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,” “could”, “estimate,” “expect,” “intend,” “may,” “might,” “plan,” “project,” “should,” “will” and similar expressions that do not relate solely to historical matters are intended to identify forward-looking statements. Such statements are subject to risks, uncertainties and assumptions and are not guarantees of future performance or occurrences, which may be affected by known and unknown risks, trends, uncertainties and factors that are, in some cases, beyond our control. Should one or more of these known or unknown risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those expressed or implied by the forward-looking statements. We caution you that, while forward-looking statements reflect our good-faith beliefs when we make them, they are not guarantees of future performance or occurrences and are impacted by actual events when they occur after we make such statements. Accordingly, investors should use caution in relying on forward-looking statements, which are based on results and trends at the time they are made, to anticipate future results or trends. One of the most significant factors that may cause actual results to differ materially from those expressed or implied by the forward-looking statements is the ongoing impact of the global COVID-19 pandemic on 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, 2020 including those described under the caption “Risk Factors,” (ii) our subsequent filings under the Exchange Act and (iii) the risk factors set forth in this Form 10-Q in Part II, Item 1A. Some of the risks and uncertainties that may cause our actual results, performance or achievements to differ materially from those expressed or implied by forward-looking statements include, among others, the following: • the risks and uncertainties related to the impact of the COVID-19 global pandemic, including the duration, scope and severity of the pandemic domestically and internationally; federal, state and local government actions or restrictive measures implemented in response to COVID-19, the effectiveness of such measures, as well as the effect of any relaxation of current restrictions, and the direct and indirect impact of such measures on our and our tenants’ businesses, financial condition, results of operations, cash flows, liquidity and performance, and the U.S. and international economy and economic activity generally; the speed, effectiveness and distribution of vaccines, whether new or existing actions and measures continue to impact the ability of our residential tenants to generate sufficient income to pay, or make them unwilling to pay rent in a timely manner, in full or at all; the health, continued service and availability of our personnel, including our key personnel and property management teams; and the effectiveness or lack of effectiveness of governmental relief in providing assistance to individuals and large and small businesses, including our tenants, that have suffered significant adverse effects from COVID-19; • volatile or adverse global economic and political conditions, health crises and dislocations in the credit markets could adversely affect our access to cost-effective capital and have a resulting material adverse effect on our business opportunities, results of operations and financial condition; • general risks affecting the real estate industry (including, without limitation, the inability to enter into or renew leases, tenant space utilization, dependence on tenants’ financial condition, and competition from other developers, owners and operators of real estate); • failure to manage effectively our growth and expansion into new markets and sub-markets or to integrate acquisitions and developments successfully; • the ability of our joint venture partners to satisfy their obligations; 38 Table of Contents • risks and uncertainties affecting property development and construction (including, without limitation, construction delays, increased construction costs, cost overruns, inability to obtain necessary permits, tenant accounting considerations that may result in negotiated lease provisions that limit a tenant’s liability during construction, and public opposition to such activities); • risks associated with the availability and terms of financing and the use of debt to fund acquisitions and developments or refinance existing indebtedness, including the impact of higher interest rates on the cost and/or availability of financing; • risks associated with forward interest rate contracts and the effectiveness of such arrangements; • risks associated with downturns in the national and local economies, increases in interest rates, and volatility in the securities markets; • risks associated with actual or threatened terrorist attacks; • costs of compliance with the Americans with Disabilities Act and other similar laws; • potential liability for uninsured losses and environmental contamination; • risks associated with the physical effects of climate change; • risks associated with security breaches through cyber attacks, cyber intrusions or otherwise, as well as other significant disruptions of our information technology (IT) networks and related systems, which support our operations and our buildings; • risks associated with BXP’s potential failure to qualify as a REIT under the Internal Revenue Code of 1986, as amended; • possible adverse changes in tax and environmental laws; • the impact of newly adopted accounting principles on our accounting policies and on period-to-period comparisons of financial results; • risks associated with possible state and local tax audits; • risks associated with our dependence on key personnel whose continued service is not guaranteed; and • the other risk factors identified in our most recently filed Annual Report on Form 10-K for the fiscal year ended December 31, 2020 or described herein, including those under the caption “Risk Factors.” The risks set forth above are not exhaustive. Other sections of this report may include additional factors that could adversely affect our business and financial performance. Moreover, we operate in a very competitive and rapidly changing environment, particularly in light of the circumstances relating to COVID-19. New risk factors emerge from time to time and it is not possible for management to predict all risk factors, nor can we assess the impact of all risk factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Given these risks and uncertainties, investors should not place undue reliance on forward-looking statements as a prediction of actual results. Investors should also refer to our most recent Annual Report on Form 10-K and Quarterly Reports on Form 10-Q for future periods and Current Reports on Form 8-K as we file them with 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) (based on total market capitalization as of March 31, 2021) in the United States that develops, owns and manages primarily Class A office properties. Our properties are 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 and the industry in which it conducts business, the length of the lease, the 39 Table of Contents rental rate to be paid at inception and throughout the lease term, the costs of tenant improvements, free rent period and other landlord concessions, anticipated operating expenses and real estate taxes, current and anticipated vacancy in our properties and the market overall (including sublease space), current and expected future demand for the space, the impact of any expansion rights and general economic factors. Our core strategy has always been to develop, acquire and manage high-quality properties in supply-constrained markets with high barriers-to-entry and to focus on executing long-term leases with financially strong tenants. Historically, these factors have minimized our exposure in weaker economic cycles and enhanced revenues as market conditions improve. Our tenant base is diverse across market sectors and the weighted-average lease term for our in-place leases, excluding residential units, was approximately 7.6 years, as of March 31, 2021, including leases signed by our unconsolidated joint ventures. The weighted-average lease term for our top 20 office tenants was approximately 10.7 years as of March 31, 2021. To be successful in any leasing environment, we believe we must consider all aspects of the tenant-landlord relationship. In this regard, we believe that our competitive leasing advantage is based on the following attributes: • our understanding of tenants’ short- and long-term space utilization and amenity needs in the local markets; • our track record of developing and operating Class A office properties in a sustainable and responsible manner; • our reputation as a premier developer, owner and manager of primarily Class A office properties; • our financial strength and our ability to maintain high building standards; and • our relationships with local brokers. Outlook Starting in March 2020, the COVID-19 pandemic negatively affected global macroeconomic conditions. Following a significant a drop in U.S. GDP in mid-2020, overall economic conditions began to improve in the second half of 2020 after the enactment of federal stimulus programs. In the first quarter of 2021, millions of Americans began receiving COVID-19 vaccines, and by March 2021, the unemployment rate was approximately 6.0%, only 250 basis points above the pre-pandemic rate in February 2020. Although conditions have improved since the middle of 2020, the pandemic continues to weigh on the U.S. economy and operating conditions for several sectors, including commercial real estate, continue to be negatively impacted. The health of the overall economy and employment trends among professional workers have been, and we expect will continue to be, important drivers of office market conditions, and we expect vaccine distribution and efficacy to lead to a recovery of market conditions in our sector. Although the state and local authorities in many of our regions began easing restrictions on businesses and lifting limitations on the size of gatherings during the second half of 2020 and throughout the first quarter of 2021, the physical occupancy of our properties has remained well below capacity as infection rates fluctuated and most employers continued their COVID-19 response protocols and encouraged employees to work from home when possible. The future impact of the pandemic on the demand for office space is unclear, as companies consider the impact on their business and their demand for labor while, at the same time, evaluate their space requirements in light of their current and projected headcounts and the continued focus on social distancing and employees’ desire for more work-location flexibility. Real estate is, by nature, a long-term business and we do not believe these considerations and ultimate decisions by tenants will evidence a clear trend in the short-term. In the meantime, we believe our strategically located, high-quality office properties will continue to be a component of today’s forward-thinking organizations that desire collaboration, innovation, productivity and culture, and we expect tenants will take advantage of the availability of Class A space and upgrade. In the first quarter of 2021, we signed approximately 592,000 square feet of new leases and renewals with a weighted-average lease term of approximately 7.6 years, indicating that many prospective and existing tenants continue to commit to the long-term use of space and view our properties as their preferred choice for a premium Class A office environment. The volume of leasing in the first quarter of 2021 was approximately 84% of the total square feet of leases executed in the first quarter of 2020. We expect leasing volume in 2021 to remain lower than it was prior to the COVID-19 pandemic as many existing and prospective tenants defer decisions on their office space needs as they focus on workforce management strategies, safely returning their employees to an in-person work environment and managing their businesses through the economic recovery. 40 Table of Contents The development of properties in supply-constrained markets with the strongest economic growth over time continues to be a cornerstone of our long-term growth strategy. In the first quarter of 2021, we added new developments and redevelopments to our pipeline of properties under construction, primarily focused on the life sciences sector. The life sciences sector continues to experience strong growth and attract high levels of venture capital investment as demand increases for innovative medicines and therapies to treat an aging U.S. demographic. Cambridge, Boston and the suburban markets of Lexington and Waltham in Massachusetts and South San Francisco and Brisbane in California have been, and continue to be, among the largest life sciences markets, with strong demand from tenants in the life sciences sector because of the close proximity to universities, research institutions and related businesses and concentrations of labor with specialized skills and knowledge specific to this sector. In the first quarter of 2021, we commenced the development and redevelopment of three properties in two of these markets, including 180 CityPoint, an approximately 329,000 square foot lab development in Waltham, Massachusetts; 880 Winter Street, an approximately 224,000 square foot office property in Waltham, Massachusetts that will be redeveloped and converted into lab space; and 751 Gateway, an approximately 229,000 square foot lab development in South San Francisco, California. 751 Gateway is the first phase of a multi-phase, life sciences campus development at Gateway Commons. Upon completion, we will own 49% of 751 Gateway and future development projects at Gateway Commons. Though all three projects are being commenced speculatively, we are seeing many new life sciences requirements in both the Waltham and South San Francisco markets and have made multiple lease proposals to potential tenants. Also, in the first quarter of 2021, we commenced the redevelopment of the top three floors of the Prudential Center in Boston, Massachusetts into an approximately 59,000 square foot, world-class observatory attraction. This project will be Boston’s only observatory and will feature a dramatic, 360-degree outdoor viewing deck, 11,000 square feet of outdoor space and two floors of exhibits and observatory spaces, marking a transformative addition to the City of Boston. In total, as of March 31, 2021, we had approximately 4.3 million square feet of active developments and redevelopments in our pipeline. As of May 3, 2021, the office portion of the development pipeline is 86% pre-leased to predominately credit-strong tenants with long-lease terms and the total development pipeline, inclusive of both office and lab/life sciences developments and excluding The Prudential Center Observatory, is 71% pre-leased. All development projects are projected to meet required delivery milestones as defined in our leases. 