波士頓物產 (BXP) 2016 Q4 法說會逐字稿

Good morning and welcome to Boston Properties fourth-quarter earnings call. This call is being recorded. (Operator Instructions) At this time, I would like to turn the conference over to Arista Joyner, Investor Relations Manager for Boston Properties. Please go ahead.

Good morning and welcome to Boston Properties fourth-quarter earnings conference call. The press release and the supplemental operating and financial data were distributed last night, as well as furnished to the SEC on Form 8-K. You can find reconciliations of non-GAAP financial measures discussed during today's call in the supplemental package. If you did not receive a copy, these documents are available in the Investor Relations section of our website at www.bostonproperties.com. An audio webcast of this call will be available for 12 months in the Investor Relations section of our website.

At this time, we would like to inform you that certain statements made during this conference call, which are not historical, may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Although Boston Properties believes the expectations reflected in any forward-looking statements are based on reasonable assumptions, it can give no assurance that its expectations will be attained. Factors and risks that could cause actual results to differ materially from those expressed or implied by forward-looking statements were detailed in Tuesday's press release and from time to time in the Company's filings with the SEC. The Company does not undertake a duty to update any forward-looking statements.

Having said that, I would like to welcome Owen Thomas, Chief Executive Officer; Doug Linde, President; and Mike LaBelle, Chief Financial Officer. During the question and answer portion of our call, Ray Ritchey, Senior Executive Vice President, and our regional management team will be available to address any questions.

I would like to turn the call over to Owen Thomas for his formal remarks.

Thank you, Arista, and good morning, everyone. Starting with current results, we just completed an outstanding quarter on virtually all metrics. Our FFO per share for the quarter was $0.04 above our prior forecast and Street consensus, and we increased the midpoint of our full-year 2017 guidance by $0.04 as well. We leased 3 million square feet in the fourth quarter, which is an all-time quarterly record in Boston Properties' history. For all of 2016, we leased 6.4 million square feet, which is approximately 22% above our long-term annual averages. Though most of this leasing will have a positive impact in future quarters, our in-service portfolio occupancy is now 90.2%, which is up 60 basis points from the end of the third quarter. We had another quarter of positive rent rollups in our leasing activity with rental rates on leases that commenced in the fourth quarter up 25% on a gross basis and 39% on a net basis compared to the prior lease.

Also in the quarter, we announced several large-scale new business wins, including the development of new corporate headquarters for both Akamai and Marriott, and control of an important site on Pennsylvania Avenue in Washington, DC. And to cap it all off, we announced an increase in our regular quarterly dividend of $0.10 or 15%.

Let's move to the economic environment. US economic growth continues to be positive but sluggish. And, as you know, recently released initial fourth-quarter GDP growth estimates were 1.9%, which brought full-year 2016 economic growth to 1.6%. The employment picture continues to improve gradually, 156,000 jobs were created in December, and the unemployment rate is flat at 4.7%. Though there has been much written about the positive economic impacts of the recent election outcome due to the prospects of increased fiscal spending and general regulatory relaxation, we think it is too early to underwrite such optimism and are taking a wait and see approach.

In the capital markets, the 10-year U.S. Treasury has risen approximately 90 basis points to 2.5% since the end of the third quarter. We anticipate the Fed raising rates more frequently in 2017 with some prospect of further acceleration given the strengthening jobs picture and possibility of fiscal stimulus. Rate rises will be headwind for the economy, given the upward pressure on the dollar and resultant negative impact on net exports as we saw in the fourth quarter GDP figures.

Given the growth in the US economy, the office markets where we operate remain healthy. In the CBDs of our four core markets and West LA, net absorption was 1.7 million square feet for the fourth quarter, and additions to supply were around 225,000 square feet, and, as a result, the vacancy rate dropped from 8.3% to 8.1%. Asking rents rose approximately 1.6% year over year, and aggregate construction levels are approximately 3.7% of stock versus an annual historical delivery rate of 2.7%.

Now, much has been speculated about a, quote, Trump bump, to office markets in Washington, DC due to increased government activity, and New York City due to financial deregulation. While we see financial tenants more confident as a result of the strong stock market in the fourth quarter and legal and lobbying activity has increased in Washington, DC, we believe it is too early to expect to experience broad, positive leasing activity as a result of the speculated plans of the Executive branch in Congress.

In the private real estate market, aggregate transaction volumes were modestly lower in 2016 versus 2015. This was driven by fewer assets in the market and a slowdown in transaction activity after the election as interest rates rose sharply. We continue to believe there is a strong bid for high quality office assets in our core markets as several transactions were completed above replacement costs over the last quarter. Examples are, starting in Cambridge, 1 Kendall Square, which is a 655,000 square-foot office and retail complex sold to a domestic REIT for $1125 a square foot and a low 4% cap rate, and that includes value allocated at market value to a related development parcel. In Washington, DC, our partner sold its 70% interest in 500 North Capital, a 231,000-square-foot office building located in the Capital District for just under $1000 a square foot, a mid-fourth cap rate to an offshore high net worth investor. In the Soma district of San Francisco, Foundry III, a 291,000-square-foot office building, sold for $1200 a square foot and a 4.7% cap rate to a US pension advisor. And, lastly, in LA, 2700 Colorado, which is a 311,000-square-foot office building located essentially directly across the street from our own Colorado Center, sold for $1165 a square foot to a corporate user. Several large asset sales are currently in the market, and offshore investors remain active and, we think, aggressive.

One final note on the environment. There has also been much speculation on changes to the tax code initiated by the new President and Congress. Changes which could impact Boston Properties would be a corporate tax decrease, elimination of tax-free exchanges, elimination of the deductibility of interest expense, and full expensing of capital costs. While a corporate tax decrease would be beneficial to our customers, and the other changes could impact our capital strategy, and we are analyzing various scenarios, we think it is, again, too early to determine the exact provisions of potential tax reform.

So, in summary, though we are long into an economic recovery by any measure relative to history, we are not overly concerned about a near-term recession, given currently low interest rates and the prospects for fiscal stimulus and tax reform. We are continuing to execute the capital strategy we have been employing over the last few years, which entails growth through aggressive leasing, selected development of preleased projects, and targeted acquisitions of under-leased assets. We will protect the downside by keeping leverage at low levels and financing development through asset sales and additional debt capacity from our increasing NOI.

Now, let me move to the execution of our capital strategy, and I will start with acquisitions. Our Washington, DC team had two important new business wins this past quarter. First, we were selected as the developer by George Washington University for a site at 2100 Pennsylvania Avenue, in close proximity to our very successful 2200 Pennsylvania Avenue project. Subject to securing 480,000 square feet of entitlements, we will enter into a long-term ground lease with George Washington University to develop and own a leasehold interest in the property. This is one of the most attractive development sites in the Washington, DC CBD, and we have substantial pre-leasing interest for the project. Entitlements could be completed and development commenced in 2019 for a 2022 delivery.

Next, upon conclusion of a highly competitive process, we were honored to be awarded the opportunity to develop and own 50% of Marriott's new headquarters development in downtown Bethesda, Maryland, in partnership with a local landowner. The building will be 720,000 square feet and subject to entitlements. In finalizing a lease agreement, the project will commence in 2018 and be delivered in 2022.

At North Station, you recall we are in the middle of constructing a 385,000 square foot mixed-use building, which will also serve as a podium for separate residential hotel and office towers. This past quarter, we signed a long-term ground lease for the hotel parcel with citizenM, who will be responsible for funding 100% of the improvements. We anticipate commencing the hotel and residential projects in late 2018 and will await a substantial prelease to commence the office joint venture.

