波士頓物產 (BXP) 2006 Q1 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Boston Properties first-quarter 2006 conference call. At this time, all participants are in a listen-only mode. Following today's presentation, instructions will be given for the question-and-answer session. (OPERATOR INSTRUCTIONS). As a reminder, this conference is being recorded today, Wednesday, April 26, 2006. I would now like to turn the call over to Kathleen DiChiara. Please go ahead, ma'am.

Good morning, everyone, and welcome to Boston Properties' first-quarter 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 the Company's website at www.BostonProperties.com. Following this live call, an audio webcast will be available for 12 months on the website in the Investor Relations section under the heading "Events and Webcasts." To be added to our quarterly distribution list, please contact the Investor Relations Department at 617-236-3322.

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

With us today I would like to introduce Mort Zuckerman, Chairman of the Board; Ed Linde, President and Chief Executive Officer; Doug Linde, Executive Vice President and Chief Financial Officer; and during the question-and-answer portion of the call today, Ray Ritchey, Mitch Norville, and our regional management team will also be available.

And with that, I'd like to turn the call over to Doug for his formal remarks.

Thank you, Kathleen. Good morning, everyone, and thanks for joining us for our first-quarter 2006 conference call. Highlighting the quarter was Boston Properties' addition to the S&P 500 index. And as a management team, we take great pride in being included in the index and we recognize that the efforts and support of all of our employees and our business partners, including our lenders and our investors, shareholders, have contributed to getting us to where we are today. And we just want to say thank you.

A review of our press release and a supplemental reporting package revealed that we had another solid operating quarter with funds from operations of $1.03 per share, $0.02 above FirstCall estimates and about $0.03 above our own internal estimates. There's really no single explanation for the overperformance this quarter that I can point to. Rather, I'm going to give you sort of a smattering of items that occurred during the quarter without sort of putting any dollar value to them. And to the extent anybody has an interest or a question about any one of these items, we're more than happy to answer that during our question-and-answer.

It was a combination of items that included the timing of some third-party fee income; increases in our percentage rank for our retail space -- given that final, audited sales come in March of the year, we can't true-up until the first quarter; improvements in the credit standings of some of our tenants, and therefore a corresponding reduction in our accrued rent reserve, and that is a non-cash item. We had less-than-anticipated operating expenses in the quarter, really due mostly to lower energy consumption, given that it was a very mild winter in the Northeast. We pushed off some repair and maintenance items so they moved from the first quarter to other quarters. And our floating rate interest expense was also slightly lower than we expected.

Those were sort of the positive items for the quarter. And on the downside, we paid off a loan for Seven Cambridge Center. And we had to take a hit for the amortization of some financing costs. And our hotels really didn't meet our expectations for the quarter. We think they were slightly underperforming on a general basis, but it was magnified due to the fact that we were doing a rooms renovation in Cambridge, and the rooms renovation was delayed, and so we had less rooms and service during the first quarter than we had anticipated.

We continue to experience very strong rental growth in New York City, in San Francisco, in Washington, D.C., and the Boston suburbs. And this quarter, we can comfortably state that the Boston CBD and South San Francisco, our peninsula property in the San Francisco region, should be characterized as very improving markets.

Our portfolio marked-to-market has increased from a positive $0.39 last quarter to just under $1 this quarter. That's a 3.7% quarter-to-quarter increase, or 14.8% on an annualized basis, for our portfolio market rent. We still have rolldowns in Boston and San Francisco in the short term, but it continues to get smaller and smaller.

Average expiring rents in '06, excluding our retail properties, are just under $37 a square foot. The portfolio rolldown assuming we released all of our vacating space at market, would just the just under 5% for '06 and '07. 70% of the 2006 remaining rollover is in Boston and in San Francisco. And really, it's in the Boston suburbs.

In Boston, the suburban rents on average that are expiring are about $32 a square foot, and the market rent is about $28 a square foot on that space. In San Francisco, the expiring rent is about $53 a square foot, and we have a market rent of about $49 a square foot. Again, you can see that we're getting pretty close to an equilibrium point on our rolldowns in Boston and San Francisco.

