Good morning, and welcome to Boston Properties' Fourth Quarter 2019 Earnings Call. This call is being recorded. All audience lines are currently in a listen-only mode. Our speakers’ will address your questions after the formal remarks during the question-and-answer session. At this time, I'd like to turn the conference over to Ms. Sara Buda, VP, Investor Relations, for Boston Properties. Please go ahead.

Thank you. Good morning, and welcome to Boston Properties fourth quarter 2019 earnings conference call. The press release and supplemental package were distributed last night and 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. If you did not receive a copy, these documents are available on the Investor Relations section of our website at investors.bxp.com. A webcast of this call will the available for 12 months. At this time, we'd 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. 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 filing 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. During the Q&A portion of the call, Ray Ritchey, Senior Executive Vice President and our regional management teams will be available to address questions. Now before I turn the call over to the team, I would like to mention that we'll be holding our investor conference this fall in Boston. As many of you know, we hold this event once every three years. This conference will be a great event, designed to provide significant insight into our strategy, our team, and our themes in our business. The date for the conference is September 30, and we'll be holding it at our new Hub on Causeway entertainment and office complex in Boston. I'll send out some reminders, but we do look forward to seeing everybody at the conference. Now I'd like to turn the call over to Owen Thomas for his formal remarks.

Great. Thank you, Sara, and good morning, everyone. We completed another strong quarter of performance which capped off a very successful year at Boston Properties. Specifically, in the fourth quarter of 2019, we generated FFO per share of $1.87, which is a quarterly record for Boston Properties, and $0.02 above our prior guidance and market consensus. We leased 1.7 million square feet, including significant leases at the GM Building, 399 Park, Reston Town Center, and Colorado Center. We delivered and placed in service 866,000 square feet of new developments that were 98% pre-leased with an initial cash yield of 7.5%. We increased in-service portfolio occupancy to 93%, which is a 40-basis-point increase over the last quarter and 160 basis point increase over where we were a year ago. We increased our average net rental rates on our second generation leases by 48% for the quarter and 28% for all of 2019. We increased our regular quarterly dividend 3% to $0.98 per share. Boston Properties has now increased its quarterly dividend by 42% over the past three years, and we increased our growth outlook for 2020 by raising the midpoint of our FFO per share guidance by $0.01. We continue to forecast 8% growth in 2020 following 11% growth in 2019 leading our office peers over the last two years. In terms of full-year 2019 operational highlights, we completed 7.6 million square feet of in-service asset and development leasing, exceeding 2018 leasing numbers and our second highest level of annual leasing ever. We commenced 908,000 square feet of new developments, including 325 Main Street in Cambridge and 2100 Pennsylvania Avenue in Washington. We completed new acquisitions for a total of $336 million, including 880 and 890 Winter Street in Waltham, the remaining 5% interest in our Salesforce Tower development in San…

Thanks, Owen. Good morning, everybody. Happy New Year. We're not going to say that anymore. It should be pretty clear from Owen's macro commentary that we are feeling really good, very positive about the state of the business economy. And the overall daily transactional leasing activity that we're experiencing across our portfolio really is in lockstep and as you heard during the last 12 months we increased our in-service occupancy by more than 160 basis points, so strong leasing volumes everywhere. You shouldn't interpret this though to mean that every market is strong. We have our strong markets, which are characterized by tight supply and very modest short-term new deliveries, Boston, Cambridge, Waltham, Lexington, San Francisco CBD and West LA, and there we have rental economics that continue to grow and grow significantly, strongly. We operate in the second group of markets, which have higher availability, consistent new construction deliveries, i.e. less supply constraints, but that are coupled with very significant technology demand, so the Silicon Valley, the Reston Town Center area, the new construction on the far West side of Manhattan. These markets are improving. So it's more of a function of the premium of new product being added to the market as opposed to a simple market conditions. The third segment is the Plaza District in Manhattan. It behaves differently since it lacks the technology demand growth. We continue to have strong activity from non-tech users. Obviously they have more modest growth, although we had two deals this quarter, which were expansions from non-tech users. And we'll talk about those in a few minutes. But there does remain significant supply and there really hasn't been much in the way of changes in the economics over the last year or two. And then the fourth category really is limited…

