Arista Joyner - Investor Relations Manager Mortimer B. Zuckerman - Co-Founder, Chairman, Chief Executive Officer, Head of Office of the Chairman, Member of Special Transactions Committee and Member of Significant Transactions Committee Douglas T. Linde - Director and President Michael E. LaBelle - Chief Financial Officer, Senior Vice President and Treasurer Raymond A. Ritchey - Executive Vice President, Head of The Washington, D.C. Office, National Director of Acquisitions and Development and Member of Office of The Chairman Robert E. Pester - Senior Vice President and Regional Manager of San Francisco office Bryan J. Koop - Senior Vice President and Regional Manager of Boston Office

Joshua Attie - Citigroup Inc, Research Division Jordan Sadler - KeyBanc Capital Markets Inc., Research Division David Toti - Cantor Fitzgerald & Co., Research Division John W. Guinee - Stifel, Nicolaus & Co., Inc., Research Division Robert Stevenson - Macquarie Research James C. Feldman - BofA Merrill Lynch, Research Division Ross T. Nussbaum - UBS Investment Bank, Research Division Alexander David Goldfarb - Sandler O'Neill + Partners, L.P., Research Division Steve Sakwa - ISI Group Inc., Research Division James W. Sullivan - Cowen and Company, LLC, Research Division Thomas C. Truxillo - BofA Merrill Lynch, Research Division Michael Knott - Green Street Advisors, Inc., Research Division David Harris - Imperial Capital, LLC, Research Division

Good morning, and welcome to Boston Properties Fourth Quarter Earnings Call. This call is being recorded. [Operator Instructions] At this time, I'd 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' Fourth 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, and thank you for joining us. I want to begin my remarks this morning with a summary of what I see going on in the macroeconomic front as we have all or most of you, I'm sure, have heard the latest GDP number shows a negative 0.1% growth for the last quarter. I have to say I'm not going to go through all the facts and statistics that lead me to my current thinking since, of course, all of you I know would be happy to read them in my latest editorial in U.S. News, which can be found in www.usnews.com. But I think we are looking at the weakest economic recovery in terms of the growth of -- in real final sales, employment housing and organic personal income, not to mention that every measure of consumer and small business sentiment is locked in recession terrain. I guess it's probably fair to state that I'm having trouble seeing the roots of the recovery. In my estimation, there are not too many tools left in the government toolbox. We've had the most stimulative fiscal and monetary policies in our history, deficit spending of about $1,300,000,000,000 this past year and monetary policies that, by their own statements, have put in $85 billion a month into the money supply and yet, these policies have failed to reignite the economy. And whatever growth there is cannot be sustained without reliance on government steroids. This is an economy on major life support with virtually 0 economic momentum, and we still face the risk of a major bump from some unforeseen quarter. I will say that I -- I fundamentally believe that we're still the country with the greatest spirit, the most creative imagination and flexibility, which makes business cycles volatile but brings…

Sure. Thank you, Mort. Good morning, everybody. Happy New Year. So I think Mort really did a nice way of sort of segueing into my thought process and what I'm going to talk about this morning because when we think about 2012, we think we had a really great year, particularly from an operational perspective, and we finished the year with a flurry of major leasing activity. Some of it, I think, was described in our press release last night. So we signed 2 major law firm leases. We did a lease with Kaye Scholer at 250 West 55th Street for 246,000 square feet, and we did a second new development at 601 Mass Avenue in Washington, DC that will be getting started. That's a 376,000 square foot lease with Arnold & Porter. We did a 244,000 square foot, 12-year expansion and extension with Covance in Princeton; they're a drug development company. We did a 17-year 200,000 square-foot extension with the Department of Justice at 1301 New York Avenue in Washington, DC. We did a 250,000 square-foot expansion and extension with a company called Constant Contact at our Reservoir Place property in Waltham. And then early January came and we signed 2 more large leases. We did a 78,000 square foot lease with another pharmaceutical company called Otsuka Pharmaceutical in Princeton, and we scored another win with a 50,000 square foot lease with another nascent pharmaceutical company called Synageva in Lexington, Massachusetts. Finally, we finally received from the GSA a signed lease for the remaining 180,000 square feet at Patriot Park in Reston and did a 20-year commitment. So we've now relet at Patriots Park 706,000 square feet of space that was let go by the NGA. There were 2 specialized buildings. We gutted them and we rebuilt them for…

Great. Thanks, Doug. Good morning, everybody, and happy new year. I just -- I want to start by adding to what Doug touched on a little bit with our development pipeline, because we've had great success. I mean, we continue to grow the pipeline. Last quarter, we added 680 Folsom Street in San Francisco, it's 85% pre-leased. As Doug mentioned, we just added another -- we just started another building in our joint venture at Annapolis Junction business park. And with the addition of 601 Mass Avenue in DC, which is 79% pre-leased, and we expect to start in the second quarter, our pipeline would grow to $2.1 billion of total investment. That is nearly 70% pre-leased delivering between now and 2015. We have approximately $850 million of equity remaining to fund on these projects. So although we have significant cash balances of $1 billion at quarter end, we have highly productive uses for the cash over the next couple of years. We also have $600 million of debt that comes due in 2013, most of it in the second quarter, with an average cap interest rate in excess of 6%. Given our funding requirements, we anticipate that we'll tap the capital markets sometime in the first half of the year to at a minimum refinance our expiring debt. The debt markets have continued to strengthen in the past few months, and despite an increase in Treasury rates, credit spreads have compressed and our potential borrowing costs have remained relatively steady. We believe we could issue 10-year bonds today in the 3.25% to 3.5% area, and we could also access the longer-term market with 30-year or perpetual money available in the high 4% to mid-5% range. The mortgage market is also very competitive. Life insurance companies, banks and CMBS issuers…

[Operator Instructions] Your first question comes from Josh Attie from Citi.

