波士頓物產 (BXP) 2002 Q4 法說會逐字稿

Good morning, my name is Amy and I will be your conference facilitator for today. At this time I would like to welcome everyone to the Boston Properties conference call. All lines have been placed on mute to prevent any background noise. After the speakers remarks, there will be a question and answer period. If you would like to ask a question during this time simply press star and then the number one on your telephone keypad. If you would like to withdraw your question press the pound key. Thank you, [inaudible] you may begin your conference.

Hi welcome everyone to Boston Properties fourth quarter and year-end conference call. Everyone should have received the press release and supplemental packet of information. If anyone online did not receive a copy, you can go to either our website or Boston Properties to download a copy of that. We are also hosting a web cast of today’s call, which you can access at ccbn.com or bostonproperties.com. At this time management would like me to inform you that certain statements made during this call, which are not historical, may be deemed forward looking statements within the means of the private securities and 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 expectations are detailed in last night’s press release and from time to time with the company’s filing with SEC. Joining us today we would like to welcome Mort Zuckerman, Chairman of the Board, Ed Linde, President and CEO, Ray Ritchey, EVP and National Director of Acquisitions and Development, and Doug Linde, CFO. Now without further undo, I will turn the call over to Doug, for his opening remarks.

Good morning everyone and happy New Year, thank you for joining us this morning. As was evident from our release last night, Boston Properties had a very strong fourth quarter, capping a highly successful 2002; during which we increased funds from operations per share by 14.6%. The current economic environment notwithstanding, we are extremely pleased with this accomplishment, relative both to general equities and the re-sector itself.. While the operating environment we encountered in 2002 was as difficult as it has ever been in our 32 year history, our portfolio of the highest quality assets, leased on a long average term basis to tenantswith strong balance sheets partially inflated us from these deteriorating economic conditions. And we took advantage of the disconnect between the core short-term office marketfundamentals and the continued appetite in the capital markets for precisely our type of assets by being an active seller of properties on which the marketplace has placed a significant premium.

Other accomplishments of the fourth quarter will have an greater long-term impact as we enhance our balance sheet and future financial flexibility by obtaining a corporate rating and pursuing senior unsecured debt. Moody's, S&P and Fitch rated Boston Properties senior unsecured notes BAA2, triple B, triple B respectively and in December we issued $750 million of senior unsecured notes with a maturity of January 2013 at a yield of 6.29% followed by another $175 million at the same terms and conditions on January 13 of 2003.

In 2002 we closed on the sale of $428 million of real estate and retired $215 million of secured debt. This includes one and two Independence Square in Washington D.C., which sold for $376 square foot, representing an NOI cap rate adjusted for a 1% management fee of 7.3%. In addition, we currently have under contract for sale approximately $433 million of real estate, including 875 Third Avenue in New York City, which will be sold for $520 a square foot. These sales are all structured as a reverse like kind exchanges allowing the company to recycle capital with no current taxable gain.

The balance of my remarks this morning are organized into three parts. First I will provide some commentary on the results of the fourth quarter, explaining why we achieved our stronger than expected results. Second, I will discuss the balance sheet and our financing plans and the timing of other capital transactions. And third, I’ll provide our current views for operating expectations in 2003 and lay out the assumptions we are using to get to our 2003 guidance of $3.93 to $4.07.

We pinned down the timing of many strategic transactions announced last quarter which will allow for greater clarity to our 2003 estimates. The supplemental disclosure package released last night provides investors with a compilation of detailed information,in addition to our mandatory filings, which we hope enhances the transparency of our business. This quarter we have included significant new information such as the designation of our unencumbered assets and the appropriate calculations for each of our senior unsecured debt covenants. Much of the information I will discuss during the call is found in the supplemental package.

Last night we reported fourth quarter funds from operations on a fully diluted basis of $1.14 per share. This brings 2003 funds from operations to $4.09 as I said a 14.6% increase over 2002. This is above our guidance and $0.07 above our first call estimates of $1.07 for the quarter. In January of '02 the company estimated 2002 funds from operations per share would be $3.87 to $3.94. We did not lower estimates at any time during 2002. Net income from the quarter was $2.70 per share diluted reflecting an increase of 350% over net income from the fourth quarter of ’01, of $0.60 per share. These results include the effects of gains from sales on assets reported in the press release. Excluding the gains on sale, net income for the quarterwould have been $0.67 per share diluted, an increase of 17.5%. Year to year, excluding gains, net income increased 13.9%.

Our same store year-to-year NOI increase including hotels was positive 1.9% on a GAAP basis and up 3.6% on a cash basis in the fourth quarter. On a quarter to quarter basis, hotels were up 22% on a cash NOI basis. Excluding the hotel results, same store NOI growth was 1.2% on a GAAP basis and 3% on a cash basis. This is at the top of the guidance we provided during the last call of same store growth of in between 1% and 2% on a year-over-year basis in'02. The reasons our results were better than expected can be explained as follows. Excluding least termination fees, we had approximately $3 million of unanticipated incremental revenues, including accelerated lease commencements, higher rental rates, unbudgeted percentage rent from retail operations at the Prudential Center, over budget parking income and miscellaneous revenue. In addition to the higher revenues, our net expenses were approximately $1.6 million less than budgeted, as we trued up our actual in the fourth quarter. This expense figure is in spite of a negative variance from New York City real estate taxes where we had not anticipated the 18% increase in the tax rate for fiscal 2003. Included in the fourth quarter results, our termination fees totaling $3.7 million, 1% of quarterly revenue, $2 million greater than we had budgeted for the fourth quarter. Specifically, we had a 15,000 square foot tenant in San Francisco pre-pay rent through the end of their lease term in November of 2004 and surrender the space, resulting in a $2 million fee recognized this quarter. The anticipated termination fees originated from six separate transactions, totaling 80,000 square feet; 31,000 square feet of that was released by replacement tenants at market rent and 21,000 square feet are still occupied by the terminating tenant.

Hotels continued to show strong occupancy but significant room rate compression. Fourth quarter net operating income from the three hotel properties was up 22% from the same period in 2001, which was that period directly following September 11. This compares to negative 13% last quarter. On average, the hotel occupancy was flat year-to-year and the rate was down 8%. However, the hotels actually under performed our internal expectations by about $600,000 in the fourth quarter, as we ended the year at $23.4 million as compared to our budget of $24 million. The collection of better than expected revenues was about 2.4 cents. Lower overall operating expenses added 1.3 cents. Higher termination income added 1.6 cents, but lower than expected hotel contributions subtracted .4 cents, contributing about five cents of our better than expected fourth quarter results. Again, 2.4 cents for revenues, 1.3 cents for better operating expenses, 1.6 for higher termination income netted against less of .4 for hotels gets you to about five cents. The remaining two cents was generated by differences from the expected timing of the sale of one and two Independence Square and the lower short term interest rates we experienced during the quarter. The sale of one and two Independence Square resulted in a loss of income balanced by our reduction in interest expense. In addition, we saw modest additional interest expense in the quarter associated with exchanging $750 million of short-term floating rate debt with an average cost of 3% with a fixed rate ten year bonds we issued at a rate of 6.29%.