Great. Thank you, Doug. Good morning. As Owen described, we had a really strong year in 2019. In addition to our 11% FFO growth, we demonstrated substantial revenue growth of 9% and the growth came organically from higher occupancy and higher rents in the same-property portfolio as well as externally from the delivery of developments. Our share of 2019 same-property NOI growth ended the year higher by 5.4% over full-year 2018, and it was even higher on a cash basis at 6.7% growth. We also had an incremental $78 million in NOI from our developments, contributing 6.5% to our growth. And we still have an active pipeline of $3.1 billion in developments under construction that are projected to provide incremental earnings growth every year for the next several years. Turning to our fourth quarter 2019 results. We reported funds from operation of $1.87 per share and that was $0.02 per share above the midpoint of our guidance. The increase was primarily from improved portfolio revenues due to a combination of leases commencing earlier than projected as well as better than projected service income from our tenants in the quarter. Our results would have been $0.01 stronger, had we not incurred a $1.5 million charge from extinguishment of debt. We elected to prepay a $26.5 million mortgage, encumbering our New Dominion property. The loan carried a high interest rate of 7.69% and the repayment is reflected in our lower interest expense assumptions for 2020. Looking ahead to 2020, we have updated our FFO guidance with changes primarily coming from our pending asset sale and changes in our interest expense assumptions. Our portfolio NOI assumptions remain in line with last quarter's guidance. Doug detailed the solid leasing activity we're seeing in the majority of our markets, which gives us confidence in our…

[Operator Instructions] Your first question comes from the line of Nick Yulico with Scotiabank.

Okay. Good morning, everyone. I guess, starting out with the new joint venture in South San Francisco, clearly, a very strong market. Can you just give us a feel for how this is going to work in terms of redeveloping existing buildings versus doing new development? And if there's any – I know you're going through the plans still, but is there any early indications of how we should think about cost per square foot incrementally to build this out along with rents, you think, you can get in the market today?

Nick, let me start off. I'm sure Doug will have a few comments as well. So just to back up for a second and talk a little bit about our rationale for doing this joint venture. Gateway is a very well located office park near Transit in South San Francisco, which is a very strong lab market and frankly a less strong office market. The keys that drove the joint venture is there is a land parcel that is located between our assets and Alexandria's assets that are part of this joint venture. And that land is owned by us, but it's encumbered by a surface parking easement by one of the Alexandria buildings. So by doing this joint venture, both we and Alexandria are contributing our rights to that site, and we can develop on it. So this JV opens up that parcel to new development, and we and Alexandria also contributed additional sites. And also on the Boston Properties side, we have some excess parking that we can contribute to as well. So the way we look at this is from our standpoint, and I do think Alexandria, this is one plus one equals three. We're creating value just by putting the two sides together. Also from our standpoint, we get to reorient our investment in Gateway, which is primarily an office project to date, to the lab market locally, which is much stronger. We free up 3 new development opportunities. We have no loss of income. So again, I think this is a win-win for both Boston Properties and Alexandria. As it relates to some of your questions about the development, the total development rights as I mentioned and it’s mentioned in the release and in my remarks is over 600,000 feet. It's on three separate sites. We and Alexandria are – will -- have been and will be working on development plans for those sites. So we're not prepared at this point to answer some of your questions as it relates to cost. There is a possibility that we could launch one of these buildings in this year. So not all of them, but one of them.

Yes. I would just add a couple of more – just clarifying comments. So the current portfolio is our three office buildings, an office building that Alexandria owns, a lab building that Alexandria owned, and an amenity building. So think of it this way, right now, we're 100% office, and as of the formation of transaction, we’re – have about 13% lab, so we've reduced our office exposure. And assuming we build all the lab buildings, and we do some conversion of some of the existing assets, we're probably going to be somewhere closer to 50% or 60% lab in this marketplace at the end of the day. Right now, I think we contemplate that the buildings that will be developed will be lab buildings. They're all sort of in a couple hundred thousand square feet range. And we are actually – there's a plan that we've agreed to for the first building and we're hopeful that we're going to be in a position to have gotten our permits pulled and start construction on that building by the latter part of 2020. And with regards to market rents, I think our view of market rents is that the lab rents are in the mid-50s plus or minus. And so we try to achieve a 7% return on cost, and I think Alexandria has the same perspective, and so that can sort of give you a sense of where we think new construction will be.

