波士頓物產 (BXP) 2018 Q1 法說會逐字稿

Good morning, and welcome to Boston Properties First Quarter Earnings Call. This call is being recorded. (Operator Instructions)

At this time, I'd like to turn the conference over to Ms. Arista Joyner, Investor Relations Manager for Boston Properties. Please go ahead.

Good morning, and welcome to Boston Properties First Quarter Earnings Conference Call.

The press release and supplemental package were distributed last night as well as furnished on Form 8-K. In the supplemental package, the company has reconciled all non-GAAP financial measures to the most directly comparable GAAP measure in accordance with Reg G requirements. If you did not receive a copy, these documents are available in the Investor Relations section of our website at www.bostonproperties.com. An audio webcast of this call will be available for 12 months in the Investor Relations section of our website.

At this time, we'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 of 1995. Although Boston Properties believes the expectations reflected in any forward-looking statements are based on reasonable assumptions, it can give no assurance that its expectations will be attained.

Factors and risks that could cause actual results to differ materially from those expressed or implied by forward-looking statements were detailed in Tuesday's press release and from time to time in the company's filings with the SEC. The company does not undertake a duty to update any forward-looking statement.

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

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

Okay. Thank you, Arista, and good morning, everyone. We had another very productive quarter and continue to make steady progress with our growth plans.

Highlights for the last quarter include: we generated FFO per share of $0.01, above the midpoint of our prior forecast and raised the midpoint of our full year 2018 guidance by $0.02; we leased 2.1 million square feet, which is significantly above our long-term quarterly averages for this period; we signed an 850,000 square foot lease agreement with Fannie Mae for a 1.1 million square foot development at Reston Gateway in Reston Town Center; and in the last week, we committed to purchase the Santa Monica Business Park in West L.A.; and we achieved our energy, water and emissions intensity reduction goals 3 years early and established new more aggressive goals for 2025.

So moving to the environment. Importantly, for our business, economic conditions continue to be healthy and relatively stable. The overall outlook for U.S. GDP this year remains positive, with growth projected to reach approximately 2.8%. Job creation remained steady with 616,000 jobs created in the first quarter, and employment is stable at 4.1%. While an economic downturn will eventually arrive, it is very difficult to forecast its timing and certainly, doesn't feel imminent.

Though there are hawkish tones in the fixed income markets with the Fed increasing short-term interest rates and the U.S. fiscal deficit widening, the yield curve has been flattening with the 10-year U.S. Treasury rate rising around 50 basis points this year. Though we expect further Fed rate hikes in 2018, global rates and inflation continue to be low, and we anticipate relatively modest increases in long-term U.S. interest rates in the near term.

The office market in submarkets where we operate continue to remain in general equilibrium, the new deliveries are outpacing net absorption. Overall, net absorption for our 5 markets this quarter was 4.7 million square feet while deliveries were 8.3 million. The vacancy rate in our markets remain relatively low at 8.6%, which increased the modest 40 basis points this quarter, while asking rents grew by 0.4%. Leasing activity remains quite healthy with broad-based activity across multiple industries.

In the private real estate market, significant office transaction volume ended the first quarter at just over $20 billion, which is down 27% from the first quarter of '17. However, we see a healthy supply of offerings and anticipate the decreasing volumes to stabilize later in the year. Commercial real estate continues to see interest from both domestic and international investors, and cap rates remain healthy in our core markets.

Yet again, there were numerous significant asset transactions in our markets this past quarter. In Boston, 28 State Street is under agreement to sell for $739 a square foot, and a 4.8% initial cap rate to a domestic pension adviser. This is a 7 -- 570,000 square-foot building, and it's full -- more or less fully leased.

In New York, the Chelsea market sold for $2,000 a square foot to Google's parent company, Alphabet. The building is 1.2 million square feet and fully leased with Google occupying around 400,000 square feet.

Also in midtown New York, Manhattan Tower, which is located directly across the street from our 599 Lexington Avenue property, sold for just over $1,000 a square foot and a 4.3% initial cap rate. This 300,000 square-foot building is 99% leased and was sold to a domestic insurance holding company. And there are a number of transactions in the pipeline expected to close in the second quarter.

Moving to our capital activities. With the sale of 500 East Street, we are on track to sell $200 million to $300 million in non-core assets this quarter.

On acquisitions, we continue to pursue value-added opportunities in our core markets with a focus on L.A. In line with this strategy, our big news this week is we entered into a purchase agreement to acquire Santa Monica Business Park, a 47-acre, 1.2 million square-foot office and retail campus in the Ocean Park neighborhood of Santa Monica, California. This site is comprised of 15 office and 6 retail buildings that is 94% leased.

Unlike the myriad of 200,000 square-foot-or-less buildings that we have been offered in the West L.A. over the last few years, this is our kind of project, given its scale, its suitability to larger corporate tenants, the redevelopment opportunity that could present themselves over time and the changing positive dynamics of the location over the next decade, given the potential decommissioning of the Santa Monica airport. It is possible that we will bring a capital partner into the investment.

With this acquisition, we will double the size of our Los Angeles portfolio to 2.4 million square feet and will own a critical mass in Santa Monica with 24% of the competitive office space in the market. This transaction is obviously an important next step in our strategy to grow Boston Properties' presence in the Los Angeles market.

Development continues to be our primary strategy for creating value for shareholders. We remain very active, which -- with several new preleased projects, either committed or under pursuit. We signed a lease agreement with Fannie Mae this quarter for approximately 850,000 feet to anchor 1.1 million square-foot 2-tower office complex at Reston Gateway.

Reston Gateway is a 22-acre site located immediately south of Reston Town Center's urban core and west of our Discovery Square and Reston Corporate Center property. The site is also directly adjacent to the future Reston Town Center Metro Station anticipated to open in 2020, which will connect Reston via the silver lines of both Washington, D.C. and Dallas airport. With this lease, we're kicking off the first part of our multiphase development of Reston Gateway, which could ultimately contain 3.5 million square feet of space.

In addition to the 2 office buildings anchored by Fannie Mae, future plans for the western portion of the Reston Gateway site include a midsized hotel, over 600,000 square feet of residential and approximately 90,000 square feet of ground floor retail, all complementing the amenity base and community environment of the highly successful Reston Town Center. Fannie Mae will be in occupancy in the first quarter of 2022.