Given the value that was paid for the Sony building, as you look at your own portfolio, does it change how you think about, how some of the space might be used at the GM Building or any of the other buildings as leases come up if there could be alternatives to office space?

This is Mort. Really, no. We do have some space in that building, as you may know, that is used for retail. But beyond that, no, the answer is no. We haven't changed our attitude to that building. The Sony building is an interesting sort of experience, not only in terms of the price and the price per square foot but as you point out, the possibility, the real possibility that they will be introducing a hotel use into that building. And that was possible in that building because of the floor sizes, et cetera, et cetera, but that doesn't work at all for the General Motor Building, which we are intending to maintain as the most preeminent office building in New York City.

Your next question comes from Jordan Sadler from KeyBanc Capital.

I wanted to just maybe hit on the potential dispositions that you're teeing up and what the nature of these assets might look like. Is this a function of markets? Or is it a function of assets that may not be as easy to refit to sort of meet sort of modern standards of density, et cetera?

I would describe the review that we are doing as not either of those. The tack that we're taking is, are there assets in our portfolio where the cash flow characteristics of the building may be such that there are investors in the buildings who value the buildings in a way that would allow us to redeploy our capital into other assets in a more meaningful -- with a more meaningful contribution, i.e. a higher overall return in the future? So these -- some of these buildings are buildings that you might consider -- think of as core buildings. Some of these buildings are buildings that are on the periphery but where we don't think there's much in the way of additional growth but where there's really strong cash flow. So it's really -- it's much more asset-specific than sort of conceptual, Jordan, in terms of how we're approaching them.

Okay. I guess sticking with sort of the modernization or the identification theme. You went through sort of some of the things you may look to do to your portfolio over time and some of the things you're currently doing to make your buildings more attractive to tenants in the market. I'm kind of curious if you've sort of thought about what the cost is on a CapEx basis conceptually to sort of fit out buildings, which is obviously not necessarily a TI but almost a building improvement just across the portfolio.

So there's no easy answer to that. The answer lies in what we're going to do -- what we're doing with a particular building. And interestingly enough, in some cases, we believe that we can actually achieve revenue from the improvement. In other cases, we think it will improve the velocity and the overall revenue that we can get from the rest of the space. We have generally been spending somewhere in the neighborhood of $1 to $2 depending upon the year on our assets with these types of improvements. When we purchase an asset, we generally build in the capital in a more meaningful way. So as an example, at Bay Colony, we said to the world, "Look, we're buying this building, these buildings, for $180 a square foot." And we expect we're going to put in between $25 and $30 a square foot or $25 million in redoing all of the common areas and changing the configuration of these buildings to create the types of environments that I'm describing. So in some of these assets, it's sort of part of our plan when we buy it. In other cases, as an example, in Embarcadero Center, we've got 3 million square feet of office space, and I would expect that we're going to be spending somewhere in the -- close to $1 a square foot on that type of an experience change in the retail over the next year or so. And it's -- and so it's that magnitude. Sometimes, we're able to find vendors who are prepared to put the money in. So in some cases, we're working with AT&T and Verizon buildings where they have strong needs for helping their own portfolio to put in these GAAP services. And instead of us having to invest $4 million or $5 million, the service provider is investing the $4 million or $5 million. But we're negotiating and setting it up in a way where we can take advantage of what they want to do, as well as inform our tenants and prepare our tenants for the opportunities there and get them to sort of be our partners in these types of transactions. So it's very much varying.

Last quick one. You mentioned Princeton, and you highlighted it being 88% leased. Any particular driver you would highlight? And you think that's going to continue in '13?

So the vast majority of the leasing has been in the biotech life science industry. They are the cluster of companies that still believe in the New Jersey area from either a drug development or from a marketing perspective. The growth there has been significant, so -- and for the most part, they've been foreign pharmaceutical companies that -- in our portfolio that have expanded. And we're optimistic that we're going to see more of that.

Yes. This is Mort, and I just want to add one thing to it that we are thinking about in terms of buildings. And that is, if we find a way to provide the infrastructure of technology, that almost every tenant is going to be needing, so that every tenant doesn't have to put it in but connect in to our central facility there. I think that would not only add value to the building, and it would make it much more attractive to a lot of smaller tenants who don't want to get into the cost of putting in a major connection to any kind of online network. So that's something, I think, that is going to be a part of almost every building, major office building, in the country over time, and I think people are going to be putting that in. One of the things that we've looked at, for example, is a global service in terms of the technology of just a visual connection with other parts of the world so that whether they'd be board meetings or private conversations, that this is a technology that is available in some of our buildings. And I think that's something that we're going to be looking at fairly carefully, really, in terms of adding to the value of buildings over time -- our theory always being that we've got buildings that should be enhanced over time even though that we think that they are very, very good buildings today.

Your next question is from David Toti from Cantor Fitzgerald. David Toti - Cantor Fitzgerald & Co., Research Division: I just have a couple of questions on the Transbay Tower, and I know it's early days for that. But we've heard from some of our affiliates from the ground that the proposal may not cater to tech tenants as much as some nearby developments. Have you guys -- how far along is that relative to the specific tenant mix that you're targeting for that asset?

Ray, do you want to take that one?