Okay, that's helpful. And then just in terms of the 50-50 nature of the venture, are we to assume that the contributions are roughly equal? So any future spend would be split 50-50?

The value of what we're contributing is slightly more than the value of what Alexandria is contributing. So the venture is starting off with us owning a little bit more than 50%. And as we proceed with new development, Alexandria will be funding all of it until it's trued up to 50-50.

Okay, that's helpful. Thanks. Just one last question on GM Building. I was just hoping to get an update. I know you've got some leasing done in the quarter. But in terms of the leasing prospects for the remaining vacancy there as well as the upcoming lease expirations and – as well there was – there's been some reports about Perella Weinberg, which has a lease for, I think, 130,000 square feet in the building expiring in early 2022. There've been some reports about them being courted for some other redevelopments in the city. How are the renewal prospects looking for that along with the rest of the leasing you're trying to do right now? Thanks.

John Powers, do you want to take that one.

Yes. We think Perella will leave. We tried to keep them. We worked on that very hard, but for a number of reasons and restacking in place is always difficult. And I think that they will leave the building. We are talking right now to a couple of tenants for that space. I don't know if we'll make that deal – those deals, and we have space rolling up. But as Doug said, we had a pretty good quarter at the end of the year, and I'm pretty optimistic. I think we will be moving forward with some amenity space in the building, which will also be a plus.

Thanks everyone.

Your next question comes from the line of Craig Mailman with KeyBanc Capital Markets.

Hey guys. The $12 million increase in NOI loss from dispositions. Is that all Dominion? Or is there – there's no leakage from the JV contribution?

No, not at all, it's a 100% New Dominion. Obviously that's not a net number, right. That's just a gross number.

Right. So what – depending on what timing you guys have in there, what was the cap rate on New Dominion?

We're not going to talk about that. It's not a closed deal.

Okay. And then just you guys have talked about 3 Hudson maybe kicking off sooner than expected. I mean, what kind of interest are you guys getting now that a lot of other new supply is being absorbed? And what timing do you think realistically could be accelerated, too?

John, do you want to answer that one?

Thanks, Owen. Yes, we're pretty optimistic based on the tenant response first of all to the building that we’ve received, very positive response. The building, of course, it's on a full acre and it has avenues on three sides. So it's a great site. And we've designed a building that's pretty designed. We're in 100% CDs now. So we've shown it to a lot of brokers, but we've made probably a dozen tenant presentations and it's been very, very well received. So based on that we're still rolling with the foundation, the foundation is not quite complete yet. Obviously, we will not go forward without an anchor tenant. We have a stream of tenants that are interested. Some have – we can make a 24 lease expiration date. That would be the earliest that we could make. Some of the deals that have been done that have been announced, those tenants met with us. I think everyone of them like the building, but we could not make the earlier dates that they really want it. So we have also some tenants with later dates. We're talking to some 25s, 26s, even 27s. So I think what we've decided now is we have the building that we want to build. We have the foundations. And so this is going to be a win not if and we have to just see how it goes over the next quarter or two quarters to see whether we just continue and go forward or we slow down the construction process.

Great. And just one last one, I know we had talked previously about land site in Dallas. Is that still kicking around? Where are you guys on that?

We are not looking at different sites all the time. And so we continue to think about Northern Virginia as a really important focus for our growth. And so we don't have anything that we can comment on specifically, but we continue to look at different assets.

Great. Thank you.

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

It’s Michael Billerman here with Manny. Doug, in your opening comments, you talked about the three other pre-development project, 3 Hudson yards, which John just talked about Waltham and Back Bay. I guess if you had to think about the probability of one or more of those projects starting this year, I guess how would you rank them? And how much of it is tenant demand driven versus the rent and the returns that you require in getting those projects off the ground? Right because I assume it's part of both, right? You need the tenants to show up, but then you need them to pay the rents that you want for your shareholders to earn the returns that they thought?

Yes. So I would answer the question in the following way Michael. So we are actively engaged in conversations with tenants, as John said, at 3 Hudson Boulevard, and we are also actively engaged with tenants on conversations on both 171 Dartmouth Street and on 180 CityPoint. We don't have a signed letter of intent with anyone yet. So I don't think we're in a position where we're close to announcing something. The rents that we are asking are, I would say commensurate with where the market is today and they are more than satisfactory to provide us with an acceptable return to start those buildings. So if you force me to push from a timing perspective, I think that the 171 Dartmouth Street building is probably the one where we have the most significant conversation with tenants who we know are going to want to make a move from where they currently are or expand in the City. And so I said that's probably the one of the three that's most likely.

