding difference in depreciation expense. For additional information see the Explanatory Note that follows the cover page of this Quarterly Report on Form 10-Q. Boston Properties, Inc. Depreciation and amortization expense increased by approximately $0.6 million for the three months ended September 30, 2020 compared to 2019, as detailed below. Portfolio Depreciation and Amortization for the three months ended September 30, 2020 2019 Change (in thousands) Same Property Portfolio $ 158,609 $ 160,245 $ (1,636) Properties Acquired Portfolio 2,215 873 1,342 Properties Placed In-Service Portfolio 4,854 513 4,341 Properties in Development or Redevelopment Portfolio 451 589 (138) Properties Sold Portfolio 327 3,642 (3,315) $ 166,456 $ 165,862 $ 594 Boston Properties Limited Partnership Depreciation and amortization expense increased by approximately $0.7 million for the three months ended September 30, 2020 compared to 2019, as detailed below. Portfolio Depreciation and Amortization for the three months ended September 30, 2020 2019 Change (in thousands) Same Property Portfolio $ 156,859 $ 158,403 $ (1,544) Properties Acquired Portfolio 2,215 873 1,342 Properties Placed In-Service Portfolio 4,854 513 4,341 Properties in Development or Redevelopment Portfolio 451 589 (138) Properties Sold Portfolio 327 3,642 (3,315) $ 164,706 $ 164,020 $ 686 Direct Reimbursements of Payroll and Related Costs From Management Services Contracts and Payroll and Related Costs From Management Service Contracts We have determined that amounts reimbursed for payroll and related costs received from third parties in connection with management services contracts should be reflected on a gross basis instead of on a net basis as we have determined that we are the principal under these arrangements. We anticipate that these two financial statement line items will generally offset each other. Other Income and Expense Items Loss from Unconsolidated Joint Ventures For the three months ended September 30, 2020 compared to 2019, loss from unconsolidated joint ventures increased by approximately $6.2 million due to a $2.9 million reduction of our net income at our Colorado Center joint venture, primarily due to a write-off of lease revenue during the three months ended September 30, 2020, along with the addition of our Gateway Commons joint venture and the placing in-service of the Hub50House joint 80 Table of Conte n ts venture in South San Francisco, California and Boston, Massachusetts, respectively. These joint ventures reduced our net income by approximately $1.9 million for the three months ended September 30, 2020. During the three months ended September 30, 2020, Hub50House was fully placed in-service 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. The decrease in our net income was also due to a $0.8 million decrease at our Metropolitan Square joint venture in Washington, DC mainly attributable to increased interest expense related to the mortgage refinancing. 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 September 30, 2020, for our unconsolidated joint ventures, we wrote off our share of the accrued rent and accounts receivable balances of approximately $1.9 million and $0.5 million, respectively. These write-offs related to tenants that either terminated their leases or for which 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 properties owned by our unconsolidated joint ventures, during the third quarter of 2020, the joint ventures executed lease modification agreements for approximately 181,000 square feet. As a result of these lease modification agreements, our share of the total cash rent abatements and deferrals granted was approximately $0.5 million, all of which related to rental charges for the third 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. 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 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, 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 third 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. See Item 1A: “Risk Factors” for additional details. Losses on Sales of Real Estate During the three months ended September 30, 2020, we incurred approximately $0.2 million of additional expenses related to the sale of a portion of Capital Gallery in Washington, DC, thus resulting in a loss on sale of real estate (See Note 3 to the Consolidated Financial Statements). Interest and Other Income (Loss) Interest and other income (loss) decreased by approximately $7.2 million for the three months ended September 30, 2020 compared to 2019. Interest and other income decreased by approximately $5.7 million due primarily to a decrease in interest rates. On January 1, 2020, we adopted ASU 2016-13 and, as a result, we were required to record anallowance for current expected credit losses 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). For the three months ended September 30, 2020 the allowance for current expected credit losses was $1.5 million. Gains from Investments in Securities Gains from investments in securities for the three months ended September 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 81 Table of Conte n ts non-employee director’s compensation on a pre-tax basis and receive a tax-deferred return on these deferrals based on the performance of specific investments selected by the officer or non-employee director. In order to reduce our market risk relating to these plans, we typically acquire, in a separate account that is not restricted as to its use, similar or identical investments as those selected by each officer or non-employee director. This enables us to generally match our liabilities to BXP’s officers or former non-employee directors under our deferred compensation plans with equivalent assets and thereby limit our market risk. The performance of these investments is recorded as gains from investments in securities. During the three months ended September 30, 2020 and 2019, we recognized gains of approximately $1.9 million and $0.1 million, respectively, on these investments. By comparison, our general and administrative expense increased by approximately $1.9 million and $0.1 million during the three months ended September 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. Loss From Early Extinguishment of Debt On September 18, 2019, BPLP completed the redemption of $700.0 million in aggregate principal amount of its 5.625% senior notes due November 15, 2020. The redemption price was approximately $740.7 million. The redemption price included approximately $13.5 million of accrued and unpaid