So Bob and I are sitting here in San Francisco and focusing just on that. We're looking at the base of Transbay to be not only conducive to traditional office users but specifically attractive to the tech tenants that are dominating demand for space. Many of the same dynamics that attract tech tenants are attracting the same professional tenants. And what we're looking at, is aside from the building's strategic importance of the location -- it's at the transportation hub of the city that provides tremendous access down to the employee base in the Valley -- we're designing these floor plates to have really good base spans, column-free. We have a clear height, slab to slabs of over 14 feet. We're positioning this building not only to be the #1 building for professional users but the tech tenants as well. We see also the possibility of putting that building within a building. So if a major user, tech user comes, we could lease them the base with a separate arrival experience, separate elevator cores and then put traditional office space on top. So we're looking at both sides of the market. We're exceedingly optimistic about it. We think it's going to be the defining building in San Francisco for many generations to come, and we're exceedingly confident about the development.

I might add that we recently received a request for proposal for 300,000 feet from one of the major tech tenants in the marketplace. So I think that's an answer to your question, whether or not it appeals to tech. David Toti - Cantor Fitzgerald & Co., Research Division: Yes. I think you guys know I'm a little bit biased here to your architect selection. But do you think -- Ray, do you think that some of those amenities that you're adding are raising construction costs potentially or a typical office building of that size? And sort of secondarily, is there any impact to the square foot per user ratio, sort of a reversal of some of the recent trends that we've seen relative to consolidation?

No, just to the contrary, I think the amenities we're adding will be more than offset by higher rental rates and quicker absorption and longer retention of our tenants. So no, I don't -- I see everything as a positive. Again, we like -- we really like our basis in the property. We love the location and the lack of any really competing supply. The other thing that really has us excited about Transbay is, we're going to be delivering this in probably the best swing of lease expirations in the last 10 or 15 years of the city. We have, Bob, what, between 4 million and 6 million square feet, rolling over in the '15 through '17 time frame?

Approximately 3.5 million to 5 million.

3.5 million to 5 million square feet. And all these tenants follow the same pattern we're seeing in all of our markets where these existing tenants want to get a chance to move to a new building and restack. We think we're going to be in the ideal position to harvest a lot of that demand in that time frame. David Toti - Cantor Fitzgerald & Co., Research Division: Okay. That's helpful. My last question, and maybe I missed this, but I understand that you guys might be pursuing some expanded retail space at 100 Federal. Are there any definitive plans around that or are these not true?

No, they're -- well, we've -- we're the ones who -- when we bought the building, we said we're going to try and figure out a way to reuse the concourse and the plaza level of the building. And so we are in the process of our design charrette and our tenant investigation and our discussions with the Boston Redevelopment Authority. And so we expect something will happen during 2013 to advance those discussions. And hopefully, we'll be under construction towards the end of the year, early '14, and delivering something in '14 for the customer and for the whole financial district to enjoy and benefit from.

This is Bryan Koop. We're -- as we speak, we have a team working on this. And the thing that we're going to be very sensitive to is the security needs of Bank of America in this building because this plaza at one time was very, very active place in downtown Boston, and we think that, that demand is still there with its proximity to Post Office Square. So as Doug mentioned, we're working on this. We're going to be talking with the BRA about how we can do this, but the potential is, we think, really tremendous. And then the support from the community, the downtown community, has really been outstanding, and we've also received some good demand and early interest from people that would like to participate in it.

The question is from John Guinee from Stifel. John W. Guinee - Stifel, Nicolaus & Co., Inc., Research Division: John Guinee here. More sort of a big picture question. Sequestration, largely silent in the Wall Street Journal, but it's on Page 1 of the Washington Post. How do you think it plays out? And how does that affect various markets in which you operate?

Well, I think it is -- some portion of that is going to get through the Congress. It will not be reversed by the Congress, let me put it that way, because that's already a law, so to speak. This is not in the same category as the debt ceiling, which would have had a whole other level of complications for the federal government. So I think some portion of this sequestration will, in fact, be put in place. Now, obviously, it's not going to be a positive for the economy in the short term. But the real question now is, sooner or later, the extent of our deficits and the debts that we are accumulating is going to become an increasingly large -- a larger consideration in the way people evaluate the economy of the future. And the future is not going to be that far away. We're talking 3 or 4 or 5 years. So I think that one way or another, there's going to have to be some program to address the accumulation of debts and the deficits that we have. Let me just put it this way, the -- if you look at the projection of where our fiscal policies are bringing us, at some point, the only thing the government is going to be able to afford is the interest on the debt, and it will not be able to afford any other programs. Now, of course, that's just an unrealistic outcome, but it does say that -- it suggests that there's going to be some pressure to do something about reducing expenditures and increasing taxes. If interest rates go up by 1% at this stage of the game, it adds $150 billion to the debt, the annual debt of the government. So we are…

The question is from Rob Stevenson from Macquarie.

Doug or Mike, when I take a look at the '14 expirations, the big chunk is like 860,000 square feet in Boston CBD. Is that all in Pru Center in Hancock?

It's almost all in the base of the Hancock Tower.

Okay. And so the $45 rents that are expiring, what is sort of current market for that type of space these days?

It's -- at the base of the building, it's probably right around there. And as you move up the building, it gets higher and higher.

Okay. And then for 2013, what do you think portfolio-wide is shaping up to be the biggest leasing challenge? Is it the space at 250, 510? Is it some of the stuff in the suburbs?

I would say that -- I use the word challenge differently. I'd say our biggest opportunity is to increase the leasing that we have at 510 Madison Avenue and 540 Madison Avenue because those 2 things on a revenue basis will be the most accretive to our earnings because of the rents that we're targeting there. And then, clearly, the next is sort of -- what we do in 2013 to impact 2014 with 250 West 55th Street. So that's clearly the largest hole we have with an opportunity we have to dramatically increase our revenue.

Okay. And then, Mike, did I hear you correctly that the $1 billion of dispositions that Doug talked about is not in the current guidance?

