Item 8. Financial Statements and Supplementary Data

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Item 8. Financial Statements and Supplementary Data

BOSTON PROPERTIES, INC. AND BOSTON PROPERTIES LIMITED PARTNERSHIP

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS




		Page

Boston Properties, Inc.
	Management’s Report on Internal Control over Financial Reporting	112
	Report of Independent Registered Public Accounting Firm	113
	Consolidated Balance Sheets as of December 31, 2017 and 2016	115
	Consolidated Statements of Operations for the years ended December 31, 2017, 2016 and 2015	116
	Consolidated Statements of Comprehensive Income for the years ended December 31, 2017, 2016 and 2015	117
	Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2017, 2016 and 2015	118
	Consolidated Statements of Cash Flows for the years ended December 31, 2017, 2016 and 2015	119

Boston Properties Limited Partnership
	Management’s Report on Internal Control over Financial Reporting	121
	Report of Independent Registered Public Accounting Firm	122
	Consolidated Balance Sheets as of December 31, 2017 and 2016	124
	Consolidated Statements of Operations for the years ended December 31, 2017, 2016 and 2015	125
	Consolidated Statements of Comprehensive Income for the years ended December 31, 2017, 2016 and 2015	126
	Consolidated Statements of Partners’ Capital for the years ended December 31, 2017, 2016 and 2015	127
	Consolidated Statements of Cash Flows for the years ended December 31, 2017, 2016 and 2015	128

	Notes to Consolidated Financial Statements	130

Boston Properties, Inc.
	Financial Statement Schedule—Schedule III - Real Estate Investments and Accumulated Depreciation as of December 31, 2017	181

Boston Properties Limited Partnership
	Financial Statement Schedule—Schedule III - Real Estate Investments and Accumulated Depreciation as of December 31, 2017	186

All other schedules for which a provision is made in the applicable accounting regulations of the SEC are not required under the related instructions or are inapplicable, and therefore have been omitted.

Management’s Report on Internal Control over

Financial Reporting

Management of Boston Properties, Inc. is responsible for establishing and maintaining adequate internal control over financial reporting for Boston Properties, Inc. Boston Properties, Inc.’s internal control over financial reporting is a process designed under the supervision of its principal executive officer and principal financial officer to provide reasonable assurance regarding the reliability of financial reporting and the preparation of Boston Properties, Inc.’s financial statements for external reporting purposes in accordance with U.S. generally accepted accounting principles.

As of the end of Boston Properties, Inc.’s 2017 fiscal year, management conducted assessments of the effectiveness of Boston Properties, Inc.’s internal control over financial reporting based on the framework established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on these assessments, management has determined that Boston Properties, Inc.’s internal control over financial reporting as of December 31, 2017 was effective.

Our internal control over financial reporting includes policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect transactions and dispositions of our assets; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. generally accepted accounting principles, and that receipts and expenditures are being made only in accordance with authorizations of management and the directors of Boston Properties, Inc.; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of Boston Properties, Inc.’s assets that could have a material effect on its financial statements.

The effectiveness of Boston Properties, Inc.’s internal control over financial reporting as of December 31, 2017 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in its report appearing on page 113, which expresses an unqualified opinion on the effectiveness of Boston Properties, Inc.’s internal control over financial reporting as of December 31, 2017.

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Shareholders of

Boston Properties Inc.:

Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated balance sheets of Boston Properties, Inc. and its subsidiaries (the “Company”) as of December 31, 2017 and December 31, 2016, and the related consolidated statements of operations, comprehensive income, stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2017, including the related notes and financial statement schedule listed in the accompanying index (collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2017 and December 31, 2016, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2017 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.

Basis for Opinions

The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Report on Internal Control over Financial Reporting. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable

assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ PricewaterhouseCoopers LLP

Boston, MA

February 28, 2018

We have served as the Company’s auditor since 1997.

BOSTON PROPERTIES, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except for share and par value amounts)



	December 31, 2017			December 31, 2016
ASSETS
Real estate, at cost (amounts related to variable interest entities (“VIEs”) of $7,172,718 and $6,760,078 at December 31, 2017 and 2016, respectively )	$	21,096,642		$	20,147,263
Less: accumulated depreciation (amounts related to VIEs of $(854,172) and $(758,640) at December 31, 2017 and 2016, respectively	(4,589,634		)	(4,222,235		)
Total real estate	16,507,008			15,925,028
Cash and cash equivalents (amounts related to VIEs of $304,955 and $253,999 at December 31, 2017 and 2016, respectively)	434,767			356,914
Cash held in escrows (amounts related to VIEs of $6,135 and $4,955 at December 31, 2017 and 2016, respectively)	70,602			63,174
Investments in securities	29,161			23,814
Tenant and other receivables, net (amounts related to VIEs of $27,057 and $23,525 at December 31, 2017 and 2016, respectively)	92,186			92,548
Accrued rental income, net (amounts related to VIEs of $242,589 and $224,185 at December 31, 2017 and 2016, respectively)	861,575			799,138
Deferred charges, net (amounts related to VIEs of $281,678 and $290,436 at December 31, 2017 and 2016, respectively)	679,038			686,163
Prepaid expenses and other assets (amounts related to VIEs of $33,666 and $42,718 at December 31, 2017 and 2016, respectively)	77,971			129,666
Investments in unconsolidated joint ventures	619,925			775,198
Total assets	$	19,372,233		$	18,851,643
LIABILITIES AND EQUITY
Liabilities:
Mortgage notes payable, net (amounts related to VIEs of $2,939,183 and $2,018,483 at December 31, 2017 and 2016, respectively)	$	2,979,281		$	2,063,087
Unsecured senior notes, net	7,247,330			7,245,953
Unsecured line of credit	45,000			—
Unsecured term loan	—			—
Mezzanine notes payable (amounts related to VIEs of $0 and $307,093 at December 31, 2017 and 2016, respectively)	—			307,093
Outside members’ notes payable (amounts related to VIEs of $0 and $180,000 at December 31, 2017 and 2016, respectively)	—			180,000
Accounts payable and accrued expenses (amounts related to VIEs of $106,683 and $110,457 at December 31, 2017 and 2016, respectively)	331,500			298,524
Dividends and distributions payable	139,040			130,308
Accrued interest payable (amounts related to VIEs of $6,907 and $162,226 at December 31, 2017 and 2016, respectively)	83,646			243,933
Other liabilities (amounts related to VIEs of $164,806 and $175,146 at December 31, 2017 and 2016, respectively)	443,980			450,821
Total liabilities	11,269,777			10,919,719
Commitments and contingencies	—			—
Equity:
Stockholders’ equity attributable to Boston Properties, Inc.:
Excess stock, $0.01 par value, 150,000,000 shares authorized, none issued or outstanding	—			—
Preferred stock, $0.01 par value, 50,000,000 shares authorized;
5.25% Series B cumulative redeemable preferred stock, $0.01 par value, liquidation preference $2,500 per share, 92,000 shares authorized, 80,000 shares issued and outstanding at December 31, 2017 and December 31, 2016	200,000			200,000
Common stock, $0.01 par value, 250,000,000 shares authorized,154,404,186 and 153,869,075 issued and 154,325,286 and 153,790,175 outstanding at December 31, 2017 and December 31, 2016, respectively	1,543			1,538
Additional paid-in capital	6,377,908			6,333,424
Dividends in excess of earnings	(712,343		)	(693,694		)
Treasury common stock at cost, 78,900 shares at December 31, 2017 and December 31, 2016	(2,722		)	(2,722		)
Accumulated other comprehensive loss	(50,429		)	(52,251		)
Total stockholders’ equity attributable to Boston Properties, Inc.	5,813,957			5,786,295
Noncontrolling interests:
Common units of the Operating Partnership	604,739			614,982
Property partnerships	1,683,760			1,530,647
Total equity	8,102,456			7,931,924
Total liabilities and equity	$	19,372,233		$	18,851,643

The accompanying notes are an integral part of these consolidated financial statements.

BOSTON PROPERTIES, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS



	For the year ended December 31,
	2017			2016			2015
	(in thousands, except for per share amounts)
Revenue
Rental
Base rent	$	2,049,368		$	2,017,767		$	1,964,732
Recoveries from tenants	367,500			358,975			355,508
Parking and other	105,000			100,910			101,981
Total rental revenue	2,521,868			2,477,652			2,422,221
Hotel revenue	45,603			44,884			46,046
Development and management services	34,605			28,284			22,554
Total revenue	2,602,076			2,550,820			2,490,821
Expenses
Operating
Rental	929,977			889,768			872,252
Hotel	32,059			31,466			32,084
General and administrative	113,715			105,229			96,319
Transaction costs	668			2,387			1,259
Impairment loss	—			1,783			—
Depreciation and amortization	617,547			694,403			639,542
Total expenses	1,693,966			1,725,036			1,641,456
Operating income	908,110			825,784			849,365
Other income (expense)
Income from unconsolidated joint ventures	11,232			8,074			22,770
Gain on sale of investment in unconsolidated joint venture	—			59,370			—
Interest and other income	5,783			7,230			6,777
Gains (losses) from investments in securities	3,678			2,273			(653		)
Interest expense	(374,481		)	(412,849		)	(432,196		)
Gains (losses) from early extinguishments of debt	496			(371		)	(22,040		)
Losses from interest rate contracts	—			(140		)	—
Income before gains on sales of real estate	554,818			489,371			424,023
Gains on sales of real estate	7,663			80,606			375,895
Net income	562,481			569,977			799,918
Net income attributable to noncontrolling interests
Noncontrolling interests in property partnerships	(47,832		)	2,068			(149,855		)
Noncontrolling interest—redeemable preferred units of the Operating Partnership	—			—			(6		)
Noncontrolling interest—common units of the Operating Partnership	(52,210		)	(59,260		)	(66,951		)
Net income attributable to Boston Properties, Inc.	462,439			512,785			583,106
Preferred dividends	(10,500		)	(10,500		)	(10,500		)
Net income attributable to Boston Properties, Inc. common shareholders	$	451,939		$	502,285		$	572,606
Basic earnings per common share attributable to Boston Properties, Inc. common shareholders:
Net income	$	2.93		$	3.27		$	3.73
Weighted average number of common shares outstanding	154,190			153,715			153,471
Diluted earnings per common share attributable to Boston Properties, Inc. common shareholders:
Net income	$	2.93		$	3.26		$	3.72
Weighted average number of common and common equivalent shares outstanding	154,390			153,977			153,844

Dividends per common share	$	3.05		$	2.70		$	3.85

The accompanying notes are an integral part of these consolidated financial statements.

BOSTON PROPERTIES, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME



	For the year ended December 31,
	2017			2016			2015
	(in thousands)
Net income	$	562,481		$	569,977		$	799,918
Other comprehensive loss:
Effective portion of interest rate contracts	(6,133		)	(47,144		)	(10,302		)
Amortization of interest rate contracts (1)	6,033			3,751			2,510
Other comprehensive loss	(100		)	(43,393		)	(7,792		)
Comprehensive income	562,381			526,584			792,126
Net income attributable to noncontrolling interests	(100,042		)	(57,192		)	(216,812		)
Other comprehensive income (loss) attributable to noncontrolling interests	1,922			5,256			2,982
Comprehensive income attributable to Boston Properties, Inc.	$	464,261		$	474,648		$	578,296


(1)	Amounts reclassified from comprehensive income primarily to interest expense within Boston Properties, Inc.’s Consolidated Statements of Operations.

The accompanying notes are an integral part of these consolidated financial statements.

BOSTON PROPERTIES, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands)



	Common Stock			Preferred Stock		Additional Paid-in Capital			Dividends in Excess of Earnings			Treasury Stock, at cost			Accumulated Other Comprehensive Loss			Noncontrolling Interests			Total
	Shares	Amount
Equity, December 31, 2014	153,114	$	1,531	$	200,000	$	6,270,257		$	(762,464	)	$	(2,722	)	$	(9,304	)	$	2,205,638		$	7,902,936
Redemption of operating partnership units to common stock	424	5		—		14,338			—			—			—			(14,343		)	—
Allocated net income for the year	—	—		—		—			583,106			—			—			211,685			794,791
Dividends/distributions declared	—	—		—		—			(601,594		)	—			—			(69,447		)	(671,041		)
Shares issued pursuant to stock purchase plan	6	—		—		780			—			—			—			—			780
Net activity from stock option and incentive plan	36	—		—		5,814			—			—			—			34,451			40,265
Acquisition of redeemable noncontrolling interest in property partnership	—	—		—		(1,586		)	—			—			—			—			(1,586		)
Sale of interests in property partnerships	—	—		—		(1,053		)	—			—			—			1,053			—
Contributions from noncontrolling interests in property partnerships	—	—		—		—			—			—			—			2,705			2,705
Distributions to noncontrolling interests in property partnerships	—	—		—		—			—			—			—			(170,049		)	(170,049		)
Dissolution of property partnership	—	—		—		—			—			—			—			(4,082		)	(4,082		)
Effective portion of interest rate contracts	—	—		—		—			—			—			(7,061		)	(3,241		)	(10,302		)
Amortization of interest rate contracts	—	—		—		—			—			—			2,251			259			2,510
Reallocation of noncontrolling interest	—	—		—		17,137			—			—			—			(17,137		)	—
Equity, December 31, 2015	153,580	1,536		200,000		6,305,687			(780,952		)	(2,722		)	(14,114		)	2,177,492			7,886,927
Redemption of operating partnership units to common stock	191	2		—		6,459			—			—			—			(6,461		)	—
Allocated net income for the year	—	—		—		—			512,785			—			—			57,192			569,977
Dividends/distributions declared	—	—		—		—			(425,527		)	—			—			(49,087		)	(474,614		)
Shares issued pursuant to stock purchase plan	6	—		—		730			—			—			—			—			730
Net activity from stock option and incentive plan	13	—		—		3,979			—			—			—			27,931			31,910
Sale of interests in property partnerships	—	—		—		1,195			—			—			—			(1,195		)	—
Contributions from noncontrolling interests in property partnerships	—	—		—		—			—			—			—			11,951			11,951
Distributions to noncontrolling interests in property partnerships	—	—		—		—			—			—			—			(51,564		)	(51,564		)
Effective portion of interest rate contracts	—	—		—		—			—			—			(41,502		)	(5,642		)	(47,144		)
Amortization of interest rate contracts	—	—		—		—			—			—			3,365			386			3,751
Reallocation of noncontrolling interest	—	—		—		15,374			—			—			—			(15,374		)	—
Equity, December 31, 2016	153,790	1,538		200,000		6,333,424			(693,694		)	(2,722		)	(52,251		)	2,145,629			7,931,924
Redemption of operating partnership units to common stock	495	5		—		16,911			—			—			—			(16,916		)	—
Allocated net income for the year	—	—		—		—			462,439			—			—			100,042			562,481
Dividends/distributions declared	—	—		—		—			(480,816		)	—			—			(54,494		)	(535,310		)
Shares issued pursuant to stock purchase plan	6	—		—		795			—			—			—			—			795
Net activity from stock option and incentive plan	34	—		—		3,899			—			—			—			33,393			37,292
Cumulative effect of a change in accounting principle	—	—		—		—			(272		)	—			—			(1,763		)	(2,035		)
Contributions from noncontrolling interests in property partnerships	—	—		—		—			—			—			—			161,585			161,585
Distributions to noncontrolling interests in property partnerships	—	—		—		—			—			—			—			(54,176		)	(54,176		)
Effective portion of interest rate contracts	—	—		—		—			—			—			(3,305		)	(2,828		)	(6,133		)
Amortization of interest rate contracts	—	—		—		—			—			—			5,127			906			6,033
Reallocation of noncontrolling interest	—	—		—		22,879			—			—			—			(22,879		)	—
Equity, December 31, 2017	154,325	$	1,543	$	200,000	$	6,377,908		$	(712,343	)	$	(2,722	)	$	(50,429	)	$	2,288,499		$	8,102,456

The accompanying notes are an integral part of these consolidated financial statements.

