Good morning, and welcome to the Boston Properties' First Quarter Earnings Call. This call is being recorded. All audience lines are currently in a listen-only mode. Our speakers will address your questions at the end of the presentation during the question-and-answer session. At this time, I would like to turn the conference over to Ms. Arista Joyner, Investor Relations Manager for Boston Properties. Please go ahead.

Good morning, and welcome to Boston Properties' first quarter earnings conference call. The press release and the 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 and accordance with Reg G requirement. If you did not receive a copy, these documents are available in the Investor Relations section of our website at www.bostonproperties.com. An audio webcast of this call will be available for 12 months in the Investor Relations section of our website. At this time, we would like to inform you that certain statements made during this conference call, which are not historical, may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Although, Boston Properties believes the expectations reflected in any forward-looking statements are based on reasonable assumptions, it can give no assurance that its expectations will be attained. Factors and risks that could cause actual results to differ materially from those expressed or implied by forward-looking statements were detailed in Tuesday's press release and from time-to-time in the Company's filings with the SEC. The Company does not undertake a duty to update any forward-looking statement. Having said that, I would like to welcome 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, Senior Executive Vice President and our regional management teams will be available to address any questions. I would now like to turn the call over to Owen Thomas for his formal remarks.

Thank you, Arista and good morning everyone. On current results are FFO per share for the quarter was in line with our prior forecast and we increased the midpoint of our full year 2017 guidance by a penny driven by operational improvements. We leased 565,000 square feet in the first quarter, which is below our long term averages for this period. This level of leasing is not a reflection of the health of the market or the vibrancy of our tour and proposal activity, but it is due to the cadence of our lease expirations the lumpiness of our largely transactions as well the fact that we leased three million square feet in the fourth quarter of last year. Our in-service office portfolio occupancy is now 90.4%, which is up 20 basis points from the end of the fourth quarter. We also had another quarter of positive rent roll ups in our leasing activity with rental rates on leases that commenced in the first quarter of 13% on a gross basis and 20% on a net basis compared to the prior lease, which was driven substantially by our California assets. New investment and disposition activity was relatively light in the quarter, but we recently completed two major financings at very attractive terms which Mike who by the way is having a $4.5 billion financing week will discussed in detail later in the call. Moving to the economic environment, U.S. economic growth continues to be a little sluggish with fourth quarter GDP growth estimates of 2.1% the employment picture also continues to improve incrementally with 98,000 jobs created in March, and the unemployment rate dropped to 4.5%. In the capital markets the 10 year U.S. Treasury also dropped around 30 basis points to 2.2% since the end of the last quarter.…

Thanks Owen, good morning everybody. The total market colors that I'm going to convey this morning is very consistent with our comments over the last few quarters, and I think it's really in sync with the overall tenor of the economy that Owen just described. Demand growth from technology and life science businesses are the primary drivers of positive absorption across all markets while lease expirations are dominating overall activity. Base utilization by large institutional office tenants and the legal in the large financial services sector has stabilized though we continue to see space reductions stemming from design changes as lease has expired and there have been flow of growth in decline from smaller alternative asset management firms as Pacific Investment Strategies don't always work out forever. Under the current macroeconomic conditions, we believe the most dominant issue is the impact of new supply with ensuing tenant relocations versus incremental demand and the realities of the time needed to rebuild, reinvest and re-tenant existing inventory in all our markets. Looking at the statistics from this quarter the size of the pool of the leases that's reflected in our first quarter same store portfolio was pretty small about 150,000 square feet in Boston, 100,000 square feet in New York City and in Washington D.C. and 240,000 square feet in San Francisco. The Boston same store statistics included a full floor deal of Prudential Center, which is actually cut on a low rise floor back in 2000 and late 2015, early 2015 and where the rents have declined from $76 to $61. So if you exclude this transaction we are actually up about 6% in the Boston area. And in New York City the release of one of the low rise Citibank floors at 399 where the rent move from $92 down…