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). Our reported rent collection amounts are based on the total amount of rent billed by us, including all amounts from consolidated operations and all unconsolidated joint ventures, other than Gateway Commons, our residential properties and one hotel because we do not handle billing. During the first quarter of 2021, our rent collections as a percentage of the total amounts billed to all tenants were 99.0%. • Approximately 95.2% of the total amounts billed were made to office tenants. Our first quarter rent collections from office tenants continued to be strong at 99.6%. Approximately 91.2% of our lease revenue in the first quarter of 2021 was generated by our office portfolio. Our office portfolio has long-term lease contracts and modest rollover exposure over the next few years. • Approximately 4.8% of the total amounts billed related to retail leases. Our first quarter rent collections from retail tenants were approximately 89.0%. Revenue As a result of the impact of the COVID-19 pandemic on the current economic environment and on the commercial real estate sector in particular, our first quarter 2021 revenues, when compared to first quarter 2020, continued to be adversely affected due to (1) declines in revenue from our retail tenants, parking and our hotel, and (2) a decline in occupancy in our in-service office and retail properties due to a slowdown in new leasing activity for vacant and expiring space. Our retail tenants continue to be adversely affected by the COVID-19 pandemic. Lease revenue from our retail leases was approximately $45.6 million in the first quarter of 2021, a decrease of approximately $3.3 million from the first quarter of 2020. This amount represents our consolidated lease revenue plus our share of the lease 41 Table of Contents revenue from the unconsolidated joint ventures (calculated based on our ownership percentage) minus our partners’ share of lease revenue from our consolidated joint ventures (calculated based upon the partners’ percentage ownership interests). Lease revenue in the first quarter of 2021 included approximately $4.2 million of lease termination income. Excluding termination income, our revenue from retail leases was approximately $41.4 million, a decrease of approximately $7.5 million from the first quarter of 2020, primarily due to tenants that are receiving COVID-19 related rent abatements. Our hotel property, the Boston Marriott Cambridge, re-opened in October 2020 but operated at diminished occupancy and generated only $0.6 million in revenue in the first quarter of 2021, a decrease of $6.2 million compared to the first quarter of 2020. We expect hotel occupancy to remain low until a sufficient number of people have been vaccinated and the demand for travel and leisure returns to historical levels. The overall occupancy of our in-service office and retail properties was 88.7% at March 31, 2021, a decrease of 140 basis points compared to 90.1% at December 31, 2020. The decrease was due in part to retail space we recaptured from tenants that defaulted during 2020, as well as the result of a slowdown of leasing activity for available office space due to the ongoing pandemic. Despite the concerns surrounding the COVID-19 pandemic and the negative impact on economic conditions in our markets, we continue to be optimistic for our industry generally and our company in particular, given low interest rates, the high quality of our properties, the supply and demand characteristics of our markets and the success of our development efforts. In addition, we anticipate our revenue from retail, parking and our hotel will improve as the rate of vaccinations increases and as the pandemic subsides. As a leading developer, owner and manager of marquee Class A office properties in the United States, our priorities remain focused on the following: • ensuring tenant health, safety and satisfaction; • leasing available space in our in-service and development properties, as well as proactively focusing on future lease expirations; • completing the construction of our development properties; • continuing and completing the redevelopment and repositioning of several key properties to increase future revenue and asset values over the long-term; • maintaining discipline in our underwriting of investment opportunities; • managing our near-term debt maturities and maintaining our conservative balance sheet; and • actively managing our operations in a sustainable and responsible manner. The following is an overview of portfolio activity and leasing activity in the first quarter of 2021. During the first quarter of 2021, we signed leases across our portfolio totaling approximately 592,000 square feet and we commenced revenue recognition on approximately 1.1 million square feet of leases in second-generation space, including lease renewals. Of these second-generation leases, approximately 735,000 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 15% over the prior leases. Consistent with our long-term investment strategy to invest in high-yielding development opportunities, in the first quarter of 2021, we completed and fully placed in-service One Five Nine East 53rd Street, an approximately 220,000 square feet Class A office and retail redevelopment in the low-rise portion of 601 Lexington Avenue in New York City. The property includes approximately 195,000 square feet of office space that is 100% leased to a university for a 30-year term. As of March 31, 2021, our construction/redevelopment pipeline consisted of nine properties that, when completed, we expect will total approximately 4.3 million net rentable square feet. Three of these development/redevelopment projects are owned by joint ventures. Our share of the estimated total cost for these projects is approximately $2.7 billion, of which approximately $1.4 billion remained to be invested as of March 31, 2021. The office portion of the development pipeline is approximately 86% pre-leased and the total development pipeline, inclusive of both office and lab/life sciences developments and excluding The Prudential Center Observatory, is 71% pre-leased as of May 3, 2021. 42 Table of Contents As we continue to focus on the development and acquisition of assets to enhance our long-term growth, we also continually review our portfolio to identify properties as potential sales candidates that either no longer fit within our portfolio strategy or could attract premium pricing in the current market environment. For example, in the first quarter of 2021, we completed the sale of Annapolis Junction Buildings Six and Seven, two Class A office properties in Annapolis, Maryland totaling approximately 247,000 square feet, for a gross sales price of approximately $65.9 million. The Company had a 50% ownership interest in the joint venture that owned the properties. We expect to continue to sell select assets from time to time, subject to market conditions. A brief overview of each of our markets follows. Boston Our Boston central business district (“CBD”) in-service portfolio was approximately 95% leased as of March 31, 2021. This includes approximately 212,700 square feet, or approximately 2.2% of our Boston CBD portfolio, of space that we terminated with tenants that defaulted in 2020 due to non-payment of rent. During the first quarter of 2021, we executed approximately 165,000 square feet of leases and approximately 258,000 square feet of leases commenced in the Boston region. Approximately 211,000 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 43% over the prior leases. Our approximately 2.0 million square foot in-service office portfolio in Cambridge was approximately 99% leased as of March 31, 2021. During the first quarter of 2021, we continued our development of 325 Main Street at Kendall Center in Cambridge, Massachusetts, which is 90% pre-leased to an office tenant for a term of 15 years and we expect to deliver into service in 2022. In the first quarter of 2021, we received approximately one million square feet of new entitlements at Kendall Center in Cambridge, Massachusetts for potential future development. Waltham and the area surrounding the Route 128-Mass Turnpike interchange continue to comprise a popular submarket of Boston for leading and emerging companies in the life sciences, biotechnology and technology sectors. In the first quarter of 2021, we signed a 63,500 square foot, 16-year lease with a healthcare company at 195 West Street in Waltham, Massachusetts, bringing that property to 100% leased. We also continued the redevelopment of 200 West Street, an approximately 273,000 square feet Class A office property in Waltham, Massachusetts. The redevelopment is a conversion of approximately 138,000 square feet into life sciences space that is 100% pre-leased to a biotechnology tenant with occupancy expected by year-end 2021. To enable us to meet current and future demand from tenants in the life sciences sector in this region, in the first quarter of 2021, we commenced the redevelopment of 880 Winter Street, an approximately 224,000 square foot office property in Waltham, Massachusetts that will be converted into lab space, and we commenced the development of 180 CityPoint, an approximately 329,000 square foot lab development in Waltham, Massachusetts. These properties are expected to be delivered in 2023 and 2024, respectively. Los Angeles Our Los Angeles (“LA”) in-service portfolio of approximately 2.3 million square feet is currently focused on West LA and includes Colorado Center, a 1.1 million square foot property of which we own 50%, and Santa Monica Business Park, a 21-building, approximately 1.2 million square foot property of which we own 55%. As of March 31, 2021, our LA in-service properties were approximately 82% leased. Our occupancy declined in the first quarter of 2021 from 93.5% at December 31, 2020, primarily due to the expiration of an approximately 200,000 square foot lease with an office tenant in the Santa Monica Business Park. In the first quarter of 2021, we signed a 72,000 square foot, 10-year lease with a new tenant in the digital media sector at Colorado Center in Los Angeles, California. With this lease, which we commenced revenue recognition in April 2021, our LA in-service properties are approximately 85% leased. During the first quarter of 2021, we had approximately 43,000 square feet of leases commence in the LA region. Approximately 22,000 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 24% over the prior leases. We continue to explore opportunities to increase our presence by seeking investments where our financial, operational, redevelopment and development expertise provide the opportunity, either alone or with partners, to achieve accretive returns. 43 Table of Contents New York As of March 31, 2021, our New York CBD in-service portfolio was approximately 89% leased. In addition, we executed approximately 50,000 square feet of leases and approximately 390,000 square feet of leases commenced in the first quarter of 2021. Of these leases, approximately 34,000 square feet had been vacant for less than one year and the net rental obligations rate was relatively flat as compared to prior leases. In the first quarter of 2021, tour and leasing activity remained slow due to the ongoing pandemic but leasing activity has increased and we conducted more physical tours in New York City than we had in the comparable quarter in either 2019 or 2020. We are actively negotiating 14 leases totaling approximately 170,000 square feet, including a full floor lease at Dock 72, our joint venture property in Brooklyn, New York. During the first quarter of 2021, we signed new leases with several small tenants across the New York portfolio as well as a 25,000 square foot, 14-year expansion with a multinational asset management company at 399 Park Avenue in New York City, bringing the total space leased by the tenant to approximately 100,000 square feet. San Francisco In the first quarter of 2021, governmental authorities in San Francisco began lifting travel quarantines, stay-at-home orders and restrictions on the types of businesses that could continue to operate, including offices. As these restrictions were lifted, the pace of new leasing activity began to increase, although activity remains well below pre- pandemic levels. Our San Francisco CBD in-service properties were approximately 93% leased as of March 31, 2021. During the first quarter of 2021, we executed approximately 167,000 square feet of leases and we commenced approximately 40,000 square feet of leases in the San Francisco region. Of these leases, approximately 29,000 square feet had been vacant for less than one year and represent an increase in net rental obligations of approximately 18% over the prior leases. Also during the first quarter of 2021, we commenced development of 751 Gateway, an approximately 229,000 square foot lab development in South San Francisco, California. 751 Gateway is the first phase of a multi-phase life sciences campus development. We will own 49% of 751 Gateway and future development projects at Gateway Commons upon completion. Washington , DC During the first quarter of 2021, we executed approximately 126,000 square feet of leases and we commenced approximately 566,000 square feet of leases in the Washington, DC region. Of these leases, approximately 440,000 square feet had been vacant for less than one year and represent an increase in net rental obligations of approximately 4% over the prior leases. Our Washington, DC CBD in-service properties were approximately 83% leased, as of March 31, 2021, with modest near-term exposure, and we have reduced our exposure in the Washington, DC CBD market significantly over the past few years through the dispositions of assets. Our Washington, DC suburban properties include our significant presence in Reston, Virginia, where demand from technology and cybersecurity tenants remains strong. Our Washington, DC suburban properties were approximately 87% leased as of March 31, 2021. 44 Table of Contents Leasing Statistics The table below details the leasing activity, including 100% of the unconsolidated joint ventures, that commenced during the three months ended March 31, 2021: Three months ended March 31, 2021 Total Square Feet Vacant space available at the beginning of the period 4,517,385 Property dispositions/properties taken out of service (1) (104,613) Properties placed (and partially placed) in-service (2) 227,276 Leases expiring or terminated during the period 1,788,666 Total space available for lease 6,428,714 1 st generation leases 201,402 2 nd generation leases with new tenants 602,497 2 nd generation lease renewals 493,016 Total space leased (3) 1,296,915 Vacant space available for lease at the end of the period 5,131,799 Leases executed during the period, in square feet (4) 591,815 Second generation leasing information : (5) Leases commencing during the period, in square feet 1,095,513 Weighted Average Lease Term 84 Months Weighted Average Free Rent Period 137 Days Total Transaction Costs Per Square Foot (6) $82.44 Increase in Gross Rents (7) 9.47 % Increase in Net Rents (8) 14.67 % __________________ (1) Total square feet of property dispositions during the three months ended March 31, 2021 consists of 29,595 square feet due to the sale of Annapolis Junction Building Six. Total square feet of properties taken out of service during the three months ended March 31, 2021 consists of 34,290 square feet at 880 Winter Street and 40,728 square feet at 800 Boylston Street - The Prudential Center , both due to redevelopment. (2) Total square feet of properties placed (and partially placed) in-service during the three months ended March 31, 2021 consists of 195,326 square feet of office and 31,950 square feet of retail at One Five Nine East 53rd Street, located in New York City . (3) Represents leases for which lease revenue recognition has commenced in accordance with GAAP during the three months ended March 31, 2021. (4) Represents leases executed during the three months ended March 31, 2021 for which we either (1) commenced lease revenue recognition in such period or (2) will commence lease revenue recognition in subsequent periods, in accordance with GAAP, and includes leases at properties currently under development. The total square feet of leases executed and recognized in the three months ended March 31, 2021 is 86,652 . Amounts for the three months ended March 31, 2021 exclude lease modifications related to COVID-19 covering an aggregate of 208,000 square feet that were executed in the three months ended March 31, 2021, to provide cash rent deferrals and/or abatements. Of these lease modifications, the lease terms associated with 67,387 square feet were extended for a period of 12 or more months during the three months ended March 31, 2021. (5) Second generation leases are defined as leases for space that had previously been leased by us. Of the 1,095,513 square feet of second generation leases that commenced during the three months ended March 31, 2021, leases for 1,011,835 square feet were signed in prior periods. (6) Total transaction costs include tenant improvements and leasing commissions but exclude free rent concessions and other inducements in accordance with GAAP. (7) Represents the increase in gross rent (base rent plus expense reimbursements) on the new versus expired leases on the 735,432 square feet of second generation leases that had been occupied within the prior 12 months for the three months ended March 31, 2021; excludes leases that management considers temporary because the tenant is not expected to occupy the space on a long-term basis. 