Additionally, we have signed an LOI and are working on a final agreement to purchase a minority stake in a site at 3 Hudson Boulevard, in partnership with the Moinian Group, the current owner. This site supports a 2 million square-foot office building and is located on Hudson Boulevard, adjacent to a park and the nearly completed 7 train entrance.

Boston Properties would assume operational control of the co-development. Construction on the foundation for the redesigned tower is underway, and we anticipate commencing vertical construction upon execution of an anchor tenant lease.

And lastly, as Doug will cover in a moment, we also have active lease discussions under (technical difficulty) Cambridge and Boston that could lead to additional near-term development starts.

So with all that, our current development pipeline stands at 13 office and residential developments, and redevelopments comprising 6.5 million feet and $3.5 billion of investment. Most of the pipeline is well underway, and we have $1.4 billion remaining to fund. The commercial component of this portfolio is 83% preleased, and aggregate projected cash yields are approximately 7%. This pipeline, by the way, excludes the previously discussed 2100 Pennsylvania Avenue and Fannie Mae developments, which we expect to commence later in 2018.

We are winning significant new development business based on the quality of our sites, our team and execution, not by lowering our return requirements. Further, we expect to fund all this new development without raising equity or increasing our company leverage level, given the debt capacity made available to us through our near-term development deliveries, most notably the Salesforce Tower.

So to summarize on capital strategy, our best use of capital today is launching new preleased development and making select value-added acquisitions for which the yields are higher than both stabilized property acquisitions and the inferred cap rate in repurchasing our shares, notwithstanding their material discount to NAV.

Our best and cheapest source of capital is debt financing, which we can utilize without materially changing our credit profile due to the new debt capacity provided by the income from our development deliveries. We have and will continue to sell-select non-core assets, which raises marginal capital. The sale of larger core assets is a less efficient funding source, given significant embedded tax gains and result in special dividend requirements.

Lastly, we continue to emphasize and execute on our sustainability strategy by pursuing conservation measures that have positive economic and environmental outcome. We've recently updated our energy, water and greenhouse gas emissions intensity reduction goal as we exceeded our 2020 targets 3 years early. Our new goals establish bolder reduction targets for energy and water use as well as emissions by 2025.

To conclude, we remain confident with our plan to materially increase our NOI starting in 2019 through development deliveries and leasing up our existing assets from approximately 90% to 93%. And longer-term growth is now becoming more clear and likely, given all the new developments we've added and expect to add to our pipeline.

So over to Doug.

Thanks, Owen. Good morning, everybody. When I have a conversation with any of our tenants or our investors or anybody else who's interested in the real estate market, the first question they always ask is, "So, how's your business? How are you doing?" And my response right now is that Boston Properties is as busy as we have ever been.

We have strong leasing activity at our 46 million square-foot offering portfolio. As Owen said, we're in active construction on $3.5 billion of new developments, 83% preleased, and we've entered into new leases on additional development, which will lead to an additional $1.1 billion of new office developments.

Our primary customer, large real estate users, public or private or start-up or established, are exhibiting confidence by making the decisions to upgrade and consolidate their space and in some cases, they are expanding. We just opened our second residential development in Reston in January. We've leased 86 out of 508 units. We are going to open our second Boston area residential building in Cambridge in June, and we've already leased 31 out of 244 market rent units.

And at the conversation I'm having is with an investor, I hammer gently with a finished nail, not a big thick one, how we will experience meaningful FFO growth from occupancy gains and our development deliveries during 2019 and 2020. Now obviously there are some nuances in the individual markets, which we'll talk about. But in short, our short- and medium-term opportunity sets feels really good, and things feel great.

Now there have been some market condition changes since our January call, and the most significant have been in Midtown New York City. JPMorgan's decision to remain and grow on Park Avenue in 47th Street has changed the conversation amongst the New York City real estate community. Instead of talking about the migration west or the demise of Park Avenue, the commentary has shifted to movement not based on location, but rather on new construction and capital investment. In fact, I've seen 1 recent brokerage report that suggest that more than 2/3 of all of the relocations in Manhattan in 2016 and '17 were to either new product or buildings that have received significant capital infusions.

Additionally, the reduction of available space, primarily at 390 Madison, acquired by the JPMorgan enabling move, has provided some real tightening to the Park Avenue market. The results have been a change in mood and affirming of lease economics. And as it happens, the leasing activity in Manhattan in the late 2017 and 2018 is being led by the fire sector, which enjoys the advantages that Midtown offers.

We have completed almost 190,000 square foot of leases during the quarter, including another full-floor law firm expansion in our Midtown portfolio. In the tower section of 399 Park, we have leased the 25,000 square-foot floor, and we have 3 leases outstanding, totaling 135,000 square feet, and over 45,000 square feet of proposals on the remaining space.

At the base of the building, we have nearly 1 million square-feet of proposals for 260,000 square feet of availability. We have a lease-out for the entirety of our 159 East 53rd Street redevelopment and 30,000 square feet of leases in progress on the remaining 34th and 33rd floors at the General Motors Building, which takes up about 2/3 of that space. Our New York City portfolio is well positioned to gain significant occupancy and revenue during the latter half of '19.

Construction at Dock72 is progressing, and we expect to deliver space to WeWork this quarter, with an expected completion of their work in the amenity space in early '19. While we are showing the space, the Brooklyn large tenant activity has been light, and tenants have more of a just-in-time perspective, so we don't anticipate much leasing until the amenity spaces are close to completion.

Market's fundamentals continue to improve in San Francisco, as the availability of new products become scarcer and scarcer and the technology tenants continue to expand. Park Tower is in active discussion for the majority, if not all, of that 750,000 square-foot building. The next new product will be first admission in 2022 or beyond, and the 270,000 square-foot rehab expansion, which has not yet started but is expected to commence this year at 633 Folsom.

Large blocks of contiguous available space are going to come in the form of space stemming from tenants that are moving to new construction: the Dropbox sublet at 345, 343 Brannan; Salesforce at Rincon Center; 50 Beale, once Blue Cross Blue Shield relocates to Oakland. As we move into 2018, our CBD activity is going to be focused on the 80,000 square foot of space that we have at EC1 that resulted from a tenant relocation to Salesforce Tower, where we have leases in negotiation for about 70,000 square feet, and 4 noncontiguous floors at EC4 and then some early renewals.

We've increased the leasing at Salesforce Tower to 98% this quarter, and we have a lease in negotiation on the final available floor, all non-tech users are filling up the rest of Salesforce Tower. It's important to note that full-floor financials of our business demand is not as robust as the tech-laid growth in the city. And while there has been significant increase in rents for large blocks of availabilities, geared towards the tech tenants, rent growth in the older towers has trailed the new inventory.