Great. Thank you, Doug. Good morning, everybody. I planned to discuss our recent financing activity earnings for the quarter the increase in our 2017 guidance as well as touch on a few assumptions we think are important for you to consider as you think about our 2018 projected earnings. I'm going to start by describing our activity in the debt markets, because we've been quite busy again this quarter including executing $4.3 billion of new financing commitments. Earlier this week, we closed on a five year renewal of our revolving line of credit. We increased the size from a $1 billion to $1.5 billion and we improved our pricing. This extends out the availability on our facility from its prior maturity date in 2018 to 2022. At the same time, we close on a $500 million, five year delay drop term loan price at LIBOR plus 95 basis points. We have not borrowed under the facility and it includes a feature that allows us to delay usage for up to 12 months which makes it an ideal facility to fund a portion of our committed future development costs. Our bank group that includes 16 of our trusted partners to help us put together this $2 billion in bank financing and we truly appreciate their continued support. The most significant financing that we plan to complete this year at the refinancing of 767 Fifth Avenue, the GM building. We own 60% of the building and it currently has $1.6 billion of first mortgage and mezzanine loans that expire in October of 2017 at an interest rate of 6%. We've been in the market for replacement financing to repay both the existing loans and provide additional proceeds based upon the significant growth in cash flow we've generated since our acquisition. As outlined…

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

Great, thank you, good morning. I was hoping you could focus on the leasing spreads in the quarter, bit difference across the markets. Can you maybe talk through your expectations going forward and whether the net in gross leasing spreads with representative of the mark-to-market in those markets for you guys right now?

Sure Jamie, this is Doug. Again I think I give a little bit of color on what you saw this quarter and again it was a pretty small portfolio relatively speaking that pushed their way through in terms of when the new cash rents commenced. I think that you will continue to see very strong numbers in San Francisco as we complete the million plus square feet of rollover that we had in a Embarcadero Center starting in late 2015 that going into 2016 and 2017. I think you'll see a reasonably strong number in Boston as you see the rents rolling through at 120 St. James and 200 Clarendon Street which is where the bulk of the vacancy is because those rents were so low and you recall when we bought the property, we told you that the rents were $35 to $38 at the base of the building and in the mid-50s at the face of the top of the building and we're obviously doing deals in the mid-50's the base and then in 60's, 70's and 80's up of the top of the building. In the Washington D.C. portfolio the challenge with the mark-to-market is that every single year we're able to negotiate leases with 2.5% to 3% increases. So as those increases occur obviously the rents go up so generally when you get to the end of the lease in Washington D.C. there's not much of a jump in the mark-to-market. And then in New York City, as I've described before it's very, very hit or miss and so at 399, which are we've been very clear about, we're basically going to be moderately higher overall in that building on the 500 plus or minus 1000 square feet that's rolling over because the when you're in a bit lease to Citibank it with at the end they're obviously their terms where they were bumped and then where would they be in new calculation payment. And then we'll see good increases at all of the space that's rolling over at 767 the General Motors building and then we'll - the other portfolio it's very space dependent on their spaces that are way above market and there are spaces that are there way below market.

Okay. And just a final question. Can you just talk more about the bay area market conditions in Silicon Valley versus the CBD in terms of tenant demand and how would supply is in back in those different market?

Sure. I'll start now and let Bob Pester make some comments as well. Overall we have - I'd say we've seen a very consistent stream of demand in the CBD and the vast majority of has been growth. And while that the ticket size has declined from the large scale 500,000 to 700,000 square foot requirements that were growth requirements that we saw in 2014 and 2015, there's a pretty strong number of 100 plus 1000 square foot new tenant demand drivers that is in the CBD. In the Silicon Valley, there are two or three primary drivers of growth that have been occurring for the past three or four years. Google is the first, Apple is the second and to some degree Facebook has been the third, they have been exceedingly large absorbers of space. There are a lot of opportunities to build new buildings in and around the Silicon Valley, which are for the most part have been tear down and while there is a plethora of midsize and other companies that are there, I would say that those are generally not we see young growing companies those are stable engineering firms that have a more stable and a less expansive growth trajectory than the three companies that I described. And so I would say that overall there's been less incremental demand down in the valley, now there are obviously been new companies that have gone down there like LinkedIn that's been a big grower on a relative basis compared to the first three they're smaller. Bob, if you want to add anything.

Yeah. I think if you talk to the brokers in the Silicon Valley they would say the quarter was somewhat flat, but there still were several transactions that happened I mean Amazon took almost 550,000 square feet in a couple of projects. Applied materials to go another 28,000 square feet in Sunnyvale, Bosch signed a lease in Sunnyvale for 104,000 feet. Adobe is one more to be looking at downtown San Jose for expansion of another 300,000 to 400,000, and Google who has been rumored quite some time in downtown San Jose looking at the Diridon station site that Temescal has potentially could be in the market for a million square. So overall, I would say the activity is still pretty good from an expansion standpoint down there. In San Francisco, just in the past month we've had three tenant go through sales force tower all four between 150,000 square feet and 300,000 square feet and we have another one coming by Friday Tech tenant for 300,000 feet. And that's probably the best activity of the large tenants that we've seen at any one time in the marketplace in the CBD, I would say in the past two and half years.