During '02 a new accounting pronouncement, EITF 01-14 became effective, which requires us to change the presentation of certain utility reimbursement, primarily in our New York and Boston region in our income statement. We’ve adopted the pronouncement this quarter and have reclassified prior quarters accordingly. These reimbursements and expenses, which were approximately $6.5 million in the fourth quarter are now being shown as revenue on the income statement as opposed to our historical treatment as reduction of cost with the corresponding increase in expenses. This change is merely a reclassification and has no bottom line impact on reported net income or funds from operation. It does, however, obscure the calculation of the operating margin. In our supplemental package we identified the revenue and expense associated with the pronouncement, provided calculation of the margin, exclusive of this amount and exclusive of our hotel operations.

Looking back over the past three years, our fourth quarter margin exclusive of hotels, has been between 67.7% and 68.7%. This quarter we are at 69.1%, which is primarily due to the greater proportion of CBD properties in the portfolio which generally operate at a higher margin. As we move into '03 we expect reduction in margins due to increase in base year operating expenses and tax estimates versus the roll over base years, as well as increased vacancy. Our G&A expense was $12.7 million in the fourth quarter. The expense for the full year was anticipated to be $45.5 an ended up at $47.3. When reviewing year-to-year data, remember the second quarter included $2.8 million associated with the terminated Arthur Anderson lease at Time Square Tower.

During the quarter we had increased direct and officer premiums and costs associated with corporate governance, as well as employee terminations of about $600,000. In addition, based on the company's performance, the 2002 bonus pool, which was approved on January 16, 2003 was increased relative to the 2001 pool and slightly higher than our projections. Year to date we had capitalized wages of $5.1 million. In the fourth quarter as highlighted in the supplemental, straight line rent adjustment was $11.9 million compared to anticipated straight line rent adjustment last quarter of $14 million. This quarter we implemented an internal rating base analysis of our accrued rent asset, so an appropriate reserve could be calculated on a tenant specific basis with four ratings categories ranging from strong performance to in bankruptcy. At the end of the fourth quarter our reserves stand at $5.1 million, against an accrued rent balance of about $170. This is than increase of about $1.3 million over the reserve this time last year.

As we review our exposure to tenant default we continue to see cause for some concern. Last week Regis filed for bankruptcy. While Boston Properties exposure is at 25% interest in a single lease, totaling 22,000 square feet in Reston, Virginia, we still have issues with tenants like WorldCom, that we anticipate will reject certain leases. We project our net exposure to WorldCom today is approximately $3.5 million. Our in service portfolio occupancy was $93.9 in the fourth quarter of '02. Remember that our portfolio composition could change. Included in our in service portfolio for the first time are Broad Run Business Park, which is 55% leased and two Discovery Square, which is 82% leased and now excluded are one and two Independence Square and the Westwood industrial building, which were all 100% least. On an apples to apples basis, there has been an 80 basis points quarter to quarter decline in occupancy with almost 40 basis points due to the building dispositions and additions. The majority of the occupancy decline during the quarter was expected and discussed last quarter. We lost 95,000 square feet in occupancy in suburban Boston in the fourth quarter, due to a major uncovered lease expiration at Newport Office Park in Quincy, and an additional 81,000 square feet of occupancy Prudential Center at 101 Huntington Avenue, associated with a re-structuring of a long-term commitment with John Hancock in that building.

The one surprise we had consisted of a 31,000 square foot expiration at 181 Spring Street, where in fact we terminated the lease for nonpayment of rent. We are now litigating with the tenant and expect to recover all rental obligations. This is not a tenant that had a bankruptcy issue. When you review our detailed property by property occupancy statistics on pages 18 through 21 of the supplemental, note the following. We have additional leasing at 170 Tracer Lane with occupancy in April that will bring the occupancy to 91%. We signed additional leases at Lexington Office Park in Boston, bringing its occupancy to 88%. In D.C., while vacancies continue to be significant at Broad Run and [inaudible], our single story office flex space, 7435 and 7451 Boston Boulevard at V.A. 95 are now 100% leased; and we have additional leases out that will bring two Discovery to 95% leased. At Building 506 in Carnegie center, we continue to receive contractual rent under a guarantee from Raytheon, so economically that buildingis 100% leased, and in addition we are actually negotiating leases that would bring the physical occupancy to 88%.

Finally as I said last quarter we a anticipate significant reduction in occupancy at 601 Gateway at the end of the year stemming from the lease expiration of our major tenant there, AT&T wireless. Our office lease roll over for '03 currently sits at 4.4% and is 7.5% for ‘04. As we sell assets these numbers will change slightly based on the leasing profile of the buildings sold. In the fourth quarter we released 680,00 square feet of second generation space with a net decrease in rents of 4%. In '02 we leased a total of 2.7 million square feet of second generation space. It is important to emphasize that our results remain consistent with the internal expectations and with the guidance we have previously provided. Regional results are as follows: In Boston, 111,000 square feet. 18% decrease in rents space to space. In San Francisco, 175,000 square feet, a 37% decrease. In Washington, D.C., 183,000 square feet, a 3% decrease. Princeton, 18,000square feet, 21% decrease. New York City, 193,000 square feet, 25% increase.

To add some additional statistical color to the leasing: in Boston we signed 27 leases, the largest was 21,000 square feet and 44% of the square footage involved renewals or expansions. In D.C., we signed 18 leases, renewals or expansions made up 91%. The largest lease was 52,000 square feet of R&D. In San Francisco we signed 35 leases and renewals and expansions made up 73%. The largest lease was 44,000 square feet, a renewal at [inaudible] center. In New York City we did 7 transactions and all but 3600 square feet were expansions from existing tenants.

