Good morning and welcome to Boston Properties Third 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’d like to turn the conference over to Ms. Sara Buda, Vice President Investor Relations for Boston Properties. Please go ahead.

Great. Thank you, operator. Good morning and welcome to Boston Properties third 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 yesterday's press release and from time-to-time in the Company’s filings with the SEC. The Company does not undertake a duty to update any forward-looking statements. I’d like to welcome Owen Thomas, Chief Executive Officer; Doug Linde, President; and Mike LaBelle, Chief Financial Officer. Also 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. And now I'd like to turn the call over to Owen Thomas for his formal remarks.

Thank you Sara, and good morning everyone. Just wanted to give everyone a heads up that we have the Red Sox victory parade coming down Boylston Street at 11 o'clock this morning, so I'll do my best to keep all the Red Sox fans around the table in their seats after 11:00. Before I get into the details of the quarter let me take a step back and review the macro environment we're experiencing and why it is an exciting time to be part of Boston Properties. The markets where we operate continue to display strong economic performance. Unemployment is at record lows and our tenants continue to seek high quality Class A properties to attract and retain their most precious asset which is talent and the urbanization trend continues as companies and their employees seek the opportunity, community and amenities of urban locations. Boston Properties is in the middle of and benefiting from these macro trends and the investments we've made over the past few years and new development are positioning us for growth with a high level of preleasing and new developments and a long average lease term in the existing portfolio, our growth is durable and much less sensitive to where we might be in the business cycle. And finally our tenant base is diversified across market sectors and our assets across geographies which insulates us in the event of a market shift within a sector or geography. Our strategy of developing and owning Class A office properties in top tier gateway cities continues to serve us well and provides a long term competitive advantage in creating value for shareholders. Now let's get into the details of the third quarter which was another strong one for us as we made additional progress towards achieving our annual and…

Thanks Owen. Good morning everybody. Before I get to the markets and make some comments on our leasing progress I want to make an observation about capital and the Office business. Our customers need to engage their employees to achieve great business outcomes and access to talent remains their top priority. When you're operating in a labor market where the unemployment rate is at historical lows particularly for college or higher degree level employees who are our customers' employee base space plays an important role in the valuation chain of the employee as they take that job. A year ago we had our investor conference and we reviewed in detail, all the work we had done to rejuvenate our older assets. I think I went through about 20 million square feet of projects that we had completed since 2000 largely in our CBD properties and then we presented the new designs and the sense of place that we're bringing to our development which encompass 15 million square feet delivered since 2000 and the 7.6 million square feet that Owen just described is under development. When we do this work right we get premium rent. In Boston go see how we have transformed a 100 Central Street and you've all been to the Prudential Center retail makeover which has made a dramatic difference here. The public spaces at Colorado Center are going to be completed in the second quarter of next year and by the summer when you visit our campus at 53rd in Lexington 599-601 and 399 you are going to see a major transformation of the public spaces. These are generational investments that we're making. The one significant capital project remaining across our portfolio is the public space at Embarcadero Center. We’ve owned the property since 1998 I think…

Excellent. Thank you Doug. We had a great quarter, strong quarter in the third quarter if you look at our share of total revenues they were up nearly 5%, our portfolio occupancy was up 70 basis points from last quarter and our cash in property NOI improved it was up 2.5% over the same quarter last year. Third quarter funds from operation came in at $1.64 per share as Owen mentioned that $0.02 per share about $3 million ahead of the midpoint of our guidance range. The primary driver of the improvement was stronger development and management services fee income mostly from our joint ventures. As this joint venture portfolio grows with acquisitions like Santa Monica Business Park and new development like the Hub on Causeway on office tower, we do benefit from enhance opportunities to drive higher fee income. For the remainder of 2018, we project portfolio NOI growth with occupancy gains driving higher quarter-over-quarter same property portfolio results plus incremental income from our development as additional square footage at Salesforce tower is placed into service. Our run-rate for fee income should moderate due to $6 million of leasing commissions we earned in the third quarter that will likely not recur. And as we mentioned before, we expect higher interest expenses. We will stop capitalizing interest on our investment in Salesforce Tower on December 1 of 2018. And we also expect higher usage on our line of credit. Overall, we are increasing our guidance for full year 2018 funds from operations to $6.39 to $6.41 per share. We project our fourth quarter FFO to be a $1.68 to a $1.70 per share which is an increase of $0.05 per share at the midpoint over our Q3 performance. We provided detailed guidance for 2019 last night in our supplemental reports…

[Operator Instructions] Your first question comes from the line of Manny Korchman with Citi.

Sorry about that. Good morning guys. Just thinking about the confidence levels that 399 that's been a project where deals have fallen out seemingly last minute to us maybe not you. What inspires the confidence now to sort of expect that to close where you wanted to now?

