BXP, Inc. (BXP) Q2 2013 Earnings Report, Transcript and Summary

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

Good morning, and welcome to Boston Properties second 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 statements. 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 day, everyone. Look, we are having a quarterly conference call in the context of the general macroeconomic condition of the United States. And if the Wall Street Journal is to be believed, they did a survey of a number of economists who work for major financial firms and there seems to be, amongst those people, in terms of the national economy, a kind of sense of continued decline to the point where the sense is that, in the most recent quarter, the GDP was growing at less than 1%. But that's, of course, an overall average. And a part of the long-standing strategy of Boston Properties was to focus on certain specific markets, where we felt that these markets would do relatively better than the national economy in good times and in bad times. And frankly, we have also in the way that we focused our efforts within those economies that would be performing relatively better than the national economy, we tried to establish ourselves as the owners of and the developers of buildings in outstanding locations and buildings that would be considered to be the Class A buildings in their respective markets. And I must say that although we are not, of course, happy to be a part of a national economy that is so weak, the basic theory is that the we, in a sense, and strategy that we undertook years and years ago, have been borne out in this, the worst of recessions that we have all experienced since Boston Properties was started over 40 years ago. So that in the markets that we are in, primarily San Francisco and Washington and Boston and Cambridge and the Boston area, these markets are not just the downtown areas, but the markets in general, and of course, New York, have all been performing relatively better than the overall national economy. In fact, these are perhaps the 4 best cities -- or among the 4 best cities, these 4 markets, and the cities in general have done better than the overall economy. And so we are doing relatively well in relation to the cities, and the cities are doing relatively well to the whole economy. It doesn't mean that the cities will not be invulnerable if there's a major downturn in the economy. But to date, at least, while there has been weakness in the economy, the cities that we are in have not been dramatically affected. In fact, we've been able to grow our activities in these markets. We have had hundreds and hundreds of leases that have come up, and we have been able to sign tenants of good credit into the buildings that we have, since we think we have the A buildings in A locations, and these are the ones that are the least affected. And in one sense, it also reflects sort of a generality about the economy that I'm sure we've all read and heard about. And namely that the best part of the economy is the economy that is dependent upon intellectual firepower rather than either mass employees or brawn. It's brains versus brawn on one level, and the brains in this kind of economy are doing relatively better. And in some cases, relatively much better than the overall economy. Because most of them are growing, and growing strongly, and particularly in the companies and in the locations that are attracted to those -- attractive to those companies. We have, to date, by and large, been able to assemble sites and -- both within the cities and on the periphery of these cities and have continued to do relatively better. I don't want to make any further predictions in that because we are in an unprecedented kind of economic condition and one which is, therefore, unpredictable. But we still see, and as we will report during other portions of this call, that we have a lot of good activity in each one of our markets, and I think we feel that this activity will continue short of a major, shall we say, downturn in the overall economy, and again, nobody knows how that's going to go. But for the moment, we're in many of the markets we're in, servicing those parts of the economy that are growing and not shrinking. So with that, I would just end my comments and say that we're going to continue to watch the economy very carefully. We're going to watch the individual markets very carefully. We will continue to focus a lot on our financial resources, so that we can not only not be in any danger but, in fact, would be in a position to take advantage of opportunities that often come up in these kinds of markets, just as we did in 2007 and 2008 and 2009, when those companies, which had liquidity and had the ability to raise money through financing, were able to do things that a lot of other companies were not. And we were able to add, particularly, buildings of the highest quality in several of our markets because of the fact that we were viable, we were in good shape. We were not distracted by troubles, and we were able to raise the money. And that gave us the credibility to make a number of acquisitions, as well as initiate some developments. So in that sense, not that we want everybody else to be hurt or do less well, but it's just we think a fair description of the positioning of the company. And I think that the credibility that the company has from its work over the last almost 5 decades also helps in terms of dealing with people who want to sell buildings or people who own land that they would like to see developed and want to have the confidence that the programs that we are proposing for these people, particularly if there's any kind of joint venture in it, will in fact be realized. So I think that we are not overwhelmingly enthused, shall we say, about the overall economy. But I think we still feel a solid degree of confidence about the progress that the company has made and will continue to make, even though we think these overall macro environment is not as supportive as, frankly, as it has ever been. And I've been through our entire history other than the last few years. So with that, I think I'll end my comments and turn it over to my colleagues.

Okay, thank you, Mort. Good morning, everyone. This is Owen Thomas, and I'm joined here in Boston by Doug Linde, Mike LaBelle and several other colleagues. Before I get started, I wanted to note an important event that we have going on here in Boston today. That is, today is Doug Linde's 50th birthday, and I wanted to -- I didn't want to start the call without wishing you, Doug, a very happy birthday on behalf of everyone at Boston Properties.

I really appreciate that, Owen. Very good.

Any hope you had of this being a secret event is now over. Anyway, moving to more serious matters. Myself, Doug and Mike will provide more color on the operating environments that we are experiencing. We will outline our current positioning from a capital allocation perspective and describe our performance and results for the second quarter. So as Mort described, we are experiencing a sluggish recovery in the overall U.S. economy. However, this recovery is multi-speed, depending on industry and specific location. As you know, we are focused on 4 primary geographic areas. And fortunately, in most, though not in all, the markets we serve, we're experiencing reasonably sustained economic recovery and leasing activity. Industries such as technology, life sciences, health care and even smaller scale financial services firms are performing well and creating demand for our properties. In the second quarter, we executed 77 leases, representing 970,000 square feet, with reasonable balance in leasing across our portfolio geographically. Our properties in the aggregate are 92.1% leased, which is up from 91.7% leased at the end of the first quarter. Doug will be providing more detail on our leasing activities later in the call. In terms of capital strategy, we're experiencing what I would describe is an atypical economic and real estate capital market cycle. What I mean by this is interest rates have been at historic lows, creating strong capital flows into the property markets well ahead of an underlying property market recovery. Cap rates are very low, while rent growth is still in early stages. This is particularly true for the quality of assets and markets that are essential to our strategy. What this means for us, from a capital allocation perspective, is that we are finding new acquisitions challenging. We continue to aggressively pursue acquisition opportunities, but we will also remain disciplined. In fact, as you know, we have viewed the current capital market environment as an opportunity to monetize selected assets, either because of their long-term fit in our portfolio or because of the premium pricing for a particular asset we think we can achieve in the marketplace. We have made good progress in our dispositions in the second quarter, and Doug will also provide more details on this. Our selected disposition activity will continue, provided the current capital market conditions are sustained. In many of our markets, buildings are being sold for more than their replacement cost. Given this fact and our promising development sites, the majority of our new investment capital is currently funding development. We currently have 8 assets under construction, representing total investment of $2.5 billion, plus a number of additional projects where we control sites and are pursuing tenants. As the economy improves, we believe these projects will provide shareholders with attractive growth. Lastly, the most significant economic news for the quarter was a nearly 100-basis-point rise in the 10-year U.S. treasury. We were able to complete the $700 million financing on attractive terms before the full effect of the rate rise. Also, despite the rate rise, interest by investors in purchasing real estate remains robust, though pricing at the margin for leveraged buyers has likely been negatively impacted to some degree. Thank you. Now let me turn over the conversation to Doug.