On dispositions, there were no new transactions last quarter. For all of 2016, we completed three deals for total gross proceeds to Boston Properties of $235 million, in line with projections provided at the beginning of the year.

For 2017, we anticipate continuing the selective disposition of non-core assets with projected total gross proceeds in excess of $200 million.

Moving to development, we remain active delivering assets into service advancing our predevelopment pipeline and evaluating new investments. This past quarter, we delivered into service 1265 Main Street, headquarters for Clarks in suburban Boston, which I described in detail last quarter.

In terms of starts for the fourth quarter, in the Boston region, we have commenced the full redevelopment of 191 Spring Street, a 160,000 square foot vacant building in Lexington, and a new retail amenity building on the plaza outside 100 Federal Street. Our total investments in these projects is $85 million, and both are further examples of opportunities we have in our portfolio to profitably reposition assets and create additional amenities for our customers.

We remain active advancing our predevelopment pipeline for projects that would start after 2016. Several updates from the third quarter include, we signed a Letter of Intent with our land partner for MacArthur Transit Village, which is a 402-unit residential project located in Oakland, California, whereupon full entitlement of the site we have the right to develop and invest in the project on favorable terms. This development would commence in 2018 and deliver in 2020.

We also received site plan approval for the development of Akamai's 475,000-square-foot headquarters at Kendall Center in Cambridge. This project will start this year and be delivered in 2020.

At the end of the fourth quarter, our development pipeline consists of seven new projects and three redevelopments totaling 4 million square feet and $2.3 billion in projected costs. Our projected cash NOI yield for these developments is in excess of 7% with material pre-leasing.

In the aggregate, these projects are a significant growth driver for us over the next three years.

So, to conclude, we continue to remain very enthusiastic about our prospects for growth and creating shareholder value in the quarters and years ahead. In our third-quarter investor materials, we provided a roadmap to shareholders of our clear and achievable plan to increase our NOI by 20% to 25% by the year 2020 by delivering our current development pipeline on time and budget and leasing up our existing assets from approximately 90% to 93%. And this growth profile excludes most of the new business wins I described earlier, the opportunities afforded by our significant land bank, and new opportunities that could be identified and executed upon given our conservative leverage and strong balance sheet.

So, with that, let me turn it over to Doug.

Thanks, Owen. Good morning, everybody. Happy new year. Consistent with Owen's remarks on the performance of the overall US economy, as we begin 2017 and think about our own projections for the year, our view is that the overall health of the office markets really isn't going to change too much from what we experienced over the last 12 months. We continue to see the bulk of office demand growth from this technology and the life sciences businesses and pretty steady as she goes from financial services and other traditional users. While there is no question that venture capital investing slowed across industry types and regions in 2016, there was still $70 billion invested, which was more than double what was invested in 2006, to put it in perspective, and interestingly, there was more capital raised by the VC sponsors in 2016 than in any year since 2006. So there is a lot of money sitting on the sidelines waiting to be invested.

Demand from traditional office tenants in the legal and the large financial services has stabilized. While there are still sporadic space reductions stemming from changes in utilization and some downsizing, we have begun to see pockets of growth from these tenants in New York and in San Francisco and in Boston. For instance, the new lease that was signed by Point72, who is currently in our building at 510 Madison with a 2022 lease expiration, is significantly larger when they moved to the Hudson Yards. In our portfolio, we had a 40,000-square-foot hedge fund and expanded by more than 50% in our New York City portfolio. Accenture, which is a tenant in Boston, is going to move into 888 Wilson Street, and they are going to expand by almost 50% later this year. We have a 45,000-square-foot private equity firm at the Prudential Center. It expanded by 10,000 square feet.

So lots of examples of traditional tenants starting to feel better about their business and moving forward. New supply, however, has been delivered in all of our markets, and along with the organic supply from the more efficient use of space that has occurred over the last number of years, it still continues to impact the markets, particularly older buildings that don't want to reinvest new capital.

Before I describe the various market dynamics, I do want to reiterate the phenomenal quarter our teams produced from an operating perspective. 3 million square feet of leasing is a big deal. We completed 112 transactions. Typical quarter, about 80. So that is about 40% more. And after the Akamai lease of 476,000 square feet, the next largest transaction was only 200,000 square feet. Our same-store results were positive across all our regions. On a net basis, San Francisco was up 76%, Boston was up 24%, the New York City office portfolio was up 14%, and DC was up but a little less than 1%. Our operating platform continues to be, if not a, probably the, critical strategic differentiator for this organization.

I will start my regional comments with San Francisco. Last quarter, and at the NAREIT conference in November, we were responding to questions about sublet space and the resiliency of the technology tenant demand. There is no question that sublet space interfered with direct space leasing in 2016, but as I described on our last call, each major block was quickly leased. Currently, the largest block of sublet space is about 80,000 square feet, and there are only three pieces of space in excess of 50,000 square feet available on the sublet market, and their average term is under two years.

The majority of the sublet space in San Francisco is in units under 20,000 square feet. And with regard to technology demand, just during the fourth quarter, Twitch, which is an Amazon subsidiary, completed 185,000-square-foot lease to 350 Bush. Adobe took 200,000 square feet. Slack announced their 230,000 square feet lease at 500 Howard, and, by the way, they were an 11,000-square-foot tenant at 680 Folsom Street, our building, two years ago. And, last month, a startup called Blend took 50,000 square feet at 500 Pine.

On Friday, however, there was yet another article in the San Francisco media, noting with concern that the near-term deliveries, including Salesforce Tower, are an issue in how they might impact the market. Well, we can tell you, we have signed 40,000 square feet of leases in December, and we are completing the drafting of 100,000-square-foot four-floor lease that we expect to execute in the next few weeks, with a tenant that needs late 2017 occupancy. With this commitment, we will have leased almost 1 million square feet at Salesforce Tower. This will bring us to 68% leased with 450,000 square feet of availability.

Tour activity is consistently strong, and we have begun marketing to partial floor users with occupancies as early as the fourth quarter of 2017. When we talk to the brokerage community about their tenants in the market list, which they all maintain, there continue to be a number of 200,000-square-foot prospects, tech and traditional, active in the San Francisco CBD market. At the moment, there are not any blockbuster requirements, those 500,000-square-footers that we saw in 2014 and 2015, which is very similar to the experience we saw last year, but the overall market conditions we have been describing for the last few quarters remain the same.

Each quarter, there continues to be a new crop of technology company requirements in addition to the traditional lease expiration driven market. We think the real news in San Francisco is simply the stability of the market.

In West LA, we signed leases for more than 200,000 of our 350,000 square feet of office availability at Colorado Center, and we extended another 190,000-square-foot tenant. We have a number of discussions ongoing on the two final pieces of space. One is 40,000, and the other one is about 70,000. The purchase of 2700 Colorado by Oracle and their expected growth in that building has accelerated the tightening of the market in the immediate sub area. Amazon, Snap, Oracle, Riot Games, and Hulu all expanded in the submarket during the quarter. We have completed the initial planning for our upgrade of the common areas, and we are moving into the execution phase on that plan.

I want to start my discussion in the New York City region with the General Motors building where we have been very successful marketing the floors that we got back last July of the 33rd and 34th floors where we were asking above $170 a square foot in rent. We have leased 23,000 square feet, have a lease out for 40,000 square feet, and are exchanging proposals for the remaining prebuild suites.

