BXP, Inc. (BXP) Q1 2013 Earnings Report, Transcript and Summary

Arista Joyner - Investor Relations Manager Mortimer B. Zuckerman - Co-Founder, Executive Chairman, Member of Significant Transactions Committee and Member of Special Transactions Committee Owen D. Thomas - Chief Executive Officer and Director 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 & Development and Member of Office of The Chairman

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

Good morning, and welcome to Boston Properties' First Quarter Earnings Conference 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' 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, Executive Chairman; Owen Thomas, Chief Executive Officer; Doug Linde, President; and Mike LaBelle, Chief Financial Officer. During the question-and-answer portion of our call, Ray Ritchey, our Executive Vice President of Acquisitions and Development, and our regional management teams will be available to address any questions. I would now like to turn the call over to Mort Zuckerman for his formal remarks.

Good morning, everybody. We are I think very pleased to be able to report to you on this last quarter because I think it still demonstrates what we have reiterated on the previous calls such as this and in many other interactions with the public shareholders. And that is the quality of our assets and the location of our assets and the markets that we are and the basic strategy that we have followed serves us very well in more difficult economies as well as in very good economies. And I think the performance of our assets is once again I think quite reflective of and indicative of the strategy and the assets and the management that we have pulled together. So I think we are still doing fairly well in, as I said, what is a weak economy, an economy that is growing at about 1.5% a year in the context of the biggest and most stimulative fiscal and monetary policy in our history. And nobody quite knows where this economy is going. There are just a lot of vulnerabilities to it. But we still feel and think and believe that the kinds of assets that we have and the markets that we are in, the locations where these assets are and the management skills that we bring to the markets that we are soliciting and servicing in each one of our offices, would be in San Francisco or Washington or New York or Boston as our principal markets, I think we will continue to do relatively well. But we are not dealing in very strong general macroeconomic environments, and each of these markets does well for one reason or another. We think we can continue as I said to do relatively well. But it's not going to be an easy gliding path, so we're going to have to work hard and we're going to have to work intelligently. We're going to have to make sure that we continue to do what it takes to make the different deals that we are involved with and to close the leasing programs that we have. And by and large, I think we have done it and I think we will continue to do it. Now let me just say this. We also intend to maintain the strategy that we have followed from the founding of the company, and that is, that we will concentrate in -- as we say, and it's a bit of a cliché but it's a lot more than that, we are going to concentrate on A buildings and A locations. And these are the buildings that we find have perpetually done relatively better in good times, but much more importantly, it does very well relatively in more difficult times, which is the way I would describe the current macroeconomic environment. Now we do have a couple of things that I think I would like to touch upon, and one of them is in the last quarter, we had brought in Owen Thomas as the CEO. I was previously the CEO, as you may know, but I have not been the CEO for the better part of I'd say 98% of the time that I've been with the company. Ed Linde, the late Ed Linde, my wonderful partner, had been the CEO. And I think the feeling was that we were a 3-man team when Doug us, Doug and Ed and myself. And we were all, believe me, working pretty hard to bring the company to the level that it is currently. And we felt that it was absolutely essential that we bring in a third person, after Ed unfortunately passed away, to take over that job. I took it on, on a more interim level, but it's a full-time job. And we all have a full-time jobs, and we wanted to make sure with a much larger company that we had enough talent at the top to handle everything that not only that we are doing but that we expect to do as we go forward because we're going to continue to grow the company. So I am delighted that we were able to persuade Owen to join us as the CEO. I think he has both the skills and the personality to work well will all of these key executives of the company and with the public and tenants that we have to deal with. And I think this is going to be a major value added to the company and enable us to continue growing without putting everybody into a stretched-out sort of, shall we say, working day to the point where we are not as effective as we could and should be. So we're back to the 3-man team that we were for so long before, and we think that this will be the best way to nourish our growth. And I think we are fairly confident that even in this relatively difficult economy, I think we're doing quite well. But as soon as this economy really begins to turn up, I think we will be in a position to even accelerate our growth in the various markets that we are in. So I think that has been a major addition to the company, which we needed. And I think this is something that we will all, over time, appreciate. And I think this is what is going to be the leadership team of the company. And I'm delighted to be able to share that with you. And I think we will all be able to appreciate the benefits of having the 3-man team back again to lead the company, as we not only go through relatively more difficult times but as well when we get into, shall we say, stronger economic times. The one market that I want to focus on briefly that we are more bullish on relatively, frankly is San Francisco. The general environment in that market is dominated by and led by the online world. And when you have companies there that are 2 or 3 years ago were simply unknown companies taking over 1 million feet of space, which is the case in San Francisco last year with at least one company, it is clear that there is a genuine groundswell of demand from these new companies, who are doing extremely well. And so that is the one area where we are being a little bit more aggressive in terms of both the assembly of sites and the development of a new buildings. I will tell you one story, if I may. Because we were down in San Francisco for the groundbreaking of a project we called Transbay, which is a major project in San Francisco, on a wonderful site, one of the last major sites in what, broadly speaking, is the financial district. And the Mayor was there, and we had basically put forth something on the order of $190 million for the land on this site to build 1,400,000 square feet. And the mayor said this fund -- this check will be used to continue to pay for improvements to the region and to the area. And he said, "I want to thank Mort Zuckerberg for this money." Everybody in the audience recognized he got the names a little bit mixed up, so that when I got up there to speak after him, I said I just want you to know, Mr. Mayor, that Mark Zuckerberg will be paying for the rest of this development. So that's not entirely true. But we do have and are very happy with the kind of relationship we have developed with the leadership in San Francisco, where we are going to be building on the order of over 1.5 million feet over the next several years. So this is something that I think will enhance our position in San Francisco, where we already have major developments, like Embarcadero Center and several other buildings, all of which are doing extremely well. So we look forward to the growth of that market and to the leading role that we will be able to play as a participant in that market. We did start a 500,000 square-foot building in Washington, DC. But there, we had a 396,000 square-foot tenant in hand with us when we started that building so that one is a relatively sort of, shall we say, satisfactory lease. But we are not -- we are being very cautious in terms of how we develop assets in these other markets, where we will be doing -- we will be building new buildings, but we will be very careful as to what our pre-leasing is and what the market is in those particular locations. But we will still concentrate on building the highest level of quality in the real estate because we believe that this is the best platform for not only short-term growth but for long-term growth. And with that, I will end my comments and be happy to answer any questions after several of my colleagues add to the comments that I've just made.

Okay. Thank you, Mort. This is Owen Thomas. Good morning, everyone. As I think many of you or all of you know, I've started at Boston Properties slightly less than a month ago. I actually started on April 2. And let me just say here at the outset that I have long admired the people and franchise of Boston Properties, and I'm honored and excited to be joining the company in a leadership role. In this role, I look forward to working closely with Mort, Doug and Ray as partners in leading Boston Properties in the years ahead. On the question of strategy, which Mort touched on, I believe Boston Properties has a well-articulated and very successful strategy of focusing on high quality buildings in attractive locations, and this approach will continue to guide our activities. My primary initial goal has been to immerse myself in all aspects of the company and to just generally get up to speed. More specifically, I focused on meeting our team, seeing as many of the company's assets as possible, understanding the company's systems and procedures. Over the past 4 weeks since I started, I've been able to visit all of our major offices except one, which I'm visiting next week. During these trips, I've seen or toured a large number of our assets and I've met a great number of Boston Properties employees. Overall, I've been very impressed with the experience, the tenure and the commitment of our employees as well as the quality of the company's real estate assets and systems. Clearly, it will take me more than a month to get fully up to speed. So my initial immersion efforts I think, while off to a good start, are still very much work in progress. And let me just say in closing that I look forward to working and interfacing with all of you in the years ahead. With that, I'm here in Boston with Doug, and I will turn it over to him.