The Silicon Valley has also had a pickup in activity. The existing Class A inventory is being absorbed, the latest megadeal being 1 million square foot lease at Moffett Towers in Sunnyvale for buildings that will be delivered in '19. We did 2 deals totaling 64,000 square feet this quarter at our single-storey product in Mountain View, with the average rents increased 25% and starting rents are close to $56 triple-net, single-storey product.

My remarks for the D.C. market continue to follow 3 themes. First, matching sites and tenants together to launch new development, which is the heart of our D.C. franchise. Last quarter, it was 2100 Penn and Leidos at 17Fifty in Reston. The previous quarter, it was Marriott in Bethesda and the TSA. And as Owen discussed, this quarter, it's the Fannie May transaction at Reston Town Center 3, otherwise known as Reston Gateway.

The second theme is the strength of the Reston Town Center market as a magnet for private sector contractors and technology tenants. We continue to see strong tenant demand. We have recently signed 2 expansion and extension deals with technology tenants for 112,000 square feet. One tenant grew 30%, and the other grew 40%. And we are negotiating a third expansion and extension, this time, growing 115,000 square foot per tenant to 160,000 square feet. We are also in early renewal discussions with tenants for more than 300,000 square feet of space.

And finally, in D.C., on the margin, the Omnibus budget is a positive development for the CBD market because it includes billions of dollars of increase in spending for non-dispensed sectors of economy and the government. It's unclear how much will flow into new job creation and translate into increased GSA or contractor demand or when it will lead to additional leasing, but it's a net positive. Now there will be and has been and are going to be an abundance of partially leased, recently renovated CBD assets, and the market will continue to be highly competitive.

In Boston, the market continues to improve. As good as our activity is in New York City or San Francisco and D.C., in Boston, we completed 33 transactions totaling over 400,000 square feet this quarter. And overall, the percentage leased in our Boston regional office assets is the strongest in the company at 95%. When we started the quarter, we had 6 floors of availability in our entire CBD portfolio. 5 of those floors are now leased.

Our largest negotiation in the region now involve the piece of space that expires in 2022. We have signed retail users for 30,000 square feet of The Hub at -- The Hub space over to Garden, which gets us to over 90,000 -- 90% of the retail space committed, and we're now at 88% of that total project leased. Demand for spacing in the city of Boston continues to grow, as technology tenants are expanding at pace that we've never seen and as strong as we've ever seen it.

With our lease with Rapid7 at The Hub on Causeway and the remaining space at Pier 4 being committed, most, if not all of the new existing inventory under construction, is gone. In addition, Amazon and Wayfair are close to very significant expansions in the Seaport and the Back Bay, and we continue to work with an anchor tenant for the tower at The Hub on Causeway.

In Cambridge, where we have a limited availability, we continue to have discussions with a tenant for the next office development at Kendall Center. If this project moves forward, we will replace 150,000 -- 115,000 square-foot building with a 400,000 square-foot tower, with construction commencing in mid-2019. And across the street on Main Street, MIT is reportedly in conversations for all of their office inventory.

Even as many tenants are attracted to the city centers of Boston and Cambridge, there continues to be a significant demand in our Waltham/Lexington suburban portfolio. We are in lease negotiations for the entire availability of Reservoir North, 73,000 square feet, with a tenant that's coming out of a 30,000 square-foot building. And we are talking to an existing tenant at CityPoint that will grow from 22,000 square feet to 47,000 square feet, expanding at 20 CityPoint. Starting rent for new construction are over $50 a square foot in the suburb, while Class A existing product ranges from the low-$40s to the mid-$40s.

I'm going to conclude my remarks this morning with some comments about our same-property leasing statistics for the quarter. You will note a jump in transaction costs. This is true across all our markets and illustrates the concession the market has been giving for the last few years for leases of 10-plus years as well as the cost of prebuilt suites, which we have been describing for the last couple of years. Obviously, there's a trade-off with accelerating occupancy on prebuilt, which is not reflected in these numbers. If you see a 6 months of downtime on a $90-rented space, it reduces the transaction cost of the deal by $45, but that doesn't show up in these statistics.

Overall, on a mark-to-market basis, we were up about 13%. However, there was some real variety and variability there. In Boston, the roll-up came primarily from our Cambridge portfolio, as transaction I described last quarter, where we took back space from Microsoft and relet it. And the roll down in New York City comes from a full-floor 7-year renewal in the low-rise portion of the General Motors Building that was done in January of 2015 and hit the statistics this quarter, where the rent went from $150 a square foot to $116 a square foot, but there was only a $20 of square-foot tenant improvement allowance. So all these numbers are confusing, and there's always a story behind them.

With that, I'm going to stop and let the call go to Mike.

Great. Thanks, Doug. Good morning. Hope you all are as excited as we are about our revamped supplemental financial package. If you haven't looked, hopefully, you'll check it out as we've reorganized and reformatted it to make it much easier to read.

There are a couple of accounting-related items I want to point out that changed in our financial disclosure this quarter. The first one is, due to the change in the FASB's rules for revenue recognition that we adopted this quarter, we've included on our income statement both the payroll expense and the reimbursement income for payroll costs for management service contracts. These items, which each totaled $2.9 million for the quarter, offset each other and net to 0, and they will net to 0 each quarter. Previously, we had simply netted the expense against the reimbursement.

The other item is on our financial highlights page, where we are now disclosing our capitalized internal leasing costs and external legal costs related to leasing. This totaled $1.7 million for the quarter. And the reason I point it out is that the new lease accounting rules that we will adopt in 2019 will require us to start expensing these costs. I suspect that there will be lots of quarterly variability in this item, so at a minimum, I would anticipate $0.04 to $0.06 per share of additional expense to hit our FFO in 2019.

Okay, sorry for the digression into accounting minutia. As you can see from our press release, we've been very busy this quarter. Owen described some of our investment activity and asset sales. We've also been active in the debt market. Last week, we closed a $180 million, 4-year construction loan with a syndicate of banks to fund construction of the residential component of our Hub on Causeway development.

And later this week, we expect to close on $120 million mortgage to refinance our existing loan on 540 Madison Avenue in New York City that expires later this year. We expect to reduce our credit spread on that by 40 basis points and extend for 5 years. And yesterday, we drew down 100% of our $500 million unsecured term loan that we closed last year. Proceeds will be used to repay our outstanding line of credit balances, fund the equity portion of the Santa Monica Business Park acquisition and fund development costs.