interest to, but not including, the redemption date. Excluding the accrued and unpaid interest, the redemption price was approximately 103.90% of the principal amount being redeemed. We recognized a loss from early extinguishment of debt totaling approximately $28.0 million, which amount included the payment of the redemption premium totaling approximately $27.3 million. Interest Expense Interest expense increased by approximately $4.5 million for the three months ended September 30, 2020 compared to 2019, as detailed below. Component Change in interest expense for the three months ended September 30, 2020 compared to September 30, 2019 (in thousands) Increases to interest expense due to: Issuance of $1.25 billion in aggregate principal of 3.250% senior notes due 2031 on May 5, 2020 $ 10,193 Issuance of $700 million in aggregate principal of 2.900% senior notes due 2030 on September 3, 2019 3,502 Increase in interest due to finance leases 2,165 Decrease in capitalized interest related to development projects 556 Other interest expense (excluding senior notes) 196 Total increases to interest expense 16,612 Decreases to interest expense due to: Redemption of $700 million in aggregate principal of 5.625% senior notes due 2020 on September 18, 2019 (8,441) Decrease in interest rates for the 2017 Credit Facility (2,555) Increase in capitalized interest related to development projects that had finance leases (556) Repayment of bond financing collateralized by New Dominion Technology Building One (538) Total decreases to interest expense (12,090) Total change in interest expense $ 4,522 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 82 Table of Conte n ts then expensed. Interest capitalized for the three months ended September 30, 2020 and 2019 was approximately $13.5 million and $16.2 million, respectively. These costs are not included in the interest expense referenced above. At September 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 September 30, 2020. The Revolving Facility did not have an outstanding balance as of September 30, 2020. For a summary of our consolidated debt as of September 30, 2020 and September 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. ” Noncontrolling Interests in Property Partnerships Noncontrolling interests in property partnerships decreased by approximately $2.9 million for the three months ended September 30, 2020 compared to 2019, as detailed below. Property Noncontrolling Interests in Property Partnerships for the three months ended September 30, 2020 2019 Change (in thousands) 767 Fifth Avenue (the General Motors Building) (1) $ 2,104 $ 440 $ 1,664 Times Square Tower (2) 3,545 6,760 (3,215) 601 Lexington Avenue (2) 4,352 5,374 (1,022) 100 Federal Street 3,565 3,503 62 Atlantic Wharf Office Building (3) 1,995 2,393 (398) $ 15,561 $ 18,470 $ (2,909) _______________ (1) The increase during the three months ended September 30, 2020 was related to above-/below-market lease assets that were fully amortized in 2020. (2) The decrease during the three months ended September 30, 2020 was related to leases that were terminated during the three months ended June 30, 2020 as a result of COVID-19. (3) During the three months ended September 30, 2020, we wrote off approximately $0.5 million of accrued rent and accounts receivable balances for tenants whose balances we determined were no longer probable of collection. Approximately $0.3 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 decreased by approximately $2.5 million for the three months ended September 30, 2020 compared to 2019 due primarily to a decrease in allocable income and 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 General Our principal liquidity needs for the next twelve months and beyond are to: • fund normal recurring expenses; • meet debt service and principal repayment obligations, including balloon payments on maturing debt; • fund development/redevelopment costs; • fund capital expenditures, including major renovations, tenant improvements and leasing costs; • fund planned and possible acquisitions of properties, either directly or indirectly through the acquisition of equity interests therein; • fund dividend requirements on BXP’s Series B Preferred Stock; and • make the minimum distribution required to enable BXP to maintain its REIT qualification under the Internal Revenue Code of 1986, as amended. We expect to satisfy these needs using one or more of the following: 83 Table of Conte n ts • cash flow from operations; • distribution of cash flows from joint ventures; • cash and cash equivalent balances; • BPLP’s 2017 Credit Facility and other short-term bridge facilities; • construction loans; • long-term secured and unsecured indebtedness (including unsecured exchangeable indebtedness); • sales of real estate; and • issuances of BXP equity securities and/or additional preferred or common units of partnership interest in BPLP. We draw on multiple financing sources to fund our long-term capital needs. Our current development properties are expected to be primarily funded with our available cash balances, construction loans and BPLP’s Revolving Facility. We use BPLP’s Revolving Facility primarily as a bridge facility to fund acquisition opportunities, refinance outstanding indebtedness and meet short-term development and working capital needs. Although we may seek to fund our development projects with construction loans, which may require guarantees by BPLP, the financing for each particular project ultimately depends on several factors, including, among others, the project’s size and duration, the extent of pre-leasing and our available cash and access to cost effective capital at the given time. 84 Table of Conte n ts The following table presents information on properties under construction and redevelopment as of September 30, 2020 (dollars in thousands): Financings 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 9/30/2020 (1) Estimated Future Equity Requirement (1)(2)(4) Percentage Leased (5) Office Dock 72 (50% ownership) Second Quarter, 2022 Brooklyn, NY 1 670,000 $ 209,795 $ 243,150 $ 125,000 $ 98,206 $ 6,561 33 % (6) 325 Main Street Third Quarter, 2022 Cambridge, MA 1 420,000 148,585 418,400 — 269,815 90 % 100 Causeway Street (50% ownership) Third Quarter, 2022 Boston, MA 1 632,000 167,620 267,300 200,000 90,274 — 95 % 7750 Wisconsin Avenue (Marriott International Headquarters) (50% ownership) Third Quarter, 2022 Bethesda, MD 1 734,000 134,843 198,900 127,500 66,361 2,918 100 % Reston Next (formerly Reston Gateway) Fourth Quarter, 2023 Reston, VA 2 1,062,000 