BOSTON PROPERTIES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS



	For the year ended December 31,
	2017			2016			2015
	(in thousands)
Cash flows from operating activities:
Net income	$	562,481		$	569,977		$	799,918
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	617,547			694,403			639,542
Impairment loss	—			1,783			—
Non-cash compensation expense	35,361			32,911			29,183
Income from unconsolidated joint ventures	(11,232		)	(8,074		)	(22,770		)
Gain on sale of investment in unconsolidated joint venture	—			(59,370		)	—
Distributions of net cash flow from operations of unconsolidated joint ventures	26,858			24,955			8,469
(Gains) losses from investments in securities	(3,678		)	(2,273		)	653
Non-cash portion of interest expense	(1,284		)	(35,052		)	(42,271		)
Settlement of accreted debt discount on redemption of unsecured senior notes	(1,980		)	—			—
(Gains) losses from early extinguishments of debt	(13,280		)	371			21,837
Gains on sales of real estate	(7,663		)	(80,606		)	(375,895		)
Change in assets and liabilities:
Cash held in escrows	8,194			2,277			(18,284		)
Tenant and other receivables, net	2,433			3,688			(46,326		)
Accrued rental income, net	(58,355		)	(28,127		)	(73,911		)
Prepaid expenses and other assets	51,425			52,923			(16,877		)
Accounts payable and accrued expenses	10,482			15,666			(6,310		)
Accrued interest payable	(160,521		)	53,547			26,854
Other liabilities	(44,914		)	(106,022		)	(34,005		)
Tenant leasing costs	(104,429		)	(96,103		)	(90,396		)
Total adjustments	344,964			466,897			(507		)
Net cash provided by operating activities	907,445			1,036,874			799,411
Cash flows from investing activities:
Acquisitions of real estate	(15,953		)	(78,000		)	—
Construction in progress	(608,404		)	(500,350		)	(374,664		)
Building and other capital improvements	(222,482		)	(150,640		)	(112,755		)
Tenant improvements	(205,331		)	(230,298		)	(144,572		)
Proceeds from sales of real estate	29,810			122,750			602,600
Proceeds from sales of real estate placed in escrow	(29,810		)	(122,647		)	(200,612		)
Proceeds from sales of real estate released from escrow	29,810			122,647			634,165
Cash placed in escrow for land sale contracts	—			—			(7,111		)
Cash released from escrow for land sale contracts	—			1,596			5,312
Cash released from escrow for investing activities	9,230			6,694			—
Cash placed in escrow for investment in unconsolidated joint venture	(25,000		)	—			—
Capital contributions to unconsolidated joint ventures	(109,015		)	(575,795		)	(38,207		)
Capital distributions from unconsolidated joint ventures	251,000			20,440			24,527
Proceeds from sale of investment in unconsolidated joint venture	—			55,707			—
Investments in marketable securities	—			—			(667,335		)
Investments in securities, net	(1,669		)	(1,161		)	(1,574		)
Net cash used in investing activities	(897,814		)	(1,329,057		)	(280,226		)



BOSTON PROPERTIES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS
	For the year ended December 31,
	2017			2016			2015
	(in thousands)
Cash flows from financing activities:
Proceeds from mortgage notes payable	2,300,000			—			—
Repayments of mortgage notes payable	(1,317,653		)	(1,326,865		)	(54,801		)
Proceeds from unsecured senior notes	847,935			1,989,790			—
Redemption of unsecured senior notes	(848,020		)	—			—
Borrowings on unsecured line of credit	580,000			25,000			—
Repayments of unsecured line of credit	(535,000		)	(25,000		)	—
Repayments of mezzanine notes payable	(306,000		)	—			—
Repayments of outside members’ notes payable	(70,424		)	—			—
Payments on capital lease obligations	(401		)	(745		)	(356		)
Proceeds from real estate financing transaction	—			—			6,000
Payments on real estate financing transactions	(2,840		)	(5,260		)	(3,103		)
Deposit on mortgage note payable interest rate lock	(23,200		)	—			—
Return of deposit on mortgage note payable interest rate lock	23,200			—			—
Deferred financing costs	(50,705		)	(16,121		)	(1,510		)
Net proceeds from equity transactions	241			(271		)	799
Redemption of preferred units	—			—			(633		)
Dividends and distributions	(526,578		)	(671,626		)	(1,226,199		)
Contributions from noncontrolling interests in property partnerships	52,009			11,951			2,705
Acquisition of noncontrolling interest in property partnership	—			—			(108,499		)
Distributions to noncontrolling interests in property partnerships	(54,342		)	(55,474		)	(172,949		)
Net cash provided by (used in) financing activities	68,222			(74,621		)	(1,558,546		)
Net increase (decrease) in cash and cash equivalents	77,853			(366,804		)	(1,039,361		)
Cash and cash equivalents, beginning of year	356,914			723,718			1,763,079
Cash and cash equivalents, end of year	$	434,767		$	356,914		$	723,718
Supplemental disclosures:
Cash paid for interest	$	598,486		$	433,591		$	481,826
Interest capitalized	$	61,070		$	39,237		$	34,213
Non-cash investing and financing activities:
Write-off of fully depreciated real estate	$	(124,891	)	$	(206,721	)	$	(45,455	)
Change in real estate included in accounts payable and accrued expenses	$	27,978		$	(1,481	)	$	74,985
Real estate acquired through capital lease	$	28,962		$	21,000		$	—
Outside members’ notes payable contributed to noncontrolling interests in property partnerships	$	109,576		$	—		$	—
Marketable securities transferred in connection with the legal defeasance of mortgage note payable	$	—		$	—		$	667,335
Mortgage note payable legally defeased	$	—		$	—		$	640,500
Mortgage note payable assigned in connection with the sale of real estate	$	—		$	—		$	116,993
Dividends and distributions declared but not paid	$	139,040		$	130,308		$	327,320
Conversions of noncontrolling interests to stockholders’ equity	$	16,916		$	6,461		$	14,343
Issuance of restricted securities to employees and directors	$	35,989		$	33,615		$	43,355

The accompanying notes are an integral part of these consolidated financial statements.

Management’s Report on Internal Control over

Financial Reporting

Management of Boston Properties, Inc., the sole general partner of Boston Properties Limited Partnership, is responsible for establishing and maintaining adequate internal control over financial reporting for Boston Properties Limited Partnership. Boston Properties Limited Partnership’s internal control over financial reporting is a process designed under the supervision of the principal executive officer and principal financial officer of Boston Properties, Inc. to provide reasonable assurance regarding the reliability of financial reporting and the preparation of Boston Properties Limited Partnership’s financial statements for external reporting purposes in accordance with U.S. generally accepted accounting principles.

As of the end of Boston Properties Limited Partnership’s 2017 fiscal year, management conducted assessments of the effectiveness of Boston Properties Limited Partnership’s internal control over financial reporting based on the framework established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on these assessments, management has determined that Boston Properties Limited Partnership’s internal control over financial reporting as of December 31, 2017 was effective.

Boston Properties Limited Partnership’s internal control over financial reporting includes policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect transactions and dispositions of our assets; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. generally accepted accounting principles, and that receipts and expenditures are being made only in accordance with authorizations of management and the directors of Boston Properties, Inc.; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of Boston Properties Limited Partnership’s assets that could have a material effect on our financial statements.

The effectiveness of Boston Properties Limited Partnership’s internal control over financial reporting as of December 31, 2017 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in its report appearing on page 122, which expresses an unqualified opinion on the effectiveness of Boston Properties Limited Partnership’s internal control over financial reporting as of December 31, 2017.

Report of Independent Registered Public Accounting Firm

To the Partners of

Boston Properties Limited Partnership:

Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated balance sheets of Boston Properties Limited Partnership and its subsidiaries (the “Partnership”) as of December 31, 2017 and December 31, 2016, and the related consolidated statements of operations, comprehensive income, partners’ capital and cash flows for each of the three years in the period ended December 31, 2017, including the related notes and financial statement schedule listed in the accompanying index (collectively referred to as the “consolidated financial statements”). We also have audited the Partnership's internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Partnership as of December 31, 2017 and December 31, 2016, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2017 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Partnership maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.

Basis for Opinions

The Partnership's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Report on Internal Control over Financial Reporting. Our responsibility is to express opinions on the Partnership’s consolidated financial statements and on the Partnership's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Partnership in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

Definition and Limitations of Internal Control over Financial Reporting

with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

/s/ PricewaterhouseCoopers LLP

Boston, MA

February 28, 2018

We have served as the Partnership’s auditor since 1997.



BOSTON PROPERTIES LIMITED PARTNERSHIP CONSOLIDATED BALANCE SHEETS (in thousands, except for unit amounts)
	December 31, 2017			December 31, 2016
ASSETS
Real estate, at cost (amounts related to variable interest entities (“VIEs”) of $7,172,718 and $6,760,078 at December 31, 2017 and 2016, respectively)	$	20,685,164		$	19,733,872
Less: accumulated depreciation (amounts related to VIEs of $(854,172) and $(758,640) at December 31, 2017 and 2016, respectively)	(4,496,959		)	(4,136,364		)
Total real estate	16,188,205			15,597,508
Cash and cash equivalents (amounts related to VIEs of $304,955 and $253,999 at December 31, 2017 and 2016, respectively)	434,767			356,914
Cash held in escrows (amounts related to VIEs of $6,135 and $4,955 at December 31, 2017 and 2016, respectively)	70,602			63,174
Investments in securities	29,161			23,814
Tenant and other receivables, net (amounts related to VIEs of $27,057 and $23,525 at December 31, 2017 and 2016, respectively)	92,186			92,548
Accrued rental income, net (amounts related to VIEs of $242,589 and $224,185 at December 31, 2017 and 2016, respectively)	861,575			799,138
Deferred charges, net (amounts related to VIEs of $281,678 and $290,436 at December 31, 2017 and 2016, respectively)	679,038			686,163
Prepaid expenses and other assets (amounts related to VIEs of $33,666 and $42,718 at December 31, 2017 and 2016, respectively)	77,971			129,666
Investments in unconsolidated joint ventures	619,925			775,198
Total assets	$	19,053,430		$	18,524,123
LIABILITIES AND CAPITAL
Liabilities:
Mortgage notes payable, net (amounts related to VIEs of $2,939,183 and $2,018,483 at December 31, 2017 and 2016, respectively)	$	2,979,281		$	2,063,087
Unsecured senior notes, net	7,247,330			7,245,953
Unsecured line of credit	45,000			—
Unsecured term loan	—			—
Mezzanine notes payable (amounts related to VIEs of $0 and $307,093 at December 31, 2017 and 2016, respectively)	—			307,093
Outside members’ notes payable (amounts related to VIEs of $0 and $180,000 at December 31, 2017 and 2016, respectively)	—			180,000
Accounts payable and accrued expenses (amounts related to VIEs of $106,683 and $110,457 at December 31, 2017 and 2016, respectively)	331,500			298,524
Dividends and distributions payable	139,040			130,308
Accrued interest payable (amounts related to VIEs of $6,907 and $162,226 at December 31, 2017 and 2016, respectively)	83,646			243,933
Other liabilities (amounts related to VIEs of $164,806 and $175,146 at December 31, 2017 and 2016, respectively)	443,980			450,821
Total liabilities	11,269,777			10,919,719
Commitments and contingencies	—			—
Noncontrolling interests:
Redeemable partnership units—16,810,378 and 17,079,511 common units and 818,343 and 904,588 long term incentive units outstanding at redemption value at December 31, 2017 and December 31, 2016, respectively	2,292,263			2,262,040
Capital:
5.25% Series B cumulative redeemable preferred units, liquidation preference $2,500 per unit, 80,000 units issued and outstanding at December 31, 2017 and December 31, 2016	193,623			193,623
Boston Properties Limited Partnership partners’ capital—1,719,540 and 1,717,743 general partner units and 152,605,746 and 152,072,432 limited partner units outstanding at December 31, 2017 and December 31, 2016, respectively	3,614,007			3,618,094
Noncontrolling interests in property partnerships	1,683,760			1,530,647
Total capital	5,491,390			5,342,364
Total liabilities and capital	$	19,053,430		$	18,524,123

The accompanying notes are an integral part of these consolidated financial statements.



BOSTON PROPERTIES LIMITED PARTNERSHIP CONSOLIDATED STATEMENTS OF OPERATIONS
	For the year ended December 31,
	2017			2016			2015
	(in thousands, except for per unit amounts)
Revenue
Rental
Base rent	$	2,049,368		$	2,017,767		$	1,964,732
Recoveries from tenants	367,500			358,975			355,508
Parking and other	105,000			100,910			101,981
Total rental revenue	2,521,868			2,477,652			2,422,221
Hotel revenue	45,603			44,884			46,046
Development and management services	34,605			28,284			22,554
Total revenue	2,602,076			2,550,820			2,490,821
Expenses
Operating
Rental	929,977			889,768			872,252
Hotel	32,059			31,466			32,084
General and administrative	113,715			105,229			96,319
Transaction costs	668			2,387			1,259
Impairment loss	—			1,783			—
Depreciation and amortization	609,407			682,776			631,549
Total expenses	1,685,826			1,713,409			1,633,463
Operating income	916,250			837,411			857,358
Other income (expense)
Income from unconsolidated joint ventures	11,232			8,074			22,770
Gain on sale of investment in unconsolidated joint venture	—			59,370			—
Interest and other income	5,783			7,230			6,777
Gains (losses) from investments in securities	3,678			2,273			(653		)
Interest expense	(374,481		)	(412,849		)	(432,196		)
Gains (losses) from early extinguishments of debt	496			(371		)	(22,040		)
Losses from interest rate contracts	—			(140		)	—
Income before gains on sales of real estate	562,958			500,998			432,016
Gains on sales of real estate	8,240			82,775			377,093
Net income	571,198			583,773			809,109
Net income attributable to noncontrolling interests
Noncontrolling interests in property partnerships	(47,832		)	2,068			(149,855		)
Noncontrolling interest—redeemable preferred units	—			—			(6		)
Net income attributable to Boston Properties Limited Partnership	523,366			585,841			659,248
Preferred distributions	(10,500		)	(10,500		)	(10,500		)
Net income attributable to Boston Properties Limited Partnership common unitholders	$	512,866		$	575,341		$	648,748
Basic earnings per common unit attributable to Boston Properties Limited Partnership
Net income	$	2.99		$	3.36		$	3.79
Weighted average number of common units outstanding	171,661			171,361			171,139
Diluted earnings per common unit attributable to Boston Properties Limited Partnership
Net income	$	2.98		$	3.35		$	3.78
Weighted average number of common and common equivalent units outstanding	171,861			171,623			171,512

Distributions per common unit	$	3.05		$	2.70		$	3.85

The accompanying notes are an integral part of these consolidated financial statements.

BOSTON PROPERTIES LIMITED PARTNERSHIP

CONSOLIDATED STATEMENTS OF

COMPREHENSIVE INCOME



		For the year ended December 31,
		2017			2016			2015
	(in thousands)
Net income		$	571,198		$	583,773		$	809,109
Other comprehensive loss:
Effective portion of interest rate contracts		(6,133		)	(47,144		)	(10,302		)
Amortization of interest rate contracts (1)		6,033			3,751			2,510
Other comprehensive loss		(100		)	(43,393		)	(7,792		)
Comprehensive income		571,098			540,380			801,317
Comprehensive income attributable to noncontrolling interests		(45,704		)	2,945			(147,433		)
Comprehensive income attributable to Boston Properties Limited Partnership		$	525,394		$	543,325		$	653,884


(1)	Amounts reclassified from comprehensive income primarily to interest expense within Boston Properties Limited Partnership's Consolidated Statements of Operations.

The accompanying notes are an integral part of these consolidated financial statements.

BOSTON PROPERTIES LIMITED PARTNERSHIP

CONSOLIDATED STATEMENTS OF PARTNERS’ CAPITAL

FOR THE YEARS ENDED DECEMBER 31, 2017, 2016 and 2015

(in thousands)



	Total Partners’ Capital

Balance at December 31, 2014	$	3,639,916
Contributions	4,071
Acquisition of redeemable noncontrolling interest in property partnership	(1,586		)
Net income allocable to general and limited partner units	592,297
Distributions	(601,594		)
Other comprehensive loss	(4,810		)
Unearned compensation	1,470
Conversion of redeemable partnership units	14,343
Adjustment to reflect redeemable partnership units at redemption value	40,415
Balance at December 31, 2015	3,684,522
Contributions	3,144
Net income allocable to general and limited partner units	526,581
Distributions	(425,527		)
Other comprehensive loss	(38,137		)
Unearned compensation	2,760
Conversion of redeemable partnership units	6,461
Adjustment to reflect redeemable partnership units at redemption value	51,913
Balance at December 31, 2016	3,811,717
Contributions	4,937
Net income allocable to general and limited partner units	471,156
Distributions	(480,816		)
Other comprehensive income	1,822
Cumulative effect of a change in accounting principle	(272		)
Unearned compensation	(243		)
Conversion of redeemable partnership units	16,916
Adjustment to reflect redeemable partnership units at redemption value	(17,587		)
Balance at December 31, 2017	$	3,807,630

The accompanying notes are an integral part of these consolidated financial statements.