During this process, we have found a number of tenants that want to be in the building, but would prefer a lower-priced alternative, which we could provide lower in the building if we had available space. With that in mind, we have agreed to take back two lower floors from an existing tenant. That tenant's lease expiration is in late 2020, and we reached an agreement to terminate the lease in exchange for a significant payment. While we are taking some risk on the leaseup, we feel confident we will lease the space at rents comparable to the expiring rent and have reduced our 2020 exposure at the building.

We have also concluded all the leasing on the retail space on Fifth Avenue was an expansion and extension with Apple, that mystery tenant we have been talking about for over a year. They will grow from 32,000 square feet to more than 77,000 square feet, and while they are undertaking their expansion, they are using the former FAO Schwarz (technical difficulty) on a temporary basis. This interim store is open, and they expect to reoccupy the renovated space in late 2018, at which time we will deliver this interim store to Under Armor for their full buildout.

The conditions we have been describing for the last few years in New York City still remain in control. We are not anticipating office rent growth, and we do expect higher concessions versus 2016 across midtown in 2017. New supply continues to come into the market in the form of new deliveries, and large blocks of space returned to the market in buildings like 4 Times Square and 65 East 55th or 1271 Sixth Avenue and, soon, 399 Park Avenue impact the market. Landlords that are putting capital into older assets are attracting tenants. Major League Baseball went over to 1271 Sixth Avenue, and space that is attractively priced is also getting activity. In the latter part of 2016, 270,000 square feet of space was leased to three tenants at the base of 4 Times Square, the space Conde Nast moved out of when they moved down to the World Trade Center.

Our total New York regional office leasing activity in the fourth quarter was about 400,000 square feet. In addition to the lease at the General Motors building, we completed two full floor deals at 599 Lexington Avenue, and 240,000 square feet at Carnegie Center, where starting rents are between $32 and $35 a square foot, and TIs are running between $0 and $6 per square foot per year. 159 East 53rd Street is under demolition, and we have lots of tour activity as the building has never been on the tenant reps' radar since it has been occupied by Citibank since the building opened in the late 1970s -- early 1970s. We are marketing a brand-new building with a greatly enhanced window line, brand-new mechanical plans, and tremendous outdoor space on each floor. We hope to deliver this 195,000 square feet block to tenants in 2018 with revenue commencing in 2019.

At 399 Park, our repositioning activities are accelerating, and we are offering products at various pricing levels from the mid-$80s at the base to over $140 a square foot for our oasis glass box with its 13-foot finished ceiling height on the 14th floor.

The DC Central business district office market fundamentals really haven't seen any demonstrative positive change since the election. In fact, one of the recent executive orders putting a hiring freeze on significant portions of the federal government is probably unlikely to spur new GSA requirements. Landlords are still competing pretty feverishly on available space, and concessions in the DC market are pretty strong. 10 years or more leases are getting 12 months of free rent and at least $100 a square foot of tenant improvement allowances.

DC is truly a forward leasing market for any sizable space, and we are in active discussions with our new opportunity at 2100 Pennsylvania, as Owen mentioned. With the right product and the right locations, you can break away from the commodity leasing market and make a lot of money in DC. There continues to be spec buildings under construction, aging beauties are being repositioned, and there are still lots of buildings with over 100,000 square feet of space, but again, you can still make money in DC.

This quarter, our most significant DC lease was a 10-year renewal with a GSA at 500 E Street for over 200,000 square feet.

The one area in the DC region where we have seen the potential for a pickup in activity is around the defense and the intelligent users in northern Virginia. Activity at our VA 95 single-story product, which is adjacent to Fort Belvoir, has accelerated significantly, and we are in lease negotiations with two tenants, one for 53,000 square feet, and the other for 69,000 square feet.

And, finally, Owen described the pending development in Bethesda. NAREIT is leasing 100% of the office space, and we are not involved in the hotel that is also part of that development. And when the building is completed in 2022, the building will be 100% leased. It is premature, however, to discuss any of the financial details. So, if you ask any questions, you are not going to get a very satisfactory from us this quarter.

In Boston, as Owen reported, we completed our lease with Akamai on the site of our existing 79,000-square-foot, 145 Broadway building. With the recent news of MIT's acquisition of the Volpe site for $750 million, I think it is fair to say that the new Akamai lease that we've signed this quarter is already well below market.

Our Cambridge portfolio was 98% leased. A few quarters ago, I described the possible opportunity to recapture the Microsoft space at 455 Main Street, if Microsoft consolidated into an adjacent building in Cambridge. Well, it happened, and we are getting 100,000 square feet back on December 31 of this year, and the current rent is $50 gross.

Across the river in the Back Bay, we had a very active quarter. We leased 64,000 square feet at 888 Boylston Street, bringing the office building to 89% leased. We leased 200,000 square feet at the Prudential Center. We did 55,000 square feet at 120 St. James and 33,000 square feet at 200 Clarendon. Activity at 120 St. James is robust, and we are in lease negotiations on the majority of an additional floor and have four active Letter of Intent negotiations ongoing right now for the remaining space.

We have introduced our plans to create high-end, prebuilt suites at 200 Clarendon and have seen a meaningful pickup in interest on that space as well. While the Boston CBD continues to be predominantly a lease expiration driven market, there is a steady flow of new market entrants, as well as some growing technology companies. This quarter, Reebok announced the decision to move into the city, and the interest we are seeing for the 175,000 square feet of office space at the first phase of the hub, which is under construction, and will be delivered by the second quarter of 2019, has exceeded our expectations.

The pace of activity in our suburban portfolio was equally stronger in the fourth quarter. We completed more than 300,000 square feet of leasing, including adding another life science firm to the portfolio with a 46,000 square-foot lease at 140 Kendrick Street, which brings that building to 100% leased.

We commenced the redevelopment of 191 Spring Street and are in negotiation for an 80,000-square-foot lead tenant, which we expect to have in place before the end of the fourth quarter of 2017. High quality space is at a premium in the Boston suburbs.

So going back to our bridges, in November, we published a slide deck which included an update on how to think about our growth over the next 36 months, which is what Owen was describing. The first slide that illustrated the incremental share of NY, we believe we could achieve through an increase in occupancy from our high contribution buildings. The total incremental contribution was projected to be about $111 million.

To date, we've signed leases where we have not yet begun recognizing revenue, totaling $56 million, and about $22 million of that will start to hit the books in 2017.

The second slide illustrated the map of a ramp-up of our income from our development investments. We showed meaningful additions to our leaseup of these assets this quarter, including the 475,000 square foot preleased of Akamai, 64,000 square feet at 888 Boylston Street. 40,000 at Salesforce, with that other 100,000 square feet coming on in the very near future. We are progressing on completing the leasing of our development assets necessary to generate the incremental run rate of $234 million of NOI annually by the beginning of 2020.

And, with that, I will let Mike talk about this quarter.

Thanks. Thanks, Doug. Good morning. I am going to start with a few comments on capital raising this morning. As Owen described, we have strong opportunities to continue to expand our development pipeline, and we have been active in the capital markets considering funding options for that.

As we have discussed before, with our relatively low leverage, particularly if you calculate it on a pro forma basis for the delivery of our developments, we do not anticipate raising public equity, and we expect to focus our capital-raising activities on the debt markets and moderate asset sales. This quarter, we raised an incremental $200 million. This included the closing of a $250 million construction loan from a consortium of banks for our Brooklyn Navy Yard development and a $40 million, 15-year mortgage on our recently delivered new development at 1265 Main Street in Waltham.