323,537 715,300 — — 391,763 85 % 2100 Pennsylvania Avenue Third Quarter, 2024 Washington, DC 1 480,000 109,153 356,100 — — 246,947 62 % Total Office Properties under Construction 7 3,998,000 1,093,533 2,199,150 452,500 254,841 918,004 78 % Redevelopment Properties One Five Nine East 53rd Street (55% ownership) First Quarter, 2021 New York, NY — 220,000 137,155 150,000 — — 12,845 96 % (7) 200 West Street Fourth Quarter, 2021 Waltham, MA — 126,000 13,663 47,800 — — 34,137 100 % (8) Total Redevelopment Properties under Construction — 346,000 150,818 197,800 — — 46,982 97 % Total Properties under Construction and Redevelopment 7 4,344,000 $ 1,244,351 $ 2,396,950 $ 452,500 $ 254,841 $ 964,986 80 % ___________ (1) Represents our share. (2) Investment to Date, Estimated Total Investment and Estimated Future Equity Requirement all include our share of acquisition expenses, as applicable, and reflect our share of the estimated net revenue/expenses that we expect to incur prior to stabilization of the project, including any amounts actually received or paid through September 30, 2020. (3) Includes approximately $98.2 million of unpaid but accrued construction costs and leasing commissions. (4) Excludes approximately $98.2 million of unpaid but accrued construction costs and leasing commissions. (5) Represents percentage leased as of November 3, 2020, including leases with future commencement dates. (6) This property was 34% placed in-service as of September 30, 2020. (7) Represents the low-rise portion of 601 Lexington Avenue. (8) Represents a portion of the property under redevelopment for conversion to laboratory space. 85 Table of Conte n ts Lease revenue (which includes recoveries from tenants), other income from operations, available cash balances, mortgage financings, unsecured indebtedness and draws on BPLP’s Revolving Facility are the principal sources of capital that we use to fund operating expenses, debt service, maintenance and repositioning capital expenditures, tenant improvements and the minimum distribution required to enable BXP to maintain its REIT qualification. We seek to maximize income from our existing properties by maintaining quality standards for our properties that promote high occupancy rates and permit increases in rental rates while reducing tenant turnover and controlling operating expenses. Our sources of revenue also include third-party fees generated by our property management, leasing and development and construction businesses, as well as the sale of assets from time to time. We believe these sources of capital will continue to provide the funds necessary for our short-term liquidity needs, including our properties under development and redevelopment. Material adverse changes in one or more sources of capital, including from the impacts of COVID-19, may adversely affect our net cash flows. For example, during the third quarter of 2020, our rent collections remained strong as we collected 99% of rents from our office tenants and 97% 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, fitness and entertainment tenants, decreases in parking and other revenue and the continued 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 September 30, 2020, our share of the remaining development and redevelopment costs that we expect to fund through 2024 was approximately $1.0 billion. To satisfy these capital needs, as of November 2, 2020, we had approximately $1.6 billion of cash and cash equivalents, of which approximately $117 million is attributable to our consolidated joint venture partners. 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 that our strong liquidity, including the approximately $1.5 billion available under the Revolving Facility and available cash, as of November 2, 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 have not sold any shares under BXP’s $600.0 million “at the market” equity offering program. We may seek to enhance our liquidity to 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. On October 30, 2020, a joint venture in which we have a 50% interest refinanced the mortgage loan collateralized by its Market Square North property located in Washington, DC. The outstanding balance of the loan totaled approximately $114.2 million and was scheduled to mature on November 1, 2020. The new mortgage loan totals $125.0 million and matures on November 10, 2025. With the refinancing of Market Square North, our unconsolidated joint ventures have approximately $208.5 million of debt maturing in 2020, of which our share is approximately $104.3 million. Depending on interest rates and overall conditions in the debt and equity markets, we may decide to access either or both of these markets in advance of the need for the funds. Doing so may result in us carrying additional cash and cash equivalents pending our use of the proceeds, which would increase our net interest expense and be dilutive to our earnings. REIT Tax Distribution Considerations Dividend BXP as a REIT is subject to a number of organizational and operational requirements, including a requirement that BXP currently distribute at least 90% of its annual taxable income (excluding capital gains and with certain other adjustments). Our policy is for BXP to distribute at least 100% of its taxable income, including capital gains, to avoid paying federal tax. On December 17, 2019, the Board of Directors of BXP increased our regular quarterly 86 Table of Conte n ts 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. BXP’s Board of Directors will continue to evaluate BXP’s dividend rate in light of our actual and projected taxable income (including gains on sales), liquidity requirements and other circumstances, including the impact of COVID-19, and there can be no assurance that the future dividends declared by BXP’s Board of Directors will not differ materially from the current quarterly dividend amount. Sales To the extent that we sell assets at a gain and cannot efficiently use the proceeds in a tax deferred manner for either our development activities or attractive acquisitions, BXP would, at the appropriate time, decide whether it is better to declare a special dividend, adopt a stock repurchase program, reduce indebtedness or retain the cash for future investment opportunities. Such a decision will depend on many factors including, among others, the timing, availability and terms of development and acquisition opportunities, our then-current and anticipated leverage, the cost and availability of capital from other sources, the price of BXP’s common stock and REIT distribution