BOSTON PROPERTIES LIMITED PARTNERSHIP CONSOLIDATED STATEMENTS OF CASH FLOWS

	For the year ended December 31,
	2017			2016			2015
	(in thousands)
Cash flows from operating activities:
Net income	$	571,198		$	583,773		$	809,109
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	609,407			682,776			631,549
Impairment loss	—			1,783			—
Non-cash compensation expense	35,361			32,911			29,183
Income from unconsolidated joint ventures	(11,232		)	(8,074		)	(22,770		)
Gain on sale of investment in unconsolidated joint venture	—			(59,370		)	—
Distributions of net cash flow from operations of unconsolidated joint ventures	26,858			24,955			8,469
(Gains) losses from investments in securities	(3,678		)	(2,273		)	653
Non-cash portion of interest expense	(1,284		)	(35,052		)	(42,271		)
Settlement of accreted debt discount on redemption of unsecured senior notes	(1,980		)	—			—
(Gains) losses from early extinguishments of debt	(13,280		)	371			21,837
Gains on sales of real estate	(8,240		)	(82,775		)	(377,093		)
Change in assets and liabilities:
Cash held in escrows	8,194			2,277			(18,284		)
Tenant and other receivables, net	2,433			3,688			(46,326		)
Accrued rental income, net	(58,355		)	(28,127		)	(73,911		)
Prepaid expenses and other assets	51,425			52,923			(16,877		)
Accounts payable and accrued expenses	10,482			15,666			(6,310		)
Accrued interest payable	(160,521		)	53,547			26,854
Other liabilities	(44,914		)	(106,022		)	(34,005		)
Tenant leasing costs	(104,429		)	(96,103		)	(90,396		)
Total adjustments	336,247			453,101			(9,698		)
Net cash provided by operating activities	907,445			1,036,874			799,411
Cash flows from investing activities:
Acquisitions of real estate	(15,953		)	(78,000		)	—
Construction in progress	(608,404		)	(500,350		)	(374,664		)
Building and other capital improvements	(222,482		)	(150,640		)	(112,755		)
Tenant improvements	(205,331		)	(230,298		)	(144,572		)
Proceeds from sales of real estate	29,810			122,750			602,600
Proceeds from sales of real estate placed in escrow	(29,810		)	(122,647		)	(200,612		)
Proceeds from sales of real estate released from escrow	29,810			122,647			634,165
Cash placed in escrow for land sale contracts	—			—			(7,111		)
Cash released from escrow for land sale contracts	—			1,596			5,312
Cash released from escrow for investing activities	9,230			6,694			—
Cash placed in escrow for investment in unconsolidated joint venture	(25,000		)	—			—
Capital contributions to unconsolidated joint ventures	(109,015		)	(575,795		)	(38,207		)
Capital distributions from unconsolidated joint ventures	251,000			20,440			24,527
Proceeds from sale of investment in unconsolidated joint venture	—			55,707			—
Investments in marketable securities	—			—			(667,335		)
Investments in securities, net	(1,669		)	(1,161		)	(1,574		)
Net cash used in investing activities	(897,814		)	(1,329,057		)	(280,226		)

BOSTON PROPERTIES LIMITED PARTNERSHIP CONSOLIDATED STATEMENTS OF CASH FLOWS

	For the year ended December 31,
	2017			2016			2015
	(in thousands)
Cash flows from financing activities:
Proceeds from mortgage notes payable	2,300,000			—			—
Repayments of mortgage notes payable	(1,317,653		)	(1,326,865		)	(54,801		)
Proceeds from unsecured senior notes	847,935			1,989,790			—
Redemption/repurchase of unsecured senior notes	(848,020		)	—			—
Borrowings on unsecured line of credit	580,000			25,000			—
Repayments of unsecured line of credit	(535,000		)	(25,000		)	—
Repayments of mezzanine notes payable	(306,000		)	—			—
Repayments of outside members’ notes payable	(70,424		)	—			—
Payments on capital lease obligations	(401		)	(745		)	(356		)
Proceeds from real estate financing transaction	—			—			6,000
Payments on real estate financing transactions	(2,840		)	(5,260		)	(3,103		)
Deposit on mortgage note payable interest rate lock	(23,200		)	—			—
Return of deposit on mortgage note payable interest rate lock	23,200			—			—
Deferred financing costs	(50,705		)	(16,121		)	(1,510		)
Net proceeds from equity transactions	241			(271		)	799
Redemption of preferred units	—			—			(633		)
Distributions	(526,578		)	(671,626		)	(1,226,199		)
Contributions from noncontrolling interests in property partnerships	52,009			11,951			2,705
Acquisition of noncontrolling interest in property partnership	—			—			(108,499		)
Distributions to noncontrolling interests in property partnerships	(54,342		)	(55,474		)	(172,949		)
Net cash provided by (used in) financing activities	68,222			(74,621		)	(1,558,546		)
Net increase (decrease) in cash and cash equivalents	77,853			(366,804		)	(1,039,361		)
Cash and cash equivalents, beginning of year	356,914			723,718			1,763,079
Cash and cash equivalents, end of year	$	434,767		$	356,914		$	723,718
Supplemental disclosures:
Cash paid for interest	$	598,486		$	433,591		$	481,826
Interest capitalized	$	61,070		$	39,237		$	34,213
Non-cash investing and financing activities:
Write-off of fully depreciated real estate	$	(123,714	)	$	(202,388	)	$	(45,455	)
Change in real estate included in accounts payable and accrued expenses	$	27,978		$	(1,481	)	$	74,985
Real estate acquired through capital lease	$	28,962		$	21,000		$	—
Outside members’ notes payable contributed to noncontrolling interests in property partnerships	$	109,576		$	—		$	—
Marketable securities transferred in connection with the legal defeasance of mortgage note payable	$	—		$	—		$	667,335
Mortgage note payable legally defeased	$	—		$	—		$	640,500
Mortgage note payable assigned in connection with the sale of real estate	$	—		$	—		$	116,993
Distributions declared but not paid	$	139,040		$	130,308		$	327,320
Conversions of redeemable partnership units to partners’ capital	$	16,916		$	6,461		$	14,343
Issuance of restricted securities to employees and directors	$	35,989		$	33,615		$	43,355

The accompanying notes are an integral part of these consolidated financial statements.

BOSTON PROPERTIES, INC. AND BOSTON PROPERTIES LIMITED PARTNERSHIP

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Organization

Boston Properties, Inc., a Delaware corporation, is a fully integrated, self-administered and self-managed real estate investment trust (“REIT”). Boston Properties, Inc. is the sole general partner of Boston Properties Limited Partnership, its operating partnership and at December 31, 2017 owned an approximate 89.7% (89.5% at December 31, 2016) general and limited partnership interest in Boston Properties Limited Partnership. Unless stated otherwise or the context requires, the “Company” refers to Boston Properties, Inc. and its subsidiaries, including Boston Properties Limited Partnership and its consolidated subsidiaries. Partnership interests in Boston Properties Limited Partnership include:


•	common units of partnership interest (also referred to as “OP Units”),


•	long term incentive units of partnership interest (also referred to as “LTIP Units”), and


•	preferred units of partnership interest (also referred to as “Preferred Units”).

Unless specifically noted otherwise, all references to OP Units exclude units held by Boston Properties, Inc. A holder of an OP Unit may present such OP Unit to Boston Properties Limited Partnership for redemption at any time (subject to restrictions agreed upon at the time of issuance of OP Units to particular holders that may restrict such redemption right for a period of time, generally one year from issuance). Upon presentation of an OP Unit for redemption, Boston Properties Limited Partnership is obligated to redeem such OP Unit for cash equal to the value of a share of common stock of Boston Properties, Inc. (“Common Stock”) at such time. In lieu of a cash redemption, Boston Properties, Inc. may elect to acquire the OP Unit for one share of Common Stock. Because the number of shares of Common Stock outstanding at all times equals the number of OP Units that Boston Properties, Inc. owns, one share of Common Stock is generally the economic equivalent of one OP Unit, and the quarterly distribution that may be paid to the holder of an OP Unit equals the quarterly dividend that may be paid to the holder of a share of Common Stock.

The Company uses LTIP Units as a form of equity-based award for annual long-term incentive equity compensation. The Company has also issued LTIP Units to employees in the form of (1) 2012 outperformance plan awards (“2012 OPP Units”) and (2) 2013, 2014, 2015, 2016 and 2017 multi-year, long-term incentive program awards (also referred to as “MYLTIP Units”), each of which, upon the satisfaction of certain performance and vesting conditions, is convertible into one OP Unit. The three-year measurement periods for the 2012 OPP Units, 2013 MYLTIP Units and 2014 MYLTIP Units expired on February 6, 2015, February 4, 2016 and February 3, 2017, respectively, and Boston Properties, Inc.’s total stockholder return (“TSR”) was sufficient for employees to earn and therefore become eligible to vest in a portion of the awards. Unless and until they are earned, the rights, preferences and privileges of the 2015, 2016 and 2017 MYLTIP Units differ from other LTIP Units granted to employees (including the 2012 OPP Units, the 2013 MYLTIP Units and the 2014 MYLTIP Units, which have been earned). Therefore, unless specifically noted otherwise, all references to LTIP Units exclude the 2015, 2016 and 2017 MYLTIP Units. LTIP Units (including the 2012 OPP Units, the 2013 MYLTIP Units and the 2014 MYLTIP Units), whether vested or not, will receive the same quarterly per unit distributions as OP Units, which equal per share dividends on Common Stock (See Notes 11, 17 and 20).

At December 31, 2017, there was one series of Preferred Units outstanding (i.e., Series B Preferred Units). The Series B Preferred Units were issued to Boston Properties, Inc. on March 27, 2013 in connection with the issuance of 80,000 shares (8,000,000 depositary shares each representing 1/100th of a share) of 5.25% Series B Cumulative Redeemable Preferred Stock (the “Series B Preferred Stock”). Boston Properties, Inc. contributed the net proceeds from the offering to Boston Properties Limited Partnership in exchange for 80,000 Series B Preferred Units having terms and preferences generally mirroring those of the Series B Preferred Stock (See Note 12).

Properties

At December 31, 2017, the Company owned or had interests in a portfolio of 179 commercial real estate properties (the “Properties”) aggregating approximately 50.3 million net rentable square feet of primarily Class A office properties, including twelve properties under construction/redevelopment totaling approximately 6.2 million net rentable square feet. At December 31, 2017, the Properties consisted of:


•	167 office properties (including eight properties under construction/redevelopment);


•	six residential properties (including four properties under construction);


•	five retail properties; and


•	one hotel.

The Company considers Class A office properties to be well located buildings that are professionally managed and maintained, attract high-quality tenants and command upper-tier rental rates, and that are modern structures or have been modernized to compete with newer buildings.

Basis of Presentation

Boston Properties, Inc. does not have any other significant assets, liabilities or operations, other than its investment in Boston Properties Limited Partnership, nor does it have employees of its own. Boston Properties Limited Partnership, not Boston Properties, Inc., generally executes all significant business relationships other than transactions involving securities of Boston Properties, Inc. All majority-owned subsidiaries and joint ventures over which the Company has financial and operating control and variable interest entities (“VIEs”) in which the Company has determined it is the primary beneficiary are included in the consolidated financial statements. All significant intercompany balances and transactions have been eliminated in consolidation. The Company accounts for all other unconsolidated joint ventures using the equity method of accounting. Accordingly, the Company’s share of the earnings of these joint ventures and companies is included in consolidated net income.

Variable Interest Entities (VIEs)

On January 1, 2016, the Company adopted Accounting Standards Update (“ASU”) ASU 2015-02, “Consolidation (Topic 810): Amendments to the Consolidation Analysis” (“ASU 2015-02”). ASU 2015-02 affects reporting entities that are required to evaluate whether they should consolidate certain legal entities. ASU 2015-02 (1) modifies the evaluation of whether limited partnerships and similar legal entities are VIEs or voting interest entities, (2) eliminates the presumption that a general partner should consolidate a limited partnership and (3) affects the consolidation analysis of reporting entities that are involved with VIEs, particularly those that have fee arrangements and related party relationships. The Company reviewed all of its legal entities in accordance with ASU 2015-02 and concluded that certain of its legal entities, including Boston Properties Limited Partnership, which had been consolidated in accordance with the voting interest model, are now variable interest entities under the VIE model, as discussed below. The adoption of the guidance did not alter any of the Company’s consolidation conclusions, but resulted in additional disclosures.

Consolidated VIEs are those where the Company is considered to be the primary beneficiary of a VIE. The primary beneficiary is the entity that has a controlling financial interest in the VIE, which is defined by the entity having both of the following characteristics: (1) the power to direct the activities that, when taken together, most significantly impact the VIE’s performance and (2) the obligation to absorb losses or the right to receive the returns from the VIE that could potentially be significant to the VIE. The Company has determined that it is the primary beneficiary for seven of the nine entities that are VIEs.

Consolidated Variable Interest Entities

As of December 31, 2017, Boston Properties, Inc. has identified seven consolidated VIEs, including Boston Properties Limited Partnership. Excluding Boston Properties Limited Partnership, the VIEs are (1) the following five in-service properties: 767 Fifth Avenue (the General Motors Building), Time Square Tower, 601 Lexington Avenue, Atlantic Wharf Office Building and 100 Federal Street and (2) the entity that owns Salesforce Tower, which was partially placed in-service on December 1, 2017.

The Company consolidates these VIEs because it is the primary beneficiary. The third parties’ interests in these consolidated entities, with the exception of Boston Properties Limited Partnership, are reflected as noncontrolling interests in property partnerships in the accompanying Consolidated Financial Statements (See Note 11).

In addition, Boston Properties, Inc.’s only significant asset is its investment in Boston Properties Limited Partnership and, consequently, substantially all of Boston Properties, Inc.’s assets and liabilities are the assets and liabilities of Boston Properties Limited Partnership.

Variable Interest Entities Not Consolidated

The Company has determined that its 7750 Wisconsin Avenue LLC and Residential Tower Developer LLC joint ventures, which own 7750 Wisconsin Avenue and The Hub on Causeway - Residential, respectively, are VIEs.

The Company does not consolidate these entities as the Company does not have the power to direct the activities that, when taken together, most significantly impact the VIE’s performance and, therefore, the Company is not considered to be the primary beneficiary.

Summary of Significant Accounting Policies

Real Estate

Upon acquisitions of real estate, which includes the consolidation of previously unconsolidated joint ventures, the Company assesses the fair value of acquired tangible and intangible assets (including land, buildings, tenant improvements, “above-” and “below-market” leases, leasing and assumed financing origination costs, acquired in-place leases, other identified intangible assets and assumed liabilities) and allocates the purchase price to the acquired assets and assumed liabilities, including land and buildings as if vacant. The Company assesses and considers fair value based on estimated cash flow projections that utilize discount and/or capitalization rates that it deems appropriate, as well as available market information. Estimates of future cash flows are based on a number of factors including the historical operating results, known and anticipated trends, and market and economic conditions.

The fair value of the tangible assets of an acquired property considers the value of the property as if it were vacant. The Company also considers an allocation of purchase price of other acquired intangibles, including acquired in-place leases that may have a customer relationship intangible value, including (but not limited to) the nature and extent of the existing relationship with the tenants, the tenants’ credit quality and expectations of lease renewals. Based on its acquisitions to date, the Company’s allocation to customer relationship intangible assets has been immaterial.

The Company records acquired “above-” and “below-market” leases at their fair values (using a discount rate which reflects the risks associated with the leases acquired) equal to the difference between (1) the contractual amounts to be paid pursuant to each in-place lease and (2) management’s estimate of fair market lease rates for each corresponding in-place lease, measured over a period equal to the remaining term of the lease for above-market leases and the initial term plus the term of any below-market fixed rate renewal options for below-market leases. Acquired “above-” and “below-market” lease values have been reflected within Prepaid Expenses and Other Assets and Other Liabilities, respectively, in the Company’s Consolidated Balance Sheets. Other intangible assets acquired include amounts for in-place lease values that are based on the Company’s evaluation of the specific characteristics of each tenant’s lease. Factors to be considered include estimates of carrying costs during hypothetical expected lease-up periods considering current market conditions, and costs to execute similar leases. In estimating carrying costs, the Company includes real estate taxes, insurance and other operating expenses and estimates of lost rentals at market rates during the expected lease-up periods, depending on local market conditions. In estimating costs to execute similar leases, the Company considers leasing commissions, legal and other related expenses.

Management reviews its long-lived assets for impairment following the end of each quarter and when there is an event or change in circumstances that indicates an impairment in value. An impairment loss is recognized if the carrying amount of an asset is not recoverable and exceeds its fair value. The evaluation of anticipated cash flows is highly subjective and is based in part on assumptions regarding anticipated hold period, future occupancy, rental rates and capital requirements that could differ materially from actual results in future periods. Because cash flows on properties considered to be “long-lived assets to be held and used” are considered on an undiscounted basis to determine whether an asset has been impaired, the Company’s established strategy of holding properties over the long term directly decreases the likelihood of recording an impairment loss. If the Company’s strategy changes or market conditions otherwise dictate an earlier sale date, an impairment loss may be recognized and such loss could be material. If the Company determines that an impairment has occurred, the affected assets must be reduced to their fair value, less cost to sell.

Guidance in Accounting Standards Codification (“ASC”) 360 “Property Plant and Equipment” (“ASC 360”) requires that qualifying assets and liabilities and the results of operations that have been sold, or otherwise qualify as “held for sale,” be presented as discontinued operations in all periods presented if the property operations are expected to be eliminated and the Company will not have significant continuing involvement following the sale. Discontinued operations presentation applies only to disposals representing a strategic shift that has (or will have) a major effect on an entity’s operations and financial results (e.g., a disposal of a major geographical area, a major line of business, a major equity method investment or other major parts of an entity). The components of the property’s net income that are reflected as discontinued operations include the net gain (or loss) upon the disposition of the property held for sale, operating results, depreciation and interest expense (if the property is subject to a secured loan). The Company generally considers assets to be “held for sale” when the transaction has been approved by Boston Properties, Inc.’s Board of Directors, or a committee thereof, and there are no known significant contingencies relating to the sale, such that a sale of the property within one year is considered probable. Following the classification of a property as “held for

sale,” no further depreciation is recorded on the assets, and the asset is written down to the lower of carrying value or fair market value, less cost to sell.

Real estate is stated at depreciated cost. A variety of costs are incurred in the acquisition, development and leasing of properties. The cost of buildings and improvements includes the purchase price of property, legal fees and other acquisition costs. The Company capitalizes acquisition costs that it incurs to effect an asset acquisition and expenses acquisition costs that it incurs to effect a business combination, including legal, due diligence and other closing related costs. Costs directly related to the development of properties are capitalized. Capitalized development costs include interest, internal wages, property taxes, insurance, and other project costs incurred during the period of development. After the determination is made to capitalize a cost, it is allocated to the specific component of a project that is benefited. Determination of when a development project commences and capitalization begins, and when a development project is substantially complete and held available for occupancy and capitalization must cease, involves a degree of judgment. The Company’s capitalization policy on development properties follows the guidance in ASC 835-20 “Capitalization of Interest” and ASC 970 “Real Estate-General.” The costs of land and buildings under development include specifically identifiable costs.

The capitalized costs include pre-construction costs necessary to the development of the property, development costs, construction costs, interest costs, real estate taxes, salaries and related costs and other costs incurred during the period of development. The Company begins the capitalization of costs during the pre-construction period which it defines as activities that are necessary for the development of the property. The Company considers a construction project as substantially completed and held available for occupancy upon the completion of tenant improvements, but no later than one year from cessation of major construction activity. The Company ceases capitalization on the portion (1) substantially completed, (2) occupied or held available for occupancy, and capitalizes only those costs associated with the portion under construction or (3) if activities necessary for the development of the property have been suspended. Interest costs capitalized for the years ended December 31, 2017, 2016 and 2015 were $61.1 million, $39.2 million and $34.2 million, respectively. Salaries and related costs capitalized for the years ended December 31, 2017, 2016 and 2015 were $13.2 million, $11.1 million and $10.4 million, respectively.

Expenditures for repairs and maintenance are charged to operations as incurred. Significant betterments are capitalized. When assets are sold or retired, their costs and related accumulated depreciation are removed from the accounts with the resulting gains or losses reflected in net income or loss for the period.

