Douglas Linde - President of Boston Properties Inc and Director of Boston Properties Inc Arista Joyner - Investor Relations Manager Michael LaBelle - Chief Financial Officer, Senior Vice President and Treasurer Mortimer Zuckerman - Co-Founder, Chairman, Chief Executive Officer, Head of Office of the Chairman, Member of Special Transactions Committee and Member of Significant Transactions Committee Robert Pester - Senior Vice President and Regional Manager of San Francisco office

James Feldman - BofA Merrill Lynch Jeffrey Spector - BofA Merrill Lynch Steven Benyik - Jefferies & Company, Inc. Steve Sakwa - ISI Group Inc. James Sullivan - Cowen and Company, LLC Michael Knott - Green Street Advisors Ross Nussbaum - UBS Investment Bank Suzanne Kim - Credit Suisse Michael Bilerman - Citigroup Inc Jay Habermann - Goldman Sachs Alexander David Goldfarb Jordan Sadler - KeyBanc Capital Markets Inc. Mitchell Germain - JMP Securities LLC David Harris - Gleacher & Company, Inc. Robert Stevenson - Macquarie Research

Good morning, and welcome to Boston Properties' First Quarter Earnings call. This call is being recorded. [Operator Instructions] At this time, I'd like to turn the call 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 Monday's press release, and from time to time in the company's filings with the SEC. The company does not undertake a duty to update any forward-looking statement. Having said that, I'd like to welcome Mort Zuckerman, Chairman of the Board and Chief Executive Officer; Doug Linde, President; and Mike LaBelle, Chief Financial Officer. Also during the question-and-answer portion of our call, our regional management team will be available to answer questions as well. I would now like to turn the call over to Mort Zuckerman for his formal remarks.

Good morning, everybody. I think we are continuing to see fairly good progress in virtually all of our markets and feel very comfortable about the market responses that we anticipate going forward. As we have indicated many times in the past, I think the markets that we are in and the product that we have within those markets really does work in times like this and we are optimistic about being able to start another building in New York and to lease that building up fairly well. So I think we are feeling modestly confident about the future and reasonably optimistic about our particular role in the real estate markets that we are in. This is all within the context of seeing still a fairly anemic recovery in the economy in general. This suggests that interest rates will remain fairly low but demand will be selective, and there will be pressure on the best buildings in the best markets. So we think we have a chance to increase our prices but it's not going to be anything like what we had several years ago until the overall economy gets to be stronger and I just don't see that happening for a while. With that, I'll turn it over to Doug Linde who will give you a detailed analysis of our performance. Doug?

Thanks, Mort. Good morning, everybody, and thanks for joining us today. When I spoke to you last quarter, I gave you a pretty thorough dive into the operating fundamentals in our markets and our expectations for 2011. So this morning, I'm going to give you a more condensed summary of what we're seeing from a leasing fundamentals perspective and then I thought I'd put some more details on our current plans for deploying capital, which everyone is always interested in and give you a little bit of a perspective on what we're seeing in the acquisition markets. But first let's start with the leasing markets and sort of feeding off of Mort's comments, I think it's fair to say that our business is clearly more correlated to what's going on in the stock market than the overall economy. And it's pretty evident in our quarterly earnings numbers. The stock market continues to perform well, gross margins are at historic levels, corporations have robust earnings and, guess what, we're seeing pretty good leasing trends, partly in Midtown Manhattan, the Back Bay in Boston; Cambridge, Massachusetts; Waltham; Reston Town Center, Virginia; and the peninsula, which for us is Mountain View, California. These are markets that all the being characterized by accelerating leasing velocity, increases in rental rates and/or lower transaction concessions. Now I'd say that Washington, D.C., the city itself, has really yet to see a pickup in the private sector activity and while San Francisco CBD is starting to see more tenant demand from technology-type tenants, in less traditional buildings, we're only beginning to see improvements north of market, which is where our portfolio is. Our quarterly second-generation leasing stats, I think, were better than we had forecasted with a rolled down of just under 3%. The Boston activity was concentrated…

Thanks, Doug. Good morning, everybody. I just want to start by briefly talking about the state of the capital markets, which have strengthened. The debt markets remain active to a real estate company like ours and lenders are really seeking good opportunities to invest today. The corporate bond market is stable. Our spreads are in the 140 basis-point range of that result in borrowing costs in the 4 3/4% area today for a 10-year term. On the mortgage side, lenders have become more aggressive and spreads have come in approximately 25 basis points in the last quarter since we last spoke. We're spreads in both the insurance company and the CMBS markets in the 150 to 175 basis-point range at leverage points from 50% to 70% of value. The success of new securitization offerings has given confidence to CMBS originators and added to the competitive environment. And we believe it's likely to result in further spread compression. The banks are also actively lending again in the 3- to 7-year term financing market and once again pursuing construction loans for well-conceived development projects. The convertible debt market is also open to us with coupons of a 1% to 1.5% at strike price premium of 20% to 25%. We are in the final stages of documenting the commitment application for the refinancing of our $450 million expiring mortgage loan on 601 Lexington Avenue. We expect to close a $725 million, 10.5 year mortgage financing in June with pricing in the 5% area. We plan to utilize our line of credit to preserve the mortgage tax and provide bridge funding from the existing loan's expiration date on May 11 until we close the new loan. The only other mortgages coming due in 2011 are two loans totaling $135 million on our joint venture…

[Operator Instructions] And your first call is from Jim Sullivan with Cowen Group (sic) [Cowen and Company].

Guys I have a 2-part question on San Francisco. Doug, in your prepared comments, you summarized very active leasing activity on the part of several large tenants, technology-driven tenants. And I'm just curious as you think about that market whether the -- and you stress of course, your exposure being north of market rather than so-ma [south of market]. I just wonder if you, as you look at how that market is developing whether you are tempted to consider development opportunities in the so-ma district. And the second part of the question is, in the north of market district, do you anticipate that you will see technology firm demand in that market or is it simply waiting for related professional and financial service tenants demand to expand?