Thanks, Owen. I too want to add my welcome to Owen. We've been spending lots of time together, in person, at dinner, at lunch with a number of the executives in the various regions. And we're getting to know each other. And more importantly, in my perspective, we're getting to know how each other think. We're sharing lots of information and ideas and perspectives. I think it's fair to say that Owen is a pretty quick study, and we are endeavoring to get him into the flow of everything that is going on around here. And I look forward to working with him over the coming weeks and months and years. So with that, let me get sort of into the nitty-gritty and the heart of our call and sort of what's going on out there. I thought I'd start this morning sort of where I left off last quarter, which was with the statement that we are in the market selling assets right now and that in 2013 we could be selling assets that approach $1 billion or more. Since we last spoke, we have signed our first 2 deals. The first is at 125 West 55th Street, which is a building in New York City, and the second is a building in Downtown San Jose, 303 Almaden. And in total, those assets have a sales price of about $510 million. But I want to make it clear that we're not done with our efforts to sell assets. 125 West 55th Street is a 588,000 square foot building. It's 98% leased, and it has no rollover until 2021 and the 2 major tenants roll in '21 and '27. The major leases today are slightly or significantly above market. And the asset is encumbered with a $200 million 6.1% mortgage until 2020. And the loan can be repaid or prepaid for a cost of approximately $60 million. So if you ignore the above market financing, the cash NOI for the next 12 months is about $27.4 million, so that gives you an NOI cap of about 5.8%. The 2013 annual GAAP FFO contribution was projected to be about $12.2 million. It's a JV, remember, so that's why it's slightly less. And we anticipate that the transaction is going to close during the second quarter. 125 West 55th really is a core asset. It's got a cash flow profile with no short or medium-term growth opportunities. We've now taken care of all the available space, extended all of the major leases. And we really felt as a partnership, that given current capital market conditions, it was really an appropriate time to exit the asset. And when we think about other assets that we're going to be looking to sell, I think the profile of 125 West 55th Street is a good indication of the things that we are thinking about. 303 Almaden is really a very different type of a situation. This is a 158,000 square-foot building that is located in Downtown San Jose. The major tenant in the building is an accounting firm with about 110,000 square feet. And they have a February 2006 lease expiration. You may remember that we purchased the development site adjacent to this building in 2000 before we purchased 303 Almaden in 2006. And frankly, the Downtown San Jose market has just not experienced the level of activity that we had hoped for when we started making these investments in this market or this submarket. We just haven't been able to get anything going on, on our new development, and we're really now rethinking our plans for that site. So as E&Y -- the accounting firm, which is the E&Y, came to us to talk about their future tenancy, we started thinking about our releasing assumptions. And quite frankly, we felt that given our view of the submarket, it probably made sense to consider a sale. So we are selling 303 Almaden for $253 a square foot and a projected 2004 cash NOI of $3.1 million. This building is unencumbered. Now, I want to make it clear that we're not exiting the Silicon Valley. Far from it, we've actually just increased our exposure to Mountain View with a purchase of our partners' interest in the Mountain View Research and the Mountain View Tech Parks at a valuation of $233.5 million. Quite frankly, we view Palo Alto/Mountain View submarket as the strongest submarket in the valley with the most opportunities for transaction volume and ultimately rental rate growth. The Mountain View assets are currently 88% leased. They have a projected 2013 NOI yield of about 7.4%. And the rents in all of the buildings are about 10% below market. And they have relatively short-term lease expiration profiles. So generally that's a 3 to 5-year market, so there's pretty good rollover. We are in the initial stages today of marketing additional assets in Washington, DC and Boston, and we're also considering other assets across our regions. Again, the assets that we're thinking about leasing -- selling have long-duration leases with strong credits and very little short or medium-term opportunities to grow cash flow. They're ideal candidates for long-term secured financing and will be very attractive in the current investment climate. I also want to provide a little bit of an update on where we are with the sale of the 40% interest in 755 (sic) [ 767 ] Fifth Avenue, the General Motors Building, which is being conducted by our partners. We believe that there is a deal that has been made with a valuation that is in excess of the 96.5% of the $3.4 billion value, which was the ropo [ph] price asked. We haven't actually seen what the final deal is, but that's what we're told. As a reminder, the asset was purchased in 2008 for $2.8 billion and is currently financed with a $1.6 billion mortgage at the rate of 6% with a 2017 maturity. Without adjusting for the current above-market debt structure, this works out to a 50% increase in the equity value of the asset over the last 4.5 years. Let me start to give you a little bit of commentary on sort of what's going on in the markets now and shift away from the asset side -- the sales side. As Mort suggested, from a macro perspective, things continue to be sluggish. But as we think about the world, we're really thinking about where the tenants are that are going to grow and where in the foreseeable future likely increases in jobs are going to be. Job growth in the U.S. economy today is clearly focused on businesses that are oriented toward new ideas, be it in technology, media and information distribution, life sciences or medical devices. In a general sense, the markets that have the large concentration of those industries, San Francisco being one of them, are clearly going to be the strongest performers. And those are the areas that have the most opportunity for occupancy improvement and ultimately rental rate growth. So let's start with San Francisco. The technology industry has become a major user of CBD office space, taking up more than 23% of the available inventory in the CBD, which is a market of about 58 million square feet. Tech demand in the city continues to be very strong. Uber, Microsoft, Google, Yahoo!, WeWorks, Square and AppDynamics are looking for large blocks of space right now in the CBD in San Francisco. Tech tenants continue to lease more and more space into additional high-rise office buildings. They've taken space in 50 Fremont, in Rincon Center, in One Market Plaza, in One Montgomery, in 199 Fremont, in 333 Bush, and more recently, many of the newly announced developments, including our assets at 680 Folsom Street. We have now begun responding to offers on our remaining availability at 50 Hawthorne, which is the 3-storey building directly behind 680 and 690 Folsom. And the rents that we are putting out there are generally 5-plus percent higher than our initial underwriting, and our transaction costs are about 15% lower than our budgets. And we are seeing pretty strong activity. Tenants in San Francisco are now entering the market, where there is very little sublet availability. The direct vacancy for Class A space is under 8%. And many, many tenants are coming off leases that were done during the last downturn 10 years ago. In fact, we just completed a 40,000 square foot early renewal -- 2014 expiration -- with a tenant that came to the low-rise Embarcadero Center in 2004. The new rent is 23% higher than the expiring rent, and there were limited transaction costs. In the second transaction, we completed a full-floor deal that was last done in 2009 with a 10% bump in the mark-to-market, again with limited transaction costs. Our 2013 to 2015 mark-to-market at EC is really running between 15% and 25% on a lease by lease basis. We've commenced construction on 535 Mission Street, which is a speculative building, 535,000 square feet. And it's going to be delivered in the middle of 2014 with occupancy by the end of 2014. We introduced the product to the market about 2 weeks ago and made it clear we would be responding to leases of 2 floors or more. The square footage is actually 307,000 square feet, not 325,000 or 335,000. We're very encouraged by the initial reviews and inquiries. The building has 13,000 square foot floors. So we anticipate that it's really going to be leased to a broad range of small or medium-sized technology and legal and financial services and other tenants. And if the average leases in the building hit our pro formas, we expect that in the mid 60s, the investment will generate about a 7% cash NOI return. And if it's higher than that, obviously, a much higher return on costs. We did, as Mort said, close on the 95% position at the Transbay site during the quarter. We originally contemplated the transaction as a 50% partner. And at this time, we are considering whether and when we might want to bring in a capital partner for the transaction. But really, we're focusing our time at the moment and working as expeditiously as possible with Hines on our initial construction activities with an objective of spending the incremental capital necessary to shorten the project delivery schedule. That's what we're focusing on right now. The pace of activity in the valley and the peninsula continues to be strong, although there was a pause from the last quarter and actually a little bit of negative absorption as a bunch of speculative office buildings have come on the market. But again, things have started to pick up in March and April. Apple and Google are once again looking for incremental growth out there. And there have been a significant number of other medium-sized tech tenants that are making commitments to signing leases. There is a healthy level of activity, and rents for new buildings are basically in the 325 to 375 area. That's a triple net monthly number for markets like Santa Clara and Sunnyvale. And we have seen, again, a pickup in activity in Mountain View, where our asking rents are in the $2.50 range and up. Again, our buildings are one-story buildings. Our last deal was completed during the first quarter. It was