Okay.

This is Bryan Koop. Some additional color would be as we ended last year with the completion of leasing, let's say for the Hub, which was our major exposure on the urban side. We're thrilled with our position on our development pipeline from the standpoint of our basis as well, because when you look at the recent sales of land at record numbers, we couldn't be more thrilled with our position in this late cycle with both the Back Bay Station and also Waltham with some of the new sites that have been delivered up for sale at exceeding $500 of buildable foot. And then you compound that with them 6% increases in construction costs over the last five years. We couldn't be happy about our position with these development sites that Doug mentioned.

Okay. Well, thank you for that Koop. And then the second question, I mean Owen or Doug. Can you take us a little bit behind the curtain on the joint venture with Alexandria, sort of when your discussion started? And also you have a lot of overlap in some of your other core markets. You think about holdings in Cambridge or in San Francisco. Have your conversations expanded to see other ways that you can have a one plus one equal greater than two, between your two organizations that do have very similar philosophies to capital allocation to development, to management and all of those sorts of things?

Yes. So Michael, its Owen. We initiated these conversations with Alexandria last year and the reason we initiated it was for the rationale that I went through earlier, the one plus one equals three, reorienting our investment in gateway from office to lab. No loss of income, and also I think not only win for us, but also a win for Alexandria. So we initiated it. We just got to close as you know. We have and hope to continue to have a strong relationship with Alexandria, but there's no additional dialogue with them at this time about other joint ventures or other cooperation.

Did you discuss at all just selling outright your holdings to them or them selling their holdings to you?

Our preference was to do the deal that we've currently constructed. We think that's a better outcome for Boston Properties shareholders in selling the Park. Because it's all, as I mentioned earlier, it's all office. It's in a strong lab market. We think will create more value for our shareholders by doing the joint venture as currently constructed than we would if we sold it for cash.

Okay. Thanks.

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

Great. Thank you. Just a quick follow-up on the JV. Can you talk about who's going to be managing construction and then managing the assets?

So the joint venture will be jointly controlled from a governance standpoint. Alexandria will be the property manager, although we will receive a portion of the fees. We and Alexandria will be co-developers, though Alexandria will be in the lead and we will also receive a portion of those fees and we think this structure makes sense, given the larger presence that Alexandria has in the South San Francisco market.

Okay. And it sounds like there's an amenity building that's now going to be included in your joint portfolio in the gateway. I mean, what kind of value do you think that adds to your holdings in that submarket?

So this is Doug, Jamie. We think it holds a lot of value, which is why we did the transaction. So we have three buildings of almost 700,000 square feet that are currently office buildings and are pretty de minimis amount of amenities. And we saw that Alexandria is building, was building 17,000 square foot, high quality first-class amenities building with a significant advantage from a leasing perspective with regards to both office and the lab tenants that are in that marketplace. So we really – this was truly an opportunity where the two organizations looked at their assets in this particular submarket and said, we're much better off operating. This is one collective as opposed to us sort of doing our own separate things and not being able to untie this piece of land where we owned it and they had an easement on it and where we had extra parking and other assets, and where they had an amenity building. So you throw all this stuff together and it's a win-win for all the customers in both locations today and in the future.

All right, thanks. And then Owen I want to go back to some of your comments at the beginning of the call. I guess starting out, maybe just your thoughts on capital flows. You had talked about hedging costs, maybe a potential increase in foreign capital. Just as you look at the office business or office assets that have been kind of slow to trade in the last few years. Do you see a meaningful pickup? And if so, kind of what markets and what types of assets, whether it's core value, add opportunistic, just anything you think may change here.