Thanks, everybody. I hope that you can hear me now that I'm so old and my voice starts to tremble when I'm speaking. Good morning. The press release does a pretty good summary of describing our capital activities, but I thought would just add a couple of color commentary thoughts to that. So the first thing is that we signed our agreement for the sale of 1301 New York Avenue in Washington, D.C. for $135 million. This is a, I guess a B+ building. It's fully leased to the GSA, flat lease with a 2029 lease expiration and the in-place cash NOI is about $7.2 million. So that results in a cap rate of 5.3%. The sale has been set up as a reverse-like kind of exchange, which means we are fortunately able to retain all the proceeds from this sale. Second, we unwound our joint venture activities with related on Eighth Avenue and 46th Street, which was also detailed in the press release. And I just -- I want to be able to color on that. Effectively, we really couldn't come to an acceptable valuation on the remaining parcels of the assemblage. And so as a partnership, we decided to sell the parcels. So to date, in 2013, our gross asset sales have been about $690 million. When we were at NAREIT a few months ago, we described that we were in discussions on the sale of Times Square Tower. This transaction could ultimately be in the form of a 100% sale or a partial interest with a new joint venture partner. The investor interest is robust. Pricing is in line with our expectations, and we are going to refrain from making any specific comments on who the buyer -- buyer or buyers -- that we're talking to might be or the pricing, until we have signed agreements. In the case of this asset, it is not set up as a 1031, so any gain would likely result in a special dividend. Our current sales activities, as Owen described, have taken place in this rapid increase in treasuries. This is to sort of give you a little bit of an indication of how that's impacted things. At 1301 New York Avenue, there is about a 50-basis-point rise in rates sort of from the time that we announced that we were selling a deal to when we actually chose a buyer. Again, it's a flat lease with no increase for 16 years, so really this is probably the type of asset that you would expect to be exceedingly sensitive to overall fundamental fans in rates. We still had strong interest, and we actually achieved the midrange of our projected pricing. Our view is that the pricing might have been marginally higher, somewhere between 3% and 4% or $5 million. And with that, with the recent movement in interest rates, that would've maintained approximately the same sort of leverage of return for the leveraged investors that were looking at the building. But again, there might have been some additional resistance on a per-square-foot basis. And again, this is a building that is a B+ building, not an A+ building, and it was sold for $671 a square foot. We did in fact have 2 new partners join us at the General Motors Building this quarter, Soho China and an entity controlled by the Safra family. The actual purchase price was $3.356 billion, which was less than 1% of the number that was given to us as a [indiscernible]. As a reminder, we purchased the asset in '08, $2.8 billion, and it's financed with $1.6 billion of debt at a rate of 6% with a 2017 maturity. So if you exclude any adjustments from the above-market debt structure, it's about a 50% increase in equity over the past 4.5 years, 5 years. Mike's going to spend some time, probably more time than you would prefer, talking about the implications of the change of the General Motors Building from consolidated -- nonconsolidated to consolidated when we move on in the call. Getting to the leasing and sort of what's going on from an operating perspective. In general terms, I think I would characterize the way we're feeling as cautiously optimistic about our markets. Remember, as everyone previously has said, we are concentrated in markets and submarkets that are concentrated from a tenancy perspective businesses that are into new ideas, be it in technology or media or information distribution or mobility or life sciences or pharmaceuticals and medical devices. And those are the types of businesses that are, in fact, flourishing and increasing their headcounts. There are clusters of businesses in these markets, and they all coexist with a large pool of talented labor, and this is really where the economy in the United States is expanding. There do continue to be headwinds against more rapid improvements in the office business, and the strongest force of that is densification. I guess you could also refer to that as a productivity improvement or productivity enhancement. In one way or another, businesses are finding ways to fit more people into less space. Organizations are moving from offices and cubes to trading desks, and offices and cubes are getting smaller, and traditional support functions are either being eliminated or consolidated. The other governor on improvements in the office economics is new supply. New construction activity is a reality, and, quite frankly, it's partly due to the low interest rate environment and the lack of inflation, which is really making new construction much more affordable than you would otherwise think. And it's happening in all of our markets. In many cases, we have major large tenants that are moving into new installations, and they're creating negative absorption. So we're fighting those 2 headwinds. Getting into our markets, specifically. In Greater Boston, this quarter, we delivered 17 Cambridge Center to Biogen. It was actually 9% under budget. We used none of our contingency, and it was delivered earlier than expected, so we had interest expense savings as well, as well as the Connector Building to Google. Cambridge, which is at the heart, the confluence of both life sciences and technology companies, and it is in an exceedingly supply-constrained geography, is probably one of the strongest markets in the country. We are 100% occupied. So we've begun to engage tenants on our 2014 and our '15 and our '16 lease expirations. We have about 140,000 square feet of late 2014 expirations and 210,000 in late 2015 expirations, and there is significant opportunity for revenue increases from all that maturity. At the Hancock Tower, we are in lease negotiations with 4 existing tenants totaling about 300,000 square feet on relocations in the building, which is a really great start to covering our December 2014 to early 2016 lease expirations of about 830,000 square feet. And that is, by far, our largest exposure in the Boston area. The base at the Hancock Tower is actually priced less than opportunities in the space we have in Cambridge. Tech companies are finding their way into the Back Bay and the financial district of Boston. And quite frankly, one of our challenges is that we actually don't have possession of any of the space at the base of the Hancock Tower until the beginning of 2015 because it's currently leased and being used by State Street bank. So the technology companies, which have a much shorter window from a decision-making perspective, are less interested in that space right now because they can't get access to it. The suburban Boston market has been, by far, our most active market during the first half of '13. During the second quarter, we completed 250,000 square feet of leasing. They included a 55,000 square foot lease with a biopharma company in Lexington, a 33,000 square foot lease with a pharma company at Bay Colony, and a 28,000 square foot lease with another technology company at Bay Colony. All of these are net expansions in our portfolio. We have a growing pipeline of deals in negotiation, including another 50,000 square foot for a tech company that is relocating and expanding at Bay Colony. We actually competed for a 280,000 square foot build-to-suit for TripAdvisor in Waltham. Unfortunately, we lost that deal, and they're staying closer to their existing facility in Needham. But as a consolation prize, we leased 46,000 square feet because they're expanding and have outgrown their existing facility at our 140 Kendrick Street project. Again, new buildings are being built. There is expansion, and there is growth in our market. While many of the real estate pundits are all focusing on the urbanization of businesses, we continue to see strong activity in our suburban Boston assets, and it's stemming from the expansion of life science and tech companies. The pace of activity in San Francisco in the CBD is actually slightly behind where it was last year. Although, you have to remember that 2012 ended with a very large expansion by Salesforce that really impacted the overall transaction market. Current demand from tech companies, as a percentage of demand, has actually gone down from about 2/3 of the demand in 2012 to about 50% of what's going on today. And the real reason for that are there are more traditional users in the market, as the wave of leases that we've talked about that are going to be expiring between 2014 and 2017 have started to hit the market. We are responding to offers on our remaining availability at 680 Folsom, 50 Hawthorne, that's about 50,000 square feet, where our expected rents are about 5% higher than our original underwriting and transaction costs are about 50% lower than our budget. As the lease expirations that are driving the market today start to occur, there seems to be a wide gap between tenants' expectations and