BXP, Inc. (BXP) Q1 2012 Earnings Report, Transcript and Summary

Good morning, and welcome to the Boston Properties First Quarter Earnings Call. This call is being recorded. [Operator Instructions] At this time, I would like to turn the conference over to Ms. Arista Joyner, Investor Relations Manager for Boston Properties. Please go ahead.

Good morning, and welcome to Boston Properties first quarter earnings conference call. The press release and supplemental package were distributed last night, as well as furnished on Form 8-K. In the supplemental package, the company has reconciled all non-GAAP financial measures to the most directly comparable GAAP measure in accordance with Reg G requirements. If you did not receive a copy, these documents are available in the Investor Relations section of our website at www.bostonproperties.com. An audio webcast of this call will be available for 12 months in the Investor Relations section of our website. At this time, we would like to inform you that certain statements made during this conference call, which are not historical, may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Although Boston Properties believes the expectations reflected in any forward-looking statements are based on reasonable assumptions, it can give no assurance that its expectations will be attained. Factors and risks that could cause actual results to differ materially from those expressed or implied by forward-looking statements were detailed in Tuesday's press release and, from time to time, in the company's filings with the SEC. The company does not undertake a duty to update any forward-looking statement. Having said that, I'd like to welcome Mort Zuckerman, Chairman of the Board and Chief Executive Officer; Doug Linde, President; and Mike LaBelle, Chief Financial Officer. Also during the question-and-answer portion of our call, our regional management team will be available to answer questions as well. I would now like to turn the call over to Mort Zuckerman for his formal remarks.

Good morning, everybody. We continue to find that our basic strategy, I guess, is the only way to put it, is holding up very well in what we think are fairly weak economic times in a macro sense. And we continue to believe that we'll continue to do well in this environment, simply because the quality of the buildings and the quality of the locations in the markets that we are in are doing relatively better than the overall economy. And we suspect that this is going to continue so we're actually feeling reasonably optimistic about our business. But I have to say, I have been relatively bearish about the economy, and I continue to be that way because I think the overall macro numbers are quite weak, especially the employment numbers. The employment numbers in the first 3 months of this year were very weak because, let me put it this way, they looked better than they really were because of the way the government counts these numbers when they're so called, seasonally adjusted. Well, the fact that we have the warmest pretty months since 1895, an average of 6 degrees per day warmer than and any period going back to 1895. And this means that we basically saved a lot of jobs. People are able to get to work, certain kinds of work like construction was able to continue in the warmer weather, et cetera. The same thing is true in agriculture. So we're in a situation where the economy overall, remains weak. Nevertheless, the areas in which we service, tenants, by and large have continued to be well, relatively well. Certainly, if you look at the markets we are in, they are all still doing fairly well in terms of the kind of space that we offer to the market, which is as we always say in the order of clichés, they're A buildings in A locations. And we have really worked very hard to maintain that particular niche in the marketplace and it has served us well in each one of the markets we are in, whether it's Boston or Cambridge, New York, San Francisco, Washington. Now these are the markets that have continued to do well, and I think it shows up in the earnings that we have. The question that we always ask ourselves is, how do we continue to grow the business? And we are in the process of doing either additional acquisitions or we have development that are underway. We have a major development in New York, for example, and we just completed a meeting in which we were going over the tenancy. This is under construction as we speak. We bought a building in Boston that you all probably know, 1,300,000 square foot building. Now these are a couple of the major transactions we have underway, and we're always in the marketplace for buildings that fit into our definition, shall we say, about the kinds of buildings we want to own. And we think we're going to be able to continue to do well because we are relatively conservatively financed. We have access to capital on terms that frankly have not been available to anybody in the real estate business since I have been in the business, which I'm embarrassed to say, goes back 51 years. So that is, in a sense, the comparative advantage for us, making it possible for us to make acquisitions or to continue development and to be able to come out with yields that we're comfortable with. So we're not in an exuberant time, but we think we can continue to prosper in these times because of the unique strategy, because of the credibility we have in the markets we are in, because of our ability to finance whatever we do and because of the ability of every single one of our offices to generate both additional acquisitions, additional sites and additional centers. So with that, I'll just turn it over to Doug Linde, who will go through our earnings and then we'll just open it up to questions.