This quarter, our second-generation statistics cover just 325,000 square feet -- and again, these are trailing numbers. Included are more than 150,000 square feet of leases that were signed in early 2005 in San Francisco and in Boston. On a net basis, there was a decline of about 15%, and on a gross basis, a decline of about 8%. But again, those are really trailing figures.

First-quarter lease executions were pretty light this quarter, totaling just over 700,000 square feet in 70 new leases and/or amendments. The quarterly activity was led by D.C. with 281,000 square feet, followed by San Francisco with 152,000; Boston was 134; New York was 96; and Princeton, with 51,000 square feet.

You shouldn't read too much into those statistics from a volume perspective, because I can report that in the first three weeks of April, we signed an additional 300,000 square foot of leases. So timing really is everything when you're looking at these stats.

Our total in-service portfolio occupancy was 94.3% as of the end of the quarter. And that includes Seven Cambridge Center, which came online 100% leased in the portfolio. If you eliminate the asset, which is probably the right way to look at the sequential occupancy gain, we went from 93.8 to 94.2. So there really wasn't much change. And our average remaining leases continues to be pretty long at 7.7 years.

Our second-generation office leasing costs were again statistically high at almost $39 a square foot during the first quarter. These transactions included in the stats comprised almost entirely new tenants -- 97% of the deals that were in the stats this quarter were new tenants coming into our portfolio, and 30% of it involved vacant space. Just last week we signed a 235,000 square foot renewal with no tenant improvements. So if you push that 235,000 square feet into the statistics that were reported in our supplemental, the cost this quarter would have been about $27.70, more in line with our typical expectations. Again, timing is everything.

Many of our transactions this quarter are in San Francisco and Boston, where we are replacing tenants. And we are spending somewhere close to $50 a square foot on tenant improvements for new 10- to 15-year leases on those CBD properties. Based on leases we're currently negotiating, we still expect average transaction costs across the portfolio to be in the high 20s for the year 2006.

Our dividend FAD payout ratio for this first quarter was just under 88%. This includes $4 million for the Cambridge Center Marriott rooms renovation that I mentioned, which is a $6.7 million project, so the rest of that money we expect to hit in the second quarter. Excluding the hotels, we expect capital expenditures for the portfolio to run somewhere between $0.75 and $1 for the year.

The operating fundamentals in our markets, exemplified by continued rental rate growth and accelerating leasing activity, are stronger than our trailing quarterly statistics might indicate. The transactions behind our quarterly numbers are highly dependent on the actual timing of when the leases were negotiated and the specific lease commencement dates. Likewise, our same-store results and the short-term overall portfolio net operating income growth that we have are not going to get the immediate benefit from current market conditions, simply because we have modest turnover within the portfolio and the timing of future rent commencements on negotiated leases don't occur in 2006. This being the case, I do want to spend a minute talking about some real-time reference points from our current leasing activity to give you some color and perspective on the trends our regional teams are seeing.

Let's start in New York City. We have signed our first $100 square foot rents at both 399 Park Avenue and the Citigroup Center for space towards the top of those buildings. More interestingly you might find, over the past 18 months we have signed three separate single-floor deals within a block of four floors in the high rise of Citigroup Center. The first floor was done in 2004 in the fall, and it had a starting rent of $59 a square foot. In October of last year, we signed a floor adjacent to it at $75 a square foot. And we are finalizing the lease now with a starting rent of $81 a square foot. In addition, we're offering less free rent and modestly lower tenant improvement contributions.

In Washington, D.C., we're making proposals for the remaining space at our new development at 505 9th Street at rents approaching $60 gross. That is for delivery in 2008. In Reston Town Center, rents have moved up above $40 for the first time since the year 2000. And this has prompted commencing construction on a new building in Town Center.

In the Waltham suburb of Boston, we purchased Prospect Place at the end of 2005, as we reported last quarter. Just after closing, we terminated negotiations by the former landlord for a plug-and-play lease they were going to do in the mid-20s. We have now signed leases with starting rents in the low 30s for similar space in the building.