owners' expectations of where the economics should be for renewal, primarily in the better buildings and at the tops of the premier buildings. It's clear the tenants are prepared to pay mid-to-high 50s to low 60s for space in the low and mid-rise in the better buildings. But view space rent quotes are now in the mid-70s to over $90 a square foot. There have been a few small renewals in the view space, but the market pricing is slowly being accepted, not rapidly. Tenants in San Francisco are entering the market, where there's little sublet availability, direct vacancies under 7%, and there are lots of tenants that are coming off leases that were done in the last downturn. So there's a lot of sticker shock out there. We continue to market the 3 floors that we have in the high rise EC4, and they have been available for an extended period. We are optimistic, given the level of activity, that we will get leasing done. We did one major multi-floor renewal this quarter, 40,000 square feet, with a 2014 expiration in the mid-rise, low-rise of Embarcadero Center 4 -- Embarcadero Center 3, and it was about 23% higher than the expiring rent, and it had limited transaction costs. If you look at our mark-to-market in San Francisco between 2013 and 2015 on a lease-by-lease basis, it runs between 15% and 25% positive. The construction of 535 Mission is moving along, and we expect to deliver space to tenants in the middle of 2014, with the occupancy by the end of that year. We are encouraged by the initial inquiries, and tenants are starting to space claim the building and like what they're seeing. Again, this is a building with 13,000 square foot floors, so we expected it's going to be leased by a broad range of small to medium-sized tech companies, legal and financial services. If we average -- have lease starts in the mid-60s, this will generate about a 7% cash-on-cash return. Transbay design work is progressing, and we actually expect to award the subsurface work and commence this phase of construction later this summer. To repeat what we've said previously, we're working on our initial subgrade and foundation construction activities with an objective of spending the incremental capital necessary to shorten the project delivery schedule. The construction should commence shortly, and we expect this phase of work to end in the fourth quarter of 2014. It will require an incremental investment of about $130 million. We will evaluate the pre-leasing activity and the state of the market during the next 17 months, and we'll make further decisions at that time. The pace of activity in the Silicon Valley and the Peninsula actually bounced back pretty strongly during the second quarter, largely due to expansions from Google. There are now a number of speculative developments underway, which are adding high-quality and high-priced products to the market, and new construction pricing is somewhere between $3.25 and $3.75 per month in markets like Santa Clara and Sunnyvale. We've seen again a pickup in activity at Mountain View, where our asking rents are starting at $2.50 and going up. The last deal we did during the quarter was 24,000 square feet and had a starting rent of $2.90 per square foot. At our office building in Mountain View and El Camino, we did an early renewal this quarter, 40,000 square feet at a rent of $4.90 a square foot, 15% greater than our projected underwriting in 2011 when we purchased the asset. Our second quarter New York City activity was very strong. The pickup in demand was from high-end small tenants, and that's what we described when we talked to you last quarter. We signed 3 full leases at 510 Madison Avenue, so that brings us to about 70% leased. We did 7 deals at 540, 2 at 601 Lex and 2 at the General Motors Building, including a full floor deal at the base of the building. In total, we signed a 152,000 square feet during the quarter and another 56,000 during the first few weeks of July. Our predominant user and our target audience for these buildings, at 510 Madison and 540 Madison and 767 Fifth, are the small hedge fund asset managers and advisors and those types of entities that are not impacted by the densification that I described earlier. Our pricing at 540 Madison is from the mid-to-low 70s to as high as $100 a square foot. Pricing at 510 Madison is from the low 90s to the mid-130s, and our pricing at the General Motors Building is from the low 90s at the base to the upper 190s at the top of the building. The tenant activity for this segment of the market continues to be very encouraging. Now large leasing activity also picked up during the second quarter, and it surpassed the typical quarterly volumes in Manhattan, although much of that demand was from renewals and future relocations to the Hudson yards. We continue to see the densification from the large tenants. So as leases expire, those institutions that are moving are likely shedding space. The universe of large lease expirations, which we call -- we sort of characterize as above 200,000 square feet, 250,000-plus, is really limited in 2013 to 2015, and we saw this last quarter Simpson Thacher do a renewal at 425 Park, which has a lease that expires in 2018. When we discussed 250 West 55th Street with you last quarter, we described that we were starting to show space, but we haven't really gotten involved in exchanging proposals. Well, that has changed. We now have a number of multi-floor prospects that are considering the building with multiple tours, and we have begun to respond to written proposals. Potential users include law firms, financial service firms, fashion firm, media firm and education. We are very busy showing space at 250 West 55th Street. At the building this quarter, one of our existing law firms took an additional 13,000 square feet and we're out to lease on our second retail transaction. In D.C., the sequestration, which people really aren't writing about, is still very much a factor. And while it may not be on the front page, it creates an overlay of uncertainty, particularly in the district itself. The absence of incremental demand from the GSA and changes in space utilization in the legal industry, in particular, and the lack of any significant new demand generators that we do, in fact, see in places like Boston and San Francisco and New York, are creating additional headwinds that the district is simply facing today. Second-generation space is plentiful and, at some cases, landlords have expanded tenant approving packages to encourage tenants to relocate. Nonetheless, tenants are going to migrate to newer and more efficient buildings in the CBD, which is our sweet spot. Even in spite of the softness, there is continued interest in D.C. from investors. 555 12th Street is rumored to be trading for well over $700 a square foot and a major tenant is moving to our building at 601 Mass Avenue in 2015. So if you do the math and you add the transaction cost and the capital improvements that are likely to pass through in the building and operating expense carry, and you net off the existing income between now and '15, the basis for that building is going to be well in excess of $800 a square foot. And there's no active tenant looking at this space. The good news is our D.C. portfolio is 96% leased and Ray and his team in Washington, D.C. get way out in front of lease expirations. We're currently negotiating 2 major leases in Reston Town Center involving all of our existing vacancy and our 2014 lease expirations. Each of the tenants is in a defense industry and they are making long-term lease commitments, which is a good sign given where we are with sequestration. This quarter, we completed a 95,000 square foot extension with Microsoft at Discovery Square. We continue to achieve rents in the mid- to high 40s, approaching $50 a square foot in the urban core. At Carnegie Center, we continue to gain both occupancy and extend leases. During the quarter, we completed 3 expansions for about 12,000 square feet and, since July 1, we signed 8 more leases for 285,000 square feet and we're in discussions with 2 growing tenants for deals that total another 200,000 square feet and include almost 100,000 square feet of expansion. In June 2011, when we took the property off of the market, we were 78% leased and we had 700,000 square feet of 2014 lease expirations. Today, we sit at almost 90% committed with 200,000 square feet of 2014 lease expirations. Life sciences is clearly the sector that is at the core of the expansion of Carnegie Center. I'll finish my remarks with just a little color on our second generation statistics. In Boston, the transactions are almost exclusively in the suburbs and the net rent went from about $24.28 to $23.15 so very modest change, but it was down slightly. In New York City, the very small decline included only 53,000 square feet and the main negative was a full floor we leased at 399 Park where the new rent was $97.50 and the expiring rent was just over $103. Princeton included 1 9,000 square foot early renewal and had no capital cost associated with it. And in San Francisco, 1/3 of the deals were retail transactions, and without them, net rents would have been up about 6%. Finally, in D.C., more than 50% of the leasing involve GSA renewals which were effectively flat and very modest increases. And if you exclude those deals, D.C. would have been up 8% on a net basis, largely due to the Northern Virginia portfolio, Reston Town Center. With that, I'll stop and I'll turn the call over to Mike.