for 30,000 square feet at $2.63 monthly, which has worked out to $31.56 triple net. Boston, which has its life sciences industry, continues to exhibit some really strong growth. Tenants are expanding into lab and office space across Cambridge and Boston and the Route 128 market. And while the epicenter of the life science community is still in Cambridge, where we have a number of the sort of nonprofit institutes and think tanks like Broad and Whitehall (sic) [Whitehead] and MIT, we continue to see great activity across the overall market. Over the last decade, a number of traditional office buildings in Kendall Square in Cambridge actually have been converted to lab space. And while that has reduced and increased -- reduced the amount of office square footage and reduced the ability for tenants to grow there, there still happens to be the most concentrated technology demand in the Boston area in Cambridge. And it's really become a critical location for a number of large technology companies putting office space at a premium. Surprise, surprise, we are effectively 100% occupied in Cambridge Center. Now last month the City of Cambridge gave MIT the right to develop about 1 million square feet of commercial space across from our Cambridge Center development. There are no definitive plans at the moment, and that could be lab space, it could be retail space or it could be office space. In addition, the city is working with us on changes to the Kendall Square zoning that could allow us to build up to 1 million square feet on our parcel at Cambridge Center in the future. Where does it go? It probably goes on top of garages or potentially knocking down some of our smaller buildings. Finally, the city is also examining the Department of Transportation owned site on the north side of Cambridge Center for additional commercial density. So there will be some additional office and lab opportunities in Cambridge in the sort of medium term and nothing in the short term. So today, what are we doing in Cambridge? We're trying to engage tenants with either '14, '15 or '16 expirations about renewing. And quite frankly, in some cases we're actually encouraging some of our tenants to consider opportunities in our properties in the Back Bay or in 100 Federal Street or in the suburbs. So at the Hancock Tower, which is our largest medium-term exposure in Boston, we focused on widening the user market and have created effectively a white box showcase on one of the floors, which really we hope is appealing to the technology-focused tenants. The space is actually priced at lower rents than the opportunities in Cambridge today. Tech tenants are finding their way into the Back Bay and the financial district. It is happening. We're showing the Hancock Tower to Cambridge brokers and tenants on a pretty consistent basis. The only challenge we have, quite frankly, is that we don't get most of the space back until 2015, and many of the tech companies have a much shorter duration window than that. Now while many of the real estate pundits are focusing on the urbanization of businesses in the Boston market, we continue to see really, really strong activity in our Waltham assets, and much of it is stemming from the expansion of the life sciences industry. During the quarter, we completed 88,000 square feet of leasing at Bay Colony, which included 76,000 square feet of new demand. And we're in negotiations with 2 more tenants for another 55,000 square feet of current availability. We completed more than 77,000 square feet of deals at 230 CityPoint, including 45,000 square feet of new demand from expanding and new tenants. And overall, through the beginning of April, we've done more than 375,000 square feet of new leases in the Waltham market. More than 1/3 of the demand is from growing life science companies. So again, the Boston markets, led by the biotech and life science industries, are really feeling very good, not just in Cambridge but in the City of Boston, where Vertex is growing, as well as in the suburban 128 in Lexington. In New York City, the first quarter leasing activity was pretty slow. But since the beginning of March, we have seen a meaningful pickup in demand from high-end smaller tenants. Our predominant user and target tenant for our available space today at 510 Madison and at 540 Madison and at 767 Fifth, the General Motors Building, are small hedge funds and asset management companies, advisors and other entities that are involved in the financial services industry. And what we're seeing is that given the current bull market and the amount of new allocations that seem to be coming out of the pension fund management community, there is aggressively -- that is aggressively being invested, there are new funds being formed and existing funds are starting to grow again. We signed 5 prebuilts during the quarter, 2 at 510, 2 at 540 and 1 at 599. And we have a total of 5 deals totaling 45,000 -- 40,000 square feet done or in the works at 510 Madison right now. We have 8 deals totaling 32,000 square feet in the works at 540 Madison. We signed 53,000 square feet of leases at the General Motors Building and completed a transaction with a world-renowned luxury retailer for the ground floor space. And we're out to lease with a full floor a 38,000-square-foot tenant. We have 2 deals on the 3 of our -- 2 of our 3 remaining suites at 601 Lexington at Citigroup Center building and filled our last 2 suites at 399 Park Avenue. We have really, really good activity across our portfolio in midtown. Our pricing at 540 is from the mid-70s to the low 90s. The pricing at 510 is from the low 90s to the mid 130s. And our pricing at the General Motors Building is from the low 90s to the upper 190s. Again, strong rents, smaller tenants, prebuilt suites in our portfolio across our midtown assets. Now the large tenant market in New York City is a bit of a different story. We continue to see headcount reductions from the large investment banks. And as leases expire, these institutions are shedding space. The universe of large lease expirations, in the 200,000 square feet or more is sort of how we'd characterize that, is pretty limited between '13 and '16. And as we just saw with Simpson Thacher, which just renewed about 500,000 square feet at 425 Park a few weeks ago, they had a 2018 lease expiration. So the window now for our large tenant block is 2016 to 2018 and beyond. Fortunately, we have no available space other than our new development. Our focus at 250 West 55th is on full and multi-floor users, under 100,000 square feet, which is really the deepest part of the market. We're showing space on a consistent basis and are optimistic that in addition to the 46% that's already leased, we will have additional deals signed before the building opens early next year. It should be noted that in spite of a slow market, as evidenced by the sales I described earlier, the demand for New York City real estate investment is as strong as it has ever been. In DC, the realities of sequestration and the lack of any progress on a real grand bargain are really having an impact on the market more than anywhere else in the country. The first quarter was really a continuation of the end of 2012, where there really wasn't much in the way of net absorption. You have to remember that the GSA makes up about 25% of the square footage in the market there. And if they're not growing and, in fact, today what they're working under is a mandate of increasing the densification of space, i.e. getting into less space with more people, the market is going to struggle. Second-generation space is plentiful. And in some cases, landlords have expanded the concessions in the way of either tenant improvements or free rent to encourage tenants to relocate. Fortunately, thanks to our DC team, we just don't have any much in the way of available space. We're 96% leased. And where we do have availability, with one exception at net square per block, we are marketing prebuilt suites to expand the target market. And we're taking advantage of 2 things: one is our building locations, and two is our property management strength. And when you're talking to small tenants, both of those things matter. We started construction, as Mort said, on 601 Mass Avenue, which is 79% leased, and expect to deliver that building in the fourth quarter of 2015. The most significant deal in suburban DC this quarter was our lease -- our 20-year lease with ODNI, which is a GSA entity, at Patriots Park. We continue to have great success at attracting tenants to Reston Town Center. In this quarter, we did another 6 additional leases in our Town Center portfolio, totaling about 47,000 square feet. And we continue to achieve rents in the high 40s to the low 50s in the urban core. A quarter-mile away, you're lucky to get $35 a square foot. We are currently negotiating a number of early renewals and extensions in Reston following our practice of getting way ahead of our lease expirations. We've closed on the last remaining parcel in the urban core, which is currently zoned for about 250,000 square feet of office space. And we're in the process of determining the highest and best use for that ground and how it fits within our long-range plans for our urban core portfolio. In Princeton, we completed the 78,000 square-foot deal with Otsuka Pharmaceutical that I talked about last quarter. And they've actually continued to expand, taking another 10,000 square feet of short-term space. We are now working with 2 other tenants, totaling about 350,000 square feet, on long-term renewals and extensions. And we have a number of other active discussions under way. So overall, we completed about 1 million square feet of leases in the first quarter, which is about 25% greater than the first quarter of 2012 on a comparative basis, about 81 transactions versus 76. Our second-generation rent trends were slightly down. And there are really 2 factors to that. The first was we actually did an 11-year deal early renewal in Princeton with $10 of tenant improvements, which served to lower the rent but greatly increased the net effective rent. And finally, we did a 4-year deal on a piece of space at 111 Huntington Avenue that was encumbered but where the tenant agreed to put in significant capital with the hopes that the encumbrance would lapse. And that impacted our second-generation numbers as well. If you think sort of going forward, our second-generation mark-to-market is really going to be probably in the mid-single digits over the next few years on a quarter-by-quarter basis. So with that, I will let Mike talk about the earnings. It's a little bit complicated this quarter. And then we'll get to questions.