requirements. At a minimum, we expect that BXP would distribute at least that amount of proceeds necessary for BXP to avoid paying corporate level tax on the applicable gains realized from any asset sales. From time to time in selected cases, whether due to a change in use, structuring issues to comply with applicable REIT regulations or other reasons, we may sell an asset that is held by a taxable REIT subsidiary (“TRS”). Such a sale by a TRS would be subject to federal and local taxes. Cash Flow Summary The following summary discussion of our cash flows is based on the Consolidated Statements of Cash Flows and is not meant to be an all-inclusive discussion of the changes in our cash flows for the periods presented below. Cash and cash equivalents and cash held in escrows aggregated approximately $1.8 billion and $0.8 billion at September 30, 2020 and 2019, respectively, representing an increase of approximately $1.0 billion. The following table sets forth changes in cash flows: Nine months ended September 30, 2020 2019 Increase (Decrease) (in thousands) Net cash provided by operating activities $ 782,423 $ 819,792 $ (37,369) Net cash used in investing activities (388,411) (736,466) 348,055 Net cash provided by financing activities 678,891 82,248 596,643 Our principal source of cash flow is related to the operation of our properties. The weighted-average term of our in-place tenant leases, including our unconsolidated joint ventures, is approximately 7.5 years with occupancy rates historically in the range of 90% to 94%. Generally, our properties generate a relatively consistent stream of cash flow that provides us with resources to pay operating expenses, debt service and fund regular quarterly dividend and distribution payment requirements. In addition, over the past several years, we have raised capital through the sale of some of our properties and through secured and unsecured borrowings. The full extent of the impact of COVID-19 on our business, operations and financial results will depend on numerous evolving factors that we may not be able to accurately predict. In addition, we cannot predict the impact that COVID-19 will have on our tenants, employees, contractors, lenders, suppliers, vendors and joint venture partners; any material adverse effect on these parties could also have a material adverse effect on us. See Item 1A: “Risk Factors” for additional details. 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 nine months ended September 30, 2020 consisted primarily of acquisitions of real estate, development projects, building and tenant improvements and capital contributions to unconsolidated joint ventures, partially offset by the proceeds from the 87 Table of Conte n ts sales of real estate and capital distributions from unconsolidated joint ventures. Cash used in investing activities for the nine months ended September 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: Nine months ended September 30, 2020 2019 (in thousands) Acquisitions of real estate (1) $ (135,698) $ (148,912) Construction in progress (2) (358,824) (390,275) Building and other capital improvements (116,894) (129,340) Tenant improvements (172,401) (191,532) Right of use assets - finance leases — (5,152) Proceeds from sales of real estate (3) 505,679 83,486 Capital contributions to unconsolidated joint ventures (4) (158,374) (65,499) Capital distributions from unconsolidated joint ventures (5) 55,123 136,807 Cash and cash equivalents deconsolidated — (24,112) Issuance of notes receivable, net (6) (9,800) — Investments in securities, net 2,778 (1,937) Net cash used in investing activities $ (388,411) $ (736,466) 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 July 31, 2020, we acquired an undivided ownership interest in real property at 759 Harrison Street located in San Francisco, California for a purchase price totaling approximately $2.3 million. On 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. On August 27, 2019, we acquired 880 and 890 Winter Street located in Waltham, Massachusetts for a gross purchase price of approximately $106.0 million in cash, including transaction costs. 880 and 890 Winter Street consists of two Class A office properties aggregating approximately 392,000 net rentable square feet. (2) Construction in progress for the nine months ended September 30, 2020 includes ongoing expenditures associated with 17Fifty Presidents Street, 20 CityPoint and The Skylyne, which were partially or fully placed in-service during the nine months ended September 30, 2020. In addition, we incurred costs associated with our continued development/redevelopment o f One Five Nine East 53rd Street, Reston Next (formerly Reston Gateway), 2100 Pennsylvania Avenue, 200 West Street and 325 Main Street. Construction in progress for the nine months ended September 30, 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 Next (formerly Reston Gateway), 2100 Pennsylvania Avenue, 200 West Street, The Skylyne and 325 Main Street. (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. 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 88 Table of Conte n ts $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. 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 $246.6 million, resulting in a gain on sale of real estate totaling approximately $203.6 million for BXP and approximately $207.0 million for BPLP. Capital Gallery is an approximately 631,000 net rentable square foot Class A office property. The portion sold is comprised of approximately 455,000 net rentable square feet of commercial office space. We continue to own the land, underground parking garage and remaining commercial office and retail space containing approximately 176,000 net rentable square feet at the property. On 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. Net cash proceeds totaled approximately $21.4 million, resulting in a loss on sale of real estate totaling approximately $0.6 million. 2600 Tower Oaks Boulevard is an approximately 179,000 net rentable square foot Class A office property. 