Great, thanks, Doug. Good morning, everybody. Happy birthday. No better way to spend your birthday than on a conference call. I will cover some of the capital markets and projections. We had a very, very busy quarter, at least on our release in the capital markets. Doug talked a little bit about the acquisition, disposition activity. We also refinanced 2 mortgages on joint venture assets, completing a 10-year $105 million financing on 500 North Capitol Street at a fixed rate of 4.15%, and we did a 5-year $120 million bank loan on 540 Madison Avenue that was priced at LIBOR for 150 basis points. As we discussed on our call last quarter, we issued $500 million of unsecured notes in early April. And given the evidence of the acceleration of rising rates, we made a tactical decision to enter the market in late June and raise an additional $700 million of 10.5 year on senior bonds at an all-in yield of 3.92%, effectively prefunding our 2014 debt maturities. We had originally projected to complete this financing in early 2014. But given the enhanced volatility in the markets, we decided to complete the deal early. We also redeemed $450 million of our exchangeable notes. In connection with the redemption, we paid the principal in cash and we issued approximately 420,000 shares of stock to pay the premium, as our stock price exceeded the exchange strike price in the security. A significant portion of these shares were already included in our diluted share count last quarter, so the change in our share count is only about 182,000 shares. The credit markets have been extremely volatile over the last couple of months, with the 10-year treasury climbing from a low of 1.63% in early May up to 2.17% when we did our deal in June, and now, at 2.68% today. In connection with the rate moves, our credit spreads also capped out by over 40 basis points before settling back in a little bit today in the mid-140s. Despite the volatility, the markets are open and we believe we could issue 10-year bonds today at an all-in yield of approximately 4.25%. Borrowing rates -- borrowing costs in the mortgage markets have also increased, with 10-year mortgages available at reasonable leverage in the mid-to-upper 4% range. And the CMBS market also continues to originate deals, despite the spread widening that we saw in June. If you look at our refinancing exposure, it's pretty low in the next couple of years. We have $747 million of exchangeable notes expiring in February. That was the driver behind our recent debt issue, and we expect to pay it off with cash. The exchange strike price to us on the notes is $134.38 per share. Other than that, we only have 2 small mortgages totaling $72 million expiring through the end of 2014. Our cash balance of $1.6 billion at the end of the quarter is more than sufficient to fund our $820 million in debt maturity and $600 million in planned development spend through the end of 2014. In addition, we expect to generate proceeds from the asset sales that Doug mentioned. We also just increased and extended our line of credit to $1 billion and it now expires out in 2018. We achieved a reduction of our all-in pricing of about 30 basis points. So turning to our second quarter earnings. For the quarter, we reported diluted funds from operations at $1.28 per share, which is $0.02 per share above the midpoint of our guidance or approximately $3 million. About half of the outperformance was in the portfolio, due primarily the lower-than-projected operating expenses. We expect to incur most of these expenses later in the year, so the difference here is really timing. The portfolio performance would have been higher but we did have $0.02 per share of negative variances from lower-than-expected termination income and higher accrued rent reserve this quarter. The other variant was in our fee income, which was better than projected from stronger tenant service income across the portfolio and leasing fees from a couple of deals at the GM Building. We also reported $428 million of gains related to the sale of 125 West 55th Street and the consolidation of the General Motors Building and Mountain View Research and Technology Parks. The gains are reflected in our net earnings for the quarter but they are not part of funds from operation. So before I go into the projections, I do want to touch on the impact to our financial statements of the consolidation of the General Motors Building. As we mentioned last quarter, in connection with the transfer of our partners' 40% interest, we negotiated enhanced decision-making rights that require us to consolidate this previously unconsolidated joint venture. This change will have no impact on our cash earnings and it has a very slight positive impact on our funds from operation. We've included in our earnings release a chart summarizing the changes of how we project the building will be reported in our income statement and the impact on our FFO for the second half of 2013. We're happy to review this schedule after the call, so if you have specific questions, we would appreciate holding your questions. In a nutshell, we've re-straight-lined and concluded a new fair value lease assessment of the leases that reduces the property's noncash rental revenue, but this is more than offset by a decrease in the property's interest expense from a noncash adjustment to fair value debt, based on market interest rates. We will also report as additional interest expense our partners' share of interest expense on a partner loan that is part of the original deal structure, but it is completely eliminated in the noncontrolling interest in property partnerships line of our income statement. So on a net basis, the change in the property's contribution to our FFO is slightly better than the prior accounting, with all of these changes being noncash. The geographic changes in our income statement are sizable, as the property's operations come out of net income from joint ventures and is included within our rental revenue, our operating expenses, interest expense, and noncontrolling interest. Again, netting to a nominal change. We have a similar impact in our balance sheet, you see, with a large reduction in investments from joint ventures and an increase that is marked up to the higher fair value based upon the sales price and our real estate asset, our mortgage debt and our noncontrolling interest and property partnerships. So turning to our projections. As we look at our projections for 2013, there's really 3 significant changes from our guidance last quarter. The first is the impact of the $700 million bond issuance that we closed at the end of June that was not in our budget. This adds $14 million to our interest expense projection for the year. The second is a decline of $4 million in our capitalized interest projection due to a drop in our average corporate borrowing rate. And the third is the sale of 1301 New York Avenue in Washington, D.C. We project closing in mid-August and the FFO loss is approximately $3 million. These capital items, net of the associated higher interest income of about $1 million, will reduce our 2013 FFO by approximately $0.12 per share. In the portfolio, we improved our occupancy, as Owen mentioned, by 40 basis points to 92.1%. We continue to anticipate further positive absorption, averaging between 92% and 93% over the second half of 2013. And as Doug detailed, we're seeing better activity in many of our buildings where we have some vacancy. These include 510 and 540 Madison Avenue in New York City and Bay Colony in Waltham. At this point in the year, the conversion of this activity to signed leases will actually be more impactful to 2014 and we're not projecting significant incremental income in 2013. We expect our same-store portfolio NOI to be up 2% to 3% over 2012 on a GAAP basis and 5% to 6% over 2012 on a cash basis. Our same-store projections are in line with last quarter on a GAAP basis, but they are 50 basis points lower on a cash basis. The drop in our cash NOI is related to 2 transactions: one, an early renewal of a 95,000 square foot tenant in Reston; and the other, a 55,000 square foot expansion by a suburban Boston tenant, both with modest free rent concessions that are starting in 2013. It is basically a swap in our projections between cash and straight-line rents of about $4 million this year. Both of these are positive transactions for the portfolio, but they reduce our cash NOI projection in the short term. Our noncash, straight line and fair value rents are projected to be $87 million to $92 million for the full year. This includes $22 million from the General Motors Building, consolidated, and is otherwise higher than the last quarter's projection, primarily about a $4 million swap between cash and straight-line rent I mentioned. The contribution to the funds from operation of our joint ventures is lower by $48 million, mainly due to the consolidation of the GM Building, which is now reflected only-owned portfolio and we're projecting full year FFO contribution from joint ventures to be $63 million to $68 million. Our hotel property, located in Cambridge, missed its budget for the second quarter by $700,000. We've made a corresponding reduction to our full year guidance and now project it to contribute NOI between $9.5 million and $10.5 million for the year. In our development and management services income for 2013, we project $27 million to $30 million. The projection is slightly lower than last quarter, with the better-than-projected performance in the second quarter offset by a change in the accounting for the management fee at the GM Building. As a result of consolidation, the management fees for the GM Building, which approximate about $5 million a year, will not be recognized as fee income. Instead, our partners' 40% share will be reflected as an adjustment to noncontrolling interest in property partnerships. We still recognize the same amount of FFO but the geography will change. Our G&A projection for 2013 is unchanged from last quarter, and we continue to expect G&A expense of between $106 million and $108 million for the year. Our reported interest expense will be higher, going forward, from the consolidated -- consolidation of the GM Building. This interest expense was previously recorded in income from unconsolidated joint ventures, and we will now be reporting interest expense on the $1.6 billion of GM third-party loans at fair value, which totals $31.5 million for 2013. Another impact that I mentioned a minute ago was the inclusion of the interest on our partner's loan. The partner loan interest totaled $16.6 million for the 7-month consolidation period in 2013. And as I mentioned earlier, it's fully reversed out in noncontrolling interest. The impact of our $700 million recent bond issuance was not in our prior projection. It increases our interest expense by $14 million in 2013. And lastly, our capitalized interest projection is lower by $4 million due to a reduction in our corporate borrowing rate. The changes this quarter to our interest expense including the refinancing of $450 million of exchangeable notes that had a 6% GAAP rate, with newly issued bonds at 3.2% and the inclusion of the GM building debt at its fair value of 3%, reduces our average corporate borrowing rate and, correspondingly, our interest capitalization rate by about 50 basis points. All of these changes aggregate to increase our interest expense projection by $66 million for 2013. $48 million of the increase is associated with GM geography. Inclusive of the benefit of slightly higher interest income, we project net interest expense to be between $438 million to $441 million for 2013, with capitalized interest projected to be $66 million to $70 million. The last variance, which also relates to the reporting for the GM Building is an increase in allocation of income to our noncontrolling interest and property partnerships that reduces our FFO by $16 million from our prior projection. So if you combine all of these projections, it results in a revised guidance range for 2013 funds from operation of $4.89 to $4.94 per share. After adjusting for the impact of the latest bond issuance, the sale of 1301 New York Avenue and lower capitalized interest reducing our FFO by $0.12 per share, our new range reflects an increase from projected improvement in our operations of approximately $0.02 per share at the midpoint of our range. Our projections do not include the potential impact of a sale of all or part of Times Square -- Times Square Tower or any additional acquisition, disposition or financing activities. For the third quarter, we project funds from operation of $1.27 to $1.29 per share. For 2014 -- we're not going to provide specific guidance on this call for 2014. We will talk about it next quarter. But there were a couple of items that I did want to note that I think are worth mentioning. First, we expect another strong year in 2014 of cash NOI growth. We have a number of leases with a large amount of free rent burning off, which includes tenants at the Hancock Tower, Atlantic Wharf, Cambridge Center, 399 Park Avenue, 601 Lex, 510 Madison Avenue and Patriots Park which, alone, total $52 million of incremental cash NOI -- of incremental cash revenue. Second, we have already raised the debt necessary to refinance our 2014 debt maturities. So the repayment of the $747 million of exchangeable notes due in February that carries a GAAP interest rate of 6.56% and a cash interest rate of 3 5/8% is expected to result in a reduction of our interest expense run rate. And we also project a reduction in our G&A expense in 2014, as much of the nonrecurring expenses associated with our management changes will be complete. That finishes our formal remarks. Operator, can you open the lines up for questions?