Turning to our earnings results, we reported funds from operation of $1.49 per share for the first quarter. That was $2 million or about $0.01 per share above the midpoint of our guidance. Our share of the NOI from the portfolio exceeded our budget by approximately $4 million or $0.02 per share. The outperformance came from earlier-than-projected leasing, primarily in Cambridge, where we signed a 90,000 square foot new lease to backfill the majority of the 110,000 square feet of space vacated by Microsoft in December and at a much higher rent. That's consistent with what Doug commented on about our lease statistics.

And in New York City, we took back a floor at 601 Lexington Avenue from a tenant with a near-term expiration, received the payment and leased the space immediately to another tenant. The improvement in the portfolio NOI for the quarter was partially offset by approximately $2 million of higher-than-projected G&A expense. The increase was due to higher healthcare costs and higher-than-projected noncash stock compensation. As it is every year, our first quarter G&A is higher than subsequent quarters due to the stock compensation vesting provisions and the timing of payroll taxes.

As we look at the rest of 2018, we continue to be encouraged by the level of leasing activities that we're seeing on our vacancy as well as early renewal opportunities for leases expiring in 2019 through 2022, many of which will have a positive mark-to-market in rent. The activity that Doug described in Boston, the leases in negotiation at 399 Park Avenue and activity on our vacant space at Embarcadero Center, all will improve our portfolio occupancy. Some of these deals will take occupancy at the tail end of this year, but the majority of the impact will not be realized until 2019.

Based upon what we are experiencing, we're increasing our assumption for the growth in our 2018 NOI from the same-property pool by 25 basis points at the midpoint to 1% to 2.5%. We have not modified our same-property cash NOI assumption as these deals typically have free rent periods and inception or the NOI growth is from early renewals where the bump up and cash rent will not occur until the next lease expiration.

We project our noncash straight-line rents will total $60 million to $80 million for 2018, which is up $5 million at the midpoint from last quarter's guidance. We have also increased our projection for development in management services income to $31 million to $36 million for the year, an increase of $2 million at the midpoint. The increase is primarily related to higher service income projection as well as leasing commissions in our joint ventures and third-party managed portfolios.

We're adjusting our assumption for G&A expense to $118 million to $121 million for the year, that's up $2 million at the midpoint and mostly due to the impact of the first quarter results. Overall, we are increasing our guidance for 2018 funds from operations by bringing up the low end of our range by $0.04 per share to a new guidance range of $6.27 to $6.36 per share. This equates to a midpoint increase of $0.02 per share and is due to our assumptions for portfolio NOI increasing $0.03 per share, fee income increasing $0.01 per share, offset by $0.02 per share of higher G&A expense.

We have not included the impact of the acquisition of Santa Monica Business Park in these assumption, as we are still finalizing the ultimate capital structure for the deal. However, assuming a July 1 closing, we anticipate it will be accretive to our 2018 FFO projection by approximately $0.01 per share.

That completes our formal remarks. Operator, I'd appreciate it if you could open up the lines for questions.

(Operator Instructions) Your first question comes from Mike -- Nick Yulico with UBS.

So I guess, first off, on Santa Monica Business Park. There was some trade publications that have written about the deal. It sounds like there were a lot of parties interested in the site. Can you talk a little bit about how you underwrote the asset? It sounds like there could be some below-market leases there that are rolling over the next couple of years. How should we think about the yield on day 1 versus a more stabilized yield for the project?

Okay. Nick, a couple of things we will say about the pricing. So first of all, as Mike mentioned, the deal is accretive to us day 1. Let me talk about the yield, then let me talk about the per square foot. So on the yield, the initial NOI yield on the asset is somewhere in the mid- to high-3s. And that is rising to over 6% by year 5. I should also mention that roughly 60% of that lift is from leases that have been signed that have not commenced rent payment. So from an income standpoint, the profile of this investment is similar to the Colorado Center investment that we made 2 years ago, but actually, there's less leasing risk here because in Colorado Center, we had actual vacancy whereas here, there's a -- a lot of the lift is from, again, leases that have been signed that are not paying rent yet. Then second, on the per square foot, obviously you can do the math on the square footage and the price that we've disclosed. However, to be apples and apples with other transactions that are quoted on a fee simple basis, roughly 70% of the assets in this park are encumbered by a leasehold interest. We have -- in the lease, we have a right to purchase at fair market value the ground under those buildings in 10 years. But you wouldn't -- to come up with a per square foot number, you would need to add what you believe the fair market value of the land is.

Okay, that's helpful. I guess just then in terms of -- turning to -- back to 399 Park, and you talk about, I think, you said 1 million square foot of proposals on the lower floors where you have that 250,000 square-foot block, where it sounded like you were getting close with 1 financial tenant, but you didn't have an LOI yet for that block. Can you just talk about how that discussion is going? Is that tenant still an option for all the space? And how much, I guess, from a timing standpoint, do you think it might take to get actual -- some leasing done for that block?

I'll answer the question, and then I'll let John Powers chime in. So we have tenants who are looking for 250,000 square feet. We actually have a proposal out with a tenant who would ask to try and get us to take some other space back from another tenant, so they'd be larger than 250,000 square-feet. And then we have a number of tenants who are looking for a floor or a floor-plus. So the floors that we have available are around 70,000 square feet. So we have some tenants who are looking for 100,000 square feet, so they'd be a floor and a half. I am not smart enough to handicap the physical timing of a lease signing. We are confident that we will have a significant portion of the low-rise of this building leased before the year is over and that there will be income on the space, hopefully, by the end of 2019. John, I don't know if you want to add anything to that?

We certainly would hate to break the block because it's a great block and we had people looking at it. But at some point, we have people interested in single floors or 2 floors. And we're going to have to do one of the deals, and that's probably going to happen very quickly.

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

I guess just sticking with Santa Monica Business Park, so now you've got Colorado Center, Santa Monica Business Park. I mean, how do you think about your desire to grow even more in L.A. at this point? Or do you feel like now, you can digest for a while and see how things play out? And how do you think you fit in strategically in that market versus the competition now as a landlord?