That is correct.

Your next question comes from Jeff Spector from Bank of America Merrill Lynch.

This is Jamie Feldman here with Jeff. Can you guys talk a little bit about the acquisition opportunities out there and any change in your view of kind of after the first of the year?

So I would describe the acquisition environment as similar to what it was in 2012. There are a reasonable number of assets on an individual basis that are being sold across the markets that we operate in. We are being exceedingly selective about what we're spending our time really chasing because of the issues associated with what we perceive as the advantages and disadvantages of the types of buildings that are being sold. The Equity Office properties portfolio appears to be leaking into the market in modest pieces, not as a large consolidated portfolio. So as an example, they are selling a couple of assets in suburban Boston at the moment without sort of saying, "Well, we're just selling the entire Boston area portfolio." And similarly, I believe they're selling some smaller pieces of their portfolio in Northern Virginia -- Northern California. So we think it's sort of going to be a lot of the same. A lot of the really large transactions that were being discussed in 2012 in places like Manhattan never seem to get to the finish line, and I think largely, that was due to a difficulty in the leasing characteristics of those buildings matched up with an opportunity for tenants -- for landlords to really take advantage of some of the financing alternatives that were out there, particularly in the CMBS market. So that may put a little bit of a governor on the activity level for asset sales if, in fact, the financing markets continue to be as intriguing to owners of assets as they currently were in 2012. But I think it's going to sort of be more of the same this year.

Okay. And then any update on your -- the GM JV potential sale that's in the market or marketing process?

So we're -- obviously, we're not marketing that interest. We -- as I've described to people, we're interested to see how it all shapes up. If we have the opportunity to work with a new partner, we're happy to do that. If they're unable to achieve the pricing that they're looking for, we'll certainly take another look at the valuations of the building to determine whether or not we want to increase our exposure to those assets. We love our position in the buildings. We -- as a 60% owner and with significant opportunities on the control side, it feels really good about how we can operate the buildings and what we can do with regards to repositioning and retenanting and putting capital into the buildings. So we're encouraging our partners to take their time and find somebody who would be interested in being a partner with us, and we hope it is a productive relationship.

And is there a deadline for the marketing period?

Like I said, Jamie, we're not marketing the property, so I can't tell you that.

Okay. And then, Mike, can you just tell us what your new guidance will be for AFFO?

Sure. I'll go through some of the pieces on some of the big kind of capital costs. I mean, we talked about the leasing and what our occupancy is expected to be. So in order to achieve our occupancy numbers, the leasing in the portfolio has to be about 2.5 million square feet of leasing approximately, maybe a little bit more. So at our average leasing costs, our typical average leasing costs, that's about $100 million of leasing transaction cost that would be incurred. Also, on the noncash rent side, we've got about $50 million of noncash rents that are in the JV portfolio. And I talked about the $50 million to $60 million of straight-line rents and fair value rents in the same-store portfolio. So that's another $100-million-plus that comes out. Doug mentioned the CapEx -- our recurring CapEx, somewhere between $30 million and $40 million. We have nonrecurring CapEx that Doug talked about as well that is tied to our acquisitions and is underwritten in our acquisitions, and we don't typically include that in our FAD because it's underwritten in our acquisitions. And then you've got some things that go the other way like the noncash interest expense and the noncash compensation and the noncash ground rents that we have that kind of total somewhere around $50 million. So if you kind of lump all that stuff together, it's probably -- it's adjustments of somewhere $190 million to $200 million off of our FFO. So you're somewhere around $4 per share, plus or minus $0.10 on either side.

Your next question is from Ross Nussbaum from URS (sic) [UBS].

Mort, can you comment at all for your shareholders on -- if there's really any thought whatsoever going into whether or not you might run for Mayor of New York?

That's very funny. I don't know. I was quoted in The New York Times on this subject. And I said if there was such a thing as an appointed Mayor of New York, I'd consider it, but otherwise, no. There's no chance that I will run for the mayoralty of New York. And I'm going to interpret your question positively on the assumption that you think I could contribute more as the Mayor than I could in any other capacity. But, no, there's no way that I'm going to do that. That's it.

I'm sure there's a joke in there somewhere, but I'll move on.

Yes. The joke is running for the mayoralty.

Can you guys talk broadly about where you see the real estate transaction markets over the next year or 2 in terms of cap rates, in the context of what your view of longer-term interest rates are over the next year or 2, as well as the flow of institutional equity capital we're seeing into the real estate sector, particularly the increasing amount that we're seeing from sovereigns?

So are you asking if we think cap rates are going to go up or down? Is that what you're asking?

Yes, more for less.

So I would tell you that I'm not entirely sure where cap rates are. I think that if you sort of had to pick a number, you would say that for high-quality, well-leased institutional New York City CBD, San Francisco CBD, Boston CBD, the cap rates are somewhere in the high-4s to mid-5s, okay? That's where our expectations of sort of where things are -- have been priced are. And I don't -- I never feel comfortable talking about what people's overall return expectations are because I think, quite frankly, that's more important than what the initial capitalization rate is on the asset when it's sold. But when we look at what people are paying for assets and what their expectations are for the changes in rental rates, if they're looking to take leasing risk over the foreseeable future, then I think that their overall return expectations are somewhere in the 6% to 7% range at best. If they are looking to capture growth in rents over a prolonged period of time, in other words, they're buying buildings where, basically, they don't have much in the way of rollover, our expectation is they are looking for a similar overall rental rate. But their growth required in order to achieve -- excuse me, a similar overall return rate. But the growth necessary to achieve that return is probably a lot higher than what they're baking into those returns when they're buying buildings with vacancy or lease expiration issues associated with them. Because what we have found and I think what is fair to say is that the transaction costs and the time it is taking to lease up space in 9 out of 10 cases is more than what is sort of written into or projected in the analytics of people who are buying buildings because of the situations that we're seeing from an overall supply and from a efficiency perspective in many of the markets that we are operating in. So I don't think that's going to change much. The capital flows continue to be reasonably interesting from all of the sovereign wealth types of institutions, but I think there are fewer of those transactions that are being done than people expect. The interest is there but the ability to sort of put your money -- make a hard deposit and go forward with something, I think, is a little bit stickier. So the frenzy and the activity is driving pricing based upon those people being around, but I'm not sure that they are actively, actually procuring buildings at the end of the day in terms of the winning bid.