Thanks, Mort. Good morning, everybody. So when I start to think about the first quarter, when you look at the macro data and you looked at what was going on with the announcement of the LTRO in Europe, I think everyone's sort of had a perspective that things were going to do -- be pretty good. It's not robust in the first quarter. I think the data around the real estate markets really was sort of out of sync with those expectations. There really wasn't the same pattern. The way we would describe things are that the real estate markets have been okay. They haven't been good, but they haven't been bad either. One of the brokers in New York City that we spent a lot of time with said, if you were to pick a color for the market, he would use the color gray for midtown. In other words, there's not much upper pricing on rents, but the pessimists aren't winning the day either. It's just sort of a status quo. There's still some Redskin. There's uncertainty with regards to what's happening with the large financial institutions as we're seeing on a daily basis, and no one's really making bold moves, but as you've heard from some of the previous calls you hear from us today, some of the larger tenants in the market are making decisions because they have lease expirations or they want to get on with life. So as we think about our portfolio, for the most part we are in what I would refer to as a lease expiration driven market. But there are some pockets of growth and there are companies that are looking for some additional space, and they are impacting our portfolio and we'll talk about these in a couple of minutes. But let me just give a little bit of color on each of the markets and what our activities are. So in midtown Manhattan, it was really a pretty below-average quarter. We were probably off about 15% in terms of the overall leasing activity. If you'll sort of look back to pre-Lehman Brothers in 2007, and there was a very modest increase in availability. For us, since the beginning of the year, we've done 6 more leases at 510 Madison Avenue, totaling about 44,000 square feet. Again, that's a lot of leases, but they're relatively small in terms of square footage per lease because of the size of the building. Our asking rents continue to be exactly where we pegged them last quarter. We're in the mid-90s at the base of the building and we're asking over $130 at the top. Over at 399, we have 6 floors of availability. That’s being price in the 90s. And actually much to our positive surprise, we've had a significant amount of activity around those floors, and we actually have 4 deals that are ongoing where we're moving from proposals to lease negotiations. The high-end midtown leasing overall, which is really what we focused on, which are where we define as sort of deals over $90 a square foot, it's really running in about the same pace as it was in the first quarter of 2011, which is about 400,000 square feet. So things are consistent there. As Mort described, the 250 West 55th Street, we have engaged in a number of discussions with tenants, and these are tenants with -- that have lease expirations for 2014 or 2015, sizes between 200,000 and 250,000 square feet. The building is going to be topped off in a couple of weeks, but we don't have anything signed yet. So I don't want to put too much emphasis on that. I will say though, as a side note, which is not insignificant, we did execute a 500,000 square-foot lease last night or yesterday in the morning with Citibank. As you can expect [ph] it's an extension at 601 Lexington Avenue through 2026 and it's the low rise of that building. Citi's lease was scheduled to expire in 2016 and they have made the decision to consolidate much of their midtown requirement in 601, and they are physically rebuilding the space as we sit here today. Dropping down to D.C. area. Northern Virginia didn't have a terribly good month, negative absorption largely related to the BRAC relocations and new actual available inventory coming onto the market. Reston, once again, continues to be outlier. We've had consistent activity in our town center properties. Rents are still in the mid to high 40s in the urban core. Our availability is limited to smaller blocks of space and we continue to see good activity in those blocks of space. Just to give you a sort of a perspective economically and what's going on in a market like Northern Virginia, we are doing deals at One Freedom Square, and just to remind you, One Freedom Square was sort of our second generation building in the urban core. We did the Discovery building and then One Freedom Square then Two Freedom Square and then South of Market. So this is sort of an older building, relatively speaking. Well, rents are in the high 40s there. And if you go out to the Toll Road, you're lucky to see a face rent with a 3 in front of it, and on a net effective basis, is even lower. The impact of the deficit negotiations and spending reductions and the election have made for a pretty soft demand environment in the district. We're just not seeing any real permanent activity. And the fiscal cliff that we're all looking at is clearly creating an environment where the procurement process is really, really slow. Just to again give you a sort of anecdotal example, we got a letter from the GSA for one of our buildings in the region that they wanted to expand into 17,000 square feet in September of 2011. As of today, we still sit with that space available without the actual signed extension from them. And each week, when we call them they say, well, we've got the approval. We just haven't been able to get it out the door yet. I mean, things are really, really contracting from a timing perspective in the district. Over the few quarters, there still have been more spaces coming out to the market due to law firm consolidation. And so there are more choices available for tenants. And we're really talking now about firms that have 2015 and 2016 lease expirations really driving the market. And those are the tenants that hopefully we're going to be able to lay in for 601 Madison Ave. If we get a pre-commitment [ph] , we're going to start the building probably towards the end of '13 or early '14. For us again, I think we're an outlier in D.C. Our portfolio is 98% leased and we've got less than 150,000 square feet of expiration in 2012. We don't think we're going to see much in the way of improvements in the market in '12 or '13. Rents are really still pretty flat into the high $40s on a triple net basis. You might get $50 a square foot on the best, best space in the market. But most of the leasing that we're going to see is probably going to be in the high $30s to the mid-$40s on a triple net basis. And again, not really -- we are really not looking for any sort of improvement in fundamentals in the district until well into 2013. In the short-term, the private sector leasing continues to be slow as well. Our residential project, 50 Avenue [ph] , we are now 92% leased just over 10 months into the process, which is really, really a good sign for the property and the desire of people to want to locate over near DW. In certain areas, however -- and again this is our portfolio and we're a little bit different, the government is in fact awarding contracts and leases are being signed. And that one of those areas is in the Cyber Security World and we happen to be building buildings up in and around Fort Mead. And we are the beneficiaries of one of those situations, where we've now signed a lease for 50% of our new building at Annapolis Junction. That's 120,000 square foot building. Then we did a contract with -- a lease with SAIC, who has a contract with one of the Fort Mead contracts. So we are continuing to pursue those types of opportunities. We still are optimistic that we're going to have another defense-related user for our final building at Patriots Park. We hope that decision's going to be coming sometime in the second quarter of this year. Popping back up to Boston. Activity in Cambridge really is leading the Boston region. The technology and the life science tenants continue to expand and this market is tightening with improving economics. Vacancy rate in this Cambridge is well under 10%. Rents are in the low 50s and they probably increased 15% over the past 12 months. And there are really a very limited blocks of space above 100,000 square feet. For us, late last month, the city of Cambridge approved a 483,000 square foot expansion of our Cambridge Center complex, in conjunction with a major lease extension and expansion by Google. Google is one of our largest tenants at Cambridge Center, obviously. It's really a pretty interesting example of how our development team was able to work with both the tenant and the city to solve their long-term requirements. Google was looking for larger floor, place floors, and we came up with a solution whereby we could put connectors between a couple of our buildings in Cambridge Center and give them the connectivity and the floor plate [ph] they were looking for on our existing parcel. And so currently, Google occupies 144,000 square feet and they've agreed to take another 106,000 square feet of available space, or no longer available but was available, as well as occupying additional 43,000 square feet of space when we finally finish the building, and we hope to have that completed by the end of 2013. The full lease that Google is signing is going to run through 2025. We still have some permits to approve, but we're really optimistic about our opportunities in Cambridge. And we've also completed another 70,000 square feet of leasing expansions by Microsoft and MIT and we're virtually out of space in Cambridge in our existing product. In the Boston CBD, there was actually positive absorption this quarter. Quite frankly, it was due to one tenant moving from the suburbs of 128 into the Seaport District. And they really aren't in lot of 2012 or 2013 tenants in the market. So we don't really think there's going to be much in the way of significant changes in the overall vacancy factor in Boston in 2012. We did complete another floor at Atlantic Wharf so we're now 93% leased there. And we've leased 85 out of the 86 units at the lofts and that project opened in July. Those are apartments there. In the Back Bay, again we don't have much in the way of availability. So we're really working on our forward leasing of 2013, '14 and '15. So we've done 100,000 square feet of forward leasing at the Hancock. I would expect by the end of this quarter, we'll have another 150,000 square feet of subtenants completed, forward leasing from -- in the Hancock. Those