So let me start with just sort of a real estate perspective, Jamie, okay? So when we bought the Colorado Center investment in July of 2016, what was so attractive to us about that investment was that it was our kind of property. Meaning, Boston Properties' kind of property. In that, these were larger buildings that were leased to or could be leased to larger corporate users, who we hope would be the kind of companies that we would want to see grow. And the Santa Monica Business park fits that same glove. So the park is just over 1.1 million of office space, and 15 tenants occupying 920,000 square feet of that space. So it's a very similar kind of a profile to Colorado Center, and it really fits with the way we as an organization want to build our business. So just sort of foundationally, that's what we like so much about these 2 assets. And I think it's pretty significant that in 2 years, we -- as Owen said, we're now at 20-plus percent, 24% owner of the competitive office supply in Santa Monica, which is a pretty significant way to enter that marketplace. I think it's a little premature at this point to talk about additional growth. Let us divest this particular purchase and put the 2 together and work these assets.

And Jamie, just to add to what Doug said. Look, we remain committed to have Los Angeles be one of our 5 major regions. However, we're not going to encumber ourselves with a fixed timetable to do so. We're going to grow with assets that we think makes sense for the company and also, with assets where we think we're going to make money on the acquisition. So we're going to be disciplined, we're going to be careful. It took us 2 years following Colorado Center to find Santa Monica Business Park. We've been patient, we've been disciplined. We're -- we couldn't be more excited to be making this particular investment. We think it fits perfectly for the reasons that Doug described. And going forward, we're certainly going to look at new investments, but we're going to do it with the same discipline and care that we've been doing since we started in L.A.

Okay, that's helpful. And then I guess just -- and maybe talk about potential timing if you were to bring in a partner? And I think you mentioned an airport redevelopment, and also, public transit access? Just some time frame of when this all comes together?

So let me talk about the real estate and I'll let Owen talk about the capital side. So the Santa Monica Business Park is a 47-acre parcel and it abuts the Santa Monica Airport. The Santa Monica Airport is slated, at this point to be decommissioned sometime around 2028. That means that, that enormous parcel is going to be readapted to some other use. We expect it will be public uses, not commercial uses. But it's -- part of that process, we are hoping -- again, we have not had one conversation with anybody in Santa Monica, the public, the community, the City Council, because it's way too premature to do that. But we hope that, at some point, there will be a conversation about how the redevelopment of the Santa Monica Airport and the 47-acre site that we now will own in fee by that point, because we'll have purchased the ground and how we think about changing and thinking about how it could be reconstructed and reconfigured going forward over the next decade or so. So we're really excited about the long-term potential to do something here, not the short-term potential. When you guys do your tour in 2018, and you do your tour in 2021, you're not going to see a lot of changes because we recognize that all the buildings are leased, that there are tenants in the buildings, they're growing tenants, the City of Santa Monica is a long way away from getting that airport back, and there will have been very few, if any, conversations with the community, with the public officials, with the tenants, with the neighbors, et cetera. So this is all going to be a long-term prospect. But it's a 47-acre parcel in the heart of Santa Monica, and it's got great highway access to the tech.

And Jamie, on capital, clearly, there are equity capital providers that are interested in this property and we are considering bringing in a partner. And we could do that by the time that we close or it could be afterwards. But it's something that we're considering.

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

It's Michael Bilerman here with Manny. Mike and Doug, you both sort of talked about a lot of leasing all coming towards the end of '19, a lot of the efforts that you've been working on, development and lease-up redevelopments. Mike, you also mentioned this lease accounting that's going to knock 2019 FFO by $0.04 to $0.06. I guess, at what point do you start looking at -- right now, you're sitting at about 6 95, about 10% growth. You should be annualizing call it close to 6 60 by the end of the year. I mean, is there a gap between how you're thinking about the trajectory going to 2019 relative to where the Street mindset is currently?

So Michael, this is Doug. We have not spent a lot of time thinking about what the Street's numbers are for 2019. Obviously, in the third quarter of the year, we provide our guidance. We have been providing our development outflow and our expectations of when those dollars will come into the income in the income statement and beyond the balance sheet and service. And that's where the variability of our numbers are. And the question will be, how far into '19 that stuff actually impacts the year? So as an example, we have the Akamai building, which we announced 1.5 year ago that's going to be delivered in the fourth quarter. Is it going to get delivered on October 1, or is it going to get delivered on December 15? It's a big deal in terms of what the actual results will be for 2019. So until we get a little bit closer to understanding the actual in-service date for the developments that are coming online, it's hard for us to, with great accuracy, provide a 2019 number, which is why we haven't obviously provided one yet, and we probably won't until the third quarter.

And I think, the leasing at 399 makes a big difference as well. The timing of, as we sign these leases, we will give better visibility as to the exact timing of when that rent is going to start, and that's obviously a lot of space and a lot of growth that is going to come. But at this point, we're not clear whether it will be in the beginning of '19, the end of '19, how much square footage is when and where, but that will become, as I said, more visible to us as time goes on.

I'm just thinking about a step function, right? If you're running, let's call it, $1.50 to $1.55 between the first and second quarter based on your guidance, the back of the year, let's call it $1.65 quarterly. As you think about next year, I guess, when is the next step up material? Or should the Street be thinking that $1.65 holds for the first couple of quarters, and then you sort of get a bigger hockey stick towards the end of the year, because I do think -- what I hate to happen is for another year of guidance comes out and it's like -- it's below the Street again.

Look, the biggest increase towards the back half of this year, I mean, you pointed out a good thing, our FFO for the back half of the year is going to be higher than the first half of the year. And the biggest increase of that is coming from the development pipeline that is coming into service. So we got Salesforce Tower, obviously. Every quarter, they're taking on additional floors, and we got other tenants that we have signed leases in that building that are going to be taking on additional spaces. So we've provided some of that information in our disclosures to you as that kind of builds up. And then we also have the 2 residential buildings that are leasing up in the back half of '18 and then through '19. So that helps as well. The same-store portfolio has some growth. In the back half of the year, you'll see in the second quarter, you're probably going to see another negative same-store comparison to prior year because of 399, but as we get into the third and fourth quarter, you're going to see that improve on a comparative basis. And as Doug said, we're not really prepared to give 2019 guidance today. But as we go through the year, we'll continue to provide insight on our calls as we see fit.

Right. And Mike, on the Santa Monica, you quoted mid- to high-3s. Is that an initial cash going in? Or is that a GAAP? And then can you give at least some details around the ground lease in terms of what is the ground lease expense, and as we start to think about sort of the effective yield on that purchase of the land?