I'll take a stab at this and Bob Pester can correct me or add-on if he thinks I'm being too simpleminded in a way I think about this. When you think about the south of market, market from a technology perspective, for the most part, those are tenants that are relatively small that are looking at older brick-and-beam, warehouse-renovated buildings and they're looking at them for 2 purposes. One is there's I guess a unique character about what the workspace looks like. And for two, and probably as importantly, they're relatively inexpensive. So they are all being leased at rates that are -- I'm being a little bit obtuse about this, but somewhere in the mid- to high 30s sort of where rents are. And the question of new development in that particular market is I think sort of not part of the equation because the type of cost associated with new development and the type of density that would be required to make sense of it would preclude those types of tenants from getting both that funky-type space that they are currently at least seem to be enamored with and the pricing would be significantly different. With regards to north of market, there are 3 or 4 what I would refer to as mature technology companies that have made the leap across or pretty close to north of market, salesforce.com being one, Google being the second. Those 2 are in the Hills for Hills Copy [ph] (1:09:03) former building as well as 1 Market Street. So there is a technology tilt to certain tenants that have gone to that market. But for the most part, the tenants that are most active today are tenants that are probably, at least in terms of what they are thinking about, from an infancy-to-maturity perspective, not ready to be in a 30-story, high-rise office tower with other tenants who are wearing jackets and ties or at least clothing and with an attitude that is different than what you're seeing quite frankly in the types of places they're looking at when they look at south of market. Bob, you have anything to add?

Yes, I would just say, if you take out the Zinga [ph] Transaction, which was 250,000 square feet, most of the activity that's a been in multimedia goals have been substantially smaller transactions or shared space transactions. Doug referred to the north market tenants as more mature. I call them grown-up tenants and that includes Microsoft, which also has space right across the street from us in the landmark at 1 Market Street.

Okay. And one other question for me. Concerns the Route 128 submarket. The Carnegie Center portfolio, albeit it outperformed in its submarket, generally lagged the overall portfolio, I would say, over the last 10 years. And there are segments of your Route 128 portfolio that have, I would say relatively speaking, underperformed as well. And I wonder if you are considering any culling, if you will, of that portfolio at all?

I would say that if you look at our Route 128 portfolio, that portion of the portfolio has actually outperformed the suburban marketplace in a very significant way. Some of our Route 3 properties, I would say, have been laggers and that's largely because companies from Cambridge and the companies that are being backed by the venture capitalists who are either located in the Waltham marketplace or down in the city or in Cambridge, tend to want to locate those companies close to the nexus of 128 and that site as possible. And our portfolio has sort of, I'd say, we have become more and more focused in our approach to where we have owned and we have put capital into our suburban capital so that I'd say 90% of our portfolio from a capital perspective is between Lexington and Waltham, and they're now Weston, with the 1 property down South, which is 140 Kendrick Street and that's really what our focus is in. And if there's going to be some culling, which there maybe, it would be the stuff that is sure to the north of 128, which is either in Bedford or in Andover or in Chelmsford, places like that.

And our next call comes from Alex Goldfarb with Sandler O'Neill.

Just a question. My first question's on New York. Just with the recent WilmerHale departure downtown and the possibility for Conde Nast to potentially sign a deal down there. You think if both of those -- well, the WilmerHale came. But you think that that would fundamentally change the way Midtown tenants will start to look at downtown or you think that Midtown will always be the preferred place?

I still think Midtown will be the preferred place by a wide margin. People who are going in downtown have a very different concern. One of them is the rents are going to be significantly lower and people are much more sensitive to that issue. And two is, there are a lot of -- downtown has become much more vibrant community, if I may say so, with a tremendous amount of activity in sort of the new technologies of our current era taking place there. New York City as a tremendous beneficiary of that, both the atmosphere of that place and the attraction of it for the kind of younger people in the world of technology and it's where they want to work. So I think that portion of it is definitely going to be for the benefit of the downtown area. However, it’s still much less accessible in certain many important ways for a lot of the people whom we generally tend to cater to in the Midtown area and particularly in the best buildings in the Midtown area. I don't think there's going to be that much an effect on our real estate, but I think it will -- what you are referring to definitely will have some effect on the overall Midtown market. We still think all the major users are, by and large, going to stay in the Midtown area for all kinds of reasons, particularly relating to where their main employees work.

I'd also note one other thing, Alex, which is when Wilmer Cutler went on their journey for space, they initially landed on a building on the Midtown west side, actually at Worldwide Plaza. And ultimately where I would say within a stones throw of doing a transaction there, and then were basically pushed aside for a larger tenant and we're unable to consummate a deal there and then look downtown. So it wasn't we want to go downtown for business purposes first, it was we weren't able to find what we were looking for from either a price or a space perspective in Midtown Manhattan and they ultimately went there on a secondary perspective.

Okay. Where you guys had considered One World Trade before, that still, in your thinking, that decision was still a one-off. You wouldn't start to look downtown, would you, for possible investment?

By and large, no. I think that was a one-off investment for sure and an interesting one I might add. But in part, it was a one-off investment because it was being so dramatically subsidized by every government agency in North America and probably some in South America. So I think that was a very, very specific situation and I think it should work out well for the people who ended up doing the development. Obviously, [indiscernible] (1:15:19). So I do think that was definitely one-off, we have not really been focusing or looking in that area.

Okay. And my second question is for Mike. You guys used the ATM obviously good amount year-to-date. Two-part to this. One, is there any more ATM in your guidance perhaps under a new program? And then two, given that you guys are going to presumably close Carnegie, close Broad and you had $500 million of cash as of the end of the fourth quarter, what drove your ATM, what was the decision to use the ATM?

Alex, we really looked at the company's fixed charge ratios and leverage ratios and we did a $1.5 billion of new investment and we thought it was prudent for the company to raise a little bit of equity to match up with that asset investment. I think that going forward, we're going to look at what our opportunity set is for making new investments and we will consider and make decisions about future equity raises depending on what those opportunities are as we look into the marketplace. I think that we have experienced the use of the ATM, we're happy with the way it worked. I think that, as I mentioned in my comments, its prudent for us to have that tool of capital raising available to us in our arsenal. So that if we're in a position where we do want to raise a little bit of equity that we can use it if we want. So that's really how we look at it. And if we find additional opportunities to invest in new capital, we're going to evaluate our balance sheet and our leverage at that time.