So let me just make a quick comment and I'll let John Powers provide more color. The lease that we lost we were surprised at. And we've rarely have ever gotten to a lease execution at 399 Park Avenue where we have had a lease disappear. So I think that is the exception not the rule. Our confidence level from my perspective has to do with the level of negotiation and status of the lease that is being drafted right now. But John, you should comment on your view.

Hi, it's Owen, I'm just going to jump in I'm not sure where John is. I think I know if John were on the call he'd express what Doug did which is a highly great confidence in us accomplishing the leases that we're currently working on.

And then just turning to the comments you made on the retail space at GM. Could you elaborate sort of the timing of that lease commencing and what the income levels might be? I know you expressed a big markup to the line up there.

So I don't feel comfortable talking about what a particular tenant's going to pay, Manny. The rent is already commenced, we've already delivered the space. They are in their build out period right now. There is about a year or plus of free rent associated with that. So we expected that tenant will be actually be physically in occupancy selling goods sometimes in the third quarter or fourth quarter in 2019. And it's a very healthy rent. I would tell you that Madison Avenue rents on the lower portion of Madison and the leasing there has gotten better. And so it's pretty consistent where the rents would have been three or four years ago.

Thanks guys.

Hi this is John. Can you hear me now, Owen?

Yeah we got you John.

Yeah sorry, I don't know what happened. There is a question on 399. It's really understanding the tenants that you dealing with in the situations where they coming out of and where you are in the process. So I have a very high confidence level that we're going to close the deals that we spoke about.

Thanks everyone.

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

Hi. Just going to back 399 Park. Can we get, you mentioned that most of the 400,000 square feet of vacancy is going to actually commence by the end of next year. So possible to get what the NOI benefit for that building is going to be from that incremental leasing in 2019?

So I cannot give you an explicit exact number. I can tell you that the 400,000 square feet of space have a rent of approximately $100 a square foot slightly higher. So that's $40 million. And our view is that more than 50% of it obviously will be commencing in – we hope could be commencing in 2019 from a revenue recognition perspective.

Okay. That’s helpful. And then Owen I just wanted to go back the commentary you gave earlier about how the balance sheet is positioned really well, you don’t need to pursue much in the way of additional assets sales to fund development. And I guess appreciate all that, but at the same time does show there is disconnect between where private market values are and where particularly office REIT stock values are. And so I guess I’m just wondering how you thinking about that and historically you have done the right thing and sold assets as a company, given some capital back to shareholders at times like this. So, how you’re weighing that against what you said there is already a good balance sheet but what might be a right time to prune the portfolio a bit more?

Yeah. So, a couple of things I would say first of all, in terms of new investments so as I mentioned the development pipeline that we have and the new investments that we’re pursuing we’re targeting a 7% initial cash yield for those and our stock even at the current trading level is more in a mid 5 on a cap rate basis. So, I think the better use of the capital is in development. Then in terms of funding and with asset sales, I mean look we are doing we’re not selling large core assets, but Mike described $370 million of non-core assets that we’re selling this year that clearly helpful in funding our capital needs. In terms of doing, selling some of the larger core assets one, as Doug described we have a lot of confidence in that and they’re performing well a lot of them been reconditioned, have additional amenities, we’re not sure they’re great sales candidates. And then from a financial perspective they all have a significantly lower basis than their market value and so selling them would require a material special dividend and dilution in our FFO per share and resulted growth. So, we don’t anticipate significant core assets sales. And then the other thing I would add is that given where we are in the overall economic cycle and where we are relevant to the questions about volatility, I think we’re taking a more defensive perspective with regard to our overall balance sheet. And so we want to put ourselves in a position where we’re not in a situation where we 'over leverage' ourselves and selling assets and paying out dividends would put more pressure on where our leverage ratios are.

Okay. Thanks everyone.

Your next question comes from the line of Jamie Feldman with Bank of America.

Great. Thank you. Just focusing on the guidance for a moment. Mike, just to clarify you have mentioned a couple of potential refinancing and I think at the end you said those were not included in the guidance. Can you just clarify what is and what’s not on the refinancing side?

So, what I talked about is that we’re looking at our bond issuances coming having conversions internally about whether try to do something next year with that or not. And there will be prepayment charges associated with doing that and our interest savings next year and that is not in our guidance. We do anticipate that there we’re going to continue to use our line to fund our development outflows that I described. So, I would anticipate that our line we'd be getting to a point where we probably want to term it out sometime in mid 2019. So, that’s within our guidance based upon where we think rates are going to be. Our rate our rate expectations on our line for next year is that LIBOR is going to go up you know four times during the next quarters and that we’ll we will also see long term rates continue to go up so that you know if we're doing a deal in mid 2019 it's going to be at a higher rate than we do today. So we do have some kind of interest you know creep builds up in those projections. Does that help?