45 Table of Contents (8) Represents the increase in net rent (gross rent less operating expenses) on the new versus expired leases on the 735,432 square feet of second generation leases that had been occupied within the prior 12 months for the three months ended March 31, 2021; excludes leases that management considers temporary because the tenant is not expected to occupy the space on a long-term basis. Transactions during the three months ended March 31, 2021 included the following: Developments/redevelopments activities • On February 1, 2021, we completed and fully placed in-service One Five Nine East 53rd Street, a Class A office and retail redevelopment of the low-rise portion of our 601 Lexington Avenue property with approximately 220,000 net rentable square feet located in New York City. • On February 25, 2021, we commenced the development of 180 CityPoint, located in Waltham, Massachusetts. When completed, the building will consist of approximately 329,000 net rentable square feet of laboratory space. • On February 25, 2021, we commenced the redevelopment of 880 Winter Street, located in Waltham, Massachusetts. When completed, the building will consist of approximately 224,000 net rentable square feet of laboratory space. • On February 25, 2021, we commenced the redevelopment of The Prudential Center Observatory, a 59,000 net rentable square foot redevelopment of the top three floors of 800 Boylston Street - The Prudential Center, located in Boston, Massachusetts. Unconsolidated joint venture activities • On February 25, 2021, a joint venture in which we have a 54% interest, commenced the development of 751 Gateway, a speculative laboratory building located in South San Francisco, California, that is expected to be approximately 229,000 net rentable square feet upon completion. 751 Gateway is the first phase of a multi-phase development plan at Gateway Commons. Upon the formation of the joint venture in 2020, we had an approximately 55% ownership interest in the joint venture as a result of the partner’s deferred contribution and the partner is obligated to fund all required capital until such time as we own a 50% interest. On March 31, 2021, we had a 54% interest in the joint venture. We will own a 49% interest in any development project, including 751 Gateway. • On March 30, 2021, we completed the sale of our 50% ownership interest in Annapolis Junction NFM LLC (the “Annapolis Junction Joint Venture”) to our joint venture partner for a gross sales price of $65.9 million. Net cash proceeds totaled approximately $17.6 million after repayment of our share of debt totaling approximately $15.1 million and the deferment of a $0.2 million payment due from the purchaser. We recognized a gain on sale of investment totaling approximately $10.3 million, w hich is included in Income (Loss) from Unconsolidated Joint Ventures in the accompanying Consolidated Statements of Operations. In addition to net cash proceeds from the sale, we will be distributed approximately $5.8 million of available cash subsequent to March 31, 2021. Annapolis Junction Buildings Six and Seven are Class A office properties totaling approximately 2 47,000 net rentable square feet. With the sale of our ownership interest in the Annapolis Junction Joint Venture, we no longer have any assets in Annapolis, Maryland. Capital markets activities • On February 14, 2021, BPLP completed the redemption of $850.0 million in aggregate principal amount of its 4.125% senior notes due May 15, 2021. The redemption price was approximately $858.7 million, which was equal to par plus approximately $8.7 million of accrued and unpaid interest to, but not including, the redemption date. Excluding the accrued and unpaid interest, the redemption price was equal to the principal amount being redeemed. We recognized a loss from early extinguishment of debt totaling approximately $0.4 million related to unamortized origination costs. • On March 16, 2021, BPLP completed a public offering of $850.0 million in aggregate principal amount of its 2.550% unsecured senior notes due 2032. The notes were priced at 99.570% of the principal amount to yield an effective rate (including financing fees) of approximately 2.671% per annum to maturity. The notes will mature on April 1, 2032, unless earlier redeemed. The aggregate net proceeds 46 Table of Contents from the offering were approximately $839.2 million after deducting underwriting discounts and transaction expenses. • On March 16, 2021, BPLP repaid all amounts borrowed under the delayed draw term loan facility (“Delayed Draw Facility”) ($500.0 million). We recognized a loss from early extinguishment of debt totaling approximately $0.5 million, related to unamortized financing costs. • On March 26, 2021, we used available cash to repay the mortgage loan collateralized by our University Place property located in Cambridge, Massachusetts totaling approximately $0.9 million. The mortgage loan bore interest at a fixed rate of 6.94% per annum and was scheduled to mature on August 1, 2021. There was no prepayment penalty. Equity Transaction • On March 2, 2021, BXP issued a redemption notice for 80,000 shares of its Series B Preferred Stock, which constituted all of the outstanding Series B Preferred Stock, and the corresponding depositary shares, each representing 1/100th of a share of Series B Preferred Stock (the “Depositary Shares”), and recorded it as a liability. The redemption price per share of Series B Preferred Stock was equal to $2,500 plus all accrued and unpaid dividends to, but not including, the redemption date, totaling $2,516.41 per share. On March 31, 2021, BXP transferred the full redemption price for all outstanding shares of Series B Preferred Stock of approximately $201.3 million including approximately $1.3 million of accrued and unpaid dividends to, but not including, the redemption date, to the redemption agent and recorded that amount within Cash held in escrows on the Consolidated Balance Sheets. Upon redemption of the Series B Preferred Stock, all outstanding shares of the Series B Preferred Units, which had terms and preferences generally mirroring those of the Series B Preferred Stock, were redeemed by BPLP. The excess of the redemption price over the carrying value of the Series B Preferred Stock and Series B Preferred Units of approximately $6.4 million relates to the original issuance costs and will be reflected as a reduction to Net Income Attributable to Boston Properties, Inc. common shareholders and Net Income Attributable to Boston Properties Limited Partnership common unitholders on the Consolidated Income Statement. Transactions completed subsequent to March 31, 2021 included the following: • On April 1, 2021, BXP redeemed 80,000 shares of Series B Preferred Stock (including the corresponding 8,000,000 Depositary Shares), which represented all of the outstanding shares of Series B Preferred Stock. Upon redemption of the Series B Preferred Stock, all outstanding shares of the Series B Preferred Units, which had terms and preferences generally mirroring those of the Series B Preferred Stock, were redeemed by BPLP. We paid an aggregate $201.3 million including $1.3 million of accrued but unpaid interest. • On May 3, 2021, we entered into an agreement to acquire two life sciences lab buildings located in Waltham, Massachusetts for a purchase price of approximately $100.0 million. These two life sciences lab buildings aggregate approximately 137,000 net rentable square feet. The properties are 100% leased. We expect to close on the acquisition during the second quarter of 2021. The transaction is subject to the satisfaction of customary closing conditions. There can be no assurance that the acquisition will be consummated on the terms currently contemplated or at all. 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. 47 Table of Contents Our Annual Report on Form 10-K for the year ended December 31, 2020 contains a discussion of our critical accounting policies. Management discusses and reviews our critical accounting policies and management’s judgments and estimates with BXP’s Audit Committee. Results of Operations for the Three Months Ended March 31, 2021 and 2020 Net income attributable to Boston Properties, Inc. common shareho lders and net income attributable to Boston Properties Limited Partnership common unitholders decreased approximately $405.9 million and $460.6 million for the three months ended March 31, 2021 compared to 2020, respectively, as set forth in the following tables and for the reasons discussed below under the heading “ Comparison of the three months ended March 31, 2021 to the three months ended March 31, 2020” within “ Item 2—Management’s Discussion and Analysis of Financial Condition and Results of Operations .” The following are reconciliations of Net Income Attributable to Boston Properties, Inc. Common Shareholders to Net Operating Income and Net Income Attributable to Boston Properties Limited Partnership Common Unitholders to Net Operating Income for the three months ended March 31, 2021 and 2020 (in thousands): Boston Properties, Inc. Three months ended March 31, 2021 2020 Increase/ (Decrease) % Change Net Income Attributable to Boston Properties, Inc. Common Shareholders $ 91,624 $ 497,496 $ (405,872) (81.58) % Preferred stock redemption charge 6,412 — 6,412 100.00 % Preferred dividends 2,560 2,625 (65) (2.48) % Net Income Attributable to Boston Properties, Inc. 100,596 500,121 (399,525) (79.89) % Net Income Attributable to Noncontrolling Interests: Noncontrolling interest—common units of the Operating Partnership 11,084 57,539 (46,455) (80.74) % Noncontrolling interests in property partnerships 16,467 19,486 (3,019) (15.49) % Net Income 128,147 577,146 (448,999) (77.80) % Other Expenses: Add: Interest expense 107,902 101,591 6,311 6.21 % Losses from early extinguishment of debt 898 — 898 100.00 % Other Income: Less: Gains (losses) from investments in securities 1,659 (5,445) 7,104 130.47 % Interest and other income (loss) 1,168 3,017 (1,849) (61.29) % Gains on sales of real estate — 410,165 (410,165) (100.00) % Income (loss) from unconsolidated joint ventures 5,225 (369) 5,594 1,515.99 % Other Expenses: Add: Depreciation and amortization expense 176,565 171,094 5,471 3.20 % Transaction costs 331 615 (284) (46.18) % Payroll and related costs from management services contracts 3,505 3,237 268 8.28 % General and administrative expense 44,959 36,454 8,505 23.33 % Other Revenue: Less: Direct reimbursements of payroll and related costs from management services contracts 3,505 3,237 268 8.28 % Development and management services revenue 6,803 7,879 (1,076) (13.66) % Net Operating Income $ 443,947 $ 471,653 $ (27,706) (5.87) % 48 Table of Contents Boston Properties Limited Partnership Three months ended March 31, 2021 2020 Increase/ (Decrease) % Change Net Income Attributable to Boston Properties Limited Partnership Common Unitholders $ 105,773 $ 566,333 $ (460,560) (81.32) % Preferred unit redemption charge 6,412 — 6,412 100.00 % Preferred distributions 2,560 2,625 (65) (2.48) % Net Income Attributable to Boston Properties Limited Partnership 114,745 568,958 (454,213) (79.83) % Net Income Attributable to Noncontrolling Interests: Noncontrolling interests in property partnerships 16,467 19,486 (3,019) (15.49) % Net Income 131,212 588,444 (457,232) (77.70) % Other Expenses: Add: Interest expense 107,902 101,591 6,311 6.21 % Losses from early extinguishment of debt 898 — 898 100.00 % Other Income: Less: Gains (losses) from investments in securities 1,659 (5,445) 7,104 130.47 % Interest and other income (loss) 1,168 3,017 (1,849) (61.29) % Gains on sales of real estate — 419,654 (419,654) (100.00) % Income (loss) from unconsolidated joint ventures 5,225 (369) 5,594 1,515.99 % Other Expenses: Add: Depreciation and amortization expense 173,500 169,285 4,215 2.49 % Transaction costs 331 615 (284) (46.18) % Payroll and related costs from management services contracts 3,505 3,237 268 8.28 % General and administrative expense 44,959 36,454 8,505 23.33 % Other Revenue: Less: Direct reimbursements of payroll and related costs from management services contracts 3,505 3,237 268 8.28 % Development and management services revenue 6,803 7,879 (1,076) (13.66) % Net Operating Income $ 443,947 $ 471,653 $ (27,706) (5.87) % At each of March 31, 2021 and 2020, 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 months ended March 31, 2021 and 2020 show separately the changes attributable to the properties that were owned by us and in-service throughout each period compared (the “Same Property Portfolio”) and the changes attributable to the properties included in the Acquired, Placed In-Service, Development or Redevelopment or Sold Portfolios. In our analysis of operating results, particularly to make comparisons of net operating income between periods meaningful, it is important to provide information for properties that were in-service and owned by us throughout each period presented. We refer to properties acquired or placed in-service prior to the beginning of the earliest period presented and owned by us and in-service through the end of the latest period presented as our Same Property Portfolio. The Same Property Portfolio therefore excludes properties acquired, placed in-service or in development or redevelopment after the beginning of the earliest period presented or disposed of prior to the end of the latest period presented. 