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. On September 20, 2019, we sold a 45% interest in our Platform 16 property located in San Jose, California for a gross sale price of approximately $23.1 million. Net cash proceeds totaled approximately $23.1 million. We ceased accounting for the property on a consolidated basis and now account for the property on an unconsolidated basis using the equity method of accounting as we reduced our ownership interest in the property and no longer have a controlling financial or operating interest in the property. We did not recognize a gain on the retained or sold interest in the property as the fair value of the property approximated its carrying value. Platform 16 consists of a 65-year ground lease for land totaling approximately 5.6 acres that will support the development of approximately 1.1 million square feet of commercial office space. (4) Capital contributions to unconsolidated joint ventures for the nine months ended September 30, 2020 consisted primarily of cash contributions of approximately $75.0 million, $39.0 million, $27.2 million and $7.5 million to our Platform 16, 3 Hudson Boulevard, Beach Cities Media Center and Metropolitan Square joint ventures, respectively. Capital contributions to unconsolidated joint ventures for the nine months ended September 30, 2019 consisted primarily of cash contributions of approximately $41.4 million, $12.1 million and $7.0 million to our Hub on Causeway, Dock 72 and 3 Hudson Boulevard joint ventures, respectively. (5) Capital distributions from unconsolidated joint ventures for the nine months ended September 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 nine months ended September 30, 2019 consisted of (1) cash distributions totaling approximately $104.1 million from our 540 Madison Avenue joint venture resulting from the net proceeds from the sale of the property, (2) a cash distribution totaling approximately $17.6 million from our 100 Causeway Street joint venture resulting from the proceeds from the construction loan financing and (3) a cash distribution totaling approximately $15.1 million from our 7750 Wisconsin Avenue joint venture resulting from the proceeds from the construction loan financing. 89 Table of Conte n ts (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 nine months ended September 30, 2020 totaled approximately $678.9 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 .” Capitalization The following table presents Consolidated Market Capitalization and BXP’s Share of Market Capitalization, as well as the corresponding ratios of Consolidated Debt to Consolidated Market Capitalization and BXP’s Share of Debt to BXP’s Share of Market Capitalization (in thousands except for percentages): September 30, 2020 Shares / Units Outstanding Common Stock Equivalent Equivalent Value (1) Common Stock 155,636 155,636 $ 12,497,571 Common Operating Partnership Units 17,458 17,458 1,401,877 (2) 5.25% Series B Cumulative Redeemable Preferred Stock 80 — 200,000 Total Equity 173,094 $ 14,099,448 Consolidated Debt $ 13,048,161 Add: BXP’s share of unconsolidated joint venture debt (3) 1,114,031 Subtract: Partners’ share of Consolidated Debt (4) (1,195,957) BXP’s Share of Debt $ 12,966,235 Consolidated Market Capitalization $ 27,147,609 BXP’s Share of Market Capitalization $ 27,065,683 Consolidated Debt/Consolidated Market Capitalization 48.06 % BXP’s Share of Debt/BXP’s Share of Market Capitalization 47.91 % _______________ (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 September 30, 2020 of $80.30. (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. (3) See page 94 for additional information. (4) See page 93 for additional information. Consolidated Debt to Consolidated Market Capitalization Ratio is a measure of leverage commonly used by analysts in the REIT sector. We present this measure as a percentage and it is calculated by dividing (A) our consolidated debt by (B) our consolidated market capitalization, which is the market value of our outstanding equity securities plus our consolidated debt. Consolidated market capitalization is the sum of: (1) our consolidated debt; plus (2) the product of (x) the closing price per share of BXP common stock on September 30, 2020, as reported by the New York Stock Exchange, multiplied by (y) the sum of: 90 Table of Conte n ts (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; plus (3) the aggregate liquidation preference ($2,500 per share) of the outstanding shares of BXP’s 5.25% Series B Cumulative Redeemable Preferred Stock. 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 September 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. BXP’s Share of Debt is defined as our consolidated debt plus our share of debt from our unconsolidated joint ventures (calculated based upon our ownership percentage), minus our partners’ share of debt from our consolidated joint ventures (calculated based upon the partners’ percentage ownership interests adjusted for basis differentials). Management believes that BXP’s Share of Debt provides useful information to investors regarding our financial condition because it includes our share of debt from unconsolidated joint ventures and excludes our partners’ share of debt from consolidated joint ventures, in each case presented on the same basis. We have several significant joint ventures and presenting various measures of financial condition in this manner can help investors better understand our financial condition and/or results of operations after taking into account our economic interest in these joint ventures. We caution investors that the ownership percentages used in calculating BXP’s Share of Debt may not completely and accurately depict all of the legal and economic implications of holding an interest in a consolidated or unconsolidated joint venture. For example, in addition to partners’ interests in profits and capital, venture agreements vary in the allocation of rights regarding decision making (both for routine and major decisions), distributions, transferability of interests, financing and guarantees, liquidations and other matters. Moreover, in some cases we exercise significant influence over, but do not control, the joint venture in which case GAAP requires that we account for the joint venture entity using the equity method of accounting and we do not consolidate it for financial reporting purposes. In other cases, GAAP requires that we consolidate the venture even though our partner(s) own(s) a significant percentage interest. As a result, management believes that the presentation of BXP’s Share of a financial measure should not be considered a substitute for, and should only be considered with and as a supplement to our financial information presented in accordance with GAAP. We present these supplemental ratios because our degree of leverage could affect our ability to obtain additional financing for working capital, capital expenditures, acquisitions, development or other general corporate purposes and because different investors and lenders consider one or both of