Sure, so you saying the charge is not in the guidance. What about, then you also mentioned potentially a larger rate at the end of the year. That's not in the number?

I mentioned that we would not a raise, that we would term out any outstandings on our line of credit likely sometime in mid 2019. So it's really just a replacement. Now we're doing a 10 year financing versus what our line is there might be a 50 to a 100 basis point increase in the rate that gets put on that financing in midyear.

All right. That's helpful. And then how do you think about based on the guidance the distribution coverage for next year or maybe what AFFO could look like?

Well I think the dividend coverage you know we anticipate by you know certainly by mid the end of next year should be basically where it is today. I mean kind of an FAD coverage ratio. I think that you know our tax income will continue to grow throughout the year. So I expect that fourth quarter of this year and first quarter next year it'll be a little bit higher than it is today. But then it'll come back down and improve. And again part of that is you know the asset sale income in 2018 is not included in our FAD it's excluded from our FAD. So the if you includes that our coverage will be very strong in 2018. This is not part we don't include that as part of FAD.

Okay. And then turning to development and where we are in the cycle just can you get. You talked about you know decent amount of conversations out there and certainly with like the Reston Town Center land just a lot of opportunities where you could keep building. Can you talk about your thoughts on being preleased versus or just kind of what level of preleasing you'd want to see given where we are in the cycle versus the opportunities you're seeing?

As you know our preleasing requirements have gone up and our significant development pipeline is underway is 85% preleased which we think is terrific. So you know we don't have a specific number. It's dependent on the market and the scale of the building and those types of things. But given your comments about where we might be in the cycle we have been elevating those pre leasing requirements.

Okay. And then just final question on development. Are you looking at any opportunity zone development potential or potential investments?

We're studying the program and the locations of the opportunity zones and the specifics of the new regulations that have just come out. But I would suspect that we will not conclude that will be a big opportunity for Boston Property.

Thank you.

Your next question comes from the line of Steve Sakwa with Evercore ISI. Q – Steve Sakwa: Thanks, good morning. I guess Doug I wanted to pick up on the comment you talked about, about having the portfolio you know largely refresh maybe with the exception of the easy retail. But as you guys sort of think about the types of building tenants want, the lead certification issues you know how do you sort of look at the overall portfolio holistically as you think about obsolescence and you know how much more of the portfolio longer term do you think could be subject to sale?

Well I would say the conversation about obsolescence and sale don't necessarily have anything to do with each other. We don't believe that any of our CBD properties having now been respositioned and refreshed are in any type of obsolescence category at all whatsoever. And if you look at the older buildings that we have and the lease commitments that we're getting, I think we feel really good about the positioning that we've done and the market's reaction to those. And that includes I mean the Prudential Tower in Boston was built in 1967 and it's a 100% leased. And we have growing tenants who are moving in from all across the city. And it sort of to speaks to if you do it right you can keep one of these buildings going for a long long time. And I would just comment on Embarcadero Center, that those buildings were built between 1970 and 1980 that we're talking 50 plus years to 40 plus years. And so it's the right time to do the kind of work that we're going to be doing. I think Owen answered the question relative to what our views on selling assets. And at the moment we don't really have any 'core asset sales' potentially likely in the short to medium term. It doesn't mean that we won't look at that differently if the markets are changing and the valuations are different, but right now it's not part of the conversation.

Okay and then secondly on development. I know you've got a very active pipeline and you've also got lots of land. I'm just curious as you sort of look at where do you think the next sort of opportunities may surface. And there has been some stories in the press about you potentially doing a large project in Cambridge. And I know you won't specifically speak to the tenant at hand. But just where do you think the next few opportunities might come up on the development front?

So the buildings that are in closer conversation on, the first one obviously is in Cambridge. And that's, it's been in the public press that we're talk to any company tenant about expanding the building. Ripping down hundred plus thousand for the building and building a 435,000 square foot building in display. That base station is a real viable location transit oriented development. And it's, we've got our entitlement completed and we're working diligently on those plans. There are other pieces of land in Boston that we are looking at. We would certainly not necessarily start anything on a speculative basis that could be part of the conversation. And I described the potential opportunity we have in San Jose with Transit Oriented development there and there is the Portland Harrison site in San Francisco which again everything were to go right. We may be in a position where we would have permits towards the middle to end of 2019 and be able to deliver a building in 2021 or 2022 and there is sufficient tenant demand there that we feel comfortable that that's a building that that has a legitimate opportunity to get started relatively soon.