Yes. So I just look at the numbers, the transaction volume for our space, those being larger office buildings was a little bit up in 2019 versus 2018. But I think the market is very solid, there's good liquidity. I look at things like interest rates are going down, and cap rates are at least so far have not, so that spread between where the cap rates are and the risk free rate is very healthy, from a liquidity standpoint. I think there is a lot of liquidity in the world is looking for real estate. And I think the U.S. is a very strong destination, given that even though our – we look at our rates as being low, they're lower in most of the other developed countries and cap rates are even lower. So there's yield available here, there's stability available here, and I'm optimistic for capital flows going into 2020. In terms of the markets, I do think there is a higher level of liquidity for the tech and life science sectors of the private capital market. So I think competitions for buildings that are in Boston or in San Francisco or in West LA are stronger I think in general than they are in New York for example.

Okay. We've heard about the pushback on just people getting their heads around CapEx costs. When it comes to office, do you think that that tone has changed at all or that's going to be persistent?

I don't know if it's changed. That's certainly a focus on the private market as well. But again, every quarter, and I did a couple more this quarter, the cap rates haven't changed much. I mean I've been giving, on these calls, a pretty robust report on the private capital market for Class A office buildings in our core markets, and the cap rates have been sticking more or less in the force. So I think CapEx is always something that's discussed for office and frankly for all types of real estate. But I don't think it's had a material impact on the cap rates.

Okay. And then just finally, you would also commented that business conditions and business confidence seem better today than heading into 2019, given some of the global risks at the time you? We saw a lot of tech leasing last year. Do you think this is going to spread to other sectors where you could see, major large expansions from other sectors into some of these markets? Or do you think it will still be mostly tech that's taking down most of the space?

Yes. I think that tech and life science and other creative industries will continue to be the drivers of net absorption. I think the more traditional industries, financial customers, legal customers, their businesses are fine. They're doing well. I don't see as much growth in those areas. So I think you'll see them, there will be lease expiration driven leasing. And I think many of these employers will also be seeking to upgrade their space, but I'm not sure they're going to necessarily grow substantially.

Okay. Thank you.

Thank you.

Your next question comes from the line of Derek Johnston with Deutsche Bank.

Hi, everyone. Doug, do you believe the technology company demands, you mentioned in New York City, actually has some runway and could it potentially continue at this pace or potentially even accelerate?

So, Derek, I would answer the question in the following way. I believe that that New York City as a physical location for the kind of workers that the technology companies are looking for will continue to be very attractive. It has relatively speaking the best transportation system in all of the major metropolitan markets and it has got affordable and reasonable housing prices within great easy proximity to where companies are locating. And those two things, in my opinion, are very important determinants for where the technology companies are looking to expand their workforce. Plus, they obviously have a lot of college educated workers. So I do believe that New York City has a lot of leg under it, and on a long-term basis, will be a market where the technology companies will continue to grow and prosper.

Okay. Great guys. That's it for me.

Your next question comes from the line of Jason Green with Evercore ISI.

Good morning. Split role in California has been a topic that's gained a lot of traction to start the year. Just curious if you're able to share your thoughts on the probability of passage and also the impact it would have on your portfolio?

So I'll talk about what the impact on the portfolio will be. And I'm going to let Bob Pester talk about the "probability of passage." So the way we look at this is that we have triple net leases and we have gross leases. In a strong market, you can very easily make the argument that well, but triple net lease escalation of taxes will get pushed along to the tenants, and with the gross leases, the escalation to the tenants, that's not rolling, we'll get passed along. But to the extent that you're resetting base years on gross leases. The question will be, how will that impact your net? And if it's a really strong market, you probably could choose to move those gross leases to net leases and sort of continue that "path” along with your other portfolio. The thing about this split tax is that it's very unclear as how the reassessments will occur? How long it will take? How they're going to do it? How much "annual escalation" there will be in the assessments will be every three years that they get to you? Will it be on an annual basis? How many years will take for them to actually start the reassessment process? So all that stuff is very, very much in FLEX. If you said to us, okay, well assuming everything had to get reassessed and assuming you were able to continue to pass along all of your triple net escalation to the tenants, but on your gross leases, you had to demonstrate what the impact was. We would tell you it's probably somewhere between $0.02 and $0.03 a share on our portfolio. And it would take our average lease length is a year or so, it would take eight years for that to roll through. Bob, do you want to talk about the probability of the split role taxing?

Sure. I think the jury is still out on how this is going to turn out, although I believe current polling showing that it doesn't pass. And then there's the issue is this just the first step of them trying to raise property taxes, not just on commercial properties, but then having a second phase that hits residential, which I think is a nonstarter for anyone that owns a house in California, but this will play out over the next six to nine months, and we'll have a better feel during that time. But at present time, I don't think it's going to pass.