Doug, just before you start that. I, want to make one other comment here, and that is to announce that Boston Properties has been designated as the owners' representative of providing development management services for the new health and life center -- life science facility in Holliston, Massachusetts for Harvard University, a project that will cost approximately $480 million. And I think this is just an additional testimony to the quality of work that Boston Properties does in developing world-class buildings for leading clients. And that is a huge and very important transaction for us. And I just think this is something that should be added to our mix of today's information to the shareholders.

Great. Thank you, Mort, Doug and Owen. I'm going to quickly touch on our activity in the debt market and then go through our earnings and our projections because, as Doug mentioned, there's quite a few things to cover. I'll try to go quickly, though, because I know the call has gotten a little long. In the capital markets, we had 2 successful transactions. We issued $200 million of perpetual preferred equity at a 5.25% coupon. And we completed a $500 million 10.5-year bond issue at a yield of 3.3%, which equated to a credit spread of 133 basis points over the 10-year treasury. A portion of those proceeds will be used to redeem $450 million of exchangeable notes in mid-May of this year. Based upon our current stock price, the exchangeable notes are in the money, and we expect to issue common shares for the premium. At our current share price, the premium is approximately $36 million, which equates to roughly 330,000 shares. Now 237,000 of those shares are already reflected in our diluted share count, based upon the average stock price for the first quarter. We have 2 traditional financings in the works. They included the refinance of our $120 million mortgage on 540 Madison Avenue, which we own 60% share of. The mortgage has a rate of 5.2% and it expires in July. We anticipate closing the new loan in June, which will be a floating rate loan priced at LIBOR plus 150 basis points. We're also in the process of refinancing our construction loan on 500 North Capitol Street, now that the project is complete. And sometime in June, we expect to close about $105 million, 10-year fixed-rate mortgage at the rate of under 4%. Once we complete these 2 financings, we will have no other debt maturities to refinance in 2013, although we do have $750 million of exchangeable notes maturing in February of 2014. So after redeeming our exchangeable notes in May, our cash balance will be approximately $700 million. We expect to use $325 million in our development pipeline through the remainder of 2013. The proceeds from the sale of 125 West 55th Street and 303 Almaden are expected to increase our cash by $200 million. And as Doug stated, we're considering several additional property sales that could raise significantly more capital and could be redeployed in our development pipeline, fund acquisition opportunities, repay maturing debt or if required, fund a special dividend. Now turning to our first quarter earnings results, we reported funds from operations of $1.06 per share that was $0.14 per share below the midpoint of our guidance range. Our earnings were negatively impacted by a couple of unbudgeted charges. The largest was a $19.5 million or $0.12 per share charge to our G&A, the result of implementation of our succession planning. The G&A charge has 2 pieces relating to our Chairman's transition agreement. First, we took a $12.9 million charge this quarter associated with accelerating outstanding unvested long-term equity compensation. This compensation was previously scheduled to vest and be expensed over the next 4 years. Second, we booked an expense of $6.6 million for the first quarter vesting of the $17.8 million transition benefit payable in cash and stock on January 1, 2015. The remainder of the benefit will vest over the next 14 months, and we project expensing $7.2 million in the last 3 quarters of 2013 and $4 million in 2014. The other unbudgeted item for the quarter was an impairment charge related to our holdings in downtown San Jose, California. We're taking a $3.2 million charge to net income this quarter relating to the pending sale of the 303 Almaden building, as our book value is higher than the sales price. As Doug mentioned, the building has a major tenant with a lease expiration in 2016, so the leasing was a little bit uncertain and going forward into the future in a market that we see as fairly weak. Now this charge did not impact our FFO as it's excluded per NAREIT's definition. In connection with the sale, we're reviewing our strategy for the adjacent land parcel that can support 840,000 square feet of office development. Based upon a shorter likely hold period, we booked an $8.3 million or $0.05 per share impairment expense, writing the land down to $29 million, which did negatively impact our FFO. After adjusting for these 2 unbudgeted items, our core operations were above our guidance for the quarter by $0.03 per share or about $5 million. The portfolio was up approximately $4 million. with rental revenues and parking revenues up by nearly $1 million each. The most significant piece of the rental revenue performance was due to the early delivery of the second Patriots Park building to the DIA. The remainder of the outperformance was just over $2 million of lower net operating expenses. Our joint venture portfolio also outperformed, contributing $2 million above our projections due to the combination of better-than-projected percentage rent from the Apple Store to GM Building and lower operating costs. These positives were offset by the modest amount of termination income we booked this quarter, which was $1 million below our budget. I want to spend a few minutes now on our full year projections and clarify the impacts from the events in the first quarter as well as the property acquisitions and dispositions that we've announced. Looking at our FFO projection for 2013, excluding the impact of the changes to our G&A and the impairment, we anticipate stronger FFO than our prior guidance. And in fact, we'll be increasing the midpoint of our 2013 guidance estimate by $0.09 per share. The portfolio performance continues to improve, given the leasing activity we're seeing in our vacancy in suburban Boston, Western Virginia and in New York City that Doug talked about. Our occupancy moved up by 30 basis points this quarter to 91.7%. And we expect that it will continue to move up through the year on average between 92% and 93%. In our same-store, we project our 2013 GAAP NOI to be higher than 2012 by 2% to 3%. This is a 15-basis-point improvement from last quarter's guidance due to projected occupancy improvement from new leasing activity. On a cash basis, we project our 2013 cash NOI to be up from 2012 by 5.5% to 6.5%, which is in line with last quarter, as most of the new leases have some amount of free rent. Our noncash straight line and fair value rents are projected to be higher than our guidance last quarter. The uptick in our portfolio performance is expected to add to our straight-line rents. And the addition of the Mountain View properties that have below-market rents increased our fair value rent by about $1.2 million. In total, we project our 2013 noncash rental revenue to be $57 million to $65 million. As Doug described, we announced 2 new dispositions this quarter as well as the acquisition of our partner's interest in the 2 office parks in Mountain View. Net-net, the impact of these transactions will be about $2.4; million positive to FFO in 2013. The acquisition of the Mountain View properties is projected to add $14.7 million, while the sale of 303 Almaden is anticipated to result in the loss of $2 million of 2013 FFO. The FFO contribution from our joint ventures is projected to be down $5 million to $6 million due to the sale -- the anticipated sale of 125 West 55th Street and the consolidation of Mountain View. These 2 events are expected to result in a loss of $10.3 million of FFO from our joint venture portfolio. Now offsetting this loss is $4 million to $5 million of projected incremental FFO for the year from new leasing at the GM Building, including our leasing of the ground floor retail space plus other leasing activity at both the GM Building and 540 Madison. Our projection for the full year FFO contribution from the joint venture portfolio is $110 million to $115 million, which includes $55 million of noncash fair value rental income. We expect the contribution of our development deliveries to be in line with our prior projections. This quarter, we fully placed in service and seized interest capitalization on 500 North Capitol, Annapolis Junction 6 and Two Patriots Park. In July, we expect to deliver 17 Cambridge Center and the Cambridge Center connector building, both of which are fully leased. At stabilization, we project these 5 projects to deliver an aggregate cash return of over 10% on $225 million of invested capital. Our other developments that are nearing completion include the Reston residential project, 250 West 55th Street, Annapolis Junction 7 and 680 Folsom Street, which we'll deliver in late 2013 through early 2014. We're not projecting any meaningful income generation in 2013, and we expect to continue to capitalize interest on these projects until 2014 when leases start comments. Our hotel property was up slightly in the first quarter. We expect it to be in line with our prior guidance for the full year, contributing NOI of between $10 million and $11 million to the year. We project our 2013 development and management services income to be $27 million to $31 million. This is up slightly from last quarter's projection. As Mort mentioned, this quarter we signed an agreement to be the fee developer for the new health and life science facility with Harvard Planning and Project Management. This is a 6-year project, and we expect to start earning income next quarter. The impact is partially offset by the loss of fees from the Mountain View properties, where we previously have been generating management and leasing fees relating to the joint venture but we now own 100%. Our G&A in 2013 will be significantly higher than previously projected due to the management succession plan put in place in the first quarter. The net impact on 2013 from the plan will be an increase in our G&A of $24 million in 2013 and $4 million in 2014, the majority of which are noncash equity compensation vesting expenses. The charges will be fully expensed by the second quarter of 2014. If you pull out the transition compensation, our 2013 G&A run rate is in line with our prior projection of $82 million to $84 million. Inclusive of all the charges, we project our 2013 G&A expense to be $106 million to $108 million. We are executing on our financings at better-than-projected interest rates, which reduces our interest expense projection slightly. In addition, during the quarter, we added 535 Mission Street in San Francisco as a new development, and we increased our ownership share of the Transbay Tower project. We are capitalizing interest on both of these projects. And it results in approximately $8 million of higher projected capitalized interest. Our interest in other income is in line with our projections. And in aggregate, our net interest expense is projected to be for $374 million to $380 million for the year. Capitalized interest is projected to be $67 million to $73 million. This quarter, we completed our first perpetual preferred equity issuance, which was not in our projections, so we will have an increase in our preferred dividend of $7.9 million in 2013. Our prior FFO guidance for 2013 was $5.08 to $5.16 per share. Excluding the earnings impact of our succession planning and the first quarter impairment charge, we will be increasing our guidance by $0.09 per share at the midpoint to $5.16 to $5.26 per share. The improvement includes $0.08 per share better-than-projected performance in the portfolio and $0.01 of lower interest expense net of the preferred dividend. The charge associated with our succession planning and the first quarter impairment combined for a loss of $0.19 per share of FFO and results in our new guidance range for 2013 funds from operation of $4.97 to $5.07 per share. For the second quarter, we project funds from operation of $1.25 to $1.27 per share. I do want to mention one other thing, which is the potential impact that the sale of the minority interest in the GM Building could have on us going forward. As part of the transaction, we've been asked to make accommodations to the new partners and in return have negotiated enhanced operational control rights, which may lead to our consolidating the asset on our books. If we consolidate, the accounting will reflect that we have sold our interest in the joint venture, resulting in a substantial gain. And then we would record the asset as an acquisition on our consolidated balance sheet at the new higher market valuation. In addition, we would recalculate the fair value accounting for the building and including both the leases and the debt. We anticipate that this will result in a decline in our noncash fair value rental income and a decline in noncash fair value interest expense. The net effect on our FFO will likely not be significant in 2013, but the geography of the changes will reduce our revenues and our interest expense. None of this impacts the cash economics of our investment, only the accounting. That completes our formal remarks. Operator, you can open up the lines for questions.

[Operator Instructions] And your first question comes from the line of Josh Attie, Citigroup.

Maybe just one for Mort. As you think about the CEO succession and in choosing Owen, how important was sort of the international experience that Owen brings to the table, whether it be Asia or London, and the characteristics that you were looking to bring on in an executive?

Well, it was one of many diversified talents that Owen brings to the table. I think for the shorter term, we're going to focus pretty much on the United States as the main market for not only our current assets, obviously, but for growing our assets. But as you may know, we looked and spent a good deal of time looking for investments in London. And we actually had signed an agreement to buy a building, which we terminated when it turned out the seller did not own all the building, as he had represented. But setting that aside, it's still an interesting market for us, and I think that it will be something that we would consider. But I have to say, we still think by far and away, the vast majority of all our activities will be here the United States. We are in a very few markets in the United States. For specific reasons, we will be continuing to look for other markets, where we will find the characteristics that we have previously found worked so well for us. And I think that's where Owen's time and my time and Doug's time, in terms of expanding our efforts and focusing on new acquisitions and new development, I think that's by far and away where the main focus will be.