Let me add something to that, okay. We're not out of the expansion business here. We're going to be continuously looking for opportunities. And frankly, the larger scale opportunities will be a little bit more attractive to those who can move quickly and have the capital to move. And we're going to keep ourselves in a position where we have enough powder to do just that. I think we had the chance to make some wonderful acquisitions last year and we're not going to stop looking for that, whether they be development opportunities or existing buildings. And we're certainly going to continue those efforts.

The next call comes from Steve Sakwa with ISI Group.

Mort, I was wondering if you could just address the west-side opportunities. A number of your peers are getting ready to either start construction on some platforms or talking about doing some build to suits. So just wondering how you think about doing some build-to-suits. So I'm just wondering how you think about the west-side as additional competition coming into Midtown?

Look, I don't think the west side has the same stature as the, shall we say, the upper east side of New York City. That, by that, I mean from the mid-40s to the 70s up on the east side. But you have again, let me just say, certainly a sensitivity to price in a certain part of the market and a lot of people are looking for new space. I forget the number but we have a large number, a very large number, I mean better than in double digits of large-scale tenants of 100,000 square feet or higher, who are going to be looking for space in the next several years. And those of us who follow that market would like to get there with the right kind of product. There'll be those that will not want to leave the east side, and there'll be some who will. All I can say is that if you are -- from our point of view, were still going to stay in buildings whether we build them or buy them. That we think are in the very upper end of the market. That is a strategy that works extremely well and has worked extremely well during a downturn. Everybody does well when everything is booming. But we find that these buildings continue to do relatively much better when there is a downturn and knowing the cyclicality of the business we are in, we always plan for that and prepare for that. We think that will be opportunities for us to buy things, and we're definitely going to need -- if we want to be able to get some of the best buildings, a lot of them are going to be in very, very, very big numbers and we want to be prepared for it. The west side is an area that we would be open to. And I think we are a little bit less confident about its future than we are in the east side, but I think both of them are going to do well. New York City has come through this particular downturn, as we all know remarkably well. I mean, we are frankly surprised on the upside at just how well it's done, and there's a lot of growth going on, on the east side. It's not to say that people aren't going to be cautious about rents, but I think you're going to see a lot of growth and you're going to see some real pressure of demand on supply in the next couple of years and it's a long-term sort of business development program that we have, and we're going to just be focused on all that.

Okay. And then maybe you could just address, I guess, some of the issues down in Washington. I know there's a view generally by most real estate professionals down in the district that the government just will never really cut the workforce. And when they say cut, they really just means slow growth. I mean do you really believe that it's not going to change or do you think maybe it is different this time in terms of how the government will think about its workforce?

I would put it this way. I think the government will make some token cuts in various areas. But on balance, those cuts will be relatively in minor compared to the just natural growth that they have out of the various programs that they are in. It's hard for me to imagine the government's really going to be cutting back. There will be some cut backs without question, but they will be, I think, more political and symbolic than real. We think Washington is just in very good shape, we're doing very, very well there. We are looking for sites or acquisitions, but particularly for sites that do development. I just went through in great detail our development along Pennsylvania Avenue. It's just a huge success, I mean, both on the residential side and on the commercial side. And that's the kind of thing that where we are able to build not just to the upper end of the market. I would say that building, both on the commercial and the residential side, is just seven-league boots ahead of almost everything else that's been done in Washington. And it will be received as such. It is being received as such and that's where we think we can do best and we intend to continue looking for sites where we can continue to do that quality work. That's going to be a huge success for us. So that sort of just gives us even more impetus to continue in that being we think we're going to find some sites, or at least we hope we will, and continue working in that particular sort of bracket.

And our next call comes from Jeff Spector with BOA.

I guess just one follow-up on D.C. I'm here with Jamie [Feldman] as well. Jamie and I were actually thinking that given some peers are talking about now entering D.C. or doing more in D.C. Now is it a good time to get a little bit more aggressive on disposing some properties there? Is that incorrect thinking?

I don't think we approach it that way, to be honest with you. We've got a lot of great assets in D.C, probably the best pool of assets that anybody owns in D.C. And I do think that there is a revival, shall we say, to some extent at least in terms of what we see as a lot of growth in the D.C. market. We don't want to sell assets into that kind of a market. We frankly want to hold assets or buy assets in that kind of a market because we think the longer term values are embedded in that market and we don't think -- look, there is a real supply constraint on that market which is called a height limit in terms of how high you can build. That automatically limits the amount of space you could put on in most projects. That means you have to find the big sites if you want to develop large projects. So the assets that we have -- we're very happy with the assets we have. But we don't think we ought to sell them, we think they're very long-term holds and that's still the basic part of our business, which is to have outstanding assets and hold them for the long-term.

I guess maybe thinking about the markets. Any markets you regret not trying to enter over the last couple of years, like L.A.? It seems the stock market at least is predicting a big return for fundamentals in that market.

No. I'm sure there are markets that we would like to have been in. But again, in L.A. there is one part, the downtown L.A. market is not a market that really appeals to us by and large. We generally have what I would describe by and large as commodity space there. We just prefer to focus in on those kinds of buildings that set themselves apart from the rest of the market in quantitative terms and there are certain part of the markets where you might have it, West L.A. for example. But it's very difficult to work there, to assemble sites or even to assemble buildings there. So we just have not yet found a way to break in. We've tried a couple of times and frankly we haven't succeeded. But there isn't a market that we wouldn't be interested in if we found it met the criteria that I've more or less tried to outline. And there are other markets there, I mean Seattle may be a market, for example, that we would be interesting. But for the moment, I think we are really not looking aggressively in these markets. And perhaps we should but we, frankly, we've been kind of busy.

And this is Jamie with the final question. Can you guys just give us an update on how you're thinking about the end of QE2 and what it means for treasury rates and what it eventually means for cap rates?