Okay. Thanks very much.

Your next question comes from the line of John Guinee with Stifel.

Great. Couple of miscellaneous questions. First looks like you're going to run 2019 without accessing the equity markets. Mike what's that do to your net debt to EBITDA by year-end?

So now our net debt to EBITDA is about 6.7 times. And obviously we've got EBITDA coming in from development where the money is already spent and we've got money going out for development that we've announced or have underway. So my expectation is that our net debt to EBITDA over the next year or so is going to remain in kind of that high-6s kind of area maybe around 7. And then as we deliver this stuff it's going to come down and pro forma for the delivery of the development it would be down substantially from where it is today. So, we feel again our tolerance level rests on a kind of steady state basis is somewhere in the low 7s. So, we still have comfort and room as we look at pro forma for our development to being well below that. So, we feel very good.

And then looking at your development management service revenue let's say its $40 million next year. Is that a gross number or a net number said another ways should we look at that as an offset to G&A?

No. It’s not an offset to G&A.

But, is it a gross number there?

Yeah. It’s a gross number.

It’s a gross number and we use our G&A to fund this.

Yes. The people are, in our G&A already that are doing that work.

Okay. All right. Then two real estate questions, what’s going on at the Napolis Junction that building been sitting there vacant for a couple of years now. And then the second, as I look at your Reston development deals and 17/50 President looks like it’s coming in at about 518 a square foot which isn't surprising, the Reston Gateway looks like it’s coming in at about 670 a foot, which seems a bit high.

Peter, you want to comment answer the questions on the developments and then you and Ranking talk about Minneapolis junction?

Sure. Part of that differential John has to do with the fact that the gateway side abuts as Doug indicated, the silver line rail and there are a number of profits and cost associated with that. The other thing as you know in the Town Center, the footprint of the site associated with the 17/50 deal is just basically the curve line, because it’s a urban development whereby if you think about all of the infrastructure and the streetscape that the Town Center has and what will be replicating down there, that’s a much bigger just footprint that has to accommodate and allocate those cost over it. So, that’s the bulk of the differential plus we’re buying the building probably 15 months less or you would normally factor in 3% to 5% escalation in those costs anyway. As far as and I hope that answer your question. As far as an Napolis Junction building eight I think the one you’re referring too, which we did build with our partners speculatively based on what we hope were contracts coming out hasn’t obviously leased and we actually are touring people through that multiple firms that all competing for the same contract which is pretty typical for that marketplace. So, we’re hopeful that we’re going to be able to strike a deal with somebody in the near future.

The other thing I want to add on project John again that’s a 50-50 with the goals and I think that the total cost today $24 million something on those lines. So, our total exposure there is $12 million.

Well, thank you. It’s actually less rate, the TI dollars have been invested either. It’s just the tail.

Got you. Wonderful job. Thank you.

Your next question comes from the line of Blaine Heck with Wells Fargo.

Thanks. Good morning. Wanted to touch on acquisition in LA in particular. It seems like this year has been slower from a transaction volume standpoint in general out there, but there seem to be more deals coming to the market recently, Owen you mentioned Campus at Playa but I'm just wondering if you guys can talk about your comfort with your current footprint out there whether you're pursuing anything out there at this point and whether there are any submarkets outside of Santa Monica that you guys would target in particular.

I'll start and then turn it over to Ray and John who's also on the phone. The volumes in L.A. have gone down because basically Blackstone worked through their EOP portfolio and they were a big driver of the volumes and I think Santa Monica Business Park is one of their last deals. So I think that's the driver. That being said there's still plenty things to look at and we're looking at them. You know we've had a big year so far obviously with the Santa Monica purchase. We're thrilled with our footprint. It's very material in Santa Monica and we've had good financial performance particularly Colorado Center which we've owned for several years. You know I think the nature of the deals are you know also different and in some ways more interesting. There's clearly the broadly offered types of deals that we will look at from time to time but they're also you know off market transactions with owners that are also interesting. With that, why don't I it turn it over to Ray or John for additional color? Go ahead John, back to you.

I want to reiterate what Owen said there that we continue to pursue both the marketed opportunities and the off market opportunities. I think everybody knows that the West Coast has been particularly attractive both for domestic capital and international capital so we're very cognizant of the competition here. But we remain hungry to find the right deals. And with that we're looking in different submarkets outside of Santa Monica across West Los Angeles and across the L.A. MSA.