And Doug, just a quick one for you. You mentioned in your prepared remarks that you're working with Hines to shorten the delivery schedule on Transbay. Can you just talk a bit about how you will likely proceed on that project, whether how much capital you're going to put in before having any leases in place? Do you envision this going spec? And I guess how much can you shorten this delivery schedule, in terms of timing?

So what we're -- the plans we're currently working on, Michael, are two: going to the ground and then go up to grade. And that probably eliminates somewhere between 10 and 14 months of time, depending upon when we get started. And once we get there, we'll have an interesting question to ask ourselves, which is how do we feel about the activity at 535 Mission, how do we feel about the other activity in the city, what pre-leasing commitments might we be able to make or have we made. And we'll sort of go from there, and it's a work in progress.

And the total dollars spent to get to that point is?

It's probably another $120-plus-or-minus-million dollars.

Your next question comes from the line of Michael Knott, Green Street.

Mort, can you help me understand how the board thought about the nearly $20 million on exit payments to be paid to you?

Well, I'll give you my best version of it. Obviously, I think that this was something that was anticipated to ensure a well-managed transition and also to recognize, if I may say this, I hope this doesn't come across the wrong way, that the kinds of services that I have previously rendered to the company may continue to be rendered to the company as we go forward. That's certainly my intention. So I will continue to focus primarily on expanding the company's, either sites or buildings, for the next several years. And then, we'll see where we are at that point. But I think that was basically the hope and the idea that I would continue to perform in that role, not just by myself but at least taking the lead in all of this. And that, I think, was the rationale.

Okay. And then just a capital allocation question. Can you just update us on how you're thinking about acquisition opportunities in the marketplace as you recycle capital? Obviously, you have a big development pipeline and that could grow significantly over time. Is it still the case that you'd significantly favor development over acquisitions?

Yes, I think that's still our principal focus because we -- frankly, that is sort of the core competency of this company. It doesn't mean that we won't be looking for acquisitions because that, again, is as we have demonstrated with a lot of buildings, from the General Motors Building to buildings in Washington to the John Hancock building, even to Prudential Center, there are a lot of situations where we feel we can go into an existing building and improve the building and improve its attraction as a building to be occupied and therefore, over time, to really do very, very well. Secondly, to be very blunt about it, because we have the financial resources and the credit to buy buildings and to actually lease buildings and to finance buildings, we think there will still be the opportunity for us to buy buildings with an appropriate spread between the yield at which we buy the buildings and the yield at which we can finance the building. And this will, it seems to me, over the long term, if we pick the right buildings, as I think we have done for most of our history as a company and both as a private company and a public company, that this will continue to enhance the asset base of the company. Obviously, it's a mix between acquisitions of existing building and development sites. And that's still going to be the basic approach. The strategy that we have always followed and will continue to follow is to really focus, again, on certain critical markets where we think we have the best long-term demand and to end up with buildings that are in extraordinary locations and that are extraordinary buildings or can be brought to that level by reason of our ownership. So that is what we do the best and what we have done well, and we will continue to try and focus on that. It's not easy finding these sites or these buildings, and I think this is something that a lot of us spend a lot of time on and I, particularly, have spent most of my time on. And that's, I think, going to be the continued focus for the next several years.

Your next question comes from the line of David Toti, Cantor Fitzgerald. David Toti - Cantor Fitzgerald & Co., Research Division: Doug, I just want to ask you a couple of questions relative to your comments on tenant concessions. How would you quantify these specifically in -- relative to some of the strong demand you're seeing in San Francisco on the large block space, particularly the suburban kind of Waltham assets? Are you seeing material reductions in TIs -- TI requests from tenants at this point?

So in a market like San Francisco, on renewals, we are seeing a dramatic shift in the concession packages that are necessary to convince those tenants that they should stay because the alternatives they're looking at are having to come out of pocket because the market concession packages for new tenants hasn't really gone up at all, with a likely significant higher rent. So to the extent that the current installation works for them with relatively short money, they're in pretty good shape. In the suburban Boston market, we've seen, I'd say, a modest change in the concession packages for new tenants. It's stickier at sort of $40 to $50 a square foot for a 7- to 10-year lease, but the rental rates have probably gone up by $2 or $3 a square foot or somewhere between 7% and 10%. If you look at Washington, D.C., I'd say that's where the concession packages are probably most -- the weakest, and there's been the most significant change. And that's largely due to the relatively modest amount of growth that there is, particularly in those marketplaces. And so in order to effectively attract tenants and convince tenants to leave, landlords are putting pretty significant TIs on the board. We've chosen, in the case of our prebuild suites, to really basically build the space out for tenants, which is causing us somewhere between, on the low end, $75 a square foot and the high end, $90 a square foot. But we're -- obviously, we're leasing that space sort of on an immediate basis, and these are smaller tenants who are looking for immediate occupancy. If you're talking about a 40,000 or 50,000 square foot block of space in a building that is a 1990s or 2000s era building, a second generation, the concession package could be well in excess of $90 per square foot, and there could be a year or so of free rent associated with that as well. David Toti - Cantor Fitzgerald & Co., Research Division: Okay, that's helpful. Just one follow-up on the Transbay question. Given that you're accelerating the process and putting some of the structure on the ground up to grade, do you guys worry about limiting the design of the tower after that? Depending on the type of tenants you get, the insertions of other functions, like hotels and residential, does that limit you in terms of what you can do going forward despite the shortened timeline?

I don't think it limits us. The volume of the building and the architecture of the building have been pretty much locked down with the city over the past 6.5 years of design that the Hines organization moved forward with. So we sort of have -- we effectively have the volume to work with. And how we use that volume, I think, is very much sort of what we're thinking about right now, as we move forward with the design. And our perspective now is that this is going to be 100% office building, not a mixed-use building, not a collection of retail at the base and hotel above that and then office space or high-end condos. This is going to be a 1.4 million-square-foot office building. David Toti - Cantor Fitzgerald & Co., Research Division: Okay. And then just one last question. How do you tie the strong tech tenant demand in San Francisco today to your prospects at re-leasing at Embarcadero? Is there overlap there from your perspective?

I would say that while we are seeing the tightness in the market, based upon the amount of tech demand in the market impacting Embarcadero Center, the physical nature of the tenants that are looking at Embarcadero Center today continue to be more traditional. We do have a handful of cloud computing and technology-related organizations but not in the same -- with the same amount of activity that we're seeing in traditional financial services firms. There's just -- quite frankly, it's actually not about the space or the configuration of the space, it's about the location. And over on the other side of Market Street -- and remember, there is the south financial district and there's the South of Market, which is really where the focus of the technology tenants has been, which is, quite frankly, why we invested our money in 680, 690 Folsom and 50 Hawthorne, why we're investing our money in 535 Mission and why we're investing our money in the Transbay. Again, about 75% of the market still is traditional financial services, FIRREA, "old world," if you want to call it that, on tenancy. So we're not sort of putting our backside to them. But for the most part, Embarcadero Center continues to be more of a traditional market.

Your next question comes from the line of Jeff Spector, Bank of America.

This is Jamie Feldman. I guess starting on a question for Ray. Now that we've seen the sequester take shape, can you give us related thoughts on the longer-term impact on Washington and the Virginia markets and also your latest expectations for government and contract re-leasing for cybersecurity versus the rest of the defense complex?

Jamie, yes, I think the sequestration has already been baked in, and I think is really related now to the -- just the operating fundamentals of each individual government agency. For instance, as you mentioned, Fort Meade seems to be getting demand. Cybersecurity, as Mort has often opined, is one of the leading areas of concern for our security, and thus, that's where the money is going. The NSA has just come out with 155,000 square foot requirement that probably be competing against [indiscernible] and our buildings up there with Gould's. But for northern Virginia, we're seeing continued contraction on the government side. Even though sequestration may be already considered, the end users are looking how to become more efficient, and that applies not only to the public sector GSA demand but also to the private sector defense contractor demand as well. That's why it was so important for us to get out in front and do deals like the Bechtel deal and the STG deal and the Cytor [ph] deal, 1.5, 2 years ago. So that has minimal, if any, impact upon us in northern Virginia. I will say that we're a little disappointed in the demand down in Springfield. We thought that with the NGA moving down there they'd have longer coattails and pull out of the demand down there from the defense contractors. But we haven't seen it yet, and that has some impact on VA 95 and our Kingstowne assets.

Do you think you'll start to see a pickup in demand from government-related now that we've passed it?