49 Table of Contents 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 stock/unit redemption charge, preferred dividends/distributions, net income attributable to noncontrolling interests, interest expense, losses from early extinguishment of debt, depreciation and amortization expense, transaction costs, payroll and related costs from management services contracts and corporate general and administrative expense less (2) gains (losses) from investments in securities, interest and other income (loss), gains on sales of real estate, income (loss) from unconsolidated joint ventures, direct reimbursements of payroll and related costs from management services contracts and development and management services revenue. We use NOI internally as a performance measure and believe it provides useful information to investors regarding our results of operations and financial condition because, when compared across periods, it reflects the impact on operations from trends in occupancy rates, rental rates, operating costs and acquisition and development activity on an unleveraged basis, providing perspective not immediately apparent from net income attributable 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 three months ended March 31, 2021 to the three months ended March 31, 2020 The table below shows selected operating information for the Same Property Portfolio and the Total Property Portfolio. The Same Property Portfolio consists of 141 properties totaling approximately 39.2 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, 2020 and owned and in service through March 31, 2021. The Total Property Portfolio includes the effects of the other properties either acquired, placed in-service, in development or redevelopment after January 1, 2020 or disposed of on or prior to March 31, 2021. This table includes a reconciliation from the Same Property Portfolio to the Total Property Portfolio by also providing information for the three months ended March 31, 2021 and 2020 with respect to the properties that were acquired, placed in-service, in development or redevelopment or sold. 50 Table of Contents Same Property Portfolio Properties Acquired Portfolio Properties Placed In-Service Portfolio Properties in Development or Redevelopment Portfolio Properties Sold Portfolio Total Property Portfolio 2021 2020 Increase/ (Decrease) % Change 2021 2020 2021 2020 2021 2020 2021 2020 2021 2020 Increase/ (Decrease) % Change (dollars in thousands) Rental Revenue: (1) Lease Revenue (Excluding Termination Income) $ 657,779 $ 677,430 $ (19,651) (2.90) % $ 310 $ — $ 9,415 $ 3,327 $ 2,836 $ 3,548 $ 2,203 $ 13,614 $ 672,543 $ 697,919 $ (25,376) (3.64) % Termination Income 4,269 2,385 1,884 78.99 % — — — — — — — 14 4,269 2,399 1,870 77.95 % Lease Revenue 662,048 679,815 (17,767) (2.61) % 310 — 9,415 3,327 2,836 3,548 2,203 13,628 676,812 700,318 (23,506) (3.36) % Parking and Other 16,478 23,636 (7,158) (30.28) % 37 — 6 6 — — 247 699 16,768 24,341 (7,573) (31.11) % Total Rental Revenue (1) 678,526 703,451 (24,925) (3.54) % 347 — 9,421 3,333 2,836 3,548 2,450 14,327 693,580 724,659 (31,079) (4.29) % Real Estate Operating Expenses 245,880 250,663 (4,783) (1.91) % 451 — 2,948 1,384 1,145 1,797 838 5,058 251,262 258,902 (7,640) (2.95) % Net Operating Income (Loss), Excluding Residential and Hotel 432,646 452,788 (20,142) (4.45) % (104) — 6,473 1,949 1,691 1,751 1,612 9,269 442,318 465,757 (23,439) (5.03) % Residential Net Operating Income (Loss) (2) 4,413 5,892 (1,479) (25.10) % — — (1,365) — — — — — 3,048 5,892 (2,844) (48.27) % Hotel Net Operating Income (Loss) (2) (1,419) 4 (1,423) (35,575.00) % — — — — — — — — (1,419) 4 (1,423) (35,575.00) % Net Operating Income (Loss) $ 435,640 $ 458,684 $ (23,044) (5.02) % $ (104) $ — $ 5,108 $ 1,949 $ 1,691 $ 1,751 $ 1,612 $ 9,269 $ 443,947 $ 471,653 $ (27,706) (5.87) % _______________ (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 50. Residential Net Operating Income for the three months ended March 31, 2021 and 2020 is comprised of Residential Revenue of $9,175 and $9,956 less Residential Expenses of $6,127 and $4,064, respectively. Hotel Net Operating Income for the three months ended March 31, 2021 and 2020 is comprised of Hotel Revenue of $632 and $6,825 less Hotel Expenses of $2,051 and $6,821, respectively, per the Consolidated Statements of Operations. 51 Table of Contents Same Property Portfolio Lease Revenue (Excluding Termination Income) Lease revenue (excluding termination income) from the Same Property Portfolio decreased by approximately $19.7 million for the three months ended March 31, 2021 compared to 2020. The decrease was a result of our average occupancy decreasing from 94.3% to 91.6%. Average revenue per square foot was approximately the same for both periods. As a result of COVID-19, for the Same Property Portfolio, during the three months ended March 31, 2021, we executed lease modification agreements for approximately 127,000 square feet and granted approximately $5.3 million of cash rent abatements and deferrals, of which approximately $2.5 million related to tenant charges for the three months ended March 31, 2021. In addition, during the three months ended March 31, 2021, we recognized approximately $5.9 million related to tenant charges for lease modifications signed during 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) or providing for a period of time where the tenant will only pay percentage rent. As a result of the lease modification agreements that extended the lease term, we expect to see an increase in the cash rent we will receive in the future. Each quarter since the second quarter of 2020, the number of executed COVID-19 lease modifications has decreased. We expect the volume of lease modifications to further decrease as the economy recovers. However, the degree to which our tenants’ businesses have been negatively impacted by COVID-19 and any resulting downturn in their business may leave some tenants still unable to meet their rental payment obligations and result in a reduction in our cash flows. Termination Income Termination income increased by approximately $1.9 million for the three months ended March 31, 2021 compared to 2020. Termination income for the three months ended March 31, 2021 related to 11 tenants across the Same Property Portfolio and totaled approximately $4.3 million, of which $3.7 million was related to a retail tenant in the Boston region that closed all its retail stores. Termination income for the three months ended March 31, 2020 related to 14 tenants across the Same Property Portfolio and totaled approximately $2.4 million, which was primarily related to tenants that terminated leases early in New York City and the Boston region. Parking and Other Revenue Parking and other revenue decreased by approximately $7.2 million for the three months ended March 31, 2021 compared to 2020. Parking revenue decreased by approximately $9.4 million while other revenue increased by approximately $2.2 million. The decrease in parking revenue was primarily due to a decrease in transient and monthly parking. The increase in other revenue was primarily due to insurance proceeds related to damage at one of our properties in the New York region due to a water main break. Expenses of $2.2 million related to this insurance claim are included within real estate operating expenses. During the first quarter of 2021, stay-at-home orders continued to be partially lifted, businesses began to re-open, vaccines began to be distributed and people began to return to work in an office setting. We expect to see an increase in parking revenue as the return to office work grows. For the three months ended March 31, 2021, transient and monthly parking decreased by approximately $4.6 million and $3.6 million, respectively, compared to the three months ended March 31, 2020. Some of our monthly parking revenues are contractual agreements embedded in our leases, and some are at will individual agreements. Real Estate Operating Expenses Real estate operating expenses from the Same Property Portfolio decreased by approximately $4.8 million, or 1.9%, for the three months ended March 31, 2021 compared to 2020, due primarily to a decrease in cleaning expenses of approximately $4.8 million, or 21.2%. The decrease in cleaning expenses was experienced across the portfolio and was primarily driven by a decrease in physical tenant occupancy, which led to lower demand for cleaning. 52 Table of Contents Properties Acquired Portfolio The table below lists the properties acquired between January 1, 2020 and March 31, 2021. Rental revenue and real estate operating expenses increased by approximately $0.3 million and $0.5 million, respectively, for the three months ended March 31, 2021 compared to 2020, as detailed below. Square Feet Rental Revenue Real Estate Operating Expenses Name Date acquired 2021 2020 Change 2021 2020 Change (dollars in thousands) 777 Harrison Street (1) June 26, 2020 N/A $ 347 $ — $ 347 $ 451 $ — $ 451 $ 347 $ — $ 347 $ 451 $ — $ 451 _______________ (1) Formerly known as Fourth + Harrison and 425 Fourth Street and includes operating results for 759 Harrison Street, which was fully acquired on December 16, 2020 . Properties Placed In-Service Portfolio The table below lists the properties that were placed in-service or partially placed in-service between January 1, 2020 and March 31, 2021. Rental revenue and real estate operating expenses from our Properties Placed In-Service Portfolio increased by approximately $6.4 million and $3.3 million, respectively, for the three months ended March 31, 2021 compared to 2020, as detailed below. Quarter Initially Placed In-Service Quarter Fully Placed In-Service Rental Revenue Real Estate Operating Expenses Name Square Feet 2021 2020 Change 2021 2020 Change (dollars in thousands) Office 20 CityPoint Second Quarter, 2019 Second Quarter, 2020 211,476 $ 1,694 $ 1,849 $ (155) $ 727 $ 588 $ 139 17Fifty Presidents Street First Quarter, 2020 First Quarter, 2020 275,809 5,051 598 4,453 1,502 233 1,269 One Five Nine East 53rd Street (1) First Quarter, 2021 First Quarter, 2021 220,000 2,676 886 1,790 719 563 156 Total Office 707,285 9,421 3,333 6,088 2,948 1,384 1,564 Residential The Skylyne Third Quarter, 2020 Third Quarter, 2020 330,996 321 — 321 1,686 — 1,686 Total Residential 330,996 321 — 321 1,686 — 1,686 1,038,281 $ 9,742 $ 3,333 $ 6,409 $ 4,634 $ 1,384 $ 3,250 _____________ (1) This is the low-rise portion of 601 Lexington Avenue and was in development for the three months ended March 31, 2020. Properties in Development or Redevelopment Portfolio The table below lists the properties that were in development or redevelopment between January 1, 2020 and March 31, 2021. Rental revenue and real estate operating expenses from our Properties in Development or Redevelopment Portfolio each decreased by approximately $0.7 million for the three months ended March 31, 2021 compared to 2020. 53 Table of Contents Rental Revenue Real Estate Operating Expenses Name Date Commenced Development / Redevelopment Square Feet 2021 2020 Change 2021 2020 Change (dollars in thousands) 325 Main Street (1) May 9, 2019 115,000 $ — $ — $ — $ 17 $ 149 $ (132) 200 West Street (2) September 30, 2019 261,000 1,501 1,268 233 370 843 (473) 880 Winter Street (3) February 25, 2021 224,000 1,335 2,280 (945) 758 805 (47) 600,000 $ 2,836 $ 3,548 $ (712) $ 1,145 $ 1,797 $ (652) _______________ (1) Real estate operating expenses for the three months ended March 31, 2021 and 2020 were related to demolition costs. (2) Conversion of a 126,000 square foot portion of the property to life sciences space from office space. (3) On February 25, 2021, we commenced the redevelopment and conversion of 880 Winter Street, a 224,000 square foot office property located in Waltham, Massachusetts, to laboratory space. Properties Sold Portfolio The table below lists the properties we sold between January 1, 2020 and March 31, 2021. Rental revenue and real estate operating expenses from our Properties Sold Portfolio decreased by approximately $11.9 million and $4.2 million, respectively, for the three months ended March 31, 2021 compared to 2020, as detailed below. Rental Revenue Real Estate Operating Expenses Name Date Sold Property Type Square Feet 2021 2020 Change 2021 2020 Change (dollars in thousands) 601, 611 and 651 Gateway January 28, 2020 Office 768,000 $ — $ 1,946 $ (1,946) $ — $ 881 $ (881) New Dominion Technology Park February 20, 2020 Office 493,000 — 2,551 (2,551) — 772 (772) Capital Gallery (1) June 25, 2020 Office 631,000 2,450 9,830 (7,380) 838 3,405 (2,567) 1,892,000 $ 2,450 $ 14,327 $ (11,877) $ 838 $ 5,058 $ (4,220) ______________ (1) We completed the sale of a portion of our Capital Gallery property located in Washington, DC. Capital Gallery is an approximately 631,000 net rentable square foot Class A office property. The portion sold was comprised of approximately 455,000 net rentable square feet of commercial office space. We continue to own the land, underground parking garage and remaining commercial office and retail space. The amounts shown represent the entire property and not just the portion sold . For additional information on the sales of the above properties and land parcel refer to “Results of Operations—Other Income and Expense Items—Gains on Sales of Real Estate” within “Item 2—Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Residential Net Operating Income Net operating income for our residential same properties decreased by approximately $1.5 million for the three months ended March 31, 2021 compared to 2020. The following reflects our occupancy and rate information for The Lofts at Atlantic Wharf, The Avant at Reston Town Center, Signature at Reston and Proto Kendall Square for the three months ended March 31, 2021 and 2020. 54 Table of Contents The Lofts at Atlantic Wharf The Avant at Reston Town Center Signature at Reston Proto Kendall Square 2021 2020 Change (%) 2021 2020 Change (%) 2021 2020 Change (%) 2021 2020 Change (%) Average Monthly Rental Rate (1) $ 3,474 $ 4,510 (23.0) % $ 2,287 $ 2,419 (5.5) % $ 2,265 $ 2,342 (3.3) % $ 2,585 $ 3,027 (14.6) % Average Rental Rate Per Occupied Square Foot $ 3.99 $ 5.04 (20.8) % $ 2.51 $ 2.67 (6.0) % $ 2.36 $ 2.51 (6.0) % $ 4.78 $ 5.56 (14.0) % Average Physical Occupancy (2) 87.6 % 95.0 % (7.8) % 91.4 % 91.5 % (0.1) % 80.1 % 82.2 % (2.6) % 90.4 % 95.5 % (5.3) % Average Economic Occupancy (3) 84.0 % 94.3 % (10.9) % 90.2 % 90.3 % (0.1) % 75.6 % 76.9 % (1.7) % 88.8 % 95.2 % (6.7) % _______________ (1) Average Monthly Rental Rate is calculated as the average of the quotients obtained by dividing (A) rental revenue as determined in accordance with GAAP, by (B) the number of occupied units for each month within the applicable fiscal period. (2) Average Physical Occupancy is defined as (1) the average number of occupied units divided by (2) the total number of units, expressed as a percentage. (3) Average Economic Occupancy is defined as (1) total possible revenue less vacancy loss divided by (2) total possible revenue, expressed as a percentage. Total possible revenue is determined by valuing average occupied units at contract rates and average vacant units at Market Rents. Vacancy loss is determined by valuing vacant units at current Market Rents. By measuring vacant units at their Market Rents, Average Economic Occupancy takes into account the fact that units of different sizes and locations within a residential property have different economic impacts on a residential property’s total possible gross revenue. Market Rents used by us in calculating Economic Occupancy are based on the current market rates set by the managers of our residential properties based on their experience in renting their residential property’s units and publicly available market data. Actual market rents and trends in such rents for a region as reported by others may vary materially from Market Rents used by us. Market Rents for a period are based on the average Market Rents during that period and do not reflect any impact for cash concessions. Hotel Net Operating Income (Loss) Net operating income (loss) for the Boston Marriott Cambridge hotel property decreased by approximately $1.4 million for the three months ended March 31, 2021 compared to 2020. The Boston Marriott Cambridge closed in March 2020 due to COVID-19. The hotel re-opened on October 2, 2020 and it has operated at a diminished occupancy due to the continued impact of COVID-19 on business and leisure travel. The closing of the hotel for more than two fiscal quarters, weak demand and low occupancy since its re-opening, have had, and are expected to continue to have, a material adverse effect on the hotel’s operations. We expect hotel occupancy to remain low until a sufficient number of people have been vaccinated and the demand for business and leisure travel returns to historical levels . The following reflects our occupancy and rate information for the Boston Marriott Cambridge hotel for the three months ended March 31, 2021 and 2020. 