[Operator Instructions] Your first question comes from the line of Jamie Feldman from Bank of America Merrill Lynch.

So I guess, Doug, going back to some of your commentary where you are saying that markets are getting better but you are concerned about new supply. Can you talk about how you think this plays out over the next couple of years in your largest markets of New York, Boston and San Francisco?

Sure. So I think that, largely, the expectation that we have is that the growth from tenants that are in the nontraditional office use category, [indiscernible], are going to expand enough to absorb a portion of the supply that is being left over by tenants that are moving into new buildings, and a portion of that supply is also going to become -- B-ish quality or lower quality in its nature and it's going to be less attractive to tenants that are trying to become more efficient. And so, over time, you'll actually see an improvement in the economics that we're going to see in those marketplaces but it's not going to be the same kind of spike that you have in rents that we saw, call it, in 2005 to 2007, because there just is this torrent of cost compression that is out there that's just sort of pushing a governor on it on the other direction.

So I guess, as you're thinking about that, I mean the market concern is that interest rates are rising, cap rates probably go up. But for the higher-quality assets, there's an expectation that NOI and rent will increase commensurate with that, or hopefully will. How are you guys thinking about that as you're underwriting assets and as you're just thinking about valuations in general?

A couple of things. The first is that, if we really do have significant interest rate expansion and we have inflation that's associated with that, it's not just sort of a technical change in interest rates, the cost of construction is going to go through the roof. And we're seeing a little bit of that right now in some of the markets because, during the last portion of the recession, there was a tremendous amount of capacity on the construction side in terms of companies that were actually out there doing the work, particularly on the subs, that are just gone. They just -- they evaporated. They weren't making any money, so they went away. So there is some cost escalation, but it's manageable right now. So if it actually takes off, then you're going to see the pricing required to build new buildings go up significantly. And, honestly, that gives us a huge runway and an ability to raise our rents. And that's a good thing if that happens. With regards to pricing expectations, I think it's fair to say that, where we are today in terms of CBD buildings, and Owen described it as atypical, the expected return that investors are looking at today, based upon where current interest rates are, is not something that we presume is going to be sustainable. If the average 10-year treasury is at 5% and there is inflation expectation, it's much harder to think that you're -- that people are going to be buying CBD buildings at 3% or 4% cap rates, which hopefully gives us more opportunity, as Mort suggested, to be much more acquisitive. Today, we're not there, but hopefully, we'll be in the future.

Okay. And then turning to Mike LaBelle, can you talk about how you're thinking about investment firepower today. I know you said you've pre-funded your 2014 debt maturities. But how should we think about what you have now to spend on incremental investment?

Well, I think part of it depends on the sales activity and what that creates for us. We've got more than sufficient liquidity to deal with our debt maturities and our pipeline that we have. If you look even further out, our debt maturities even further out are also significantly lower. So if you solely look at those things, our need to raise additional debt next year is limited. But obviously, a lot of things can change. Because there could be a lot of other investment opportunities that pop up or development opportunities that we pursue that increase our need to raise capital to fund those opportunities. So it really depends on how that plays out.

Okay, and then just finally, do you know what your GAAP leasing spreads were for the quarter?

No. I mean, I don't have it offhand. We can go back and look and give you a call.

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

I just wanted to just look at development for a second here. Doug, you mentioned that you're cautiously optimistic, I heard, in your prepared remarks, about conditions in the markets. And I was curious, if that -- how that will translate into new development and potential additions to the pipeline. Could we expect, or should we expect, some more speculative development to come online? And sort of what kind of pace would you envision over the next sort of 12 to 18 months?

I think that, given where our current pipeline is in San Francisco right now, where we do have some speculative development underway, I would say that, that is probably the primary area that you might see speculative development in the short term, i.e., there's probably not a lot of speculative development that you're going to see. We have a site in Boston in the suburbs that we have made a significant number of proposals on, where the tenants will be taking somewhere between 60% and 70% of the building. So there will be a speculative component. The building at 888 Boylston Street has had some tenant interest, and some of the tenants who have taken -- have been interested in the whole thing and some of the tenants have been interested in 40% or 50% of it. So there's potentially a speculative component associated with that. Outside of those 2 projects, the other things that we're looking at are the land that we have in greater Washington D.C. I think we would anticipate having a significant pre-leasing associated with it. And then we actually do have a build-to-suit that's in the works in Princeton, at Carnegie Center. Again, it would be almost 100%, if not 100%, leased if we started construction there. And then in Midtown Manhattan, at the moment, we're really not in a position to have additional sites that are anywhere close to being ready for construction.

Okay. And then the dispositions on the opposite side, I mean, Mike, what are you sort of budgeting in terms of cash? It sounds like you're going to pay off the $750 million or so with cash in '14 but you're assuming, essentially, maintaining this cash, just a gradual spend down. And what happens to the extent that some of these other assets that you have up for sale start to hit?