Our second generation office leasing costs remain low $14.43 per square foot as we continue to complete transactions on an as is basis with minimal tenant improvement concessions. We saw the most significant leasing costs in San Francisco with the majority of the deals involving space that had not been upgraded in ten or more years. While we have seen dramatic declines in space rents, we have tried to minimized up front capital costs wherever possible. We are not buying higher rents at the cost of providing expensive tenants allowances. The average remaining lease for the portfolio as of December 31, 2002 stayed constant at 7.2 years; 50% of the portfolio expires before March of 2010 and 50% after that date. Our average market rents are as follows: CBD Boston, low $40s, unchanged from last quarter. Suburban Boston, mid to low $20s, a slight decline. CBD San Francisco, high $30s, unchanged. Suburban San Francisco, which is made up entirely of Gateway Center, low $20s, unchanged. CBD Washington, low $40s, unchanged. Northern Virginia, high $20s, unchanged. Montgomery County, low $30s, unchanged. Mid Town Manhattan, low to mid $60s, down from the mid $60s. Princeton, New Jersey, low $30s, unchanged.

If we look at the portfolio on a regional basis we have positive mark to market in New York City, flat mark to market in D.C. and Princeton, and negative mark to market in Boston and San Francisco. Since we have very little roll over in New York City in the next year we will continue to experience a roll down in face rents across the portfolio in the short-term. Last quarter we commented that our embedded growth per share negligible at about $0.02 per share. The challenge we have is pegging accurate market rents on the premier space in the portfolio, such as [inaudible] Center or 399 Park Avenue. We don't have the space available today. It's difficult to judge the correct market rental rate. We ran some sensitivities. With the two and a half dollar change in the Manhattan office average rental rate the portfolio embedded growth goes from point three cents per share positive to ten cents per share negative. This translated to 13 cents per square foot positive to minus 43 cents per share negative. Remember, however, that the potential impact on earnings will be different because it will be amongst the difference of between the straight line rate GAAP in the last year of the expiring least, typically less than the last year's lease rate, and the straight line new rent, typically higher than the initial rent after taking into account contractual [inaudible] inherent in the vast majority of our leases.

The numbers I’m quoting are for the first year space rents. Based on fourth quarter results each 1% change in occupancy is worth about $13 million. So at a 93.9% occupancy, incremental revenue potential from our vacancies is about $78 million or $0.62 per share. The FAD calculation in the supplemental compares cash income versus current dividend. Fourth quarter FAD ratio is 63%, and it contains total leasing costs associated with all leases beginning in the fourth quarter and the recurring capital expenses for all properties including the hotels. Our recurring capital expenditures this quarter included the completion of about $1 million added security for turn styles in our New York City assets. Last quarter we talked about 399 park avenue extensively and announced the expected cash NOI yield of 8.2%. In December the city raised real estate taxes 18%, which will impact the tax base year for the Citibank lease and the Lehman Brothers lease. We projected the incremental cost to be about $1 million, thus reducing the cash NOI dividend by about ten basis points to 8.1%. When we reviewed our capital structure last quarter we explained the impact of replacing short-term floating rate debt with long term fixed rate debt. We continue to believe the Boston properties assets, with relatively long lease terms, are best financed with long term fixed rate debt and we intend to maintain the strategy on ongoing basis.

As of January 13, we’ve replaced $925 million of short term debt at an average cost of 3% with $925 million of fixed rate ten year bonds and average cost of $6.29. The economic impact in 2003 for this increase is $30.4 million of incremental interest expense or $0.24 per share. If you review our debt maturity schedules on pages 11 through 14 of the supplemental, you’ll note that we have completely repaid our $1 billion bridge loan. In addition we have renewed the line of credit for three years with a one year extension option and have repaid three construction loans totaling $60 million. With the completion of the sale of 875 Third Avenue in February, we will also repay the loan associated with that asset and have over $200 million of cash available to either repay other debt or invest as other attractive opportunities arise.

As we move into '03 we will continue to look to refinance existing floating rate or maturing debt with long-term fixed rate stability. As we consider '03, given our internal view of less than robust business growth and the lag between the general economic recovery and the increased office leasing, we have extended our roll over assumptions and assumed a modest decrease in the portfolio occupancy and assume no increases over the short-term in rental rates. Because of limited roll over in '03, much of it not occurring until the fourth quarter we see a minimal effect on the in service portfolio. We look for flat same portfolio growth year-to-year and will benefit from a full year of five Times Square and 111 Huntington Avenue being in the portfolio. We anticipate few positive or negative surprises in ’03 other than the always possible but unexpected majors tenant failures. We expect to have straight line rent for approximately $38 million for the year. We expect reduced margin based on the resetting of rents with new base years, higher insurance costs and lower occupancy growth rate. We built into the estimates the ongoing impact of the real estate tax increases in New York City. This will only impact vacant space, leases with post fiscal 2002 tax escalation bases including those discusses at 399 Park Avenue and new leases it could be as much as $3 million in 2003. We expect slightly lower contribution from hotels as we see flat revenues and increasing expenses due to labor contract increases and higher health and benefit costs. We are budgeting hotel NOI at $22.9 million for '03 versus $23.4 we had in 2002. We are estimating a slight G&A increase of $500,000 to $45 million, compared to 2002 net of the Time Square tower lease termination expense. Much of the anticipated increase is for higher director and Officer insurance levels and dramatically higher premiums. An increase in the board of directors fees and an expected increase in the size of our board, higher legal and accounting costs associated with the new requirements of the Sarbanes-Oxley and other legislation, as well as higher health and benefit premiums. Our employee salary expense is budgeted to be down 2003 to 2002. The G&A figure is net of capitalized wages.

At our January 13 board meeting the compensation committee approved the granting of restrictedstock for officer level employees and certain other individuals. The 2003 award has a value of approximately $6.5 million, that's over the last three of the five year period. One fifth of the expense will be taken each year, so that 2003 $45 million G&A expense also includes approximately $1.5 million associated with this new compensation expense. No stock options were awarded in 2002. As you begin to examine our prospects for '03, it's important to note that our year-to-year relative performances will be negatively impacted by some of our verysignificant '02 accomplishments. Of primary importance is our success in making our capital structure more conservative by selling certain property, thereby replacing debt with equity and by replacing short-term floating rate financing with longer fixed rate financing. We have increased, as I said before, our interest expense by $30.4 million or $0.24 per share. And we expect to fix another $300 to $400 million during the year. If we had not refinanced the floating rate debt, our earnings would have increased 2% to 4% year-to-year '02 to '03.

The closing of $433 million of sales in February is built into our estimate. We would anticipate another $125 million of assets sales in the first half of '03, and an average cap rate of 8% and assuming 50% leverage on the assets of 6%, the impact of the additional $125 million of sales will be a reduction of $0.05 per share on an annualized basis. We assumed no additional acquisitions occurring in 2003 at this point. With all this in mind we are reaffirming the guidance we gave last quarter for 2003's funds from operations between $393 and $407.. With that let me turn the call over to Ed.