Got it. And then I guess just a follow-up, just given the votes getting closer, have you seen any change in asset pricing or transaction activity in California just relative to this acts being on the ballot?

I have not.

And remember that when a new building is sold, it gets assessed to market. So unless there were some odd structure about the way the sale was going to occur, everyone would assume that the assessment would change. And I don't think people are viewing the building escalations after the assessment to have a material impact on the value on a going forward basis.

And that's not a change. So I guess – it's always been that way. They always get reassessed on purchase, so that's always been kind of baked into the – in those assets.

Got it. Thank you very much.

Your next question comes from the line of Alexander Goldfarb with Piper Sandler.

Hey, good morning up there. So two questions from us. So first one, just on the Shearman & Sterling renewal, can you just talk about what played into that? Maybe every partner there commutes in and out of Grand Central. But can you talk about the things that you were able to do to keep them in that building versus some of the other major law firms that chose and other major tenants that chose to go to new construction? So I don't know if they're restocking in place, but maybe, I don't know if there are particular things or if it was just general, they just – they like where they office, they weren't interested in relocating to a different submarket. Just curious.

So I'll just make one quick comment and then I'll let John describe the negotiation. We were really good at what we do, Alex. And so tenants like it to be in our buildings. I just make that as sort of a visceral reaction to that. But John, do you want to talk about…?

Thank you, Doug. I appreciate it. I would expect nothing less from you.

John?

Maybe I'll be a little more specific. Yes. I think they were intending to leave. I think they were going to leave. And I have lunch. We've kept in touch with them, but I have lunch with the Chief Operating Officer there and he gave me a list of all the things that were forcing them to leave. And then we took that list one by one and we responded to it and we found swing space for them in the building. We made a deal with Citibank across the street to move – to get their conference center. So that would be available. It's very hard to rebuild a conference center, pay for that, and then move back into a conference center. So Citibank has downsized as everyone knows here in the corner. And they were ready to do something different with that conference center. So we made a deal with a firm in London to sublease it from Citibank. And then we made a deal with the firm that sublease did to allow Shearman to use it for a year. So they go across the street to rebuild their conference center. So the swing space, the conference center, they had some operational issues in the building because it was a – these weren't really built based building problems, but they were problems that stem from the way they did. They build a way, way back in the late 1980s, and we were able to get them to understand how that all happened from an MEP standpoint and they were very comfortable that we’re going to fix it all. So given you a high point of a number of things on a much longer list, but when we had all that done, they decided when they looked at their alternatives that they could live here happily for another 20 years, which will by the way make it 50 years at the end of that 20 that they'll be in this asset.

Okay. Thank you. And then second question is, I was talking to a broker recently in one of the life science markets. And the point came up about the political rhetoric that it was on the campaign trail and healthcare and all that fun stuff. And the question is, if it's having any impact on life science leasing. So are you seeing any life science tenants maybe starting to dial back their thoughts on taking space based on what may happen in the election or in healthcare legislation? Or is all that rhetoric not having any impact in life science continues to go full bore?

So our venue on life science is primarily in the greater Boston market because that's where our life science assets are. And I would tell you that, our view is that interestingly enough, there are more life science tenants looking for space today than there ever have been. And many of those same life science centers are actually, if you will, warehousing space because they're concerned about finding space as they grow. So we have not seen any of the rhetoric translate into a visceral reaction that we should slow down or stop what we're doing because our business models are going to somehow be stressed by what goes on from a political perspective.

Thank you.

We haven't also seen any slow down in the investment portion of the life sciences. We had a record number of VC investment last year. I think it was one out of every $4 in VC came to the Boston market. We continue to see that. And then we also continue to see several of our clients have a pipeline of, call it, new drugs that are up for approval, which have a tremendous amount of opportunity. So we haven't seen any of the rhetoric translate into demand.

Thank you.

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

Thanks for taking the question. So just two quick ones. One, can you all sort of rework and maybe just a bit of a slowing down in base here in New York and maybe some other markets. Just give us some updated thoughts on how you see BXP, FLEX evolving? And just maybe broader thoughts or specific thoughts around on plans for the makeready suites that you've referenced in the past?