Oh boy. Let me take a crack at that. And Doug, if you wouldn't mind joining and I would appreciate it. I think the end of QE2 is certainly going to affect interest rates at some point. The Fed will still do whatever they can. And if you saw the Bernanke interview, whatever they could to make sure the interest rates stay low because monetary power is about the only thing we can do. There is certainly going to be pressure on the fiscal deficit side of the equation. So I don't think the kind of fiscal stimulus that we have seen is going to continue. The stimulus program itself that was a special one at $870 billion is basically going to run out of money sometime this year. We are faced with real headwinds because of higher energy costs, higher food costs, declining home equities, because of declining home prices. It's very difficult to see a major upturn in the economy, unless business begins to start spending the kind of money they have accumulated to expand. There will be some of that. But I have to say, I think, the business community is still very, very cautious and I think they will be very careful about the capacity. I don't see that there's going to be pressure in the economy, upward pressure in the economy, of any significant level. And I think we're going to have a very anemic recovery. You have to think about the fact that we are in a very slow growth economy. We after all had a 1.8% growth in GDP in the first quarter. And if you took out inventory, which is a one-shot operation there, it was down to 0.8%. We need substantially more than that to begin to have any impact on…

So just sort of to add, just to sort of more practical Boston Properties perspective, which is we raised an awful lot of debt last year. We raised that debt because we liked where rates were. We didn't think rates were going down. And we are doing another $750 million, as Mike described. Again, we think that where rates are today is a good place to be borrowing. If we thought rates were going down, we would probably have a different perspective. We don't think rates are going down. There has been 120 to 150 basis-point increase in rates since we did our last bond deal. I don't think it has had any impact on cap rates for CBD office buildings in Washington, D.C., Boston, New York City or San Francisco. I think that the yield, the vacuum that appears to be all across the investment perspective is a bigger force in driving capital to real estate at the moment, and there are investors who are taking an exceedingly long-term perspective at least in terms of how they are underwriting and reviewing their acceptable yields on office buildings, single assets in places like New York City and Washington, D.C. because if they aren't, then we don't understand how things are being priced. And I think that has a lot to do with being comfortable that while over time, there will be an improvement in operating fundamentals that will be generated into changes in the cash flow for the good. They are prepared to live with what we would probably have considered 2 years ago to be abnormally low returns for an exceedingly long period of time, looking like a not a bad place to put capital when there are now banks who don't want to take deposits any longer and are not paying on dividend, as opposed to taking in deposits. It's just the perspective in terms of where the money flows are and where you can pick up yield are so unusual today that I think they are allowing interest rate rises to be ignored by people who are purchasing real estate and even people who are purchasing real estate with a significant degree of leverage.

Your next call comes from Mitch Germain with JMP Securities

Just curious about your decision to downsize the revolver.

Sure. I'll cover that one. As you probably recall, we went for a really, really long time with the revolver that was $600 million, actually $605 million, I think it was. We were very, very comfortable that level and operated just fine. The only reason we increased it to $1 billion was we were in 2008 and we saw the difficulty in the credit markets and we thought it was a pretty good idea since we had in this accordion feature to increase our sources of capital, which we did. We have analyzed our expected working capital needs and our strategies for funding things like redevelopment over the next few years and we feel like we've got good access out of capital markets, consistent access and diverse access. And that $750 million online line is plenty of size for us to deal with any kind of working capital we may have. We will expect to have another accordion feature so the extent that there is a demand from other institutions to provide us with that separate credit, we could increase it in the future. We expect to have that feature. But we thought $750 million was the right number.

And just one final question, your G&A, Mike, does that include that transaction-related cost and any litigation charges?

No, I mean, it includes acquisition costs associated with Bay Colony in the first quarter. It includes kind of a where our normal legal costs are that are in G&A and things like that. But it does not assume any material future acquisition expenses or litigation expense because we don't expect to have any -- litigation expenses, that is.

And your next call comes from Michael Knott with Green Street Advisors.

Can you talk about your view of risk-adjusted returns for acquisitions versus development? It seems like your capital allocation profile has shifted pretty substantially and I'm wondering if your risk appetite is higher or maybe more acquisition pricing is now richer?

I'll start and I'll let Mort jump in if he has something slightly different to add. I would say that when we look at our development program and the amount of return that we think we can generate from those developments on what I would consider, in most places, to be modest risk relative to what the leasing profile of those assets will be, relative to where the market is. We think that, that is a clearly much higher cash-on-cash current return and therefore much higher IRR and much higher total rate of return over a long period of time. At the moment, what we have seen come on the market from an acquisition perspective has been priced down to levels that are significantly lower than what we are describing in our development pipeline and I don't think that the risks are marginally lower for what those returns are. I think others are probably talking about the building on Seventh Avenue that is being sold, and there's an asset, or a yield of that is, I'm guessing slightly below 5% for an extended period of time, and we're talking more than 5 or more than 10 years, potentially, depending upon what tenants choose to do and that's seemingly the profile of many of the assets that we are seeing on the market today. Or we're assets in certain markets where the cost per square foot is in excess of what the replacement cost would be at least for us on sites that we might have that are tangentially close to where those buildings are and where we think we can generate hundreds of basis points more in return on an incremental cash-on-cash basis from the out of the blocks. My point being at Market Square, you look at that building and we look where it priced and we looked at what our development opportunity might be at 601 Madison Avenue and said, "well, we can build a building for a couple of hundred of dollars worth of less than this and we can generate a yield that's hundreds of basis points higher.” Hard for us to get excited about deploying capital into that asset at that time in the marketplace given what our opportunity says.

Okay. That's helpful. And just one other question. In the last cycle, you guys sold a couple of core BXP-quality buildings in New York. Just curious how you think about those sales and hindsight’s sort of in the context of cap rates declining significantly kind of without the benefit of significant embedded rent growth at this point?

The buildings we sold at New York, we sold at phenomenal prices. I mean, we sold 2 buildings in New York, one of them was at, I think, a 3.76% cap rate with an assumption of 100% of the space being leased, including the smallest amount of vacant space and we were very happy with the prices we got for both of those buildings. And frankly I don't think the market, even though there has been some, shall we say, recovering in the market has come back to the prices where we were, where we were able to realize those. So I think, in fact, I would say that was true of virtually every asset we sold. We sold assets based on the following simple principles: we like to have A assets in A locations, the assets we sold we thought were either B assets in A locations or A assets in B locations and that was a very specific program that we had underway. We thought we did very, very well with it. We did it at the right time. I don't know, we took out something and we sold over in the range of at least $4.5 billion of assets. We could not be happier with the program that we had. At that point it gave us a great deal of liquidity. It is one thing to be able to buy buildings it is another thing to sell them at the right time, and we thought we did that. So I don't think we have any reservations about what we did and frankly we're going to just keep a pragmatic view going forward in terms of whether we buy or whether we sell.