Okay, great. That's very helpful. Thank you.

Your next question comes from the line of Vincent Chau with Deutsche Bank.

Hey everyone. Just curious, I mean I know you've touched on the deal flow in the private markets and still very attractive cap rates that you're seeing. Just curious in LA, outside of Santa Monica deal that you mentioned. What are the opportunities you're seeing in that market to expand beyond Colorado Center now that you are 93% or so prelease or leased there?

Well, as I mentioned in my remarks, it is a focus for us in terms of the new investment activity. We do have a broader geography perimeter that we're focusing on beyond just Santa Monica and I think as described in prior calls, we've been looking at things imply this country city, a couple of other communities and West LA. I would say right now, we are chasing with various levels of intensity probably half a dozen different types of investment. Some are existing building that require some rehabilitation or value added and in a handful of situations we're also looking at development. Though West LA will remain a priority for us in terms of new investment and we intend to stay disciplined, we don't have a target by year-end or by year-end 2018 of a certain dollar amount that we want to invest. We want to do - we want to continue to do, what we did in Colorado Center, which is to invest in the property at a we think a reasonable price and create value with asset level for shareholders. We're not going to make investments just to grow in LA.

Right. Okay. And that market has seen some slowdown in job growth for a couple months now and it sounds like the commentary was if there's some moderation in certain market leasing activity perspective. Is that having any impact on the opportunity set things like that or cap rates end market besides obviously the same market that you mentioned?

I think the pricing is at elevated levels in West LA. But honestly it's true in other markets that we operate in, the capital markets are very robust, I've described deals have on prior quarters and other markets like Washington that are weaker than Santa Monica that are also high levels relative to history on a per square foot basis. So I don't think some of those underlying fundamentals that you're describing are impacting the capital market for buildings in West LA.

Hey Owen

Yes, sir

This is Ray. I just did that virtually everything we look at in Los Angeles is off market transactions, because if we get a book on something we know it's probably going to be overpriced. So we're really focusing on identifying opportunities that haven't hit the market yet and the Boston Properties story is being very well we're see by some of the local smaller developers as great partners for their vertical development, so we're excited about that.

Okay. Thanks. And just last question from me, I just going back to the East Coast, Reston Town Center just sounds like there's good demand there and you mentioned that one of the blocks the smaller ones that you're working on. Just curious, we saw kind of an interesting article out there just talking about the paid parking transition and some tenants complaining about how that's hurting their business, so I just curious to be any commentary on that.

Yes. So we did implement paid parking at Reston Town Center at the beginning of the year. As you know Reston is an urban location, it has structure parking primarily, and there is going to be the arrival of mass transit to the region and certainly not uncommon for areas with this kind of density to have paid parking. We are utilizing a state of the art parking system that is being used in cities all over the U.S. and actually the use of these systems is growing around the U.S. In Reston specifically the system has been adopted by a 140,000 users so far. Now that being said as you suggest certainly not all of our customers some but certainly not all of our customers have expressed some concerns about the system or simply having to pay for parking and we are continuing to evaluate our execution and make adjustments to ensure that Reston remains preeminent location for business and resident in Northern Virginia.

Okay. Thank you.

Your next question comes from the line of Manny Korchman with Citi.

Hey, it's good morning. It's Michael Bellaman here with Manny. I was wondering if we can go back to your discussion during the call about private capital and you made mention of dialogue we are having. And I'm just curious if you can elaborate a little bit on the type of dialogue you're having there is it do you purchased properties, it is the sell additional properties and can you just delve a little deeper into those sorts of conversations and what you're hearing and learning from them?

So let me just say Michael. First don't read anything into that. We are having dialogues of capital sources as we should be, but you shouldn't read anything more into it than other than that. But look as you might expect onshore and offshore investors that are interested in Class A office, they're interested in partnering with us, purchasing building, investing in our development, and we talk to those kind of groups there are intermediaries that work with those groups that also approach us about such opportunities. And so that in addition to watch to seeing the transactions that are going on in the market, and I try to describe them for all of you in each quarter, we are having some direct dialogues with these folks. But as I mentioned, our disposition targets for this year are more in the $200 range.