Well, the big question Mark, is how much capacity those tenants already have in their existing portfolio of space in north Virginia. They're going to back tow that before they take any net new. We sure are hoping we get a shot at it. Fortunately, again, as we've stated before, we don't have much vacancy. I think there's others in the market who are hoping they had the opportunity to go out and make aggressive deals with defense contractors. We have just the option of making those deals because we have so little space.

Okay. And then turning to New York City, I know a big theme on last quarter's call was just discussing the age of existing product versus new product. Can you talk about your latest thoughts on that front, especially given you have seen leasing pickup for your New York portfolio? And then maybe any change in tenant sentiment now that we've seen Coach, SAP and L'Oreal sign space at the Hudson Yards?

Well, you're -- I'm going to try and answer your questions, although I think sort of -- you've asked a bunch of questions in there. So the small tenant demand in Midtown Manhattan, I think as was pretty evident by my comments, has really started to pick up again from a velocity perspective, and rental rates are pretty firm. The large tenant demand in the city is a forward market. And as you're well aware, a number of large blocks of space predominantly downtown in the World Financial and the World Trade Center market, plus on 6th Avenue in the bases that some of the older buildings is not an insignificant impact on sort of overall demand in the city for large tenants. And as I said, most of the large users are probably 16 to 20 type of users in terms of when their leases expire. So whatever you're seeing in terms of deal activity, the deal activity that is forward market, not current market, and so the impact of that will be sort of longer term in terms of how they affect the city. I think that you also continue to see growth of smaller tenants in Midtown South, in downtown and now in certain places in and around Times Square that are more technology-related that are going to both Class A as well as some of the lower-quality buildings largely for price purposes as well as, to some degree, because of the environment that are being found there. When you think about the Hudson Yards, that's really a build-to-suit market. It took a long, long time to get that first tower going largely because it was a 4-party deal with Coach and Related and SAP and L'Oreal. And so it just -- and those -- again, those are long-term duration lease expirations that are being dealt with. And as I think -- as you think about what else will be going into that market certainly in the medium term, it's likely to be the build-to-suit market. And so the alternatives are staying in place and becoming more efficient, going to one of the large blocks of space that currently exist, either on 6th Avenue or in Lower Manhattan or going into the new construction in the Hudson Yards or other places, where, in the case of Hudson Yards, there is obviously an impact that you can take advantage of from the perspective of what the tax advantages are that the city is providing for users there. So those are the things that are sort of, I think, working to sort of firm up the city on the small side and in our opinion, sort of create some sense of caution on the large tenant side.

Your next question comes from the line of John Guinee with Stifel. John W. Guinee - Stifel, Nicolaus & Co., Inc., Research Division: John Guinee here. First, Mort, I've known Owen Thomas for about 20 or 25 years, great hire, congratulations. Second, a smattering of questions in no particular order designed just to kind of clear up some things first. And I'll just give you all of them. Ray, $108 or so per FAR foot sounds like a huge number for Reston Town Center. Perhaps you can comment on that. And then second, probably, Doug, whether the Transbay terminal works or not is -- may or may not be a function of whether the financial service guys migrate from California Street and Embarcadero Center. As you're looking at this, are you expecting Transbay to really hurt the traditional north of market part of the CBD or not? And then, three, probably Doug or Owen, if you look at the next 2 or 3 years, you're clearly increasing your disposition plans. Is this a company that will continue to grow on a square footage basis or will recycle assets more aggressively and stay about the same size?

Let me start with that and then others can chime in. So just on the first -- on the last question you asked, John, we don't think about growing the portfolio from a square footage perspective. We think about growing the NAV of the company and the earnings per share of the company and the cash flow of the company. So as long as we can do those things, the overall size of the portfolio is really not a consideration. And I think our view today, and as long as we think that the macro economy is going to be where it is and in particular, where the overall ability to borrow debt, i.e. where the Fed and the central banks of the world are keeping interest rates, it's going to be a strong market in which to sell and a difficult market with which to buy, if you have the perspectives that we have, unless there are unique interesting opportunities on an asset-by-asset basis, where we think we could do something to a particular asset that other people may not have the vision or the skill to do. With regards to Transbay, the Transbay site and the location we believe will be a location that is very attractive to both traditional and technology like tenants. It happens to have a floor plate that is an optimal size for technology companies and a window line and a mullion spacing and an overall configuration that is also terrific for traditional financial services companies, as they think about redoing their space in the modern era. And we've talked ad nauseum quarter after quarter about the way people are using space, and it is a very different way of using space than it was 10 years or 15 years ago. And as you look at the lease expiration opportunities in 2016, 2017, 2018 in the city of San Francisco, we would hope that we will be a very attractive alternative to both those existing tenants that currently occupy space on Market Street or in California Street in the traditional marketplace, as well as growing technology companies. And Ray, you can comment on our purchase of the signature site, which I think is where John was talking about his numbers.

Will do, Doug. So John, we bought the site and the associated density, and the associated density has approximately 240,000 to 250,000 square feet of commercial density associated with that site. However, in Town Center, that density is fungible throughout the entire 40 acres that we control, so we have the ability to build an alternative use on the terra firma, the site itself. So let's say we build, for instance, 500 apartment units on that site and then transfer the density elsewhere within the Town Center to other undeveloped sites that may have an existing building on it that we can scrape and go with an office tower. So to have that kind of flexibility to increase the density elsewhere in Town Center and have that critical site to build upwards of 500 apartment units, which, at a price of $60 per unit, would be $30 million to itself. Not only do we think the price is justified, but we think it gives us tremendous flexibility, in terms of anticipating the future needs for both office and residential demand in Reston Town Center.

May I add something? This is Mort speaking. I just want to remind you that in 2006, in 2007, 2008, we sold an awful lot of real estate. And we also bought an awful lot of real estate. That's when we were able to buy the John Hancock building in Boston, the General Motors Building in New York, et cetera, et cetera. I could go on. But the fact is that we do believe that we will be in a position to take advantage of whatever opportunities come up in the markets. And we have found, particularly the larger and the more complicated transaction, the more opportunity we have because, I think, the market sees us as a company with the sophistication and ability to pull together those kinds of transactions and even more importantly, with the management skills and the financial resources to take on those assets. So we will keep our eyes and ears open for those opportunities. Nobody ever knows with certainty when they come up. But we want to be in a position where we can take advantage of what we think will happen over the next few years, which is that a number of people will feel that they have to sell some of their assets. So we will be, I think, very open to buying additional assets, particularly if those assets are the kind of outstanding prime A assets that we have accumulated over the years. We have no particular ceiling or floor to how many square feet the company should have or what have you. We do think that they're in the nature of the beast that we are involved with, there are times when buildings can and should be sold and can and should be bought and never mind, as well as develop. So this is going to be a business that we have been in for the last 50 years. And I think we'll be able to be in it for a lot of years going forward. These opportunities will always be available, and we will certainly compete with them. We're not the only people competing with them, as I'm sure you realize. So I think we are just going to be in a position to take advantage of whatever opportunities come up, and we've always been sort of players that whenever anything interesting does come up, the market always comes to us when something interesting comes up. So I think we'll be able to do things, even though we can't specifically talk about them at this point.

And your next question comes from the line of Vance Edelson, Morgan Stanley.

So Ray, along those lines on the acquisition front, I'm just interested in how much is available. I think a few months ago, you had referred to a reasonable number of assets being sold. Are you seeing any additional cap rate compression for coastal office assets, in general? Is that, in turn, leading to an increase in properties being put up for sale?

I think there's a few landlords and owners that are trying to take advantage of the increasing capital flow into real estate and the lower interest rates. And I do see some additional assets coming for sale, and obviously, we're trying to follow that lead. But I don't see a wholesale selloff. And in fact, I see several landlords reinvest in existing assets to upgrade their current portfolio, as opposed to taking them to the markets. So I don't see a rush to the exits in terms of sale. I see selective opportunities becoming available. Very hard for us to compete with the purchase of these existing assets, and that's why we focus on value add through development, as opposed to going out and trying to compete buying existing buildings.

I'd add the following, too, which is the reason that people are putting their buildings on the market today is that there is an exceedingly strong bid for those buildings from the institutional market from sovereign wealth funds, from high net worth individuals, from sponsors who are taking advantage of the current capital markets and quite frankly, looking out at the world and looking at what the yield opportunities are elsewhere and saying, "Geez, is real estate a good -- is this a good time to be putting money into real estate and is it an inflation hedge, et cetera?" And as long as that is the case, you will continue to see high-quality assets being sold and being aggressively bid, and we are experiencing it with the assets that we have on the market. We expect to see it with the assets that we will be putting on the market, and we're seeing it with the stuff that we're looking at. And as Ray said, we struggle to get to an acceptable return on a fully leased building in a coastal CBD that's got no roll over for the next 15 -- 10 or 15 years. Quite frankly, that's what we're selling.

Okay, that's very helpful. And then in D.C., you have a nice lease rate, and it sounds like you're well situated. But is the GSA densification in there focused on becoming more efficient? I'm just curious, is that actually manifesting itself in nonrenewals or is it more just lip service on the part of the GSA?