Let me just add one thing. I mean, I think this is the obvious thing that the whole market in buildings, the transfer and sale of buildings and the purchase of buildings is to a larger degree than usual dominated by how much capital is available and financing at the rates that are available. And that's what sustains a lot of the values. It's certainly not in most cases the demand for office space which, of course, has been affected by the recession and by the concerns over the future. And only a very few selective buildings are doing relatively well. I think is driven primarily by the cost of capital.

Your next question is from Alex Goldfarb from Sandler O'Neill. Alexander David Goldfarb - Sandler O'Neill + Partners, L.P., Research Division: Mike, on the disposition front, I guess, one, is Princeton part of that? And two, would you guys be disposing of stuffs as you would be acquiring? Or through your regular ability to manage taxable gains, you'd be able to manage the dispositions without having to necessarily offset them with 1031 acquisitions?

Alex, this is Doug. So with regard to Princeton, we don't have any immediate plans to do anything with Princeton other than continue to get the buildings leased up and to make more progress on getting rid of all of our early exposure and creating longer-term leases for the portfolio. With regards to what we do with the capital and how we manage it, it's obviously a question of how big the gain is. Certain of the assets are assets that would have significant gains and we'd have to think real long and hard about the timing associated with those assets and what we have on our pipeline in terms of use of capital. Other buildings that we have may not have as significant gains, and so we may feel more comfortable not worrying about the timing and either be in a position where we have a modest return of capital or we "figure out a way" to do a smaller tax-free exchange with the proceeds. But we will think about it. It is a concern and a consideration, but we're going to -- we are going to do some asset sales in 2013.

Just to reiterate, Alex, none of that is in our guidance, so we don't have any sales in our guidance. And as we look at our investments and the cash that is going on and the liquidity that is going on in the development pipeline over the next 2 or 3 years, we look at asset sales as a possible -- possibly a good way to help fund a portion of that liquidity and basically raise equity and keep our leverage in shape as we invest in new development. So it's really recycling the capital that we have.

And I guess I should just add one other thing onto the asset sales. When we say asset sales, selling an interest in an asset is also considered an asset sale. So that's part of our thinking as we think about the larger assets as well. Alexander David Goldfarb - Sandler O'Neill + Partners, L.P., Research Division: Okay. And then the second question is if we just again focus on the tech tenants who seem to be quite active, if you look at what happened with Microsoft here in the city, they went for a lower-cost option versus clearly nicer space. If you look in Boston, there seems to be a lot of interest from tech tenants at the base of the financial buildings, which is more cost-effective versus some of their other options. Are we -- are tech tenants just culturally adverse to paying the $80, $90 rents maybe on the East Coast? Or is it just a normal maturation of that sector and ultimately those tenants will get there, it's just we're just sort of at the infancy and eventually these tenants will be taking those sorts of top-paying rent floors?

I think it would be dangerous to make any sort of generalization associated with how tenants are thinking about what their cost considerations are for space. Interestingly, the tenants that are leasing space in Cambridge today are paying more than they're actually paying in the types of buildings that are available in the Seaport District or at the base of buildings, and there's obviously a lot more tech demand in Cambridge than there is in other places. So those tenants that are not prepared to pay Cambridge rents are considering less-expensive alternatives. In San Francisco, we have found that the tenants that are taking large blocks of space are more interested in finding those blocks of space and are prepared to pay what is necessary to go in those blocks of space. So as an example, I think if you looked at the comps for what someone like salesforce is paying in the various buildings that they have gone into, I don't think they are being shy about the rent they're paying relative to what a traditional office tenant would be paying in those buildings. And they're not just going into the bases of building, they're taking large blocks of space where available. And even in New York City, interestingly enough, the tenants that are looking at some of the spaces below 42nd Street are, in fact, paying a significant premium to be there and to be in those types of buildings versus what they might pay to be in the base of a building on Sixth Avenue or on Third Avenue or even for that matter on Lexington Avenue. So I don't think there is any ability at the moment to sort of generalize as to what the price motivations of technology tenants are. I mean, I'm told that SAP, as an example, is looking at one of the buildings at the Hudson Yards. I consider SAP a technology company. And they're looking to be at the top of the building. So I think it's very much dependent upon the business model of those technology companies, the brand awareness that they're trying to create, the overall location in what they want to produce in terms of an environment for their tenants, presumably for their employees as they move forward, and so you can't really make that much of a generalization.

Okay. Let me add. This is Mort. I want to add one other thing to the way the tech tenants, in particular, look at space. They don't have a lot of separate offices for each of their individual employees. It's much more of a collegial atmosphere in which they have 8, 10, 12 people sharing a larger office space. But what that means is the amount of rentable space per employee is actually quite a bit reduced. So in a sense, that enables them to afford higher rents if it's the kind of building that they really want to be in for one reason, either for location or its access to surrounding amenities or what-have-you. So it's a very, very different kind of culture in a lot of these technology firms compared to the traditional -- well, I mean, in terms of space and in terms of the way they lay out space. But it does from the point of view of those tech companies really present them with opportunities to go into buildings that are in the right locations as far as they are concerned, even if they have to pay a higher rent per square foot because they have much fewer or quite a bit of a reduction in the amount of square feet they have per employee.