Let me pick up on a couple of things that Doug talked about. One of the things he mentioned was a decision made by the compensation committee of the board to revise the long-term compensation component of compensation from what had heretofore been a combination of stock options and restricted stock to being solely restricted stock. This grew out of a discussion that the board had when we started to review the accounting treatment of stock options, but quickly got away from discussions of accounting treatment to what I think is much more important; and that is, what is the appropriate way to incentives our senior employees on a going forward basis and make sure that their objectives are aligned as much as possible with stockholder objectives. The compensation committee of the board determined that they felt given the nature of what we do and our industry, that to move to a restricted stock rather than a stock option program was the best way to do that. That's what resulted in the change that Doug just mentioned. I think it is important to point out that they also felt that this restricted stocked should be back end weighted in terms of vesting so that the restricted stock grants that were made have a vested schedule of 25% at the end of the third year, 35% at the end of the fourth year and 40% at the end of the fifth year of the total shares awarded. In other words, no vesting in the first two years.

Secondly, Doug also mentioned that one of the things that we are projecting in our G&A next year is an expansion of our board. I think I may have mentioned that last quarter as well. Given the requirements that have come out of both Sarbanes-Oxley and the New York stock exchange, and the need to make sure that we don't overburden any one or two members of the board in terms of committee assignments and to broaden the exposure that we in management have to different opinions and different outlooks and different experiences, we expect that our board will expand during 2003 by as many as three members and we are well underway in our program to both identify, speak with, and solicit those members. I don't have anything specific to announce. But over the next months and certainly throughout 2003 we will, we are comfortable that we will be both announcing new board members and also that the people who we will be adding to our board will be viewed by the investment community as great additions to the board of directors, which is already, we believe, very strong.

Based on what Doug said about 2003, the natural question that might come up is, well, you know, how is Boston Properties going to grow in the future? I just want to comment on that briefly. First thing I have to repeat, as we said before, is that we do not believe in growth for the sake of growth. We believe in growth, if in fact it improves our earning capacity and the return that we drive on our equity. I also think it important to note that 2003, apart from the differences in earnings per share or FFO per share, which Doug described that, where our earnings growth maybe tempered by the fact that we changed the nature of our balance sheet and the cost of our debt by moving to long-term fixed debt from short-term debt, but I also think it is fair to say thatgiven the nature of the market we will not be actively engaged in new development in 2003. Other than some things I'll mention in a moment. And that we don't expect there to be much expansion, if any. In fact, it could go the other way in terms of the NOI from our portfolio because of the pressure on rent and because office rents will not increase and office demand will not increase until the economy returns to a much more robust position where there will be employment growth.

Having said that, we also understand that we are not in this business for the next quarter or the next two quarters or the next three quarters. We are in this business for a longer period than that. Just as we demonstrated in the late '90s, we positioned ourselves to take advantage of opportunities as they came along, which is why we have no hesitation about pursuing potential development sites. We have no hesitation about continuing to own the development sites that we currently own and have in our portfolio and are delineated in our supplemental, because they will fuel our growth in the future. In addition, we continue to look for acquisition opportunities. Now, the pricing of acquisition, of potential acquisitions is still very expensive. In fact, what is interesting is that since we acquired 399, at what we felt were very favorable terms, new potential acquisitions have come on the market that we looked at very carefully which make our 399 purchase look even better. I mean, given the return that Doug mentioned a moment ago, the kinds of pricing that is being placed on major assets in Boston and New York makes what we think to be one of, if not the premiere asset in New York look very cheap in hindsight. But we continue to look for acquisition possibilities and we believe that some will come along as the, as we go through 2003.

I did mention that we would not be doing development. What I meant by that, we obviously are not going to be doing speculative development. However, we have several build to suit opportunities and Ray Ritchey in a moment will mention those. We are aggressively pursuing those opportunities and also aggressively pursuing development fee opportunities at a time when our development staff is winding down from the very active development program that we've just completed. So I think that we are not concerned about our ability to grow the company in the future, but we are very, we also at the same time feel it is appropriate to be cautious at this particular time in the economic cycle.

Now let me finally turn to Time Square, since as I read some of the early notes put out by analysts, that seems to be on everybody's mind. Last quarter I mentioned that we had, we were in active discussions with several tenants who could commit to space in excess to the space we leased to Arthur Anderson before their unfortunate demise. Unfortunately, all I can do this quarter is to repeat that same message. I had hoped that we would be able to announce some specific leases. But this is a difficult market. Nobody would believe me if I told you it wasn't difficult. It is very competitive. And tenants are taking their time in even moving from preliminary term sheets to signed lease documents. We do not announce deals until we have signed leases. We don't believe that it's appropriate to do so. The deal only becomes real when the lease is signed. We have the same number of tenants with whom we are dealing. We have the same amount of square footage that we are inactive discussion and negotiation about. But, and we are hopeful and in fact confident that one or more of those deals will be made and that, you know, by next quarter I hope not to be in this same position, which I feel uncomfortable about. It is a competitive market. Until the leases are signed, we aren't going to announce them. One thing I will say, you know, there was a story in the paper about Pillsbury Winthrop, the law firm reported to coming to Time Square tower but now going somewhere else. We knew at the time of the last call that that firm was not coming to time square tower. That was not a done deal by any means. In fact, they were pursued by another building and signed a deal that we would have been unwilling to match. But we are dealing with other tenants. We still believe that the asset that we are building in time square will be a very successful asset that will return the same kind of earnings or cash flow net operating income that we expected it to return, but the one thing that I think is certainly the case is that the income from that asset will not come on stream as early as we had hoped it would when we had Arthur Anderson under lease. That's where we are. I'm sorry I can't give you anything more specific. As soon as we have something specific you will hear about it. But our feelings about time square tower remain unchanged. It is going to be a very important and valuable part of the Boston Properties portfolio. With that, let me turn things over to Ray Ritchey, who you know is the person at Boston Properties most responsible for our marketing and new project development activities and I ask Ray today to just run down the markets in the various regions for you and what we have been up to.

Thanks, Ed. In preparing for today's call I was struck by what I view this quarter is being extraordinary and remarkable. In spite of operating in the most challenging real estate environment in a decade, last quarter was one of the most dynamic, most significant ones we have experienced since becoming a public company. Accordingly I want to go region by region highlighting the more significant events in the last three months and then conclude by identifying the challenges we see in each region for the coming year.