And your next call comes from Michael Bilerman with Citi.

On the asset disposition side. Mort, I guess, from your perspective of D.C. and New York, it sounds like much more long-term hold to the assets that you have. But does that exclude potentially selling interest and assets that take advantage of where the pricing market is at, as while I can appreciate the fundamentals are not going back towards peak in your view right away, the asset pricing seems quite rich. Instead of getting rid of the whole asset, why not get rid of part of an asset? And I'm just curious whether you're being approached sort of off-market to either buy or appeal to buy your assets or buy interest in the asset?

Sure. We're always being approached. But as I say, I mean, when I look at the asset inventory that we have, to be honest with you, virtually every asset that we have I would like to buy not to sell. So we are, frankly, looking to add to our portfolio of assets. We just don't want to take -- look, we're in this kind of business for the long haul in terms of accumulating a portfolio of the highest quality assets that we can possibly put together and as I try to use by way of a reference, this is not a perfect analogy, we try to have the assets in A locations. And sometimes, their values will go up and sometimes they will go down. But as long-term holds, we find that these are the best assets and when I look back upon the assets that we had and have and those that we sold, you see what the valuation is that we were able to sell the assets in the past when we had a bull market for it. But in the long-haul, it seems to me that our basic business is putting together sort of an outstanding list of A assets and A locations and holding them for the long-haul. We believe that, over time, these assets are, frankly, going to be irreplaceable and that in any 5- or 10-year period, we'll look back on these assets as holds and be very happy that we held them. And we see it even in this market. That's why we went after the Hancock building, that's why we went after 510 Madison Avenue, et cetera. And that's why we're going to continue to look into acquisitions because that's part of what we do and do well and intend to continue doing it. I don't have any second thoughts about the assets we sold nor about the assets we keep. We're still going to be looking over time to buy assets and to build assets of the quality that we have specialized in for quite a few decades now. And we'll just have to see how it goes and I'm not saying it’s going to be easy, but we're definitely going to continuing along those lines.

Maybe you can just delve a little bit deeper in terms of the large positive of space in New York in terms of tenants looking and I think that you referenced in D.C. the law firms contracting and, I'm just curious, if the tenants are looking for 2013, '14 expirations, how much of that is sort of flat space how much of that is sort of expansions of their space going forward?

Are you talking about New York city, Michael?

Yes. I was just referencing what you talked about on the D.C. side.

So the majority of the tenants that we are having conversations with in New York City are law firms who are making lateral moves because they have lease expirations. So you have a tenant who's got either 2012 or 2013 or 2014 lease expiration and they're trying to figure out what they should do. In some cases, they have the rights to extend for a period of time. So that a building like 250 West 55th Street can work and on in other cases they may have to do something sooner than that. And then there are some financial services institutions that are growing and so they are both some "typical" folds-bracket institutions that are having gone through what occurred between late 2007 and 2010 are starting to at least expand or thinking about expanding their footprint. And others who are going their businesses because they are changing the profile of what they are doing. And we are talking to those types of tenants and then interestingly enough, I think it's somewhat of a surprise there are some larger privately held financial institutions, hedge funds, asset managers, et cetera who are on the West side, who looking at what we have to offer at the top of the building and are saying, "Jeez, would Boston Properties consider doing a lease today at the top portion of the building?" And it is actually an interesting question that we are wrestling with which is, "Would we lease the space today or would we rather wait for that portion of the building to lease the space to smaller tenants, meaning, 7,500 worth per tenants, closer to when the building is being delivered and where we think the market will have strengthened." So that's sort of the profile of those institutions. But for the most part, the financial companies that were talking to have growth associated with them and the legal firms, unless they are the beneficiary of a practice group coming from someplace else, are clearly in a status quo or probably a reduction because of becoming much more efficient in the way they use the space.

Doug, it's Robert. Can I just add one thing to that? All of the law firms that we've spoken to about 250 West 55th Street have strong interest in expansion space. So it's not that they've closed the door to that. They actually anticipate future growth...

Into the space that they're going into. And then just, Doug or Bob, can you just clarify? In 601 Lex, you talked about that lease going up about 25% relative to the lease you signed in '06, how much are the improvements affecting that and with how big of a difference do you think a lease signed at the base of 601 relative to top of 601 have been different?

So the improvements are worthless. We are working them out. The improvements were, I don't want to say a new installation, but a reuse of an older installation that this tenant has no interest in so they're starting from scratch. And I think the rents overall in our buildings on the upper east side, particularly on 53rd Street have all seen a similar increase both for at the bases as well as the top.

And the next call comes from Suzanne Kim with Credit Suisse.

I'm trying to get some information about the capped interest guidance. So embedded in your guidance, are you looking at the impact of capitalizing interest on projects that you described during the call? And secondly, if West 55th does come online at the beginning of fourth quarter, what's sort of a quarterly run rate do you think that's going to be?

With respect to capitalized interest, we've got capitalized interest on our existing pipeline. We've got 500 North Capitol that we started and we've got some of the projects, primarily the residential building that Doug spoke of in Reston, we've got some of that in our projections. Some of the other developments that Doug spoke of would not start until later in the year, like the Cambridge building where you said that we're working on a letter of intent, would not start until later in the year. The building in Maryland that you spoke of as pretty small, so that would have an impact but it's a small impact. On 250 West 55th Street, I mentioned that it's $480 million of investment today at a 5.5% average, weighted average interest rate for the company. If we're lucky enough to get started, we would really not start spending a lot of additional money until much later in the year. So it really depends upon when we actually start capitalization for that project and we have not determined when that will be. If we're lucky enough to sign a lease in the near term, it could be turned on sooner than we would actually put spending money, i.e., if we signed a lease in the third quarter, we could start it in the third quarter even though we're not starting to spend real dollars until the end of the fourth quarter. Does that help?

Yes, that's helpful. And then secondly, just to expand upon the comments in the effective development pipeline. Are you looking more at projects that are sort of mixed-use or are you sort of focused in on office projects now? Given that, the yields that you've gotten on the sort of mixed-use projects have been much more attractive?