Your next question is from Steve Sakwa from ISI Company.

Doug, maybe for you or Ray. Mort's comments about D.C., the sequestration -- obviously don't seem to bode well for the market. But you guys were successful in kind of getting the DOJ to complete that lease. You did the Patriots Park deal. You started a spec building up at Annapolis Junction. I mean, kind of what do we read into those? Are those just very idiosyncratic deals or something about Boston Properties' platform or something broader about the demand?

So I'll start, and then I'll let Ray finish. I mean, I don't want to be immodest here, but I think our Boston Properties, Washington, D.C. region so grossly outperforms every other major owner of property in that area that we have been able to figure out ways to create a tremendous amount of value even in a negative absorption difficult market. And when you think about the negative absorption in Northern Virginia of 3 million square feet this year and that we were successfully able to lease 720,000 square feet of what were effectively difficult buildings that had to be basically gutted and rebuilt and convince the Department of Defense, Intelligence Agency and ODNI to go into those buildings. Nothing sort of a terrific execution and being able to figure out a way to lease 2 years before a lease expiration at the Department of Justice and get them to renew for 15 additional years. Again it's nothing short of extraordinary in getting Arnold & Porter to commit to 375,000 square feet of space in a market, where again there's been -- for the first time in a long, long time there was no positive absorption. It's a real accomplishment, and I really do think it's about our team. So with that, I'll let Ray keep going.

Ray left to give a speech at a JLL function.

Okay, Doug. Maybe just moving onto Boston. I mean, you talked about the demand you're obviously seeing in Cambridge, some of that seems to be spilling over into downtown Boston. But how does kind of Bay Colony fit into this? You mentioned that things are a little slower than you had liked. Are you able to attract some of that tech demand out there? Or are you really having to kind of pull from the local tenant base?

So I would say we are attracting tenants that are in suburban 128 right now. We are not pulling tenants from other locations at the moment. Now that has happened in certain instances in other years. But right now as I look at our portfolio of opportunities to do leases, it's really a 128 expansion question. So as an example, I described we're discussing -- we're in negotiations with a 50,000 square foot tenant that is located in Waltham that needs more space. And we're talking to another technology company that is in Waltham and is looking to expand by 50%. And we have 2 other tenants in our portfolio that are expanding by 10,000 square feet and 15,000 square feet. They're looking to look at -- one is looking at Bay Colony and another one is looking at 230 CityPoint. So it's really focused on tenants that are in that market. But I will tell you that the number of biotech and life science companies that are, in fact, in and around 128 in Waltham and Lexington has expanded dramatically over the past 5 years, and they are a big, big driver of demand. It was rumored that Biogen was going to be looking to relocate out of Weston and back into Cambridge. And I think that in a perfect world, that's what they would like to do. I'm not sure they can find enough space in Cambridge to do that. And so we'll see what happens with Biogen. And those types of things are reducing the overall inventory of the market because of expansion, not because of musical chairs.

This is Bryan Koop. Doug mentioned we had a good year last year. It actually could have been even better. As we went into the third and fourth quarter, there were several large deals that just got put into a -- called a stall, as they reassessed the horizon on the economy. And as we entered this year, we're seeing the ice starting to break in the suburbs and renewed activity. Doug mentioned also that there's a couple of customers out in that market who had space for sublease that have pulled back and have decided to take that off the market. So those couple of things I think bode incredibly well. And along with what Doug mentioned was bio entering this market. The other thing that's really great is when you look at the existing base out there, the tenants out there are in good financial state. They have cash in the coffers and they're just being incredibly thoughtful about their expansion. And I think that's what took place in the third and fourth quarter, so we're encouraged for this year as we kick off.

So just one last comment on suburban Boston. I talked about this before, but it's just part of the life out there. So what happens in Boston typically is that we create technology companies, and then bigger companies tend to buy those companies and merge them into their existing organizations, which effectively creates available space. So as an example, last year Oracle purchased Phase Forward. And we had a building at 77 Fourth Avenue that was 100% leased to Phase Forward, and they moved all those people to an existing inventory of spaces up in Burlington. And we were about to do a deal with a company called Rocket Software at one of our buildings in Bay Colony for 85,000 square feet. And suddenly, there were sublet spaces available, and they jumped into our building at 77 Fourth Avenue. So there's that dynamic that is sort of continually going on in suburban Boston. So if you looked at the overall amount of inventory that is currently leased, there's actually been some pretty significant growth over the past decade in 128. But we continue to have this organic changing of companies. They get developed by VCs. They become very successful, and then they're sort of zapped up by larger companies, and they get sort of reduced in terms of their total headcounts as the products get merged and some of the employees get moved off.

Your next question comes from Jim Sullivan from Cowen and Company.

Follow-up question on Princeton. Doug, the leasing in the quarter was very impressive, as you noted, given the sluggish absorption otherwise in that market. What can you tell us about rental rate and concession pressure in the submarket?

It's been pretty consistent. Overall rental rates are -- for a full transaction of -- package, which is $35 to $45 a square foot, rental rates are in the mid-30s. If you're doing a deal sort of more on as-is basis, a very small concession package, the rents are in the high 20s. Operating expenses in that marketplace are somewhere between $11 and $14 depending upon what township you're in.

Okay. And then switching over to 510 Madison. As you talked about in your prepared comments, progress has been slow, and now you have the increased vacancy at 540. And I just wonder, to what extent are you concerned that demand for upper-end small floor plates in that submarket has been set back, perhaps on more than just a cyclical basis? In other words, is it a case that the tenants are just not there, the demand isn't there? Or is it that there's demand but not at that price point?