In the Boston CBD, the Prudential Center, we are negotiating a letter of intent for some of our recently vacated midrise space in the mid-40s. You may recall that when we chose to let the former tenant out of this lease and they expired in November, we turned down a ten-year deal with an average rent of about $33 a square foot for the same space in the mid block of that building. Tenants in the low rise of 111 Huntington Avenue have recently expanded with rents moving into the [mid] to the low 50s.

In San Francisco, we continued to sign deals in the 60s for space in the upper floors at Embarcadero Center, with $70 deals in the making. We have come to terms with a number of large existing tenants relocating to new premises within Embarcadero Center, and currently have in excess of 200,000 square feet of leases under negotiation. Tour velocity has increased to the levels of 1998 at Embarcadero Center. We are not in the throes of the 2000 [area], but we're pretty darn close. And dramatic increases in tour activity in South San Francisco have allowed us to increase asking rents by 10% over the last quarter.

During the first quarter, the hotels continued to show good topline improvement. RevPAR was up at 4.3% for the quarter, but it was actually less than we had expected. And the bottom line was negatively impacted by that longer-than-anticipated construction time for the rooms renovation in Cambridge. If you exclude the hotels, same-store NOI was up 1.8% on a GAAP basis and 6.1% on a cash basis. The 6.1 I think overstates what's going on because of the burn-off of free rent at Times Square Tower from a year ago. So the sequential numbers are skewed. With relatively little rollover and rent commencements deferred until 2007 for much of our currently vacant space, we don't expect more than modest sequential increases in the portfolio NOI during 2006.

As we reported in our press release, we're pleased to say that we have signed a contract to sell 280 Park Avenue for $1.2 billion or $1,018 per square foot. The transaction is anticipated to close during the second quarter of '06. As part of the transaction, we have agreed to master lease 74,000 square feet to backstop 2006 and 2007 lease expirations. We believe we will cover almost all of those in the next six to 12 months. And we have agreed to provide some revenue support through 2008.

We purchased 280 Park Avenue for $321 million in late 1997. We expect that the net transaction costs, including defeasing the existing debt, transfer taxes, customary closing conditions, and the aforementioned leasing and revenue support will total about $350 million in total. So the transaction is going to produce a taxable gain of approximately $750 million, and a book gain of approximately $742 million. Just given the nature of the master lease, a portion of that gain, about $68 million of it, is probably going to be deferred until 2007 and beyond until the space that we are master leasing rolls over, and it's re-leased at agreed-upon rents.

It would be premature to declare our intended use of proceeds from the sale, since the topic is going to be discussed by our Board over the coming months. While we have made no decisions regarding our use of the proceeds, we would expect once the transaction is completed to distribute the taxable gain as a special dividend. This could change if we identify an alternate use of the proceeds that would allow for a tax deferral.

Ignoring the proceeds from the sale for a minute, the funds from operation for the Company will be reduced by $0.15 per share on an annual basis due to the loss of income and the corresponding reduction in interest expense associated with 280 Park Avenue. So that is the net dilution that we will see once the property leaves the portfolio. As part of the transaction, we will continue to manage and lease the assets for the new owner, and we'll have a stream of revenue from those fees.

Our press release also outlines the convertible debt transaction we completed in conjunction with our inclusion into the S&P 500 at the end of March. We issued $400 million of seven-year notes with a 3.75% coupon and a cash conversion premium of about $112 per share. The interpolated seven-year treasury was about 4.8% at the time of the deal.

Reviewing our near-term debt maturities, we have approximately $250 million of freely prepayable mortgages between August and October. In the meantime, we expect to earn in excess of 4.75%, investing the proceeds in investment-grade liquid short-term investments versus our 3.75% interest expense. We hope to deploy the remaining capital in our development program, which continues to grow each quarter, and we will talk about that more later on the call.

As you review our debt maturities, keep in mind that we have $500 million of future long-term financing hedged at an average ten-year treasury of 4.34%. Our current floating-rate debt is at an average rate of LIBOR plus 55, which is just over 5.6% today. With LIBOR expected to rise during the remainder of 2006, we actually expect our 2007 interest expense will decline as a result of our hedging program.