are all Manulife leases that expiring in '15. And we continue to work on some of the other larger expirations at both the Hancock and at 101 Huntington Avenue as approved. And we're very optimistic that we're going to have a couple more larger transactions to talk about as we move into the latter parts of this year. Rents from the Back Bay are pretty consistent still. They are in the low 40s at the base of some of these buildings to over $70 a square food at the tops. In the suburban market, things again are good. They're not great. They're not bad. There's a good pace of organic growth from a bunch of small technology and life sciences companies, many you probably have never heard the names of. And since the beginning of the year, we've completed about 20 leases for just over 220,000 square feet of space in our suburban 128 portfolio, including a lease with New York Life to move into one of our Waltham properties. The tenant that's actually in that space is Microsoft, and they are going to be relocating and expanding at Cambridge Center, and New York Life's going to backfill their space. Availability is still in the mid-teens for the best space. So rents are going to be flat again, I think, high 20s to the low 30s for the best space, but it's still -- that's up about 15% from this time last year. Moving out west to the San Francisco. Things are still really robust out there. We see -- continue to see strong activity in the CBD, in the Peninsula and the Silicon Valley. It was probably the strongest quarter in the last 5 years in the city of San Francisco, and the 400,000 square-foot salesforce.com lease was probably the highlight. That was at 50 Fremont, which is a non-techie mark [indiscernible] building. It's a true traditional office building. Salesforce and a bunch of other technology companies continue to have a strong appetite for additional space. Vacancy rate is well under 10%, and I think the struggle now is that tenants who are just not able to find blocks of space in buildings that they would deem to be acceptable for long-term tenancies. And so I think the city is going to continue to get stronger and stronger. Availability in the market there is centered now 2% to 4%, so we just don't have any space. Our largest block is 43,000 square feet and we're actually trading proposals on that space. If you jumped down into the Peninsula, there's just very little in the way of available space in Palo Alto or Mountain View or Cupertino for that matter until what's going on is the demand is being pushed north and south. So overall vacancy rates are down probably between 400 and 500 basis points in the stronger markets of the Silicon Valley, and rents are up 15% to 20%. So we've done one additional deal over the past couple of weeks in Mountain View. That lease was 7% higher than the highest deal that we did in 2011. Rents are moving really rapidly. R&D rents are in the high 20s, triple net and office rents in Mountain View and Palo Alto were an excess of $45 triple net. There's still another 9.5 million or 10 million square feet of active requirements. And Google and Apple, which are really the -- I think the two drivers from the large-users perspective; continue to look for additional space. In the North Peninsula submarket, which is where we have our Gateway properties. We had 4 floors available at the end of the year. Two of those floors have been leased, and rents in that market are about $20 triple net for office space. You may recall that I mentioned last quarter sort of the haves and the have-nots and they were the building across from Gateway called Centennial Plaza, 320,000 square feet. It was completed 3 years ago and it had yet to sign its first lease. Well, as I said, things are just so strong that -- and things are moving so quickly, there's now a rumor that the first tenant has in fact committed to that project. And we are starting to see more and more speculative construction in Silicon Valley and places like Sunnyvale and Claremont. In total for the quarter, as a company, we completed about 860,000 square feet of gross leasing activity and that includes the Mountain View assets. And it was below our typical quarter on a gross basis, but they actually encompassed 81 different transactions. So it was actually above our quarter in terms of sort of how you're looking on our average number of transactions over the number -- over the past few years. I think our second-generation rents need a little explanation this quarter. You'll notice that rather large number in New York City. First in Boston, MFS is moving into the property at the end of the year, but they took possession of the space in January. And so that lease is in place in Boston. And there, we're comparing the final rent of the banding [ph] lease with the initial rent of the 15-year lease with MFS. And in New York City, what's skewing the statistics is an FAO -- the FAO Scwartz Toys ‘R’ Us we successfully won in arbitration last year. So if you were to pull those two transactions out, the actual overall rental rate for our second-generation space is down somewhere between 3% and 4%. So it sort of mutes everything, if you take those two deals out and it's pretty flat. One of Mort's favorite sayings is that repetition does not diminish the prayer. So I'm going to say once again that when you look at San Francisco, you're going to just see the roll down from those $98 leases that we signed at the height of the dot-com era. During 2001, rents at EC actually increased by more than 15% and we just completed a full-floor lease in the mid-70s on that EC 4 to sort of give you a comparison of how far back we've come from the lowest of the lows 3 years ago. Overall, our portfolio mark-to-market is about $1.10 per square foot. When we filed our 10-K late last month or actually in March, we announced our deal to purchase 100 Federal Street. I don't want to -- I thought I'd give you a little bit of color on that. So this transaction was completed on an off-the-market basis. An existing tenant in the building had a right to first offer, and we had a relationship with that tenant, which allowed us to exclusively negotiate a P&S agreement and a lease with Bank of America, the prior owner. 100 Federal Street has been controlled by BofA or its successor institution since it was built in 1971. We've outlined the near-term financial impact of the asset in our press release, so I won't bother going through that. But I did sort of want to describe some of the other attributes of the building. All of the major leases have contractual increases. The building sits on a 2-acre parcel across from Post Office Square. The building sits back from the street and has significant light and air surrounding. And if you do a tour of the Financial District CBD in Boston, you'll note that a lot of the buildings are tied up against each other, and 100 Federal Street is unique in its orientation. Many of the floors were built with extraordinary heights from a floor or floor basis because it was built as a headquarters for the Bank of Boston, First National Bank of Boston way back when, which means effectively that if you were sitting on the 19th floor behind the Federal Street, you're really sitting on the 24th -- or the 25th floor of another building. So our relative positioning in the marketplace is significantly better. The Bank of America leased 800,000 square feet, the entire low rise of the building, for 10 years. So we have two opportunities to take some space back from the bank in the low rise. They have the right to give back 2 floors, one in 2014 and then one in 2015. Interestingly, we actually think that the large floor place, given the height and the window line and the amount of light and air, will be really attractive to both traditional financial services tenants, as well as some of the non-financial services tenants that are starting to look at the Boston CBD as their home. As the bank's use of space evolves over time, we are pretty confident we're going to be able to work with the bank to create opportunities that are beneficial to both parties. In other words, we'll take space back and we'll be able to lease it at a premium to what the bank is paying. The concourse of the building houses the cafeteria space that's equivalent in size to the food court of the Prudential Center and it's run as a building only-institutional food operation. We have the right to take that space back and operate it as a full-service food operation with third-party operators should we choose to do so. We've also begun to investigate changes to the common areas that would be attractive to the entire population of tenants in the whole Post Office Square neighborhood. Since the building has been the headquarters location of BofA and its predecessor institutions, it has a really robust infrastructure, with redundant systems that makes it very attractive to tenants looking to locate critical operations in a building in the city of Boston. And while the building does have some non-debt bank tenants, the approach that the former owners took to leasing the building really limited the availability of space and the opportunity for tenants to locate there. Currently, there are 3 floors available, the 19th, the 30th and the 33rd, and we've just started to introduce the product into the marketplace and we're really getting good at reception. Finally, on the deal side, last night we signed a binding agreement to sell our Bedford Research Park. This is a property the Boston Properties has owned since its inception in 1970s. We've prepositioned the buildings between 2008 to 2011. They are solid R&D facilities. This is a two-story product. They're home to some young and growing organizations. And while the sale quite frankly is going to be dilutive on an FFO basis or an EPS basis, we felt it's going to be really NAV accretive for the portfolio and it was the right time to reduce our exposure to this product in that submarket. One last thing before I turn the call over to Mike. I do want to acknowledge that Mitch Norville, our COO, has left the company after 28 years. He joined us in 1984 as an Assistant Development Manager and became our COO in 2005 and continued to play an important role in both our development activities in our regions and continued to help us with the refinement for our corporate sources [ph] integration. He's leaving a terrific, phenomenal staff behind, and so we're going to take some time to figure out what the optimal way is to reorganize around what his activities were before we make any additional employment decisions. And with that, I'm going to turn the call over to Mike.