Starting in San Francisco which we all view as a traumatized market. We ended 2002 with a novice occupancy rate of 94.2% [inaudible]. As reported by the San Francisco business journal the highest level of occupancy by any of the major landlords. While new demand is still weak and rent is under tremendous pressure we are hopeful the market is stabilizing indicated by the 12 tours we had at D.C. last week. Princeton we again are significantly out performing the market. Our current occupancy level 93.3% is misleading as we mentioned. We received income on 2.5% of that vacancy.. Since Raytheon guaranteed the previous tenants' lease. We have a commitment from a major user for 43,000 square feet, reducing vacancy down to 5%. In Boston, we are fighting a good fight in a market that continues to deteriorate. We executed 27 leases as Doug mentioned in the region. Twenty-one of these leases were new tenants occupying previously vacant space. Region wide vacancy level is 8.2%, half the market average. We are very pleased with the increase deal velocity, we are not happy with the rental rates achieved. Effective rents are down 20% to 30% year-to-year depending on the market. Perhaps the most important transaction in the last three months, was the made company renewal at the Prudential center. Through this renewal process we were able to convert a lease that had locked in losses for the next 30 years to a rental creating significant incremental NOI.

In New York, the most notable event for the last quarter was the close at 399 Park. The advantages of this acquisitionwere well documented on other calls. Critical aspect of this acquisition was our decision to commence an immediate disposition process with several other major assets to maintain appropriate balance between debt and equity for the 399 park transaction. Doug discussed the successful execution of this strategy. With in place occupancy level of 99%, our existing New York City asset base we are as Ed discussed focusing our leasing of time square tower and its delivery in the ‘04 market. We are also pleased to continue in the relationship with the postal service at 90 church street, renovating the building damaged in the 9/11 tragedy. This assignment will involve a major development effort and employ several of our development managers for two to three years.

Finally in Washington we had a truly outstanding quarter. In D.C. we concluded the sale of independence square as Doug mentioned for $345 million, which Doug has detailed before. Our leasing success was highlighted by renewing the private sector lease in Washington with [inaudible] extending its 204,000 square foot lease for a new 12 year term. We maintained our 99% occupancy level in the district and with virtually no 2003 roll, we anticipate little if any erosion in place occupancy. At 901 New York, our new 520,000 square foot office building now under construction for late 04, early ‘05 delivery. 60%of the space is already leased and another 20% is subject to recently executed letter of intent. Looking forward to ‘04 and ‘05 we are pleased with this level of commitment. Several other major office products are coming on line with significant space to be leased. During the last quarter we acquired a site at 20 F street, exercising an attractive price option. This capital hill location makes it a perfect platform for smaller users seeking their own headquarters facility. This 165,000 square foot building will not start construction without a major pre lease commitment. In Suburban Maryland we concluded 2002 with a 103,000 square foot lease renewal in the office park with minimal transaction costs and no erosion in place rent. The Montgomery county market continues to be considered the top suburbansub-markets in the country. In Baltimore we have entered into a contract for the sale of the [inaudible] building], with closing scheduled for late this month. The economics justify this timely disposition of this asset as part of our strategy to focus our attention and dollars on the five core markets. Lastly, in northern Virginia, through aggressive marketing we are now 95% committed in recently completed discovery square project. All recent deals have been targeted at rents significantly lower than those achieved earlier in 2002, overall project economics remain strong. So far we have seen little impact from the well publicized activitiesof home land security, [inaudible] other than the highly secure 250,000 square foot facility for GSA in [inaudible]. Finally we have executed Fee development agreement with Sally May for the development of the new headquarters building in Reston town center. It is a multi million dollar, multi-year contract that will help offset regional overhead as we slow down our development pipeline. In terms of goals for 2003 we are realistic in light of the market challenges we face. At the [inaudible] center in San Francisco, we will continue hand to hand combat with the existing vacancies. We will focus on two large renewals coming in late '03 and early ’04 and will commence the releasing efforts on box space in D.C. west. The Gateway will concentrate on releasing the soon to be vacant space in our existing building. Which will total 210,000 square feet by the end of the year. This effort will be needed to be successful before we tackle the leasing of the new 611 gateway building where there is no meaningful activity. In Princeton we will begin the releasing program for the 70,000 square foot building we know will be coming back to us in '03 and attempting to renew two Carnegie center users whose leases expire in ‘04. In Boston, base in reality and a soft suburban and downtown market will continue to work to reduce the double digits suburban vacancy rate and start the leasing program for two large vacancies we anticipate having in the Prudential center in ’03 and ’04. For the New York existing portfolio is in very good shape and our main focus is on leasing time square tower. In Washington we will attempt to secure a lead tenant for our new 20 F Street site and at least one build to suit user for our suburban site. We have good activity on that front. With Discovery square leased, attention is now focused on remaining space at two freedom square Reston town center; an increase in high levels of occupancy in the existing northern Virginia properties. In all of our regions, we will identify pre-project where we can deploy our existing developing teams to generate incremental NOI. In summary, while we will be the first to acknowledge the fundamental issues that face all of our regional offices, following occupancy levels of rental rates, little hope for new demand generators and increasing concessions associated with every transaction. We are proud of the achievements our regional managers and leasing teams have realized in the last quarter. We aware of the harsh realities facing us in the coming year we are cautiously optimistic that the corporate of best markets, best assets and highly focused highly skilled regional management teams will continue to differentiate our performance. Thanks, Ed.

Roy, would you like to add anything? Mortimer, are you there? Hello? Okay. Operator?

Can you hear me?

Now we can.

Sorry, I was here. I was pressing the wrong buttons, obviously. Let me spend a couple of minutes just taking sort of an overall strategic view. I think most of the facts that you have heard from my colleagues essentially color in the nature of the market. But from a corporate point of view, I think it is very important to emphasize several things. One is we were able to sell several of our assets at prices that I think were reflective not of the normal cap rates associated with them when people try to calculate our net asset values, but at much more attractive cap rates. These cap rates really do reflect, it seems to me, what we have been talking about, namely the quality of the assets we have, vis-à-vis the overall average market. The quality of these assets has been repeated over and over again but cannot bear repetitious too many times, or enough times, however. Really makes a huge difference. Again, just to look at San Francisco, if you were to compare our vacancy factor or occupancy factor there compared to the rest of the market, our vacancy is about one-third of the average market. In fact, our national vacancy is probably less than one-third of the national market. While the overall market is weak and we are certainly experiencing the impact of that, it does go to underscore both in terms of the occupancy of our facilities and the values that people attribute to them when we put them on the market for sale the basic underlying merit of the strategy we have followed, which is to concentrate as Ray Ritchey puts it well, the best value in the best markets. The value in our assets is not something that will go away. We certainly know this from the experience we have in the marketplace. The comparison that we know we can make between our assets and the leasing in those assets, compared to the other assets that come on the market.