So you're looking at predominately any big acquisitions with Capital Partners and I guess how they think about those acquisitions versus how you would be underwriting them?

How the Capital Partners would underwrite acquisitions versus how we would underwrite them?

Yeah I mean just an element of you know if you've had discussions with Capital Partners it's seeking some of these larger assets that have come to markets, I guess how aggressive are they willing to underwrite versus what you're willing to do or are they really seeking your lead and how do they think about on leverage returns versus you?

Yeah. Well, I'd say that generally Michael as you know we haven't been acquiring stabilize assets without upside at the cap rates where the market has been trading over the last several years, if anything we sold more than we bought in that kind of market environment. We did these very significant joint ventures with north just a few years ago to raise capital for our development pipeline. So when we look at acquisitions there are more things like I would say like Colorado Center where the building initially with 66% lease, the cap rate was quite low, but upon leasing and then rolling the existing tenants to market the yield on the investment is much higher than where stabilize building will trade. So in general we haven't been prepared to purchase buildings at the yield that I described earlier in the call, and therefore we haven't done a lot of acquisitions joint ventures with these groups.

And then just a question and maybe for LaBelle just on the GM building refinance, can you talk a little bit about sort of the underwriting of that assets, so where was it targeted from a leverage perspectives to underwritten value a coverage perspective to cash flow and then of proceeds how much are you going to be able to pull out on to properties balance sheet versus help for some of the redevelopment efforts and tenant work that you're doing in the building?

So honestly really don't want to touch on the characteristics of the financing until closes. It's not going to close until June, so we're still kind of going through the process, but you know we've got a number of institutions that are sharing and what they have underwritten and agreed to lock in the commitment with us. With regard to the excess proceeds there's a pretty significant amount of closing costs, because we've got to - we anticipate that we're going to be paying mortgage tax and obviously we underline it around hedged, so if the closing costs are probably north of $40 in total. And then my expectation is that we would hold back somewhere between $50 million and $75 million dollars for CIs and capital improvements at the asset level. So if you pull out $100 million or $120 million from the $700 million of excess proceeds and you take our share, and you're talking about $300 million, $275 million that we would be able to distribute to ourselves and you know some to our partners obviously to fund the remainder of our development pipeline that we have as well as you know future development pipeline.

Can you give me a range on leverage level at $2.3 billion that you've targeted and trying to figure out how to leverage the asset is to get the rate that you were able to lock in?

I would say that the leverage is low, look this is fully investment grade institutionally price loan at these credit spreads. You know we haven't completed an appraisal yet, but there's certainly been an analysis of it and you know our view on how we finance these assets is that you know we want to maintain a reasonable amount of leverage, but we want to put sufficient capital on the assets so that we are borrowing at very, very attractive rates, and it's unity kind of get up into you know beyond the kind of BBBs on the CMBS into the DDs you start to get into a credit spread that it significantly higher than what we can borrow from the corporate side. So we kind of shy away from that. So the LTVs for investment grade, CMBS kind of range depending on the characteristics of the asset, this asset obviously has great cash flow characteristics, long term leases and still has a lot of built in growth, because of the below market in place leases.

Great, thank you.

Yup.

Your next question comes from the line of Tom Lesnick with Capital One.

Hi guys, good morning. My first question has to do it's just general activity with the GSA and the contractor community, I think you guys mentioned one lease with the GSA and then conversations with the contractor of VA 95, but can you comment overall about what kind of optimism you're seeing in that community, and it's way ended now that Trump is approaching 100 days.

Ray you want to take that.

Sure. There's still a lot of people waiting on the sidelines, I can't tell you how many tenants at Annapolis Junction which is our project up near NSA that have proposals from us contract appended. So first of all, I want to confirm that it's our belief that the budget will get resolved this week and have minimal impact of any on the real estate market, so that should not be concerned. But there's still a tremendous amount of demand on the contracting side especially in Intel and defense, we think that those sectors will come back very strong under Trump Administration. Life sciences, social services maybe not so much, but fortunately with our focus in Northern Virginia we're in really good shape to take advantage of a recovery market there, but the headline is still a tad uncertainty, but the prospects look very good for increased demand on the contractor side.