We own 50% of each of these projects, so our share of the proceeds will be $145 million. We also closed on the partial sale of Metropolitan Square in Washington, DC where we reduced our interest from 51% to 20% and raised net proceeds of $58 million. Our current pipeline has approximately $1 billion to fund through the end of 2019. And in addition to using our available cash balances, we expect to be active in the debt markets in 2017, raising additional capital. Our earnings guidance assumes that we utilize our untapped line of credit to fund the incremental development costs. But it is likely that we put in place additional debt facilities during the year, which could increase our interest expense guidance, dependent on timing.

So turning to our earnings for the quarter, we had a strong quarter, and we exceeded the midpoint of our guidance range for FFO by $0.04 per share or about $7 million. The portfolio beat expectations by about $4 million of this through a combination of earlier than projected leasing wins and lower than anticipated utility acceptance. As both Doug and Owen described, we had a strong quarter of leasing, including early renewal activity that had rental rate increases in suburban Boston, at Colorado Center in West LA, and at Embarcadero Center in San Francisco, but increased our revenue for the quarter.

We also earned about $4 million higher fee income than we expected for the quarter. A portion of this emanated from higher utilization of services across the portfolio that included a substantial amount of overtime HVACs in New York City, which demonstrates growing economic activity at our clients there.

We also generated nearly $2 million in leasing commissions at a property that we manage on a fee basis. As Owen mentioned, this quarter we closed a long-term air rights lease with a hotel operator who is going to build a 270-room hotel at our Hub on Causeway development in Boston. We will provide development management services to the project over the next three years, and we commenced earning development fees this quarter, which was a little bit earlier than we projected.

And, lastly, we incurred $1.2 million of dead deal-related expenses that we had not budgeted, which partially offset the gains from fee income and the portfolio.

Our FFO run rate from third quarter to fourth quarter is up significantly by $0.12 a share. About $0.05 of this is from seasonality and our operating expenses and above normal fee income, but a substantial portion relates to growth in our revenue base, as well as lower interest expense from the refinancing activity that we completed in the third quarter.

Our revenue run rate is higher by about $0.05 per share from increases in occupancy and rolling up of rents on leasing activity with strong contributions at the Prudential Center in Boston, our suburban Boston portfolio, and Embarcadero Center. As we look forward to 2017, we have increased our guidance for 2017 funds from operations by $0.04 per share at the midpoint from last quarter. Our strong fourth-quarter leasing success includes a number of new leases and renewals that will start to enhance our revenues in 2017. The deal activity in Boston, Los Angeles and San Francisco will have the most significant impact. In Boston, this concludes includes significant leases at Prudential Tower at 120 St. James, Kendall Center, and multiple leases in our Waltham portfolio. We are continuing to see strong activity on the remaining 115,000 square feet of availability that we have at 120 St. James where we could see incremental income in 2017 and certainly by 2018.

The leasing of the 190,000 square feet of high-value availability in the mid and high rise of 200 Clarendon Street is unlikely to generate significant revenue until 2018.

The successful leasing of over 400,000 square feet of new and renewal leases that Doug described at Colorado Center is also resulting in growth in our 2017 revenue. We have 150,000 square feet of remaining vacancy where we project modest revenue towards the end of 2017 and more meaningful contribution in 2018.

The leasing in the New York City portfolio was mostly renewal activity and new leases geared towards 2018 rent commencements. As Doug mentioned, we entered into a termination with a 75,000-square-foot tenant in the GM building. This transaction results in approximately $0.03 per share of additional income in 2017, which is the net impact of our share of the termination payment offset by the loss of cash rent for the remainder of 2017. We will be reclassifying recurring income to termination income, which moves it out of our same property projections. With the pickup in portfolio leasing elsewhere, we are not changing our assumptions for growth in our share of combined 2017 same property NOI of 2% to 3.5% from last year. However, for cash same property NOI, we are moderating our assumptions for growth by 50 basis points to 1.5% to 3.5%. We project temporarily losing cash income at the GM building while gaining straight-line rent across the portfolio from new leases that have free rent periods at inception. Our projections now assume non-cash straight-line rent of $55 million to $80 million in 2017.

This quarter, we added the 191 Spring Street redevelopment to our development pipeline. The 160,000-square-foot building in suburban Boston will undergo a $53 million renovation, including leasing costs. The project also includes approximately $3 million of demolition costs that we expect to expense in 2017.

To account for these expenses, we have reduced our projection for the contribution from the non-same property portfolio to $18 million to $25 million. The only other meaningful change to our 2017 guidance this quarter is related to development in management services income where we increased our guidance range from $27 million to $33 million.

In conclusion, we are increasing our 2017 projected FFO guidance range to $6.13 to $6.23 per share, an increase of $0.04 per share at the midpoint. The increase is projected to be driven by $0.03 per share from the net impact of lease termination, $0.02 per share of improved portfolio performance, and $0.02 per share from fee income, offset by $0.02 per share of higher demolition expenses and $0.01 per share of higher G&A expenses. Our 2016 results include $58 million or $0.34 per share of termination income. This is much higher than our current assumption for 2017 of $16 million to $18 million. Adjusting for the impact of the change in termination income from year to year, we are projecting strong FFO growth of nearly 8% in 2017. And, as a result of our growth from our 2016 performance, we also increased our dividend in the fourth quarter by over 15% to an annual rate of $3 per share.

That complete our formal remarks. Operator, if you want to open the lines up for questions, you can.

(Operator Instructions) Manny Korchman, Citi.

Doug, question for you. You went through your remarks as you typically do. The one question I have walking away from that is, if you took DC specifically as a market, how do you feel about DC, especially CBD today versus a year ago? Because I couldn't kind of place where your mood was on that.

I will give you my reaction, and then I will let Ray give you his comments. My view is nothing has changed in DC proper. We have seen a market that is forward in terms of its leasing, and there are basically very few large transactions that are going to hit in 2017, 2018 or 2019 that are impacting those years in terms of rental rates. So all of the leasing is forward.

And so if you have a block of available space today, it is going to be hand-to-hand combat, as Ray likes to say, in terms of getting that space leased. And there is new supply that is coming online, and there are tenants in significant -- or landlords that are significantly improving their quote-unquote aging beauties with new capital. So it is a very competitive market for second-generation space, and there is not a lot of new demand generators in the district itself.

Ray, I don't know if you have any other thoughts.

Well, this will come as a shock, but I have a little more optimistic viewpoint than Doug. I would agree with Doug that the market is bifurcated between the traditional, as we call aging beauties, the buildings that have been -- that represent the A Class buildings for many, many years. But, as being a little more challenged, but it is amazing to us the demand for high-level trophy level space, new construction and thus showing the success we had at 61 Mass and the interest we are receiving at 2100 Penn. We have had control of the property now for two or three months, and we have got three or four major all firms law that we are in active discussions in, even though that occupancy won't take place until 2021 and 2022.

So it is a very, very differentiated market, high-end trophy space. As strong as ever. The space that has been bypassed because of new technology, new configuration, and new locations is facing some challenges, but we are still very, very optimistic. We think the law firm consolidation has been -- run its full course. There is one dynamic of the Trump is we are seeing a lot of associations, corporations, others engaging law firms and lobbyists to understand what the Trump dynamic will mean.