I would say that we are cognizant of the fact that there's certainly been to be a shift to, from a zoning perspective urban areas with there being multi-uses associated with the projects and that we are very comfortable doing residential, retail and office development at a similar time. So I don't think there's been a -- we've tried to shift our focus but that's sort of where the focus has been because that's where the zoning and the land use desire had been for most jurisdictions.

Your next question comes from Jordan Sadler with KeyBanc Capital Markets.

Just quickly Mike, there's a -- just curious what you were assuming in terms of the average balance relative to the $1.5 billion of cash that you mentioned in terms of liquidity? For the rest of the year, what's sort of the average balance maybe? And the dilution you put on the press release and stuff talked about on the call?

We're assuming that the balance currently is $750 million, as I've said. We're assuming that Carnegie Center happens at the end of June. We're assuming that the increase from the Lexington Avenue financing happens at the end of June. So that would climb our rate up to $1.5 billion. It would not change dramatically. I mean, there's some development spend. The larger projects are finishing up, so I think development spend on those projects is $100 million or so left that would be spent in the next 6 to 12 months. And the newer projects on the development side will not ramp up until later in the year. So barring any acquisition activity which could occur, which would have material impact on that number, or our decision to try to repay debt early, which right now is not in our projections and it's something that we look at. In 2012 we have $660 million coming due in February. So that's something we always look at, but at this time, we determined that that's not the best use of our capital that we'd like to conserve this liquidity for the potential to do acquisitions or other developments. So I guess in a roundabout way, we would expect it to be pretty stable for the second half of the year.

That's perfect. And that brings me to the second question which is, we talked a lot about disposition and development but we've talked very little about acquisitions. Can we talk a little bit about the pipeline or are there still opportunities to buy the assets that you guys might be targeting? And is the sort of type of asset you're targeting changing at all?

The type of assets that we're looking at, I think Mort was crystal clear on what our predilection would be. So it's Class A buildings in Class A locations. Obviously, you can't buy things that aren't for sale. There are some larger transactions that are everybody in the real estate community is sort of aware of that may or may not occur in 2011. And the markets that we are in, there are some large portfolios of assets that are owned by some private individuals that they may have an interest in doing something with and may not in 2011 that we're looking at. And then there is the one-off of broker sales that I am sure we will see additional volume in New York City and I'm sure we we'll see additional volume in Washington, D.C. probably not much in the way of in Boston or in San Francisco on the sort of single asset step-up size. And then as Mort said, there are other places where we're considering looking to make investments and if something happens in one of those places and if something works really well, we'll look there. But there's no definitive pipeline of assets that I can tell you. We have 3 deals we're working on and we think that are going to close in the next 6 months.

Is that fair to say, you're a little bit less sanguine about sort of the acquisition opportunity?

I think we are realistic about the acquisition opportunity, which is, as I sort of said in my prepared comments, the dam broke. There is money chasing assets like we were back in 2005, 2006 with lower yield expectations for what they think they can find acceptable in terms of overall returns. And it's making the competitive field associated with single-asset purchases very competitive from a pricing perspective. And if we can deploy capital into our developments so we can be more patient and find other places to put our money, we will do that. We're not simply going to grow just for the sake of growing. On the other hand, I guess I want to make this point because I think it's important. We don't care explicitly what the yield on an asset is going in. What we care about is what the long-term value potential is both in the cash flow growth as well as the appreciation of that asset over time. So we're not scared of what a low return and what it means on a short-term basis, if it's the right asset at the right place.

You're next call comes from Jay Habermann with Goldman Sachs

Just following on Jordan's question there. As you potentially see more assets come to market, do you see it as a function of pricing increasing or do you think it's more of the opportunity where there's some debt issues, there's some deferred assets and perhaps that's an opportunity to enhance value as well?

Jay, I think that, and I've been saying this for more than a year, I think that the reason assets are selling in the core markets has less to do with near-term debt maturities then overall valuation increases. And I think for the most part, the debt issues have taken care of themselves by having values appreciate to the point where the debt is no longer out of the money and controlling the equity where you actually have equity above the debt. And I think that most institutions are prepared to make loans today on large assets. The CMBS market has come back and you can do a large loan in the CMBS market. So I think this the ability to fund the refinancing of a maturity is much less of an issue than people thought it would be in the markets we're in, in San Francisco, Washington, D.C., Boston and New York. And so I think what we are seeing is more simply we think that the values have gone up, we think we can either find a "recapitalization" of the asset or a sale of an asset that makes sense for our business, and we're going to market for that asset. That's what's driving things.

Okay. And then, second question on San Francisco. I know its shrunk in the percentage of the total is about 10% of NOI. Can you give us some sense of maybe what opportunities you might look for, whether its broader Silicon Valley or obviously outside of downtown San Francisco?

We continue to look at anything and everything that might be for sale in San Francisco. The high-quality stuff is very sticky, it's very concentrated. There were a lot of sales at very lofty numbers by institutions that have a very long-term perspective. And so the best stuff in all likelihood is not going to be trading anytime soon. And our perspective on suburban stuff has been that there are times to get into the market and there are time not to be in the market. We think that the market, from a rental rate perspective, has clearly recovered. There are places where we're probably more interested in making incremental investments. They're not going to be huge dollars if they are on a single-asset basis. And as I've said before, there are some larger portfolios that something may happen with overall over the next year or so that we will I'm sure look at.

Okay. And just final question on the West 55th. I mean based on the activity and sort of interest level to date, can you give us some sense of where you think even pre-leasing could be if you commence at the end of the year? I mean is this potentially somewhere you could get between, say, 40% and 50% or is that too high?

Depends on the tenant. We may have a tenant for as little as 20%, we may have a tenant for as much as 50%. And it will depend on who steps up and who we're most comfortable with and what the timing of the dialogue is.

Your next call comes from Rob Stevenson with Macquarie.

Doug, you talked earlier in the call about the trend in terms of TIs and free rent across New York. Can you talk about where you have that in Boston, D.C. and San Francisco these days?

Sure. I would say that the concession packages in ascending order are San Francisco, Boston, Washington D.C. So you're actually getting a higher concession package in Washington, D.C. than you are in Boston or in San Francisco. You're getting a modest amount of free rent in each of those markets depending upon the tenant expiration that's sort of behind the transaction. But from a rental rate perspective, it's similar as well, they're lower in San Francisco, they're higher in Boston, and they're much higher in Washington, D.C. The face rents have been able to sort of maintain much closer to where they were pre-2008. And in fact in some cases have grown.