We have closed on two land purchases this quarter. In Waltham, adjacent to the Prospect Place building we acquired in the end of the year and our neighboring 200,000 square foot development site, we purchased an 8.8 acre piece of land that we will be entitling this spring and summer. And in Manhattan, we're 50/50 partners in a joint venture that has purchased its first parcel in an assemblage that we've been working on for quite some time. This office or residential project is likely to be somewhere between 600,000 and 1 million square feet.

And in Reston, we have commenced construction on a 400,000 square foot mixed office and retail development. 377,000 square feet of that space will be office. We have signed our first lease in Reston, and our asking rents are in the low 40s for the office space, and our retail rents are in the low 50s.

As we outlined in our press release, we have increased the low end of our guidance and narrowed it to $4.15 to $4.29 per share. The second quarter is estimated to be between $1.02 and $1.04 per share. These numbers do not include the impact of the pending sale of 280 Park Avenue. Following the completion of the sale, we will at the appropriate time provide you with the use of proceeds dependent upon the conditions and opportunities at that time and an updated earnings forecasts. The actual use of the proceeds and the timing could have a material impact on our guidance going forward.

When you look at the guidance number, as we said last quarter, on the one hand we have covered much of our current vacancy and our 2006 rollover, while on the other hand, the transactions involving much of that space will not provide significant revenue contribution in 2006. As of today, we have identified almost 700,000 square feet, 2.25% of the portfolio, of either currently vacant or 2006 rollover that are subject to either signed leases or lease negotiations where the anticipated lease just doesn't commence until 2007. The forgone rent from this forecasted downtime is in excess of $14 million in 2006. So while the stage is set for strong revenue growth in '07, the impact from our same-store portfolio occupancy gains in '06 is just going to be pretty modest.

Included in our guidance is an assumption that straight-line rents will be approximately 40 to $45 million. In addition, we're budgeting termination income of about $1 million per quarter. We expect the hotels to contribute between 19.5 and $20.5 million to NOI, which is adjusted down due to the first-quarter performance.

Many of our current developments will be coming online in 2006. Seven Cambridge Center came online in the middle of January; Capital Gallery opened the 1st of April, and it will be 83% leased by November 1; and 12290 Sunrise Valley, which is our building that was done for Lockheed Martin, will be fully placed in service during the month of April. We expect a full annual run rate for those assets starting in February of 2007.

For modeling purposes, we would assume an unleveraged GAAP NOI yield of between 11 and 12%, as well as the cessation of that corresponding interest expense. Given these yields, you can tell why the ability of Boston Properties' team to find and execute development projects is such an important corporate asset.

Interest expense for '06 after adjusting for the repayment of the debt paid off during the beginning of the year and during 2006, the expected repayment of debt with the proceeds from the convertible debt issuance, increases in LIBOR costs, and increases from placing the new developments in service will be between 308 and $310 million for the year.

Our interest income is now expected to be between 8 and $10 million for '06, a significant increase from our own protection last quarter given the additional cash balances we're carrying -- again, none of those numbers assume any proceeds from sale of 280 Park Avenue.

Our G&A expense is anticipated to be about $60 million for '06. And our third-party management and development fee income will run between 13 and $15 million.

And with that, I'm going to go include my formal remarks and hand the call over to Mort, who I believe has a some additional comments on our sale transaction. Mort?

Thanks, Doug. Well, as Doug outlined and has been rooted about in the press, we did sign an agreement to sell 280 Park for $1.2 billion, which is over $1,000 a foot. We are pleased to have completed that transaction. Originally, that transaction was paired with the same [buyer] along with Five Times Square. And we had arrived at basic terms of the sale when issues arose surrounding the auditor independence. Ernst & Young is virtually the sole office tenant at Five Times Square. They are the auditor for the buyer's global business interest. And this interdependence precluded them from purchasing Five Times Square, since it would have created what is in the new guidelines pertaining to auditors a conflict of interest situation.