Now, we, I think, accomplished something very important this year. And we are on the way to finishing it off. That is, we took again, I think, the approach that what we ought to do is to take the risk of short-term fluctuations and interest rates out. We were in a position to go to the market with our first public debt offerings. We raised now $925 million, which was considerably more than we originally expected in the first offering. We went out at $500 million. We had $750 million then a group of investors came back to us again and asked if we would increase it. We did, by another $175 million. It does speak, it seems to me, to two things. One is the fact that we once again have what we believe to be a more conservative financial structure by in effect going long and not taking the risks on short-term rates. Secondly that the marketplace looks at us and sees the value of our assets, the qualitative levels of our cash flow. And the quantitative levels of our cash flows. We were able to do something that I think we made this as a public commitment, almost. Certainly to the rating agencies. When we bought 399 park, something again we were able to do I think uniquely, which was to put this transaction together in a matter of six or seven business days and to close it within a couple of weeks. I think we were also able to translate the benefits that potentially were available through the like kind exchange by making several sales, three of which have already been done. We expect -- four, actually. But we expect to possibly do another one. And again, this is just going to strengthen the financial side of the balance sheet. We will in effect do well in this poor market, A on the financing side and B, on the translation of some of our assets into the marketplace through their sale, which produces, of course, a lot of cash into the company or cash equity into the company. It really does position us to do a lot of things and to take advantage of whatever opportunities might become available. We are going to continue to look at acquisitions. We are going to continue to look at special situations where we think our unique combination of skills in acquisition and skills in development will continue to provide us with a relatively superior performance. We don't have any illusions about what the year 2003 will look like, although you never know how this thing is going to work out. There are a lot of uncertainties. Of course, it is not the overall economy alone we look at, but the business economy. The business economy is perhaps one of the weaker sides as at least it is translated in terms of demands for office space. Financial services being a particular area, as all of you know, where there has been a considerable weakness in the fundamentals of that sector of the economy that translated itself into reduction of their growth or indeed even a contraction of the real estate requirements. This is not a long-term situation in our judgment. This will turn around and we are going to be uniquely positioned to participate in that as we go forward, particularly because we have translated our financial side of our activities in the form of long-term financing and in the form of asset sales that reflect the values that we have built up and the profitability of the assets that we have acquired or developed quite remarkably. So I think we are in what is clearly the downward cycle of the real estate business. Those downward cycles, it has now gone on for about two years. There's not, it does not go on forever. The trees do not grow to the sky. The roots do not grow to the other side of the earth. We are coming to a point appeared we are coming much closer to it now where there will be a turn around in the markets and we will be uniquely in a position to participate in them in the form of higher occupancy, higher rate and with fire power in terms of liquidity and the nature of our financial structure that will give us the opportunity to take advantage of these opportunities. We are pleased with what happened at 399 park and I believe that we are very pleased with what followed on that purchase, which were the asset sales and the financing on a ten-year basis. We are going back into the markets to do additional long-term financing and just put our financial condition in perfect shape to do whatever opportunities, to take advantage of whatever opportunities are there. We are going to be in a position to do that. In this sense we not only had obviously an excellent year in terms of growth going from I think $356 to $409, but we are in a much stronger financial shape as we go forward and we think this will make a big difference as we go forward. That's basically all I have to say.

We are available for questions.

At this time I would like to remind everyone in order to ask a question, please press star, then the number one on your telephone key pad. We will pause for just a moment to compile the Q and A roster. First question comes from Greg Whyte with Morgan Stanley.

A couple of questions. There was sort of a lack of any buy backs during the quarter. One might understand that because of your sort of rating agency activity as well as the issuance. Can you talk a little bit about how you may look at buy backs right now, given where the stock is?

Yeah, I think this is something that we have talked about. We have a program, as you know, an approved program to buy back some of our stock. We do think that as I tried to indicate to you before in terms of net asset value and the ability to put money to work that that is one of our options. The basic philosophy has been not so much to buy back shares as to see if there are assets we could buy or develop where we could really demonstrate the continued growth of the company. But we are certainly in this kind of an environment in a position to consider the buy back of shares. We do have that program and we will be prepared to follow up on that program. You pointed out we had certain objectives vis-à-vis the rating agencies and what we wanted to doto bring our balance sheet to a leverage neutral position after acquiring 399 park, but that now has been resolved and we are in a position to take advantage of a lot of options as we go forward, including the one that you just inferred by your question.

Okay. Then the question for maybe even Ray or Doug. When we look at the per square footage cost for [inaudible] and leasing commissions on retail in the space in the fourth quarter, it was actually down sequentially of over third quarter despite the increase on the year-over-year basis. Can you talk about the sequential pattern here? Should we read anything into that in terms of sort of indicating a troughing of sort of fundamental weakness? Was it just an aberration because of the space?

I think Doug you can comment more, but the vast majority of that came from the DA 95 renewals, I think.

No, it's the office side. The way the statistics work, Greg, is that it's based upon the leases that go into service as of the end of the quarter. And you know, as I think I explained, it's the majority of our leasing was done through renewals and expansions. Much of that space was done on an as is basis. So we really didn't have the obligation to put additional TI’s into space. As I said, San Francisco was the one area where it was slightly higher. I think our San Francisco numbers were approximately $25 per square foot. That's largely due to the fact that we had significant older space that we had to basically rebuild that this ten year improvements.

I think you are looking for trends. I don't think we can give you trends unfortunately. Each deal, you know, is evaluated on its own. One thing I can say is that you know, tenants now are actually looking not to increase their operating expenses. And one way that they can do that is basically by figuring out how they can stay in space without having to spend a lot of capital because even if we spend that capital for them, that gets translated into increased rent. So you know, the normal pressure that you might be finding for people going out and saying hey, these landlords really want to lease the space, we'll ask them for lots of money in TIs, free rents, et cetera. It's not occurring maybe to the degree it occurred in previous cycles. You have to really look at it deal by deal, market by market.

That was clearly the case with the shop renewal at 2300 N.

Ray, can you give us more color on the DC market. We are hearing anecdotal stuff that like the demand from lawyers has diminished, without the tech sector, there's not as much add on sector. Are you sensing that? Right in downtown D.C.?

What we are seeing is the two tier market because of the various entry. The demand for larger box space, which in our market is150,000 square feet is very strong market. We have people talking to us ‘06, ‘07, ’08 for major blocks of space. The bread and butter, the 20,000 square feet and below, the demand is non existence that's correct. A lot of buildings have been built and completed are getting over the 80%, 90% lease level because they rely on the smaller deals to get there. The other factor in D.C. is the inverse to the demand for on the investment side is people are building spec and I think D.C. is the only market in the country where we are seeing spec development in anticipation of getting the 7.5%, 8% cap rate when complete. They are going forward with project that heretofore would not be started on the basic pure market fundamentals.

