BXP, Inc. (BXP) Q1 2014 Earnings Report, Transcript and Summary

Good morning, and welcome to the Boston Properties' First Quarter Earnings Call. This call is being recorded. [Operator Instructions] At this time, I'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 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 morning, everybody. This is Mort Zuckerman speaking. There's a little bit of construction job going on behind me, so you're going to hear a little bit of noise, somebody breaking up the sidewalk, but in fact that is a noise that we have always enjoyed in a way because that's what we do. We basically have had a long-term strategy, which we continue to focus on, of building long-term values and assets that we can hold for the long-term because we believe they will appreciate over the long-term. And we try and create a certain core value in terms of being at the very upper end of the quality of the assets in each market that we are in. And we are involved, therefore, in 2 things. One is maintaining and owning for the long-term a lot of investment assets, which we can go over. But the ones that really continue to grow the company are through the development programs that we have always had on our agenda and which we have today in a very strong way. In all of our markets virtually, Atlantic Wharf, block 5, 601 Mass Avenue. And the ones that have gotten the most attention recently are 535 Mission Street in San Francisco, where the activity is very strong and where we believe we will be creating significant value and a long-term investment pool [ph]; and Transbay in San Francisco as well, which is probably the most challenging and attractive opportunity that we have had, where we're building a 1,400,000 square-foot building. Both on the 535 Mission Street where we have a very strong activity, we've signed leases for over 80,000 square feet and we have very strong activity that is on the verge of being expressed in signed leases. And with the Transbay, as we call it, although we're now going to rename the building, we have had a very good experience in terms of having a signed lease now with a tenant who's going to take slightly over 50% of the building and the space that we will have remaining will be the upper sectors of the building, all of -- every floor which will have great views and great identity. And I do believe that, that building will be the iconic building in San Francisco for generations to come since it is going to be a couple of hundred feet taller than any other building. It's going to have great views and will become, we believe and hope, the iconic building that will symbolize San Francisco and its reemergence as one of the great innovative cities in America. I could go through a lot of other dimensions of our business, but I'll just mention that again, the long-term strategy of having high-rise, high-quality, highest-quality where we can, buildings in every aspect of our business continues to pay dividends. In that we are continuing to lease up whatever limited amount of space we have. The large tenants in those kinds of buildings, simply -- we do not have the space for them, but we have a lot of smaller tenants. And those buildings, therefore, are constantly being filled up in the niche spaces that we have remaining. And we're, frankly, very pleased with the performance of all of our, in particular, heads of the different regions. We'll be covering that in detail, but I think you'll come to the conclusion that we are still in a very difficult environment, which I think we are in on a macro basis, continuing to do well. Partly, of course, it is because we've specifically focused in on certain markets, Washington, New York, Boston and San Francisco, all of whom have the kind of urban ingredients, particularly those capacities and attributes that attract high-tech, high-quality companies into those markets. And so we've been able to participate in the growth of those cities in terms of the kinds of tenants who want to go into the very best buildings, and those continue to work for us. I'm not going to go through every development that we have on our agenda, but I think you will get a feel from it as we go through our different offices. But suffice it to say that in the area of the city -- of the country rather, that we made our biggest commitment, which was San Francisco, we landed Salesforce for a 714,000 square foot lease and we're doing extraordinarily well in 535 Mission. And as you will hear, through the reports that we make, we're continuing with development in our various markets, not only developments that we have underway, but developments that we are working on and planning for the future. So that we can continue to grow the company in the context of what is clearly and may continue to be, and I believe it will continue to be, a much more sluggish economy than most people have been predicting. Although I have to say we have been kind of very conservative about our estimates of how the macroeconomy will work. But we believe we're in the best markets for office space and we have the best buildings in these markets and we are continuing to build and develop in these markets, and lease up our space and keep our buildings at the cutting edge of quality. So with that, if I may, I'll just end my comments and turn it back over to Owen, if you don't mind, Owen.

Okay. Thank you, Mort. Good morning, everyone. This is Owen Thomas. I'll touch briefly on the operating environment, building on some of the remarks that Mort made, and also I'll touch on our overall performance for the first quarter. I'll then provide an update on our capital allocation strategy and execution. Doug's then going to discuss our markets and operational performance and we'll finish up with Mike LaBelle who will provide more color on our financial results for the first quarter. So starting with the environment, which Mort touched on. I think demonstrated by this morning's weak and likely weather-related GDP numbers, the U.S. economy continues to experience, in the aggregate, uneven growth characteristics. Though I do think overall business sentiment seems to be improving slightly. Traditional tenants are not growing rapidly. And in selected cases, they are reducing their space needs. However, this has been counterbalanced by explosive growth in many creative industries that we serve, such as technology and life sciences. As a company, we continue to experience very favorable market conditions in San Francisco, Cambridge, suburban Boston and, to some degree, Midtown Manhattan. Overall employment in Washington, D.C., however, continues to be reliant on government-related and legal industry. And we've not yet seen a strong catalyst for incremental demand in that market. Switching to performance highlights. In the first quarter, we had several significant accomplishment. Mort touched on this as well, but certainly the most exciting news for our company in the quarter was the execution of a 714,000 square-foot lease with salesforce.com at the now renamed Salesforce Tower in San Francisco. With the salesforce.com lease, we've now agreed to commence the full development of this 1.4 million square-foot tower at a total cost, including capitalized interest, of $1.1 billion. You recall, in our efforts to manage the risk of this large scale development, we were seeking to secure an anchor tenant and considering introducing a joint venture capital partner. With a large anchor tenant now secured, we are no longer considering a joint venture capital partner to complete the development. Now more broadly in our portfolio, we executed 97 leases, representing 1.6 million square feet, with the Boston and New York regions being the largest contributors. Our in-service properties in the aggregate are now 92.4% leased, down 100 basis points from 93.4% leased at year end. This reduction is due primarily to the forecast tenant rollover at 101 Huntington, a space that has already been re-leased, but will have downtime until early 2015. Further in the quarter, we also continue to make progress leasing our remaining development pipeline, which Doug will get into in greater detail. And in terms of operating performance for the quarter, we were slightly below our FFO forecast, due primarily to weather-related expenses. So we are modestly increasing the bottom of our guidance range for full year 2014, and Mike will cover these items in greater detail in his remarks. Now turning to capital strategy. As all of you know, interest rates actually declined over the last quarter and year-to-date. Specifically year-to-date, the 10-year U.S. Treasury has dropped 30 basis points, approximately, to 2.7%. And the prospects for rising interest rates appear to be more benign, at least in the short to medium term. Private capital for real estate in our core markets remains plentiful, and if anything, has gotten more aggressive over the last quarter as evidenced by specific completed transactions. Our capital strategy remains consistent with what we have been communicating to you over the last several quarters. First, we have and we'll continue to actively pursue acquisitions. But, as mentioned, we continue to find the market very competitive. Notwithstanding this environment, year-to-date, we have made a small number of targeted acquisition proposals, totaling just under $250 million, on buildings in our core markets, and several of these situations remain fluid. Second, given the robust private capital market, we continue to actively monetize assets. In 2013, as you know, we sold $1.25 billion in total assets and expect our monetization activity to be at least $1 billion for 2014. Assets that we've targeted for disposition are in 1 of 2 categories: they are either buildings that are non-core to our ongoing business strategy; or assets where we believe the investment market will aggressively underwrite future growth prospects. In terms of our current sales pipeline, we've received an unsolicited offer to buy a portion of our Mountain View single-story product and we are in active negotiations. We are also in discussions with a purchaser for The Avenue, our Class A apartment building in Washington, D.C. The outcome of these negotiations is unclear at the moment. We're also in the market with Patriots Park, which is a 706,000 square-foot suburban office building located in Reston, Virginia, which is 100% leased on a long-term basis to the GSA. Lastly, we're exploring a recapitalization of Carnegie Center in Princeton, and considering JVs on several additional assets. Now, lastly on capital strategy. As discussed in prior quarters, and Mort touched on this as well, we continue to make the vast majority of our new investments in development. In our core markets, we are at that point in the real estate cycle where new properties can be delivered at lower cost per square foot and higher yields than where existing older properties are trading. With the delivery of The Avant, a 359-unit apartment building in Reston, Virginia, and the commencement of full development of the Salesforce Tower, our active development pipeline now consists of 7 projects with a total projected cost of $3.2 billion, up from $2.5 billion at year end. Further, as described last quarter, we are in the predevelopment stage on another set of projects with strong potential. And these include North Station and 888 Boylston in Boston, a residential building at Kendall Square, 10 and 20 CityPoint in Waltham, additional sites in Reston and 501 K Street in Washington, D.C. In the aggregate, our share of these projects represents an additional future pipeline of over $1.5 billion in gross development cost. Lastly, a quick note on a personnel matter. Mickey Landis announced his retirement from Boston Properties in the last quarter, and we are very appreciative of Mickey's many contributions as the leader of our Princeton office during his 16 years with our company. With that, let me turn the discussion over to Doug.