The Company computes depreciation and amortization on properties using the straight-line method based on estimated useful asset lives. In accordance with ASC 805 “Business Combinations,” the Company allocates the acquisition cost of real estate to its components and depreciates or amortizes these assets (or liabilities) over their useful lives. The amortization of acquired “above-” and “below-market” leases and acquired in-place leases is recorded as an adjustment to revenue and depreciation and amortization, respectively, in the Consolidated Statements of Operations.

Depreciation is computed on a straight-line basis over the estimated useful lives of the assets as follows:



Land improvements		25 to 40 years
Buildings and improvements		10 to 40 years
Tenant improvements		Shorter of useful life or terms of related lease
Furniture, fixtures, and equipment		3 to 7 years

Cash and Cash Equivalents

Cash and cash equivalents consist of cash on hand and investments with maturities of three months or less from the date of purchase. The majority of the Company’s cash and cash equivalents are held at major commercial banks which may at times exceed the Federal Deposit Insurance Corporation limit of $250,000.

Cash Held in Escrows

Escrows include amounts established pursuant to various agreements for security deposits, property taxes, insurance and other costs. Escrows also include cash held by qualified intermediaries for possible investments in like-kind exchanges in accordance with Section 1031 of the Internal Revenue Code in connection with sales of the Company’s properties.

Investments in Securities

The Company accounts for investments in trading securities at fair value, with gains or losses resulting from changes in fair value recognized currently in earnings. The designation of trading securities is generally determined at acquisition. The Company maintains a deferred compensation plan that is designed to allow officers of Boston Properties, Inc. to defer a portion of their current income on a pre-tax basis and receive a tax-deferred return on these deferrals. The Company’s obligation under the plan is that of an unsecured promise to pay the deferred compensation to the plan participants in the future. At December 31, 2017 and 2016, the Company had maintained approximately $29.2 million and $23.8 million, respectively, in a separate account, which is not restricted as to its use. The Company recognized gains (losses) of approximately $3.7 million, $2.3 million and $(0.7) million on its investments in the account associated with the Company’s deferred compensation plan during the years ended December 31, 2017, 2016 and 2015, respectively.

Tenant and Other Receivables

Tenant and other accounts receivable, other than accrued rents receivable, are expected to be collected within one year.

Deferred Charges

Deferred charges include leasing costs and certain financing fees. Leasing costs include acquired intangible in-place lease values and direct and incremental fees and costs incurred in the successful negotiation of leases, including brokerage, legal, internal leasing employee salaries and other costs which have been deferred and are being amortized on a straight-line basis over the terms of the respective leases. Unamortized leasing costs are charged to expense upon the early termination of the lease. Fully amortized deferred leasing costs are removed from the books upon the expiration of the lease. Internal leasing salaries and related costs capitalized for the years ended December 31, 2017, 2016 and 2015 were $5.0 million, $7.2 million and $5.5 million, respectively. Financing fees included in deferred charges consist of external fees and costs incurred to obtain the Company's revolving facility and if applicable, the delayed draw facility and construction financing arrangements where there are not sufficient amounts outstanding. Such financing costs have been deferred and are being amortized over the terms of the respective financing and included within interest expense. Unamortized financing costs are charged to expense upon the early repayment or significant modification of the financing. Fully amortized deferred financing costs are removed from the books upon the maturity of the debt.

External fees and costs incurred to obtain mortgage financings and unsecured senior notes have been deferred and are presented as direct deductions from the carrying amounts of the corresponding debt liability. Such financing costs are being amortized over the terms of the respective financing and included within interest expense. Unamortized financing costs are charged to expense upon the early repayment or significant modification of the financing.

Investments in Unconsolidated Joint Ventures

The Company consolidates VIEs in which it is considered to be the primary beneficiary. VIEs are entities in which the equity investors do not have sufficient equity at risk to finance their endeavors without additional financial support or that the holders of the equity investment at risk do not have substantive participating rights. The primary beneficiary is defined by the entity having both of the following characteristics: (1) the power to direct the activities that, when taken together, most significantly impact the variable interest entity’s performance, and (2) the obligation to absorb losses and the right to receive the returns from the variable interest entity that could potentially be significant to the VIE. For ventures that are not VIEs, the Company consolidates entities for which it has significant decision making control over the ventures’ operations. The Company’s judgment with respect to its level of influence or control of an entity involves the consideration of various factors including the form of the Company’s ownership interest, its representation in the entity’s governance, the size of its investment (including loans), estimates of future cash flows, its ability to participate in policy making decisions and the rights of the other investors to participate in the decision making process and to replace the Company as manager and/or liquidate the venture, if applicable. The Company’s assessment of its influence or control over an entity affects the presentation of these investments in the Company’s consolidated financial statements. In addition to evaluating control rights, the Company consolidates entities in which the outside partner has no substantive kick-out rights to remove the Company as the managing member.

Accounts of the consolidated entity are included in the accounts of the Company and the noncontrolling interest is reflected on the Consolidated Balance Sheets as a component of equity or in temporary equity between liabilities and equity. Investments in unconsolidated joint ventures are recorded initially at cost, and subsequently adjusted for equity in earnings and cash contributions and distributions. Any difference between the carrying amount of these investments on the balance sheet and the underlying equity in net assets is amortized as an adjustment to equity in earnings of unconsolidated joint ventures over the life of the related asset. Under the equity method of accounting, the net equity investment of the Company is reflected within the Consolidated Balance Sheets, and the Company’s share of net income or loss from the joint ventures is included within the Consolidated Statements of Operations. The joint venture agreements may designate different percentage allocations among investors for profits and losses; however, the Company’s recognition of joint venture income or loss generally follows the joint venture’s distribution priorities, which may change upon the achievement of certain investment return thresholds. The Company may account for cash distributions in excess of its investment in an unconsolidated joint venture as income when the Company is not the general partner in a limited partnership and when the Company has neither the requirement nor the intent to provide financial support to the joint venture. The Company’s investments in unconsolidated joint ventures are reviewed for impairment periodically and the Company records impairment charges when events or circumstances change indicating that a decline in the fair values below the carrying values has occurred and such decline is other-than-temporary. The ultimate realization of the investment in unconsolidated joint ventures is dependent on a number of factors, including the performance of each investment and market conditions. The Company will record an impairment charge if it determines that a decline in the value below the carrying value of an investment in an unconsolidated joint venture is other-than-temporary.

To the extent that the Company contributes assets to a joint venture, the Company’s investment in the joint venture is recorded at the Company’s cost basis in the assets that were contributed to the joint venture. To the extent that the Company’s cost basis is different than the basis reflected at the joint venture level, the basis difference is amortized over the life of the related asset and included in the Company’s share of equity in net income of the joint venture. In accordance with the provisions of ASC 970-323 “Investments—Equity Method and Joint Ventures” (“ASC 970-323”), the Company will recognize gains on the contribution of real estate to joint ventures, relating solely to the outside partner’s interest, to the extent the economic substance of the transaction is a sale.

The combined summarized financial information of the unconsolidated joint ventures is disclosed in Note 5.

Revenue Recognition

In general, the Company commences rental revenue recognition when the tenant takes possession of the leased space and the leased space is substantially ready for its intended use. Contractual rental revenue is reported on a straight-line basis over the terms of the respective leases. The impact of the straight-line rent adjustment increased revenue by approximately $54.8 million, $31.7 million and $80.0 million for the years ended December 31, 2017, 2016 and 2015, respectively, as the revenue recorded exceeded amounts billed. Accrued rental income, as reported on the Consolidated Balance Sheets, represents cumulative rental income earned in excess of rent payments received pursuant to the terms of the individual lease agreements. The Company maintains an allowance against accrued rental income for future potential tenant credit losses. The credit assessment is based on the estimated accrued rental income that is recoverable over the term of the lease. The Company also maintains an allowance for doubtful accounts for estimated losses resulting from the inability of tenants to make required rent payments. The computation of this allowance is based on the tenants’ payment history and current credit status, as well as certain industry or geographic specific credit considerations. If the Company’s estimates of collectability differ from the cash received, then the timing and amount of the Company’s reported revenue could be impacted. The credit risk is mitigated by the high quality of the Company’s existing tenant base, reviews of prospective tenants’ risk profiles prior to lease execution and consistent monitoring of the Company’s portfolio to identify potential problem tenants.

In accordance with ASC 805, the Company recognizes acquired in-place “above-” and “below-market” leases at their fair values as rental revenue over the original term of the respective leases. The impact of the acquired in-place “above-” and “below-market” leases increased revenue by approximately $23.5 million, $30.2 million and $35.9 million for the years ended December 31, 2017, 2016 and 2015, respectively. The following table summarizes the scheduled amortization of the Company’s acquired “above-” and “below-market” lease intangibles for each of the five succeeding years (in thousands).



	Acquired Above-Market Lease Intangibles		Acquired Below-Market Lease Intangibles
2018	$	8,614	$	32,152
2019	7,106		27,281
2020	5,394		10,736
2021	2,988		6,399
2022	315		5,669

Recoveries from tenants, consisting of amounts due from tenants for common area maintenance, real estate taxes and other recoverable costs, are recognized as revenue in the period during which the expenses are incurred. Tenant reimbursements are recognized and presented in accordance with guidance in ASC 605-45 “Principal Agent Considerations” (“ASC 605-45”). ASC 605-45 requires that these reimbursements be recorded on a gross basis, as the Company is generally the primary obligor with respect to purchasing goods and services from third-party suppliers, has discretion in selecting the supplier and has credit risk. The Company also receives reimbursement of payroll and payroll related costs from third parties which the Company reflects on a net basis.

The Company’s parking revenues are derived from leases, monthly parking and transient parking. The Company recognizes parking revenue as earned.

The Company’s hotel revenue is derived from room rentals and other sources such as charges to guests for telephone service, movie and vending commissions, meeting and banquet room revenue and laundry services. Hotel revenue is recognized as earned.

The Company receives management and development fees from third parties. Property management fees are recorded and earned based on a percentage of collected rents at the properties under management, and not on a straight-line basis, because such fees are contingent upon the collection of rents. The Company records development fees as earned depending on the risk associated with each project. The Company recognizes development fees earned from joint venture projects equal to its cost plus profit to the extent of the third party partners’ ownership interest.

Gains on sales of real estate are recognized pursuant to the provisions included in ASC 360-20 “Real Estate Sales” (“ASC 360-20”). The specific timing of the sale is measured against various criteria in ASC 360-20 related to the terms of the transaction and any continuing involvement in the form of management or financial assistance associated with the properties. If the sales criteria for the full accrual method are not met, the Company defers some or all of the gain recognition and accounts for the continued operations of the property by applying the finance, leasing, profit sharing, deposit, installment or cost recovery methods, as appropriate, until the sales criteria are met.

Ground Leases

The Company has non-cancelable ground lease obligations with various initial term expiration dates through 2114. The Company recognizes ground rent expense on a straight-line basis over the terms of the respective ground lease agreements. The future contractual minimum lease payments to be made by the Company as of December 31, 2017, under non-cancelable ground leases which expire on various dates through 2114, are as follows:



Years Ending December 31,	(in thousands)
2018	$	11,349
2019	16,360
2020	25,552
2021	11,814
2022	8,894
Thereafter	576,315

Capital Leases

The Company has three capital lease obligations with various initial term expiration dates through 2036. The following reflects the gross amount of assets recorded under capital leases by asset class at December 31, 2017 and December 31, 2016 (in thousands):



	December 31,
	2017		2016
Buildings and improvements	$	23,636	$	23,636
Construction in progress	28,962		—
Total	$	52,598	$	23,636

The future minimum lease payments, as of December 31, 2017, related to the three capital leases, through 2036 are as follows:



Years Ending December 31,	(in thousands)
2018	$	913
2019	1,392
2020	2,097
2021	1,375
2022	930
Thereafter	74,185
Total expected minimum lease payments	80,892
Interest portion	(29,296		)
Present value of expected net minimum lease payments	$	51,596

Earnings Per Share

Basic earnings per share (“EPS”) is computed by dividing net income available to common shareholders, as adjusted for undistributed earnings (if any) of certain securities issued by Boston Properties Limited Partnership, by the weighted average number of shares of Common Stock outstanding during the year. Diluted EPS reflects the potential dilution that could occur from shares issuable in connection with awards under stock-based compensation plans, including upon the exercise of stock options, and securities of Boston Properties Limited Partnership that are exchangeable for Common Stock.

Earnings Per Common Unit

Basic earnings per common unit is computed by dividing net income available to common unitholders, as adjusted for undistributed earnings (if any) of certain securities issued by Boston Properties Limited Partnership, by the weighted average number of common units outstanding during the year. Diluted earnings per common unit reflects the potential dilution that could occur from units issuable in connection with awards under Boston Properties, Inc.’s stock-based compensation plans, including upon the exercise of stock options, and conversion of preferred units of Boston Properties Limited Partnership.

Fair Value of Financial Instruments

The carrying values of cash and cash equivalents, marketable securities, escrows, receivables, accounts payable, accrued expenses and other assets and liabilities are reasonable estimates of their fair values because of the short maturities of these instruments.

The Company follows the authoritative guidance for fair value measurements when valuing its financial instruments for disclosure purposes. Boston Properties Limited Partnership determines the fair value of its unsecured senior notes using market prices. The inputs used in determining the fair value of Boston Properties Limited Partnership’s unsecured senior notes is categorized at a Level 1 basis (as defined in ASC 820 "Fair Value Measurements and Disclosures", the accounting standards for Fair Value Measurements and Disclosures) due to the fact that it uses quoted market rates to value these instruments. However, the inputs used in determining the fair value could be categorized at a level 2 basis (as defined in the accounting standards for Fair Value Measurements and Disclosures) if trading volumes are low. The Company determines the fair value of its mortgage notes payable using discounted cash flow analysis by discounting the spread between the future contractual interest payments and

hypothetical future interest payments on mortgage debt based on current market rates for similar securities. In determining the current market rates, the Company adds its estimates of market spreads to the quoted yields on federal government treasury securities with similar maturity dates to its debt. The inputs used in determining the fair value of the Company’s mortgage notes payable and mezzanine notes payable are categorized at a level 3 basis (as defined in the accounting standards for Fair Value Measurements and Disclosures) due to the fact that the Company considers the rates used in the valuation techniques to be unobservable inputs. To the extent that there are outstanding borrowings under the unsecured line of credit, the Company utilizes a discounted cash flow methodology in order to estimate the fair value. To the extent that credit spreads have changed since the origination, the net present value of the difference between future contractual interest payments and future interest payments based on the Company’s estimate of a current market rate would represent the difference between the book value and the fair value. The Company’s estimate of a current market rate is based upon the rate, considering current market conditions and the Company’s specific credit profile, at which it estimates it could obtain similar borrowings. To the extent there are outstanding borrowings, this current market rate is estimated and therefore would be primarily based upon a level 3 input.

Because the Company’s valuations of its financial instruments are based on these types of estimates, the actual fair values of its financial instruments may differ materially if the Company’s estimates do not prove to be accurate, and the Company’s estimated fair values for these instruments as of the end of the applicable reporting period are not necessarily indicative of estimated or actual fair values in future reporting periods. The following table presents the aggregate carrying value of the Company’s mortgage notes payable, net, mezzanine notes payable, unsecured senior notes, net and unsecured line of credit and the Company’s corresponding estimate of fair value as of December 31, 2017 and December 31, 2016 (in thousands):



	December 31, 2017				December 31, 2016
	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value
Mortgage notes payable, net	$	2,979,281	$	3,042,920	$	2,063,087	$	2,092,237
Mezzanine notes payable	—		—		307,093		308,344
Unsecured senior notes, net	7,247,330		7,461,615		7,245,953		7,428,077
Unsecured line of credit	45,000		45,000		—		—
Total	$	10,271,611	$	10,549,535	$	9,616,133	$	9,828,658

The Company uses interest rate swap agreements to manage its interest rate risk. The valuation of these instruments is determined using widely accepted valuation techniques, including discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves. To comply with the provisions of ASC 820, the Company incorporates credit valuation adjustments to appropriately reflect both its own nonperformance risk and the respective counterparty’s nonperformance risk in the fair value measurements. Although the Company determined that the majority of the inputs used to value its derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with its derivatives utilize Level 3 inputs, such as estimates of current credit spreads to evaluate the likelihood of default by the Company and its counterparties. The Company assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and determined that the credit valuation adjustments were not significant to the overall valuation of its derivatives. As a result, the Company has determined that its derivative valuations in their entirety are classified in Level 2 of the fair value hierarchy.

Derivative Instruments and Hedging Activities

Derivative instruments and hedging activities require management to make judgments on the nature of its derivatives and their effectiveness as hedges. These judgments determine if the changes in fair value of the derivative instruments are reported in the Consolidated Statements of Operations as a component of net income or as a component of comprehensive income and as a component of equity on the Consolidated Balance Sheets. While management believes its judgments are reasonable, a change in a derivative’s effectiveness as a hedge could materially affect expenses, net income and equity. The Company accounts for the effective portion of changes in the fair value of a derivative in other comprehensive income (loss) and subsequently reclassifies the effective portion to earnings over the term that the hedged transaction affects earnings. The Company accounts for the ineffective portion of changes in the fair value of a derivative directly in earnings.

Stock-Based Employee Compensation Plans

At December 31, 2017, the Company has a stock-based employee compensation plan. The Company accounts for the plan under the guidance in ASC 718 “Compensation – Stock Compensation” (“ASC 718”), which revised the fair value based method of accounting for share-based payment liabilities, forfeitures and modifications of stock-based awards and clarified previous guidance in several areas, including measuring fair value, classifying an award as equity or as a liability and attributing compensation cost to reporting periods.

Use of Estimates in the Preparation of Financial Statements

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. These estimates include such items as depreciation and allowances for doubtful accounts. Actual results could differ from those estimates.