Great. Thanks, Doug. Good morning, everybody. As Doug mentioned, we closed the acquisition of 100 Federal Street in Boston this quarter. And with no tenant [ph] on the building, the investor represents a highly accretive use for $615 million of our cash. We also repaid a significant amount of outstanding debt during the quarter including $576 million of our exchangeable notes that were redeemable and $140 million expiring mortgage loan on Bay Colony Corporate Center. So our cash at quarter-end is down after all those uses at $590 million. We also have virtually our full $750 million line of credit available. And after paying off one more loan, which is a $65 million loan on One Freedom Square that we paid off in April, we now have no remaining debt maturities in 2012. We do have our development pipeline to fund, which totals $1.8 billion. The pipeline has about $600 million remaining to spend over the next 3 years, net of capitalized interest, and we project $250 million of this will be sent over the last 3 quarters of 2012. So although our liquidity is more than sufficient to manage our near-term obligations, we will continue to evaluate supplementing it as we look at the prospective investment landscape and our early 2013 debt maturities. As we noted in our press release, we've issued approximately 1.5 million shares of common stock, raising $153 million of equity using our at the market equity program to maintain our well-balanced capital structure in conjunction with the 100 Federal Street acquisition. We're also consistently evaluating the debt market, particularly given the current rate environment. Our 10-year bonds are currently trading at spreads in the high 100s. And we can raise 10-year debt today below 4%. The banks are also actively looking to fund unsecured term loans to the REIT market, and a number of companies have closed 5- to 7-year bank term loans. This execution is also clearly available to us as well, but to date, the bond market has offered more attractive fixed rates and term flexibility. The mortgage market is also active with the insurance companies, the banks, and CMBS originators all quoting new loans. For CBD properties in our asset class, the mortgage market is competitive with the bond market with 10-year fixed rate debt of approximately 4% or potentially lower. The market for suburban properties is thinner and spreads are wider with more conservative underwriting. Overall, the capital markets are clearly open for us today. Should we elect to raise additional capital, it would be dilutive to our earnings though, until we're able to invest upon in new opportunities to our retired [ph] expiring debt. Now I'd like to spend a few minutes discussing our first quarter earnings results. Last night, we recorded first-quarter funds from operation of $1.12 per share. This is in line with our guidance that we provided last quarter, although we had 3 unusual expenses totaling $9.7 million or $0.06 per share that we had not budgeted. Excluding these items and the contribution of 100 Federal Street, which was also not budgeted, our FFO would have been higher by $0.045 per share and exceeded our guidance. In the portfolio, FFO was ahead of our projections by about $4 million. The contribution of 100 Federal Street, which was acquired in mid-March, added about $2 million. For the rest of the portfolio, rental revenue was in line but we had operating expense savings of nearly $5 million, about half of which was related to lower net utility costs due to the warmer than normal weather that we experienced in Northeast. This savings was partially offset by a $3.2 million noncash charge associated with modifying the straight lining for two ground leases. Our ground lease expense will revert back to its fourth quarter 2011 run rate going forward. Our termination income was on budget and included $2.6 million from Lockheed Martin at our Patriots Park complex. This is the last piece of termination income that we will book from this transaction as Lockheed has now moved out of both buildings that the DIA will occupy in the future. Our development and management services team income came in $1 million above budget, a combination of several leasing in our JV portfolio and better than projected service income in the New York City and Boston portfolios. Our JV portfolio generated $1.3 million of income above our budget. We completed an early renewal with one of the office tenants of the GM Building and increased the rent by over 50%, which we'll begin straight lining this quarter. We also experienced some expense savings, higher-than-projected service income, and Apple sales at the GM Building produced better-than-expected percentage rent. Our G&A expense came in $4 million higher than we projected. As we disclosed in our 8-K that we filed in February, and as Doug mentioned, our former Chief Operating Officer, Mitch Norville, announced his resignation from the company, which resulted in the acceleration of vesting of certain long-term incentive compensation, as well as some other cash payments that were not budgeted in our first quarter G&A. There were no other meaningful variances in our G&A expenses for the quarter. We did, however, incur $2.1 million of unbudgeted transaction costs related to acquisition expenses associated with 100 Federal Street and other deal-pursued costs. In addition, we reported a $17.8 million gain on forgiveness of debt this quarter. This gain is from the completion of the transfer of our Montvale Center property located in Gaithersburg, Maryland to the servicer of this loan and loan repayment. We were unable to come to terms for a loan restructuring, despite nearly a year of discussions and both parties determined that the best course of action was for the friendly transfer of the property. The gain impacts our net income, but it's not in our FFO because we don't include gains on sale of property in our FFO. Previously, Montvale was running at an FFO loss of about $1.3 million annually. Our FAD for the quarter was $120 million. It was negatively impacted by the leasing costs from a 300,000 square foot 15-year new lease at 111 Huntington Avenue that pushed our average transaction cost for the quarter to over $50 a square foot. This is also reflected though, in our longer than average lease link this quarter, which was 108 months versus 72 months for the prior 3 quarters. If you exclude this lease, our leasing cost would have averaged $32 a square foot, which is much more in line with a typical quarter. Although lower than normal this quarter, FAD was still strong and it allows for retention of cash flow and solid dividend coverage metrics with a payout ratio of 77%. As we look forward to the rest of 2012, the most significant change we have to our guidance is from the impact of the acquisition of 100 Federal Street, which is expected to add $30 million of FFO to the full year 2012 or $0.18 per share that was not previously budgeted. In the portfolio, we continue to be impacted by the transitionary revenue decline associated with the downtime between leases in San Francisco, where we've now re-leased all but 2 of the floors at EC 4 and 2 of the floors at Gateway. But rent on most of the space has yet to commence. As I mentioned earlier, Lockheed Martin has now moved out of 2 of the 3 buildings in the 700,000 square foot Patriots Park and they will vacate the third building at the end of May. One of the buildings will come back into service next month with the DIA taking occupancy, but the other 2 are expected to be down until 2013. And at 399 Park Avenue, we will get 150 square feet back this summer with the expiration of the WilmerHale lease. As Doug mentioned, the activity on the space is stronger than we expected with proposals on and nearly all of it. But we anticipate some downtime between leases. We're making progress with each of these, but they continue to contribute to our projection for lower year-over-year same store results. Our 2012 GAAP same store projections have improved from last quarter with the leasing of virtually all of our available spacing in Cambridge, where we project to start straight line rents this year, as well as the lease extension Doug mentioned with Citibank at 601 Lexington Avenue. We still project 2012 same store GAAP NOI to be down slightly from 2011 by 1% to 2%. Our cash same store NOI projection is unchanged from last quarter and down 1% to 2% from 2011. As we anticipated, our occupancy improved by 70 basis points to 92.1% this quarter with gains in Boston at 111 Huntington Avenue and Atlantic Wharf. We continue to expect our occupancy to average between 91% and 93% for the year. The 2012 NOI contribution from our developments is in line with our report last quarter at $65 million to $70 million, and that includes the contribution from Atlantic Wharf and 2200 Pennsylvania office and the related residential projects. We anticipate that our straight-line rents and our fair value lease revenue for the consolidated portfolio, including the developments, will total $85 million to $90 million for 2012. This is higher than last quarter and reflects the leasing in Cambridge and at 601 Lexington Avenue, as well as the addition of 100 Federal Street that adds $2.6 million to our straight-line rents and $2.8 million of noncash fair value rental income to our 2012 FFO due to the low market rents in the building. Our Cambridge Center Hotel had a strong quarter. RevPAR was up 14% from the first quarter last year and we're increasing its projected contribution modestly to $9 million to $10 million of FFO for the full year 2012. Looking at our JV portfolio, it beat our projection in the first quarter and we anticipate it will be moderately higher for the full year as well. For the full year 2012, we're projecting its FFO contribution to be $125 million to $130 million, including $54 million of fair value lease revenue and $8 million to $12 million of straight-line rents. Our 2012 projection for development and management services income is $27 million to $32 million, up $2 million from last quarter due to the better-than-projected first quarter results. For our G&A expenses, we project 85% to $87 million for 2012. This is an increase of approximately $2 million, again reflecting the full-year impact of the variance in the first quarter. Our interest expense will be lower than our previous projection due to the extinguishment of our $25 million Montvale Center loan. And for the full year 2012, we expect our net interest expense to be $388 million to $393 million with capitalized interest for the year projected to be $40 million to $45 million. As Doug detailed, last night we signed an agreement to sell our Bedford Business Park property for $62.8 million. We anticipate that the sale will occur in the second quarter of this year and project a gain on sale of approximately $38 million. The transaction is being structured as a 1031 exchange so the gain will not have an impact on our dividend distribution requirements. So taking all of our assumptions into account, we are raising our guidance for 2012 funds from operations by $0.18 per share at the low-end to $4.83 to $4.93 per share. As I mentioned earlier, the big driver of the increase in our projections is the addition of 100 Federal Street to the portfolio, which adds $0.18 a share. Additionally though, we are projecting FFO from the rest of our operations to be up $0.11 per share from our guidance last quarter. However, it is offset by the $0.06 per share of unbudgeted unusual expenses that occurred in the first quarter as well as our recent equity raising activity, which is diluted by $0.03 per share to the year, and the perspective sale of Bedford Business Park, which is protected to cost $0.02 per share. For the second quarter, we project FFO of $1.23 to $1.25 per share. The improvement in our second quarter projected FFO from the first quarter is due to the contribution of a full quarter from 100 Federal, the seasonality of our hotel and the normalization of our G&A run rate. That completes our formal remarks. Operator, you can open the call for questions.