We were actually the beneficiary with a major renewal. I think one of the reasons that DOJ renewed early and renewed for 15 years at 1301 New York was avoiding debt restructuring, avoiding debt consolidation. And they're very happy there, they're very happy with the current configuration. So they moved early and aggressively and renewed for 15 years to keep their current status in place. I think it has put a lot of people on the sidelines, on other buildings and other landlords. Our position with the GSA is in excellent shape. We were out in the front, and we were aggressive in our pursuit of both ODNI and DIA. And those are kind of poster childs for the consolidation because they were able to move into recently renovated buildings, become highly efficient and make long-term commitments. So that move has actually been benefiting BXP as opposed to hurting us.

Your next question comes from the line of Rob Stevenson, Macquarie.

Doug, I think you talked to us a little bit when you talked about possibly bringing in a money partner for Transbay. But what level of overall aggregate development is the company comfortable with at this point in time?

I would tell you that we don't have a limit, given that the reality of the world and the number of projects that we could physically be involved with, given the size of the company's platform, doesn't put any sort of cap on it. There was a point in time, when we were a much younger public company, when we had almost 20% of our total portfolio in development and not leased, where there was a lot of speculative nature associated with that. We're now, what, a $30 billion enterprise, and our current pipeline is about $1.5 billion, growing to $2 billion. So it's a far smaller number. And the opportunities to do development, I think, are prevalent. But as Mort said, there are certain situations where we're going to be much more circumspect about taking leasing risks and being comfortable with significant pre-leasing prior to getting underway. And if that's the case, there's a significant amount of additional capacity, not just in our balance sheet, but in terms of what our appetite will be for.

Okay. And then one for Mike. You talked about the incremental $4 million to $5 million of FFO from leasing at the GM Building. Can you talk about how much of that is the Cartier retail space and sort of where that revenue winds up being on a go forward basis, relative to what CBS was paying?

I really can't describe the specifics of where it is. I mean, I can tell you that at the GM Building, we've leased 3 retail spaces, the Cartier space and 2 smaller retail spaces on Madison Avenue, which are helping us. As Doug mentioned, there's a 38,000 square-foot lease we have out for office space in the low rise of that building. And then we are also talking to some tenants in the high rise of that building about early renewals. So that's kind of where the growth is coming from in that space. From the perspective of the CBS space versus Cartier space, there is a decrease from the contribution of CBS to the contribution [indiscernible].

[indiscernible] For an outstanding transaction completed with Cartier and we're very, very happy with the number it's in. As we've pointed out, we still have additional space to lease, but we will be very happy when we get that space done at the same kind of numbers that the Cartier people saw. The value of that space is really extraordinary. It's just a one-off kind of space in New York for a high level retail. So we're very, very enthused about it. It's not going to -- there are not too many people like that -- or companies like that, but boy, if somebody comes into the market, they look at whatever limited amount of space we have left.

Is the press reports of that short-term lease, while they renovate their space on 52nd Street, accurate or is that a longer-term lease?

No. The Cartier leases are the longer-term lease. That's not a short-term lease. No, they're going to be investing a lot of money and we'll be investing some money in that space. And the traffic that is generated by the Apple Store is unprecedented in the history of American retailing. And it's unprecedented for Apple. And that just says something about the location and just the general prestige of that building has and the retail space there. Nobody has ever seen numbers like the numbers that Apple generated in that space, including Apple.

I just want to clarify. So we're not suggesting that it's necessarily Cartier who's going into that space. And we haven't announced publicly who the tenant is. The tenant is putting a significant amount of money into the space. They do have an ability to go long term on the space. They also have the ability to get out after a relatively short period of time.

Your next question comes from the line of Ross Nussbaum with UBS.

Doug, just following up on the disposition outlook for the remainder of the year. It's like the 140 Kendrick and 1301 in D.C. are on market. Are these the only 2 assets that are currently on the market or are there others?

So you're referring to a story in commercial mortgage alert, or one of these real estate alerts. We haven't announced what properties are on the market yet. We are looking at in excess of 2 buildings. As I said, we're looking at buildings in all of our markets. So the 2 that you described are buildings in 2 of our markets.

Okay. And then just on Transbay, can you talk a bit about your partner's decision to reduce their exposure there?

It's a long answer that's necessary, that's why I'm going to try and truncate it, which is effectively as follows. We went to the venture. Hines thought they had a potential equity partner on their side of things. We had to all reach an agreement that, that party was the right party for the deal. At the end of the day, we all came to the agreement that it wasn't the right party for the venture. And we had negotiated the ability to close on the deal as a 95% partner and to think about how we might recapitalize it if we want to recapitalize it with a large third-party institutional capital partner at a later date.

Your next question comes from the line of Jim Sullivan, Cowen Group.

Two questions regarding the Boston market. First of all, the TD Bank garden site, Doug, I wonder what you're thinking is on that site today and whether the increased densification in the East Cambridge has any bearing on what you might do there?

So the garden site is, for those of you who have -- want to picture it, there's a big open area in front of the current TD Bank garden, which is the old Boston garden site. And that site is -- has a density envelope that is pretty significant. And on the base of that, it would likely be some type of retail, and then there would be a series of towers that would go up on top of it. And there clearly is an opportunity for tenants that are migrating out of Cambridge to look at other places in the city of Boston. One of the issues, quite frankly, that many of those companies have had is price and new construction in a location like North Station because this new construction may not be as economically attractive as some of the other alternatives they might have in the short term. But as the North Station gets better from an overall environment perspective and we start to do other things there, I think it's very possible that there could be an office component at that location, that could be unusual space that could be very attractive to the types of tenants that are, in fact, looking for space in other parts of the city that would have, in the olden days, when rents were lower, have preferred to stay in Cambridge.

So does the increased densification in East Cambridge have a negative impact on the potential demand, would you say, for that site?

I don't think so. I think it's going to be about price. The new development that's going to go into Cambridge is going to be very expensive as well.

Okay. And then secondly, regarding the suburban markets, kind of a 3-part question in the Western suburbs. You talked about Bay Colony lease activity. I wonder if you could just give us a sense for how the pricing is coming in on that activity relative to underwriting. And then secondly, the Biogen Idec space that I understand, they're going to be leaving to go to East Cambridge to your site. Is that going to be hitting the sublease market? Do you know the timing? And what kind of impact do you expect it might have on the pricing on the market?

Let me answer the Bay Colony question first. So when we originally underwrote the Bay Colony transaction, we underwrote rents. That would be from the high 20s on what we refer to as sort of the parking space in the lower levels to the mid to high30s on those other spaces. And we are achieving rents of $28, $29 a square foot in the parking space and we're achieving rents of $34 to $35 a square foot on the other space. So we're achieving exactly what we pro forma-ed, but to be honest -- intellectually honest with you, we're 1.5 years behind. So we also built in some growth rate at that time. And we haven't seen -- we haven't gotten the benefit of that growth, so we're delayed. With regards to the space in Weston, our best understanding is that the performance of Biogen Idec has been so spectacular in terms of drug discovery and drug launches that they are growing at a rate that has -- as suggested to us that they have rethought their short-term ability to get out of the space in Weston because quite frankly, there's not enough space in Cambridge right now to absorb all of the people that they are hiring and would like to move. And so while there is some of that space that is still potentially on the sublet market, we're not aware that they are lock stock and barrel moving out of that building any time soon.

Your next question comes from the line of Jordan Sadler, KeyBanc Capital Markets.

Congratulations, Owen, and to you, Mort, on the successful transition, I wasn't necessarily anticipating the change, when it occurred. So in that context, a quick curious question, Mort, about the nature of a specific provision in the agreement that pertains to the accelerated vesting of the outstanding awards, I guess, in the event you were to terminate your employment. Should we expect any additional changes? Is there anything else we don't know about?

No. No. The only thing that I think would affect my future, as far as I'm concerned, I'm having fun and I just enjoy the work, I'm still fully engaged. I intend to be that way for a long time unless I get married, and that's something which you can help me on. But so far, that's not a risk.

Quick one on Harvard, the total fees that are expected to be realized?

We're not going to talk about it. It's a 6-year project. It will depend on how long it ultimately goes and how they choose to change the overall concepts, and it's -- we believe that we're bringing tremendous value to the University. And we're devoting significant resources to it. And we think we've achieved a competition agreement that's fair to both parties.

Your next question comes from the line of Alexander Goldfarb, Sandler O'Neill. Alexander David Goldfarb - Sandler O'Neill + Partners, L.P., Research Division: Just my 2 questions. First, just given the growing demand for office product, especially from the private side, do you think that you'd exceed the $1 billion, and do you think that you'd be in a situation where you were going to do a special dividend the way you did previously? Or your view is with these dispositions, whether your 1031 or shelters with the regular dividend, you would not do a special?