So we are seeing -- and, as Doug referred in the call, we are seeing an uptick just in the last month or so in the defense and intelligence-related community demand. So one may view the glass half full. I view it as a glass almost to the top. We are feeling very good about the upper end space.

Manny, I actually think our comments are pretty consistent. So when Ray refers to 2100 Penn, you're talking about leases that are commencing in 2022. It is a forward leasing market, and we are very encouraged about how we will do at 2100 Pennsylvania Avenue. But, if you have available space in 2017, 2018, 2019, you're going to struggle.

That is great. Maybe just a second question for me. Was there anything specific driving the large leasing volumes in the fourth quarter that will slow? Was it just a lot of blocking and tackling? What is the flavor going forward on just leasing volumes looking at the first half of 2017, specifically?

Let me say one thing, and then I will let Owen comment. There was not one deal that was done during that period that was originated during the fourth quarter. So everything was ongoing. And I would say that to the extent that things were getting done, it was because it was the end of the year and people want to get paid on the brokerage side, and there is an emphasis on getting deals completed.

I would also say that there was more confidence in the business community after the result of the election, and that probably pushed things further along quicker than they might otherwise have been.

No, I think that is all right. There were a handful -- like the Akamai was a lumpy lease, obviously. As much as I would love to think $3 million would be a run rate quarterly leasing volume for us, that is not going to be the case. It was an extraordinary quarter, and there were some special circumstances, but the markets remain healthy.

And I think the other thing that happened is I am very proud and pleased with our leasing professionals around the Company. I think they very much focused on our goals for the year and performed accordingly. So I think it was a combination of all these factors: a healthy market, some lumpy leases, and focused execution by our teams.

Great. Thanks, everyone.

Jed Reagan, Green Street Advisors.

You guys had a pretty good pickup in occupancy, and you are now back over 90% portfolio wise as you talked about. Do you guys track that on a percent lease basis, if you include leases that have been signed, but not commenced? I'm just trying to get a feel for how that number might be trending, following the really good quarter of leasing.

We can figure out the numbers. We can look at and we know specific situations where we have large tenants, for example, at 250 West 55th Street. We have an 85,000-square-foot tenant that hasn't taken occupancy yet. We have a 25,000-square-foot tenant at the GM building that hasn't taken occupancy yet. We have some tenants across the portfolio where we think about distinct situations where we can look at it. We have not aggregated that and looked at it on a forward basis. We do obviously look at what our occupancy is going to be over the next couple of years, and our view for this year is that we are still going to average between 90% and 91%. Our occupancy should go up in the first couple of quarters. And then, at the end of the year, we are going to lose occupancy at 399 Park Avenue in New York City, which is going to bring it back down a little bit. And, as Doug described in his notes and what we have disclosed in our investor presentations are that, look, we have got some vacancy in some buildings like 200 Clarendon Street, Colorado Center, 601 Lex where we believe we are going to fill these spaces up. We are highly confident we are going to fill these spaces up over the next couple of years and move our occupancy up into the 93% area.

Okay. Great. That is helpful. And just, sticking with you, Mike, you mentioned some of the dead activities you are exploring as you are looking to fund development. Just order of magnitude, curious how much incremental debt you might be looking to issue this year and where you think your debt to EBITDA might finish the year versus where we are sitting today.

So, on a net debt to EBITDA basis, I would say that we still believe that we are going to be kind of ranging somewhere in the low 6s to 7. And then, when the income starts coming in as we deliver developments, it is going to come down. The capital that we are going to be raising, if you look at the outflows, we have got $1 billion worth of outflows over the next couple of years. I would anticipate, in 2017, we are going to need to raise somewhere in the $500 million to $700 million area to fund what is happening in 2017, to fund the development outflows that we have going, something in that ZIP Code.

And, Jed, I think the way to think about it is, if you think about our development outflows, as Mike described, that is the money that we are going to spend. We will probably raise more than that. A lot of it will be in the form of either term loans that can be drawn down upon for our line of credit, enhancing it in terms of size. So a lot of the capacity may not actually be dollars that are sitting on our balance sheet. They just may be availability of dollars that we have.

Okay. Thanks. And just to clarify, Mike, you mentioned the low 6 to 7 range on debt to EBITDA. How does that compare to your debt to EBITDA, 12/31, kind of on your numbers?

We are in the low 6 is, I believe. 6.4, something like that, I believe.

Okay. Thank you.

It has moved up a little bit as the development fundings occur because we don't have the cash coming in. So, as you fast-forward to the cash income coming in from those developments, it is going to come down significantly.

Right. Makes sense. Okay. Appreciate it.

Alexander Goldfarb, Sandler O'Neill.

Just a few questions here. First, in reference to -- Doug, I think you said sort of flattish leasing market here in New York, and you referenced the demand for more lower floors in the GM building. As you guys look at your availability here in New York, how much of it would you say is in that sort of value sweet spot, call it, whatever, $80, $90, sort of under $100 a foot versus how much is in the over $100 a foot.

I will take a stab at that, and then, John Powers, you can correct me if you think I am misstating it. So the biggest bulk of our, quote-unquote, value space defined as you just described it is 100% of the space at 159 East 53rd Street, so that is 195,000 square feet, and probably 200,000-plus square feet of the space at 399, so call it 400,000 square feet. And then we have 300,000-plus square feet of space at 399 that would be in excess of that. And we have 60,000 square feet of space at the top of 250 West 55th Street. That would be above that number, and these two floors that we are getting back from a tenant at the General Motors building would still be well in excess of that $90-plus square foot.

John, am I missing anything?

No, I think that is it. Probably half and half.

Okay. So John, so half is in the sweet spot and half is in the elevated numbers?

Well, you say the sweet spot. I think Doug is using your terminology is under $100 and over $100.

Okay. So what would you term -- so how should we think about it when we hear from the brokers that, hey, it is a competitive market. Tenants have a lot of choice, but it sounds like you guys had good activity with certain spots -- rent spots in the market?

Yes. Well, every product is a little different. If you look at 159, that is a very unique offering. It is almost a new building, and it is going to be spectacular. It has got a lot of outdoor space. So I would say that is very much in the sweet spot of the market because that will be priced under $100.

But we have space at 399 in the tower there that is a sweet spot, and that it is 25,000-foot center core. That is a great building. So even though that is over $100, it is not $150. And so people that are looking for high quality might find that to be their sweet spot.

Okay. Then, the second part is, you mentioned the need to spend on buildings here in New York or maybe even in DC to attract the tenants and get the tenants. How do you guys separate out spend that is basically just necessary to get the tenants to come in versus spend that you are getting an incremental return on on the investment?

So we have talked about this before, and there are two ways to think about this, Alex. So the first way to think about this is, are there investments that we are making that actually have an incremental NOI contribution? And so what we do is we think about our buildings and we say, if we don't do anything, what can we rent the space for and how long might it take. And if we do something, what will the rent be and how long might it take. And, in many cases, we actually think that additional capital is going to both enhance the rent that we are achieving and reduce the down time that we are achieving.

There are also incremental investments that we are making in these buildings where we are actually achieving additional income. So, as an example, at 601 Lexington Avenue, there is -- in that first instance, we think we are going to achieve a (technical difficulty) return on our capital because we are going to get a significantly higher rent than we would have otherwise gotten had we simply leased the space as is. And we are also redoing the retail space, and we are going to get incremental revenue on the retail space.