Recent Accounting Pronouncements

In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers (Topic 606)” (“ASU 2014-09”). The objective of ASU 2014-09 is to establish a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and will supersede most of the existing revenue recognition guidance, including industry-specific guidance. The core principle is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In applying ASU 2014-09, companies will perform a five-step analysis of transactions to determine when and how revenue is recognized. ASU 2014-09 applies to all contracts with customers except those that are within the scope of other topics in the FASB’s ASC. In August 2015, the FASB issued ASU 2015-14, “Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date” (“ASU 2015-14”), which delayed the effective date of ASU 2014-09 by one year making it effective for the first interim period within annual reporting periods beginning after December 15, 2017. Early adoption is permitted as of the original effective date. In May 2016, the FASB issued ASU No. 2016-12, “Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients” (“ASU 2016-12”). ASU 2016-12 is intended to clarify and provide practical expedients for certain aspects of ASU 2014-09, which outlines a single comprehensive model for entities to use in accounting for revenues arising from contracts with customers and notes that lease contracts with customers are a scope exception. ASU 2014-09 is effective for the Company for reporting periods beginning after December 15, 2017. The Company adopted ASU 2014-09 effective January 1, 2018 using the modified retrospective approach. The Company expects that executory costs and certain non-lease components of revenue from leases may be impacted by the adoption of ASU 2014-09 (upon the adoption of ASU 2016-02). The adoption of ASU 2014-09 is expected to result in a change to the timing pattern of revenue recognized, but not the total revenue recognized over time for certain of the Company’s development services revenue. As a result, the modified retrospective approach is expected to result in the Company recognizing on January 1, 2018 the cumulative effect of adopting ASU 2014-09 reflecting the impact of applying the new guidance to certain of the Company’s outstanding development services contracts. ASU 2014-09 also updates the principal versus agent considerations and as a result the Company determined that amounts reimbursed for payroll and related costs received from third parties in connection with management services contracts should be reflected on a gross basis instead of on a net basis as the Company has determined that it is the principal under these arrangements. The adoption of ASU 2014-09 will not have a material impact on the Company’s consolidated financial statements.

In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842)” (“ASU 2016-02”), which sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract (i.e., lessees and lessors). ASU 2016-02 requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase of the leased asset by the lessee. This classification will determine whether the lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification. Leases with a term of 12 months or less will be accounted for similar to existing guidance for operating leases today. The new standard requires lessors to account for leases using an approach that is substantially equivalent to existing guidance for sales-type leases, direct financing leases and operating leases. ASU 2016-02 supersedes previous leasing standards. ASU 2016-02 is effective for the Company for reporting periods beginning after December 15, 2018, with early adoption permitted. The Company will adopt ASU 2016-02 effective January 1, 2019 using the modified retrospective approach. The Company is in the process of evaluating whether it will elect to apply the practical

expedients. The Company is in the process of adopting ASU 2016-02, with its project team compiling an inventory of its leases that will be impacted by the adoption of ASU 2016-02. The Company continues to assess the impact of adopting ASU 2016-02. However, the Company will account for operating leases under which it is the lessor on its balance sheet in a manner similar to its current accounting with the underlying leased asset recognized as real estate. In January 2018, the FASB issued a proposed ASU that would allow lessors to elect, as a practical expedient, not to allocate the total consideration to lease and non-lease components based on their relative standalone selling prices. If issued, this practical expedient will allow lessors to elect a combined single lease component presentation if (i) the timing and pattern of the revenue recognition of the combined single lease component is the same, and (ii) the related lease component and, the combined single lease component would be classified as an operating lease. If the practical expedient in the proposed ASU is issued, it could allow for tenant recoveries that qualify as non-lease components to be presented under a single lease component presentation. However, without the proposed practical expedient, tenant recoveries would be separated into lease and non-lease components. For leases in which the Company is the lessee, primarily consisting of ground leases, the Company will recognize a right-of-use asset and a lease liability equal to the present value of the minimum lease payments with rental payments being applied to the lease liability and to interest expense and the right-of-use asset being amortized to expense over the term of the lease. In addition, under ASU 2016-02, lessors will only capitalize incremental direct leasing costs. As a result, the Company will no longer be able to capitalize legal costs and internal leasing wages and instead will be required to expense these and other non-incremental costs as incurred.

In March 2016, the FASB issued ASU 2016-09, “Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting” (“ASU 2016-09”). ASU 2016-09 is intended to improve the accounting for share-based payments and affects all organizations that issue share-based payment awards to their employees. Several aspects of the accounting for share-based payment awards are simplified with ASU 2016-09, including income tax consequences, classification of awards as equity or liabilities and classification on the statement of cash flows. ASU 2016-09 is effective for the Company for reporting periods beginning after December 15, 2016, with early adoption permitted. On January 1, 2017, the Company adopted ASU 2016-09 and elected to make an accounting policy change to its method of accounting for forfeitures on its awards of stock-based compensation including the issuance of shares of restricted common stock, LTIP Units and MYLTIP Units. The Company now accounts for forfeitures as they occur instead of estimating the number of forfeitures upon the issuance of such awards of stock-based compensation. The adoption resulted in the Company recognizing cumulative effect of a change in accounting principle adjustments to its consolidated balance sheets totaling approximately $0.3 million to Dividends in Excess of Earnings and Partners’ Capital for Boston Properties, Inc. and Boston Properties Limited Partnership, respectively, and approximately $1.8 million to noncontrolling interests - common units of Boston Properties Limited Partnership and noncontrolling interests - redeemable partnership units for Boston Properties, Inc. and Boston Properties Limited Partnership, respectively.

In August 2016, the FASB issued ASU No. 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (a consensus of the FASB Emerging Issues Task Force)” (“ASU 2016-15”). ASU 2016-15 is intended to reduce diversity in practice in how certain transactions are classified in the statement of cash flows. The areas addressed in the new guidance related to debt prepayment costs, settlement of zero-coupon debt instruments, contingent consideration payments made after a business combination, proceeds from the settlement of insurance claims, proceeds from the settlement of corporate-owned and bank-owned life insurance policies, distributions received from equity method investments, beneficial interest in securitization transactions, and separately identifiable cash flows and application of the predominance principle. ASU 2016-15 is effective for the Company for reporting periods beginning after December 15, 2017, with early adoption permitted (provided that all of the amendments are adopted in the same period), and will be applied retrospectively to all periods presented. The Company adopted ASU 2016-15 effective January 1, 2018. The adoption of ASU 2016-15 will result in the retrospective classification of debt prepayment costs as financing activities instead of operating activities in the Company's consolidated statements of cash flows.

In November 2016, the FASB issued ASU No. 2016-18, “Statement of Cash Flows (Topic 230): Restricted Cash (a consensus of the FASB Emerging Issues Task Force)” (“ASU 2016-18”). ASU 2016-18 will require companies to include restricted cash and restricted cash equivalents with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. ASU 2016-18 will require a disclosure of a reconciliation between the statement of financial position and the statement of cash flows when the statement of financial position includes more than one line item for cash, cash equivalents, restricted cash and restricted cash equivalents. Entities with material restricted cash and restricted cash equivalents balances will be required to disclose the nature of the restrictions. ASU 2016-18 is effective for reporting periods beginning after December 15, 2017, with early adoption permitted, and will be applied retrospectively to all periods presented. The Company adopted ASU

2016-18 effective January 1, 2018. The adoption of ASU 2016-18 will not have a material impact on the Company’s consolidated financial statements.

In January 2017, the FASB issued ASU 2017-01, “Business Combinations (Topic 805): Clarifying the Definition of a Business” (“ASU 2017-01”). ASU 2017-01 clarifies the framework for determining whether an integrated set of assets and activities meets the definition of a business. The revised framework establishes a screen for determining whether an integrated set of assets and activities is a business and narrows the definition of a business, which is expected to result in fewer transactions being accounted for as business combinations. Acquisitions of integrated sets of assets and activities that do not meet the definition of a business are accounted for as asset acquisitions. This update is effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2017, with early adoption permitted for transactions that have not been reported in previously issued (or available to be issued) financial statements and shall be applied on a prospective basis. The Company early adopted ASU 2017-01 during the first quarter of 2017. The Company expects that acquisitions of real estate or in-substance real estate will not meet the revised definition of a business because substantially all of the fair value is concentrated in a single identifiable asset or group of similar identifiable assets (i.e. land, buildings, and related intangible assets) or because the acquisition does not include a substantive process in the form of an acquired workforce or an acquired contract that cannot be replaced without significant cost, effort or delay.

In February 2017, the FASB issued ASU No. 2017-05, “Other Income - Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20): Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets” (“ASU 2017-05”). ASU 2017-05 updates the definition of an “in substance nonfinancial asset” and clarifies the derecognition guidance for nonfinancial assets to conform with the new revenue recognition standard. The effective date and transition methods of ASU 2017-05 are aligned with ASU 2014-09 described above and are effective for the first interim period within annual reporting periods beginning after December 15, 2017. The Company adopted ASU 2017-05 effective January 1, 2018 using the modified retrospective approach. The adoption of ASU 2017-05 will not have a material impact on the Company's consolidated financial statements.

In May 2017, the FASB issued ASU 2017-09, “Compensation - Stock Compensation (Topic 718): Scope of Modification Accounting” (“ASU 2017-09”). ASU 2017-09 is intended to provide clarity and reduce (1) diversity in practice, (2) cost and (3) complexity when applying the guidance in Topic 718 to a change to the terms or conditions of a share-based payment award. ASU 2017-09 is effective for public entities for fiscal years and interim periods beginning after December 15, 2017. The Company adopted ASU 2017-09 effective January 1, 2018. The adoption of ASU 2017-09 will not have a material impact on the Company's consolidated financial statements.

In August 2017, the FASB issued ASU 2017-12, “Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities” (“ASU 2017-12”). ASU 2017-12 was issued with the objective of improving the financial reporting of hedging relationships to better portray the economic results of an entity’s risk management activities in its financial statements. ASU 2017-12 also makes certain targeted improvements to simplify the application of the hedge accounting guidance. ASU 2017-12 is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted. The Company early adopted ASU 2017-12 effective January 1, 2018. The adoption of ASU 2017-12 will not have a material impact on the Company's consolidated financial statements.

Boston Properties, Inc.

Equity Offering Costs

Underwriting commissions and offering costs have been reflected as a reduction of additional paid-in capital.

Treasury Stock

Boston Properties, Inc.’s share repurchases are reflected as treasury stock utilizing the cost method of accounting and are presented as a reduction to consolidated stockholders’ equity.

Dividends

Earnings and profits, which determine the taxability of dividends to stockholders, will differ from income reported for financial reporting purposes due to the differences for federal income tax purposes in the treatment of gains/losses on the sale of real property, revenue and expense recognition, compensation expense, and in the estimated useful lives and basis used to compute depreciation.

The tax treatment of common dividends per share for federal income tax purposes is as follows:



	For the year ended December 31,
	2017					2016					2015
	Per Share			%		Per Share			%		Per Share			%
Ordinary income	$	2.86		98.29	%	$	2.76		90.51	%	$	2.34		57.97	%
Capital gain income	0.05			1.71	%	0.29			9.49	%	1.70			42.03	%
Total	$	2.91	(1)	100.00	%	$	3.05	(2)	100.00	%	$	4.04	(3)	100.00	%


(1)	The fourth quarter 2017 regular quarterly dividend was $0.80 per common share of which approximately $0.47 per common share was allocable to 2017 and approximately $0.33 per common share is allocable to 2018.


(2)	The fourth quarter 2016 regular quarterly dividend was $0.75 per common share of which approximately $0.56 per common share was allocable to 2016 and approximately $0.19 per common share is allocable to 2017.


(3)	The fourth quarter 2015 dividend of $1.90 per common share consists of a $1.25 per common share special dividend and a $0.65 per common share regular quarterly dividend. Approximately $1.35 per common share was allocable to 2015 and approximately $0.55 per common share is allocable to 2016.

Income Taxes

Boston Properties, Inc. has elected to be treated as a REIT under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended (the “Code”), commencing with its taxable year ended December 31, 1997. As a result, it generally will not be subject to federal corporate income tax on its taxable income that is distributed to its stockholders. A REIT is subject to a number of organizational and operational requirements, including a requirement that it currently distribute at least 90% of its annual taxable income (with certain adjustments). Boston Properties, Inc.’s policy is to distribute at least 100% of its taxable income. Accordingly, the only provision for federal income taxes in the accompanying consolidated financial statements relates to Boston Properties, Inc.’s consolidated taxable REIT subsidiaries. Boston Properties, Inc.’s taxable REIT subsidiaries did not have significant tax provisions or deferred income tax items. Boston Properties, Inc. has no uncertain tax positions recognized as of December 31, 2017 and 2016.

The Company owns a hotel property that is leased by a taxable REIT subsidiary and managed by Marriott International, Inc. The hotel taxable REIT subsidiary, a wholly owned subsidiary of Boston Properties Limited Partnership, is the lessee pursuant to the lease for the hotel property. As lessor, Boston Properties Limited Partnership is entitled to a percentage of gross receipts from the hotel property. Marriott International, Inc. continues to manage the hotel property under the Marriott name and under terms of the existing management agreement. The hotel taxable REIT subsidiary is subject to tax at the federal and state level and, accordingly, Boston Properties, Inc. has recorded a tax provision in its Consolidated Statements of Operations for the years ended December 31, 2017, 2016 and 2015.

The net difference between the tax basis and the reported amounts of Boston Properties, Inc.’s assets and liabilities is approximately $1.8 billion and $1.7 billion as of December 31, 2017 and 2016, respectively, which is primarily related to the difference in basis of contributed property and accrued rental income.

Certain entities included in Boston Properties, Inc.’s consolidated financial statements are subject to certain state and local taxes. These taxes are recorded as operating expenses in the accompanying consolidated financial statements.

The following table reconciles GAAP net income attributable to Boston Properties, Inc. to taxable income (unaudited):



	For the year ended December 31,
	2017			2016			2015
	(in thousands)
Net income attributable to Boston Properties, Inc.	$	462,439		$	512,785		$	583,106
Straight-line rent and net “above-” and “below-market” rent adjustments	(77,801		)	(65,861		)	(92,483		)
Book/Tax differences from depreciation and amortization	142,234			235,819			307,115
Book/Tax differences from interest expense	(18,136		)	(36,223		)	(43,349		)
Book/Tax differences on gains/(losses) from capital transactions	1,123			(70,880		)	(74,482		)
Book/Tax differences from stock-based compensation	37,990			33,463			22,008
Tangible Property Regulations	(116,265		)	(104,783		)	(74,887		)
Other book/tax differences, net	33,411			(6,121		)	(15,259		)
Taxable income	$	464,995		$	498,199		$	611,769

Boston Properties Limited Partnership

Income Taxes

The partners are required to report their respective share of Boston Properties Limited Partnership’s taxable income or loss on their respective tax returns and are liable for any related taxes thereon. Accordingly, the only provision for federal income taxes in the accompanying consolidated financial statements relates to Boston Properties Limited Partnership’s consolidated taxable REIT subsidiaries. Boston Properties Limited Partnership’s taxable REIT subsidiaries did not have significant tax provisions or deferred income tax items. Boston Properties Limited Partnership has no uncertain tax positions recognized as of December 31, 2017 and 2016.

The Company owns a hotel property which is managed through a taxable REIT subsidiary. The hotel taxable REIT subsidiary, a wholly owned subsidiary Boston Properties Limited Partnership, is the lessee pursuant to the lease for the hotel property. As lessor, Boston Properties Limited Partnership is entitled to a percentage of gross receipts from the hotel property. Marriott International, Inc. continues to manage the hotel property under the Marriott name and under terms of the existing management agreement. The hotel taxable REIT subsidiary is subject to tax at the federal and state level and, accordingly, Boston Properties Limited Partnership has recorded a tax provision in its Consolidated Statements of Operations for the years ended December 31, 2017, 2016 and 2015.

The net difference between the tax basis and the reported amounts of Boston Properties Limited Partnership’s assets and liabilities is approximately $2.9 billion and $2.7 billion as of December 31, 2017 and 2016, respectively, which is primarily related to the difference in basis of contributed property and accrued rental income.

Certain entities included in Boston Properties Limited Partnership’s consolidated financial statements are subject to certain state and local taxes. These taxes are recorded as operating expenses in the accompanying consolidated financial statements.

The following table reconciles GAAP net income attributable to Boston Properties Limited Partnership to taxable income (unaudited):



	For the year ended December 31,
	2017			2016			2015
	(in thousands)
Net income attributable to Boston Properties Limited Partnership	$	523,366		$	585,841		$	659,248
Straight-line rent and net “above-” and “below-market” rent adjustments	(86,773		)	(73,604		)	(103,227		)
Book/Tax differences from depreciation and amortization	144,436			245,239			329,629
Book/Tax differences from interest expense	(20,227		)	(40,481		)	(48,385		)
Book/Tax differences on gains/(losses) from capital transactions	784			(69,683		)	(67,602		)
Book/Tax differences from stock-based compensation	42,371			37,397			24,565
Tangible Property Regulations	(129,673		)	(117,102		)	(83,587		)
Other book/tax differences, net	37,607			(3,387		)	(14,561		)
Taxable income	$	511,891		$	564,220		$	696,080

Real Estate

Boston Properties, Inc.

Real estate consisted of the following at December 31, 2017 and December 31, 2016 (in thousands):



	2017			2016
Land	$	5,080,679		$	4,879,020
Land held for future development (1)	204,925			246,656
Buildings and improvements	12,284,164			11,890,626
Tenant improvements	2,219,608			2,060,315
Furniture, fixtures and equipment	37,928			32,687
Construction in progress	1,269,338			1,037,959
Total	21,096,642			20,147,263
Less: Accumulated depreciation	(4,589,634		)	(4,222,235		)
	$	16,507,008		$	15,925,028


(1)	Includes pre-development costs.