And your first question comes from the line of Jordan Sadler.

I just wanted to dig in to 100 Federal real quickly. Is it -- was this transaction more of a function of availability and cost of capital right now? And -- or maybe could you just discuss sort of the long-term expected IRR and how it fits into sort of BXP strategy? And then the reason I asked is the strategy has been to -- on sort of the best buildings and the best markets. And while this is obviously a very high quality building and a good market, it seems like Cambridge and the Back Bay have been the stronger markets in Boston, and you already have quite a bit of a concentration there?

Sure. So I want to answer you first -- the first comment to your question, which is absolutely not. This was not a question of well, we have the money and therefore we can just buy this building. That's about the farthest thing from our thinking that you could possibly imagine. 100 Federal Street is a building that we identified 5 years ago when we started looking at, what are the best buildings in Boston that we would want to own if they were available, and there were 4 or 5 other buildings in the downtown submarket that we would consider owning because we think they are terrific long-term buildings that are very attractive to tenants and may or may not have been terribly well maintained or marketed over the past decade, but that are long-term winners for the city of Boston. The transaction came about because we were aware of the right that the tenant had to the right to first offer and we were also aware that the institution at the bank was looking to potentially raise capital sell their assets and get out of the real estate business. And they are not a good owner, a third-party owner of real estate. I think they would acknowledge that themselves. We look at the deal as a good cash on cash return at an exceedingly low basis per square foot with opportunities to enhance the cash flow characters of the building both from rolling rents up, taking the space back from the bank over time as the bank sort of rethinks how it wants to use its office space in the city of Boston, changing the profile of the ground floor in the way that the pedestrian and the area of the buildings around it sort of react to the building. In other words, this -- there is no place for anyone to have lunch or breakfast other than a hotel within 2-block proximity of this building. And we did a 25,000 square-foot food court at the Prudential Center that does thousands of dollars of square foot, and there are lots and lots of people working in those buildings and we think this thing could be the center of that type of activity sometime down the line to the future. It has parking that was under-managed, so there's an opportunity to increase the cash flow there. And we think that the replacement cost and the ability for people to build buildings in downtown Boston are few and far between, and that this is a great basis with great views, with great window light, with great floor height, and that it's going to be a building that's really attractive to both financial services and as well as tenants who are not traditional office users in downtown Boston. It's a block from the Greenway, which is really I think the epicenter of where activities are going to be in the city for quite some time. And so we think it's a great real estate investment. From a return perspective, is this thing going to be a 6.5% IRR? A 7.5% IRR? An 8.5% IRR? I don't know. We did lots and lots of financial modeling. We felt really good about a relatively conservative view of assumptions and generating on a short-term basis IRRs that were in the high 6s or low 7s. And when we look at how we can finance this building, it's a very attractive use of capital and we think there's a lot of upside, and if cap rates don't compress and rents go up, it gets significantly higher. If rents really pop, it gets significantly higher. If cap rates compress, it gets higher. And we think there's relatively little downside and lots of opportunities for upside. So I'm -- and you can probably imagine, I'm bullish on the asset.

It sounds like it. Mort, can I get your perspective on New York a little bit? It seems Doug characterized -- or a broker characterized it as gray. There seems to be some inertia among the larger tenants in the market, and even with yourselves with Citi, it wouldn't get the terms on it, maybe it will come later in the call, but it seems like the large tenants seem to be staying put at least in the last 3 to 6 months. Maybe your sort of comments around that?

Well, I'm not going to try and oversell this market. But I will tell you that we are building a building in New York City and we are talking to 3 or 4 major tenants in addition to the one that we already have signed. So there is a fair amount of activity in terms of large tenants looking for new space and looking for larger space. So again, I think we are in a situation where there's a lot of nervousness in the business community for all kinds of reasons, some of which we all are familiar with. But still, New York is still doing very well, very well. The vacancy pretty much is holding up in the kinds of space that we are in. The occupancy is getting a little bit better. The vacancies are very small. And we are frankly quite bullish with the right buildings for the right building sites. We are absolutely in the market because we think this is going to continue to be a very strong market. The overall economy here in New York, of course, is dominated not just by the area of the city that we are in, which is sort of the Upper East Side, if I could put it that way. But also, of course, what is in the southern part of the city, what’s south of 23rd Street, we have just had a huge influx of a lot of the activities in the high-tech world. It's very, very strong. Rents have gone up dramatically in that part of the city and we are looking at it and so are others. But I think it's going to stimulate the overall business environment and financial environment in Manhattan. And I will tell you another thing that the city has done, which is really quite remarkable, and you may -- I'm sure I've heard about it. There is going to be a brand-new university, a high-tech university. This is going to be started in this city. It's a joint venture of Cornell University and a major Israeli -- it's basically sort of the -- Israeli MIT. It's called Technion. We'll have a combination of the 2 of them, are going to put together a wonderful source of the kinds of highly educated talents in the world of technology, engineering, mathematics, you name it. So I think this is another great plus for New York. That'll be a few years in the making, but for a lot of companies who are thinking in the long-term, I think there is going to be a continued confidence in the future, the economic future of New York. Now we've also been blessed by some rather effective leadership with the mayoralty Michael Bloomberg. That's coming to an end. We'll see who his successor will be, but I suspect that everybody will appreciate and recognize why the city did well under the kind of management that Bloomberg brought to the city. So I think we're in very, very good shape. And as markets go, this is still a market that I think we'll be very interested in just in terms of the development or acquisitions, you name it. I think the long-term viability of this market is just, if anything, going to grow proportionately or relatively to a number of other markets, it's certainly going to remain the major city for the headquarters city for many companies. So I remain very bullish about this market. Obviously, we're going to have ebbs and flows but I'll put it this way, the flows are going to be better and the ebb is going to be less serious than in almost any other markets than say, Washington, of which of course, has a unique set of circumstances. So I think this is -- remains a very, very attractive city to be a part of and to invest in and to acquire assets, and we're going to continue to try and do that. It's not easy because there aren't too many buildings that are for sale. We have -- we're working on a number of sites in New York for development and we expect that we'll be able to begin another one shortly, and there are just a lot of different opportunities in New York, I might add, including residential. The markets here are very strong. The city economy is very strong. So I remain very bullish about New York. And I think we have always done well here, and I think we're going to continue to do well.

Just before you take the next question, operator. Just when Mort says we're going to begin another development shortly, we're not talking about bringing another development in the next year or so. We're talking about looking at sites where there may be development opportunities in the foreseeable future.

And your next question comes from Josh Attie.

What are your thoughts on BXP doing development in the San Francisco area? I know land is constrained in the city, but it looks like you have some land in San Jose. Is that something you're considering doing or that could make economic sense?

The short answer is yes. The long answer is economic sense is defined as finding the right tenants at the right time or feeling comfortable enough with the speculative nature of where rents are going to be that the tenants will pay a strong enough return to make it economically attractive to do. We have a site on Zanker Road. We have a site on North First Street that we're trying to permit, and we also, quite frankly, are working on a couple of additional sites in the Mountain View area where we think we have an opportunity to build some more dense-related type of development, things that are not quite as urban. Suburban campus-like as what you typically find in the Mountain View, Palo Alto area and we're encouraged by our, at least our deal flow, in terms of seeing where sites are and trying to put deals together so that we might have something going sometime over the next year or so.