Now I would like to make a comment in response to an article in the New York press. Actually, it was in the New York Post, a paper famous for its inaccuracies. And they have maintained their reputation in their discussion [of] Five Times Square. The fact is that in that article, they raised the subject of the expiration in 2022 of the building's pilot program, which pertains to a special real estate tax arrangement for the building in order to get Times Square buildings and the Times Square overall project -- give them an economic incentive to get going.

Now it so happens that if the building were subject to full taxes today, in 2006, those taxes would be approximately $14.50, $14.75 per square foot. But that would make the current average gross rent in the building, if you assume full taxes, to be approximately $61.50 per square foot. For those of you don't know the market, I can tell you this is dramatically under the current market rent. In the first place, there are very few large blocks of competitive space in Times Square, but those that are there are currently being marketed at starting rents in excess of $80 per square foot.

So there is a dramatic increase between ostensible rent that would be in place if the full taxes based on the assumption of full taxes at this time. There still a dramatic increase for us as the owner if we had been able to put this building on the market at this time. And of course, we expect to that rents will continue to go up so that when the lease expires in 2022, there will continue to be not only the gain between the current market and the current ostensible rent that we would have had if we were paying full taxes, but we expect that gap to grow.

I only mention this because we have been asked by several people about this issue based on the false information, which unfortunately, was in a newspaper famous for its publications for false or acquired information.

So I will tell you that we are still contemplating the possibility of the sale of Five Times Square. We are digesting 280 Park at this point, but it does indicate to you from the sale of 280 Park and the purchase price which we had agreed upon with the other buyer, which I can tell you was -- on a per square foot basis similar to what it was with 280 Park. We believe that this will be at the very least where the market is for Five Times Square. And indeed, it says good things about the rest of the assets that we own in New York and in Washington, in Boston and in San Francisco, because these assets are all of the highest quality, and the ones for which there is a worldwide demand. And I just mention this as a reference to the market that I think has been now illustrated by the sale of 280 Park.

I think I will stop at this point and turn it over to Ed Linde, who will make some further comments.

Good morning, everybody. My comments -- I know people probably want to get to the Q&A. But I just wanted to touch on something that is quite important, and I'm not sure has really been fully detailed and absorbed by the marketplace as yet. And that is our continued efforts to build our development pipeline, which over the years has really been such a critical component of our success. So I just thought I would review some of the things we have going on in several of our regions.

And I will start with Boston. We recently placed in service, as Doug mentioned, the building that is occupied by the Broad Institute under a lease from -- we leased space to MIT as the master lessee of that building -- a 231,000 square foot building.

But in addition to that, we now have in the Boston area in planning roughly 2.2 million square feet of space. Now that doesn't mean we're going to start all those buildings in the near term. But in fact, they are development opportunities, some of which will start soon, and some of which will prove to be incredibly valuable -- since they were acquired some time ago, incredibly valuable as we go forward in picking up a market or taking advantage of a market which continues to strengthen.

We have a building at 77 4th Avenue of 200,000 square feet fully entitled. We have the land that Doug mentioned that we just acquired. We think that could absorb as much as 400,000 or more square feet. We are in the midst of a rezoning of an existing property that we own in Waltham where, after the rezoning, we will take a 120,000 square foot development and turn it into a 350- to 400,000 square foot development. We have a 340,000 square foot building already entitled for what I think is arguably the best site in the Boston suburbs in Weston called the Weston Corporate Center. We have close to 300,000 square feet entitled at 880 Boylston Street as part of the Prudential Center. We are in final negotiations for a major facility which will have a value -- a cost of over 310,000 square feet, which we will hope to get under construction by the end of this year, also in Boston.

We have two residential projects which we intend to see start, if not by the end of this year, certainly by the beginning of 2007 -- also, one of them in Cambridge, part of our Cambridge Center development; one of them part of the Prudential Center development. And we have another 4- to 500,000 square feet of potential developable land in the suburbs of Boston.

All of that adds up to clearly in excess of 1.5 billion. As I say, not all of it will start immediately. None of it will of course impact earnings in 2006. But it sets the table for the future.