Appreciate that. And then one last one on Colorado Center, I believe you mentioned that one of the remaining few spaces had been leased subsequence at quarter end. Am I correct and understanding that there's just once space left?

Yes, there is one block. And we have - we could do that we could do a deal there tomorrow on that space we're just trying to make the right decision in the last piece of space.

Got it. That's helpful thanks guys, appreciated.

Your next question comes from the line of Jed Reagan with Green Street.

Hey, good morning guys. Can you give us an update on the entitlement process at the Oakland residential side and then does that deal signal that you may be interested in Oakland office eventually?

Bob?

We are fully entitled on the open side as of a couple of weeks ago, and we've looked in downtown Oakland, but before at office opportunities that I just don't see it is something that we would have an interest in at this point.

Okay. And separately you mentioned that New York City leasing tempo of loss views accelerating, I mean to what extent you think that's a function of overall market health improving or are those more BXP's specific factors and then would you say market rents are falling for spaces above a hundred bucks a foot in New York at this point?

John you want to take that?

I think the market has been pretty flat here, the availability rate didn't move in the first quarter, move one tenth of 1% in Manhattan and the leasing velocity was up just a shade from the 12 year average, so it's pretty flat.

And about the sort of high end market rents any changes you're seeing there?

Yeah, I think there's more - there's a little more interest in the high end market rent and there has been, I think that the sticker shock that was there or year or two, is not necessarily they know, but it's all on the margin.

Okay, appreciate that. Thanks guys.

Your next question comes from the line of Eric Aslakson with Stifel, Erin, I apologize.

No worries. Yeah, so good morning. Quick question on, I heard the commentary, I guess preliminary commentary on 2018, when do you expect same store NOI growth is actually start pick up for BXP?

I think that our same store growth has continued to be positive. The cash same store was over 4% in 2016, it's a little bit less based upon our projections in 2017 because we're - we've got this big rollover that we mentioned, that Doug mentioned we've got basically we're going to lose $30 million from year-to-year. So there's other growth in the portfolio we still believe we're going to have positive rental rate growth obviously in 2017 and also in 2018 and just going to be more moderate. And I think that the cash growth actually in 2018 will outstrip the GAAP growth. We've built in a lot of these early renewals that we've done where in California, the Embarcadero Center and Cambridge that we've kind of been blending in that had 2018 expiration. Cash rents are going to start to hit that in 2018, so I think the cash will be better in 2018 than the GAAP picture. But if you think about 2% down kind of starting, I mean again we're going to be positive, but until we release that 399 space, which we believe won't occur, won't hit the books until 2019, I think seeing real acceleration beyond kind of more of an inflation level is going to be difficult. But we did comment that we anticipate the $110 million to come from the hand full of assets, which is again only eight or nine assets, I mean $110 million is about 7%, so we are expecting 7% growth just from that select group of asset over a two and half year approximate period. And then there's the rest of the portfolio that obviously is going to grow at some level. So if you kind of look out through that whole period I think we will see good, good same store growth it's just again a little lumpy because the expirations and when they are.

Okay. Great. Thank you.

Your next question comes from the line of Nick Yulico with UBS.

Thanks. Couple of questions, Mike I was wondering if you could give a little bit more of a feel for when you talked about the development NOI that's going to coming in 2018, 2019 there being a split kind of an early sense of what that split might look like?

This is hard for me to say right now, I mean I think what I said was $25 million to $30 million is signed leases that we have a good projection for when those tenants are going to take occupancy. So we feel very confident about that. There is additional leasing that we should be able to get done in 2017 more tenants that will need to be an occupancy in 2018, I think will do some more leasing at Salesforce Tower for example for tenants they need to be an space sometime in 2018, but some of those tenants are going to be in 2019. We're talking the tenants that have kind of both requirements and again we can't book revenue until this energy is in a new development. And if you look at the residential property, so we've got 600 plus or minus units to deliver we're delivering them in the first quarter of 2018, our expectation is there is a 12 to 24 month lease up timeframe for that type of residence of development obviously the expenses for residents of development you have to kind of experience them early on. So I would think that we're probably going to get 25% to 30% of the NOI out of those residential developments in aggregate in 2018, and then the rest will come in 2019. So those are kind of two of the bigger development that we have, 888 Boylston Street is going to be basically going to be end of 2017 and there's only 4.5 left, that I think that we should be at the lease that and get occupancy sometime in 2018, those are the big one.