2021 2020 Change (%) Occupancy 10.9 % 59.6 % (81.7) % Average daily rate $ 123.11 $ 211.35 (41.8) % REVPAR $ 13.43 $ 126.00 (89.3) % Other Operating Revenue and Expense Items Development and Management Services Revenue Development and management services revenue decreased by approximately $1.1 million for the three months ended March 31, 2021 compared to 2020. Development services revenue decreased by approximately $1.6 million while management services revenue increased by approximately $0.5 million. The decrease in development services revenue was primarily related to a decrease in development fees earned from a third-party owned building in the Washington, DC region. The increase in management services revenue was primarily related to an increase in property management fees earned from third-party owned buildings in the Washington, DC region. 55 Table of Contents General and Administrative Expense General and administrative expense increased by approximately $8.5 million for the three months ended March 31, 2021 compared to 2020 primarily due to an increase in compensation expense of approximately $9.3 million, partially offset by an approximately $0.8 million decrease in other general and administrative expenses. The increase in compensation expense was related to (1) an approximately $7.1 million increase in the value of our deferred compensation plan and (2) an approximately $2.2 million increase in other compensation-related expenses, primarily due to age-based vesting. Wages directly related to the development of rental properties are capitalized and included in real estate assets on our Consolidated Balance Sheets and amortized over the useful lives of the applicable asset or lease term. Capitalized wages for the three months ended March 31, 2021 and 2020 were approximately $3.3 million and $2.8 million, respectively. These costs are not included in the general and administrative expenses discussed above. Transaction Costs Transaction costs decreased by approximately $0.3 million for the three months ended March 31, 2021 compared to 2020 due primarily to costs incurred in connection with the pursuit and formation of new joint ventures. In general, transaction costs relating to the formation of new and pending joint ventures and the pursuit of other transactions are expensed as incurred. Depreciation and Amortization Expense Depreciation expense may differ between BXP and BPLP as a result of previously applied acquisition accounting by BXP for the issuance of common stock in connection with non-sponsor OP Unit redemptions by BPLP. This accounting resulted in a step-up of the real estate assets at BXP that was allocated to certain properties. The difference between the real estate assets of BXP as compared to BPLP for certain properties having an allocation of the real estate step-up will result in a corresponding difference in depreciation expense. For additional information see the Explanatory Note that follows the cover page of this Quarterly Report on Form 10-Q. Boston Properties, Inc. Depreciation and amortization expense increased by approximately $5.5 million for the three months ended March 31, 2021 compared to 2020, as detailed below. Portfolio Depreciation and Amortization for the three months ended March 31, 2021 2020 Change (in thousands) Same Property Portfolio (1) $ 166,372 $ 166,248 $ 124 Properties Acquired Portfolio 2 — 2 Properties Placed In-Service Portfolio 4,601 730 3,871 Properties in Development or Redevelopment Portfolio (2) 5,256 2,017 3,239 Properties Sold Portfolio 334 2,099 (1,765) $ 176,565 $ 171,094 $ 5,471 _______________ (1) During the three months ended March 31, 2021, we commenced redevelopment of The Prudential Center Observatory, a 59,000 net rentable square foot redevelopment of the top three floors of 800 Boylston Street - The Prudential Center, located in Boston, Massachusetts. As a result, during the three months ended March 31, 2021, we recorded approximately $2.6 million of accelerated depreciation expense for the demolition of the space, of which approximately $0.8 million related to the step-up of real estate assets. (2) On February 25, 2021, we commenced redevelopment of 880 Winter Street in Waltham, Massachusetts. As a result, during the three months ended March 31, 2021, we recorded approximately $3.2 million of accelerated depreciation expense for the demolition of a portion of the building. 56 Table of Contents Boston Properties Limited Partnership Depreciation and amortization expense increased by approximately $4.2 million for the three months ended March 31, 2021 compared to 2020, as detailed below. Portfolio Depreciation and Amortization for the three months ended March 31, 2021 2020 Change (in thousands) Same Property Portfolio (1) $ 163,307 $ 164,439 $ (1,132) Properties Acquired Portfolio 2 — 2 Properties Placed In-Service Portfolio 4,601 730 3,871 Properties in Development or Redevelopment Portfolio (2) 5,256 2,017 3,239 Properties Sold Portfolio 334 2,099 (1,765) $ 173,500 $ 169,285 $ 4,215 _______________ (1) During the three months ended March 31, 2021, we commenced redevelopment of The Prudential Center Observatory, a 59,000 net rentable square foot redevelopment of the top three floors of 800 Boylston Street - The Prudential Center, located in Boston, Massachusetts. As a result, during the three months ended March 31, 2021, we recorded approximately $1.8 million of accelerated depreciation expense for the demolition of the space. (2) On February 25, 2021, we commenced redevelopment of 880 Winter Street in Waltham, Massachusetts. As a result, during the three months ended March 31, 2021, we recorded approximately $3.2 million of accelerated depreciation expense for the demolition of a portion of the building. Direct Reimbursements of Payroll and Related Costs From Management Services Contracts and Payroll and Related Costs From Management Service Contracts We have determined that amounts reimbursed for payroll and related costs received from third parties in connection with management services contracts should be reflected on a gross basis instead of on a net basis as we have determined that we are the principal under these arrangements. We anticipate that these two financial statement line items will generally offset each other. Other Income and Expense Items Income (loss) from Unconsolidated Joint Ventures For the three months ended March 31, 2021 compared to 2020, income (loss) from unconsolidated joint ventures increased by approximately $5.6 million primarily due to an approximately $10.3 million gain on sale of investment from the sale of our Annapolis Junction joint venture during the three months ended March 31, 2021 (See Note 5 to the Consolidated Financial Statements). This increase was partially offset by an approximately (1) $2.9 million decrease in net income from our Dock 72 and Metropolitan Square joint ventures, primarily related to depreciation and amortization and (2) $0.8 million decrease in net income from our Colorado Center joint venture, primarily due to lease expirations. 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. 57 Table of Contents Boston Properties, Inc. Gains on sales of real estate decreased by approximately $410.2 million for the three months ended March 31, 2021 compared to 2020, 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) 2021 N/A 2020 601, 611 and 651 Gateway January 28, 2020 Office 768,000 $ 350.0 $ — $ 217.7 New Dominion Technology Park February 20, 2020 Office 493,000 256.0 254.0 192.3 $ 606.0 $ 254.0 $ 410.0 (1) ___________ (1) Excludes approximately $0.2 million of gains on sales of real estate recognized during the three months ended March 31, 2020 related to gain amounts from sales of real estate occurring in the prior year. Boston Properties Limited Partnership Gains on sales of real estate decreased by approximately $419.7 million for the three months ended March 31, 2021 compared to 2020, 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) 2021 N/A 2020 601, 611 and 651 Gateway January 28, 2020 Office 768,000 $ 350.0 $ — $ 222.4 New Dominion Technology Park February 20, 2020 Office 493,000 256.0 254.0 197.1 $ 606.0 $ 254.0 $ 419.5 (1) ___________ (1) Excludes approximately $0.2 million of gains on sales of real estate recognized during the three months ended March 31, 2020 related to gain amounts from sales of real estate occurring in the prior year. Interest and Other Income (Loss) Interest and other income (loss) decreased by approximately $1.8 million for the three months ended March 31, 2021 compared to 2020, due primarily to a decrease in interest income as a result of lower interest earned on our deposits. Gains (losses) from Investments in Securities Gains (losses) from investments in securities for the three months ended March 31, 2021 and 2020 related to investments that we have made to reduce our market risk relating to deferred compensation plans that we maintain for BXP’s officers and former non-employee directors. Under the deferred compensation plans, each officer or non-employee director who is eligible to participate is permitted to defer a portion of the officer’s current income or the non-employee director’s compensation on a pre-tax basis and receive a tax-deferred return on these deferrals based on the performance of specific investments selected by the officer or non-employee director. In order to reduce our market risk relating to these plans, we typically acquire, in a separate account that is not restricted as to 58 Table of Contents 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 March 31, 2021 and 2020, we recognized gains (losses) of approximately $1.7 million and $(5.4) million, respectively, on these investments. By comparison, our general and administrative expense increased (decreased) by approximately $1.7 million and $(5.4) million during the three months ended March 31, 2021 and 2020, respectively, as a result of increases (decreases) in our liability under our deferred compensation plans that was associated with the performance of the specific investments selected by officers and former non-employee directors of BXP participating in the plans. Losses From Early Extinguishment of Debt On February 14, 2021, BPLP completed the redemption of $850.0 million in aggregate principal amount of its 4.125% senior notes due May 15, 2021. The redemption price was approximately $858.7 million, which was equal to par plus approximately $8.7 million of accrued and unpaid interest to, but not including, the redemption date. Excluding the accrued and unpaid interest, the redemption price was equal to the principal amount being redeemed. We recognized a loss from early extinguishment of debt totaling approximately $0.4 million related to unamortized origination costs. On March 16, 2021, BPLP repaid $500.0 million of its borrowings under the Delayed Draw Facility. We recognized a loss from early extinguishment of debt totaling approximately $0.5 million related to unamortized financing costs. Interest Expense Interest expense increased by approximately $6.3 million for the three months ended March 31, 2021 compared to 2020, as detailed below. Component Change in interest expense for the three months ended March 31, 2021 compared to March 31, 2020 (in thousands) Increases to interest expense due to: Issuance of $1.25 billion in aggregate principal of 3.250% senior notes due 2031 on May 5, 2020 $ 10,193 Increase in interest due to finance leases that are related to development properties 1,772 Issuance of $850 million in aggregate principal of 2.550% senior notes due 2032 on March 16, 2021 915 Increase in interest due to finance leases for two in-service properties 533 Decrease in capitalized interest related to development projects 345 Total increases to interest expense 13,758 Decreases to interest expense due to: Redemption of $850 million in aggregate principal of 4.125% senior notes due 2021 on February 14, 2021 (4,662) Decrease in interest rates for the 2017 Credit Facility (2,199) Increase in capitalized interest related to development projects that had finance leases (345) Other interest expense (excluding senior notes) (203) Decrease in interest related to the repayment of the University Place mortgage loan (38) Total decreases to interest expense (7,447) Total change in interest expense $ 6,311 59 Table of Contents Interest expense directly related to the development of rental properties is capitalized and included in real estate assets on our Consolidated Balance Sheets and amortized over the useful lives of the real estate or lease term. As portions of properties are placed in-service, we cease capitalizing interest on that portion and interest is then expensed. Interest capitalized for the three months ended March 31, 2021 and 2020 was approximately $12.0 million and $14.1 million, respectively. These costs are not included in the interest expense referenced above. At March 31, 2021, our variable rate debt consisted of BPLP’s $1.5 billion revolving line of credit (the “Revolving Facility”). T he Revolving Facility did not have an outstanding balance as of March 31, 2021. For a summary of our consolidated debt as of March 31, 2021 and March 31, 2020 refer to the heading “ Liquidity and Capital Resources—Capitalization—Debt Financing” within “ Item 2—Management’s Discussion and Analysis of Financial Condition and Results of Operations. ” Noncontrolling Interests in Property Partnerships Noncontrolling interests in property partnerships decreased by approximately $3.0 million for the three months ended March 31, 2021 compared to 2020, as detailed below. Property Noncontrolling Interests in Property Partnerships for the three months ended March 31, 2021 2020 Change (in thousands) 767 Fifth Avenue (the General Motors Building) $ 2,295 $ 1,660 $ 635 Times Square Tower (1) 4,901 6,869 (1,968) 601 Lexington Avenue (2) 3,752 4,850 (1,098) 100 Federal Street 3,349 3,661 (312) Atlantic Wharf Office Building 2,170 2,446 (276) $ 16,467 $ 19,486 $ (3,019) _______________ (1) The decrease was primarily due to a decrease in lease revenue from signage and a tenant in the retail industry. During 2020, we executed a lease modification with a tenant in the retail industry, which involved a decrease in rent as well as a space reduction. (2) The