Thanks, Owen. Good morning, everybody. It's Doug Linde speaking. I want to start off with a couple of comments on Transbay and put a little bit of meat on the bone, so you have a perspective of what's going on there. Interestingly, it was about a year ago that we actually announced the 95-5 JV with Heinz, we're the 95% obviously. And you may remember, there were many, many questions from investors and analysts regarding what our plans were, how much pre-leasing would we need and when would we start the building on spec. And I think we were noncommittal and vague, to put it mildly. But we basically said, look, we like the market, we think the market is going to get better. And lo and behold, we're now sitting here with a building under construction with a 714,000 square-foot lease. So as soon as we released the news a few weeks ago that we had signed that lease, lo and behold, we started getting lots of questions about the size of the Salesforce commitment and were we concerned about Salesforce. So we actually have spent a lot of time with the Salesforce leadership, and Mike and his team have done a very thorough credit analysis, and so I actually have asked Mike to spend a few minutes about Salesforce and their business in his remarks so we can hopefully provide a little bit of color on what they do and how we think about them and what the issues are regarding their commitment to the building. We've included the total cost of the Salesforce Tower in our supplemental materials, and it's about an $800-a-square-foot development. That includes an imputed cost of equity and debt, which is our typical method for quoting our development return and our yields on cost. But in fact, it actually overstates the overall cost. So the cost is going to, at the end of the day, be lower than that on a GAAP basis when we actually close our books on the transaction. Salesforce is going to be accepting space in various blocks, commencing in April of 2017, and their final block is going to be delivered in October of 2018. So at that point, in 2018, the annualized rent that Salesforce will be paying on that entire block of space will be in the low 50s. We expect to achieve a higher return and a higher rent on the remainder of the available space, which, again, is $432 and above, and we expect that our pro forma cash return on -- again on that $1.1 billion, will be in excess of 7%. Again, the rents that I just quoted are what the starting rent will be and in San Francisco, the market typically has either $1 or $1.05 bumps, or 1% to 3% bumps per year on those leases. So again, on a GAAP basis, the numbers will be higher than what they are on a cash basis. It has really been a pretty extraordinary beginning to the year in San Francisco in 2014. We had Twitter and Dropbox and EverBrite [ph] and Practice Fusion and Bare Essentials and Trulia and Salesforce all expand. And with the recent announcement that LinkedIn has signed a lease at 222 Second, all of the competing new construction pipeline has been committed, with the exception of 420,000 square feet at our 181 Fremont, which has a 13,000 square-foot floorplate. So it's a building more suited to the demand that we're seeing at 535 Mission. And then there's been a recent announcement that Lincoln Properties is supposed to start construction at 330 Bush, which is a 370,000 square-foot building, just on the backside of 555 Cal, off of Kearny Street and Bush, more in the north financial district. The San Francisco CBD continues to be, obviously, the strongest market -- urban market in our portfolio. And it's really this growth in tech that is expanding into traditional office buildings that's leading the growth and the strength in the market. We still have Pinterest and First Republic and Splunk and Uber were all in the market looking for over 100,000 square feet or more. The pace of activity in '14 is ahead of where it was in '13 and in '12, and there are also a lot of traditional users who are now conducting searches as the wave of lease expirations between 2015 and 2017 hit the market. Now those aren't necessarily expansions, but there are likely to be some musical chairs and some movements and we hope the Transbay -- the Salesforce Tower, excuse me, is going to be the beneficiary of much of those tenants. As Mort said, we signed our first lease at 535 Mission with Trulia for 84,000 square feet and they are at the base of that building and will be moving in, in the fourth quarter of 2014, so less than 6 months from now. We have strong interest from single and multi-floor users and we expect to sign our next lease in a few days. We are about 15% above our pro forma rents, which were in the mid-40s triple net, and we are again projecting a low 7% return on cost. Here the cost is about $700 a square foot. Just to give you a reference point, the last major sale in San Francisco was 101 Second, which sold for $767 a square foot, a sub-4% NOI return. Activity at Embarcadero Center is pretty limited, given that we're 95% occupied. We did about 7 deals this quarter, totaling 50,000 square feet and a few more over the last few days in April to add 20,000 square feet of additional leasing. We continue to market the 3 full view floors at EC4, those are at the top of the building. And while we're in discussions with a few tenants there now, we don't expect any 2014 revenue impact. Most of the tenants will have rent commencements in 2015. Net rents in our second-generation statistics in the supplemental show an increase of about 18% on leases that commenced during the quarter, which is in line with what we've anticipated, which is about a 15% to 25% markup on any individual lease. Down in the valley, our activities in Mountain View have continued to be very strong. At Mountain View Research, we've signed 169,000 square-foot of tenants, rents in excess of $32 triple net, and we have another 60,000 square feet in active negotiation. And we've leased all of the available space at our El Camino office building in Mountain View where rents are over $43 triple net. Activity at Zanker Road in North San Jose, however, has been limited. And that's where our largest availability is today, which is 437,000 square feet. Shifting to DC. We purchased a 50% interest in a future development site at 501 K Street from the Stuart [ph] family and we have commenced design and permitting on a 520,000 square-foot office building. We've actually taken a different approach to the building by responding to the high-performance workspace needs of both the traditional D.C. users, i.e. law firms and GSA, but also technology and non-law firm users, by adding large collaborative gathering areas throughout the building. We have 4 or 5 different 2-story spaces that we've been able to create, which could or couldn't be used depending upon the various uses of the tenant, but really make the building a different kind of building. The city is aware that it needs to expand its job generator, and we are designing a product that might attract this new user. We are also moving forward with the permitting of a 276,000 square-foot office retail building in the urban core of Reston Town Center, the strongest market in the Reston area and the strongest market in the D.C. area. As well as 2 additional residential buildings, which have about 25,000 square feet of additional retail space that'll tie right into our Reston Town Center retail. That's the site that we purchased last year, called the Signature site. The earliest construction commencement will be in the third quarter of 2015 for any of these new Reston transactions. We are in the midst of leasing at the Avant in Reston, which opened in December, and as of the end of last week, we have leased 100 out of the 359 units there. The bulk of our D.C. regional growth has been concentrated in Reston, which continues, as I said, to be the strongest submarket in the region. Our largest near-term lease in Reston is a rollover with the GSA and they've already notified us that they intend to extend that 251,000 square feet lease which expires 12/31/2014. We're in this awkward position of having 4 million square feet of office space and no inventory. We actually have a few tenants within the portfolio that have, for various reasons, put some sublet space on the market and much of our activity is actually responding to inquiries on this space from tenants that are interested in direct deals or subextensions. Again, rents in Reston are $15 to $25 per square foot above what you can get on other buildings on the toll route. The downsizing of the legal firms in the GSA densification continues to be an issue in the D.C. market. We've talked about it before and we'll continue to talk about it. We have limited 2014 exposure, but we do anticipate some churn in our D.C. assets with large law firms that have entered into discussions with -- and we've entered into discussions with our legal customers for our 2015 to 2019 expirations, about some space take-backs and long-term renewals. Some of these transactions could affect our earnings in prior years to the actual lease expiration, a.k.a. potentially next year, 2015. I also want to reiterate that what we discussed last quarter, which was 8% of our total company NOI comes from the CBD D.C. portfolio. The majority of our Washington, D.C. regional NOI is generated in Reston. The CBD portfolio continues to be 95% leased. Turning to New York. Our first quarter New York City activity on the in-service portfolio was really a continuation of what we've been seeing over the last year. We completed 24 transactions, totaling 537,000 square feet in our operating portfolio; which, by the way, now includes Princeton, and there were 3 deals in Princeton totaling 239,000 square feet. We did 7 more deals at 510 Madison during the quarter and we are currently in lease negotiations with 2 more tenants on 2 full floors and 2 more pre-built suites. If we complete these deals, knock on wood, which we hope to do, we will have 1 available full floor. It will be 95% leased at 510 Madison. The information in our supplemental, by the way, only shows leases that have actually commenced, which is why the numbers are a little bit different. Rent doesn't necessarily commence until 2015 on some of these floors, so much of the leasing we're doing right now really won't impact our 2014 revenues. At 540 Madison, we've completed 3 more deals, leaving only 33,000 square feet of availability at the base of the building. Demand from the high-end financial services firms continues into 2014, which is what Owen was referring to when he said we were feeling good about the Midtown market. And the fact that spaces are becoming more limited allowing us to maintain or modestly increase our pricing on some of the smaller suites. We completed 3 office extensions at the General Motors Building this quarter, including one expansion in the upper third of the asset. In July, we'll be getting back the 26th floor and we intend on demolishing it and offering it on a full floor or a partial-floor basis. We are now documenting a 15-year extension with Apple taking their lease out until 2031 down at the retail. They will also be expanding their core - concourse space by adding some currently landlocked units that really are not in service, which may allow them to expand their selling area as well. Cartier is now open. In total, the retail space at the General Motors Building, including our stores on Madison Avenue, currently generates $61 million of revenue on 100,000 square feet, including the Apple concourse and the FAO's second floor and concourse spaces. FAO's lease expires in early 2017. Morrison & Foerster moved into physical occupancy at 250 West 55th a few weeks ago, in addition to a few pre-built tenants on the 16th floor. Last quarter, we reported the signing of our lease with Soros Fund Management. This quarter, we completed 5 more deals, totaling 55,000 square feet and last week we signed an 85,000 square-foot lease with Al Jazeera network for some of the ground floor space, the entire second floor and a tower floor. We have 4 additional transactions in lease negotiations, totaling another 25,000 square feet. To date, we've leased 721,000 square feet. And with the pending transactions, we get to 746,000 or 75% leased. We continue to have an active pipeline of 1- and 2-floor prospects that continue to tour the remaining space, as well as users that are looking at our few remaining pre-built suites. At Carnegie Center, we continue to gain both occupancy and extend leases. As I said, during the quarter, we did 3 more leases for 239,000 square feet. In New York City, not unlike D.C., we are actively engaged with a number of our large law firm tenants regarding space utilization, redesign and extension. We have 5 such discussions underway, which could involve transactions well before lease expirations in 2015 and beyond. In addition, we've received notice from Citibank that they are terminating 174,000 square feet at 601 Lexington Avenue in 2016 with the right -- and we have begun to market that space today. Our development activities in the Boston region are continuing to advance. At the Prudential Center, we are negotiating a lease with an anchor tenant for the base of 888 Wilson Street, our 365,000 square feet of office space on top of 60,000 square feet of new retail space at the Prudential shops. This is a $275 million project including all carry and land at current market value that we expect to commence in the third quarter. In addition, we're planning a complete renovation and modest extension of our quick serve food operation, a.k.a. our food court, and potentially adding a 17,000 square-foot second-story addition to a portion of our Boylston arcade. These 2 retail projects have a combined cost of the between $30 million and $40 million. We anticipate temporarily closing down portions of the retail during the latter parts of 2014 and most of '15, and that will impact our revenue and is built into our projection. In Waltham, we're negotiating an anchor lease for 10 and 20 CityPoint, our 446,000 square-foot two-phase development. 10 CityPoint is a 230,000 square-foot office building with 16,000 square feet of retail and a project cost of about $108 million and tenant will take more than half of the office space. Just down the street, we've completed entitlements for a 16,000 square-foot stand-alone retail building, with future residential or hotel capacity, that we're not planning on for a while. We have 2 restaurant leases under negotiation for that small -- what we refer to as the stack. While this is a small $12 million project, it's an important element in creating a stronger amenity base and sense of community for CityPoint; where we currently have 516,000 square feet of existing office space, over 1.2 million square feet of additional office density, including 10 and 20 CityPoint, as well as our other 1.3 million square feet of existing assets at this critical interchange in Waltham, Massachusetts. In Cambridge, we're busy designing our new residential building, likely to start in the first or second quarter of 2015. In addition, we have -- to our new residential project, we're working with the city on our 600,000 square feet of additional office density and 400,000 square foot of residential density at other sites in Cambridge Center. In the meantime, we've completed additional early renewals at 5 Cambridge Center and 10 Cambridge Center, totaling 223,000 square feet. The combined markup on these leases is 50% on a net basis. In the Back Bay, we completed 50 -- 90,000 square feet of renewals at the Hancock Tower and 82,000 square feet of renewals at the Prudential Center during the quarter. And over the last few weeks, we've completed another 140,000 square feet of long-term relocations and renewals at the Hancock Tower. The suburban office market continues to be really active as Owen suggested. Large blocks of space have disappeared, forcing larger tenants to consider new construction such as our anchor tenant at 10 and 20 CityPoint. Rents in Waltham were up another 10% during the last few months, and are over $40 a square foot for any new construction. We completed 290,000 square feet of leases in Waltham and Lexington this quarter, and we continue to see strong activity in our Waltham assets with much of it continuing to be from expanding life sciences and tech companies. You might have noticed the negative second quarter stat in our supplemental for Boston, and this -- there is a simple explanation for this. Included in these figures is a 75,000 square foot 10-year lease extension that we actually completed in 2010, at 111 Huntington Avenue, that's just commencing. If you eliminate that transaction, the net goes from a negative 13% to a positive 4%. So as Owen stated, as we head into 2014, our investment activities continue to be focused on our active development pipeline. It was a great, great quarter in advancing our development activities, and we look forward to additional announcements in the quarters ahead. I will end my formal remarks and I'll turn the call over to Mike.