You are saying this is a market that we could see some weakness or declines in over the next 12 to 18 months?

I don't think anything like we experienced in Boston and San Francisco and New York, because we don't have the big give backs. The government sector is filling the gap. But I don't think there's a rate explosion. It's more a flatness in the market.

Next question comes from Larry Raymond with C S F B.

Given the up coming pipeline and slow down in new project starts beyond the ones that you keyed up, could you give us an indication on capitalized interest, Expenses? That would be embedded in your income statement?

It's in the supplemental. Obviously it will fluctuate based upon what our Development activities are. I believe that the most significant is time square tower.

Right.

As we have a larger balance outstanding we will have a larger capitalized interest expense on that. That loan goes up to, I believe, $480 million. You know, for, it gets to the end of the day. But obviously a lot of that is tenant improvement related. You can probably pull off probably, you know, $70 million or $80 million. If you take what the balance is today and take that much less through the first or second quarter of ‘04 on an average basis that will give you a pretty good indication.

Okay, will do.

Your next can he comes from Stuart Axelrod with Lehman Brothers.

Couple questions. The differential between the GAAP and the cash same store NOI, is that all related to the reduction in straight line rent?

It is a majority of it is that. Hello? The majority of it is.

Okay. What percentage of the portfolio is available for sublease, let's say, versus six months ago?

I don't think there has been much of a change over the last six months, frankly. And I just, people are trying to scramble to put our finger on the number, but I don't think we have it immediately available to us.

We tried to put that number together, Stuart, in the past. And the challenge is that a lot of our tenants are not directly putting their space on the market, but if in fact somebody were to say, gees, could you give up a floor? The answer probably is, you know, tell us when you want it and how much you are prepared to pay for it. To have us do that. I think if we look across the portfolio and ray, you can comment on this. I believe we sort of view internally that somewhere between 5% and 10% our space is quietly on the sublet market. There's probably 2% or 3% that is physically on the sublet market. The majority of that space is space that I think we previously identified there's a couple of floors in the Prudential center in Boston. And there's a few floors that Lehman Brothers, I believe, is giving back – not giving back, but on the market. In New York City, 399,although I'm told that there are actually deals on a couple of those floors.

Five to ten is on the high side. We are seeing positive trends. We have several users in the [inaudible] corridor who rely on defense spending now taking space off the sublet market because they have new contracts and they are putting people in the space under sublet that was utilized before.

In terms of refinancing five time square and 111 Huntington, what are the time lines for this year.

We have a lot of caps from the sale of assets. We will use part of those proceeds to pay down or pay off one of those loans. The other loan will probably refinance with some kind of unsecured financing sometime in calendar year 2003.

Okay. Lastly, Ed, you talked about the same interest in square footage in terms of tenants for times square tower. Yet you brought down the market rents herein New York and the press is speculating high $50s.

The numbers we are talking about with the tenants in time square, they are different than what we have been talking about all along. So that's not a place where – I think we were carrying, basically what we were doing is carrying the numbers that we had done the deal with Anderson on with slight modification. I think that's still where we believe the space will be.

Just remember, Stuart, there's an advantage that people don't seem to like to write about when they are writing the articles. The tax base at times square tower is about five bucks a square foot, maybe five and a half. When you work through the formula in calendar year 2004. That's as opposed to expenses, you know, in excess of $13 or $14 a square foot for an existing building and probably $16 per square foot in mid town Manhattan. When you increase numbers on top of that, you can have a significant increase over a 20 year lease term. There's an advantage for the tenant of leasing space in time square in our buildings that they don't have in any other building in the city.

Great, thanks.

Your next question comes from Raul Vitatachi from Merrill Lynch.

In the space, in the broader context of capacity utilization. Can you provide detail by market in terms of what you think capacity utilization is by tenants in your four major markets?

We really can't. You know, I can throw out numbers, but they would be pure speculation. But I will point out one thing, though, when people run about the shadow vacancy, which is that there is, shadow vacancy exists in good markets as well as in bad markets. In fact, in some instances, in good markets it's greater than in bad markets. In good markets people are always thinking, I'm going to expand. I will take more space now. I'll make commitments in advance of need. In fact, that is of course what happened in the late '90s, early 2000. So it would be such a speculation. I don't think we ought to throw out a number. I don't have any confidence in the accuracy of the number that we might throw out.

Then a question for you, Doug. With regard to the results you have taken for prospective tenant revenues, can you talk about three tenants, Barametric, Orbital Sciences and Digitech and look at the stock prices, the stock prices suggest things aren't going swimmingly for any of them.

Yes. I mean, those are tenants that we considered in our calculation of what our pre-rent balances. I won't give you what the reserve is. Just on the straight line run asset. It's not on the rent. If they are continuing to pay, we don't have a receivable to write off. But those three are included in there.

Thank you.

Your next question comes from Anatole Pevnev with McDonald investments.

I have a basic question for you. Looking at the recoveries in the current supplemental comparing them to previous supplemental, there's a $6 million per quarter increase on the historic numbers. How is that done?

I believe that's the incremental addition of 399 park avenue.

If we look back at say first quarter of '02, previously you reported $27 million in the new numbers it's coming in at $33. That's still going back to the park avenue property?

Unfortunately there have been so many other sales and additions, you know, we in the first quarter didn't have time square tower, five times square in service. We had a portion of 111 in service. We no longer have one and two independence square in the portfolio. It's the vague ryes associated with the changes in the portfolio. That's why I think it's better to look at the merges as opposed to the recovery. If you base question is is there anything happening there? I think the answer is no. That's why the margin is pretty well constant.

All right, thanks.

Your next question comes from Chris Brown with Banc of America securities.

Good morning. Two quick questions. First is update us, if you could, on the terrorism insurance. I know you guys had $250 million in coverage before. Is that still the coverage? What do you see with respect to the new legislation?

That's still the coverage. What we are seeing with respect to the new legislation is still continued great uncertainty in, among the insurance companies as to how they are going to price and react to the new legislation. Unfortunately, we just -- they have not been able to get their act together to the extent that we can give you any great prediction. For the time being, our existing terrorism insurance remains in place. You know, when I say that about the insurance companies and it has been interesting because we have seen quotes changing day-to-day to day, depending on what company is coming in. And there is unfortunately not a lot of consistency yet. We are having to wait and see.