In New York, Doug mentioned that we had purchased along with a partner a site and assemblage that we had been working on. I know a lot of people would like me to tell them both who the partner is and where the assemblage is. I think you can understand why when one is working on an assemblage that's probably not the kind of information you want to disseminate widely. But let me just say as Doug mentioned that's a project that would be in excess of 600,000 square feet, which means probably in excess of $400 million.

We are also in discussions with another owner of land on a site in New York which could accommodate 800,000 square feet of development. And even more -- potentially more (technical difficulty) which is done as a joint venture, but with a total value of about $130 million or total cost about $130 million. I dare say its value will be considerably greater than that one when we finished it. We have a --infrastructure work has begun on a property that we control with some partners in Chevy Chase called Wisconsin Place. That will house a 300,000 plus square foot office building with a cost in excess of $100 million and a value well in excess of that.

In Reston Town Center, we have begun the first phase -- a 400,000 square foot building, part of which is office -- some of which is retail. The second phase of that building may very well get off the ground sooner rather than later. And that would be another 250,000 square feet, simply because the market is so strong there. And we want to take advantage of that. And we have a site in Maryland that could house over 800,000 square feet of development.

In the San Francisco area, we still control land in San Jose in the 100% location, which would be the site of building in excess of 800,000 square feet. Its time has not come, but mark my word -- it will. And in Princeton, as you know, we have controlled land for 1.9 million square feet and total development rights for a long period of time.

So I just want to make sure that everybody fully understand that we know that a key factor that has differentiated Boston Properties all along is our development capability. And just as we came out of the last down cycle with very successful development, we think the stage is set, and in fact, is already underway, at the end of what I think we now can say was a down cycle that ended some time ago.

So with that, I will stop and we will open things up for Q&A.

(OPERATOR INSTRUCTIONS) Jordan Sadler, Citigroup.

I'm here with Jon Litt. My first question just relates to the development. It sounds like there is a lot potentially on the table. Can you maybe give us some color in terms of how much capital you will need to start what you think will start in the next 12 to 18 months or so, [or to] takedown the land pieces? Outside of New York, it sounds like you've got a lot of this stuff on balance sheet.

Yes, we do. In the next 12 months, I don't expect it to consume that much capital. These sites -- and they're all subject to further, many of them, certainly the New York site, is subject to completing an assemblage and going through some planning and entitlement work as well. So I don't think that that's a big capital need for some period of time.

On the other hand, the capital needs in combination of Boston and Washington could certainly come into the hundreds of millions of dollars. But as you know, our balance sheet is quite strong. And given what we just announced today as well as the debt offering, we certainly have the capacity to do all of that.

Okay. And then in terms of just going over to 280 Park Avenue, Doug, do have a cap rate on the transaction for me? And could you maybe just walk me through the $0.15 again? That dilution is just NOI related?

Yes, well, on the dilution, it's two things -- its both the NOI plus the reduction of the interest expense, so the net net of those two things. You know, I --

Doug, I just wanted to make sure that's [probably] -- but that assumes nothing about the reinvestment of the proceeds, right?

That's just pure -- the property level income and expense.

It's important for people to understand that.

The interest expense relates to --

The existing loan on the property. (multiple speakers) So there was a $270 million loan. I think the balance was down to about $255 million. And I want to say the rate is somewhere -- 7.6%

Okay. And the cap rate?

At this point, I'm a little uncomfortable disclosing the cap rate just sort of given the sensitivity of the seller. We will be providing an 8-K at some point in the near future. And as soon as the transaction closes, we will come full course with what all the financial information is.

And you mentioned -- you haven't decided exactly what you are going to do with the proceeds. But if you were to tax-efficiently exchange these dollars for an acquisition, you would need to, I assume, identify the property very quickly. Do have something in your sites?

We would have to identify something within, I believe, 45 days of the closing. And right now, the closing is anticipated to be some time towards the end of the second quarter. I would say that right now, there are some assets that we have looked at. I would say that we're probably not aggressive acquirers of existing income-producing buildings, but there are some potential large land opportunities that we have considered and some development opportunities.