Thanks, Doug. Good morning, everybody. As Doug mentioned and Owen mentioned, we're delighted with the opportunity to expand our relationship with a tenant of the quality of salesforce.com. Whenever we're engaged with a prospective tenant, we conduct a thorough credit review to ensure our comfort with the ability of the tenant to perform over the term of the lease and with our tenant-specific capital investment. In the case of salesforce.com, we have a company that has matured into a force in the customer relationship management software business. CRM software is utilized by companies to manage their sales process, client communication and marketing. It's an integral component of sales platforms. It creates a sticky annuity-like revenue stream for companies like salesforce.com. And salesforce.com has increased its market share significantly over the past few years and is now a clear leader in the industry. They have hundreds and -- hundreds of thousands of unique customers across the globe. The company's sales have been growing at a 30% annual clip and last year totaled $4 billion, with revenue guidance given for next year of over $5 billion. Although GAAP profitability is below breakeven, as they reinvest in R&D and they're growing their headcount, the free cash flow has been growing and is in excess of $500 million a year, and they maintain a strong balance sheet. As we track the leasing activity in San Francisco, many of the technology companies that are driving the demand for office space are more mature, higher-credit companies, which we think bodes well for the continued strength of the office market. In addition to companies like salesforce.com and LinkedIn, whose expansions have been widely covered, others, including Google, Adobe, Autodesk, Macys.com, Riverbed, Trulia, Amazon, athenahealth and Visa have also expanded in the city. Clearly, there continue to be startups and other early-stage companies in the market as well, but the plethora of more mature companies differentiates this cycle from past cycles. During the first quarter, we repaid our $747 million of exchangeable notes and paid a special dividend of $2.25 per share. Our cash position is now $1.2 billion and is the primary source for the funding of our growing development pipeline. With the addition of the full cost for Salesforce Tower, our development pipeline now stands at $3.2 billion, with $1.4 billion of cost remaining to fund over the next few years. With our strong cash position, we do not anticipate raising additional debt or equity capital this year, although as Owen mentioned, raising capital through asset sales remains likely. We do expect to extend and reload our ATM equity program this quarter as it expires in June, although we have no immediate plans to use it. As our development pipeline comes into service over the next few years and we gain the revenue contribution from the assets, our operating cash flow will grow significantly. Our portfolio continues to demonstrate strong performance, with first quarter same-store cash NOI up by 5.6% and GAAP NOI up by 2.3% from the first quarter last year. The improvement is the cost of portfolio and is the result of free rent burning off on a few large leases, as well as over 60 basis points of portfolio occupancy improvement, mostly in Boston and New York City. As we anticipated and discussed on our last call, our occupancy dipped slightly from last quarter to 92.4% today due to the move-outs that Owen mentioned in Boston, as well as Lockheed Martin moving out of 165,000 square feet at Zanker Road in North San Jose. Turning to our earnings. We reported funds from operations for the quarter of $1.20 per share, which was $0.01 below the low end of our guidance range. Our revenues were in line with our expectations. The driver of the variance was approximately $2 million of higher utilities and snow removal expense related to the unusually cold winter in the Northeast with above-average snow. In addition, our G&A expense for the quarter was above our guidance due to some staffing changes that accelerated compensation expense into the first quarter. In the quarter, we reorganized our Princeton region to report under the New York region. And as a result, we no longer will have a regional manager in Princeton. For the full year, our G&A guidance is unchanged. As we look at the rest of 2014, and as Doug described in his comments, we have pockets of high-value available space in Boston at the Prudential Tower and 100 Federal Street. In San Francisco, we have 3 full floors at Embarcadero Center; and in New York city, we have available floors at 250 West 55th Street and in our Madison Avenue buildings. While marketing of the space is active, most tenants are looking for space for 2015 delivery, so we don't anticipate an economic impact from leasing the availability this year. In Washington, D.C. and in Reston, we're virtually fully leased. In the suburban portfolio, we have good demand in suburban Boston, and we are now 86% leased, up from 78% a year ago. We have one large block of space left at Bay Colony, which is under negotiation for a 2015 occupancy, with the remaining availability in smaller units. In suburban San Francisco, we had good activity in Mountain View, but the majority of our availability is in North San Jose and South San Francisco where the market is slower. Similarly, activity in the suburban DC markets in Maryland and in Springfield, Virginia are slow; and we don't project positive absorption this year. So based on the timing of our lease-up projections, we're really not anticipating meaningful improvement in our occupancy for the rest of 2014. The renewals that Doug discussed in Cambridge, as well as the 100,000-square-foot renewal in the upper half of the GM Building, all with positive mark-to-market, will show up in our straight-line rents and possibly impact our same-store GAAP NOI. Our projection for 2014 same-store GAAP NOI is an increase of 1.75% to 2.5% over 2013. This is an increase of 50 basis points at the low end from our guidance last quarter. Our noncash straight line and fair value lease revenue for 2014 is projected to be $88 million to $98 million. Our 2014 cash NOI projections are unchanged from last quarter, and we project a strong 5% to 6% improvement from 2013. This growth equates to $60 million to $70 million of incremental cash NOI for the company. In our development pipeline, we've made project -- progress in our leasing. Our 4-million-square-foot pipeline now stands at 67% leased. The incremental contribution to NOI from our developments in 2014 is projected to be $28 million to $30 million. Now the 2014 contribution is muted by the timing of our deliveries that come into service later in the year. And in addition, 250 West 55th Street and The Avant are still leasing up. The contribution in 2015 from leased properties will be significantly greater. When stabilized, we expect our pipeline to generate meaningful earnings growth, with a projected first-year stabilized cash return between 6.5% and 7% on $3.2 billion of total investment. We project our hotel to generate modest improvement from our prior guidance and project its contribution to our 2014 NOI to be $13 million to $14 million. The contribution to 2014 FFO from our unconsolidated joint ventures is in line with our prior guidance at $29 million to $34 million. We project development and management fee income for 2014 of $19 million to $22 million, also in line with last quarter's guidance. And as I mentioned, our full year G&A projection is unchanged. We anticipate 2014 expense of $100 million to $104 million. We expect a reduction in our interest expense in the second quarter, reflecting the payoff of our $747 million exchangeable note issuance. However, our interest expense run rate will increase in the third and fourth quarters, as we cease capitalizing interest on 680 Folsom in the second quarter and on 250 West 55th Street in the second and third quarters. Overall, we project net interest expense for the full year to be $446 million to $450 million and includes capitalized interest of $52 million to $56 million. This is modestly better than we projected last quarter. In summary, we're modifying our guidance range for funds from operations to $5.25 to $5.33 per share. This is an increase in our guidance of $0.025 per share at the midpoint and reflects a combination of improvement in projected same-store portfolio NOI and lower interest expense. For the second quarter, we project funds from operations of $1.32 to $1.34 per share. We have not included the impact of any potential acquisitions, dispositions or new development starts in our guidance. As Owen mentioned, we are likely to execute on the sale of multiple assets later this year that would result in a loss of FFO, but the exact timing and magnitude are still uncertain. In addition, we anticipate being in a position to commence the development of a couple of new development projects in Boston that could impact our capitalized interest projections. That completes our formal remarks. I would appreciate it if the operator will now open up the lines for questions.