Okay. That's helpful. Just last question you also you talked about it could take some additional near term expiring space back I assume you meant that 399 Park. Based on what that possibility is today, what would the financial impact would that be specifically would this create another adjustment down in your same store NOI guidance if you did this?

I think it could I mean that's why I said it. And we to the extent that we can get the tenant to pay the full amount of rent. So we get the space back and we get start to work on this space, we may elect to do that, if we think is going to help us lease this space on the back side of this more quickly. So obliviously we have our rule that we don't include termination in common same store, and we do that because it can be more volatile, and we want to get that with the same store is, but in situations like this unfortunately feel away. So we try to be very clear about the ins and outs, because it's not a reduction in the overall revenue that we're going to be getting or expected to get in 2017 is just into the bucket.

Right. Any square footage amount you can give us, so you can now put a parameter on this.

There could be another couple hundred thousand square feet.

Okay.

As we get closer to the expiry. Right I mean in the expiry of these leases that are in August and September they're get less - they're less terminations,/ is just like time.

All right. Thanks, everyone.

Your next question comes from the line of Alexander Goldfarb with Sandler O'Neill.

Hey, Good Morning. Mike, so just continue on the 2018 conversation. You had outlined cap interest coming off next year that's going to cause the GAAP interest rate to increase. From a GAAP perspective is not a cash, but from a GAAP perspective. Should we expect the NOI coming from those developments to equally offset the cap interest or is there going to be drag so that as word revising our models or updating them we're probably going to see a negative impact as more cap interest comes off versus GAAP contribution from NOI from the developments next year?

I mean the developments are generating a yield as around 7%. So it's well in excess of what our capitalized interest rate is with the currently around 4%. So that won't be a drag, it'll be an improvement.

.:

So I'm going to Bryan Koop answer that question relative what we did with eagerly at the Prudential Center, which I think he'll give you some contact of what we're doing in our some of our assets?

Yeah. So we are consistently seeing the customer, the tenant looking at power of how do they attract your talent to their location, and the restaurants and the total mix of not only the base is a building, but the entire neighborhood is becoming more important and like never before we've seen companies do analysis on this in terms of what that mix is about the demographics of the neighborhood, and how they're going to use it in their strategy in talent. But comes right on with the response that we've received from the repositioning of the Prudential Center with the addition of Eadly [ph] versus the food court we had before, which was absolutely a strong performer, one of the best in the country the response from our customers has just been really outstanding from all our existing clients. We're seeing the same thing at the hub as well where they focus on the geography of neighborhoods right, and with our additional anchor that are going out today we're seeing increase in terms of what does that play in terms of how they're going to use the office space. We have one particular user who's very focused on the fact that we landed Live Nation. They see it as a place that they can further events and again the track talent for their customers for their internal purposes.

Okay. But from your perspective a Marquee brand versus I mean Eadly does high volume by the economics to you the same or it's better with an Eadly type versus a more formal Marquee type?

I don't know what the economics of a blue concept are exciting that's what you're describing. But I can tell you that high end restaurants have exceedingly high upfront costs and there's so there's a long payback associated with achieving or returning as opposed to a more I don't know you to use the word and kindly but a pedestrian kind of a concept. So as an example we are talking about more of a food all at six in avenue and I would expect that the investment will be far different than the kind of investments that would be required for three or four or five Michelin star restaurants, and the revenue will obviously be different and the return in the early period of time will be significantly different as well.

What Doug saying about our key versus what their brand name, that more pedestrian. Each situation is different, but what we've seen here is that the desire by our client than this we have a lets we have a top chef below their space isn't necessarily as important as only think the bulk of their population wants. I'll give an example, so we have earls coming to the Prudential Center the response by earls which is a chain out of Canada has been just outstanding from senior executives that are top firms at the Prudential Center, and it doesn't have to be that Marquee top chef to get a result that you're looking for creating a great place.

Okay, that's helpful, thank you.

Your next question comes from the line of John Kim with BMO Capital Markets.

Thanks good morning. I just wanted to clarification on your guidance change, I realize now a few items cancel each other out, but excluding those items you still have a 5% gain from the debt extinguishment, but your guidance for the full year only increased by $0.01, so it looks like the guidance overall decline on your core business, can you just clarify that?