So just a couple things. You're not going to like all the answers I give you, but that's okay. So the yields that Owen quoted were cash yields. So they were -- they had no GAAP impact at all. And so he said in the mid- to high-3s going to the 6s over 5 years, those yields included the cost of the ground rent embedded in it. And so when we figure out the capital structure and all the accounting issues associated with how we need to treat this stuff, we will provide better disclosure on the various components in our package, we're just not -- we're not there yet, I mean, this thing has been going quickly and we literally signed our contract a day ago.

Right. I'm just thinking about the land per square foot cost are going to be pretty elevated in that basis. And so the market value of the land from a yield perspective -- a cash yield perspective, I got to imagine is well below that 3% range?

No, it's actually not. You're thinking about it in the wrong way. The way the ground lease currently is structured is pretty expensive ground lease, and when that ground lease goes away, we think the yield will be enhanced, actually.

Even though you have to pay market value for the land?

Yes.

Your next question comes from the line of Vikram Malhotra.

Just sort of a little bit more detail, sort of the NOI Bridge going into '19 and '20. If you look at sort of the buildings that are maybe key components to the bridge, obviously, 399 Park, and you mentioned there is some variability in timing. Can you talk about sort of visibility and lease up potential at 611 Gateway, and maybe Embarcadero?

Yes. So our invisibility at Embarcadero Center is very strong. We have a lot of proposals that we're working on, a lot of leases that are in negotiation, and so we're very comfortable with the expectation that we set on in terms of what Embarcadero Center is going to contribute. On 611 Gateway, we actually -- I would say we've been very measured in our view on what's going to happen there. And so we -- our perspective has been that we've been leasing somewhere between 40,000 and 60,000 square feet a year. And assuming that pace is kept up, we'll be where we need to be by the end of 2020 on that one. The fundamental driver at this point of all of our "operational" occupancy increase is at 399 Park Avenue. Everything else effectively has really gotten committed and on the margin, that's where the big uncertainty is in terms of actual leases being signed relative to everything else in the portfolio.

Got it. And then maybe just sticking to New York. We've obviously -- you quoted a very robust private market with cap rates holding up. But many names focused on New York filtrated pretty big discounts to NAV. Maybe give us your sense of where are we -- have you seen a move in cap rates for any -- for certain types of assets within the New York market and just related to that, you also referenced a comment about capital allocation and buybacks? Maybe just give us some thoughts around that as well?

Well, on the private equity market for real estate, we try to spend time on this call every quarter trying to demonstrate that Class A buildings in our core markets are trading, the per foot vary based on the rents, but the cap rates are generally in the 4s. They're usually in the low-4s for buildings I assume that has some lease-up or some better lease below market or in the high-4s. But that is generally been consistent. And we didn't see a change this quarter and there are actually a number of other deals that I didn't mention that we hear are either under agreement or becoming committed that are going to also mirror that cap rate. So my expectation is, next quarter, I'm going to be quoting to you again 3 or 4 deals that are going to be cap rates in the 4s. So I think the market remained strong. Your point and question on capital allocation, we are doing -- as I said in my remarks, we think our best use of capital today is the new preleased development that we are launching and value-added acquisitions. Our development pipeline at $3.5 billion is 82% preleased, so it's been materially derisked. And also, as I mentioned, our development pipeline is currently priced at around a 7% yield. I talked about the Santa Monica investment generating over a fix yield in 5 years. Our stock does trade at a discount to NAV, and depending on how you think about valuing the development pipeline, and by the way, we give you some data on how we think you should do that, but we see our stock trading in the low 5s, from a cap rate perspective. So that's why I made the remark that we think a better use of our investing capital is the development and the value-added acquisitions.

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

It's Jordan Sadler here. Wanted to touch base on SSB -- SMVP one more time. The going in cash flow yield is quite low, but it seems based on these ramps and the potential to the purchase of the land in 10 years that the unlevered IRR could be pretty high relative to what you'd expect for something in this type of a market -- supply constrained market. I'm curious what you think the IRR would look like, and then maybe any commentary on what the competition for this asset look like and why you guys were the right buyer as opposed to some of the cheaper sources of the capital out there?

Look, I think the IRR was attractive to us relative to the other investments that we've looked at in West L.A. and frankly, across the country. So we were very comfortable with the IRRs in this investment. And look, we think it's a very attractive property. We think it's a great fit for Boston Properties for all the reasons that Doug and I have described. There's no doubt it was competitive, and we won in auction, and there's a lot of speculation about who the other bidders were that you probably read, as we have, and so I assume that, that is the case.

And just -- I could give you sort of a general comment on IRRs, Jordan, which is that -- we have been very disciplined and frustrated by the degradation of returns that has occurred in the overall acquisition market in terms of where people have been prepared to pay for things over the last couple of years, and we just haven't been able to participate. And our view is that most people have been purchasing assets at IRRs that are in the low-6s. And clearly, we have not been participating in that part of the sales market. We hope that this is going to be significantly better than that.

And then regarding 3 Hudson, I haven't heard a lot of follow-up commentary on it, is a start or anchor tenant and then a start there imminent? Can you talk about your investment and your expected return there?

So we are -- just to be clear on 3 Hudson Boulevard, this is when where we have not signed a commitment, we have an LOI, and we're negotiating a commitment. So we are not prepared to provide as much detail as what we've been talking about in Santa Monica. We're clearly in the market for tenants, and we would not commence the vertical development until we secured an anchor commitment. John, do you want to provide any more color on that?

Just that we really liked the site. It's North of Hudson Yards a little bit, right on the 7 train, and it's really on 3 avenues with 34th Street, 11th and Hudson Boulevard so get a lot of light and air. So we really like the site.

And our yield requirements are in the range of what we are seeking in all of our other regions.

Okay. And then last question, just on construction cost. You guys obviously have quite a bit of development underway and are committing to incremental development. Can we talk about what you're seeing in construction cost escalation post-tariffs escalation and other costs, labor obviously? And how you guys are mitigating those rising costs?

So, Jordan, the pre-tariff world, we were seeing escalation of between 3% and 5% on all of our projects across all of our regions. But it differed by the particular trade. So in one region, it might have been concrete, and in another region it might have been curtain wall, in the third region it might have been the mechanical and electrical. What we do when we are building our budgets for our developments when we are quoting rents, which is what we have to live with, is that we build in escalation into all of those jobs. And generally, depending upon the market, we're building an escalation between 4% and 6%. So we sort of have -- we take a little bit more conservative scope. And then we also build in change order contingencies and things like that, that give us a little bit more in the way of "legroom" for things that could happen. We don't think that on the margin, the increases in the -- mostly steel, not aluminum tariff that could occur, will impact those escalations any more than what's currently in the market today.