[Operator Instructions] Your first call is from Michael Knott of Green Street Advisors.

Doug or Owen, just curious if you can talk about, in the context of flat occupancy for the rest of this year, just your thoughts about reaching where you guys normally are in the, say, mid-90s as opposed to where you're at today, over the next couple of years?

You mean the total portfolio?

Yes.

I -- honestly, I think that given the churn that we have within our portfolio on some of the larger transactions in Washington, D.C. and the transactions I described in New York City where, for the most part, the majority of the -- these large law firms are going to be giving back space, I would expect that our -- the ability of us to push occupancy in the short term, i.e. 2015, 2016, is going to be challenged. And I think we're probably going to be pretty close to where we are today, which is, what, 93% to 95%.

92% to 93%.

Yes, 93% to 95%. I think that's where you're going to see sort of us cap out at. We're not -- you're not going to see 96% or 97%.

And then, can you also talk about the prospects for the rest of your space at Salesforce Tower and sort of what the timing might be on when we might see the you ink additional deals there?

I will just make the following comment, which is, we have an active group of tenants that are in the market looking for space. As I said, we have one of few blocks of available space that has a -- now has a certain delivery date. We are adjusting and thinking about our approach to the market vis-à-vis pricing and timing. And we are -- we have proposals outstanding, but there's no other transaction that we would consider imminent.

Okay. And then last one for me, it sounds like San Francisco is still on fire with lots of demand. Just -- are you guys at all concerned with the recent thoughts on the NASDAQ and some of the high-flying tech stocks?

I think, and I'll let Bob describe sort of the leasing activity. And as Mike suggested, the majority of the demand right now, Michael, is from what I would refer to as non-high flyers. These are companies that have pretty solid revenue opportunities and actual business on their books. I mean, as an example, LinkedIn being the largest new user in San Francisco, that's a pretty -- what I would refer to as a utility right now for corporate America. And with some of the other larger requirements that are out there, these are not companies that are creating business models with lots of ideas and relatively little revenue. There's lots of revenue and lots of reinvestment. That's -- that is what is driving their need for space and their R&D. And, Bob, I don't know if you have any other thoughts.

Yes, I would just add that the activity that we're seeing both at 535 and at Transbay is pretty much evenly split between tech and financial services and law firms. So we're not just dependent on tech to keep this market drive.

Your next call is from Jordan Sadler from KeyBanc Capital.

I wanted to just come back to a comment, Owen, that you made in your opening remarks about interest rate expectation and how they're shifting or, at least, the prospects for rising rates even a little bit more benign, I think, you said. Is that shifting at all your view of the environment in terms of what you're looking to do, be it on acquisitions versus dispositions?

Well, I think forecasting interest rates is a perilous duty, needless to say. But I do think that the common logic that interest rates are going to rise and the -- as they did last year in the short term, I do think that concern has abated somewhat. I would say, our overall view at Boston Properties is that we will, someday, face rising interest rates. It's just it seems like that's been put on hold, given what's occurred this quarter and given the sluggish economic growth that continues. I wouldn't say that it has shifted our approach. I mean, we -- our capital strategy, as I described, hasn't really shifted. I would say one thing that perhaps has shifted over the last quarter is I think in the private market, for assets in our core markets, has probably gotten more elevated over the last quarter. We're seeing the pricing for trades going up and certainly, the number of investors that are trafficking in the market, we think, is going up as well. So I don't think -- to answer your question in a sentence, I don't think we've changed our approach.

And Jordan, I'd add the following, which is Boston Properties has not traditionally been what I would refer to as a spread investor. We've had a long-term perspective in all of the assets that we purchased. And so we really look at the overall economic characteristics of the rents in the building and how that building is being positioned and what basis we're buying or building that building into. And the fact that lots of folks are looking at the opportunities to invest capital in real estate today because they can finance very cheaply is driving -- that plus the lack of yield anywhere in the world economy, is driving dollars being allocated to our kind of real estate and the kind of things that we would want to buy. So I would say that, sort of to be consistent with Owen, it's becoming more competitive and more difficult for us to underwrite acquisitions today. And so the sort of, I guess, the tit-for-tat on that is that we're probably a little bit more inclined to be sellers than we are buyers, largely due to where interest rates are. And we've seen, as Owen said, the bid for high-quality real estate and particularly, large bulky assets, continue and get stronger, not weaker.