Let me answer the question in the following way, which is I think Mort sort of indicated that having available cash is a strategic advantage, assuming that there are opportunities to purchase things. And if that set of circumstances occur, we'll be in a position to do that. We have not tried to line up the sale of our assets with that specific cash need that we have. I think we're being much more opportunistic about the sale of the buildings and the fact that, as Owen's described, we're in a very unusual period vis-à-vis where operating fundamentals are and where interest rates, and therefore, valuations are. So we're taking advantage of what we think is a very optimal time to sell assets without a clear place that we sort of are pointing to towards where those dollars are going. We would hope that we will find development opportunities within our markets where we can deploy that money in 2013 and 2014, in addition to what we currently have in our pipeline. But that's a -- it's a little bit of a nebulous answer because I don't think we have a clear indication of where the money is going to go to.

Your next question comes from the line of David Toti of Cantor Fitzgerald. David Toti - Cantor Fitzgerald & Co., Research Division: All the discussion I heard earlier was sort of indicating that you guys are pretty comfortable to potentially kind of thinking about this as a bottom in the market, relative to both low cost of debt and where you're seeing cap rates on stabilized CBD assets. If you think we're an upswing in one direction or another with either of those variables, does this begin to force up your yield hurdles on some of the developments that you're thinking about that are in the pipeline? Is there sort of a lockstep movement in those expectations as well?

It's Owen. Yes, I think that, over time, as interest rates increase, the returns that we would expect from developments should have some incremental increase over time. That being said, I think if interest rates go up it's going to be because the economy is improving and, therefore, demand for real estate will go up and rents will go up. So there would likely be some offset in terms of rental increase. But, yes, I think required returns will go up. David Toti - Cantor Fitzgerald & Co., Research Division: And then sort of along the same lines, you speak about selling mature assets with compressed cap rates a little bit more aggressively into this market. What are your thoughts around some of the weaker assets, potentially in this market? In particular, some of the New Jersey suburban assets?

So I would, I guess, beg to differ with you that they're weak. What we've seen, from an activity perspective in Princeton has been probably second to what we've seen in suburban Boston, the most active part of our portfolio in the last, call it, 3 to 4 months. And there are, again, similar types of companies that are growing in that portion of New Jersey that are similar to the types of companies that are growing in San Francisco, but more importantly, in greater suburban Boston. So I beg to differ it was a weakness. I think we've made it clear that, at the right time, with the right pricing, the Carnegie Center is an asset that we will consider disposing of. And we'll revisit as we continue to have even higher occupancy and we have more tenants that are looking for space and we have less and less lease expiration. David Toti - Cantor Fitzgerald & Co., Research Division: Okay. And then my last question is just, and maybe I missed it. Did you guys comment on joint venture partner activity on Transbay? Are there any ongoing discussions or new discussions taking place there?

Well, as Doug described, we're in the process of bringing the asset to grade and we are, obviously, marketing the building to prospective tenants and we are considering our capital structure for the property. We certainly have made no decisions with respect to how we're going to ultimately capitalize the project. But bringing in a joint venture partner is something that we will consider over time.

Your next question comes from the line of Michael Bilerman of Citi.

I'm not sure if this question is best answered by Mort, Owen or Doug. I know you're all on the board. But can you sort of just discuss, after sort of the nonbinding say-on-pay, which only got 19% approval from shareholders, I guess, how is management, how is the board sort of reacting to that? Will there be any changes or you sort of just stick with the agreement that's already been signed?

This is Owen. The board has certainly taken note of the say-on-pay vote, and it's been having conversation with us and among themselves. And I do think we'll be reaching out to shareholders in the coming months.

To get their views and potential changes down the road?

To get their views, yes, and in response to the say-on-pay vote.

Okay. And just on asset sales, in addition to Times Square Tower, what other assets are on the market? Have you sort of put others as you sort of evaluate the marketplace? Just for us to get a sense of total volume.

I think that, Michael, for calendar 2013, we had been marketing 140 Kendrick Street, and the pricing that we got on 140 Kendrick Street was really not, quite frankly, up to what we expected we would need to sell the asset. And so I'd say we sort of pulled back on that particular asset, and that was about a $130-plus million building. We are about to hit the market with another few assets. We haven't "made a formal decision" yet, but we're talking about on a magnitude of $250 million, plus or minus, that unlikely would close in 2013, probably closer to 2014. And Owen, I think rightly so, every time he comes to Boston and when he goes to the other regions, is saying, "So what should we be thinking about putting on the market potentially in 2014, if things are in a similar environment as we are today?" And so I'd say the regions are thinking long and hard about what their views are on what assets are mature or not and don't have enough growth left in them to keep in the portfolio. And that's sort of an ongoing conversation.

Right. So from a cash perspective, once you include 1301 and these $250 million of sales, call it $400 million, and then Times Square Tower, which obviously, from a size perspective, would dwarf that significantly, that's what we should be thinking about in terms of capital raising?

I think that's what you should think about for capital raising over the next, call it, 6-plus months.

Okay. And the tax basis just on Times Square Tower, the undepreciated book is 630. Is that approximately what sort of tax basis is as we think about potential sale and tax and gain and things like that?

Yes. I think you got the 630 from our K, I assume, and that's a pretty good approximation.

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

Most of my questions have been answered. But just wanted to ask about the residential side of the business. You guys have 1 under -- still under construction, 2 operating properties. What's been the experience? And with that, how good are you feeling about being in the residential business? And as you look for additional development opportunities, are you likely to have some residential component going forward?

So I'll answer the question as follows. So what we've said previously is that we think we have the competency and the skill set to design, develop and construct in-fill residential properties in the markets that we are operating in. And as a developer, we think we can make a lot of money building in those types of places, largely due to the similar characteristics on the office side, which is this is where people want to live because this is where the companies that are growing and that are attracting labor want their people to be. So there is sort of a confluence of strategies implicit in both sides of that. We recognize fully that we do not have either the competency at the moment or the portfolio size to be a great operator of residential properties. And so we recognize that we have to hire people who have that competency, and it costs us something to do that. I think that we also have a perspective that they're not core long-term holds for us, necessarily, but they could be. So to the extent that we've created a lot of value, if we're developing a residential property in an in-fill location to a 7-plus percent cash-on-cash return and it's worth 3.5% or 4% cash-on-cash return, as Owen -- well, as he goes around to the regions, we'll say, "Is that the kind of asset that we should monetize potentially?" And based upon Safe Harbor and the 2 years and all the other sort of things, those are the types of things we're thinking about. So I think that in all of our regions, we have sort of put it on the table that our regional teams should be thinking about locations where we can potentially productively put capital to work and put our expertise to work on the residential side.

Okay. And then just lastly, what's the internal feeling on special dividends? I mean, is it just a necessary evil? Is it something that you're ambivalent about doing? Is it something that you'd rather not, if you can find some way of avoiding it?

The short answer is, is that we think that our shareholders value cash no differently than they value, in terms of special dividend, an appreciation in the stock price. And so to the extent that we have a special dividend, we don't look at it as a sort of necessary evil, if that's what you're asking. So one concern that we would have is we want to make sure that we're doing this in an appropriate manner in that we want to maybe able to maintain the earnings power to pay out our existing dividend on a consistent basis. And we also don't want to use the payment of special dividends as a way to leverage up the company because we don't think that would be an appropriate capital strategy. So those are sort of the 2 governors that we think about with regards to special dividend.

Let me just say -- this is Mort speaking. I do want to add just 1 other comment with respect to the possibility to be involved in the residential side of the real estate business. As you know, we've done occasional projects in the residential area, and frankly, we've had a good experience with them. And we feel that it gives us another arrow in our quiver to work with in the real estate business. And so we will continue to look for opportunities on the residential side, providing they meet the standards that we hope for in terms of both scale and quality and long-term appreciation.