I think it's going to depend on the circumstances. I don't want to get into sort of a magnitude of what we're talking about. As I said, it could be up to or in excess of $1 billion. Obviously, it depends on the collection of assets that we're selling. If we have places to put the capital and we can find ways to 1031 it, we would certainly do that. To the extent that the magnitude of our sales requires us to make distributions, I think we will make a special distribution in lieu of paying a 40% tax on the gains.

That would set up the Mountain View acquisition as a 1031, so we do have some opportunity to utilize that asset to help the situation. Alexander David Goldfarb - Sandler O'Neill + Partners, L.P., Research Division: Okay. But essentially you were pleased with the special dividend last time, so it's something that you may do. The only reason I asked is some of your competitors historically have done special to that. They didn't feel like they got the bang for the buck, so they wouldn't do it going forward, but it sounds like you were pleased with it. Next question is -- and this is either for Ray or for Mort. If you look at what's happening in D.C. politics, it almost seems like where Congress is leading, whether it's the FAA or immigration, there seems to be some bipartisan folks working together. Should we think that there is some thawing among the 2 parties and that things are actually starting to happen? Or are those sort of 2 exceptions?

My own view is that these are more the exception than the rule. But it doesn't mean that there aren't members in both the House and the Senate on both sides of the aisle who understand that there is a growing frustration in the country that our governmental system is not working, that we're not really addressing the major problems, except in the worst kinds of politics, there's a great gap between the Congress and the President in terms of how they work together, so -- and the country understands it. And there's a certain sort of anxiety over it. And I have a feeling that there may be, as the pressure grows, particularly as we get through to the next election, the Congressional election next year, there'll be some desire to have some kinds of achievements on their resumes when they go and face the public. So I think that there will be some improvement, but I don't see a major improvement because frankly, it could only happen at -- with the level of -- when there's the right level of Presidential leadership. And both sides of the aisle and the Congress feel that, that is presently lacking. There are not very good personal relationships and there is not a sophisticated understanding as to how to work together. You can start taking some people to dinner, inviting some people to lunch, but it's very late in the game. And there's a great deal of anxiety and frankly, there is no real personal connections that so many Presidents in the past have been able to call upon to bring a legislation to fruition. But you'll never know. I mean, somebody could emerge with the ability to bring everybody together. We all hope that's the case. I'm a little bit skeptical at this stage of the game. And I think the -- if I have to put it in the way it works in the Congress, there's a one little phrase I always use, which is the following: that the only time that the world beats a path to your door is when you're sitting in the bathroom. And in that kind of environment, they're all sitting in the bathroom, waiting for someone to come to them, and they aren't coming to them.

Your next question comes from the line of David Harris with Imperial Capital.

If I could go back to an observation that you made, Mort, in your opening remarks about new tech tenants taking -- looking for space in San Francisco, I just wonder, how difficult is it to underwrite these tenants? And more specifically, is it causing you to be reserved about the TI spend?

We look at all of these things very seriously and on a one-off basis. I mean, I'll give you an example. I mean, the company that took 1,300,000 square feet last year in San Francisco alone, 1 company, Salesforce. It's not exactly an old company, as we all know. But that's the level of growth that some of these companies are having in that marketplace. And we'll just have to look carefully at the financials of these firms. I can tell you that these are firms that can raise huge amounts of equity through a public sales of their stock if they wanted, and also have a lot of availability even on the debt side, particularly at the rates that are currently demanded in the marketplace. They're very manageable for these firms. So you have to choose. You're not going to put in a fortune in TIs to a company that really you think has any chance of going upside down. But we've had a lot of experience with that in the Boston area, in particular, and also in the Washington area and previously, in the San Francisco area. This is not something that's new to us. And so I think we'll be able to make the right decision. We've never had any kind of major lease, to my recollection anyhow, that has gone upside down. So we're very careful about that and we generally have space. When we do the space and when we fix up space to the extent that we do it, we also take that factor in mind, that we may want to keep some of these TIs for another tenancy if necessary. And I think that's something that is very much within our sort of management capabilities. And I do think that, look. You look at some of these companies, they've become giant companies in the last 3 or 4 years. And when I say giant companies, I mean companies with huge balance sheets, with a lot of credit and a lot of cash and earning a lot of money. So I think we will have no difficulty dealing with the financial aspects of those kinds of tenants when they come to us.

Is the leased land similar to that which you would expect to find with the more established credit tenant?

It just varies from tenant to tenant. One of the things that is very different in these companies is their rate of growth is so dramatic and they really anticipate it. So you have to find a way not only to lease them the basic amount of space that they are interested in, but you have to provide them with some kind of expansion space. And so that kind of space, you end up having to lease for shorter terms. And that's a different kind of challenge for us. But frankly, there are also a lot of tenants in the marketplace that will take a shorter-term lease, particularly if that's the only space that we are going to make available to them, given the kinds of company they are. So this is just the normal balancing that we have done over all the years we've been in business. I really don't think this is going to be a problem. And I also will say to you that these companies are growing at such an extraordinary rate and are so unbelievably profitable. That's really hard to believe. Implicit in your question, is it seems to me, a fair concern, yes, they're extraordinarily profitable, but can it last? And that's, I think, a very interesting question that you have to ask and you have to be careful in terms of the kinds of money that you put into TIs and the kinds of TIs that you put in and pay for.

Well, I think we don't need to think back too far before we first saw a boom and bust in San Francisco around in the late- to mid-90s, of course.

No, I think we have to be very cautious and careful about that. But by and large, we've almost never had a tenant that's gone upside down with us. We've been very careful about what we do. And we're not looking to make the last $0.25 on a lease. We're much more cautious in terms of whom we lease to and the security of that lease and careful about the investments. So I think we'll continue to be careful, and I don't want to say conservative, but at least prudent.

David, so let me just make a couple of comments on that. So the first thing that we do is, is the buildings that we build or the buildings that we buy are buildings that we believe are going to be most susceptible to re-tenanting in a down market. And so fundamentally, the best way that we can alleviate the risks associated with credits going the wrong direction is to know that we have assets that actually have a marketability to have significant universe of tenants in good times and most importantly, in bad times. And Mort has been sort of expounding that view for the better part of the last 45 years at Boston Properties. The second thing is -- and you may recall that in 2008, there were some terminations of leases in high-quality buildings in midtown Manhattan in our portfolio. And we surprised both ourselves and the market by how quickly we relet that space. And those were "credit tenants," A-rated or A minus or AA-rated companies that literally blew up. And so while it's interesting to talk about sort of what the nature of the credit is, you never know anymore what's going to happen. I think that in San Francisco, there are lots of companies that are looking now at more high-quality, better-built space and not necessarily looking at whatever they can find that's the most funky and unusual space. And typically, those tenants have a little bit more maturity associated with them. And so the overall risk profile of those companies in terms of what their funding needs are, are probably higher than what you might've looked at in the sort of dotcom bubble, where people were basically being funded by venture capitalists and as soon as the revenue ran out, they suddenly didn't -- couldn't raise around D E and F of their secured and preferreds. And I think we're in a different environment today in terms of the companies that are being formed and the business plans associated with those companies, and therefore, the revenue is. So overall, I think that we are in a better standing. But that does not prevent us from being exposed to the risks of the volatility of a huge macro downturn in the overall economy and how that impacts San Francisco. So that's still there. But the way we protect ourselves, the types of buildings that we're building, the types of buildings that we buy, those locations in the way that the space is configured.

Okay. I have a quick question for Mr. Thomas, if I may. Thinking back on your time at Morgan Stanley is that you developed very extensive contacts with very large pension funds and sovereign wealth funds, I'm sure. Is that something that we might see more into play on your role at Boston as we look forward?

Yes. I think my experience at Morgan Stanley, both in real estate and also in various leadership positions and with the relationships that I was able to develop there, I hope to be able to use all of that experience for the benefit of Boston Properties going forward.

So tangential to that then, what do you see is the biggest challenge in terms of becoming CEO of a public property company for the first time?

Well, as I mentioned, the first challenge for me is getting up to speed on Boston Properties. It's a large enterprise with lots of activities going on that you're very familiar with. And what I've been spending my time on is getting up to speed and making up for lost time in that many of our employees here are long tenured.

And once you're up to speed?

Well, once I'm up to speed, as I've mentioned, Boston Properties is a well managed and successful company. And my intention is to work in partnership with the existing leadership in the company, including Mort, including Doug, Ray Ritchey and others.

Your next question will come from the line of Tayo Okusanya, Jefferies. Omotayo T. Okusanya - Jefferies & Company, Inc., Research Division: They've been answered.

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

Well, I'll take a crack at it. I want to thank everybody for taking the time to review all of our last quarter's activities and to have a first chance for some of you to meet Owen. We're all looking forward to working with him. And I think we are still realistic but optimistic about the future of the business in general. But in particular, I think we still feel we have a unique platform and a unique prestige in the world of commercial real estate that should continue to give us opportunity to both build and buy buildings. And we're still looking forward to doing a lot of that as we immerse ourselves in our various markets. Thank you, all, very much for your time.

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