Your next question comes from the line of Steve Sakwa with Evercore ISI.

I guess, a question for Mike LaBelle on the balance sheet. You sort of talked about the funding and the debt funding and sort of leverage levels not really moving. Could you just sort of walk us through kind of where you're kind of net debt-to-EBITDA is today? Kind of walk us through the balance of the debt funding, some of the new projects that maybe haven't started yet, but are committed and sort of where do you see that balance sheet pro forma in maybe, I guess, 3 years from now? How do you sort of see the leverage numbers changing?

So right now, we're 6.8% net debt-to-EBITDA. And of the $3.5 billion development pipeline, $2 billion is funded, so that's in the debt portion, and it's generating effectively 0 today. So we've got another $1.4 billion in the fund, and then Doug described another $1 billion plus or minus of other new developments that we're working on. And we'll see how we capitalize Santa Monica Business Park. But as you kind of look at that, I think that in the next quarter or 2, we may tick up a little bit, but then we're going to come down. And as all the cash flow comes in from the developments, it's going to delever us, and I feel very confident that we will be in kind of that 6.5 to maybe 6.75 plus or minus kind of on a pro forma basis after we get through this. Obviously, a lot of things can change over the next 3 years, because there is going to be other opportunities we have and things like that. But our goal is to make sure that we have enough balance sheet to kind of keep our net debt-to-EBITDA from going above 7x effectively, and that's how we're kind of managing things. And we think about, as we look at new investments, do we want to bring in a partner or not to that investment, because it will enable us to further our dollar effectively without coming back to the equity markets. Our view right now, everything that we have on our books that we think we could start, including the acquisition we just announced we can do without raising equity and we can maintain our net debt-to-EBITDA below that 7x, which we're very comfortable with.

And Steve, just to add on to that. So we want to have the flexibility on our balance sheet to do things like the Santa Monica business Park acquisition, which is a 600-plus-million-dollar acquisition without having any concern. So what we're actually doing right now and we actually are about to do, one will be in the market relatively soon, as we are thinking about how we can better fund our developments and use third-party capital to do that. And so when we bake these cakes, and we can demonstrate the strength of the cash flows from these assets, bringing in a capital partner to participate in those assets early on in the project is probably something we would consider doing and are going to consider doing on selective basis is largely to maintain the financial flexibility that we want to have, so that we can do other things without going to...

And I guess to maybe -- to go back to Owen's point earlier about maybe tax efficiency. I mean, it sounds like maybe selling partial or whole buildings that are older vintage, maybe not as tax efficient. Is it may be better or more efficient to sell some of the newer developments where you've created gains and take some of those off the table with a higher cost basis?

I think it's most efficient to bring a partner into a development that we haven't started yet or that we were just at the initial stages of starting because then we don't have to worry about a basis issue in terms of where it's trading, and we can basically capture the value creation that we've done in terms of either getting promotes or getting "soft equity" for land value that we've created, things like that, that provide us with financial flexibility, without having to sell assets.

Got it, okay. And then I guess, just on the Boston side, I know you spent a little time talking about the roll down in New York, I guess it was pretty clear, it was at the GM building. Just there was a huge uplift, I guess, in the Boston rent, I realized they're kind of older, but could you just maybe describe that again?

Yes. That was last quarter, we mentioned that we took back space from Microsoft prior to their lease expiration. We did a termination with them and they're terminated on December 31, and we released about 100,000 square feet of 120,000 square feet of space in Cambridge to another tenant and the roll up was enormous as you know, more than 64%, because that actually was brought down by some of the other deals in Boston. So I think -- I don't remember what I said last quarter, I think it was close to 120% increase on a net basis.

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

Just 2 questions from us. The first is just thinking about L.A., and the amount of time, Owen, you mentioned 2 years since the initial foray there. Right now, you own the asset or you will own it outright. Your thoughts on bringing in a JV partner versus all the time and effort to find just 1 -- just the second deal, why split that up if it's been just such a difficult market to put capital in? You guys certainly have the balance sheet and it also sounds, from what you described, like there's a lot of upside in this asset. So why would you guys bring in a partner versus keeping all the economics for yourself? And also, just leaving the fact that you worked so hard just to get the second deal?

Yes. Look, Alex, it's a great question. I think it goes back to what Mike LaBelle was talking about a minute ago, which is spreading our precious equity dollars further. We do not want to increase the leverage of the company. Mike described it as 7x net debt-to-EBITDA. So we want to be careful with our equity. And we are selling some non-core assets and we're certainly thinking about bringing a partner in on this particular deal. And that would be a driver.

I think that -- obviously, if you bring in a JV partner, it does. The percentage of our NOI that comes from L.A. would not be as great as it would otherwise be. But it doesn't impact our market position. Our market position and how we operate in the market is as if we own the whole thing. It enables us to really be a stronger market participant.

Okay. And then the second question is, going to the -- what JPMorgan is doing, you guys have the MTA site, if recollection, there's some issues around property tax or how the asset would be handled once it transferred from sort of public use to private developer use, but just what Jamie is doing next door, does that impact the time line and you're thinking for redeveloping the MTA site or the complications inherent in that make it a different timeline than you'd otherwise have if it were -- you have a straight up deal?

Alex, there's no question of what JPMorgan is doing has, we think, improved the prospect for our MTA site. We're still in the middle of an entitlement process which will take a year-plus to accomplish and that's really driving our timing but there's no question that the JPMorgan activity is helping that particular submarket of New York. John, is there anything else you'd like to add to that?

No, I think that's it. It's probably more than a year-plus of going through [Europe] and the whole process we're in. But the site got better.

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

On Santa Monica Business Park, just given the going in yield versus your cost of debt at 4% can you just walk us through how that's accretive this year? Is it funded with a line and are there any onetime JV fees that you're factoring in?