Yes. Okay. So maybe I'll make a general comment on the whole shared workspace business. I'll turn it over to Bryan to talk about FLEX by BXP. Clearly there's been a slow down in new leasing from the Coworking operators, given all of the tumult with WeWork last year. And I think that's not only been true of WeWork, but also some of the smaller operators. I mean, I think the markets continue to be healthy – ending that demand driver has gone away at least for the beginning of 2020.

Yes. This is Bryan Koop. If you look at our strategy with FLEX in Boston, it's really been almost complimentary to our existing products. So as an example with The Hub on Causeway, we have one full floor that we had always planned on putting into podium and that's 100% pre-leased and opened last week. And we're just thrilled with the product and how it came out. By year-end we hope to have four locations, but it's really complimentary to our existing assets and has nothing to do with what's taking place in the greater market. And then in a greater market on Coworking, I think our FLEX product has been immune from, call it, a lot of the noise because the FLEX product is really for the small-to-medium enterprise, and it's not a Coworking product per se. It's a Space as a Service for small-to-medium enterprises.

Yes. So we look at it as, we're not trying to grow FLEX for the sake of growth. But if we have – we do think the product is interesting to a segment of our customer base and if we have the right space in the right place, we'll consider future stores.

The only other places that we're currently in processes in San Francisco or that we actually got back in November and it's under way to be a floor of a similar ilk in San Francisco.

Great. And then just the JV with Alexandria that’s definitely interesting. Thanks for all the color. This seems like a very specific deal on a specific opportunity, but just curious as you step back and look at sort of your holdings on the East Coast as well, do you think there are opportunities kind of to partner with whether it's private capital or other firms sort of more in a joint venture basis given sort of maybe where we are in the cycle?

Yes. So to answer you, let me – I think you asked kind of two questions there. Absolutely this joint venture at Gateway, we're very excited about it. We think it's going to create a lot of value for shareholders versus what we own right now. But it's very specific, it was very specific to the fact that Alexandria owned the assets next door, and had these sites where the development potential was unlocked. So that's why we did it. As it relates to joint ventures overall, we're increasingly using joint ventures in our portfolio for different reasons than the Gateway project. We recently brought in CPP to own a 45% interest in the Platform 16 project. They are our partner on the Santa Monica Business Park acquisition that we, I guess, increasingly less recently made. So we are continuing and will continue to inject private equity into our investment portfolio to extend our capital. The rationale for that is very different from the rationale of the Gateway joint venture.

Great. And then just one last quick one. So The Street retail deals you referenced earlier in – the two deals I think you recently did. Maybe just give us – there's obviously been a lot of churn in Fifth Avenue, Madison sort of submarkets, and I'm just curious your thought – you don't have a – there's not a massive exposure there, but just your thoughts on where we are in the sort of evolution in terms of rent resets, and do you have a sense of where rents at grade might be there and the two specifics of markets where you have exposure?

So the answer is, obviously we know what the rents are for the deals that we just did. But we're not going to disclose the specifics of what those tenants are paying. I’d just make two comments and then John Powers, if you want to make some more, you are welcome. The first is that we have now had our second, what I refer to as a successful tenant look at the Fifth Avenue store that we have as a great place to conduct their business while they are doing an ongoing remodel, and they've paid what we would believe are fair market rents for that space, but they have not invested in it on a long-term basis. And then on Madison Avenue, we recognize that the rents are not where they were five years ago and so there's a reset and we're – that's just the reality. John, do you have any other comments?

We don't have any retail exposures in that area, obviously the overall rents have dropped in the retail market, but for specific store, for a specific need, there were still people in the market looking at different alternatives. What we've done in some of our other retail is concentrate on food and beverage because that's an amenity to the office towers, which is very important.

Great. Okay. Thank you.

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

Great. Thank you. Wonderful quarter. Wonderful guidance. Life is good. One question, Mike you're bouncing up around us. 6.3, 6.4 net debt to EBITDA and I think you're on a path to deliver about 800 million to 1 billion of development every year, maybe sell 200 million to 400 million of assets. What is your self-imposed maximum on your net debt to EBITDA? And when do you anticipate needing to go to the equity markets, if at all?