these ratios. Investors should understand that these ratios are, in part, a function of the market price of the common stock of BXP and as such will fluctuate with changes in such price, and they do not necessarily reflect our capacity to incur additional debt to finance our activities or our ability to manage our existing debt obligations. However, for a company like BXP, whose assets are primarily income-producing real estate, these ratios may provide investors with an alternate indication of leverage, so long as they are evaluated along with the ratio of indebtedness to other measures of asset value used by financial analysts and other financial ratios, as well as the various components of our outstanding indebtedness. For a discussion of our unconsolidated joint venture indebtedness, see “ Liquidity and Capital Resources—Capitalization—Off-Balance Sheet Arrangements—Joint Venture Indebtedness ” within “ Item 2—Management’s Discussion and Analysis of Financial Condition and Results of Operations ” and for a discussion of our consolidated joint venture indebtedness see “Liquidity and Capital Resources—Capitalization—Mortgage Notes Payable, Net ” within “ Item 2—Management’s Discussion and Analysis of Financial Condition and Results of Operations .” 91 Table of Conte n ts Debt Financing As of September 30, 2020, we had approximately $13.0 billion of outstanding consolidated indebtedness, representing approximately 48.06% 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 3.89% per annum and a weighted-average term of 5.6 years and (3) $499.3 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 September 30, 2020 and September 30, 2019. September 30, 2020 2019 (dollars in thousands) Debt Summary: Balance Fixed rate mortgage notes payable, net $ 2,912,494 $ 2,952,006 Unsecured senior notes, net 9,636,397 8,387,913 Unsecured line of credit — — Unsecured term loan, net 499,270 498,819 Consolidated Debt 13,048,161 11,838,738 Add: BXP’s share of unconsolidated joint venture debt, net (1) 1,114,031 924,366 Subtract: Partners’ share of consolidated mortgage notes payable, net (2) (1,195,957) (1,201,113) BXP’s Share of Debt $ 12,966,235 $ 11,561,991 September 30, 2020 2019 Consolidated Debt Financing Statistics: 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 % 3.81 % Variable rate 1.18 % 3.12 % Total 3.65 % 3.78 % Coupon/Stated Weighted-average interest rate at end of period: Fixed rate 3.65 % 3.70 % Variable rate 1.09 % 3.03 % Total 3.55 % 3.67 % Weighted-average maturity at end of period (in years): Fixed rate 5.8 6.3 Variable rate 1.6 2.6 Total 5.6 6.1 _______________ (1) See page 94 for additional information. (2) See page 93 for additional information. 92 Table of Conte n ts 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 87.5 basis points and 95 basis points, respectively, and (2) the facility fee on the Revolving Facility commitment is 0.15% per annum. 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 September 30, 2020 credit rating and matures on April 24, 2022. As of September 30, 2020 and November 2, 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 For a description of BPLP’s outstanding unsecured senior notes as of September 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 September 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 September 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) Wholly-owned University Place 6.94 % 6.99 % $ 2,045 $ (11) $ 2,034 N/A August 1, 2021 Consolidated Joint Ventures 767 Fifth Avenue (the General Motors Building) 3.43 % 3.64 % 2,300,000 (23,352) 2,276,648 $ 910,742 (2)(3)(4) June 9, 2027 601 Lexington Avenue 4.75 % 4.79 % 634,314 (502) 633,812 285,215 (5) April 10, 2022 2,934,314 (23,854) 2,910,460 1,195,957 Total $ 2,936,359 $ (23,865) $ 2,912,494 $ 1,195,957 _______________ (1) GAAP interest rate differs from the stated interest rate due to the inclusion of the amortization of financing charges and the effects of hedging transactions (if any). (2) The mortgage loan requires interest only payments with a balloon payment due at maturity. (3) This property is owned by a consolidated entity in which we have a 60% interest. The partners’ share of the carrying amount has been adjusted for basis differentials. (4) In connection with the refinancing of the loan, we guaranteed the consolidated entity’s obligation to fund various reserves for tenant improvement costs and allowances, leasing commissions and free rent obligations in lieu of cash 93 Table of Conte n ts deposits. As of September 30, 2020, the maximum funding obligation under the guarantee was approximately $37.2 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). (5) This property is owned by a consolidated entity in which we have a 55% interest. Off-Balance Sheet Arrangements—Joint Venture Indebtedness We have investments in unconsolidated joint ventures with our effective ownership interests ranging from 20% to 60%. Fourteen of these ventures have mortgage indebtedness. We exercise significant influence over, but do not control, these entities. As a result, we account for them using the equity method of accounting. See also Note 5 to the Consolidated Financial Statements. At September 30, 2020, the aggregate carrying amount of debt, including both our and our partners’ share, incurred by these ventures was approximately $2.6 billion (of which our proportionate share is approximately $1.1 billion). The table below summarizes the outstanding debt of these joint venture properties at September 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. 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) Santa Monica Business Park 55 % 4.06 % 4.24 % $ 300,000 $ (2,525) $ 297,475 $ 163,611 (2)(3) July 19, 2025 Market Square North 50 % 4.85 % 4.85 % 114,201 (65) 114,136 57,068 (4) November 1, 2020 Annapolis Junction Building Six 50 % 2.15 % 2.30 % 12,131 (4) 12,127 6,064 (5) November 17, 2020 Annapolis Junction Building Seven 50 % 2.58 % 2.92 % 18,420 (31) 18,389 9,195 (6) March 25, 2021 1265 Main Street 50 % 3.77 % 3.84 % 37,544 (313) 37,231 18,615 January 1, 2032 Colorado Center 50 % 3.56 % 3.58 % 550,000 (705) 549,295 274,648 (2) August 9, 2027 Dock 72 50 % 2.41 % 3.55 % 196,412 (843) 195,569 97,784 (2)(7) December 18, 2020 The Hub on Causeway - Podium 50 % 2.41 % 2.90 % 174,329 (945) 173,384 86,692 (2)(8) September 6, 2021 Hub50House 50 % 2.17 % 2.45 % 169,034 (807) 168,227 84,113 (2)(9) April 19, 2022 100 Causeway Street 50 % 1.66 % 1.87 % 180,547 (2,471) 178,076 89,038 (2)(10) September 5, 2023 7750 Wisconsin Avenue (Marriott International Headquarters) 50 % 1.41 % 1.95 % 132,722 (3,597) 129,125 64,563 (2)(11) April 26, 2023 500 North Capitol Street, NW 30 % 4.15 % 4.20 % 105,000 (158) 104,842 31,453 (2) June 6, 2023 901 New York Avenue 25 % 3.61 % 3.69 % 222,192 (759) 221,433 55,358 January 5, 2025 3 Hudson Boulevard 25 % 3.66 % 3.74 % 80,000 (176) 79,824 19,956 (2)(12) July 13, 2023 Metropolitan Square 20 % 5.40 % 6.90 % 288,000 (8,634) 279,366 55,873 (2)(13) July 7, 2022 Total $ 2,580,532 $ (22,033) $ 2,558,499 $ 1,114,031 _______________ (1) GAAP interest rate differs from the stated interest rate due to the inclusion of the amortization of financing charges, which includes mortgage recording fees. (2) The loan requires interest only payments with a balloon payment due at maturity. (3) The loan bears interest at a variable rate equal to LIBOR plus 1.28% per annum and matures 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. 