Okay. And then as a follow-up, in the discussions surrounding the law firms in your portfolio, both -- it sounds like in D.C., as well as maybe Boston? Can you -- or D.C. and New York, I think. Can you maybe just give us a little bit more color in terms of what the potential impact might be, how they're looking to shrink and where we are in this sort of the evolution of what law firms are doing, at least within your portfolio?

So I guess, I'll answer it in 2 different ways. Any law firm that's installation is more than 7 or 8 years old probably has had a different view on how that space should be laid out, as well as how they're organizing their workforces. And so as those leases are expiring, they are looking to become more efficient and change the utilization. And that's creating some incremental additional capacity or organic supply to come onto the marketplace. I also think that there are certain areas of the legal industry that are seeing less in the way of growth opportunities, a.k.a. bankruptcy, right? So there are fewer transactions, and that's leading to some shrinkage in some law firms, just to what their overall business is. So both of those things are going on. I think that we are probably in the fifth or sixth inning of the densification portion of this. And some law firms, in fact, are actually growing on a marginal basis because they are getting bigger from a number of partner perspective, because they're taking partners from other firms or there's still consolidation going on. But net-net, there are more firms that are getting smaller than are sort of maintaining their same size.

I'll just add, Doug, this is Ray Ritchey, that we've also been very much a beneficiary of this movement. Arnold & Porter, Government [ph], 601, the activity at 250 West 55th, 500 North Capitol, 2200 Penn, obviously Embarcadero Center with some recent moves there. We've been very much the winner in that dynamic, as well as facing challenges in our existing portfolio. So it's also been a good thing for us.

Your next call is from George Auerbach of ISIS -- ISI Group.

Doug, Owen, just to touch on your last point about asset pricing, how meaningful is the impact of more foreign or cross-border buyers on IRRs in your market? It just -- it seems like on recent tours of D.C. and the West Coast it's been surprising how much greater the sort of cross-border activity is today versus the past cycles. Just wondering how you think fees and other -- all-cash buyers are influencing IRRs and cap rates?

I think it's meaningful. The buyer interest in assets in our core markets is not exclusively offshore buyers, but I think the flows are certainly increasing from non-U.S. buyers, sovereign wealth funds, pension funds, other pools of capital, Asia, Canada, Europe and Middle East. I think it's a major force in the marketplace.

If I had to ask you to ballpark it, last 6 months, all-cash return hurdles are down 50 basis points?

I just want to say one thing, which is that, not all of these buyers are all-cash buyers. I think they are prepared to make all-cash bids, but many of them are low-leverage buyers. And whenever we have a conversation with one of the advisers, a.k.a. the Eastons [ph] or the CBREs or the HFS or the JLLs, you name your adviser, they are always quoting the leveraged return that they believe that these various capital pools are expecting to achieve with a low-leverage loan. So while there are certainly some that are prepared to do it on an all-cash basis, most of them, I think, are still looking at using and utilizing the opportunities on the -- in the debt side to enhance their returns. And I think those numbers, on a leverage basis, are somewhere in the low 7s to the low 8s, depending upon the asset mix itself.

Helpful. Last one for me. I know you build projects when it makes sense to, and not that there's certain investment dollar amounts. But given the pipeline of new opportunities that you laid out in your comments, Doug, how should we think about a reasonable amount of new starts for the company over the next 6 to 12 months?

I think in the next 6 to 12 months, there's probably somewhere in the range of $500 million of new starts.

Your next call is from Michael Bilerman from Citi.

I just wanted to come towards funding in terms of the pipeline. So you have the $1.4 billion that you now have committed for the current development pipeline, $1.5 billion of potential future development, Doug, which sounds like 500 would start potentially this year. You're obviously in an unbelievable capital position with $1.2 billion of cash, potentially $1 billion of sales under leveraged. You can go tap construction loans if you wanted to. I'm just trying to get a sense of does common equity ever enter the equation at all in your mind? I know LaBelle said that there's no debt or equity this year. But I'm just trying to get a picture of what the future may hold in terms of funding what will be $2.5 billion of future development?

I'll answer the question in the following way. Our current pipeline in our current business plan in terms of the asset activities that we have on the table don't contemplate the need for raising any additional equity. That does not mean that something different might not occur over the next 3 months, 6 months, 9 months, that would be a transaction that would be transformative in some way, shape or form that would not necessarily require that we do have some sort of an equity component to it. So the current business on the books does not necessitate any additional common equity.

The other thing I would point out is that I mentioned we have a $3.2 billion development pipeline, with $1.4 billion left to fund. So we have $1.8 billion that's out the door and not generating any cash right now. And that's going to de-lever us pretty significantly. You mentioned our low leverage already, but it will continue to go down as these, as 250 and The Avant and 680 Folsom start generating cash flow in the next 6 to 18 months, which provides us with capacity to use debt if we need debt to fund the additional pipeline.

I guess the only other thing I would say is because there's some deals that we're looking at right now. There are some potential sellers that would do things on a "OP [ph] basis" that might suggest that we have a de minimis amount of equity that's associated with any one transaction, but that's really part of the structuring mechanism that we would use to be successful at the acquisition.

Well, I think, you -- Doug, you talked about it's more difficult than to write acquisitions, and so I'm just curious in terms of that pipeline, sounds like on a wholly-owned basis, but whether you would find that a capital partner would want the sponsorship and the operating expertise for you to come in, in a joint venture where maybe they're a 45% owner or greater but would want BXP to join them in a large scale acquisition of a portfolio. Is that something that we should think about that you would be interested in doing?

Look, we are open-minded about acquisitions that our core market's in, and obviously, other places that would have this -- a similar profile from our -- from an operating platform perspective. I think there are relatively few large portfolios like that. I mean, there's a lot of talk right now about the portfolio in Boston that is being considered to be sold, which is at somewhere, I guess, in the neighborhood of $2.5 billion to $2.6 billion portfolio. And it's not something that we spend much time on because we like our position in Boston, we like our pricing in Boston, and it's not a portfolio that we necessarily think will be additive to our business plan. So it would have to be something that would be very unique.

And then just last question. You talked about sort of the occupancy trends. Can you talk a little bit about mark-to-market on the rollovers. If you sort of look at the remaining '14, '15 and '16 rollovers, both from a price per foot that's expiring, but the mix is very different, so if you look at your '15 roll, 30% is in New York and San Francisco, and you look at the '16, and all of a sudden that jumps to 60%. I'm just curious, as we think about what's expiring over the next almost 3 years, how should we think about the potential upside in those rents?

So as I recall, and I don't have all the figures right in front of me. But that in 2014 and 2015, the majority of our roll is below market across the portfolio. As we get into these transactions that we are sort of going into, that could be, what I would refer to as early renewal and potential take backs, some of those transactions are closer to market. And in certain cases, in New York City in particular, they're slightly above market. So I think that the 2017-ish area is a little bit more muted. And although we have a lot of San Francisco exposure in '16 and '17, and all of that exposure is somewhere between, as I said before, 15% and 25% below market, so it really enhances that. And we just went through our Cambridge portfolio. I mean, the markup was 50%. We did not anticipate a 50% markup on a net basis. I mean, we were sort of anticipating a markup that was 20% to 25%. The market's just exploded. And so if we have continued -- continue to see those types of changes, I think we'll be in a terrific position.

Your next call comes from John Guinee of Stifel. John W. Guinee - Stifel, Nicolaus & Company, Incorporated, Research Division: I'm just going to -- get your pencils out, I'll give you a bunch of real quick questions. First, Patriot Ridge and Zanker Road were 2 examples of when the primary kind of moved out, gutting it -- the buildings down to the steel, I think, and starting again, do you have any more of those functionally-challenged assets in the portfolio? That's question one. Question two, what you've implied here with the asset sales and redevelopment -- dollars redeployed into development is either a special dividend or a dividend increase, assuming the tax basis is fairly low. Can you discuss that? And then three, can you briefly discuss just the capital staff [ph] on the Transbay? Are you putting up 100% of the dollars for effectively 100% of economics, or is it 95%-95%, or how does that all lay out?

Let me see, I'll start with the third one first. So we are a 95%-5% partner and we're responsible for 95% of the capital and Heinz is responsible for 5% of the capital. Right now, our view is that we're going to fund it with internal proceeds from our cash flow and our existing capital. And so there's no sort of change in that. It's fair to say that it's a building that we could put a construction loan on, but it's really -- it's not something we're thinking about at the moment. With regards to the second question -- the first question which is regards to sort of assets that are "repositionable." I think the one area that we are looking at where there might be some additional stuff like that is, interestingly, our single-story stuff in VA 95. That's a park that has primarily been leased to the GSA and contractors of the GSA for, I don't know, Ray, 25 years?