I honestly don't think it's about price. I think it's about the demand. And I think that we're in an environment in the financial services sector, where there's a lot of unease and a lot of questions about sort of where people are going to be and how they're going to be funding themselves. And as I've said when I sort of talked about the statistics, 2007 and 2008, there were over 100 deals of -- in excess of $100 and it dropped to 20 in 2009 and 2010, and then it popped up to sort of 41-ish, 45 in 2012 and -- excuse me, 2011 and 2012. We are seeing lots of activity at 540, as well as at 510 Madison. But when you're leasing space unfortunately in-between 2,000 and 7,000 and 11,000 square foot increments, it just takes a lot of time. And while I think we were hopeful that there were going to be more 1-floor and 2-floor deals when we sort of entered the market and that's how it appeared when we started out, that size transaction has become the exception, not the norm, and so I think it's slower. I will tell you that the level of activity on the high-end side for tenants below 11,000 square feet is significantly higher than those who are looking for 50,000, 60,000, 100,000 square feet. So I think that's where at the moment the market really has fallen off.

Sure. Okay. And then finally on the TD Garden tower project, the reported mixed uses here, very extensive significant retail, residential, as well as hotel. And I'm just curious in that particular location, do you perceive a particular natural tenant constituency on the office side? Is it possible given where it's located that some of the spillover in demand from East Cambridge could find its way there? Or do you see it as some other kind of tenant that would be looking at that location?

So I will tell you that -- so Converse is talking to the owners of a project called Lovejoy Wharf, which is, I don't know, 500 yards closer to the water than the sites that we're talking about at the Garden. And they were looking interestingly in East Cambridge as well as in Boston for a location. So I think that there is some applicability between that particular location and Cambridge, given the closeness and the shortness of the bridges. The issue with that part of the market has traditionally been that the inventory has been pretty old and difficult to sort of get comfortable with if you were a growing, larger tenant. And so as we think about office space there, it's not obvious to us what the market will be in terms of where the demand is. And it's a relatively small market. There's probably 4 million square feet of space in that Garden district of Boston to the west -- to the north of Government Center. And so we're being cautious about how much of the buildings will be office and how much of it will be other uses. But as that environment changes, I think the chances for success become much greater on the office side.

And does your hurdle rate go up on this project, given the extent of the mix use and the nature of the submarket?

No. I think it might go up for the office side, but the demand that we have been seeing and the Delaware North has been seeing and the interest for the retail users and the restaurant and entertainment side has been significant, and as well as there's an apartment building that is currently being developed by AvalonBay on the far side of the Garden. And you have the former West End buildings that are owned by EQR. And so there's a significant amount of residential demand and inventory right or in and around the Garden already, as well as better infrastructure. And the one thing that I think that you have to recognize is that the changes to the Artery and the improvements on the transfer from the North Station area over to the North End and that plaza and that arcade system that is now there in terms of the public spaces has really been a phenomenal change to that area of the city. So if there were product there, it might be very enticing to certain types of tenants.

One of the things or a couple of things that are really attractive to the office seekers that we have been speaking in early stages is the transportation here. You've got a train station that supplies the northern and western suburbs, and then also a T stop that was built by Delaware North. So the site is in really fantastic position right now to really fill in the last piece of this neighborhood that is really established on both sides; the West End with a strong residential neighborhood and also the North End. And what we're finding from office clients is that as the rents have gone up in the Seaport and Innovation District, they are increasingly looking at this location. And the big piece that's really important to them is this transportation ability that it's already there and also with parking. We've had comments from several users and also from hotel groups that have come in that they're seeing real similarities between this neighborhood and call it the Meatpacking District and what's taking place in New York City. So we're really encouraged about that.

Your next question comes from Tom Truxillo Bank of America Merrill Lynch.

Mike, you talked about your refi opportunity coming up this year and the cost of 10-year debt, which seems significantly lower than what you're going to be refi-ing. Because of lower rates on the 30-year and the perpetual, has that enticed you any more to look at that product? Or do you still see the 10-year as a more attractive bucket?

Well, I think that we look at a combination of things. I mean, we really look at our debt maturity schedule and looking to stretch that out and ladder that out. So when you kind of look at the attractiveness of current coupons today at a longer end, today it's not a bad time to be starting to use that part of the maturity scale. But we're still attracted to doing a 10-year paper as well or maybe an 11-year paper. If you look at our maturity schedule, we still have something in 2023 right now, but 2024 has nothing. So I would say we evaluate all kind of maturities. Unlikely that we will do anything shorter. I would expect in the current rate environment as long as we can go, it's great.

And thoughts about signing up for the typical covenants that come with a REIT bond for 30 years, has that changed at all?

Again, I think this is something we evaluate, and there's certain other products that you could use that have the ability to modify those covenants or prepay that debt, being like a 30-year baby bond, where you have the ability to call it after 5 or even a perpetual preferred type of instrument that doesn't have covenants at all. And that's something that we're going to think about as we evaluate our debt needs this year and beyond.

There's no doubt but that the interest rate environment, particularly for the longer-term debt, makes us look much more seriously at the longer-term financing than we have more recently. The market is so remarkable and so attractive that it's inevitable that we're going to be looking at it seriously.

Your next question is from Michael Knott from Green Street Advisors.

On the GM Building, you said you'd be happy to take another look, which implies that you already passed. If so, how did you think about that conclusion? One would expect that you'd be the natural buyer, given your cost of capital advantage, the value of 100% stake and also the opportunity to create value at the retail.