Boston Properties Limited Partnership

Real estate consisted of the following at December 31, 2017 and December 31, 2016 (in thousands):



	2017			2016
Land	$	4,976,303		$	4,774,460
Land held for future development (1)	204,925			246,656
Buildings and improvements	11,977,062			11,581,795
Tenant improvements	2,219,608			2,060,315
Furniture, fixtures and equipment	37,928			32,687
Construction in progress	1,269,338			1,037,959
Total	20,685,164			19,733,872
Less: Accumulated depreciation	(4,496,959		)	(4,136,364		)
	$	16,188,205		$	15,597,508


(1)	Includes pre-development costs.

Development/Redevelopment

On April 6, 2017, the Company commenced the construction of 145 Broadway, a build-to-suit Class A office project with approximately 485,000 net rentable square feet located in Cambridge, Massachusetts.

On May 27, 2017, the Company completed and fully placed in-service Reservoir Place North, a Class A office redevelopment project with approximately 73,000 net rentable square feet located in Waltham, Massachusetts.

On August 24, 2017, the Company entered into a 15-year lease with the General Services Administration under which the Company will develop the new headquarters for the Transportation Security Administration (TSA). The TSA will occupy 100% of the office space of the approximately 634,000 net rentable square feet Class A office project and a parking garage at 6595 Springfield Center Drive located in Springfield, Virginia. Concurrently with the execution of the lease, the Company commenced development of the project and expects the building to be available for occupancy by the fourth quarter of 2020.

On September 16, 2017, the Company completed and fully placed in-service 888 Boylston Street, a Class A office and retail project with approximately 417,000 net rentable square feet located in Boston, Massachusetts.

On November 17, 2017, the Company partially placed in-service 191 Spring Street, a Class A office redevelopment project with approximately 171,000 net rentable square feet located in Lexington, Massachusetts.

On November 28, 2017, the Company commenced construction of its 20 CityPoint development project totaling approximately 211,000 net rentable square feet of Class A office space located in Waltham, Massachusetts.

On December 1, 2017, a consolidated entity in which the Company has a 95% interest partially placed in-service Salesforce Tower, a Class A office project with approximately 1,400,000 net rentable square feet located in San Francisco, California.

On December 1, 2017, the Company entered into a 16-year lease with a tenant for approximately 288,000 net rentable square feet of Class A office space to be located in the Company's 2100 Pennsylvania Avenue development project. In 2016, the Company entered into a development agreement with The George Washington University to pursue the development of 2100 Pennsylvania Avenue, a Class A office property with approximately 469,000 net rentable square feet on land parcels located in Washington, DC. The development agreement provides for the execution of a 75-year ground lease for the property upon completion of the entitlement process and relocation of existing tenants anticipated to occur in 2019.

Ground Lease

On June 29, 2017, the Company executed a 99-year ground lease (including extension options), with the right to purchase prior to 10 years after stabilization of the development project as defined in the lease, for land adjacent to the MacArthur BART station located in Oakland, California. The Company has commenced development of a 402-unit residential building and supporting retail space on the site. The Company’s option to purchase the land, is considered a bargain purchase option and as a result, the Company has concluded that the lease should be accounted for as a capital lease. At the inception of the ground lease, the Company recorded an approximately $29.0 million capital lease asset and liability, which is reflected within Construction in Progress and Other Liabilities on the Company’s Consolidated Balance Sheets. Capital lease assets and liabilities are accounted for at the lower of fair market value or the present value of future minimum lease payments. This capital lease is for land only, therefore, the Company will not be depreciating the capital lease asset, because land is assumed to have an indefinite life.

As of June 29, 2017, future minimum lease payments related to this capital lease are as follows (in thousands):



Period from June 29, 2017 through December 31, 2017	$	5
2018	10
2019	10
2020	10
2021	13
Thereafter	38,778
Total expected minimum lease payments	38,826
Interest portion	(9,864		)
Present value of expected net minimum lease payments	$	28,962

Acquisitions

On May 15, 2017, the Company acquired 103 Carnegie Center located in Princeton, New Jersey for a purchase price of approximately $15.8 million in cash. 103 Carnegie Center is an approximately 96,000 net rentable square foot Class A office property. The following table summarizes the allocation of the aggregate purchase price, including transaction costs, of 103 Carnegie Center at the date of acquisition (in thousands).



Land	$	2,890
Building and improvements	11,229
Tenant improvements	871
In-place lease intangibles	2,389
Below-market lease intangible	(1,426		)
Net assets acquired	$	15,953

The following table summarizes the estimated annual amortization of the acquired below-market lease intangibles and the acquired in-place lease intangibles for 103 Carnegie Center for the remainder of 2017 and each of the next four succeeding fiscal years (in thousands).



	Acquired In-Place Lease Intangibles		Acquired Below- Market Lease Intangibles
Period from May 15, 2017 through December 31, 2017	$	660	$	(248	)
2018	590		(363		)
2019	367		(337		)
2020	243		(308		)
2021	96		(105		)

103 Carnegie Center contributed approximately $1.7 million of revenue and approximately ($0.3 million) of earnings to the Company for the period from May 15, 2017 through December 31, 2017.

Dispositions

On April 19, 2017, the Company completed the sale of an approximately 9.5-acre parcel of land at 30 Shattuck Road located in Andover, Massachusetts for a gross sale price of $5.0 million. Net cash proceeds totaled approximately $5.0 million, resulting in a gain on sale of real estate totaling approximately $3.7 million.

On June 13, 2017, the Company completed the sale of 40 Shattuck Road located in Andover, Massachusetts for a gross sale price of $12.0 million. Net cash proceeds totaled approximately $11.9 million, resulting in a gain on sale of real estate totaling approximately $28,000 for Boston Properties, Inc. and approximately $0.6 million for Boston Properties Limited Partnership. 40 Shattuck Road is an approximately 122,000 net rentable square foot Class A office property. 40 Shattuck Road contributed approximately $(28,000) of net loss to the Company for the period from January 1, 2017 through June 13, 2017 and contributed approximately $(50,000) and $0.3 million of net income (loss) to the Company for the years ended December 31, 2016 and 2015, respectively.

On August 30, 2017, the Company completed the sale of its Reston Eastgate property located in Reston, Virginia for a gross sale price of $14.0 million. Net cash proceeds totaled approximately $13.2 million, resulting in a gain on sale of real estate totaling approximately $2.8 million. Reston Eastgate is a parcel of land containing approximately 21.7 acres located at 11011 Sunset Hills Road.

Deferred Charges

Deferred charges consisted of the following at December 31, 2017 and December 31, 2016 (in thousands):



	2017			2016
Leasing costs, including lease related intangibles	$	1,147,181		$	1,132,092
Financing costs	14,991			6,094
	1,162,172			1,138,186
Less: Accumulated amortization	(483,134		)	(452,023		)
	$	679,038		$	686,163

The following table summarizes the scheduled amortization of the Company’s acquired in-place lease intangibles for each of the five succeeding years (in thousands).



	Acquired In-Place Lease Intangibles
2018	$	33,651
2019	27,333
2020	14,464
2021	8,777
2022	4,758

Investments in Unconsolidated Joint Ventures

The investments in unconsolidated joint ventures consist of the following at December 31, 2017 and 2016:



					Carrying Value of Investment (1)
Entity	Properties	Nominal % Ownership			December 31, 2017			December 31, 2016
					(in thousands)
Square 407 Limited Partnership	Market Square North	50.0	%		$	(8,258	)	$	(8,134	)
The Metropolitan Square Associates LLC	Metropolitan Square	20.0	%		3,339			2,004
BP/CRF 901 New York Avenue LLC	901 New York Avenue	25.0	%	(2)	(13,811		)	(10,564		)
WP Project Developer LLC	Wisconsin Place Land and Infrastructure	33.3	%	(3)	39,710			41,605
Annapolis Junction NFM, LLC	Annapolis Junction	50.0	%	(4)	18,381			20,539
540 Madison Venture LLC	540 Madison Avenue	60.0	%		66,179			67,816
500 North Capitol Venture LLC	500 North Capitol Street, NW	30.0	%		(3,876		)	(3,389		)
501 K Street LLC	1001 6th Street	50.0	%	(5)	42,657			42,528
Podium Developer LLC	The Hub on Causeway	50.0	%		67,120			29,869
Residential Tower Developer LLC	The Hub on Causeway - Residential	50.0	%	(6)	28,212			20,803
Hotel Tower Developer LLC	The Hub on Causeway - Hotel	50.0	%		1,690			933
1265 Main Office JV LLC	1265 Main Street	50.0	%		4,641			4,779
BNY Tower Holdings LLC	Dock 72 at the Brooklyn Navy Yard	50.0	%		72,104			33,699
CA-Colorado Center Limited Partnership	Colorado Center	50.0	%		254,440			510,623
7750 Wisconsin Avenue LLC	7750 Wisconsin Avenue	50.0	%	(6)	21,452			N/A
					$	593,980		$	753,111


(1)	Investments with deficit balances aggregating approximately $25.9 million and $22.1 million at December 31, 2017 and 2016, respectively, have been reflected within Other Liabilities in the Company’s Consolidated Balance Sheets.


(2)	The Company’s economic ownership has increased based on the achievement of certain return thresholds.


(3)	The Company’s wholly-owned subsidiary that owns Wisconsin Place Office also owns a 33.3% interest in the joint venture entity that owns the land, parking garage and infrastructure of the project.


(4)	The joint venture owns four in-service buildings and two undeveloped land parcels.


(5)	Under the joint venture agreement for this land parcel, the partner will be entitled to up to two additional payments from the venture based on increases in total entitled square footage of the project above 520,000 square feet and achieving certain project returns at stabilization.


(6)	This entity is a VIE (See Note 2).

Certain of the Company’s unconsolidated joint venture agreements include provisions whereby, at certain specified times, each partner has the right to initiate a purchase or sale of its interest in the joint ventures. With limited exceptions under these provisions, the Company is not compelled to purchase the interest of its outside joint venture partners. Under certain of the Company's joint venture agreements, if certain return thresholds are achieved the partners will be entitled to an additional promoted interest or payments.

The combined summarized balance sheets of the Company’s unconsolidated joint ventures are as follows:



	December 31, 2017		December 31, 2016
	(in thousands)
ASSETS
Real estate and development in process, net	$	1,768,996	$	1,519,217
Other assets	367,743		297,263
Total assets	$	2,136,739	$	1,816,480
LIABILITIES AND MEMBERS’/PARTNERS’ EQUITY
Mortgage and notes payable, net	$	1,437,440	$	865,665
Other liabilities	99,215		67,167
Members’/Partners’ equity	600,084		883,648
Total liabilities and members’/partners’ equity	$	2,136,739	$	1,816,480
Company’s share of equity	$	286,495	$	450,662
Basis differentials (1)	307,485		302,449
Carrying value of the Company’s investments in unconsolidated joint ventures (2)	$	593,980	$	753,111

(1)

This amount represents the aggregate difference between the Company’s historical cost basis and the basis reflected at the joint venture level, which is typically amortized over the life of the related assets and liabilities. Basis differentials result from impairments of investments, acquisitions through joint ventures with no change in control and upon the transfer of assets that were previously owned by the Company into a joint venture. In addition, certain acquisition, transaction and other costs may not be reflected in the net assets at the joint venture level. At December 31, 2017 and 2016, there was an aggregate basis differential of approximately $322.5 million and $328.8 million, respectively, between the carrying value of the Company’s investment in the joint venture that owns Colorado Center and the joint venture’s basis in the assets and liabilities, which differential (excluding land) shall be amortized over the remaining lives of the related assets and liabilities.


(2)	Investments with deficit balances aggregating approximately $25.9 million and $22.1 million at December 31, 2017 and 2016, respectively, have been reflected within Other Liabilities in the Company’s Consolidated Balance Sheets.

The combined summarized statements of operations of the Company’s unconsolidated joint ventures are as follows:



	For the year ended December 31,
	2017			2016			2015
	(in thousands)
Total revenue (1)	$	222,517		$	177,182		$	155,642
Expenses
Operating	90,542			76,741			65,093
Depreciation and amortization	57,079			44,989			36,057
Total expenses	147,621			121,730			101,150
Operating income	74,896			55,452			54,492
Other expense
Interest expense	(46,371		)	(34,016		)	(32,176		)
Net income	$	28,525		$	21,436		$	22,316

Company’s share of net income (2)	$	18,439		$	9,873		$	22,031
Basis differential (3)	(7,207		)	(1,799		)	739
Income from unconsolidated joint ventures	$	11,232		$	8,074		$	22,770

Gain on sale of investment in unconsolidated joint venture	$	—		$	59,370		$	—


(1)	Includes straight-line rent adjustments of approximately $21.7 million, $18.1 million and $3.9 million for the years ended December 31, 2017, 2016 and 2015, respectively.

(2)

During the year ended December 31, 2015, the Company received a distribution of approximately $24.5 million, which was generated from the excess loan proceeds from the refinancing of 901 New York Avenue’s mortgage loan to a new 10-year mortgage loan totaling $225.0 million. The Company’s allocation of income and distributions for the year ended December 31, 2015 was not proportionate to its nominal ownership interest as a result of the achievement of specified investment return thresholds, as provided for in the joint venture agreement.


(3)	Includes straight-line rent adjustments of approximately $1.9 million and $1.4 million for the years ended December 31, 2017 and 2016, respectively. Also includes net above-/below-market rent adjustments of approximately $2.9 million and $0.9 million for the years ended December 31, 2017 and 2016, respectively.

On July 10, 2017, the Company acquired an additional 0.2% interest in the unconsolidated joint venture that owns Colorado Center located in Santa Monica, California for approximately $2.1 million in cash. Following the acquisition, the Company owns a 50% interest in the joint venture. The Company continues to account for the joint venture under the equity method of accounting as there were no changes to the rights of the members as a result of the acquisition. On July 28, 2017, the unconsolidated joint venture obtained mortgage financing collateralized by the property totaling $550.0 million. The mortgage financing bears interest at a fixed rate of 3.56% per annum and matures on August 9, 2027. The loan requires interest-only payments during the 10-year term of the loan, with the entire principal amount due at maturity. The joint venture distributed to the partners the net proceeds from the financing totaling $502.0 million, of which the Company’s share was $251.0 million. Colorado Center is a six-building office complex that sits on a 15-acre site and contains an aggregate of approximately 1,118,000 net rentable square feet with an underground parking garage for 3,100 vehicles.

On August 7, 2017, the Company entered into a joint venture with The Bernstein Companies to develop an approximately 733,000 net rentable square foot (subject to adjustment based on finalized building design) build-to-suit Class A office building and below-grade parking garage at 7750 Wisconsin Avenue in Bethesda, Maryland. The joint venture entered into a lease agreement with an affiliate of Marriott International, Inc. under which Marriott will lease 100% of the office building and garage for a term of 20 years, and the building will serve as Marriott’s new worldwide headquarters. Marriott has agreed to fund 100% of the related tenant improvement costs and leasing commissions for the office building. The Company will serve as co-development manager for the venture and expects to commence construction in 2018. The Company and The Bernstein Companies each own a 50% interest in the joint venture. For its initial contribution, The Bernstein Companies contributed land with an initial fair value of $72.0 million and cash and improvements aggregating approximately $4.9 million. The Company contributed cash and improvements aggregating approximately $20.8 million for its initial contribution, of which $11.0 million was

distributed to The Bernstein Companies. In addition, the Company was required to fund $25.0 million into an escrow account to be used by the joint venture to fund future development costs. See also Note 10.

On September 6, 2017, a joint venture in which the Company has a 50% interest obtained construction financing with a total commitment of $204.6 million collateralized by its Hub on Causeway development project. The construction financing bears interest at a variable rate equal to LIBOR plus 2.25% per annum and matures on September 6, 2021, with two, one-year extension options, subject to certain conditions. The Hub on Causeway is an approximately 385,000 net rentable square foot project containing retail and office space located in Boston, Massachusetts. In connection with the construction financing, the Company obtained the right to complete the construction of the garage underneath the project being developed by an affiliate of its joint venture partner and obtain funding from the garage construction lender. The Company agreed to guarantee completion of the garage to the construction lender and an affiliate of its partner agreed to reimburse the Company for the partner’s share of any payments made under the guarantee.

On December 1, 2017, a joint venture in which the Company has a 50% interest commenced construction of a residential project aggregating approximately 320,000 square feet comprised of 440 residential units at its Hub on Causeway mixed-use development project located in Boston, Massachusetts.

Mortgage Notes Payable, Net, Mezzanine Notes Payable and Outside Members’ Notes Payable

The Company had outstanding mortgage notes payable totaling approximately $3.0 billion and $2.1 billion as of December 31, 2017 and 2016, respectively, each collateralized by one or more buildings and related land included in real estate assets. The mortgage notes payable are generally due in monthly installments and mature at various dates through June 9, 2027.

Fixed rate mortgage notes payable totaled approximately $3.0 billion and $2.1 billion at December 31, 2017 and 2016, respectively, with contractual interest rates ranging from 3.43% to 7.69% per annum at December 31, 2017 and 4.75% to 7.69% per annum at December 31, 2016 (with a weighted-average interest rate of 3.78% and 5.59% per annum (excluding the mezzanine notes payable) at December 31, 2017 and 2016, respectively). There were no variable rate mortgage loans at December 31, 2017 and 2016.

On June 7, 2017, the Company’s consolidated entity in which it has a 60% ownership interest and that owns 767 Fifth Avenue (the General Motors Building) located in New York City completed the refinancing of the indebtedness that had been secured by direct and indirect interests in the property. The new mortgage financing has a principal amount of $2.3 billion, bears interest at a fixed interest rate of 3.43% per annum and matures on June 9, 2027. The loan requires monthly interest-only payments during the 10-year term of the loan, with the entire principal amount being due at maturity.