We kind of assume that it would be funded at a kind of weighted average cost to debt versus a partial mortgage debt, partial line, because we don't -- we haven't determined exactly how we're going to do it. But the rents in the market are -- in the building are below-market. So on a GAAP basis, we do fair value lease accounting, so that increases the GAAP yield on this thing by a bit.. And then, in addition, the ground lease, we have to do a capital lease accounting for that. So instead of expensing ground lease rent, we have interest expense, and that modifies a little bit as well with the kind of FFO expense of that is versus what the actual ground lease expense is. So it's really those 2 things in addition to the typical kind of FAS 13 from rent bumps that are in there that are impacting -- making the GAAP yield be higher than the cash yield.

Okay, so accretive to FFO, but not necessarily FASB?

Not initially cash, but as Owen described, a good portion of the space that is currently not income-producing is contractually leased, and we just haven't had those leases start yet. So the cash yield should increase fairly quickly as those tenants take occupancy of their space, and they start paying rent.

Okay. And then just purely from a cash flow perspective, I know there has been different opinions on this but it seems like it will be difficult for an acquisition with a going in yield of 3% to 3.5% going to 6% in 5 years to match what you're doing on your development pipeline, developing at 7% to 7.5% with minimal risk given the lease-up. What is your response to that purely from a cash flow perspective?

Yes, the -- well first of all, this property is 94% leased. In all our developments, we do have substantial pre-leasing, but it's 82%. We also have to build a building, so there's construction processes that have to occur, and there's a timing delay; whereas we bought this Santa Monica Business Park, we have the income as soon as we close. So that's the development.

Then just 1 final question on Dock72. How much of your leasing is being impacted by WeWork effectively competing with you for enterprise tenants?

I don't believe that we're "competing" with WeWork for tenants. In fact, interestingly, there are some tenants who, I think, we see as being better suited to WeWork initially and to the extent that their -- the experiment, if they want to call that, of having an outpost in Brooklyn works -- they will actually be tenants who we would take -- advantage -- of growing in the park. So I think we look at it as a very cooperative relationship. John, I don't know if you have anything to add on that.

No, I think, that's it. I think its cooperative. We're very excited that WeWork is undertaking it's build out now, and we think we'll see in occupancy probably before the end of the year. The amenities will all be done, and certainly, the building will show a lot better then than it does now. It looks terrific now, but with people in it and the amenities, I think it's going to be special.

You're next question comes from the line of Jed Reagan with Green Street Advisors.

A quick follow up on 3 Hudson. Just in order of magnitude, how large was the prelease need to be there to kick off construction?

Jed, we don't want to pin ourselves down to a specific percentage. It would have to be significant.

Okay. And then just a couple of follow-ups on Santa Monica business Park. Can you give -- how much -- what's the average remaining lease term in that project? And are there any big expected move-outs coming up? And then can you talk a little bit about Snapchat's occupancy in the campus?

I can't give you off the top of my head the average lease expiration date for the whole campus. Snap is in about 300,000 square feet and they have must-take options, I think, that goes to close to 400,000 square feet. There are a couple of other larger tenants with near-term expirations meaning like 2020, 2021. And at this point, we don't assume that anyone is certainly going to walk out of the project. We think that the project has been a great home for everyone who's there. We'll have to determine whether or not the rent levels that we're going to try and charge are going to be appropriate and conducive to people staying. But we're going to be aggressive about trying to maintain occupancy and maintain tenants and hopefully finding ways for our tenants to grow in the park.

Okay, great. And then I think I've heard that there's not really any significant incremental capital spend plan for that project in the near term, and that you can't get at the fee position buy out before 2028? Are both those accurate statements?

I think we're -- our focus on capital in the short-term is to make sure that the buildings work really, really well, meaning, that all of its systems and the structures of the building are competitive, appropriate and up to first-class conditions. So my point being, we're not going to move forward with a "revitalization recapitalization" of the building from an aesthetic perspective in the short term. We don't know what we will do over the long-term and the expectation is that we will purchase the fee when the fee date is contractually allowed to be purchased which is about 10 years. I am sure we will have a conversation with the owner of the land before that and find out what their motivations are and their desires are and if we can work something out before that, that would be great.

And you're not underwriting any up-zoning potential specifically for that project?

We are -- our perspective was that we underwrote this assuming that what you see is what you get. And that we, over a long, long time, may be fortunate enough to find some ability to change the way the buildings are configured, the current usages, but that's going to be a discussion that we've had -- we've spent literally 0 time thinking about and we'll be much more involved with the city of Santa Monica, the constituencies locally, the tenants, the community, et cetera, and we have no interest in getting out in front of that.

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

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

Just another one on Santa Monica. Can you give us any color on the magnitude of the mark-to-market on the in-place rents at that asset?

I don't think we're quite ready to do that. Again, we have some initial numbers. I guess, I'd ask you to triangulate. So we told you what the initial cash return was, we told you what the return is going to be, what looks like in 5 years. Mike said it was going to be positively accretive, so...

And 60% of the uplift, more or less, is coming from rents that have been signed that are not paying yet. So...

Fair enough, we can do the math.

[Triangulated using] the first 5 years of lease.

Okay, and then maybe 1 for Mike on the same-store NOI growth. For the past several quarters, I think, that straight line adjustment has been a pretty significant negative between GAAP and cash same-store NOI, and it increased even more this quarter. Can you just comment on whether we should expect that to unwind at some point as we see free rent burn off? Or is there something else going on there?

I do think there's anything unusual going on. Are you saying the same-store is -- the spread between cash and GAAP is increasing?

Yes, it seems to have been a bigger negative to the cash number as we looked at it this quarter. So it seems like there might be some free rent in there that...

There is free rent in there. I mean, I would say, of our noncash rents, we have about $20 million that is kind of fair value rent, and basically, the rest of it is free rent that will burn off over the next year or two.

Are there any -- I guess, are there any large leases in there that might have been driving that free rent number up that you know when that's going to burn off and we're going to see a bit of a boost to the cash same-store number?

Well, I think, yes. I mean there is the leasing that we did at 100 Fed is not cash-paying yet. That was over 200,000 square feet of space. The stuff that we're doing at 200 Clarendon, many of those leases are in pre-rent periods. That's the leasing that we've done in the last 12 months that is just kind of getting into our numbers now and in this year, so there's free rent associated with that. And then in Cambridge, some of the leases that we've had, like the one that Doug described and I described, is in a free rent period in 2018, and we did some blended extends in San Francisco and also in Cambridge, that we have to wait until the natural lease expirations in '19 and '20 for those things do turn into cash. So those are some examples.

And this concludes the question-and-answer portion. I would now like to turn the call back over to the speakers for closing remarks.

That concludes all our remarks. Thank you for all your time and attention.

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