Your next question comes from the line of Alexander Goldfarb of Sandler O'Neill. Alexander David Goldfarb - Sandler O'Neill + Partners, L.P., Research Division: Mort, since you're still -- since you're on the line there, just the first question is for you. Obviously, a lot of discussion with the Fed replacement potential. You had your editorial last week. Just sort of curious. One, why do you think that the President hasn't let Ben Bernanke determine his future? And two, are you ambivalent whether it's Yellen or Summers? I mean, it seems -- given the impact that the Fed is going to have on interest rates, which obviously impacts the value of your office buildings, just sort of curious if it makes a difference whoever replaces him.

Well, I think it often does make a difference. I think the fact that Ben Bernanke was the Chairman of the Federal Reserve at this particular time was almost a gift because he had had all of the great experiences and academic and understanding of what happened during the Great Depression. He was a great authority on what happened during the Great Depression, and he understood how critical it was that we keep the financial system well-lubricated. And he did more than almost anybody else in the world, in fact, not almost than anybody else in the world. In fact, he was a leader in trying to get other countries to open their particular financial channels as well. But the end result of it was then instead of getting a financial system that could have gotten completely clogged, we ended up with a financial world that remained open, and the banks did not fail. And the -- what should I call it, the economy did not suffer from a huge contraction of the availability of credit, which, frankly, when there was those few moments of panic in the world back in 2008 and 2009, could very well have been one of the outcomes. So I have the greatest of respect for him. My concern about the way he was handled, as I try to indicate, was that he should have been given the chance to announce his own departure in a slightly more dignified way, given the extraordinary contribution he made. And I thought it was really unbecoming of the way to treat somebody who had made such a major contribution to the economy and to the financial system of the United States and, indeed, to -- in fact, since he led a lot of other countries and influenced a lot of the countries and just helped the global economy to function properly. So I felt that, that was just not the way to deal with somebody who had made such a remarkable contribution to the United States, to its economy and to our ability to go forward without having a major crash. So I think as far as who is going to succeed Bernanke, I think both Summers and Yellen are outstanding economists and banking figures. And I think as we know in the way the system works, this going to be the judgment of the President and not the judgment of commentators, particularly who comment in the media. So I'll just wait and see how it goes. I know them both for a long period of time. I particularly know Larry Summers for probably 30-odd years, since I was on the faculty at Harvard when he was the President of Harvard University. So we go back a long way. But I think they are both extremely talented people, and you've seen a lot of commentary on both of them. And I suspect that whoever gets the designation, assuming it's one of the two, will again try and respond not to their particular ideologies but to the facts on the ground. And those facts on the ground, as you probably have seen from just the most recent descriptions of the level of GDP growth, which is now estimated, according to a series put forth by The Wall Street Journal when they interviewed a number of economists, seems to be on a decline. So I don't think we're in a period of time where there's going to be any serious tightening of the financial conditions that are going to be available to companies who want to invest money. But we're in an unprecedented period and, therefore, in an unpredictable period, and we'll just all have to wait and see how it plays out. But I suspect -- not that I suspect, I'm sure that the Federal Reserve will continue to pay -- play the kind of role that Bernanke paved for his successors, including allowing Federal Reserve not only to buy short-term paper to help the liquidity of the financial system and to keep the short-term rates down but to continue to buy long-term paper. This is sort of another version of QE3 or it will be QE4. Secondly, I do think that the federal government, the Federal Reserve, in fact, will no longer just be a policymaker, but they will be an active participant in the capital markets in order to make sure that their goals in terms of interest rates and capital availability will be met because they don't want the economy to get any weaker than it is now. And so far, despite this huge deficit spending on the part of the federal government and huge monetary stimulus on the part of the Federal Reserve, we still have not had a general economy that has moved up to the levels of growth that we are accustomed to. In fact, as I mentioned before, in the survey, a lot of economists feel that we might even be at a growth rate for this quarter that will be less than 1%. We'll all have to see because nobody can predict these things for certain. But it's certainly something that we watch very carefully because it affects our views on the capital markets, our views on the sale of properties, our views on the investments that we did. I would point out that in the year 2006, when we had the same apprehension about the condition of the economy, we engaged in a number of sales at very, very attractive prices, which enabled us to, shall we say, rebuild our portfolio with assets like the General Motors Building and the John Hancock Building in Boston because we had the financial resources to go ahead and do that. That's one of the reasons why we went out into the capital markets this year. I think we want to put ourselves into position to take advantage of any opportunities that might become available. And under almost all circumstances, such opportunities will become available. That's my commentary. Thank you. Alexander David Goldfarb - Sandler O'Neill + Partners, L.P., Research Division: Which dovetails into my second question. Doug, NAREIT, we spoke about -- or you guys spoke about the potential of maybe expanding beyond core Midtown to look at acquisition or investment opportunities in some of the neighborhoods where some of the new -- where employees of the new tech companies want to position. Are you guys thinking about just sort of traditional Boston-type buildings? Or would you look at older-type buildings that would involve some renovation or possibly development sites?

It's Owen. To answer your question, we are considering, as we discussed at NAREIT, looking at some of the emerging/emerged neighborhoods in Manhattan where there is significant tenant demand growth and rent growth. We will continue to focus on quality. A core to our strategy that Mort has reiterated over and over again, and Doug, is having A-quality building, and that will continue to be our focus. Exactly how that's defined is to be determined, but we will be focusing on maintaining a high-quality portfolio of buildings.

Your next question comes from the line of Vance Edelson of Morgan Stanley.

Just update us on your thinking on what amount of pre-leased square footage you'd like to have before deciding to move beyond grade in the fourth quarter of '14. Is it in the neighborhood of several hundred thousand square feet? And would having a JV partner, if you chose to go that route, would that potentially reduce the threshold?

You're not going to like the answer that I'm going to give you because it's not going to -- you're not going to find it satisfying, but I'm going to give it to you, anyway, which is it depends. So as an example, if the market in San Francisco were -- a year from now, we're trading in a level where space at the Embarcadero Center and space at Foundry Square were all leased and there was a much lower vacancy factor and there was significant expansion of existing tenants and new technology tenants that are continuing to come into the city, I think our threshold for how much square footage of leasing we would need to start on the Transbay would be lower. If it were similar to a situation like it is right now where things are good, things are strong, things are, I would say, healthy, there is a modest amount of growth going on in the city, I think the number is going to be significantly higher than that. And the good news is that we don't have to make that decision right now. If we had a joint venture partner, clearly, the risk that each partner is taking is significantly reduced, and, clearly, that would be a factor as well in the decision that we would make.

Okay. That's very fair. And on 601 Mass Ave and perhaps using that as a barometer of D.C. strength, in general, is 79% pre-leased about where you expected to be at this point? Is it better or worse than you would have hoped? And how much higher would you like to see that figure upon completion?

So all of the remaining space at 601 Mass Avenue is stuck in neutral at the moment because the existing pre-leased commitment to Arnold & Porter effectively put us in a situation where we had to hold all their remaining space off the market until October, I think, right, of 2013. So we've been in no position to be -- even be able to offer the space to the market. So it is exactly where we would have expected it to be.

I guess, Doug, we can always be 21% better.

Your next question comes from the line of John Guinee of Stifel. John W. Guinee - Stifel, Nicolaus & Co., Inc., Research Division: Hey, Ray, a lot happening in Washington, D.C.. Got the Silver Line finishing soon. You've got the hot lanes open in Northern Virginia. The Freeze the Footprint seems to be really on its -- here to stay. National Science Foundation did a build-to-suit in sort of a secondary Metro location. Fish and Wildlife seems to be maybe getting done over in Skyline. Can you sort of, without pumping your own submarket concentration, give an arbitrary or an honest assessment of how all these changes will affect the leasing velocity in various submarkets?