But what we have said is, the return on the retail space really is about the building. And so will that retail space reinvestment improve our ability to generate a higher return, a.k.a. a higher rent from the rest of the space at 601, and we think that is, in fact, the case. And given the amount of investment, you don't have to get more than $1 or $2 in order to have a pretty significant return. So that is how we think about these things.

Now, there are other situations where we are redoing a lobby or we are having to replace an Asian window system or the elevators need to go from a called to a destination. Those types of improvements are much harder to quantify in terms of a dramatic change in the overall environment in the building and, there, what I refer to more as sort of recurring capital investments that are, quote-unquote, not revenue producing.

Okay. That's helpful, Doug. Thank you.

Steve Sakwa, Evercore ISI.

Doug, I guess maybe you could talk a little bit about your Brooklyn project and the demand that you are seeing for that development.

John, that one is for you.

Okay. Well, we are very excited about the project, and this is a big day for us because the first piece of steel went up this morning. So we are rolling along. There is no -- the building is built all above grade, so there is no foundation.

So the building will be spectacular. It is has got all the amenities of a new building, floor heights, et cetera, and we are working with the Navy Yard on the transportation side. I think it is a little too early for the leasing. We brought it out to the brokerage community, and I think it has been well received.

I mean, John, can you just maybe talk a little bit about what the tenants are saying? I know transportation is a bit balanced there, so what are you facing or hearing from them?

Well, in the -- look, the first part of this is going out to the brokerage community overall, and I think we have done that pretty successfully. We have to get closer to the date when the building is done to talk to specific tenants.

Okay. Transitioning, maybe, to the West Coast, Doug, maybe talk a little bit about the search for a senior executive to run that region, and what are the other opportunities that you are maybe seeing in the marketplace today? It sounds like you're making good progress on the leasing front of the vacant space. So what other opportunities have you sort of found or uncovered?

Steve, it is Owen. We are off to a great start in California. We bought Colorado Center, as you know, last year with 66%, 67% leased. We have leased, I think, two-thirds of the vacancy and have good activity on the balance. And we have a comparable sale across the street that is well in excess of the basis that we paid for the building. So we are in a new market, an important market, we think, long-term for the Company, and we are in there on a profitable basis.

And I think, operationally, the asset has been seamlessly integrated into Boston Properties, and Ray Ritchey has done a wonderful job overseeing the leasing and repositioning of the asset.

So your question is, where do we go from here? We are going to hire this year a regional head for Los Angeles. We are conducting an outside search, and we are also considering internal candidates for this spot. So that will be an important internal step. In terms of deals, one of the attractiveness of the West LA market where we intend to be active is development is difficult, entitlements are hard to come by, it preserves value, and therefore, it is harder to grow.

That being said, I would say we have a bead I would say at this point something like half a dozen different opportunities. Some of them are sales of underleased buildings. Some are repositioning of existing assets, and some are development.

As we have said before, we are delighted to be in LA. We are going to grow over time. We want to be a leading landlord and developer in the market, but we also aren't putting pressure on ourselves to do that overnight. We want to continue to do it the way we did with Colorado Center and do it on a profitable basis. And I am hopeful this year that we will be able to add at least one other asset to our portfolio. And if we can find something on a basis that makes sense financially for shareholders, we are going to do that.

Okay. And then, just last question. The new retail has opened at the Prudential Center. Doug, I don't know if this is for you or someone else. Maybe just talk about how that at is performing and then the theater that has been maybe for the office and what kind of demand that has been for office tenants into the Back Bay.

Sure. So, for those of you who are unfamiliar with what is going on at the Prudential Center, when we built the 888 Boylston Street at the same time, we basically demolished what was the food court, reinvented it as a 45,000-square-foot Jubilee and also added another floor space to a portion of the Prudential there, which we refer to as the flagship. All of that space is leased. Under Armor, Jubilee, (inaudible). Sephora expanded. We have got sort of a whole new roster of tenants. And based upon the foot traffic, particularly in what we refer to as sort of the slower times, the Jubilee has really been a very positive revenue enhancer to the Prudential Center, and it is driving traffic, not just from a retail perspective, actually, it is driving traffic from a parking perspective. So we actually have a lot of visitors that are coming through the Prudential Center parking and paying for a couple of hours of parking as well, which is important.

We have a couple of more of these types of opportunities in front of us, but I think the relevancy of the Prudential retail is stronger today than it has ever been. It is a place that people want to come, and I think it has generated a buzz amongst the retailers so that other retailers want to be here as well. And so we are feeling really, really good about our incremental investment there.

Okay. Thanks. That's it for me.

Blaine Heck, Wells Fargo.

Maybe for Doug, you guys obviously have very healthy rent spreads on the 650,000 square feet of commenced second-gen leases during the quarter, up 25% on a gross basis. But can you talk a little bit about maybe what the spreads look like on the second-gen leases executed during the quarter, and what should we expect for rent spreads throughout 2017?

I am going to be honest with you. It is 3 million square feet of space, and we didn't calculate the number on the stuff that was executed this quarter. In general, what we are seeing is that our San Francisco area leases on leases that are less than -- more than five years, generally are somewhere between 40% and 50% on a gross basis and upwards of 70% on a net basis. Our rents in New York City typically are up 5% to 7% or flat, and we have talked about this before. There are certain buildings -- 399 being the best example -- where we are basically going to be sort of working hard to maintain the same rent level that we had on a basis prior to the expirations. On the other hand, in a building like General Motors building, where we were taking space back at $100-plus a square foot and leasing it at $150 per square fee. We are seeing a very significant uptick. So it is very much dependent upon the space.

In Washington, DC, we have the fortunate or the unfortunate circumstance of having leases in that market that are going up annually by 3%-plus a year. So, in general, when a lease rolls over in Washington DC, it is probably at market or slightly above market. And so that is why I think you see, in general, a pretty moderate rollup or rolldown in Washington, DC, over time. And then, in Boston, again, I think you are seeing a pretty consistent growth in rents. Anything in Cambridge is probably 100% on a net basis. Anything in the Back Bay is probably somewhere between 25% and 35% on a net basis, and then the suburbs are between 10% and 15% because we are generally rolling rents from the mid to high 30s% to the low 40s%.

Okay. So just as a follow-up to that, it looks like roughly half of your expirations are in New York in 2017. So is it fair to say we should see that spread moderate as we go through?

Yes. As I said, the majority of that expiration in New York City in 2017 is at 399 Park, which I just referred to, and it is a pretty flat expiration. I think I said in the past that net net we are $2 of square foot on average when we leased all that space up about where we are currently expiring.

Okay. Great. That's helpful. And then, Mike, a little bit more granular question. It looks like cash same-store NOI at your share got a boost this quarter from the year-over-year change in a straight line ground rent expense. Can you just explain what is going on there and whether you expect that to continue to be a tailwind going forward?

Sure. This is an interesting situation, actually. So I'm glad you brought it up. At the Back Bay Station garage, so we owned the garage. We extended the ground lease on that garage where we got the additional rights to develop over Back Bay Station. And what we did is we agreed to pay $37 million in ground rent and straight-lined it over a 99-year ground lease term. The payments associated with that go out as we improve the station. So as the dollars go out.

So, in the fourth quarter of 2015, we spent $5 million, improving the ventilation there, and in fourth quarter of 2016, we spent very little. So that was a boost to our (inaudible) same-store from 2015 to 2016.