The real issue we have is that we have to deploy all of the capital. So you have got to get the whole 1.2 billion out there. And that is going to be a challenge.

Ross Nussbaum, Banc of America Securities.

It's John Kim with Ross. My first question is for Mort or Ed. Yesterday, Marc Holliday at SL Green discussed that Manhattan office pricing was fully priced but rational, underwritten with double-digit rent growth and 5% exit cap rates. My question is what are your thoughts of the rationality and the sustainability of the Manhattan office pricing?

It's Mort; I will take a crack at that. I do think we are in a time of accelerated growth in rent in Manhattan real estate, but particularly in Midtown and the higher-quality buildings. We are seeing rent numbers really move up very rapidly, and in double digits. And I believe this is going to continue for a while.

New York is going through an extraordinary Renaissance, economic Renaissance in every way. And I suspect that there are very few sites that are available in traditional locations, and that first-class real estate is going to continue to be at a premium. And I think that will be reflected over the next several years in the form of double-digit rent increases. And I think there's almost a worldwide recognition of that given the demand for investments in these markets. So I think we are going to have a very, very strong office market in New York -- in Midtown New York anyhow for the next several years.

And some of that I think will spill over into less than Class A properties, and some of it will spill over into Downtown, simply because there is a lot of demand for space, and not very much space available. There are a lot of big tenants in the market now. So I think we're just going to be in a very, very strong market for several years.

And following up on that, do you believe the so-called petrodollars that are being invested in New York are long-term positive for the market, or do you believe it's shorter term than maybe some other investors?

Well, I don't think they are the only investors. They certainly are a part of the investment community that are looking here. But there's a lot of Chinese money that is looking, a lot of Asian money that is in this market, and a lot of domestic pension funds that are very anxious to put some of their funds into the quality of real estate that Midtown New York offers. I think the investment market is going to remain very, very strong in New York, and I don't see any change in that at all -- quite the opposite. There is just literally a hunger for Class A properties in Midtown New York, both from domestic and foreign buyers. And that is going to go on, I think, for a long time.

Just to add that I think that judging from the way the underwriting is done, I don't think we're seeing a lot of sales to short-term holders of property. I think they're in for the long haul.

Right.

Okay, a question on the land parcel acquisition New York this quarter. Can you elaborate on what $6 [million] of land gets you in today's market for Midtown Class A office development?

For $6 [million], you can buy a 50,000 square foot site on which you can put 1.2 million square feet of office space. (laughter)

So it's one piece of the puzzle, is that --

That's right it's one piece of the puzzle. You know what's involved in the acquisition of land. The assembly that we are involved with is pretty much done. But this was just one aspect of it, and I believe we will be able to -- within a matter of several months be able to reveal the rest of that particular project.

But we are involved in a number now of at least two other serious opportunities for major development in New York that will represent between them a couple of million square feet of space. So we are, as Ed has pointed out, going to once again look to mix our management capacities with our capital and the development dimensions of this business as the best way to earn the kind of returns that we feel we should earn for the shareholders of Boston Properties.

Okay, and final question for Doug -- I may have missed this, but why was there revenue and leasing support at 280 Park Avenue, given that it's a 100% leased [out] asset?

It was an accommodation to what is now the purchaser of the building to give them some comfort from a revenue perspective for a short period of time. My sense is it may have assisted them in procuring the financing, but that is just a conjecture.

You have to remember -- you're talking about, what, 74,000 square feet, Doug, out of 1.2 million.

Right.

And then how long is the management contract for?

It's undetermined. But we anticipate that it will be for a number of years.

John Guinee, Stifel Nicolaus.

Yes, you had mentioned on the last call I think a JV you were working on next to the NSA facility in the Baltimore/Washington corridor. Any update on that?

Ray, do you want to comment?

Yes, let me jump in there. We are proceeding with our discussions with the landowner about the possible joint venture, and more importantly, engaging users, both public and private, about space demand in that market. And we remain very optimistic about establishing a presence in a very key market.

And that wasn't in the numbers that I went through before, by the way. I forgot it.