That's a pretty open-ended question, John. And you know me, I can never stop pumping our own products in our own markets. But I do think the fundamental change we've seen with the Silver Line is that what used to be the Rosslyn-Ballston corridor in Arlington is now the Rosslyn out to Tysons corridor. And those Defense users that may look to go inside the Beltway will now certainly consider Tysons as a secondary location and, eventually, hopefully, Reston. But, again, to go to the bottom line, I'm not going to critique other REITs markets. But I just really like our position in Reston Town Center. As Doug detailed, we are effectively 99% leased out there. The highest net effective rents probably in the city of Washington, D.C. and virtually no new supply forthcoming. So without, again, casting negative views towards the other options, we continue to like our position.

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

Question on just development mindset. You have a large pipeline already, but you are seemingly somewhat bearish on real estate value since you're selling assets and not finding value in acquisitions. So just curious if your appetite for additional development is somewhat muted. Or is it just -- are you willing to add new projects if the pre-leasing hits your targets?

So I guess I'll take exception to saying that we're bearish on valuations because we're selling and not buying. I think what we've identified is a situation where there are assets where the growth profile, from our perspective, is less than what the growth profile or value might be from a third-party owner's perspective. And so we think there's a great opportunity to both enhance the overall growth rate of the company going forward and raise a lot of cash at the same time. So I think that's why we're selling assets, not because we think they're overvalued and on the decline. With regards to development, I think we believe that we can get significantly enhanced yields on development, particularly in the markets where we have sites and access to sites, over and above where we could otherwise deploy that money into existing assets. And existing assets obviously have the hindrance of having leases in place. And to the extent those leases in place lock in the returns for an extended period of time and we can achieve returns that are significantly higher than that, then we think, incrementally, we're better off putting our capital into development. That's not to say that we're not prepared to -- if we have the right opportunity on the acquisition side and it's got the right lease profile and we're comfortable with where we think either we can reposition the asset or how we can implement change to the asset and, therefore, drive enhanced yields in terms of where current rents are or we like the leasing exposure, that we wouldn't jump into that. I mean, there's a building, for example, in the New York metropolitan area that we're looking at, where there's good rollover in 2016 and we like where the asset happens to be positioned. And if we can figure out a way to purchase the asset from the existing owner, I think it would be a great acquisition opportunity, largely because of where it's located. So we're not -- it's not we're either on or off with regards to acquisitions and dispositions. We're smart enough, we think, to be open to looking at lots of different ways to recycle and invest capital through good and bad markets.

Earlier in the call, when you expressed some hope of maybe in the future being able to buy again when the 10-year was at 5% and there were higher inflation expectations built into fixed income pricing, that was not necessarily your expectation but just sort of a hopeful commentary down the road?

Yes.

Okay. And then the commentary on leasing activity at 250 West 55th seemed like one of the more positive things that I heard on the call so far. I'm just curious, did it just sort of -- did a light switch go off? Or what was sort of the impetus for the market finally seeming to come your way on that building a little bit more? At least it sounds like. And then just curious if you have a stabilization timeline for that building.

I'll answer the last question first, which is I don't think we yet have a stabilization time frame. We are hoping that we will do enough leasing in 2013 and 2014, so that by the time Kaye Scholer starts paying rent, which is I think in 2015, we will be stabilized. I mean, that's our hope. I mean, I want to say it's sooner than that, but that's where our sort of expectations are right now. In terms of why things are better in terms of the level of activity, I would say that as we got to the point where the building was ready to be opened and it was an easy tour for a broker to bring someone to the building and they could see a working lobby and they could get into a passenger elevator as opposed to a hoist and the floors were clean and ready and we started having broker open houses and basically pushing the pavement in terms of getting the word out that the space was available and you could start construction on it, it sort of naturally became, I think, more real to the marketplace. And I -- but I can't tell you why in the last 3.5 months, Owen or Mort or Robert has toured the space with a prospective tenant at a minimum of twice a week. And we've got more than a handful of multi-floor tenants that are actively studying the building with architects and have provided us with request for proposals and, in some cases, given us responses and are encouraged by the -- we are encouraged by the overall level of activity. Now we haven't made any deals yet. So I guess I'm somewhat skeptical of giving you a firm date on when we're going to have a lease because you never know with real estate transactions how long they take and what the path to getting a lease signed is. But we're optimistic that between now and beginning of 2014, we'll have some strong leases signed, and the building will feel even better than it does today.

This is Robert Selsam. I can add a little bit of color to Doug's answer. Some of the tenants have just recently entered the market. So every tenant has its own time frame. They typically select a broker, and then they do surveys. And then, finally, they get out in the market. And it just happens to be that several of these tenants have just recently entered the market in a serious way.

Your final question comes from the line of Tayo Okusanya of Jefferies.

Just a little bit more detail around San Francisco. I mean, there's been a lot of news saying Google is expanding within their current location, and some other guys like Kaiser Permanente are likely to do the same thing. Just kind of given all the spec development that's going on in San Francisco, I mean, does that kind of change your view in regards to what yields could look like for new developments, if all these potential new demand people were thinking could show up suddenly is kind of staying put?

I guess I'm a little unclear as to your -- the question. I'll try and answer what I heard, and you can ask a follow-up. So a lot of the growth that you're describing is down in the Valley. So Google, for example, has taken a significant amount of additional space in the Valley, both from an ownership perspective, as well as from a lease perspective. And they seem to be having an insatiable demand for space. And there are 3 or 4 tenants like that down in the Valley. Google also is rumored to be renewing and expanding in the city of San Francisco, at a building where they're currently located and don't look like they're going to be moving to a new facility. And so there is, in fact, growth both down in the Valley, as well as in the CBD of San Francisco from a tenant like Google. And I think we're seeing consistent growth like that from other tenants that are located in and around the San Francisco area. I mean, it's no secret. People talked about it for quite some time that there is a transportation issue associated with moving people who would want to live in the urban locations in the city of San Francisco down to the Valley. So each of these companies has fleets of buses that are moving people back and forth all day long. And to the extent that they find it palatable to have their people located in the city and can make a rationalization in terms of how those operating groups are working with the employees who are "off-campus," they're doing that. With regards to yields, I'm not entirely sure how those 2 things necessarily come together. Our view on yields right now is based upon sort of where we see overall investment returns and where we see IRRs and where we see interest rates. And I -- and so the demand equation I certainly think would help us in terms of starting more -- with more speculative space. But I don't think it would necessarily help us make a decision with regards to whether we're more or less interested in development.

Yes. So this is Mort. Let me add one -- can I add one thing to that commentary in San Francisco? We think that the assets that we are in the throes of developing in San Francisco will -- particularly will become the iconic buildings in San Francisco and the preeminent buildings. And we've always found that when those buildings get to be clearer in the vision, the lines of vision of the markets, that we get a very, very strong response. So I think people are, I think, beginning to understand what we are committed to in terms of the quality of design and function of the buildings we're going to be building. And so we think that will spark a lot of interest in this space that we'll be bringing to the market.

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

I think that covers everything that we had. Hopefully, everyone will get through the conference call season and enjoy a couple of weeks of August before we get back to having conferences in September. And we'll look forward to seeing you -- each of us will be at different places at different times, so you'll see a smattering of Boston Properties folks as you make the -- do the conference call circuit. And we'll talk to you again officially in about 90 days. Thanks.

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