So the gain on our debt extinguishment is simply accelerating the fair value interest that we would have already gotten had we let that loan run through its natural maturity of October 1st, so that was in our guidance, we were expecting to get it in the third quarter, because it's simply the fair value component of our interest expense. So as I said the GM building has an interest rate of 6% on a cash basis, but on a GAAP basis the interest rate is 3%, so we have the positive 3% that we put in every quarter to bring it to fair value. So now that we are going to pay off the loan in June, we have to accelerate the rest of that piece, because it's sitting on our balance sheet, so it has become at the positive. So it's really just timing from third quarter to second quarter that's all of it.

Okay, got it, thank you. At Salesforce Tower appreciate the updates on the leasing interest, and just wondering if you still feel comfortable with the building being fully leased upon completion as they did a few quarters ago.

As I've said, we've got good activity, I don't know it would be fully leased by completion, but I think we'll be well along by the end of the year.

Okay. And then Owen, I think you've discussed at a recent conference being more reserved about selling your prime assets in being market timers at this time in the cycle. Can you just elaborate on why this is the case particularly as you see potentially more discrepancy between private and public market valuations?

Yeah, well a couple of dimensions to that, I mean first is capital need you know you've seen our leverage ratios, we just completed $4.5 billion of financing we've put away our unfunded development capital need with this and have created capacity for additional investment our overall leverage levels remain low, so we don't have a need per se for capital right now. And then as we look at the market, I talked about this in my remarks you know we are - we don't see a big spike in interest rate in the near term, we're continuing to have sluggish growth. We're certainly expect at some point to have an economic and valuation cycle for real estate, but I think the timing of that is right now, it is difficult to divine and from what we see you know we continue to believe we're going to have a constructive operating in capital market environment for the - at least for the near to medium term. So for all though and I talked a little bit about where pricing is in our lack of desire of taking on new assets that these you know flourish cap rates. So for all those reasons you know we haven't done any what I'd call major asset sales. We've been selling $200 million, $300 million of assets a year but we haven't done a major asset disposition since the north just joint ventures we did a couple years ago.

And you mentioned the sale potentially of suburban assets in D.C. and Boston, any update on New York, suburban New York?

No we are not actively in discussion selling anything in New York, in the New York area at the current time.

Okay, great. Thank you.

We have time for one final question, and that question comes from Manny Korchman with Citi.

Colorado Center, the that you mentioned or talked about, are those contingent on redeveloping the property and what's your sort of plan redevelopment budget for the properties?

None of the leases that we have signed are contingent on doing anything from a legal perspective. We have an expectation that we've set with our tenants that we're going to do the right thing by the property and we've shown them the conceptual plans and then the architectural changes that we're going to be making and we've told the city of Santa Monica we can tend not doing these things, and we're going to get this stuff done you know sometime in the next 12 plus months, and it's somewhere between $12 million to $20 million probably is that sort of big picture ballpark redeveloping budget.

Thanks. And then on Salesforce Tower, I think you mentioned amongst the potential tenants set co-working companies, can just give us an update of view on how you think about co-working in sort of a user space especially in trophy asset like that?

We have been a supporter of the co-working platforms, we have a handful of leases with we work and we have been in discussions with other operators. We have consider - we consider that co-working phenomena for lack of a better word as positive for the office markets, these companies have aggregated demand from individual users that we as a major landlord have a more difficult time doing direct leases with, they've aggregated this demand and created significant net absorption in most of the markets where we operate. And so we think it's been a positive for us. And then lastly, we think the tenants when they're in our building actually are positive for the building. We think they create energy and activity around the space and we've been positive about it. We continue to monitor the industry carefully, there are evolutions going on, some of these groups are doing more business with corporations, as opposed to support a larger users rather than individuals and we're certainly monitoring that and we are considering additional leasing with some of these groups and some of our assets. But again the good example Bob you might want to comment, we work is in 535 and we think which is a brand new building we completed a couple years ago and we think it's been a positive.

Yeah, they actually refer to that as their flagship in San Francisco, and it's been extremely positive on both the building and the surrounding marketplace still looking, now looking at space where to cross the street at 560 mission, because they can't get any more in 535, because it's fully leased. And the experience we have at the minute in a Embarcadero Center which has been very short, because they just opened earlier this year has been nothing short of phenomenal, they leased out major blocks of spaces to companies like Twitch and few others and actually are potentially looking at more space in Embarcadero Center.

Thanks very much.

I would now like to turn the call back over to our host for closing remarks.

Okay. Thank you thank very much for you time and attention at Boston Properties.