And a quick question on New York. You mentioned strong activity at 250 West 55th Street and also at 399 Park, what are some of the characteristics of the tenants you're speaking with? Maybe what industries do they operate in? And do you know if they're expanding or shrinking from where they are today?

I'll characterize it as follows. The tenants that we're talking to at 250 West 55th Street are primarily law firms and some established technology companies. For the most part, the law firms are either becoming more efficient and looking at the way we have designed 250 West 55th Street in terms of the floor place [ph] , the lack of columns, the million design, the amount of perimeter offices and things. They can take less space than they currently have. And the technology companies that were looking at or companies that are probably more expanding than contracting. At 399 Park, it's a very traditional Park Avenue-centric, asset manager, hedge fund investment advisors. And for the most part, all of those tenants are expanding granularly. So a tenant that might have 35,000 square feet of space will be looking for 39,000 square feet of space with the right to or obligation to take another 5,000 square feet or 10,000 square feet of space in 2 or 3 years, that kind of thing.

And your next question comes from Jamie Feldman.

Can you talk a little bit more or talk a little bit about your latest thoughts on London and expanding overseas? We've heard your name attached to several buildings in the past quarter or so, but haven't seen anything happen.

So let me -- I'll start and I don't know if Mort wants to add anything or not. We've looked at London. We've spent some time in energy and capital, investigating some assets. We haven't bought anything, and I'd say we're focusing our attentions right now on our core markets. It doesn't mean we won't continue to think about London, but at the moment, our focus is on the markets that we're currently located in.

Okay. And along those lines, can you talk about your current wish list? I mean, you mentioned the 100 Federal building you've been watching some time. What else is out there? Whether it's in maybe in special servicing or sellers that just haven't found religion on pricing yet? How deep is the pipeline that we may see for you guys over the next year or so?

Well, I -- the depth of the pipeline we have, and whether we can come to an agreement on the deals with areas sold is -- are 2 different questions. We have a very deep pipeline of assets in Manhattan, in Washington D.C., in San Francisco and in Boston, the buildings we would like to own, billions of dollars’ worth of assets. Whether these things actually are for sale is another question. And we're not going to obviously identify what those buildings are.

But let me just add to the fact. This is for a company like Boston Properties. We really do have a comparative advantage, even the competitive advantage in terms of our ability and our credibility to buy major buildings in these markets. And you never know. We're in the flow. We're in dialogue with all kinds of different people, and you never can predict when it happens. And until you sign anything, you just don't really know whether a deal is going to close. But we're certainly in that flow and we have both the financial wherewithal and the management wherewithal and the credibility to be competitive, shall we say, and anything that comes on the market.

Okay. And then finally for Mike. Do you have an update on CapEx spend for the year? Or maybe AFFO guidance based on the revised guidance?

Sure. The CapEx spend for the year obviously, it was a little bit higher this quarter on the leasing transaction costs. We gave our guidance for our occupancy, which is basically 91% to 93%. So if you look at the amount of square footage, that leads to it somewhere between 1.5 million and 2.5 million square feet for the year. So, based upon what we think our average leasing costs are, that's somewhere between $100 million and $140 million of transaction cost. On the CapEx side, we'd break out our recurring CapEx and our nonrecurring CapEx. So we have a recurring CapEx that we believe will be $30 million or $35 million. That’s CapEx on our normal portfolio. And we do have additional CapEx that we don't include in our FAD, which is acquisition CapEx. And that relates to Bay Colony primarily, where we have we told you we're going to spend somewhere in the range of $22 million, $25 million on that asset. And you saw in the first quarter, we have about $6 million of what we call nonrecurring CapEx, and most of that was for Bay Colony. There's also some money that we'll spend about $7 million for the Hancock Tower for the next 12 to 18 months, I would say. But for our FAD purposes, the way we look at it is about $30 million to $35 million. And then if you look at the straight-line rents that I talked about, the noncash interest expense where our annual noncash interest expense will be about $30 million. And then our noncash compensation and ground lease, you come up with somewhere in the $570 million to $590 million range for FAD for the year for our projection, which is 335 to 345 a square foot or share [ph] somewhere in that area.

And your next question comes from the line of Steve Sakwa.

Mort, I guess the first question, as you've kind of look to November and the elections, I'm just wondering if you kind of think about the 2 possible outcomes for the White House and as you think about kind of the Senate races, I guess, how do you think the difference outcomes affect business leaders' psychology, which clearly seems to be holding things back? And do you have sort of a strong handicap, not so much who will win, but just on sort of the perceived outcomes that the 2 different candidates might give to the country and how that might affect the sort of the business conditions and office demand in '13 and beyond?

Well, sure. Look, I think there is no question, but that there is a sharp division in terms of the attitude of the business community, something I've written about and something I actually have lunch in the White House on and et cetera. The business community is enormously, not totally, of course, but enormously concerned over this administration. And it's not just the big business community. We have 6 million small and medium-size businesses and they are particularly concerned and it shows up in the nature of their hiring. They are mostly hiring people on a part-time basis because they are concerned over the possibility of what those -- the benefit programs are, particularly healthcare, that really inhibits them from hiring people. They want to avoid that kind of a benefit carrier and they have really been very, very careful about hiring. As I say, roughly 50% of all hires are temporary hires or part-time hires, where the, whatchamacallit, the companies are not carrying on the benefit burden that they think is just impossible for them to carry in a relatively weak economy. So I do think that we'll see what happens to the Supreme Court decision on the healthcare bill. I think that if it does get rejected, and I suspect if I had to make a modest bet, I'd say 5 to 4 that it will be rejected. I think that will take a lot of pressure off of the business community. And if somebody gets into office who is willing to take on the issues of debts and deficits and who has a more -- a clearer understanding, shall we say, of how the business community works that is not hostile to it, of course, there'll be a change in the attitude. Whether it’ll translate into large-scale to increase investments, increase business activity, we’ll just have to see. But I do think there's a real issue of confidence in the Administration that exists there today, and I think is very a real concern as much on the leadership. And you see, frankly, as I again, I have to point this out, politically, you should make an enormous difference to the business community. You see it in New York City with the mayor of New York. You see it in Boston with the mayor Boston. These are 2 really very strong, very effective leaders and they've made a big difference in terms of the willingness of the companies to continue to grow in these markets, to invest in these markets. And I think the same thing would apply nationally; not only to big businesses but to smaller businesses. So I think that is definitely an issue in the campaign. Whether it determines the campaign is another thing. We obviously have, I think, a very weak economy with a real unemployment number that is not at 8.2%, but if you measure it according to what the government calls U6, which measures people who have been out of a job or apply for job in the last 6 months, not just in the last 4 weeks, since a huge portion of our -- the average portion of the people who are out of work, the term that they are out of work is over 6 months. So just assume they're going to be applying for a job every 4 weeks is simply unrealistic. You fix the unemployment rating shade under 15%, and if you add to that, the number of people who've left the labor force, if you assume that we had the same kind of labor force participation rate, that we had when the stimulus program in this Administration would passed, you would have an unemployment rate of both at U6 another 2.8% on top of it, roughly 15%. So we have a very weak economy that we're all struggling with. It has been sustained by largest of a monetary and fiscal stimulus program we've ever had in the history of this country including the 1930s, and yet it's had a fairly minor effect. If you look at what the real growth in the first quarter of this year was, it's well under 2% because it says 2.2%, but 0.6% of that was inventory and there were a number of other parts of it that really weakened those numbers. I don't know where it's going right now. We are not in a -- I mean, I am not anyhow, in a larger sense, bullish about the economy. I don't think we're going to have a double dip, but we may as we're in an unprecedented kind of economic situation, which is, therefore, unpredictable. But I -- as I look at these numbers and I've look at them over and over and over again, I have to say they are really very, very weak. The unemployment numbers or employment numbers are very weak. The income numbers are very weak. The retail sales numbers are very weak when you boil it down to -- take out food, fuel. The overall GDP growth is weak, and this, in the context of some very, very, very stimulative programs on the monetary and fiscal side. So I don't know where it goes. I'd love to -- I've always been saying that the difference today between an optimist and a pessimist when it comes to the economy is that an optimist thinks that this is the best of all possible worlds, and a pessimist fears he may be right. I'm in the pessimist side on the -- of the overall economy. And frankly in that context, I'm very, very, I have to say, pleased or I feel that I'm very sanguine about how Boston Properties has been doing and that is basic strategy as I keep on reiterating over and over again. Having the best buildings in the best locations really works in these kinds of markets because our companies are willing to go into those buildings and look to go into those buildings. The rents are down but the occupancy remains relatively very high. So I think we're very comfortable with where we are. And we think, since we'd take a long term to do things, to go back to another question, we're going to continue to look for assets that we can acquire or developments that we think will make sense over the longer term. That's still our basic strategy. It worked out very well, and it's really been tested in this kind of very weak economy that we've had. And so we think that there's still going to be a lot of good opportunities for us.