The refinanced indebtedness consisted of (1) mortgage loans payable collateralized by the property aggregating $1.3 billion, (2) mezzanine loans payable aggregating $306.0 million, (3) additional mezzanine loans payable aggregating $294.0 million and (4) member loans aggregating $450.0 million with outstanding accrued interest payable totaling approximately $425.0 million. The mortgage loans required monthly interest-only payments at a weighted-average fixed interest rate of 5.95% per annum and were scheduled to mature on October 7, 2017. The mezzanine loans required interest-only payments at a weighted-average fixed interest rate of 6.02% per annum and were scheduled to mature on October 7, 2017. In addition, a subsidiary of the consolidated entity had acquired a lender’s interest in certain other mezzanine loans assumed during the acquisition of the property having an aggregate principal amount of $294.0 million and a stated interest rate of 6.02% per annum for a purchase price of approximately $263.1 million in cash. These mezzanine loans payable had been eliminated in consolidation and were canceled upon the refinancing of the indebtedness. The member loans bore interest at a fixed rate of 11.0% per annum and were scheduled to mature on June 9, 2017. A portion of the original purchase price of the property was financed with loans from the members on a pro rata basis equal to their percentage interest in the consolidated entity. The Company had eliminated in consolidation its member loan totaling $270.0 million and its share of the related accrued interest payable of approximately $255.0 million at the date of the refinancing. The remaining outside members’ notes payable and related accrued interest payable totaling $180.0 million and approximately $170.0 million, respectively, at the date of the refinancing had been reflected as Outside Members’ Notes Payable and within Accrued Interest Payable, respectively, on the Company’s Consolidated Balance Sheets. The net proceeds from the new financing were used to repay all of the outstanding accrued interest payable on the member loans and a portion of the outstanding principal balance of the member loans totaling approximately $176.1 million. In connection with the refinancing, the members of the Company’s consolidated entity contributed the remaining balance of the member notes payable totaling approximately $273.9

million (of which the Company’s share of approximately $164.4 million had been eliminated in consolidation) to equity in the consolidated entity (See Note 11). There was no prepayment penalty associated with the repayments. The Company recognized a gain from early extinguishment of debt totaling approximately $14.6 million primarily consisting of the acceleration of the remaining balance related to historical fair value debt adjustments.

No mortgage loans at December 31, 2017 and one mortgage loan totaling approximately $1.3 billion at December 31, 2016 had been accounted for at its fair value on the date the mortgage loan was assumed in connection with the consolidation of real estate. The impact of recording mortgage loans at fair value resulted in a decrease to interest expense of approximately $19.6 million, $46.4 million and $55.0 million for the years ended December 31, 2017, 2016 and 2015, respectively. The cumulative liability related to the fair value adjustment was $33.8 million at December 31, 2016 and is included in mortgage notes payable, net in the Consolidated Balance Sheets.

Contractual aggregate principal payments of mortgage notes payable at December 31, 2017 are as follows:



	Principal Payments
	(in thousands)
2018	$	18,633
2019	19,670
2020	20,766
2021	40,182
2022	614,710
Thereafter	2,300,000
Total aggregate principal payments	3,013,961
Deferred financing costs, net	(34,680		)
Total carrying value of mortgage notes payable, net	$	2,979,281

Derivative Instruments and Hedging Activities

During the year ended December 31, 2015, Boston Properties Limited Partnership commenced a planned interest rate hedging program and entered into 17 forward-starting interest rate swap contracts that fixed the 10-year swap rate at a weighted-average rate of approximately 2.423% per annum on notional amounts aggregating $550.0 million. These interest rate swap contracts were entered into in advance of a financing with a target commencement date in September 2016 and maturity in September 2026. On August 17, 2016, in conjunction with Boston Properties Limited Partnership’s offering of its 2.750% senior unsecured notes due 2026, the Company terminated the forward-starting interest rate swap contracts and cash-settled the contracts by making cash payments to the counterparties aggregating approximately $49.3 million. The Company recognized approximately $0.1 million of losses on interest rate contracts during the year ended December 31, 2016 related to the partial ineffectiveness of the interest rate contracts. The Company is reclassifying into earnings, as an increase to interest expense, approximately $49.2 million (or approximately $4.9 million per year over the 10-year term of the 2.750% senior unsecured notes due 2026) of the amounts recorded in the Consolidated Balance Sheets within Accumulated Other Comprehensive Loss, which represents the effective portion of the applicable interest rate contracts.

In addition, 767 Fifth Partners LLC, which is a subsidiary of the consolidated entity in which the Company has a 60% interest and owns 767 Fifth Avenue (the General Motors Building) in New York City, entered into 16 forward-starting interest rate swap contracts (including two contracts entered into during the year ended December 31, 2016 with notional amounts aggregating $50.0 million) that fix the 10-year swap rate at a weighted-average rate of approximately 2.619% per annum on notional amounts aggregating $450.0 million. These interest rate swap contracts were entered into in advance of a financing with a target commencement date in June 2017 and maturity in June 2027. On April 24, 2017, the consolidated entity that owns 767 Fifth Avenue (the General Motors Building) located in New York City entered into an interest rate lock and commitment agreement with a group of lenders on a ten-year financing totaling $2.3 billion at a fixed interest rate of 3.43% per annum (See Note 6). In conjunction with the interest rate lock and commitment agreement, 767 Fifth Partners LLC terminated the forward-starting interest rate swap contracts and cash-settled the contracts by making cash payments to the counterparties aggregating approximately $14.4 million. 767 Fifth Partners LLC did not record any hedge ineffectiveness. The Company is

reclassifying into earnings, as an increase to interest expense, approximately $14.4 million (or approximately $1.4 million per year over the 10-year term of the financing) of the amounts recorded in the Consolidated Balance Sheets within Accumulated Other Comprehensive Loss, which represents the effective portion of the applicable interest rate contracts.

At December 31, 2017, there were no outstanding interest rate swap contracts. 767 Fifth Partners LLC’s interest rate swap contracts consisted of the following at December 31, 2016 (dollars in thousands):



Derivative Instrument	Aggregate Notional Amount			Effective Date		Maturity Date	Strike Rate Range					Balance Sheet Location	Fair Value
			Low		High

Interest Rate Swaps	$	350,000		June 7, 2017		June 7, 2027	2.418	%	-	2.950	%	Other Liabilities	$	(8,773	)
Interest Rate Swaps	100,000			June 7, 2017		June 7, 2027	2.336	%	-	2.388	%	Prepaid Expenses and Other Assets	509
	$	450,000											$	(8,264	)

Boston Properties Limited Partnership entered into the interest rate swap contracts designated and qualifying as cash flow hedges to reduce its exposure to the variability in future cash flows attributable to changes in the 10-year swap rate in contemplation of obtaining 10-year fixed-rate financing in September 2016. The Company’s 767 Fifth Partners LLC consolidated entity entered into the interest rate swap contracts designated and qualifying as cash flow hedges to reduce its exposure to the variability in future cash flows attributable to changes in the 10-year swap rate in contemplation of obtaining 10-year fixed-rate financing in June 2017. Boston Properties Limited Partnership has formally documented all of its relationships between hedging instruments and hedged items, as well as its risk-management objective and strategy for undertaking various hedge transactions. Boston Properties Limited Partnership also assesses and documents, both at the hedging instrument’s inception and on an ongoing basis, whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in cash flows associated with the hedged items. All components of the forward-starting interest rate swap contracts were included in the assessment of hedge effectiveness. The Company accounts for the effective portion of changes in the fair value of a derivative in accumulated other comprehensive loss and subsequently reclassifies the effective portion to earnings over the term that the hedged transaction affects earnings. The Company accounts for the ineffective portion of changes in the fair value of a derivative directly in earnings. The Company classifies cash flows related to derivative instruments within its Consolidated Statements of Cash Flows consistent with the nature of the hedged item.

The following table presents the location in the financial statements of the losses recognized related to the Company’s cash flow hedges for the years ended December 31, 2017, 2016 and 2015:



	Year ended December 31,
	2017			2016			2015
	(in thousands)
Amount of loss related to the effective portion recognized in other comprehensive loss	$	(6,133	)	$	(47,144	)	$	(10,302	)
Amount of loss related to the effective portion subsequently reclassified to earnings (1)	$	(6,033	)	$	(3,751	)	$	(2,510	)
Amount of loss related to the ineffective portion and amount excluded from effectiveness testing	$	—		$	(140	)	$	—


(1)	During the year ended December 31, 2016, the Company accelerated the reclassification of amounts in other comprehensive loss to earnings as a result of the hedged forecasted transactions becoming probable not to occur. The accelerated amounts were a loss of approximately $0.2 million and are included in the table above.

Boston Properties, Inc.

The following table reflects the changes in accumulated other comprehensive loss for the years ended December 31, 2017, 2016 and 2015 (in thousands):



Balance at December 31, 2014	$	(9,304	)
Effective portion of interest rate contracts	(10,302		)
Amortization of interest rate contracts	2,510
Other comprehensive loss attributable to noncontrolling interests	2,982
Balance at December 31, 2015	(14,114		)
Effective portion of interest rate contracts	(47,144		)
Amortization of interest rate contracts	3,751
Other comprehensive loss attributable to noncontrolling interests	5,256
Balance at December 31, 2016	(52,251		)
Effective portion of interest rate contracts	(6,133		)
Amortization of interest rate contracts	6,033
Other comprehensive loss attributable to noncontrolling interests	1,922
Balance at December 31, 2017	$	(50,429	)

Boston Properties Limited Partnership

The following table reflects the changes in accumulated other comprehensive loss for the years ended December 31, 2017, 2016 and 2015 (in thousands):



Balance at December 31, 2014	$	(12,973	)
Effective portion of interest rate contracts	(10,302		)
Amortization of interest rate contracts	2,510
Other comprehensive loss attributable to noncontrolling interests in property partnership	2,428
Balance at December 31, 2015	(18,337		)
Effective portion of interest rate contracts	(47,144		)
Amortization of interest rate contracts	3,751
Other comprehensive loss attributable to noncontrolling interests in property partnership	877
Balance at December 31, 2016	(60,853		)
Effective portion of interest rate contracts	(6,133		)
Amortization of interest rate contracts	6,033
Other comprehensive loss attributable to noncontrolling interests in property partnership	2,128
Balance at December 31, 2017	$	(58,825	)

Unsecured Senior Notes

The following summarizes the unsecured senior notes outstanding as of December 31, 2017 (dollars in thousands):



	Coupon/ Stated Rate		Effective Rate(1)		Principal Amount			Maturity Date(2)
10 Year Unsecured Senior Notes	5.875	%	5.967	%	$	700,000		October 15, 2019
10 Year Unsecured Senior Notes	5.625	%	5.708	%	700,000			November 15, 2020
10 Year Unsecured Senior Notes	4.125	%	4.289	%	850,000			May 15, 2021
11 Year Unsecured Senior Notes	3.850	%	3.954	%	1,000,000			February 1, 2023
10.5 Year Unsecured Senior Notes	3.125	%	3.279	%	500,000			September 1, 2023
10.5 Year Unsecured Senior Notes	3.800	%	3.916	%	700,000			February 1, 2024
7 Year Unsecured Senior Notes	3.200	%	3.350	%	850,000			January 15, 2025
10 Year Unsecured Senior Notes	3.650	%	3.766	%	1,000,000			February 1, 2026
10 Year Unsecured Senior Notes	2.750	%	3.495	%	1,000,000			October 1, 2026
Total principal					7,300,000
Net unamortized discount					(17,894		)
Deferred financing costs, net					(34,776		)
Total					$	7,247,330


(1)	Yield on issuance date including the effects of discounts on the notes, settlements of interest rate contracts and the amortization of financing costs.


(2)	No principal amounts are due prior to maturity.

On December 4, 2017, Boston Properties Limited Partnership completed a public offering of $850.0 million in aggregate principal amount of its 3.200% unsecured senior notes due 2025. The notes were priced at 99.757% of the principal amount to yield an effective rate (including financing fees) of approximately 3.350% per annum to maturity. The notes will mature on January 15, 2025, unless earlier redeemed. The aggregate net proceeds from the offering were approximately $841.1 million after deducting underwriting discounts and transaction expenses.

On December 17, 2017, Boston Properties Limited Partnership completed the redemption of $850.0 million in aggregate principal amount of its 3.700% senior notes due November 15, 2018. The redemption price was approximately $865.5 million. The redemption price included approximately $2.8 million of accrued and unpaid interest to, but not including, the redemption date. Excluding the accrued and unpaid interest, the redemption price was approximately 101.49% of the principal amount being redeemed. The Company recognized a loss from early extinguishment of debt totaling approximately $13.9 million, which amount included the payment of the redemption premium totaling approximately $12.7 million.

The indenture relating to the unsecured senior notes contains certain financial restrictions and requirements, including (1) a leverage ratio not to exceed 60%, (2) a secured debt leverage ratio not to exceed 50%, (3) an interest coverage ratio of greater than 1.50, and (4) an unencumbered asset value of not less than 150% of unsecured debt. At December 31, 2017, Boston Properties Limited Partnership was in compliance with each of these financial restrictions and requirements.

Unsecured Credit Facility

On April 24, 2017, Boston Properties Limited Partnership amended and restated its revolving credit agreement (as amended and restated, the “2017 Credit Facility”). Among other things, the 2017 Credit Facility (1) increased the total commitment of the revolving line of credit (the “Revolving Facility”) from $1.0 billion to $1.5 billion, (2) extended the maturity date from July 26, 2018 to April 24, 2022, (3) reduced the per annum variable interest rates, and (4) added a $500.0 million delayed draw term loan facility (the “Delayed Draw Facility”) that permits Boston Properties Limited Partnership, until the first anniversary of the closing date, to draw upon up to four times a minimum of $50.0 million (or, if less, the remaining unused delayed draw term commitments), provided that amounts drawn under the Delayed Draw Facility and subsequently repaid may not be borrowed again. In addition, Boston Properties Limited Partnership may increase the total commitment under the 2017 Credit Facility by up to

$500.0 million through increases in the Revolving Facility or the Delayed Draw Facility, or both, subject to syndication of the increase and other conditions.

At Boston Properties Limited Partnership’s option, loans under the Revolving Facility and Delayed Draw Facility will bear interest at a rate per annum equal to (1) (a) in the case of loans denominated in Dollars, Euro or Sterling, LIBOR, and (b) in the case of loans denominated in Canadian Dollars, CDOR, in each case, plus a margin ranging from 77.5 to 155 basis points for the Revolving Commitment and 85 to 175 basis points for the Delayed Draw Facility, based on Boston Properties Limited Partnership’s credit rating or (2) an alternate base rate equal to the greatest of (x) the Administrative Agent’s prime rate, (y) the Federal Funds rate plus 0.50% or (z) LIBOR for a one-month period plus 1.00%, in each case, plus a margin ranging from 0 to 55 basis points for the Revolving Facility and 0 to 75 basis points for the Delayed Draw Facility, based on Boston Properties Limited Partnership’s credit rating. The 2017 Credit Facility also contains a competitive bid option for up to 65% of the Revolving Facility that allows banks that are part of the lender consortium to bid to make loan advances to Boston Properties Limited Partnership at a reduced interest rate.

In addition, Boston Properties Limited Partnership is obligated to pay (1) in quarterly installments a facility fee on the total commitment under the Revolving Facility at a rate per annum ranging from 0.10% to 0.30% based on Boston Properties Limited Partnership’s credit rating, (2) an annual fee on the undrawn amount of each letter of credit equal to the LIBOR margin on the Revolving Facility and (3) a fee on the unused commitments under the Delayed Draw Facility equal to 0.15% per annum.

Based on Boston Properties Limited Partnership’s December 31, 2017 credit rating, (1) the applicable Eurocurrency margins for the Revolving Facility and Delayed Draw Facility are 87.5 basis points and 95 basis points, respectively, (2) the alternate base rate margin is zero basis points for each of the Revolving Facility and Delayed Draw Facility and (3) the facility fee on the Revolving Facility commitment is 0.15% per annum. At December 31, 2017 there was $45.0 million outstanding on the 2017 Credit Facility. At December 31, 2016, there were no amounts outstanding on the credit facility.

The 2017 Credit Facility contains customary representations and warranties, affirmative and negative covenants and events of default provisions, including failure to pay indebtedness, breaches of covenants, and bankruptcy and other insolvency events, which could result in the acceleration of all amounts and cancellation of all commitments outstanding under the Credit Agreement. Among other covenants, the 2017 Credit Facility requires that Boston Properties Limited Partnership maintain on an ongoing basis: (1) a leverage ratio not to exceed 60%, however, the leverage ratio may increase to no greater than 65% provided that it is reduced back to 60% within one year, (2) a secured debt leverage ratio not to exceed 55%, (3) a fixed charge coverage ratio of at least 1.40, (4) an unsecured debt leverage ratio not to exceed 60%, however, the unsecured debt leverage ratio may increase to no greater than 65% provided that it is reduced to 60% within one year, (5) an unsecured debt interest coverage ratio of at least 1.75 and (6) limitations on permitted investments. At December 31, 2017, Boston Properties Limited Partnership was in compliance with each of these financial and other covenant requirements.

Commitments and Contingencies

General

In the normal course of business, the Company guarantees its performance of services or indemnifies third parties against its negligence. In addition, in the normal course of business, the Company guarantees to certain tenants the obligations of its subsidiaries for the payment of tenant improvement allowances and brokerage commissions in connection with their leases and limited costs arising from delays in delivery of their premises.

The Company has letter of credit and performance obligations related to lender and development requirements that total approximately $9.1 million.

Certain of the Company’s joint venture agreements include provisions whereby, at certain specified times, each partner has the right to initiate a purchase or sale of its interest in the joint ventures. With limited exception, under these provisions, the Company is not compelled to purchase the interest of its outside joint venture partners. From time to time under certain of the Company’s joint venture agreements, if certain return thresholds are achieved the partners will be entitled to an additional promoted interest or payments. See also Note 11.

From time to time, the Company (or ventures in which the Company has an ownership interest) has agreed, and may in the future agree, to (1) guarantee portions of the principal, interest and other amounts in connection with their borrowings, (2) provide customary environmental indemnifications and nonrecourse carve-outs (e.g.,

guarantees against fraud, misrepresentation and bankruptcy) in connection with their borrowings and (3) provide guarantees to lenders and other third parties for the completion of development projects. The Company has agreements with its outside partners whereby the partners agree to reimburse the joint venture for their share of any payments made under the guarantee. In some cases, the Company earns a fee from the applicable joint venture for providing the guarantee.