decrease was primarily due to a decrease in lease revenue from our retail tenants and a tenant that terminated its space during the three months ended March 31, 2020. Noncontrolling Interest—Common Units of the Operating Partnership For BXP, noncontrolling interest—common units of the Operating Partnership decreased by approximately $46.5 million for the three months ended March 31, 2021 compared to 2020 due primarily to a decrease in allocable income, which was the result of recognizing a greater gain on sales of real estate amount during 2020. Due to our ownership structure, there is no corresponding line item on BPLP’s financial statements. Liquidity and Capital Resources General Our principal liquidity needs for the next twelve months and beyond are to: • fund normal recurring expenses; • meet debt service and principal repayment obligations, including balloon payments on maturing debt; • fund development and redevelopment costs; • fund capital expenditures, including major renovations, tenant improvements and leasing costs; • fund planned and possible acquisitions of properties, either directly or indirectly through the acquisition of equity interests therein; and • make the minimum distribution required to enable BXP to maintain its REIT qualification under the Internal Revenue Code of 1986, as amended. We expect to satisfy these needs using one or more of the following: • cash flow from operations; 60 Table of Contents • distribution of cash flows from joint ventures; • cash and cash equivalent balances; • borrowings under BPLP’s 2017 Credit Facility, short-term bridge facilities and construction loans; • long-term secured and unsecured indebtedness (including unsecured exchangeable indebtedness); • sales of real estate; and • issuances of BXP equity securities and/or preferred or common units of partnership interest in BPLP. We draw on multiple financing sources to fund our long-term capital needs. We expect to fund our current development properties primarily with our available cash balances, construction loans and BPLP’s Revolving Facility. We use BPLP’s Revolving Facility primarily as a bridge facility to fund acquisition opportunities, refinance outstanding indebtedness and meet short-term development and working capital needs. Although we may seek to fund our development projects with construction loans, which may require guarantees by BPLP, the financing for each particular project ultimately depends on several factors, including, among others, the project’s size and duration, the extent of pre-leasing and our available cash and access to cost effective capital at the given time. 61 Table of Contents The following table presents information on properties under construction and redevelopment as of March 31, 2021 (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 3/31/2021 (1) Estimated Future Equity Requirement (1)(2)(4) Percentage Leased (5) Office 325 Main Street Third Quarter, 2022 Cambridge, MA 1 420,000 $ 217,456 $ 418,400 $ — $ — $ 200,944 90 % 100 Causeway Street (50% ownership) Third Quarter, 2022 Boston, MA 1 632,000 202,068 267,300 200,000 125,306 — 94 % 7750 Wisconsin Avenue (Marriott International Headquarters) (50% ownership) Second Quarter, 2022 Bethesda, MD 1 734,000 159,250 198,900 127,500 90,229 2,379 100 % Reston Next Fourth Quarter, 2023 Reston, VA 2 1,062,000 422,881 715,300 — — 292,419 85 % 2100 Pennsylvania Avenue Third Quarter, 2024 Washington, DC 1 480,000 157,235 356,100 — — 198,865 56 % Total Office Properties under Construction 6 3,328,000 1,158,890 1,956,000 327,500 215,535 694,607 86 % Lab/Life Sciences 200 West Street (Redevelopment) Fourth Quarter, 2021 Waltham, MA — 138,000 18,116 47,800 — — 29,684 100 % (6) 880 Winter Street (Redevelopment) Second Quarter, 2024 Waltham, MA 1 224,000 1,634 108,000 — — 106,366 — % 751 Gateway (49% ownership) Third Quarter, 2024 South San Francisco, CA 1 229,000 15,420 127,600 — — 112,180 — % 180 CityPoint Fourth Quarter, 2024 Waltham, MA 1 329,000 20,382 274,700 — — 254,318 — % Total Lab/Life Sciences Properties under Construction 3 920,000 55,552 558,100 — — 502,548 15 % Other The Prudential Center Observatory (Redevelopment) N/A Boston, MA — 59,000 25,018 182,300 — — 157,282 N/A Total Properties under Construction 9 4,307,000 $ 1,239,460 $ 2,696,400 $ 327,500 $ 215,535 $ 1,354,437 71 % (7) ___________ (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 March 31, 2021. (3) Includes approximately $72.7 million of unpaid but accrued construction costs and leasing commissions. (4) Excludes approximately $72.7 million of unpaid but accrued construction costs and leasing commissions. (5) Represents percentage leased as of May 3, 2021, including leases with future commencement dates. (6) Represents a portion of the property under redevelopment for conversion to life sciences space. (7) Percentage leased excludes The Prudential Center Observatory redevelopment at 800 Boylston Street - The Prudential Center. 62 Table of Contents Lease revenue (which includes recoveries from tenants), other income from operations, available cash balances, mortgage financings, unsecured indebtedness and draws on BPLP’s Revolving Facility are the principal sources of capital that we use to fund operating expenses, debt service, maintenance and repositioning capital expenditures, tenant improvements and the minimum distribution required to enable BXP to maintain its REIT qualification. We seek to maximize income from our existing properties by maintaining quality standards for our properties that promote high occupancy rates and permit increases in rental rates while reducing tenant turnover and controlling operating expenses. Our sources of revenue also include third-party fees generated by our property management, leasing and development and construction businesses, as well as the sale of assets from time to time. We believe these sources of capital will continue to provide the funds necessary for our short-term liquidity needs, including our properties under development and redevelopment. Material adverse changes in one or more sources of capital, whether due to the impacts of the COVID-19 pandemic or otherwise, may adversely affect our net cash flows. During the first quarter of 2021, our rent collections remained strong as we collected 99.6% of rents from our office tenants and 99.0% of rents from all tenants, including retail tenants. The COVID-19 pandemic also continued to cause material declines in parking and other revenue and revenue from our hotel for the first quarter of 2021 when compared to pre-COVID-19 levels. Cash rent abatements and deferrals primarily related to COVID-19 were approximately $9.1 million in the first quarter, approximately 51% less than the average of the three most recent fiscal quarters. 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). To date, these impacts have not adversely affected our ability to fund operating expenses, dividends and distributions, debt service payments, maintenance and repositioning capital expenditures and tenant improvements. Any future 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. During the first quarter of 2021, we utilized our available cash balances and proceeds from BPLP’s issuance of $850 million aggregate principal amount of green bonds to repay or redeem an aggregate of approximately $1.6 billion of debt and preferred equity, including the: • redemption of the $850 million aggregate principal amount of BPLP’s 4.125% senior unsecured notes due 2021, • repayment of BPLP’s $500 million unsecured Delayed Draw Facility, • redemption of all $200 million of BXP’s outstanding shares of its Series B Preferred Stock, and • repayment of the mortgage loan collateralized by University Place located in Cambridge, Massachusetts totaling approximately $0.9 million. We have no debt maturities during the remainder of 2021, other than one loan borrowed by an unconsolidated joint venture of which our share is approximately $87.2 million. We have one loan totaling approximately $610.6 million maturing in 2022 and our unconsolidated joint ventures have two loans maturing in 2022, of which our share is approximately $144.8 million. As of March 31, 2021, our share of the remaining development and redevelopment costs that we expect to fund through 2024 was approximately $1.4 billion, which includes new development and redevelopment starts in the first quarter of 2021 with an aggregate estimated investment of approximately $692.6 million, the majority of which are new lab/life sciences developments and conversions. In addition, during the first quarter, we sold our remaining interest in Annapolis Junction Buildings Six and Seven for a gross sale price of approximately $65.9 million, generating net proceeds of $17.6 million after repayment of our share of the debt. We also have tentative agreements to sell three buildings within our VA95 Business Park in Springfield, Virginia and a three-building suburban portfolio that we expect, if completed, will total approximately $260 million of net proceeds. We are evaluating additional assets sales, which, if completed, could generate aggregate additional net proceeds in excess of $200 million. However, there can be no assurance that the dispositions will be consummated on the terms currently contemplated, or at all. 63 Table of Contents Although the full impact of COVID-19 on our liquidity and capital resources, as well as the duration of such impact, will depend on a wide range of factors, we believe that our access to capital and our strong liquidity, including the approximately $1.5 billion available under the 2017 Credit Facility and available cash of approximately $593.2 million (of which approximately $123.9 million is attributable to our consolidated joint venture partners), as of May 3, 2021, is sufficient to fund our remaining capital requirements on existing development and redevelopment projects, repay our maturing indebtedness when due, satisfy our REIT distribution requirements and still allow us to act opportunistically on attractive investment opportunities. In addition, to further enhance our investment capacity and capital resources, we expect to finalize an agreement with two institutional investors to pursue and co-invest in select office acquisitions. In the aggregate, BXP and its partners would commit $1.0 billion of equity and would have the opportunity to invest in each identified transaction at their discretion. However, there can be no assurance that the agreement or the co-investments contemplated thereby will be consummated on the terms currently contemplated, or at all. We have not sold any shares under BXP’s $600.0 million “at the market” equity offering program. We may seek to enhance our liquidity to fund our foreseeable potential development activity, pursue additional attractive investment opportunities and refinance or repay indebtedness. Depending on interest rates and overall conditions in the debt and equity markets, we may decide to access either or both of these markets in advance of the need for the funds. Doing so may result in us carrying additional cash and cash equivalents pending our use of the proceeds, which would increase our net interest expense and be dilutive to our earnings. REIT Tax Distribution Considerations Dividend BXP as a REIT is subject to a number of organizational and operational requirements, including a requirement that BXP currently distribute at least 90% of its annual taxable income (excluding capital gains and with certain other adjustments). Our policy is for BXP to distribute at least 100% of its taxable income, including capital gains, to avoid paying federal tax. Common and LTIP unitholders of limited partnership interest in BPLP, received the same total distribution per unit. BXP’s Board of Directors will continue to evaluate BXP’s dividend rate in light of our actual and projected taxable income (including gains on sales), liquidity requirements and other circumstances, including the impact of COVID-19, and there can be no assurance that the future dividends declared by BXP’s Board of Directors will not differ materially from the current quarterly dividend amount. Sales To the extent that we sell assets at a gain and cannot efficiently use the proceeds in a tax deferred manner for either our development activities or attractive acquisitions, BXP would, at the appropriate time, decide whether it is better to declare a special dividend, adopt a stock repurchase program, reduce indebtedness or retain the cash for future investment opportunities. Such a decision will depend on many factors including, among others, the timing, availability and terms of development and acquisition opportunities, our then-current and anticipated leverage, the cost and availability of capital from other sources, the price of BXP’s common stock and REIT distribution requirements. At a minimum, we expect that BXP would distribute at least that amount of proceeds necessary for BXP to avoid paying corporate level tax on the applicable gains realized from any asset sales. From time to time in 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 $0.9 billion and $0.9 billion at March 31, 2021 and 2020, respectively, representing an increase of approximately $0.1 billion. The following table sets forth changes in cash flows: 64 Table of Contents Three months ended March 31, 2021 2020 Increase (Decrease) (in thousands) Net cash provided by operating activities $ 152,063 $ 175,197 $ (23,134) Net cash used in investing activities (242,273) (73,793) (168,480) Net cash provided by (used in) financing activities (679,936) 65,288 (745,224) Our principal source of cash flow is related to the operation of our properties. The weighted-average term of our in-place leases, excluding residential units, was approximately 7.6 years as of March 31, 2021, including leases signed by our unconsolidated joint ventures, with occupancy rates historically in the range of 88% to 94%. Generally, our properties generate a relatively consistent stream of cash flow that provides us with resources to pay operating expenses, debt service and fund regular quarterly dividend and distribution payment requirements. In addition, over the past several years, we have raised capital through the sale of some of our properties and through secured and unsecured borrowings. The full extent of the impact of COVID-19 on our business, operations and financial results will depend on numerous evolving factors that we may not be able to accurately predict. In addition, we cannot predict the impact that COVID-19 will have on our tenants, employees, contractors, lenders, suppliers, vendors and joint venture partners; any material adverse effect on these parties could also have a material adverse effect on us. For the three months ended March 31, 2021, our total dividend and distribution payments were approximately $171.6 million, which exceeded our cash flow from operating activities by approximately $19.5 million. We funded the dividend and distribution payments using cash flow from operating activities, approximately $17.6 million of proceeds from sale of investment in unconsolidated joint ventures and cash on hand. Cash is used in investing activities to fund acquisitions, development, net investments in unconsolidated joint ventures and maintenance and repositioning capital expenditures. We selectively invest in new projects that enable us to take advantage of our development, leasing, financing and property management skills and invest in existing buildings to enhance or maintain their market position. Cash used in investing activities for the three months ended March 31, 2021 consisted primarily of development projects, building and tenant improvements and capital contributions to unconsolidated joint ventures, partially offset by proceeds from sale of investment in unconsolidated joint ventures. Cash used in investing activities for the three months ended March 31, 2020 consisted of development projects, building and tenant improvements and capital contributions to unconsolidated joint ventures, partially offset by the proceeds from the sale of real estate, as detailed below: Three months ended March 31, 2021 2020 (in thousands) Construction in progress (1) $ (119,496) $ (143,160) Building and other capital improvements (32,717) (39,154) Tenant improvements (93,201) (64,172) Proceeds from sales of real estate (2) — 259,489 Capital contributions to unconsolidated joint ventures (3) (16,684) (89,997) Capital distributions from unconsolidated joint ventures 122 — Proceeds from sale of investment in unconsolidated joint venture (4) 17,589 — Investments in securities, net 2,114 3,201 Net cash used in investing activities $ (242,273) $ (73,793) Cash used in investing activities changed primarily due to the following: (1) Construction in progress for the three months ended March 31, 2021 includes ongoing expenditures associated with One Five Nine East 53rd Street , which was completed and fully placed in-service during the three months ended March 31, 2021. In addition, we incurred costs associated with our continued development/redevelopment of 200 West Street, 325 Main Street, 2100 Pennsylvania Avenue, Reston Next , 180 CityPoint, The Prudential Center Observatory and 880 Winter Street. 