At least.

And so as those buildings rollover and the GSA consolidates and densifies, some of those buildings probably have a repositioning opportunity and may need it in terms of being "acceptable to the market," because they -- nothing's been done to those buildings for quite some time. But interestingly, John, we've actually quietly gotten rid of a lot of our other similar buildings to the stuff at -- it's Patriots Park, not Patriots Ridge, and Zanker Road over the last few years in the Boston portfolio, as well as in Maryland. And so there are -- those opportunities are few and far between. And then the dividend question is -- I want to -- unfortunately, I'm going to have to take a pass on, because the actual size of the sale, the various tax bases of the assets, are so different for the various things that we're looking that it's too hard to give an honest answer to whether or not we would have a special dividend or we would have an increase in our current dividend. I mean, I am assuming that most of the assets that we are considering selling have a relatively low basis. So the pattern that we went through in 2013, which was at the end of the year, to see if there were opportunities to deploy that capital into new acquisitions and new developments, would be the first alternative. And to the extent that we can't do that, we would have a dividend opportunity that we would announce towards the end of the calendar year.

Your next call comes from word from Vance Edelson from Morgan Stanley.

On the pricing per square foot for Salesforce as a tenant in the new tower, how do you think the price point you mentioned in the 50s compares to what you would've achieved if you went through the longer and, potentially, more arduous process of leasing floor by floor? Presumably, there's some sort of volume discount. So can talk about what you were willing to offer in order to secure such a great tenant?

So we think that low-50s on a triple-net basis was a good market deal. The -- interestingly, the way the discussions went, the tenant grew over time, and as the tenant grew, they got higher in the building and we felt that as you moved up the building, it was worth more or had a higher price associated with it. I honestly don't believe that we would have achieved a, necessarily, a premium if we sort of did it on a floor-by-floor basis. But one thing that we did do as part of the transaction, and you can think about how you might value this in lots of different ways and I'm not try and put a number on it, is that we did offer Salesforce the ability to name the building the Salesforce Tower. And that we viewed as a very important element for them, and one that we think was baked into the overall economics of the transaction. So I would say that there may not have been a discount per se associated with the rents that we were achieving on the lower 714,000 square feet of space, but that other attribute of the transaction was important to them. And it was something we were prepared to sort of throw into the pot.

Okay, that's helpful. And then related to that, have you noticed any uptick in the interest level amongst other prospective tenants since you announced the good news with Salesforce and since you named the tower? Is their very presence a key selling point? Does it create any sort of buzz for the remaining space? Or would you say that any uptick in interest is more related to the simple fact that you're going forward with the project now?

Bob, you want to take that one?

Yes, I would say that from a standpoint of perception in the market, that the fact that we're going forward is a big plus. And it clearly has generated the interest from tenants that were not looking at the building previously.

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

This is actually Jamie Feldman. You guys are in a unique perspective that you can see what the different tech demand looks like across San Francisco, Boston and New York. So I guess my first question is just can you talk a little bit about what they're doing in their space and how it differs by market? And along the same lines, as you look forward, where do you think you'll see the best growth across those 3 markets?

Okay. I'm trying to think about the best way to answer that question for you, Jamie. So why don’t I do the following. Why don't I ask John Powers to talk about what's going on in New York City, and then Brian, you can give a quick summary of what you see in, particularly on the biotech and life sciences side in Cambridge. And then Bob, you can talk about San Francisco.

This is John Powers. Tech here has certainly grown in the last 4 or 5 years particularly. But defining tech in New York is, I think, a little different than in San Francisco because we have a lot of mature tech companies here, too. Overall, they are not a big player in the market, the whole tech sector, but the growth has been very outsized. And it's been primarily in the Midtown South area. So we have some conventional technology companies that utilize traditional space, but we also have the WeWorks and the other high-tech companies that are predominantly in the Midtown South.

Yes, this is Bryan speaking for Boston market. I think what we're seeing, which is really interesting, is we're seeing a little bit of a bifurcation of our tech tenants looking for different types of talent. And Doug mentioned earlier the growth that we've seen recently in Waltham, and I think that's really indicative. They're looking for an engineer or programmer that could be a little bit more mature, call it, in the family formation part of their life, and they are looking for those school districts. And that's been a big benefit for the Waltham market, what you've seen this big decrease in vacancy over the last quarter. And it's been really relatively quiet because there's been so much news about, call it, the drive for urban. We continue to see our urban tech tenants in Cambridge, their talent that they're searching for is younger, more millennium. And we see it in terms of the types of the space they're looking for as well. Doug mentioned biotech, it's a sector that we are continuing to see strong, strong growth, from great customers, for example, like Biogen. And yesterday, we were just at an event where we're opening up the Broad Institute building that we did with them, and I think it's indicative of what's to come.

In San Francisco, I think, there's been a fundamental shift in the last 5 years as far as tech where they used to be in the valley and maybe had a satellite office in San Francisco, to now where you're seeing them do a wholesale move, and have a satellite office down in the valley with their headquarters in San Francisco. I think you also have to differentiate between what we refer to as mature tech tenants versus some of these start-ups. I would use the example of both Macys.com and Riverbed that wanted to be in a real office building, with real amenities, and has the power and HVAC capacity to have a density of 7 or 8 people per thousand square feet, which in fact, we have with both of those tenants in our building, versus the brick and timber building. And I think both Trulia and Salesforce validate that these Class A newer office buildings will attract tech as well as [indiscernible] type tenants.

So just to sort of conclude the comments, Jamie, I would say that if you were to sort of have to put it all together in terms of the way they're using their space and the way that the space is being built out or what's attractive to them. I think the individual buildings share a few common components which are: they are adaptable to open space usage with a limited number of impediments, i.e. columns; they have really great light and air. So they either have high-volume ceilings or they have high, large window exposures that will bring light into the space, because if you don't have -- if you have lots of people in there and you've got a very deep floor, you want to make sure you have lots of light and air. And then they're, for the most part, being amenitized with lots of food and eateries and other sort of smaller conveniences for those tenants on any individual floor. But that in itself is not necessarily the most critical component. In some of these markets, there's a question of where it's physically located, where the cool sort of happening place might be, which is why we see what's going on in Midtown South occurring. And a lot of those buildings are not buildings that are ideally suited to high-density, great space. I mean, these are all -- I mean these buildings are older, pre-war buildings that are -- they happen to be near Gramercy Park and near Union Square, and they happen to be on the L-line where all the people are living. And so it's a clear indication of the physical location is equally as important as the overall space. And honestly, I think that if you say which one was the priority, it's where it is and then what it is.

Okay, that's very helpful. I guess what I'm trying to get a little bit more at is just the functionality in the different markets. So if Google's leasing space in all 3, kind of what are they doing in the different 3 markets. And then how does that help you think about where they may grow the most going forward? Or is it safe to assume just if the companies are in San Francisco and they're going to grow, they're going to grow most in San Francisco?

I think it's a question of the maturity of the company and how they got to where they are. So Google in Cambridge, as an example, they acquired ITA. And ITA was a critical component to their travel business, and so it's also been a magnet for other types of acquisitions in the Boston area, similarly, to what Google did in New York City. I mean, it's both an engineering hub, as well as a sales hub. And I think a lot of these younger companies, over time, will potentially run out of resources, i.e. the critical component which is the human horsepower to run these businesses, and they're going to look for places in the world where other people of a similar -- with similar characteristics are currently working, and those happen to be places like Cambridge and like Boston and New York City and San Francisco. I mean, I've said this before; one of the things we watch on a quarterly basis is where the new capital is being invested on the VC side. And if you look over a long period of time, the 2 powerhouses have been the Silicon Valley and San Francisco, way above everyone else; and Boston Cambridge second. And over the past 5 to 6 years, New York City has become the third critical hub of that venture capital investing, particularly in the technology and the biotech life sciences world. And those 3 areas are where there is clearly a knowledge base of workers that are the horsepower behind these businesses' growth.

One further comment, Doug, is just -- your comment on place. Once the place is determined, you take an example like Biogen. There is a, we think, an increased conscious regard for the design of the space. And Biogen is a good example of a recent building we did with them. There's just a higher thoughtfulness in how the space is designed, how the associates are working together for just greater productivity and innovation. We continue to see that grow with -- more across the tech sector and in the biotech, surely.