94 Table of Conte n ts (4) On September 30, 2020, the joint venture extended the maturity date to November 1, 2020. Then, on October 30, 2020, the joint venture refinanced the mortgage loan. See Notes 5 and 13 to the Consolidated Financial Statements. (5) The loan bears interest at a variable rate equal to LIBOR plus 2.00% per annum and matures on November 17, 2020. (6) The loan bears interest at a variable rate equal to LIBOR plus 2.35% per annum and matures on March 25, 2021. (7) The construction financing has a borrowing capacity of $250.0 million. The construction financing bears interest at a variable rate equal to LIBOR plus 2.25% per annum and matures on December 18, 2020, with two, one-year extension options, subject to certain conditions. (8) The construction financing had a borrowing capacity of $204.6 million. On September 16, 2019, the joint venture paid down the construction loan principal balance in the amount of approximately $28.8 million, reducing the borrowing capacity to $175.8 million. The construction financing bears interest at a variable rate equal to LIBOR plus 2.25% per annum and matures on September 6, 2021, with two, one-year extension options, subject to certain conditions. (9) The construction financing has a borrowing capacity of $180.0 million. The construction financing bears interest at a variable rate equal to LIBOR plus 2.00% per annum and matures on April 19, 2022, with two, one-year extension options, subject to certain conditions. (10) The construction financing has a borrowing capacity of $400.0 million. The construction financing bears interest at a variable rate equal to LIBOR plus 1.50% per annum (LIBOR plus 1.375% per annum upon stabilization, as defined in the loan agreement) and matures on September 5, 2023, with two, one-year extension options, subject to certain conditions. (11) The construction financing has a borrowing capacity of $255.0 million. The construction financing bears interest at a variable rate equal to LIBOR plus 1.25% per annum and matures on April 26, 2023, with two, one-year extension options, subject to certain conditions. (12) We provided $80.0 million of mortgage financing to the joint venture. The loan bears interest at a variable rate equal to LIBOR plus 3.50% per annum and matures on July 13, 2023, with extension options, subject to certain conditions. The loan has been reflected as Related Party Note Receivable, Net on our Consolidated Balance Sheets. (13) The loan bears interest at a variable rate equal to (1) the greater of (x) LIBOR or (y) 0.65%, plus (2) 4.75% per annum, and matures on July 7, 2022. State and Local Tax Matters Because BXP is organized and qualifies as a REIT, it is generally not subject to federal income taxes, but is subject to certain state and local taxes. In the normal course of business, certain entities through which we own real estate either have undergone, or are currently undergoing, tax audits or other inquiries. Although we believe that we have substantial arguments in favor of our position in the ongoing audits, in some instances there is no controlling precedent or interpretive guidance on the specific point at issue. Collectively, tax deficiency notices received to date from the jurisdictions conducting the ongoing audits have not been material. However, there can be no assurance that future audits will not occur with increased frequency or that the ultimate result of such audits will not have a material adverse effect on our results of operations. Insurance For information concerning our insurance program, see Note 7 to the Consolidated Financial Statements. Funds from Operations Pursuant to the revised definition of Funds from Operations adopted by the Board of Governors of the National Association of Real Estate Investment Trusts (“Nareit”), we calculate Funds from Operations, or “FFO,” for each of BXP and BPLP by adjusting net income (loss) attributable to Boston Properties, Inc. common shareholders and net income (loss) attributable to Boston Properties Limited Partnership common unitholders (computed in accordance with GAAP), respectively, for gains (or losses) from sales of properties, impairment losses on depreciable real estate consolidated on our balance sheet, impairment losses on our investments in unconsolidated joint ventures driven by a measurable decrease in the fair value of depreciable real estate held by the unconsolidated joint ventures and our share of real estate-related depreciation and amortization. FFO is a non-GAAP financial measure. We believe the presentation of FFO, combined with the presentation of required GAAP financial measures, has improved the understanding of operating results of REITs among the investing public and has helped make comparisons of REIT operating results more meaningful. Management generally considers FFO to be useful measures for understanding and comparing our operating results because, by excluding gains and losses related to sales of previously depreciated operating real estate assets, impairment losses and real estate asset depreciation and amortization (which can differ across owners of similar assets in similar condition based on historical cost 95 Table of Conte n ts accounting and useful life estimates), FFO can help investors compare the operating performance of a company’s real estate across reporting periods and to the operating performance of other companies. Our computation of FFO may not be comparable to FFO reported by other REITs or real estate companies that do not define the term in accordance with the current Nareit definition or that interpret the current Nareit definition differently. We believe that in order to facilitate a clear understanding of our operating results, FFO should be examined in conjunction with net income attributable to Boston Properties, Inc. common shareholders and net income attributable to Boston Properties Limited Partnership as presented in our Consolidated Financial Statements. FFO should not be considered as a substitute for net income attributable to Boston Properties, Inc. common shareholders or net income attributable to Boston Properties Limited Partnership common unitholders (determined in accordance with GAAP) or any other GAAP financial measures and should only be considered together with and as a supplement to our financial information prepared in accordance with GAAP. The impact that COVID-19 has had on our business, financial position and results of operations during the second and third quarters 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. 