We are dependent upon the budgeting of the MTA -- MBTA to figure out when these costs are going to go up. So they are hard for us to judge. But I would say, over the next two to three years, we could have some lumpy quarters where some of this all of a sudden hits.

In 2017, we don't have a significant amount of expectation because, again, their planning has been a little bit slower. So we don't have a strong projection as to the exact timing, so we do not expect much to go out in 2017.

Okay. So none of that tailwind is incorporated in guidance.

No. If anything, it is going to be a headwind in the quarters when we have these dollars, and we will have to kind of explain it in that quarter because it is really kind of an unusual thing.

Great. That's helpful.

(multiple speakers). We are prepaying ground rent that we are straight lining over 99 years.

Right.

So we will point it out when it happens so that people understand.

All right. Thanks.

Jamie Feldman, Bank of America.

Going back to Ray, can you talk more about what you are seeing in the suburbs? You guys gave a lot of color on the CBD, but it seems like you have had some traction on leasing. And then just bigger picture, as we are sitting here this time next year, what do you think is going to feel different in DC?

Thanks, Jamie. Happy new year. Again, I think like downtown, the suburbs submarket by submarket. Reston still remains very strong. We have got less than a 3% vacancy and strong demand there. Tysons seems to be -- again, that is not a market we are in -- but seems to be getting some legs from the revitalization in the defense and intel market. We are seeing some net migrations into the region. Some corporations outside of Washington are looking at suburban options.

What is funny, I went to the Cushman briefing last night on where the market is headed, and they were very big on the maturation of the millennial generation moving out of the cities, forming households, having children, looking for better schools. And that is going to drive great demand in the suburbs in the coming three to five years.

Along those lines, we saw in the Dulles corridor, if you wanted more than 50,000 square feet, in the Dulles corridor, you only have three to four options to choose from, whereas this time last year you probably had 10 to 15. The 270 corridor, still very weak. Nothing really to report there, and of course, with our announced Marriott deal pulling Marriott out of the North Bethesda market, that will be a continued challenge for them to overcome in the future.

On the defense/intel, as Doug mentioned, our two parks that are most directly associated with defense and intel, Annapolis Junction and VA 95, we have had tremendous activity on both those properties in the last three to five weeks with over 250,000 square feet of prospects coming in since the election. The R-B Corridor, Rosslyn-Ballston, I think they are starting to stabilize and getting some traction. But, as long as there is value downtown, the close-in suburbs don't have their natural feeder markets to generate demand as much as they would like to see. So, again, as with downtown, it is much more market by market, although the general trend is more positive.

Okay. Given the shift, it seems like contractors are getting a little healthier, at least the expectation postelection. Do you have any thoughts on growing more there or (multiple speakers)?

Well, if the Trump initiative about freezing government hiring is, in fact, put into place, this is not the first time this has been tried. Both President Reagan tried to do this back in the early to mid 1980s. And all that happened was the defense contractors -- the private sector guys expanded greatly to fill the void. And we would much rather prefer doing deals with the private sector contractors than trying to work with the GSA and government expansions.

So if, in fact, the freeze is put into place, we view that as a positive thing in terms of the -- the demand for the services are not going away. And so if it gets shifted from the public to the private sector, that is a good thing for Northern Virginia landlords.

Okay. Thank you. And then, just shifting to the GM building, maybe, Mike, can you just walk us through the ins and outs there as we think about how the model is going to look the next couple of years? And, also, the Apple lease, can you talk about the NOI?

I will refer to the second part of your question. So we talked about the Apple lease before and the Under Armour lease. And I think I don't have in front of me, but my recollection is that we are going from somewhere around $50 million plus of NOI currently to somewhere over $85 million of NOI when Apple moves back into their old -- to their rehabilitated store, and Under Armour has completed their work or gets delivered their space, and they are starting to pay on a full run rate basis. And so I think that is that part.

On the General Motors building office space, where, as I think Mike said, we have a termination income this quarter and next quarter as the tenant moves out of the space that they are moving out of in the lower floors, and then we have to lease it up. And John, if I said, are you going to lease it up in the next two days, he is going to say no. If I said, are you going to lease it up in the next year or so, he is going to say absolutely. And so the timing of that is going to depend upon the condition of the space when we lease it up and the overall leasing strategy we have for it.

So I don't think there is a lot to change there over the next couple of years in the General Motors building.

And the only other thing is, we do have the 80,000 square feet of current vacancy that we got back in July. So, as Doug mentioned, we have leased about 25,000 square feet of that, and we have got good activity on the rest. None of that space will hit in 2017 because it has got to be built out, but I would expect all of that space should hit in 2018. And that is high-value space.

Okay. And is the termination -- is that Estee Lauder, or is that lease still under discussion?

Estee Lauder has the lease expiration. They are in almost 300,000 square feet of space. So what we are dealing with is another tenant in the building.

Okay. All right. Great. Thank you.

John Guinee, Stifel.

Great. How are you? Ray?

Yes, sir.

Oh, talk a little bit about JBG Smith. They are coming on the radar screen. Any new hires there? Any guys you think are particularly talented?

Thank you, John. It is an interesting question to answer. For those of you who don't know, my son, David, recently joined to head up leasing the combined firm, and I said he has got one of the most challenging jobs in Washington. But it is sort of like Luke Skywalker and Darth Vader going head-to-head. So we will see how that works out in the future.

Great. And, second, you have been pretty busy. You have got the 2100 Penn deal done. You have got the Marriott deal. You have done a lot in LA. I don't know if you're going to miss these deals or not, but can you talk a little bit about the potential Nestle headquarter relocation to DC, as well as the FBI never-ending saga?

I can make absolutely no comment on Nestle. First of all, I have no knowledge on Nestle and have -- not in the capacity to comment on that at all.

On the FBI, I inquired to my sources within the GSA what the impact will be on the FBI deal on the change in administration. She says, full steam ahead, but I cannot believe a President as actively involved in real estate with such an interest who owns a major asset directly across the street from the FBI building will not have a very profound and active role in seeing what the future of that may be. But according to GSA, it is full steam ahead. There is still three candidates left for that site. We elected not to participate in that, even though we were expected as the finalist about a year ago, and there's still three sites: two in Maryland and one in Virginia that is being considered.

Great. Congratulations. Thanks.

John Kim, BMO Capital Markets.

It sounds like the leases signed this quarter were partially cyclical in nature. But I was wondering if you could categorize the leases between expansionary and versus maintaining or reducing the space?

I would gather to guess, I don't have the list in front of me, that there is virtually no reduction in space by any of the tenants that signed a lease this quarter, and there was likely modest expansion in the majority of the leases that were not straight renewals.

So it seems like from your commentary that the tenants are more optimistic than maybe perhaps you are at this point. Am I reading that correctly?

No. I actually think we are optimistic about the demand. I think our point is that there is additional supply out there. And so when you have additional supply, you still have to deal with needing to grow more than that incremental demand to make a meaningful impact on the availability and the vacancy rates so that you can drive rents. And there is just not enough of it overall in our marketplaces to do that.

So things have -- the rate of growth has moderated, which we have talked about before. We are -- as I said, we are seeing demand growth from the technology and the life sciences businesses across the Boston marketplace and the San Francisco marketplace and in New York City. We are seeing small-size in stability and positive growth from some of the smaller financial services companies in and around New York City and in Boston and in San Francisco, but there happens to be more supply coming online. And that supply is impacting the market from an overall availability perspective. And so it is awful hard to drive rental rate increases in a market like that.