But you know realizing we've been in the market for two years. We're now the largest landlord in Santa Monica and we are due to John's effort, reaching out aggressively to off market deals. And what we're trying is employ the same formula in L.A., L.A. we have done in all four markets which is creating value through the development process which is incredibly difficult in L.A. but we're trying hard

Very helpful. And then maybe sticking with Ray or Doug, we noticed a pretty substantial increase in the office expirations next year in D.C. Looks like another 300,000 to 350,000 square feet added to 19 expirations with a higher rent per square foot. Just wanted to see if we can get any color on whether that was a short term lease or maybe one of the leases you mentioned you pulled forward to 2019. Any detail there would be helpful.

Yes so those are in our J.B. properties on that there are two law firms that are expiring in 901 New York Avenue and Metropolitan Square and those are leases that we've known we're going to be vacating for the better part of two plus years. And so those are, one of them is an 80% JV, where we're the 20% owner that's in that Med Square and then we're a 50/50 partner in 901. So relatively speaking they don't have much of an economic impact.

That also include Akin Gump -.

That Doug can say Ray. Go ahead.

Yeah I mean it also includes Akin Gump which is a building we have under contract to sell. So we've already mitigated that issue.

Got it that's helpful. And then Doug thanks for the color on the drivers of the higher CapEx during the quarter. But that's somewhat backwards looking as that’s commence leases not what's executed so hoping we can get a little bit more color on general trends on the ground with respect to TIs at free rent whether there are any markets you expect further increases or even tight markets that you could see concessions decrease.

So I tried that I tried to you know sort of sprinkle that in my prepared remarks and I saw I'll just refresh that. So in the Boston marketplace we actually think transaction costs are going to start to moderate meaning you know the TI concessions that we’ve provided a year ago are going to be less in 2019. And there the free rent deminimus. In San Francisco where I would say that we're pretty comfortable that the transaction cost are going to remain flat largely because the positive installation there and this is across the board are going up at such high rates that the tenants are being forced to spend a lot more money so we can get a tenant to agree to move is not a easy decision in in itself. But the rental rates that we're getting at these marketplaces are escalating at such high numbers that we're comfortable with the overall economic package. In New York City, things are very flat. The big TI concessions in the big free rent concessions that were part of the market in 2016 and early 2017 are long gone. Now I would say your concessions are static at call it a $100 to $120 a square foot on a 15 year lease and about a month of free rent with the capital probably 12 to 13 months. And in the Washington DC market, I think that's the weakest market from a concession perspective. I don't think things are going up dramatically. But there are something some other desperation out there with regards to getting some of these larger blocks and space there. And so people are providing $140 to $150 a square foot in improvement allowance in excess of the year plus of free rent. And that's again the weaker the market. In the suburban market the concessions are significantly lower in a market like Reston we're talking about $5 to $7 a year. And probably a half a month a year free rent in the Boston market, we're talking about concessions probably closer to $5 a square foot at TIs and very little in the way of free rent. And then in the 'Silicon Valley' the concession pattern are diminimus. For project like Mountain View which is a single story, we're talking about providing market ready improvements which are $20 to $25 a square foot.

Thanks guys. Enjoy the parade.

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

Good morning. Just a few questions for me. First, Mike. Just going back to the guidance and Jamie's question earlier. So would you guys do a bond, early bond refinancing at the end of '18. You said that that instant saving is not in your '19 guidance. But you also mentioned the potential for dispositions next year which I assume would be similar to this year. So nothing large scale but maybe some smaller ones. Is it your view that any interest rate savings would be offset by NOI loss by dispositions or as the dispositions could that disposition loss NOI be a bigger number?

Obviously they offset each other as we engage in both activities. So I don't think that the savings in interest expense would likely not be not actually will be I don't think will be as quite as high as the disposition activity is the same as it is this year. So we had similar disposition activity next year and this year. I think it would be there will be a little more dilution from the sales and there is the gain from the interest expense. Although both items, you're not talking about $0.10 to $0.20 you're talking about $0.05 to $0.08 type of numbers I would say.

Okay that's helpful. And then the second question is on WeWork it's certainly a recurring topic. Recently hired Wendy -- they seem to be bulking up on owning property directly, they've been articles about some landlords doing participation rents. So how do you guys view WeWork as far as your exposure to them and how they're coworking tenants. And are you thinking about launching. I don't know if you have your own coworking platform or not, but how do you view the growth in this base or do you view that more that WeWork type coworking space is going to be more in B and C office rather than the A office?

Yeah. So, Alex we view, WeWork as an important customer, they're our 16 largest tenant and they currently represent about 0.8% of our income stream. And we would in places that makes sense we would be open to expanding the relationship further. The facts are our portfolio as you’ve been hearing us describe on this call, is getting pretty full and I think there are fewer and fewer opportunities to work with WeWork in and other co-working operators. We are also selectively opening our own types of spaces in handful of situation I might turn it over to Bryan to talk about that.