Okay. And then what are you guys seeing in terms of demand for the retail space in your portfolio and how that's sort of trended over the last couple of quarters?

Well, our retail space is sort of in 3 different pockets. Pocket #1 is the Prudential Center and there's an insatiable demand for retail space there, we have no availabilities. And in some cases we're getting $70 triple net, in some cases we're getting close to $100 triple net for different spaces in the various places in the arcades. Then the second sort of location is the stuff that's in our first floor of our buildings and our CBDs. And I sort of refer to that as the stuff in Reston Town Center, the stuff in Washington, D.C. and the stuff in New York City. And I'd say, for the most part, we're seeing good activity. The Washington CBD is probably the weakest of those markets because it's mostly restaurants and restaurants come and they go. And then the third pocket of retail is at a market aero center [ph] and we're pretty static in a market aero center [ph] in terms of what we're seeing in demand. It's not a 24-hour mixed-use center. It's a 8:00 in the morning until 6:00 at night specialty retail and convenience retail for the users in the financial district. There continues to be consistent demand for that space but it is not vibrant.

And your next call comes from David Harris with Gleacher. David Harris - Gleacher & Company, Inc.: [indiscernible] your development program represents about 10% of the equity base, is there an upper limit to where you might feel you're starting to get into the uncomfortable risk zone?

Given the size of our balance sheet and the types of development that we're doing, I think if there was, we are so far away from it that it's not something that we would even think about. David Harris - Gleacher & Company, Inc.: If we think back over previous cycles, and I think as you company, you want to go back to the 3 cycles. Where would it have been maxed out in, say, the mid-2000s or previous cycles?

Prior to 2000, we were almost 20%, and that was when we had a balance sheet that was probably 25% the size that we are today. David Harris - Gleacher & Company, Inc.: So what I'm hearing and your answer there for us is if we were to double the size of the program that wouldn't put you into -- you wouldn't feel that that was getting into risky territory?

No. And if we could double the size of the program, I would say that it would be a very strong indication that the economy had recovered in a very significant way. Because what we are seeing is that the development that we are seeing today is very specific to certain submarkets where there is clearly not a replacement cost rent opportunity for development in the current marketplace. But in certain cases, you can do a build-to-suit, or in certain cases like 250 West 55th Street because of our basis and where we are, we are better off developing than sort of hoping the market continues to grow at a rate of return over each year and where we are, where we are. David Harris - Gleacher & Company, Inc.: Just on the point of the overall economy. Has Mort already jumped?

No, I'm here. David Harris - Gleacher & Company, Inc.: Mort, I made a note in the last call that you referenced, I think GDP growth, your expectations for GDP growth of north of 2%, and that would have been more back in January. Are you any more optimistic or less optimistic today?

If I may say, in the first quarter, we're at 1.8% growth on GDP. I think it'll get a little bit stronger than that. I still think it's going to be an anemic recovery and I certainly don't see it getting above 3%. As I'd say, the real question is, how much confidence has been eroded not just at the level of the consumer and the household, but business at this stage of the game. I think we will not see much in the way of improvement in employment. We will see a lot of the headwinds, higher interest rates, which will affect mortgages that have variable rates. It'll affect the determination of special interest subsidy programs for homeowners. The increased gasoline cost, the increased food cost. You could go on and on. But the end of the, what may you call it, the stimulus program by the middle of this year, there are a lot of headwinds representing at least $400 billion of headwinds in the economy that it's not what we want to have now but it's what we're going to have to live with and that, it seems to me, is about to have an effect on the economy. So I don't see the economy is going to grow above 3% and I frankly think it'll be probably be somewhat below 3%. Unless American business really gets a turnaround and really starts spending a lot of the money and the cash that they have built up. But again, I think that they're going to be very cautious about how fast and how far they go with their own spending because they're just getting that level of confidence either in the administration of this point or in the economy. David Harris - Gleacher & Company, Inc.: Well, I'm not asking you to throw out a GDP forecast for '12. But I'm just wondering how you kind of think about a very subdued economy and how much financial services and tech and government, which is essentially the basis of the driver of demand in your key markets. How much can that continue to be a source of very new optimism for ground development if the rest of the economy is still in this very sluggish slow growth phase for an extended period in time?

Well, we've in fact seen that there are differentials in the rate at which different parts of the economy go. The financial services industry, I suspect, is going to continue to be very active and do very well. I just see that in part, because of the various government programs, where the capital markets are, the confidence that they have rebuilt in terms of their own activities, where they see a lot of opportunities for the, shall we say, the investment of large pools of capital. And I think that's probably a valid judgment. The private equity funds have been enormously active recently, as you’ve seen, I suspect that's going to continue. The banks are more open to lending to the better credit. So I think there is that. So I think the financial services industry is going to be in good shape. And the industries that basically are nourished by them will also be in good shape. Do I think manufacturing will be in good shape or the retailers? I think they're going to have a very tough time, but I think they've taken a lot of the big cuts, particularly in terms of employment. To date, I just don't see that they're going to be hiring very much and the problem is we have roughly 150,000 to 200,000 people who enter the labor market every month. The real unemployment rate, as I say, is very high. And I don't see that that's going to change very much. So the attitude of the consumer seems to be it's still going to be very cautious. So I don't know how else to describe it. I think we're going to do well, relatively well. We have a very little vacancy. And I think in the markets that we are in, those are the better markets, it doesn't mean that, this thing, if the consumer tanks that they're really going to be able to do very much. I don't see that, given the politics of the country, there's going to be another big fiscal stimulus program no matter what. Because there is a genuine feeling, and nobody knows that this is absolutely certain, when you get the national debt as a percentage of GDP that gets above 90%, which in real that's where we're really are today, it really begins to have a downward pressure on the economy. And so I don't think you're going to get anything out of the Congress. We're just going to have to see how it goes and see how quickly the rebuilding of asset values, particularly on the consumer side that really gives people the confidence to go ahead and spend. I think it's just going to take a much longer time that people have been thinking for a major recovery in the economy. David Harris - Gleacher & Company, Inc.: One point of detail, and maybe I missed this, forgive me. Mike, on the guidance, did you throw out an average occupancy for the year?