Doug, just maybe a question for you and maybe for some of the regional folks, but we've continued to see sort of a downward pressure on space proportion [ph] in the U.S. And I'm just wondering, how much further the downsizing can go? And just how you sort of think about that? And in terms of, if we do get a rebound in jobs, do we not necessarily get a rebound into that absorption figures across the major markets?

I'd answer the question as follows, Steve. I think that there is absolutely no question that the way people work today is very different than the way they worked 10 years ago. So as long-term leases roll over, the companies that are the beneficiaries of the older spaces are going to find great efficiencies in the new configurations and the uses of space. That being said, we do not believe that you can get to 0 and that everyone is going to be virtual businesses. In fact, we think that one of the things that's going on is that the amount of space that is needed for companies to come together and bring their employees together so that they can work in groups, they can share ideas, they can feel connected to whatever they're doing is enhancing. And so the -- what we refer to as collaboration space or “we space” or whatever you want to call it, it increases and is getting larger in a lot of the sort of new age companies including financial services firms by that -- in that same vein. And that there will continue to be a need for the kind of space and the kind of buildings that we offer and operate. But that's the traditional, the easiest one to use is the law firm. The traditional law firm space is going to a different way of doing business. There are fewer conference rooms. There are a fewer secretarial support stations. There are fewer word processing pools. There are fewer areas where people are storing space, which compresses the amount the amount of space. And by the way, in some cases, the amount of lawyers that are sitting in their offices make it larger because a lot of that lawyers maybe spending time out of the office so that they don't have to be sitting on top of each other all the time. I mean absolutely, no question, we've been seeing it for 3 or 4 years in a very big way in all of our markets and it continues on a consistent basis. So we think it's here to stay.

Doug, this is Ray Ritchey. I'd just like to add too that from our perspective, Boston Properties' perspective, our locations are being sought out by these tenants who were saying, “Hey, listen, I'm taking less space, but I want to put my employees in a location where I can recruit, retain and motivate the best and brightest.” That means locations like San Francisco, Reston Town Center, obviously Cambridge, the best buildings in New York. So I think while there's a decline in space, there's a real move towards locations and buildings just like the ones we own in our core markets.

It's Robert Selsam. I want to add one note about law firms as I see them in New York. I've seen no movement away from private windows offices for attorneys, and we've seen them get a little smaller over time. And at 250 West 55th Street, we shrank the window mullion from 5 foot to 4 foot 9. So we took 6 inches off the typical 10-foot office. But that fundamental premise has not changed at all. That is a private office for attorney. And so it's only so far you can go with reducing workstations and libraries and all other facilities.

And your next question comes from Chris Caton.

I wanted to follow-up on dispositions. Could you talk a little bit about the selling process for the Bedford Research Park? And if you're actively identifying any other assets in the portfolio that you might look to sell over the next year or 2?

So the way the Bedford sale process worked is that we hired a third-party broker and we went to the market and we did an aggressive campaign and we got 5 bids. And we had a process that narrowed it down and we had a high bidder. And the high bidder re-traded us and we moved from the high bidder and we went to the second bidder and the second bidder closed. And we have identified other assets of a similar location and quality that over time, we think makes sense to prune from the portfolio. And based upon pricing and opportunities to do 1031, et cetera, we'll continue to have -- do selective stuff.

I guess, because I was also asking based on your experience in a disposition process where you're modestly pleased by the interest you attracted in that change, how you look at any of the other assets in your portfolio that you might prune over time?

We were -- what we -- what the -- what we expected and what we're -- where we were sort of indicated initially before we started the process was within 2% of where we closed the transaction. So we were not surprised nor disappointed.

Your next question comes from Alexander Goldfarb. Alexander David Goldfarb - Sandler O'Neill + Partners, L.P., Research Division: Going to 510 Madison for quickly, can you just describe what the activity is like? You mentioned, I think, about 6 leases that had been done. Are you mostly seeing just sort of traditional hedge funds? Or are there other sort of small boutique users who value that -- those guys’ floor plates and quality of finish?

I'll let Robert answer that question.

It's mostly small financial firms. There are a couple of smaller international companies as well, but it's primarily what you would traditionally call hedge fund types. Alexander David Goldfarb - Sandler O'Neill + Partners, L.P., Research Division: So you're not seeing like P&E law firms or anything like that? Other sorts of similar type users who would be willing to pay those rents? It's really just the hedge funds?

That's correct. Alexander David Goldfarb - Sandler O'Neill + Partners, L.P., Research Division: Okay. And this is a question for Ray down in D.C. I just want to understand what the fallout from GSA scandal has been? Has that affected leasing down there? Or because of what's going on with government spending overall, the GSA scandal really hasn't affected the market much?

Well, yes. It's kind of like the perfect storm. There was some hesitance [ph] to move forward in the next 5 or 6 months just because of rushing. And now with the senior management shakeup, the higher levels, the big prospective level of procurements of space are really on hold. The day-to-day was struggling anyways. I don't think the day-to-day, the under 200,000 or 300,000 square-foot deals and renewals will be too profoundly impacted by the change at the top. But obviously, the big deals are and the day-to-day deals are just struggling under the weight of the process of GSA. So it's not a good situation at all for those who are really focusing on GSA. have 2 big renewals coming up -- I'm sorry, renewal and a competitive process. We're optimistic that both will get done because both are -- one’s an existing renewal that should -- they either have to stay or go, and they're going to stay, hopefully. And one is the mission-critical deal that we feel very confident about. Alexander David Goldfarb - Sandler O'Neill + Partners, L.P., Research Division: Okay. And just a final question, on the Dewey & LeBoeuf, the law firm obviously is the latest law firm to have some issues. Are you guys noticing an increase in your credit watch of law firms? Or Dewey and Hawley [ph] last year, these are of sort isolated incidents?