Yeah. So, we opened up flex by BXP and the distinction versus co-working is that this product is specifically targeted towards the enterprise user. Let me explain two enterprise users that provide greater clarification because this whole zone is getting misuse of terms. So, an enterprise user for us in our flex by BXP that we’ve already obtained in terms of clients is one the corporate user who has specific project link for a project. The other would be a start-up company that several call it series into their investments and there is still as risk on the length of the term that they would like to have. Those two customers have already proven out to be great customers for us in flex by BXP at the Prudential Center and we announced last week that we’re going to kick off another 40,000 feet in the CBD at the 100 federal. We also think that this is product is really good for our larger towers where you can place this between some of our larger users and as Doug refer to it in the past almost like a shock observer for us for growth for those clients. The length of term can be month-to-month but what we’re finding is that the user and the enterprise zone has been year to two years. The evidence of the size of the enterprise user is already there and as an example within our 14 million square foot portfolio in Boston, we have roughly 101 subleases, of those subleases which really interesting 33 of them are less than two years in length. So, these customers are already been out there and we think there is still a significant opportunity for us to satisfy the needs of those customers and then have it blend really well with our long and strong leases that are such a big and important part of our portfolio.

So Alex to summarize it all. WeWork is an important customers as I mentioned, we have other co-working operators in several of our buildings and we are as Brian described experimenting with it ourselves in a couple of installation. When you add it all up it’s about 1% of our revenue.

Okay. Thank you, Owen. Thank you, Bryan.

Your next question comes from the line of Vikram Malhotra with Morgan Stanley.

Thanks for taking the questions. Just a couple of quick ones. Any update on the lease with Under Armor given some of the recent restructuring plans timing wise and any updates on the lease?

There are no update on the lease. So, we are as you probably aware here, if you’ve been to New York City recently we’re getting really, really close to delivering the dramatically changed Plaza at 757 Fifth Avenue the General Motors building with the new Apple Cube and the extraordinary store that Apple is doing. In the mean time they have been using the Under Armor space as their temporary store without much in the way of a drop of sales interestingly. Yes and they're going to double the size of the Apple store when the Apple store opens. And we expect that you know in early 2020 we will be delivering the space to Under Armor and we'll start to be able to recognize revenue and they will be in a position to open a store you know based upon whatever their current conception time frames are.

Okay. And then some of your peers have opined that you know rent growth in midtown, you know while it's been under pressure this year. Sector rents have been down now for a year and a half maybe more. They view sort of rents inflecting upwards and over the next six to nine months. I'm wondering if you share that view or is there any nuances or the thoughts you may have on rent growth into next year?

I provided my perspective you know in my comments which what I think things are going to be flat. But I'll let John Powers provide his view that maybe it's slightly different.

No, it's not very different Doug. We think that the market is pretty flat, we certainly have a lot of velocity here and that's really good. Manhattan overall is going to have a strong year on the velocity side. But availability rate hasn't dropped because we have new supply coming on. So when you balance those two things it's a flat marketplace it's a good marketplace but it's a flat marketplace.

Okay, so flat rents into 2019 and then just last question on your life science portfolio a larger healthcare REIT just transacted a large billion dollar campus. So I'm estimating a low recap just sort of wondering any thoughts on where pricing is for us for your portfolio in the Cambridge area.

So our Cambridge portfolio for the most part is actually office space not lab space. We only have one dedicated lab building in Cambridge and it's only you know 60,000 square feet. The -- I will tell you that we've seen some extraordinary sales life science buildings there's a new building that was just you know purchased in Watertown Massachusetts which is you know it's close to Cambridge but it is not a transit oriented you know facilities anywhere close to it other than bus people stops and it traded for over $900 a square foot. And then there are a couple of buildings in the suburban market in Waltham with a lot significant vacancy that traded or trading in excess of $700 a square foot so there is a very strong life science demand and because of that demand there is an expectation for a significant rental rate growth. And there's a lot of investor demand for it.

Great, thanks guys.

Your next question comes from the line of Craig Mailman with KeyBanc Capital Markets. Q –Craig Mailman: Hey guys. Doug maybe going back to one of your comments in the prepared remarks sounds a little sarcastic about the shudder to think about rent roll downs and just go given the increase in bumps. But I just wanted to get your thoughts on that market longer term and the ability to push rents in with or get positive mark to market at the end of some of these leases are big escalators if the split roles goes through than what you think that could to do to rent growths in the market.