Okay. And then I guess, just finally on the same topic. If you think about what happened in San Francisco, which is, first, they wanted the brick and timber, and now, they're more in the modern, urban-campus type buildings. If you look at New York where Midtown South is obviously pretty full at this point, what feels the most to you -- which submarket feels the most to you, like where they may want to expand next, how they're looking at your Transbay and the urban campuses?

John, you want to take that one?

Sure. Clearly, the Midtown South market has been the hottest market. And as Doug said, the product there is not exactly the, for the most part, the product that they want. So we have seen the few buildings in Brooklyn have a lot of activity and we think that will be leased up over the course of the year. Pricing in Downtown has also moved up significantly in the first quarter, and a lot of repricing in Downtown as tech companies -- or TAMI companies that are getting priced out of Midtown South as the tech companies take the space, are also moving to Downtown. And we've also seen some moves towards Midtown. So I think that the tech driver in the Midtown South is forcing a lot of decisions as the prices have gone up in that market.

All right. That's all helpful. But just one more follow-up. You had mentioned Citi giving up space at 601 Lex. Did they say anything about 399 Park, or is that still up in the air?

No. Our expectation is that they will leave 399 Park. They did their deal Downtown on Greenwich Street. They are in a planning mode this year to sort out where all the people go when it's all done. They'll probably be in construction for 2 or 3 years there to move everyone. And our expectation is that they will leave 399, but not the branch.

Your next call comes from Alexander Goldfarb from Sandler O'Neill. Alexander David Goldfarb - Sandler O'Neill + Partners, L.P., Research Division: Owen, if I heard correctly in your opening comments, I think you said you're looking at a potential of $250 million of potential deals. Just want to get a sense, is that a gross number or is that just BXP's equity? Or are most of those development sites so that that's really land we're talking about, so it could be something more than that?

No, my comment on the $250 million was on acquisitions. So what we've been saying -- what I've been saying over the last few quarters is the acquisition market's been very competitive and we're finding it more challenging, although we're trying. And my point was is that over the last quarter or year-to-date, we've made proposals on various acquisitions that -- on a gross basis of $250 million. And those situations, several of them are not resolved at this time. Alexander David Goldfarb - Sandler O'Neill + Partners, L.P., Research Division: But are those development sites or those are [indiscernible].

These are the acquisitions of existing buildings. The development sites, dealt with separately with all the figures that I went through. Alexander David Goldfarb - Sandler O'Neill + Partners, L.P., Research Division: Okay. Okay. And then for Ray. Just a bit more color on 501 K. Are you getting more enthusiastic about putting more dollars to work in D.C.? Or is this just a neighborhood play where you see there's likely to be a shift towards this neighborhood and therefore, this is a good opportunity?

Well, obviously as you know, this is the site directly across the street from 601 Mass where we're building Arnold & Porter, is now a block away from where it looks like Venable's going to move their headquarters. It's clearly -- it's 2 blocks away from Heinz's city center. And as Doug talked about, we have a full city block. We talked about a building that's 520,000 square feet; the density is actually closer to 560,000 or 570,000. And we're adapting the strategy there where less is more, and we're designing the building that, we think, is unique in the market, that not only could address the space needs of our traditional tenants, law firms, associations, but also can be exceedingly attractive to the tech tenants we've been addressing all morning. So we're very excited about it. We're excited about having a great partner like the Stuart [ph] family, full city block across the street from where we've already proven tremendous success in the development community and we're -- we couldn't be more excited about. Alexander David Goldfarb - Sandler O'Neill + Partners, L.P., Research Division: Okay. Okay. And does this -- does your activity here -- may heat up the competition more for the FBI site as people think there's more potential? Or they -- or people view a developed -- or people are still skeptical or cautious on development in D.C.?

Well, the FBI site is a completely different discussion. It's progressing. They're trying to pick the new site for the new location and then have a competition for the J. Edgar Hoover building on the avenue. That is many years away. 501 K is a much more immediate type of development opportunity.

Your next call comes from Sheila McGrath from Evercore.

Yes. I was just wondering if you look at 55th Street leasing and also Salesforce Tower, how the rent has moved in San Francisco, if your return on cost expectation has improved, let's say, versus a year ago?

So I think that we've been pretty consistent that the return on cost on a traditional basis at 250 West 55th Street has been suboptimal, in our opinion, based upon when we conceived the project, because of the start and stop on it. But net-net, it's going to be somewhere just north of 6% on a NOI basis, sort of a non-GAAP perspective. And I think that our current lease-up is consistent with that type of a range. The Salesforce Tower building, I think, we have become more bullish on our expectations for what our overall return will be because we've been able to achieve a more significant premium to the rents that we entered when we originally conceived the project. I think when we started out a year ago, people said, "Dude, where do you think you're going to be on this asset?" And we said, "I think it's going to be $800 a square foot. It's going to be somewhere between 6% and 7%." And today, what we're saying is it's going to be $800 a square foot and then we think it's going to be in excess of 7%.

Okay. And one other quick question. You mentioned in your prepared remarks a new direction perhaps for Princeton and maybe Mountain View. Could you just be a little bit more specific?

Yes, Owen said 2 things. He said that we're doing a -- we're recapitalizing Princeton, which is really a question of, right now, the property is 100% owned by Boston Properties and there's no debt on it. And so we're saying to the market, "Is anybody interested in being our partner? And if you're interested in being our partner, would we be interested in putting some debt on it if that was the right execution?" So that's the process we're going through. And then in Mountain View, Owen said that we have an unsolicited offer on a portion of our single-story assets, and we're exploring that alternative.

Your next call comes from Ross Nussbaum from UBS.

A couple of quick ones. First, when you guys recast the Apple lease, are all those over overage rents going to get put in as fixed-base going forward?

So let me -- I'm going to give you an uninspired and probably non -- not very committal answer, which is we don't really talk about how we structure any individual lease. We have an interesting relationship with Apple right now where there's a percentage-rent and there's a fixed-rent component. And there will continue to be a fixed-rent component, as well as a percentage-rent component. And it's just -- it's not appropriate to sort of talk about how that's going to work.

Okay. That's a segue into the broader topic of New York street retail. Your brethren in the REIT sector and the office space are pretty hot and heavy on New York street retail. You got a couple of retail REITs doing it. Is that something that you guys have thought about spending more time on? It's clearly been the hottest part of the New York market the last couple of years.

Well, we -- I would say, on a stand-alone basis, we haven't spent a lot of time on it. The -- clearly, we own some terrific street level retail as part of our portfolio. And we continue to look at new opportunities in New York, primarily on the development side; a little bit less on the acquisition side. And some of them have retail associated with them. But in terms of a standalone strategy to pursue Street level retail, we're not doing that right now in New York.

So the only thing I would add, Ross, is that we have 2 large retail opportunities in front of us -- actually, 3. We clearly, if and when FAO Schwartz decides to leave the General Motors Building, there's going to be a major -- a block of space that can be accessed from Fifth Avenue, it can be accessed from 50th Street -- 59th Street, it can be accessed from Madison Avenue. And how we utilize that space, which is currently on 3 stories, will be an interesting opportunity for us to redevelop. The second and third are over on Lexington Avenue. We obviously have the space on the ground floor of 399. John Powers suggested that Citibank would like to keep the branch. How much of that branch they're going to keep and then how you get into that branch and how you might access other space on either Lexington Avenue or on either of the streets is going to be a question. And then the third opportunity is, once upon a time, the retail at 601 Lexington Avenue was sort of the new cool thing in New York City. I mean, I remember going to Conran's way back when in the early '80s. And quite frankly, we think that there's an opportunity to really revitalize the retail at the atrium at Citigroup Center. And so those are sort of the 3 major opportunities that we're going to be looking at, investing capital and opportunity, to really enhance the overall cash flow from -- over the next couple of years.

Okay. On the disposition front, can you spend just a minute talking about why a recap of Carnegie Center as opposed to an outright sale, which I know you guys tried to do a little while back. And then on The Avenue in D.C., is this the optimal time to be selling given that the NOI growth [indiscernible] south on that asset?

Well, let me start with Carnegie Center. I think we debated. We feel that we've had some terrific leasing activity at the property and it is approaching a more stabilized level. I think the occupancy right now at Carnegie Center is in the low 90s. But we still see some upside in the asset. We have development opportunities. We're doing a build to suit right now for NRG, as you know. So we thought, perhaps an ideal result would be to do a leveraged recap, possibly with a partner. We're very pleased with our management there and with the success that we've had with the property. And we found last year, in our Times Square Tower exercise, that we ended up doing that as a joint venture given where we found a lot of strength in the capital market for our assets. So on The Avenue, I think -- as I mentioned in my remarks, I think we don't know the answer to your question yet. Clearly, the execution that we're currently working on we think is attractive and it fits into the categories of the assets that we're selling. But the outcome of that sale is undetermined right now.