As you know, technically we actually have full coverage on the portfolio because of the change in the legislation from the U.S. government. Our policy renewal date is March 1. And we will really have a better sense of what is happening with pricing and how much insurance we are going to be able to get through the, you know, through the sort of standard policy and how much we have to buy outside of that based upon how those quotes look. Unfortunately we are 45 days away from that. And it probably will be not until the last ten days will we see serious pricing from the various providers we have. I say next quarter we will have good information on that.

Great. The second one is now that you did the add on $175 million debt issuance, what are your expectations for '03 in the unsecured markets? I know you touched on it.

We were fully prepared to go into sometime in the second or third quarter and raise, you know, another $500 plus million dollars. Before we did this other $175 million issuance. So obviously, that has been put to bed. I think the timing probably is a little bit more flexible from our perspective. We will, you know, gauge what the receptivity is from the credit perspective as well as from interest rate perspective on the benchmark and act accordingly. We will do something to that degree.

Fair. Excellent disclosure, we appreciate it on the debt side.

Thank you.

Your next question comes from Jon Litt with Solomon Smith Barney.

On the AT&T lease in San Francisco, is that the late fourth quarter lease in the supplemental or one of the earlier leases issues.

It's November of 2003.

Could you give us an idea of where the rent is there, I think you said lower $20s you're seeing in that market for what little leasing is still going on.

I believe the contractual least is $30 bucks and there's escalation. They are paying somewhere between $34 and $35 right now.

Okay. In terms of your guidance, you and ray have discussed sort of some of the fee development or build to suit opportunities coming down. How much of that B activity are you guys putting into the guidance for this year?

It's pretty consistent with what it was last year. I don't think we have ever disclosed an exact number, but it is generally somewhere in the, you know, $12 to $14 million range.

Okay. As we head into, starting to look more at the ‘04 numbers, is that something you expect to be ramping up or do you expect it to --

I say actually it will be pretty consistent through ‘04. The question is what it will look like in ‘05. Most of the projects we are doing now are multi-year projects. Once we make the commitment, we obviously have to provide services and we stack that.

Okay. Just finally, you mentioned WorldCom sort of exposure of $3.5million. Could you refresh my memory so where that is?

It's 128 in reservoir place. We actually have more than $3.5 revenue from WorldCom, but I said that was a net number. The other exposure was for, we have actually their major switching operation in Boston at the Prudential center. It is unlikely, we assume they will get rid of that.

Are you assuming rejection of the $3.5 million number?

Yes.

Great. I appreciate it. Thanks.

Your next question comes from Lou Taylor of Deutsche Banc.

It's [inaudible]. I work with Lou. I have a quick question on your ‘04 expectations. I will go through when they occur, whether there are any large blocks of space. If there has been any progress to date.

It's in the supplemental, actually. We break it out by quarter. You can see by region where they are occurring. I think we do that for '03 and ‘04. It's probably use of your time to look at that and call us back. We are actively working on all of our 2004 expirations as we speak. There are major expirations in Boston at the Prudential Tower at 101 Huntington Avenue and in [inaudible] in EC west in the old Federal Reserve. I don't believe there are any in New York City, 80,000 to 150,000 in the Princeton market in late '03, early ‘04, with a couple of the buildings. You will be able to see that through the supplemental.

Has there been any progress with the leasing?

Ray, you want to comment on that?

We are making some good progress on a couple of deals in San Francisco. And the situation in Boston I think we are making very good progress there as well. Across the board, as Ed said, with we are seeing tenants expressing the same reluctance about capital expenditures that we are. They want to stay in space that works for them. We are in great buildings, fortunately, where people tend to stay.

Great, thanks.

Once again I would like to remind everyone, in order to ask a question, press star then the number one on your telephone key pad. Next question comes from Jim Sullivan with green street advisors.

Guys, a question on CAPEX. We are hearing anecdotal evidence of T I packages in Boston, New York, San Francisco of $30, $40, $50 bucks a foot on long-term leases. What is your outlook for '03 with respect to what your CAPEX per square foot might be? If you deal with some of those you spaces that if you have through hand to hand combat, to use ray's term, could we see that number spike?

that would be the good news, Jim, because the number will spike in relationship to making a lot of new deals and we will get -- we are not going to give the space away. We will get rewarded for putting in those TIs. Frankly, I don't think it will spike. I don't think in '03 there will be a lot of new deals in existing buildings where tenants come in and don't want to basically keep their budgets down as much as possible by reusing space. Of course, to the extent that there are renewals, you save that money. So I don't think that there is going to be a spike. But as I said before, you know, it's very deal driven. You know, if you have 150,000 square foot tenants, and in order to get that tenant and you have to give a high allowance, that can throw the number way off.

Those anecdotal numbers, I think, are probably consistent with where things are in good times as well as bad. For Boston, for a downtown asset giving $30 on a ten year lease or New York City giving $35 on a ten year lease for a new tenant, I think in 1999 that, we would have thought that was a reasonable allowance and we certainly think that would be no different today. If you said $70, I would be more nervous.

What about free rent? To what extent are your competitors eating free rent in Boston and San Francisco? What sort of free rent do you have for your numbers for '03?

I think our competitors are using them -- ray, you can comment as well. But the competitors are using them, frankly, to pull tenants out of existing space because they are saying, well, we realize you have a lease obligation in [inaudible] center for the next two years. We'll gave you -- if you move into our building, we'll give you free rent until the end of your current term. It is used against us on competitive terms, for sure. But I don't think we are having to give that, you know, -- we don't have to recognize that because it's not a cost that the tenant actually saves. It's covering a cost that he already has.

We are seeing that both in San Francisco, we are competing against existing newly completed buildings where they have not matched up the availability with expirations in ‘04and ‘05. We are seeing a little bit of that in D.C. as well.

Okay, thanks.

At this time there are no further questions. Are there any closing remarks?

No, I don't think so. I think we covered everything. I would just repeat that, you know, we think that 2002 both on an absolute and relative basis was a very good year for Boston Properties. We realize we are in a very difficult economic environment. We think we are extremely well positioned to weather that environment in good shape. We appreciate all of your support and your attention. Thank you for joining us. Do you have anything to add?

I don't. I think you really described it, I think. I think we have done our best to demonstrate the validity of our strategy and management group. It certainly showed up in 2002. I think it will show up in 2003. Not always in ways we can predict as we start off the year. There are always things that come up that we seem to be able to take advantage of. We did it in 2001. We did it in 2002. We expect it will come up in 2003. That will be incremental to whatever it is we already talked about.

Thanks, everybody.

Thank you for participating in the Boston Properties conference call. You may now disconnect.