I didn't. It's really relatively unchanged to where it was before. I think that we -- some of the absorption we've had in the first quarter simply came sooner. So maybe the average is up a little bit. But somewhere in the 92, 92.5, something like that in that range.

And your next call comes from Ross Nussbaum with UBS.

One or two quick questions here. Number one, is there any plans to dispose of Cambridge Marriott?

The answer is no. And it's sort of a not obvious answer. It's not because we want to be in the hotel business but because Cambridge Center is a pretty important location for us from a real estate perspective. And the Cambridge Marriott physically sits in the middle of our portfolio there, and there's a plaza in front of it, and there's retail associated with it. And we think that until we are complete with our renovation and redevelopment of Cambridge Center, which is going to be a multiyear program, owning and controlling the Cambridge Marriott is pretty critical to the real estate asset valuation that we have within our other portfolio of the buildings there.

And number two, now that it looks like you're moving forward in 250 West 55th, what about your other development site in the city, does that look like it becomes on the table for 2012?

No. Its currently a site that is probably a potential residential site. It doesn't have a floor plan at the moment that would be conducive to office tenants. Related and Boston Properties are still 50/50 partners in that development and I think that it will be longer than 2012 before something gets going there.

And then finally, Mike, on the ATM program, would it be fair to assume that, that would be your preferred equity mechanism of choice for match funding developments going forward, such that you wouldn't be doing lumpier deals unless you had a lumpier acquisition?

I think we want to have access to all of the markets. I think that it's clearly an attractive way to raise a moderate amount of equity over a period of time. So to the extent that we have something much more significant in size, that the company was undertaking some major acquisition of some form, it might be more likely that we would do something that would be marketed and raise equity more quickly. With regard to our development program, I don't know if we would think about that with regard to our development program. I think that we -- our leverage position today we're very comfortable with. We feel like we've added the dry powder that we need both from a balance sheet capacity and from a liquidity perspective so that we can execute on the development program that we have as well as look at acquisitions with our current balance sheet and liquidity.

And the last question comes from Steve Benyik with Jefferies. Steven Benyik - Jefferies & Company, Inc.: I guess regarding lease expirations. What do you guys expect for the balance of 2011? Earlier, you mentioned the New York City leasing spread, how they were impacted by the fact that they were in some of the lower-end buildings. I guess regarding the 600,000 square feet or so you guys have rolling through 2012. In time, what can we expect leasing spreads on that bucket?

It's such a hard question to answer, Steve, because it depends so much on each specific piece of space and what the tenant is paying when that lease expires. As I said, our mark-to-market for the portfolio is positive $0.67. We've got 1.9 million square feet of space rolling over between now and the end of the year, there is very little, if any, space rolling over in Midtown Manhattan. The space that is available in Midtown Manhattan is almost exclusively at the base of Two Grand Central and then there are 2 or 3 floors at the top of Two Grand Central. There will be a roll down on the space in that building because of where the former tenants were if we lease up within 12 months. But that shouldn't be an indication of what's going on in the Midtown Manhattan market. It's simply a question of where the space was actually leased and then it's now vacant. But the way we do our statistics, if it's less than a year, we sort of show you that the mark-to-market or the mark-up when we do our secondary statistics this quarter. Steven Benyik - Jefferies & Company, Inc.: And what are you guys seeing on early renewals in terms of the higher-quality space versus lower-quality space? Is there any real difference there?

I would say that we are, in certain markets, the tenants get way up in front of on iron rules as Washington D.C. being the most obvious of those markets. In other markets, there tends to be less of a discussion until you sort of get within 12 plus or minus months, except for the really, really large tenants. And we are at the moment not having any really significant conversations in New York City, in San Francisco, in Boston about renewals. There are a couple of tenants in Washington D.C. with 2013, 2014 lease expiration, the Akin Gump being the one that I talked about this quarter where those kinds of conversations occur. But I wouldn't say there's any sort of change in terms of what the mark-to-market might be on a renewal versus just a simple trade or trading with a tenant on the space. Steven Benyik - Jefferies & Company, Inc.: Okay. And then just finally, I'm sorry if I missed it, on the 2012 debt maturities, you guys have over $600 million related to exchangeable notes, redemption date of February 2012. And then also probably over $400 million of secured debt related to 510 Madison and Bay Colony. I guess on a secured side, is there any concern that you guys maybe the pace coming about down if leasing doesn't come to fruition quickly enough in 2012?

The 510 Madison debt, if you recall, was put on as a way to conserve the mortgage tax that was previously associated with that asset with the prior owner. So that's actually a cash-secured facility and one of the reasons why we have restricted cash on our balance sheet. So our expectation is when we finalize and close the 601 Lexington Avenue loan that we'll transfer the tax and extinguish that debt in 2011. With regard to Bay Colony, it's about $140 million loan. If we sit tomorrow where we are today, I mean it's not a huge debt, we'll probably pay it off with cash, I would expect. If we were going to deal with secured financing to replace it, we might use another asset depending on what the occupancy is. I think that, that asset is 65% occupied today and there's some rollover still to come. So I wouldn't expect it to be stabilized by the time that debt matures. So it will be more likely than not that we would pay that one-off at that time. And I mentioned the convertibles. We're looking at that on a consistent basis to see if it makes any sense for us to pay it off early and it hasn't recently. So our expectation at this point is that we would deal with that at its maturity and either refinance it with a new debt issuance, either secured or unsecured, or potentially just pay it off, depending on what our view of our liquidity was at the time. Steven Benyik - Jefferies & Company, Inc.: Okay. And then just finally, did you guys mention where the spread's going on the line of credit where you guys expect that to go when it gets redone?

We haven't mentioned it specifically. It's not done yet. But in general, both the facility fees and the credit spreads are higher than they are today. Those spreads are coming down. So if you look at kind of what people were doing 12 months ago, 6 months ago, 3 months ago, today, there is a consistent compression in both of those things. And we simply had to decide when the right time for us to enter the market was and we decided it was now. So it will be going up but until we get it done, I really don't want to assume what the numbers are.

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

Thank you very much for joining us. We'll talk to you in June when we're at the NAREIT Conference and we look forward to whatever update we can possibly do in the next 30 days. But we'll give you what we know. Thanks. Bye.

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

Thank you.