So we've been pretty consistent over the last many years of targeting net debt to EBITDA between 6.5x and 7.5x. So we've been able to do a lot of development and deliver a lot of properties without raising equity. We have a number of opportunities in front of us, including two, we talked about today. And things that are in the future pipeline and as we determine, if those and when those will come in. We will look at all of the sources of capital that are available to us. So we've mentioned private equity, and bringing that in and we did that with CPP. We can bring in additional debt, which is very attractive and very inexpensive. And we would also consider public equity in the future, to make sure that we maintain our leverage in a place where we think we should be.

Great. Then just a couple of a cleanup questions up. I don't think 30 Hudson in your development page on the sup, any reason for that? Or maybe I just missed it. And then second, is everything going smoothly on a Dock 72 and we work taking it on time, taking the space on time.

I'll respond just to the 3 Hudson. So, right now that's in our land position and the work that we're doing there is improving the land and since we have not made a commitment or decision to move forward with that full development. We are not putting it on our development page until such time as we would do that. And that's very similar to the way that we handle these other projects. And we for example, Platform 16 that we talked about, we're doing enabling work, we're doing prep work, so we're improving the land that we have. But until we decide that we're going forward, we aren't going to put those projects on the development pipeline.

Great. Thank you.

John, do you want to make a comment about on Dock 72?

Yes. Everything is fine on the WeWork side there. They built out about two-thirds of this space and they're paying rent on all this space. They have a good number of members signed up. We are slow unfortunately on the amenities and we need to get that done. That will be done in the first quarter, and after that's complete, we should – we expect that more WeWork members were moved in. The amenities of 35,000 feet and they're a key part of what we're creating there. On the leasing side, it's been very slow. As you know, we do have a proposal and we're trading paper on a 50,000-foot full floor, which we're optimistic about, but we'll have to see how it comes out.

Great. Thank you.

[Operator Instructions] Your next question comes from the line of Daniel Ismail with Green Street Advisors.

Thank you, and good morning. For the observation deck at Prudential Tower, is this something you're going to seek to manage internally or look for an operator? And then are there any opportunities to add this and other developments like 3 Hudson?

So Danny, we haven't made any decisions, firm decisions, yet about how the observation deck on the Prudential Tower will get operated. Interestingly that it exists and therefore doing a major renovation of it obviously made a lot of sense. We thought about having an observation deck when we were developing Salesforce Tower, but we just couldn't make the vertical transportation work in that building given where the design had already been. And I would say that, at the moment, none of our other assets are candidates for those types of uses.

All right. Thank you. And then on Proposition E is on the ballots in San Francisco in March. Assuming it passes, does this cause you guys to change your thinking on development timing or acquisitions outside of the city? And are you hearing anything from tenants regarding this ballot initiative?

So Bob, do you want to explain what the ballot initiative E is so everyone understands it?

Yes. Proposition E is a ballot measure put forth by Todco, John Elberling. And basically, it would tie affordable housing deliveries to the amount of office space that could be delivered in San Francisco, thereby reducing the amount of Prop M allocation if the affordable housing goals aren't met. It's pulling fairly well right now. In our case, the Central SoMa projects all would get their existing allocation that's still outstanding. So in our case, we'd get another 250,000 feet because they want to get the fees from the developers up front. We're not hearing anything from any tenants as far as it's impacting their desire to be in San Francisco or they're looking elsewhere. And San Francisco has always been a difficult market develop in. So I don't think it really changes anything.

Do you think this would impact an accelerated phasing of projects in San Francisco or elsewhere?

Only on the Central SoMa projects that have already been approved where it would accelerate the second phase of their Prop M allotment. What the impact will be is existing product, the rent should continue to rise substantially because it's going to restrict supply.

So Danny, the way this works is that, that the projects that are currently in the pipeline in South and Central SoMa will get their additional allocation. The reason why there would be a theory in acceleration is because if you don't use your Prop M allocation within a certain period of time, Bob, I think it's two years.

Two years.

It goes back into the bank, and so to the extent that you get the allocation, you'd want to figure out a way to use it.

All right. Makes sense. Thanks, everyone.

There are no further questions at this time. I would now like to turn it back over to the speakers for closing remarks.

Okay. Well, I think that concludes all the questions. That concludes all of management's remarks. Thank you all for your attention and interest in Boston Properties. Thank you.

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