So Michael, we get to create and participate in 60% of the value that we create right now. And we have partners who have a very lofty view of what they think the value of those buildings are. And we felt that we were better served using our capital in other places, being able to get the operating leverage associated with all we're doing at the buildings that are part of that portfolio. And if, in fact, they're unsuccessful at the valuation that they suggested that they would be able to sell their interest at, we'll take another look.

Okay. And then on Transbay, the RFP comment was interesting. When might we see you sign an ink release there? How quickly could that happen? Or maybe how long might it take?

Bob Pester, would you like to answer that question?

Yes. We're still in the very preliminary design phases of this project and just starting to think about construction drawing. So I don't think it's going to be something you're going to see in the next month or 2. The proposal that we have on the table right now actually would be tough for us to make the occupancy based on when they want to occupy. But there is activity out there, looking at the building. And hopefully, we'll have something to announce here in the near future.

And Doug, speaking of San Francisco, can you or Bob provide any more color on the other San Francisco development opportunity that you referenced and maybe just what sort of magnitude?

It's in excess of a couple hundred million dollars. And it's something that we're working feverishly on, and we hope it happens. If it does, we will be able to do something in the short term as opposed to waiting for a couple more years.

Your next question is from David Harris from Imperial Capital.

Forgive me if I missed this in your prior comments. But the dividend increase, how much of that was driven by the increase in taxable income? And how is that going to play out this year?

On the dividend side, our objective with the dividend is to have it be relatively close to what our taxable income is. And our policy has been to raise it when we believe our taxable income is going to increase, and we're basically going to be forced to increase it and put it in a place where we think that it's going to stay at that level for a period of time. So I would suggest that the increase that we have put in is kind of in line with where we expect our taxable income to be in 2013, so we wouldn't expect to be coming back next quarter or the quarter after that and having kind of an every quarter type of an increase. And as we get closer to the end of the year, we're going to be looking at our taxable income projections for 2014 and 2015 and thinking about what that means to what our dividend policy will be going forward at that time.

Let me put the question in another way. Is your taxable income rising faster than your projections of FFO?

I'll try and answer the question in an off-handed manner. So we expect that our taxable income will continue to go up. We only provide projections for our funds from operation for a year in advance. And so Mike, I think, suggested that we're going to need to look at our taxable income again prior to the end of the year. And for this period of time, I would say that our taxable income is certainly going up higher on a relative basis more than our FFO. But we just can't go out further than that because it would be inappropriate for me to comment at what my FFO growth rate is.

Okay. Let me go back then on something else. Did I miss this? Did you throw out a mark-to-market on the portfolio? I think the last quarter, you said it was positive $2 to $3?

It's about $1 a square foot, slightly above $1 a square foot.

And save me doing the math. What's that in terms of percentage?

I think our average rent is somewhere in the $50 a square foot.

Yes, on 40 million square feet.

On 40 million square feet.

Okay. So it was littler. And I think, Mike, you made reference to your flat this year. So there's kind of a wash on the mark-to-market for this year's lease roll.

2011 to 2012, our GAAP FFO growth was relatively flat.

On this year's rent roll, we're kind of flat on the roll.

Yes. We're kind of flat on the roll this year, and then it actually grows next year. Next year, when we start to have some of the rolls, like at Hancock that Doug talked about, in '14 and '15, we have some positives.

Okay. Forgive me if you went into this detail, maybe I missed it in your prior remarks...

This is really consistent with last quarter. Last quarter, Doug had mentioned that it was about $1. He didn't mention $2 to $3. He mentioned it was about $1. And we had talked about it being flat in '13 and growing in '14.

And just remind me, which markets in particular are kind of spread around that flat roll, i.e., which markets are going to be positive, which markets are going to be notably down?

Well, none of our markets are going to be notably down. If you look at our rollout schedule in our supplemental, you'll be able to see the overall amount of square footage that's rolling over on each market basis. We don't have this in front of us right now. So if you want to call back, Mike would be happy to go through it with you.

At this time, I would like to turn the call back to management for any additional remarks.

Okay. I think that's it from Boston. Mort, I don't know if you have anything else you'd like to add. We thank you for your participation, and we'll talk to you again in about 90 days. Mort, anything? Okay. Thanks, everybody.

Hello, it's Mort. I just want to add one thing. I don't want to lose the context of what we're working in, okay? Basically, just again will emphasize, the overall economy, which slipped at 0.1% annual rate, that's the first decline since 2009 in the second quarter, and the consensus estimate was plus 1.5%. Now I -- if you want to call it a 1.5% growth economy, I would also point out that the pace is usually more than double that in the fourth year of a recovery. So the headwinds are really formidable. And I think what we have been able to do in that context is really quite remarkable. And we cannot predict just how this is going to permeate, even the markets that we are in. But it is something that we always think about and it will frankly affect us in terms of what we do, not only on the plus side in terms of leasing but also on the other side, which is in terms of financing, because we think the financial markets are really going to be very attractive for quite a period of time. And the economy is going to remain very weak and there's no way that the Feds are going to do anything other than what they have promised to do, which is to keep interest rate low for at least another couple of years at this stage of the game. So we're looking at a very attractive financing market because of the weakness of the economy and we'll just have to measure how we do in the context of that economy as we go forward. It's something that we have by and large, shall we say -- I don't want to say we have avoided it completely, but we've really been able to avoid the brunt of what it is in terms of the economy. But we will be definitely able to take advantage in longer-term financing what that has produced in the financial markets. So I just wanted to put the weakness of the economy back on the table because it's definitely going to affect everything we're doing.

Okay. Thanks, everybody. We'll see some of you in Florida in about a month, and we'll talk to everybody in 90 days. Thanks.

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