So I think it's a really interesting question Craig, because the split roll has a you know a economic impact which we can define based upon the contractual leases that we have i.e. if you have a triple net lease it doesn't matter if you have a gross lease its sort of matter then it rolled in over time. Right. But I think you asked the right question which is what point does the pricing get so expensive that these tenants start to change their habits in terms of their real estate which is a fair question. Relative to other parts of the world the rents in San Francisco still look very cheap including by the way the new construction in Midtown Manhattan. And the profitability of the companies that are leasing a lot of that space are extraordinary. So I am pretty bullish on the vibrancy of the tenant demand that we are seeing in a market like San Francisco and the strength of those companies and their ability to absorb those types of increase. And so it will sort of become part of the marketplace. I think the real question is some of the sort of 'service providers' and the other companies that are not quite as profitable as a Salesforce.com or Amazon.com or a Microsoft, LinkedIn or a Google or potentially AirBnB and Uber. I mean those have different types of companies. And so I do think that there will be a set of companies that will have a different perspective on that. But we're hopeful that first of all this is not going to play out until 2020 to 2021. So there is going to be a lot of conversation a lot of politicking a lot of lobbying that goes on. And we'll have to see sort of see where it all shakes out.

That's helpful. And then just on the reclassification of the 120,000 square feet at 399 Park. Is that on, could you just give a little bit color about what that was? And is that going to have any effect on kind of rents and building what you guys are trying to lease up?

So I'll answer that. We do not typically include what we called storage space in our portfolio square footages. And this space, which is at 399 Park was always part of the big Citibank lease that we acquired with the building in 2002. And they use that space for kind of back office cafeteria, payroll and stuff like that. When we got that space back and started looking at what we can lease it for, we determined that we can't lease it anything other than storage space. So we determined the right thing for us to do would be to reclassify it like all of the other storage space that we have in the portfolio which is not in the portfolio square footage. And if we get any rental up we do get rent up our storage space obviously at a discounted rent, it goes into kind of other rental income. So we may be able to lease some of it overtime. And then we maybe able to figure out a way to reutilize it and use it for something totally different some kind of amenity or something like that. I know the team in New York is thinking about those ideas. But that was the driver behind pulling it out in the portfolio and putting it into the storage space which is the -- the same way we handle all of the storage space of the company.

So it's separate from the 400,000 that you guys have leased.

Yes.

Okay. And then last one Mike on the midyear kind of size of that bond offering. Should we think kind of in the $700 million range?

No, I think that's fair, we have a $1.5 line. So I don't think we want to get it to the point where it's over $1 billion outstanding. Because we start to get to that level it's just kind of limits your ability to do other things potentially that might happen quickly. So my expectation is once we kind of get approaching that level that we would think it's a right time to term it out. And as I mentioned our expectation is that we will have $250 million of development outflows every quarter. So as you kind of think about that, when you get kind of into the mid-third quarter of the year that outstanding is going to start to get up there. So that's our top process.

Great. Thanks guys.

Yeah.

Your next question comes from the line of Daniel Ismail with Green Street Advisors.

Hey guys. Just had a few quick ones for me. Can you provide an update on where in place rents sit relative to market for the entire portfolio now?

We have a schedule ask your next question we’ll come back to you.

Sure. It sounds like core asset pricing remains pretty stable for office properties so the non core dispositions I mean you guys found similar trends in bidding trends or asset pricing?

What was, I’m sorry could you mentioned the preamble again there was some papers rusting I didn't hear it.

Sure. No problem. I was asking about in place rents relative to market?

So, the first question of, we have our answer, right now on a pure mark-to-market basis the whole portfolio it’s about $6 per square foot or 9% positive.

Great. Thanks. And then for the non core asset, non core sales you guys have been doing this year. Have you found our pricing coming in at your original underwriting and how is the appetite for the market for those types of assets?

Yeah. Absolutely, we’ve been getting the pricing that we expected to get when we made the decision to put the asset in the market. That being said, we are selling non core assets which generally means they're in suburban locations or the cap rates are higher than what our core assets we sell for. But, we are and we are generally getting multiple bids and having active processes.

And the largest one, that we closed was 580 and I think we were slightly above where we expected to be there. And then 1,333 New Hampshire Avenue we exceeded our initial price expectation by a mark-to-market less than 5%. So, pretty consistent to where we thought we would be.

And then last one for me, it looks like a cost increase a little bit on Dark 72. Can you explain maybe some of the reasons why and that impacts the economics about the development at all?

Yeah. It’s really simple, it’s a dry out of the lease up schedule due to just sort of the challenges of the labor and Dark that you see from a construction perspective and the timing associated with getting the building completed. And so we expanded our lease up.

Great. Thanks.

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

Hi. It’s Michael Bilerman. Just two quick ones, just one on New York just give an update on cost expecting at Hudson Boulevard. And also sort of the prospecting Dark 72 especially given the increased cost and the timing delays you’re talking about from a leasing perspective?