Okay. I may have missed this, but can you provide a dollar figure on the future development project that you announced last night?

We have not yet come out with an official budget. The only development project that we announced -- the word announced, I'm not sure, is what the right one is. We signed a lease for a development for Akamai, as Owen described. That project is in Cambridge, and that project will have a budget of somewhere around $400 million, plus or minus. We are working through our budgets right now, so we haven't published a number in our supplemental information yet.

And so how do you plan to fund the development? It sounds like you have $200 million of dispositions in your guidance, but I am not sure if that is purely for guidance purposes or if you actually think you're going to sell more than that amount.

I think that, as we have described, our expectation is that we are going to raise additional debt capital to fund our development outflows over the next few years.

Remember, the building that Doug is describing is not going to be done until the first quarter of 2020. So that is $400 million that goes out over three years of a timeframe. So given our leverage situation, we would anticipate that we would fund that through additional debt. I mean, there could be moderate asset sales over the next couple of years that will supplement that. We do not typically put dispositions in our guidance, so just to point that out. We are looking at potentially $200 million of maybe asset sales. We haven't identified those assets necessarily. So that is not necessarily in our guidance today, just to be aware.

I think you asked a good question, though, or one that deserves what I think is a very optimistic answer on our part, which is that -- and we have been saying this consistently for the last year or so -- we don't have any intention of raising any equity, and we believe that, as the cash flow from our current development pipeline which is already in progress starts to hit our books -- and it is hitting our books in 2016, 2017 and 2018 -- we are building tremendous amounts of capacity to fund additional investments, and we are building additional capacity by reducing our net debt to EBITDA. So we have a terrific opportunity to actually be more acquisitive from a development perspective or a straight acquisition perspective as we move out with our current equity base and the fact that we are just growing our cash flow significantly.

That makes sense. Thank you.

Craig Mailman, KeyBanc.

Mike, just wondered if you could provide some updated thoughts on plans for the GM loan refinance.

So that loan expires in October of 2017. It is possible that we could refinance it a little bit early. We are expecting to be talking to the market in a formal way later in the first quarter in terms of the execution of that. We would anticipate that we are going to refinance it as a mortgage finance like it is today. If you look at the cash flows that can be generated and are being generated by that asset, it is underleveraged today. So we have the ability, if we want, to sum incremental proceeds in that way, so that could be part of the $500 million to $700 million of additional debt capital that I mentioned that we raised.

It is a large loan. So the two primary sources for that are the CMBS market, which is a very attractive market today. Spreads have come in over the last two or three quarters nicely. Obviously, the swap rates and treasury rates have moved down 50 basis points in the last quarter, and spreads have not come in 50 basis points, but they have come in.

And then, we could also do a large syndicated facility with banks and insurance companies and folks like that. So those are kind of the two executions that we would look at to do a long-term -- long-term being seven- to 10-year mortgage financing.

Great. Thanks. And then, just on the Oakland option for the resi, can you just give a little bit more detail about the terms of that and where we are in the cycle, how you guys weigh that versus moving forward?

Well, we -- as you know, our building -- our residential portfolio generally in the Company, it is currently a small component of our NOI, but we have completed and have -- we have completed several successful residential developments and have a few underway. We identified the (technical difficulty) neighborhood in Oakland as an improving area and one that is attractive for development, particularly given the site that we are looking at direct access to public transport into San Francisco, and the rents that we will be able to offer the market are a significant discount to the rents in central San Francisco.

We are paying attention to the market conditions. We understand the deliveries that are there, and we are factoring that into our underwriting. And, in terms of the specific economics of the deal that we are doing, I think it is too early for us to discuss that. But when and if we decide to go forward with this project, we will certainly describe the exact financial arrangements, but we think they are attractive.

Is it just an option you guys have, or did you -- by the way, I'm just curious how long the option is for, if that is the case?

Right now, it is an option, and the other activity that is going on that is very important is the entitlement of the site.

All right. Great. Thank you.

Vikram Malhotra, Morgan Stanley.

Just a more granular question on New York leasing in your pipeline there. You sort of walked us through the space that you've leased up in price points around the $100 range. Could you walk us through what you are seeing in terms of demand or even this early showing that you might have done around some of the new redevelopments that you are doing?

John, do you want to take that one?

Sure. Well, we have had -- we are dealing with a number of different buildings. I think we have very good showings at 159, and there we are looking for like 150,000 foot tenant. We had very good activity in The Tower at 399. The seventh floor is very difficult to show right now because of the construction project that is ongoing.

But just in terms of which sectors -- are you seeing broad range of sectors? Is it more finance and just a sense of price points? Are they similar to expirations, or it is a wider range?

I think it is a pretty broad range. Some financial service firms and some corporates.

Okay. And then just a quick clarification. I remember last quarter there was an asset in Springfield you were marketing. I think someone certainly around the tenant you took that off. Any update on the potential sale there?

That project is VA 95, and as we announced the last quarter, the primary tenant in the project announced -- or put out an RFP for a potential consolidation. So that uncertainty made the asset more difficult to market. And, frankly, the consolidation could be an opportunity for us because we are going to compete for that. But we need to, I would say, restabilize that building before considering selling it.

I also just want John to take a victory lap. I think we were identified as the highest -- the leading real estate company in New York that leased space over $100 a square foot in 2016. So volumes in that market are not large, but we captured the highest share last year.

That is good to know. Thank you so much.

By the way, that is not unusual. But thank you very much, Owen.

Tom Lesnick, Capital One Securities.

I will keep it brief since we are pretty late into the call here. But earlier, you guys mentioned properties in need of CapEx in your markets. Bigger picture, how do you guys view the risk adjusted value proposition between development and well-located value-add acquisitions, and how has that changed at all in the last few quarters?

Well, we prefer -- actually I would say exclusively right now are making investments where we can use our real estate skills to create value. Doug described it in his remarks as a key value proposition for our whole company. So we are not interested in purchasing stabilized assets at cap rates in the 4s% because when we have the opportunity to create more value by either buying under-let assets or by development. And I think the examples of that are, we have a very significant multibillion-dollar development pipeline underway, and we are still forecasting a cash NOI yield upon delivery for that polio in excess of 7%. All the projects that we delivered last year were in excess of 7%.

And when we think those buildings are delivered, again, it depends a little bit on where they are and what they are, but again, stabilized buildings in our core markets are selling for 4%. So that is a significant profit that is realized by shareholders.

So to the extent we can continue to find projects to pencil that way, we want to go forward with them. I would say the one thing that has a change that we have talked about over the last few quarters as we get further into the economic recovery. As we see supply in our markets that Doug described, our pre-letting requirements for launching a new development have elevated. We don't have an exact percentage that we adhere to because it depends on the project and the scale and the market condition. But, clearly, our threshold for pre-letting is higher in office today.

And I would say the other thing, by the way, we have done in addition to development is trying to purchase assets where, when we lease them and when they roll to market, that we will own them at a premium yield, certainly to 4%, and I think Colorado Center is the deal I would point to most recently that we did where I think those facts are going to come true.

Awesome. Thanks, guys. Really appreciate it.

Rob Simone, Evercore ISI.

My questions have all been answered. I was curious if you guys had selected any candidates for the asset sales that Mike mentioned, but you guys touched on that. So I am good. Thanks.

Good. Well, again, that concludes the questions. Thank you for your interest in Boston Properties and your time and attention today. Thank you.

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