Okay. One other question -- what's the expected FAR on that particular land position?

Well, John, there's a number of issues relating to adequate public facilities. But the overall density is currently planned as excess of 2 million feet.

David Toti, Lehman Brothers.

Can you just describe in a little bit more granularity or detail your disposition plans sort of short term and long term for the Company, given the appetite for some of your trophy assets?

I think at this point, the only thing that we really want to comment on about is, which Mort already did, was Five Times Square. We have not made a decision up or down as to whether -- following that, we would consider disposing of additional properties. We fully recognize the value which the market places on those properties, as witnessed by 280 Park. At the same time, we have to balance that against the increasing value that those properties will have if we retain them in our portfolio.

Great. And just one last question that I don't expect you to answer. But are you involved at all in development at the Javits in New York?

We're not involved in any development at the Javits.

Jim Sullivan, Green Street Advisors.

Mort, given your positive comments about Midtown and tying that to the rationality of current building pricing, why sell 280 Park outright as opposed to doing a joint venture, retaining an equity interest, and perhaps participating in future upside?

I think that is a fair question. This was just a decision which we made in part, I have to tell you, to just give an indication of what the values are in our portfolio, and in part because in terms of the sale of these assets, while you could do a joint venture, we were perfectly comfortable in selling the asset outright.

But you make a very fair point in terms of raising that as an alternative. We have thought about it and talked about it, and we may very well do that. But in this particular case, I think we wanted to do it this way in part because of the values that we were able to establish, and the demonstration of the profitability of this particular project. We have owned it, I think, about six or seven years. We paid $332 million for it. We've gotten a very good return in the interim, and we were able to sell it for $1.2 billion. We did put in some money into it. But it is a demonstration of what we have been able to do for the shareholders through the acquisition side of the equation. And I think this is something that we feel was useful for everybody to know.

And with respect to the development sites that's part of the assemblage, why disclose that now in what sounds like is the early part of the process? If this is a small investment relative to the size of the Company, why not keep it under wraps until the capital commitment was larger and you were further along in the assemblage, or perhaps completed with it?

Because, unfortunately, Jim, you know, we're a public company, and we're --

No, no, fortunately, we are a public company. (laughter)

Well, fortunately or unfortunately, the disclosure requirements of being a public company require that we have to basically put it on our balance sheet. And someone was going to ask the question. And in the world of Regulation FD we felt that it was more appropriate to tell people that we acquired a piece of ground and not to talk about where it was. So yes, it's in Manhattan. But it's between the Hudson River and East River, and it's between Staten Island Ferry and the Wien Stadium at the northern end of the Island. So your guess is as good as ours in terms of trying to figure where it is, but --

No, his guess is not as good as ours. (laughter)

So it's just really public disclosure. It's one of the frustrations of having to deal with the regulations of being a public company.

And the other dimension of it, so that you understand, is basically that assembly is now substantially completed for what we contemplate. So the combination of the two makes it possible. There are other things, obviously, that we are involved with, and we're going to do whatever we have to to keep the assembly confidential as a business practice, and find a way to deal with these other issues. But it's not really a factor in this particular instance.

Then finally, Doug, can you back to the transaction expenses related to 280 Park? I missed what you said.

Yes, basically, what I said was in total, if you include the defeasance of the loan, the loan payoff, the transfer taxes, the revenue support, the master lease, net net, it's about $350 million approximately. And so the net proceeds are about $850 million.

(OPERATOR INSTRUCTIONS) At this time, I would like to turn the call back to management for additional remarks.

We don't have any additional remarks other than our traditional thank you for joining us. We hope that you found the call interesting. We hope that you found what we did this quarter interesting. And we really are appreciative of your support.

Thank you, sir. Ladies and gentlemen, this concludes the Boston Properties first-quarter 2006 conference call. If you would like to listen to a replay of today's conference, please dial 1-800-405-2236, or internationally at 303-590-3000 with access number 11057503 followed by the pound sign. (OPERATOR INSTRUCTIONS) Once again, thank you for your participation and you may now disconnect.