John, you want to cover that?

Sure. We have a couple of meetings on 3 Hudson Boulevard. I think the redesigned building has been well received these are long-term discussions with tenants with lease expirations far in the future. And we have another one this week later this week. So, we’re hopeful with that process where we’re still redesigning the building getting our pricing and et cetera. On Dark 72, Doug mentioned that the construction process has been delayed also WeWorks construction process for other reasons has been delayed. So, we expect to open late in the first quarter, next year 2019. We have had a couple of tours, we have a important one this week, we are trading no paper at this time.

Okay. How do you feel John about timing on Hudson Boulevard or do you feel more confident of that potentially landing someone?

Well, I said to a group of analyst that there we would start tenant work, I think between 2022 and 2052.

That’s great.

Comfortable with that range. We have to you know we have find the right tenant or potentially two tenants to start this in this environment. It's a great site, we like the site, we like it's a full acre, avenues on three sides, transportation et cetera. There's other competition right in the neighborhoods as you know with 66 and 50 and also Brookfields building, Manhattan West. So everyone's kicking the tires and now we're in for the meetings.

Doug just on Embarcadero retail $80 million at year plan spend. How should we think about the timing of that 80, whether there's any sort of drag from an income perspective. Like there's been that some of these other large repositioning that you've done and then when does the potential upside come as that space gets redelivered.

So I would describe the work that I'm describing as follows. It's not about the retail from a retail income perspective it's about the space on the ground level and on the plaza level at Embarcadero Center to enhance the overall office environment. We are achieving historical rents right now in Embarcadero Center. So in the short term I can tell you that there is absolutely no revenue correlation with what we're doing. But I will tell you that you know we're in a time of plenty and there probably will be times when things will be more challenging and we should do this because it's the right thing for the property and so on a net basis we will we will be able to have higher retention and achieve higher rents in a down market because of the work that we're doing. I don't personally believe it's going to impact this market in sort of the next call it 12 month because it is so strong and it is so hot and rents have moved up so fast and there's so little space. Tenants will almost do take any space they can. I mean it's that tight in San Francisco.

Sorry for taking the call longer but I'm pretty sure I heard Yankees Suck a few times in the background.

And your next question comes from the line of John Kim with BMO Capital Markets. Q – John Kim: Thank you. Apple entered your top 20 list, the first tenant. Does this represent the new lease that there taking space that the GM building or is that the temporary space and can you also remind us when that impacts your cash same-store result?

It represents some increases that we have gotten in the existing lease and we expect them to vacate that premises sometime first quarter or second quarter, early second quarter next year and move into the new premises and the total contribution that they will provide will actually go down slightly when they do that. So that may change their position in the top 20 at that point but because the project is taken a little bit longer, we had provisions in the lease where we got increases in rents as the redevelopment of the existing store took longer. And we are now obtaining those in their cash rents that we're getting today. Q – John Kim: Okay, and Mike can you just explain once again the termination income increase for next year. It sounds like it's just an allocation of rents rather than a tenants' determination fee.

Yeah, we don't include termination income in our same store. We've never done that because it's lumpy and it hasn't the impact you know the next year in the same year. So we pull it out. So in these situations where we've got three relatively large ones that will work on the portfolio where we wanted move a tenant out that doesn't want all the states necessary. But we have another client that wants it. So we are in a good position where we can negotiate a termination payment that is attractive to us covers all of our kind of downtime and cost. And bring the new tenant in. So it has an impact on our same property and then basically just moves that income from the same property pool to the termination income pool. So I wanted to describe it because if you look at our overall guidance increase you have to have the same store pool plus the termination income in there.

One last if I may.

Yes.

One last one if I may. The 19% dividend increase. Was that purely based on your taxable income growth or was it partially influenced by the movement tenure?

So we talked about this I guess when we did the dividend increase. For 2018, the gains on asset sales the tax gains on the asset sales are driving our taxable income higher. As we look at 2019, our taxable income is increasing because of operating cash flow going up. So we felt that appropriate rather than doing a special dividend to cover the tax gains on the sales from on the asset sales that we would do a regular dividend in the third quarter of 2018 and feel confident that our cash flow and our taxable operating income which is growing is going to be there in 2019. So we've kind of would done it anyway in effect that's the way we kind of look at it.

Yeah dividend increase is driven by internal factors, net income, not external factors like interest rate.

Yeah. That's all about our taxable income and how much we have to pay out.

That make sense. Thank you.

And there are no further questions at this time.

Okay terrific. That concludes all the questions. Thank you for your interest in Boston Properties. We'll see many of you at Nareit next week. And we're going to go hit the parade. Thank you.

This concludes today's conference call. You may now disconnect.