65 Table of Contents Construction in progress for the three months ended March 31, 2020 includes ongoing expenditures associated with 17Fifty Presidents Street, which was completed and placed in-service during the three months ended March 31, 2020 and 20 CityPoint, which was partially placed in-service during the year ended December 31, 2019. In addition, we incurred costs associated with our continued development/redevelopment of One Five Nine East 53rd Street, Reston Next, 2100 Pennsylvania Avenue, 200 West Street, The Skylyne and 325 Main Street. (2) On February 20, 2020, we completed the sale of New Dominion Technology Park located in Herndon, Virginia for a gross sale price of $256.0 million. Net cash proceeds totaled approximately $254.0 million, resulting in a gain on sale of real estate totaling approximately $192.3 million for BXP and approximately $197.1 million for BPLP. New Dominion Technology Park is comprised of two Class A office properties aggregating approximately 493,000 net rentable square feet. (3) Capital contributions to unconsolidated joint ventures for the three months ended March 31, 2021 consisted primarily of cash contributions of approximately $11.4 million to our Santa Monica Business Park joint venture. Capital contributions to unconsolidated joint ventures for the three months ended March 31, 2020 consisted primarily of cash contributions of approximately $64.5 million, $16.8 million and $4.0 million to our Platform 16, 3 Hudson Boulevard and Metropolitan Square joint ventures, respectively. (4) On March 30, 2021, we completed the sale of our 50% ownership interest in Annapolis Junction NFM LLC (the “Annapolis Junction Joint Venture”) to the joint venture partner for a gross sales price of $65.9 million. Net cash proceeds to us totaled approximately $17.6 million after repayment of our share of debt totaling approximately $15.1 million and the deferment of a $0.2 million payment due from the purchaser. Cash used in financing activities for the three months ended March 31, 2021 totaled approximately $679.9 million. This amount consisted primarily of (1) the redemption of BPLP’s $850.0 million in aggregate principal amount of its 4.125% senior notes due 2021, (2) the repayment of the Delayed Draw Facility, (3) payment of our regular dividends and distributions to our shareholders and unitholders and (4) distributions to noncontrolling interest holders in property partnership. These decreases were partially offset by the proceeds from the issuance by BPLP of $850.0 million in aggregate principal amount of its 2.550% senior unsecured notes due 2032. Future debt payments are discussed below under the heading “Capitalization—Debt Financing .” 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): 66 Table of Contents March 31, 2021 Shares / Units Outstanding Common Stock Equivalent Equivalent Value (1) Common Stock 156,074 156,074 $ 15,804,053 Common Operating Partnership Units 17,579 17,579 1,780,050 (2) Total Equity 173,653 $ 17,584,103 Consolidated Debt $ 12,536,264 Add: BXP’s share of unconsolidated joint venture debt (3) 1,165,872 Subtract: Partners’ share of Consolidated Debt (4) (1,193,260) BXP’s Share of Debt $ 12,508,876 Consolidated Market Capitalization $ 30,120,367 BXP’s Share of Market Capitalization $ 30,092,979 Consolidated Debt/Consolidated Market Capitalization 41.62 % BXP’s Share of Debt/BXP’s Share of Market Capitalization 41.57 % _______________ (1) Values are based on the closing price per share of BXP’s Common Stock on the New York Stock Exchange on March 31, 2021 of $101.26. (2) Includes long-term incentive plan units (including 2012 OPP Units and 2013 - 2018 MYLTIP Units) but excludes MYLTIP Units granted between 2019 and 2021 because the three-year performance period has not ended. (3) See page 71 for additional information. (4) See page 70 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 March 31, 2021, as reported by the New York Stock Exchange, multiplied by (y) the sum of: (i) the number of outstanding shares of common stock of BXP, (ii) the number of outstanding OP Units in BPLP (excluding OP Units held by BXP), (iii) the number of OP Units issuable upon conversion of all outstanding LTIP Units, assuming all conditions have been met for the conversion of the LTIP Units, and (iv) the number of OP Units issuable upon conversion of 2012 OPP Units, 2013 - 2018 MYLTIP Units that were issued in the form of LTIP Units. The calculation of consolidated market capitalization does not include LTIP Units issued in the form of MYLTIP Awards unless and until certain performance thresholds are achieved and they are earned. Because their three-year performance periods have not yet ended, 2019 - 2021 MYLTIP Units are not included in this calculation as of March 31, 2021. We also present BXP’s Share of Market Capitalization and BXP’s Share of Debt/BXP’s Share of Market Capitalization, which are calculated in the same manner, except that BXP’s Share of Debt is utilized instead of our consolidated debt in both the numerator and the denominator. BXP’s Share of Debt is defined as our consolidated debt plus our share of debt from our unconsolidated joint ventures (calculated based upon our ownership percentage), minus our partners’ share of debt from our consolidated joint ventures (calculated based upon the 67 Table of Contents partners’ percentage ownership interests adjusted for basis differentials). Management believes that BXP’s Share of Debt provides useful information to investors regarding our financial condition because it includes our share of debt from unconsolidated joint ventures and excludes our partners’ share of debt from consolidated joint ventures, in each case presented on the same basis. We have several significant joint ventures and presenting various measures of financial condition in this manner can help investors better understand our financial condition and/or results of operations after taking into account our economic interest in these joint ventures. We caution investors that the ownership percentages used in calculating BXP’s Share of Debt may not completely and accurately depict all of the legal and economic implications of holding an interest in a consolidated or unconsolidated joint venture. For example, in addition to partners’ interests in profits and capital, venture agreements vary in the allocation of rights regarding decision making (both for routine and major decisions), distributions, transferability of interests, financing and guarantees, liquidations and other matters. Moreover, in some cases we exercise significant influence over, but do not control, the joint venture in which case GAAP requires that we account for the joint venture entity using the equity method of accounting and we do not consolidate it for financial reporting purposes. In other cases, GAAP requires that we consolidate the venture even though our partner(s) own(s) a significant percentage interest. As a result, management believes that the presentation of BXP’s Share of a financial measure should not be considered a substitute for, and should only be considered with and as a supplement to our financial information presented in accordance with GAAP. We present these supplemental ratios because our degree of leverage could affect our ability to obtain additional financing for working capital, capital expenditures, acquisitions, development or other general corporate purposes and because different investors and lenders consider one or both of these ratios. Investors should understand that these ratios are, in part, a function of the market price of the common stock of BXP and as such will fluctuate with changes in such price, and they do not necessarily reflect our capacity to incur additional debt to finance our activities or our ability to manage our existing debt obligations. However, for a company like BXP, whose assets are primarily income-producing real estate, these ratios may provide investors with an alternate indication of leverage, so long as they are evaluated along with the ratio of indebtedness to other measures of asset value used by financial analysts and other financial ratios, as well as the various components of our outstanding indebtedness. For a discussion of our unconsolidated joint venture indebtedness, see “ Liquidity and Capital Resources—Capitalization—Off-Balance Sheet Arrangements—Joint Venture Indebtedness ” within “ Item 2—Management’s Discussion and Analysis of Financial Condition and Results of Operations ” and for a discussion of our consolidated joint venture indebtedness see “Liquidity and Capital Resources—Capitalization—Mortgage Notes Payable, Net ” within “ Item 2—Management’s Discussion and Analysis of Financial Condition and Results of Operations .” Debt Financing As of March 31, 2021, we had approximately $12.5 billion of outstanding consolidated indebtedness, representing approximately 41.62% of our Consolidated Market Capitalization as calculated above consisting of approximately (1) $9.6 billion (net of discount and deferred financing fees) in publicly traded unsecured senior notes having a GAAP weighted-average interest rate of 3.57% per annum and maturities in 2023 through 2032 (See Note 7 to the Consolidated Financial Statements) and (2) $2.9 billion (net of deferred financing fees) of property-specific mortgage debt having a GAAP weighted-average interest rate of 3.89% per annum and a weighted-average term of 5.1 years. 68 Table of Contents The table below summarizes the aggregate carrying value of our mortgage notes payable and BPLP’s unsecured senior notes, line of credit and term loan, as well as Consolidated Debt Financing Statistics at March 31, 2021 and March 31, 2020. March 31, 2021 2020 (dollars in thousands) Debt Summary: Balance Fixed rate mortgage notes payable, net $ 2,904,672 $ 2,919,157 Unsecured senior notes, net 9,631,592 8,393,009 Unsecured line of credit — 250,000 Unsecured term loan, net — 499,058 Consolidated Debt 12,536,264 12,061,224 Add: BXP’s share of unconsolidated joint venture debt, net (1) 1,165,872 1,027,547 Subtract: Partners’ share of consolidated mortgage notes payable, net (2) (1,193,260) (1,198,575) BXP’s Share of Debt $ 12,508,876 $ 11,890,196 March 31, 2021 2020 Consolidated Debt Financing Statistics: Percent of total debt: Fixed rate 100.00 % 93.79 % Variable rate — % 6.21 % Total 100.00 % 100.00 % GAAP Weighted-average interest rate at end of period: Fixed rate 3.64 % 3.80 % Variable rate — % 2.16 % Total 3.64 % 3.70 % Coupon/Stated Weighted-average interest rate at end of period: Fixed rate 3.54 % 3.69 % Variable rate — % 2.07 % Total 3.54 % 3.59 % Weighted-average maturity at end of period (in years): Fixed rate 6.0 5.8 Variable rate — 2.1 Total 6.0 5.6 _______________ (1) See page 71 for additional information. (2) See page 70 for additional information. 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. 69 Table of Contents On April 24, 2018, BPLP exercised its option to draw $500.0 million on its Delayed Draw Facility. Prior to its repayment on March 16, 2021, the Delayed Draw Facility bore interest at a variable rate equal to LIBOR plus 0.95% per annum based on BPLP’s credit rating. As of March 31, 2021 and May 3, 2021, BPLP had no borrowings under its 2017 Credit Facility and outstanding letters of credit totaling approximately $2.3 million and $6.3 million, respectively, with the ability to borrow approximately $1.5 billion under the Revolving Facility. Unsecured Senior Notes For a description of BPLP’s outstanding unsecured senior notes as of March 31, 2021, see Note 7 to the Consolidated Financial Statements. On February 14, 2021, BPLP completed the redemption of $850.0 million in aggregate principal amount of its 4.125% senior notes due May 15, 2021. The redemption price was approximately $858.7 million, which was equal to par plus approximately $8.7 million of accrued and unpaid interest to, but not including, the redemption date. Excluding the accrued and unpaid interest, the redemption price was equal to the principal amount being redeemed. We recognized a loss from early extinguishment of debt totaling approximately $0.4 million, related to unamortized origination costs. On March 16, 2021, BPLP completed a public offering of $850.0 million in aggregate principal amount of its 2.550% unsecured senior notes due 2032. The notes were priced at 99.570% of the principal amount to yield an effective rate (including financing fees) of approximately 2.671% per annum to maturity. The notes will mature on April 1, 2032, unless earlier redeemed. The aggregate net proceeds from the offering were approximately $839.2 million after deducting underwriting discounts and transaction expenses. The indenture relating to the unsecured senior notes contains certain financial restrictions and requirements, including (1) a leverage ratio not to exceed 60%, (2) a secured debt leverage ratio not to exceed 50%, (3) an interest coverage ratio of greater than 1.50, and (4) an unencumbered asset value of not less than 150% of unsecured debt. At March 31, 2021, BPLP was in compliance with each of these financial restrictions and requirements. Mortgage Notes Payable The following represents the outstanding principal balances due under the mortgage notes payable at March 31, 2021: 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) Consolidated Joint Ventures 767 Fifth Avenue (the General Motors Building) 3.43 % 3.64 % $ 2,300,000 $ (21,605) $ 2,278,395 $ 911,435 (2)(3)(4) June 9, 2027 601 Lexington Avenue 4.75 % 4.79 % 626,612 (335) 626,277 281,825 (5) April 10, 2022 2,926,612 (21,940) 2,904,672 1,193,260 Total $ 2,926,612 $ (21,940) $ 2,904,672 $ 1,193,260 _______________ (1) GAAP interest rate differs from the stated interest rate due to the inclusion of the amortization of financing charges and the effects of hedging transactions (if any). (2) The mortgage loan requires interest only payments with a balloon payment due at maturity. (3) This property is owned by a consolidated entity in which we have a 60% interest. The partners’ share of the carrying amount has been adjusted for basis differentials. (4) In connection with the refinancing of the loan, we guaranteed the consolidated entity’s obligation to fund various reserves for tenant improvement costs and allowances, leasing commissions and free rent obligations in lieu of cash deposits. As of March 31, 2021, the maximum funding obligation under the guarantee was approximately $23.1 million. We earn a fee from the joint venture for providing the guarantee and have an agreement with our partners to reimburse the joint venture for their share of any payments made under the guarantee (See Note 9 to the Consolidated Financial Statements). (5) This property is owned by a consolidated entity in which we have a 55% interest. 