Your next call comes from Vincent Chao from Deutsche Bank.

Just wanted to just touch base -- or go back to the comments on the VC centers, Silicon Valley, Cambridge and more recently, New York. Just wondering if you think there's room for or a need for a fourth center, maybe in D.C., where Vornado is helping seed some tech funds and that kind of thing?

I would -- I think that we would all be enthusiastic if the brainpower that is concentrated in northern Virginia and the technology-oriented organizations that are in the defense home and security, cyber security, whatever you want to call it, would consider locating portions of their workforce in the district. I think the district would think that will be a wonderful thing, too. I think the interesting thing about D.C. is the commuting patterns and where people are living, and there's got to be a little bit of a change in the concentration of talent into areas that are not "traditional." I don't really want to comment on what Vornado is doing in Crystal City because I -- it's just not where we have any investment. But we clearly would be exceedingly enthusiastic, and Ray has been working with the administration about ways to incentivize some of these companies to be more open to looking in the city through economic incentives that would encourage them to put roots down in the city.

That's kind of the motivation behind our 501 K acquisition, the site, to have a platform where meaningful tech relocations could take place in a location that is consistent with where they try to put their workforce.

Got it. And would you be sort of interested in potentially doing some sort of side investments? Simon's also announced some stuff on that front in terms of retail innovation. Just curious if you'd have any interest in helping potentially spur that demand through some investments.

It's an idea that was in vogue in 2000 and 1999, and we decided that seeking warrants was not a core competency of ours. So I think that it would -- we would struggle to put together a portfolio of -- in the D.C. investments in order to entice tenants to come into a particular part of our D.C. market. I guess anything is possible, but I would not anticipate that it would be a core strategy that we would follow.

Okay. And then just going back to Transbay, I know we spent a lot of time on it. But in the prepared remarks, you talked about some blocks of space expiring in the market overall, in the 2017, '19 time frame. Can you just maybe comment on some of the tenants that might be looking for some larger space in that time frame?

So I announced -- named the number that are currently in the market today. But between 2017 and -- or 2016 and 2018, I think there is about 6.5 million square feet of lease expirations in high-quality financial district buildings. The majority of them being law firms and traditional [indiscernible] type of organizations. And so, traditionally, those tenants, as their lease expires, look at the marketplace and look at ways to become more efficient, look at the way they're utilizing their space. And more times than not, they choose to sort of change their current location. And that's the sort of market that we, I think, are looking at for some of the smaller blocks of space in Transbay Tower meaning 150,000 square feet and down. Some of the larger requirements that are out there are really, we think, going to be more tech-oriented because those organizations are looking for larger blocks of space and they have growth that can't be met in existing assets.

Okay. And just one last sort of question on the law firm discussion. In terms of densities at 250 West where you signed up a few law firm deals, can you talk about the density there versus sort of the 7- and 8-year-old leases that you have in the portfolio?

Sure. John, you want to take that one?

Sure. Certainly, there's a move towards increased density, and that comes from a couple of reasons. Law libraries are much smaller or nonexistent now. The ratio of support people to attorneys has changed. So it's -- part of it's density, but part of it's just sizing the space to the new characteristics of the law firm. The 2 examples that we have, MoFo and Kaye Scholer, certainly, have increased their density significantly, but certainly not what we see in other places.

I guess, can you talk about what that is in terms of square foot per worker?

I don't have the specific numbers for MoFo.

Your next call comes from Tayo Okusanya from Jefferies.

Just quick question on the suburban portfolio. Very meaningful lease-up both in Boston and also Princeton this quarter. Just wanted to get a general sense if that was a quarter-specific, or there's some opportunities you were looking at that just happened to land or whether those markets truly are feeling much better from a demand and also a rental pricing perspective?

So I think I said in my remarks, Tayo, that the suburban Waltham market is very strong right now. It's probably as close to where it was in sort of the early -- late 2000, 2001 time frame, than it's ever -- than it's been since then. I mean it's -- there is literally not a block of 150,000 square feet of quality space between -- in Lexington or Waltham right now, which means that build to suits are sort of part of the dialogue. And we've seen rents go, in the last 1.5 years, from mid 20s to the low 40s for the best space in the marketplace in those buildings like Bay Colony and Waltham Woods and CityPoint and Wellesley Office Park and Riverside, which are sort of the -- those are the higher quality buildings. And none of those buildings have a block of space that's in excess of probably 40,000 or 50,000 square feet. So that market has just been a consistent stronger market with better demand, and it's really been life sciences companies, some of them coming out of Cambridge and some of them being located in the Waltham-Lexington market and just expanding. Cubist Pharmaceuticals being the most significant of those. In Princeton, the -- I don't think Northern New Jersey, in total, has really had a strong recovery. But we have been the fortunate beneficiary, and we've worked hard at it, to attracting some pharmaceutical companies, particularly foreign pharmaceutical companies, that have gone through some explosive growth, and we did some things to entice them to come to Carnegie Center that have worked out. And so a company like Otsuka Pharmaceuticals, we started out and we gave them 23,000 square feet of, basically, free space for 6 months. And now, they've leased 140,000 square feet and they're talking about leasing another 80,000 square feet of space. So good things happen when you establish a relationship with a great customer and you treat them right. And so we have just been the beneficiary of some really strong organic growth within the Princeton portfolio. And as those companies do well, they become more attractive places for companies that are like them. And so we've seen a significant amount of other foreign pharmaceutical interest in the Princeton, and particularly in the Carnegie Center portfolio, and we don't think that, that is a sort of a quarterly phenomena. We think it's a consistent trend.

Great. That's helpful. And then just one more for me. The negative cash mark-to-market on the Boston portfolio in the quarter, I just was hoping I could get some details around that?

Yes. I think, I said -- maybe you missed it. So we had a lease that was signed in 2010 for 75,000 square feet at 111 Huntington Avenue. If you're curious, the rent went from $78 at the time, to $62.50, but there was a limited amount of tenant improvements and there was no free rent, so no down time. And so it was -- and net effect of it is actually a higher overall rent. But that lease actually landed this quarter so the new rent commenced. And if you pull that out, it goes from a negative 13% to a positive 4%.

Your next call comes from Brad Burke from Goldman Sachs.

Just one. Looking at the $2.5 billion to $2.6 billion portfolio on Boston that's been discussed as being for sale, and you look at those properties, and you see the pricing that's been discussed and you make adjustments for quality occupancy sub-markets etc. How do you think about that as a comp for your current Boston portfolio? Is it better than what you would've thought, or is it in line with what you would've thought? And if this transaction were to occur, does that make you any more optimistic about some of the potential development projects that you're thinking about in Boston?

Okay. That's a loaded question. So let me try and answer it without putting my foot [ph] in my mouth. The portfolio that is being sold is a combination of some, what we refer to as the jewels of the portfolio, as well as some more commodity-like real estate. In total, the valuation that they believe they are going to achieve and they very well may achieve it, would, I think, look -- make our portfolio in Boston look like it was being priced -- it's currently being valued at $0.60 to $0.70 on the dollar relative to what those buildings are going to go for. If in fact the buildings do sell for what they are reported to be listed for, then I would hope that the expectations that those landlords have for where they think rents are, are going to go up. And so that will be an indication that there's going to be more incremental pricing pressure in the overall Boston CBD market, as well as Cambridge -- one of the buildings is in Cambridge, which would clearly push rents and, therefore, make development more attractive because you have higher rents and you know what your costs are. And if your return on cost gets to a certain point, you're going to start a development. So I think that's all sort of a positive opportunity for the development activity in our portfolio in Boston which, again, currently is 888 Boylston Street sooner rather than later, and then a 600,000 square foot building plus a low-rise building at North Station. And the other piece which we've alluded to, but really isn't on anyone's radar screen, is that we're working with the city to put some additional towers on top of the, what's referred to as the 100 Clarendon Street garage, which is the site that is adjacent to the John Hancock Tower. But that's off into the future, so you shouldn't be putting that on your paper from a modeling perspective. And then North Station's probably the one that's closest, after 888 Boylston Street, from a timing perspective.

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

Mort? Is there any final marks -- remarks you'd like to make? Okay, I guess not. Anyway, thank you, everyone, for your time and attention.

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