Let me just answer that. The Dewey is really an isolated incident because however they came to this conclusion, they agreed to, in their desire to build a firm, they've brought in a lot of partners with guaranteed incomes of $2 million to $3 million, $4 million, even $5 million. And when the downturn hit, they obviously were in real problems in terms of meeting all of these obligations. And then it turns out that they had a big loan from the bank and the bank had a condition in it, which is not unusual for lenders -- for lawyers rather, that if there are more than 10% of the partners' lease, the loan becomes due. Well, they've lost over 20% of their partners. So they've just gotten themselves into a horrible situation. And it's not because those lawyers are still not doing well. It's just that they were brought in on terms that the firm overall couldn't afford unless they were in a continued bubble of activity. And so that was a one-off kind of a situation, the way I would describe it.

So let me give you the Boston Properties perspective. So Michael LaBelle is a relatively conservative person and he has a group of people working for him that spend an awful lot of time underwriting credit risks, and given that we have a lot of exposure to law firms, we have really good comparative information on our legal tenancies. And what is quite clear is when you have a law firm that has a lot of debt, you have things that you need to worry about. And when you have a law firm that doesn't have any debt, you've got a very different business model and a very different profile of default risk. And so we think long and hard about the firms that we are doing business with and the proposals that we're prepared to make, and particularly the amount of capital we're prepared to put into a transaction. And we have on occasion with a law firm that was highly leveraged or more highly leveraged than the other firms in our portfolio, basically made proposals that were effectively bid to lose. And we've been lucky enough that when we have had a law firm that has gone under, and we have had some, because obviously Hawley [ph] was in our portfolio, and Heller Ehrman was in our portfolio, the way that they've built out the space and the locations of those buildings have been such that they were readily re-marketable to other tenants in the law firms, and so we were able to get a great recovery on those spaces. And that again, that has to do with where our buildings are and how our buildings are put together and how people are thoughtful about putting space into our buildings and the way we push ourselves into those processes, so that we don't find ourselves with antiquated, inappropriate build-outs in these types of installations where there's potentially a risk that something like this would happen.

Your next question comes from the line of Michael Knott.

I just wonder if you can give a little more color on the decision on the comments regarding London. It seems like a fairly significant change from your past comments and is in contrast to some of the media reports. So just curious how you're thinking seems to have changed on that?

I'll start and I'll let Mort add on. I find the fact that media reports are dictating what people think is going on, frustrating because they seem to get way ahead of themselves. So I don't think that in itself has -- not that anything is changed. We can -- we looked at a number of assets in London. We looked at a number of opportunities. We pursued some. The economic requirements and the opportunities didn't get to the point where we were prepared to consummate a transaction. We, and as I said, right now, we're focusing our attention primarily on our core markets. Not to say we don't have our ear on Grindstone in London about what's going, and to the extent something of interest appears that is sort of on our radar screen. We'll continue to -- we would pursue it, but I'd say our focus is in our core markets. Mort? Anything that you want to add to that, Mort?

Yes. I'm sorry. Yes, I mean, look, again that is a market at some point that if we find the right situation, we're going to be willing to look into. It has different -- we've been going there and looking over the last several years and we've had several situations that we looked at. There are different ways in which those buildings are leased in the way those buildings’ leases are escalated, and to some extent, in the way those buildings are financed. And it's still a market that we think is attractive. We have a lot of other things that are, I think, in our own traditional markets that we think offer us at this point better opportunities. But I'm sure at some point it will be going back and then looking into that market again.

Okay. So just to summarize this. We shouldn't be surprised to see you'll eventually go there? But the odds of any kind of near-term expansion are lower than they were before?

Yes, significantly lower. We do have some situations here that we're very happy to look into and we feel we ought to concentrate on the markets we're already in.

Okay. Mort, does that suggest that you guys have some additional acquisition opportunities in the U.S. that you feel better about than you did previously?

Yes. I mean, look, we're -- that is something we are looking at all the time. We have made many acquisitions over the years. We expect to make additional acquisitions as we go forward. As I said before, we are, shall we say, uniquely qualified and competitive in that world because we know the market. We know the players. We have the -- we understand the leasing. We understand the escalations. We understand the real estate. We understand the financing [ph] . And we have the equity capital necessary to be able to move quickly and decisively. So we think we have the comparative advantage in these markets, and there are situations that we hope we can develop over time, and we're going to concentrate on that at least for the moment.

Okay and then just a quick one on the city renewal. Is that the same footprint that they have now?

Yes.

Yes.

And your next question comes from Gabriel Hilmoe.

Just following it up on the disposition question. On the Princeton portfolio, when do you think that becomes a real possibility for a potential sale again?

I can't answer that question with a timeframe. We know we thought we had a deal. The deal didn't work out. We had a 1031. It made sense at that time. At this point, our focus at the moment is on increasing the occupancy in Princeton and looking at other -- build pursuit opportunities that are -- that seem to be at least floating around the marketplace on the land that we control and at some point in time, well, we would consider a sale again.

Your next question comes from Josh Attie.

It's Michael Bilerman. I just had a question, just either Mort or Doug or Bob, just talk a little bit New York and lower Manhattan? And just in terms of the dynamics that are happening in the marketplace and sort of your thoughts overall about how space potentially could get leased up downtown? And sort of your interest potentially on expanding?

Well, that, as anybody who knows the New York market knows it's really -- turns into an astonishingly strong market. New York City is the second most active site for the sort of new high-tech economy, second only to Silicon Valley. And now just to give you an illustration, I was involved in the establishment of this new university that is going to be started on city land, 10 acres of city land, and the head of one of the major universities that was competing came to see me. And I asked him, why would you want to move from your present campus, which is in a great location and has a worldwide reputation? He said, why wouldn’t you want to move to New York? He said, New York is the only city that our faculty would be willing to move to. And I think that's one of the unique aspects of New York. It is in a position to attract a lot of the people who are in this world. It's not the only market, but I would say it's very close second to San Francisco and Silicon Valley. So I think this part of the city is going to develop in dramatic ways. We are looking for ways, consistent with what we think we can do to get involved in that market. I suspect that we're going to get involved in that market sooner rather than later. We're certainly looking and we haven't found anything yet, but we're certainly looking. And we think we are going to be in a position to appeal to that market. The model for what the city is doing with Technion University and Cornell University was, to my surprise, Kendall Square that Boston Properties developed from its inception many, many literally decades ago. So we've had a lot of experience in those kinds of companies that really are affiliated or like to affiliate with academic institutions. We did it in Cambridge. We did it to a degree that was unprecedented. We started where nobody ever even thought of those kinds of developments in what we call Technology Square in Cambridge and Kendall Square. We were really working with MIT. We're going to continue to pursue those kinds of activities because in fact, this is another major growth area, and we think we can be very effective in it. So we're definitely going to be into that piece of the market.

Okay. I -- just one comment, Mort, and you correct me if I'm wrong. That's a different characteristic than the existing inventory in and around the World Trade Center, the World Financial Center. Those are different types of buildings?

Yes, absolutely.

At this time I would like to turn the call back over to Doug Linde for any additional remarks.

Thank you all for joining us. Well I hope we've got all your questions answered. And you can always obviously feel free to call, where we think our disclosure is such that we can answer just anything at this point. And we'll see many of you at the NAREIT conference in June in New York City. Have a good rest of the week. Thanks.

This concludes today's Boston Properties conference call. Thank you again for attending, and have a great day.