70 Table of Contents Off-Balance Sheet Arrangements—Joint Venture Indebtedness We have investments in unconsolidated joint ventures with our effective ownership interests ranging from 20% to 60%. Thirteen of these ventures have mortgage indebtedness. We exercise significant influence over, but do not control, these entities. As a result, we account for them using the equity method of accounting. See also Note 5 to the Consolidated Financial Statements. At March 31, 2021, the aggregate carrying amount of debt, including both our and our partners’ share, incurred by these ventures was approximately $2.7 billion (of which our proportionate share is approximately $1.2 billion). The table below summarizes the outstanding debt of these joint venture properties at March 31, 2021. In addition to other guarantees specifically noted in the table, we have agreed to customary environmental indemnifications and nonrecourse carve-outs (e.g., guarantees against fraud, misrepresentation and bankruptcy) as well as the completion of development projects on certain of the loans. 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 $ (2,264) $ 297,736 $ 163,755 (2)(3) July 19, 2025 Market Square North 50 % 2.80 % 2.96 % 125,000 (951) 124,049 62,025 (2)(4) November 10, 2025 1265 Main Street 50 % 3.77 % 3.84 % 37,123 (299) 36,824 18,412 January 1, 2032 Colorado Center 50 % 3.56 % 3.58 % 550,000 (653) 549,347 274,673 (2) August 9, 2027 Dock 72 50 % 3.10 % 3.32 % 196,412 (1,478) 194,934 97,467 (2)(5) December 18, 2023 The Hub on Causeway - Podium 50 % 2.36 % 2.86 % 174,329 (433) 173,896 86,948 (2)(6) September 6, 2021 Hub50House 50 % 2.12 % 2.40 % 174,352 (552) 173,800 86,900 (2)(7) April 19, 2022 100 Causeway Street 50 % 1.63 % 1.84 % 250,612 (2,048) 248,564 124,282 (2)(8) September 5, 2023 7750 Wisconsin Avenue (Marriott International Headquarters) 50 % 1.37 % 1.91 % 180,459 (2,901) 177,558 88,779 (2)(9) April 26, 2023 500 North Capitol Street, NW 30 % 4.15 % 4.20 % 105,000 (128) 104,872 31,462 (2) June 6, 2023 901 New York Avenue 25 % 3.61 % 3.69 % 220,041 (670) 219,371 54,843 January 5, 2025 3 Hudson Boulevard 25 % 3.62 % 3.70 % 80,000 (144) 79,856 19,964 (2)(10) July 13, 2023 Metropolitan Square 20 % 5.40 % 6.90 % 288,000 (6,191) 281,809 56,362 (2)(11) July 7, 2022 Total $ 2,681,328 $ (18,712) $ 2,662,616 $ 1,165,872 _______________ (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. (4) The loan bears interest at a variable rate equal to (1) the greater of (x) LIBOR or (y) 0.50%, plus (2) 2.30% per annum and matures on November 10, 2025, with one, one-year extension option, subject to certain conditions. (5) The construction financing has a borrowing capacity of $250.0 million. The construction financing bears interest at a variable rate equal to (1) the greater of (x) LIBOR or (y) 0.25%, plus (2) 2.85% per annum and matures on December 18, 2023. (6) The construction financing had a borrowing capacity of $204.6 million. On September 16, 2019, the joint venture paid down the construction loan principal balance in the amount of approximately $28.8 million, reducing the borrowing capacity to $175.8 million. The construction financing bears interest at a variable rate equal to LIBOR plus 2.25% per annum and matures on September 6, 2021, with two, one-year extension options, subject to certain conditions. (7) The construction financing has a borrowing capacity of $180.0 million. The construction financing bears interest at a variable rate equal to LIBOR plus 2.00% per annum and matures on April 19, 2022, with two, one-year extension options, subject to certain conditions. 71 Table of Contents (8) The construction financing has a borrowing capacity of $400.0 million. The construction financing bears interest at a variable rate equal to LIBOR plus 1.50% per annum (LIBOR plus 1.375% per annum upon stabilization, as defined in the loan agreement) and matures on September 5, 2023, with two, one-year extension options, subject to certain conditions. (9) The construction financing has a borrowing capacity of $255.0 million. The construction financing bears interest at a variable rate equal to LIBOR plus 1.25% per annum and matures on April 26, 2023, with two, one-year extension options, subject to certain conditions. (10) 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. (11) The loan bears interest at a variable rate equal to (1) the greater of (x) LIBOR or (y) 0.65%, plus (2) 4.75% per annum and matures on July 7, 2022 with two, one-year extension options, subject to certain conditions. The joint venture entered into an interest rate cap agreement with a financial institution to limit its exposure to increases in the LIBOR rate at a cap of 3.00% per annum on a notional amount of $325.0 million through July 7, 2022. State and Local Tax Matters Because BXP is organized and qualifies as a REIT, it is generally not subject to federal income taxes, but is subject to certain state and local taxes. In the normal course of business, certain entities through which we own real estate either have undergone, or are currently undergoing, tax audits or other inquiries. Although we believe that we have substantial arguments in favor of our position in the ongoing audits, in some instances there is no controlling precedent or interpretive guidance on the specific point at issue. Collectively, tax deficiency notices received to date from the jurisdictions conducting the ongoing audits have not been material. However, there can be no assurance that future audits will not occur with increased frequency or that the ultimate result of such audits will not have a material adverse effect on our results of operations. Insurance For information concerning our insurance program, see Note 9 to the Consolidated Financial Statements. Funds from Operations Pursuant to the revised definition of Funds from Operations adopted by the Board of Governors of the National Association of Real Estate Investment Trusts (“Nareit”), we calculate Funds from Operations, or “FFO,” for each of BXP and BPLP by adjusting net income (loss) attributable to Boston Properties, Inc. common shareholders and net income (loss) attributable to Boston Properties Limited Partnership common unitholders (computed in accordance with GAAP), respectively, for gains (or losses) from sales of properties, impairment losses on depreciable real estate consolidated on our balance sheet, impairment losses on our investments in unconsolidated joint ventures driven by a measurable decrease in the fair value of depreciable real estate held by the unconsolidated joint ventures and our share of real estate-related depreciation and amortization. FFO is a non-GAAP financial measure. We believe the presentation of FFO, combined with the presentation of required GAAP financial measures, improves the understanding of operating results of REITs among the investing public and helps make comparisons of REIT operating results more meaningful. Management generally considers FFO to be useful measures for understanding and comparing our operating results because, by excluding gains and losses related to sales of previously depreciated operating real estate assets, impairment losses and real estate asset depreciation and amortization (which can differ across owners of similar assets in similar condition based on historical cost accounting and useful life estimates), FFO can help investors compare the operating performance of a company’s real estate across reporting periods and to the operating performance of other companies. Our computation of FFO may not be comparable to FFO reported by other REITs or real estate companies that do not define the term in accordance with the current Nareit definition or that interpret the current Nareit definition differently. We believe that in order to facilitate a clear understanding of our operating results, FFO should be examined in conjunction with net income attributable to Boston Properties, Inc. common shareholders and net income attributable to Boston Properties Limited Partnership as presented in our Consolidated Financial Statements. FFO should not be considered as a substitute for net income attributable to Boston Properties, Inc. common shareholders or net income attributable to Boston Properties Limited Partnership common unitholders (determined in accordance with GAAP) or any other GAAP financial measures and should only be considered together with and as a supplement to our financial information prepared in accordance with GAAP. 72 Table of Contents The impact that COVID-19 has had on our business, financial position and results of operations during the first quarter of 2021 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 months ended March 31, 2021, thus negatively impacting our FFO. These decreases are discussed under the heading “ Comparison of the three months ended March 31, 2021 to the three months ended March 31, 2020 ” within “ Item 2—Management’s Discussion and Analysis of Financial Condition and Results of Operations .” 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 March 31, 2021 and 2020: Three months ended March 31, 2021 2020 (in thousands) Net income attributable to Boston Properties, Inc. common shareholders $ 91,624 $ 497,496 Add: Preferred stock redemption charge 6,412 — Preferred dividends 2,560 2,625 Noncontrolling interest—common units of the Operating Partnership 11,084 57,539 Noncontrolling interests in property partnerships 16,467 19,486 Net income 128,147 577,146 Add: Depreciation and amortization 176,565 171,094 Noncontrolling interests in property partnerships’ share of depreciation and amortization (16,457) (17,627) BXP’s share of depreciation and amortization from unconsolidated joint ventures 18,412 18,332 Corporate-related depreciation and amortization (440) (469) Less: Gain on sale of investment included within income (loss) from unconsolidated joint ventures 10,257 — Gains on sales of real estate — 410,165 Noncontrolling interests in property partnerships 16,467 19,486 Preferred dividends 2,560 2,625 Preferred stock redemption charge 6,412 — Funds from Operations (FFO) attributable to the Operating Partnership common unitholders (including Boston Properties, Inc.) 270,531 316,200 Less: Noncontrolling interest—common units of the Operating Partnership’s share of funds from operations 26,728 32,138 Funds from Operations attributable to Boston Properties, Inc. common shareholders $ 243,803 $ 284,062 Our percentage share of Funds from Operations—basic 90.12 % 89.84 % Weighted average shares outstanding—basic 155,928 155,011 73 Table of Contents Reconciliation to Diluted Funds from Operations: Three months ended March 31, 2021 2020 Income (Numerator) Shares/Units (Denominator) Income (Numerator) Shares/Units (Denominator) (in thousands) Basic Funds from Operations $ 270,531 173,018 $ 316,200 172,549 Effect of Dilutive Securities: Stock based compensation — 171 — 247 Diluted Funds from Operations $ 270,531 173,189 $ 316,200 172,796 Less: Noncontrolling interest—common units of the Operating Partnership’s share of diluted Funds from Operations 26,693 17,090 32,092 17,538 Diluted Funds from Operations attributable to Boston Properties, Inc. (1) $ 243,838 156,099 $ 284,108 155,258 _______________ (1) BXP’s share of diluted Funds from Operations was 90.13% and 89.95% for the three months ended March 31, 2021 and 2020, respectively. 74 Table of Contents Boston Properties Limited Partnership The following table presents a reconciliation of net income attributable to Boston Properties Limited Partnership common unitholders to FFO attributable to Boston Properties Limited Partnership common unitholders for the three months ended March 31, 2021 and 2020: Three months ended March 31, 2021 2020 (in thousands) Net income attributable to Boston Properties Limited Partnership common unitholders $ 105,773 $ 566,333 Add: Preferred unit redemption charge 6,412 — Preferred distributions 2,560 2,625 Noncontrolling interests in property partnerships 16,467 19,486 Net income 131,212 588,444 Add: Depreciation and amortization 173,500 169,285 Noncontrolling interests in property partnerships’ share of depreciation and amortization (16,457) (17,627) BXP’s share of depreciation and amortization from unconsolidated joint ventures 18,412 18,332 Corporate-related depreciation and amortization (440) (469) Less: Gain on sale of investment included within (loss) income from unconsolidated joint ventures 10,257 — Gains on sales of real estate — 419,654 Noncontrolling interests in property partnerships 16,467 19,486 Preferred distributions 2,560 2,625 Preferred unit redemption charge 6,412 — Funds from Operations attributable to Boston Properties Limited Partnership common unitholders (1) $ 270,531 $ 316,200 Weighted average shares outstanding—basic 173,018 172,549 _______________ (1) Our calculation includes OP Units and vested LTIP Units (including vested 2012 OPP Units and vested 2013 - 2018 MYLTIP Units). Reconciliation to Diluted Funds from Operations: Three months ended March 31, 2021 2020 (in thousands) Income (Numerator) Shares/Units (Denominator) Income (Numerator) Shares/Units (Denominator) Basic Funds from Operations $ 270,531 173,018 $ 316,200 172,549 Effect of Dilutive Securities: Stock based compensation — 171 — 247 Diluted Funds from Operations $ 270,531 173,189 $ 316,200 172,796 75 Table of Contents 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 March 31, 2021, we paid approximately $109.8 million to fund tenant-related obligations, including tenant improvements and leasing commissions. In addition, during the three months ended March 31, 2021, we and our unconsolidated joint venture partners incurred approximately $53 million of new tenant-related obligations associated with approximately 588,000 square feet, which included approximately 67,000 square feet of lease modifications related to COVID-19, of second generation leases, or approximately $91 per square foot. We signed approximately 4,000 square feet of first generation leases. The tenant-related obligations for the development properties are included within the projects’ “Estimated Total Investment” referred to in “Item 2—Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources.” In aggregate during the first quarter of 2021, we signed leases for approximately 592,000 square feet of space and incurred aggregate tenant-related obligations of approximately $54 million, or approximately $91 per square foot. Table of Contents