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 nine months ended September 30, 2020, thus negatively impacting our FFO. These decreases are discussed under the heading “ Comparison of the nine months ended September 30, 2020 to the nine months ended September 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 September 30, 2020 to the three months ended September 30, 2019 ” within “ Item 2—Management’s Discussion and Analysis of Financial Condition and Results of Operations .” 96 Table of Conte n ts Boston Properties, Inc. The following table presents a reconciliation of net income attributable to Boston Properties, Inc. common shareholders to FFO attributable to Boston Properties, Inc. common shareholders for the three months ended September 30, 2020 and 2019: Three months ended September 30, 2020 2019 (in thousands) Net income attributable to Boston Properties, Inc. common shareholders $ 89,854 $ 107,771 Add: Preferred dividends 2,625 2,625 Noncontrolling interest—common units of the Operating Partnership 10,020 12,504 Noncontrolling interests in property partnerships 15,561 18,470 Net income 118,060 141,370 Add: Depreciation and amortization 166,456 165,862 Noncontrolling interests in property partnerships’ share of depreciation and amortization (15,833) (17,402) BXP’s share of depreciation and amortization from unconsolidated joint ventures 20,413 13,745 Corporate-related depreciation and amortization (444) (411) Less: Gain on sale of real estate included within income (loss) from unconsolidated joint ventures — (487) Losses on sales of real estate (209) (15) Noncontrolling interests in property partnerships 15,561 18,470 Preferred dividends 2,625 2,625 Funds from Operations (FFO) attributable to the Operating Partnership common unitholders (including Boston Properties, Inc.) 270,675 282,571 Less: Noncontrolling interest—common units of the Operating Partnership’s share of funds from operations 26,697 28,940 Funds from Operations attributable to Boston Properties, Inc. common shareholders $ 243,978 $ 253,631 Our percentage share of Funds from Operations—basic 90.14 % 89.76 % Weighted average shares outstanding—basic 155,645 154,577 97 Table of Conte n ts Reconciliation to Diluted Funds from Operations: Three months ended September 30, 2020 2019 Income (Numerator) Shares/Units (Denominator) Income (Numerator) Shares/Units (Denominator) (in thousands) Basic Funds from Operations $ 270,675 172,677 $ 282,571 172,215 Effect of Dilutive Securities: Stock based compensation — 25 — 243 Diluted Funds from Operations $ 270,675 172,702 $ 282,571 172,458 Less: Noncontrolling interest—common units of the Operating Partnership’s share of diluted Funds from Operations 26,693 17,032 28,900 17,638 Diluted Funds from Operations attributable to Boston Properties, Inc. (1) $ 243,982 155,670 $ 253,671 154,820 _______________ (1) BXP’s share of diluted Funds from Operations was 90.14% and 89.77% for the three months ended September 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 September 30, 2020 and 2019: Three months ended September 30, 2020 2019 (in thousands) Net income attributable to Boston Properties Limited Partnership common unitholders $ 101,624 $ 122,117 Add: Preferred distributions 2,625 2,625 Noncontrolling interests in property partnerships 15,561 18,470 Net income 119,810 143,212 Add: Depreciation and amortization 164,706 164,020 Noncontrolling interests in property partnerships’ share of depreciation and amortization (15,833) (17,402) BPLP’s share of depreciation and amortization from unconsolidated joint ventures 20,413 13,745 Corporate-related depreciation and amortization (444) (411) Less: Gain on sale of real estate included within income (loss) from unconsolidated joint ventures — (487) Losses on sales of real estate (209) (15) Noncontrolling interests in property partnerships 15,561 18,470 Preferred distributions 2,625 2,625 Funds from operations attributable to Boston Properties Limited Partnership common unitholders (1) $ 270,675 $ 282,571 Weighted average units outstanding—basic 172,677 172,215 98 Table of Conte n ts _______________ (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 September 30, 2020 2019 Income (Numerator) Shares/Units (Denominator) Income (Numerator) Shares/Units (Denominator) (in thousands) Basic Funds from Operations $ 270,675 172,677 $ 282,571 172,215 Effect of Dilutive Securities: Stock based compensation — 25 — 243 Diluted Funds from Operations $ 270,675 172,702 $ 282,571 172,458 Contractual Obligations We have various service contracts with vendors related to our property management. In addition, we have certain other contracts we enter into in the ordinary course of business that may extend beyond one year. These contracts include terms that provide for cancellation with insignificant or no cancellation penalties. Contract terms are generally between three and five years. During the three months ended September 30, 2020, we paid approximately $69.1 million to fund tenant-related obligations, including tenant improvements and leasing commissions. In addition, during the three months ended September 30, 2020, we and our unconsolidated joint venture partners incurred approximately $35 million of new tenant-related obligations associated with approximately 988,000 square feet, which included approximately 177,000 square feet of lease modifications related to COVID-19, of second generation leases, or approximately $36 per square foot. We did not sign any first generation leases. The tenant-related obligations for the development properties are included within the projects’ “Estimated Total Investment” referred to in “ Item 2—Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources.”