In connection with the refinancing of 767 Fifth Avenue’s (the General Motors Building) secured loan by the Company’s consolidated joint venture entity, 767 Venture, LLC, the Company guaranteed the consolidated entity’s obligation to fund various reserves for tenant improvement costs and allowances, leasing commissions and free rent obligations in lieu of cash deposits. As of December 31, 2017, the maximum funding obligation under the guarantee was approximately $193.4 million. The Company earns a fee from the joint venture for providing the guarantee and has an agreement with the outside partners to reimburse the joint venture for their share of any payments made under the guarantee. As of December 31, 2017, no amounts related to the guarantee are recorded as liabilities in the Company’s consolidated financial statements.

Pursuant to the lease agreement with Marriott, the Company has guaranteed the completion of the office building and parking garage on behalf of its 7750 Wisconsin Avenue joint venture and has also agreed to provide any financing guaranty that may be required with respect to third-party construction financing. The Company earns a fee from the joint venture for providing the guarantees and any amounts the Company pays under the guarantee(s) will be deemed to be capital contributions by the Company to the joint venture. The Company has also agreed to fund construction costs through capital contributions to the joint venture in the event of unavailability or insufficiency of third-party construction financing. In addition, the Company has guaranteed to Marriott, as hotel manager, the completion of a hotel being developed by an affiliate of The Bernstein Companies adjacent to the office property, for which the Company earns a fee from the affiliate of The Bernstein Companies. In addition, the Company entered into agreements with affiliates of The Bernstein Companies whereby the Company could be required to act as a mezzanine and/or mortgage lender and finance the construction of the hotel property. To secure such financing arrangements, affiliates of The Bernstein Companies are required to provide certain security, which varies depending on the specific loan, by pledges of their equity interest in the office property, a fee mortgage on the hotel property, or both. As of December 31, 2017, no amounts related to the contingent aspect of any of the guarantees are recorded as liabilities in the Company’s consolidated financial statements. See also Note 5.

In 2009, the Company filed a general unsecured creditor’s claim against Lehman Brothers, Inc. for approximately $45.3 million related to its rejection of a lease at 399 Park Avenue in New York City. On January 10, 2014, the trustee for the liquidation of the business of Lehman Brothers allowed the Company’s claim in the amount of approximately $45.2 million. During 2014, the Company received an initial distribution totaling approximately $7.7 million. During the years ended December 31, 2017, 2016 and 2015, the Company received distributions aggregating approximately $0.4 million, $1.4 million and $8.1 million, respectively, which are included in Base Rent in the Consolidated Statements of Operations, leaving a remaining claim of approximately $27.6 million. The Company will continue to evaluate whether to attempt to sell the remaining claim or wait until the trustee distributes proceeds from the Lehman Brothers estate. Given the inherent uncertainties in bankruptcy proceedings, there can be no assurance as to the timing or amount of additional proceeds, if any, that the Company may ultimately realize on the remaining claim, whether by sale to a third party or by one or more distributions from the trustee. Accordingly, the Company has not recorded any estimated recoveries associated with this gain contingency within its Consolidated Financial Statements at December 31, 2017.

Concentrations of Credit Risk

Management of the Company performs ongoing credit evaluations of tenants and may require tenants to provide some form of credit support such as corporate guarantees and/or other financial guarantees. Although the Company’s properties are geographically diverse and the tenants operate in a variety of industries, to the extent the Company has a significant concentration of rental revenue from any single tenant, the inability of that tenant to make its lease payments could have an adverse effect on the Company.

Some potential losses are not covered by insurance.

The Company carries insurance coverage on its properties, including those under development, of types and in amounts and with deductibles that it believes are in line with coverage customarily obtained by owners of similar properties. Certain properties owned in joint ventures with third parties are insured by the third party partner with insurance coverage of types and in amounts and with deductibles the Company believes are in line with coverage customarily obtained by owners of similar properties. In response to the uncertainty in the insurance market

following the terrorist attacks of September 11, 2001, the Federal Terrorism Risk Insurance Act (as amended, “TRIA”) was enacted in November 2002 to require regulated insurers to make available coverage for “certified” acts of terrorism (as defined by the statute). The expiration date of TRIA was extended to December 31, 2014 by the Terrorism Risk Insurance Program Reauthorization Act of 2007 and further extended to December 31, 2020 by the Terrorism Risk Insurance Program Reauthorization Act of 2015 (“TRIPRA”), and the Company can provide no assurance that it will be extended further. Currently, the Company’s property insurance program per occurrence limits are $1.0 billion for its portfolio insurance program, including coverage for acts of terrorism other than nuclear, biological, chemical or radiological terrorism (“Terrorism Coverage”). The Company also carries $250 million of Terrorism Coverage for 601 Lexington Avenue, New York, New York (“601 Lexington Avenue”) in excess of the $1.0 billion of coverage in the Company’s property insurance program. Certain properties, including the General Motors Building located at 767 Fifth Avenue in New York, New York (“767 Fifth Avenue”), are currently insured in separate insurance programs. The property insurance program per occurrence limits for 767 Fifth Avenue are $1.625 billion, including Terrorism Coverage. The Company also currently carries nuclear, biological, chemical and radiological terrorism insurance coverage for acts of terrorism certified under TRIA (“NBCR Coverage”), which is provided by IXP as a direct insurer, for the properties in the Company's portfolio, including 767 Fifth Avenue, but excluding certain other properties owned in joint ventures with third parties or which the Company manages. The per occurrence limit for NBCR Coverage is $1.0 billion. Under TRIA, after the payment of the required deductible and coinsurance, the NBCR Coverage provided by IXP is backstopped by the Federal Government if the aggregate industry insured losses resulting from a certified act of terrorism exceed a “program trigger.” In 2017, the program trigger was $140 million and the coinsurance was 17%, however, both will increase in subsequent years pursuant to TRIPRA. If the Federal Government pays out for a loss under TRIA, it is mandatory that the Federal Government recoup the full amount of the loss from insurers offering TRIA coverage after the payment of the loss pursuant to a formula in TRIPRA. The Company may elect to terminate the NBCR Coverage if the Federal Government seeks recoupment for losses paid under TRIA, if there is a change in its portfolio or for any other reason. The Company intends to continue to monitor the scope, nature and cost of available terrorism insurance and maintain terrorism insurance in amounts and on terms that are commercially reasonable.

The Company also currently carries earthquake insurance on its properties located in areas known to be subject to earthquakes in an amount and subject to self-insurance that the Company believes is commercially reasonable. In addition, this insurance is subject to a deductible in the amount of 3% of the value of the affected property. Specifically, the Company currently carries earthquake insurance which covers its San Francisco (including Salesforce Tower) and Los Angeles regions with a $240 million (increased from $170 million on March 1, 2017) per occurrence limit, and a $240 million (increased from $170 million on March 1, 2017) annual aggregate limit, $20 million of which is provided by IXP, as a direct insurer. Prior to March 1, 2017, the builders risk policy maintained for the development of Salesforce Tower in San Francisco included a $60 million per occurrence and annual aggregate limit of earthquake coverage. The amount of the Company’s earthquake insurance coverage may not be sufficient to cover losses from earthquakes. In addition, the amount of earthquake coverage could impact the Company’s ability to finance properties subject to earthquake risk. The Company may discontinue earthquake insurance or change the structure of its earthquake insurance program on some or all of its properties in the future if the premiums exceed the Company’s estimation of the value of the coverage.

IXP, a captive insurance company which is a wholly-owned subsidiary of the Company, acts as a direct insurer with respect to a portion of the Company’s earthquake insurance coverage for its Greater San Francisco and Los Angeles properties and the Company’s NBCR Coverage. Insofar as the Company owns IXP, it is responsible for its liquidity and capital resources, and the accounts of IXP are part of the Company’s consolidated financial statements. In particular, if a loss occurs which is covered by the Company’s NBCR Coverage but is less than the applicable program trigger under TRIA, IXP would be responsible for the full amount of the loss without any backstop by the Federal Government. IXP would also be responsible for any recoupment charges by the Federal Government in the event losses are paid out and its insurance policy is maintained after the payout by the Federal Government. If the Company experiences a loss and IXP is required to pay under its insurance policy, the Company would ultimately record the loss to the extent of the required payment. Therefore, insurance coverage provided by IXP should not be considered as the equivalent of third-party insurance, but rather as a modified form of self-insurance. In addition, Boston Properties Limited Partnership has issued a guarantee to cover liabilities of IXP in the amount of $20.0 million.

The mortgages on the Company’s properties typically contain requirements concerning the financial ratings of the insurers who provide policies covering the property. The Company provides the lenders on a regular basis with the identity of the insurance companies in the Company’s insurance programs. The ratings of some of the Company’s insurers are below the rating requirements in some of the Company’s loan agreements and the lenders

for these loans could attempt to claim that an event of default has occurred under the loan. The Company believes it could obtain insurance with insurers which satisfy the rating requirements. Additionally, in the future, the Company’s ability to obtain debt financing secured by individual properties, or the terms of such financing, may be adversely affected if lenders generally insist on ratings for insurers or amounts of insurance which are difficult to obtain or which result in a commercially unreasonable premium. There can be no assurance that a deficiency in the financial ratings of one or more of the Company’s insurers will not have a material adverse effect on the Company.

The Company continues to monitor the state of the insurance market in general, and the scope and costs of coverage for acts of terrorism and California earthquake risk in particular, but the Company cannot anticipate what coverage will be available on commercially reasonable terms in future policy years. There are other types of losses, such as from wars, for which the Company cannot obtain insurance at all or at a reasonable cost. With respect to such losses and losses from acts of terrorism, earthquakes or other catastrophic events, if the Company experiences a loss that is uninsured or that exceeds policy limits, the Company could lose the capital invested in the damaged properties, as well as the anticipated future revenues from those properties. Depending on the specific circumstances of each affected property, it is possible that the Company could be liable for mortgage indebtedness or other obligations related to the property. Any such loss could materially and adversely affect the Company’s business and financial condition and results of operations.

Legal Matters

The Company is subject to various legal proceedings and claims that arise in the ordinary course of business. These matters are generally covered by insurance. Management believes that the final outcome of such matters will not have a material adverse effect on the financial position, results of operations or liquidity of the Company.

State and Local Tax Matters

Because Boston Properties, Inc. is organized and qualifies as a REIT, it is generally not subject to federal income taxes, but is subject to certain state and local taxes. In the normal course of business, certain entities through which the Company owns real estate either have undergone, or are currently undergoing, tax audits. Although the Company believes that it has substantial arguments in favor of its positions in the ongoing audits, in some instances there is no controlling precedent or interpretive guidance on the specific point at issue. Collectively, tax deficiency notices received to date from the jurisdictions conducting the ongoing audits have not been material. However, there can be no assurance that future audits will not occur with increased frequency or that the ultimate result of such audits will not have a material adverse effect on the Company’s results of operations.

Environmental Matters

It is the Company’s policy to retain independent environmental consultants to conduct or update Phase I environmental assessments (which generally do not involve invasive techniques such as soil or ground water sampling) and asbestos surveys in connection with the Company’s acquisition of properties. These pre-purchase environmental assessments have not revealed environmental conditions that the Company believes will have a material adverse effect on its business, assets, financial condition, results of operations or liquidity, and the Company is not otherwise aware of environmental conditions with respect to its properties that the Company believes would have such a material adverse effect. However, from time to time environmental conditions at the Company’s properties have required and may in the future require environmental testing and/or regulatory filings, as well as remedial action.

In February 1999, the Company (through a joint venture) acquired from Exxon Corporation a property in Massachusetts that was formerly used as a petroleum bulk storage and distribution facility and was known by the state regulatory authority to contain soil and groundwater contamination. The Company developed an office park on the property. The Company engaged a specially licensed environmental consultant to oversee the management of contaminated soil and groundwater that was disturbed in the course of construction. Under the property acquisition agreement, Exxon agreed to (1) bear the liability arising from releases or discharges of oil and hazardous substances which occurred at the site prior to the Company’s ownership, (2) continue monitoring and/or remediating such releases and discharges as necessary and appropriate to comply with applicable requirements, and (3) indemnify the Company for certain losses arising from preexisting site conditions. Any indemnity claim may be subject to various defenses, and there can be no assurance that the amounts paid under the indemnity, if any, would be sufficient to cover the liabilities arising from any such releases and discharges.

Environmental investigations at some of the Company’s properties and certain properties owned by affiliates of the Company have identified groundwater contamination migrating from off-site source properties. In each case the Company engaged a licensed environmental consultant to perform the necessary investigations and assessments and to prepare any required submittals to the regulatory authorities. In each case the environmental consultant concluded that the properties qualify under the regulatory program or the regulatory practice for a status which eliminates certain deadlines for conducting response actions at a site. The Company also believes that these properties qualify for liability relief under certain statutory provisions or regulatory practices regarding upgradient releases. Although the Company believes that the current or former owners of the upgradient source properties may bear responsibility for some or all of the costs of addressing the identified groundwater contamination, the Company will take such further response actions (if any) that it deems necessary or advisable. Other than periodic testing at some of these properties, no such additional response actions are anticipated at this time.

Some of the Company’s properties and certain properties owned by the Company’s affiliates are located in urban, industrial and other previously developed areas where fill or current or historical uses of the areas have caused site contamination. Accordingly, it is sometimes necessary to institute special soil and/or groundwater handling procedures and/or include particular building design features in connection with development, construction and other property operations in order to achieve regulatory closure and/or ensure that contaminated materials are addressed in an appropriate manner. In these situations, it is the Company’s practice to investigate the nature and extent of detected contamination, including potential issues associated with contaminant migration, assess potential liability risks and estimate the costs of required response actions and special handling procedures. The Company then uses this information as part of its decision-making process with respect to the acquisition, deal structure and/or development of the property. For example, the Company owns a parcel in Massachusetts which was formerly used as a quarry/asphalt batching facility. Pre-purchase testing indicated that the site contained relatively low levels of certain contaminants. The Company has developed an office park on this property. Prior to and during redevelopment activities, the Company engaged a specially licensed environmental consultant to monitor environmental conditions at the site and prepare necessary regulatory submittals based on the results of an environmental risk characterization. A submittal has been made to the regulatory authorities in order to achieve regulatory closure at this site. The submittal included an environmental deed restriction that mandates compliance with certain protective measures in a portion of the site where low levels of residual soil contamination have been left in place in accordance with applicable laws.

The Company expects that resolution of the environmental matters relating to the above will not have a material impact on its business, assets, financial condition, results of operations or liquidity. However, the Company cannot assure you that it has identified all environmental liabilities at its properties, that all necessary remediation actions have been or will be undertaken at the Company’s properties or that the Company will be indemnified, in full or at all, in the event that such environmental liabilities arise.

Noncontrolling Interests

Noncontrolling interests relate to the interests in Boston Properties Limited Partnership not owned by Boston Properties, Inc. and interests in consolidated property partnerships not wholly-owned by the Company. As of December 31, 2017, the noncontrolling interests in Boston Properties Limited Partnership consisted of 16,810,378 OP Units, 818,343 LTIP Units (including 118,067 2012 OPP Units, 85,405 2013 MYLTIP Units and 25,107 2014 MYLTIP Units), 366,618 2015 MYLTIP Units, 473,360 2016 MYLTIP Units and 400,000 2017 MYLTIP Units held by parties other than Boston Properties, Inc.

Noncontrolling Interest—Redeemable Preferred Units

On June 25, 2015, Boston Properties Limited Partnership redeemed the remaining 12,667 Series Four Preferred Units for cash totaling approximately $0.6 million, plus accrued and unpaid distributions. The Series Four Preferred Units bore a preferred distribution equal to 2.00% per annum on a liquidation preference of $50.00 per unit and were not convertible into OP Units. The holders of Series Four Preferred Units had the right, at certain times and subject to certain conditions set forth in the Certificate of Designations establishing the rights, limitations and preferences of the Series Four Preferred Units, to require Boston Properties Limited Partnership to redeem all of their units for cash at the redemption price of $50.00 per unit. Boston Properties Limited Partnership also had the right, at certain times and subject to certain conditions, to redeem all of the Series Four Preferred Units for cash at the redemption price of $50.00 per unit. In order to secure the performance of certain post-issuance obligations by the holders, all of such outstanding Series Four Preferred Units were subject to forfeiture pursuant to the terms of a pledge agreement and not eligible for redemption until the security interest was released and unless such security interest is released. Due to the holders’ redemption option existing outside the control of the Company, the

Series Four Preferred Units were presented outside of permanent equity in the Company’s Consolidated Balance Sheets.

The following table reflects the activity of the noncontrolling interests—redeemable preferred units for the year ended December 31, 2015 (in thousands):



Balance at December 31, 2014	$	633
Net income	6
Distributions	(6		)
Redemption of redeemable preferred units (Series Four Preferred Units)	(633		)
Balance at December 31, 2015	$	—

Noncontrolling Interest—Redeemable Interest in Property Partnership

On October 4, 2012, the Company completed the formation of a joint venture, that owns and operates Fountain Square located in Reston, Virginia. The joint venture partner contributed the property valued at approximately $385.0 million and related mortgage indebtedness totaling approximately $211.3 million for a 50% interest in the joint venture. The Company contributed cash totaling approximately $87.0 million for its 50% interest, which cash was distributed to the joint venture partner. Pursuant to the joint venture agreement (i) the Company had rights to acquire the partner’s 50% interest and (ii) the partner had the right to cause the Company to acquire the partner’s interest on January 4, 2016, in each case at a fixed price totaling approximately $102.0 million in cash. The fixed price option rights were to expire on January 31, 2016. The Company was consolidating this joint venture due to the Company’s right to acquire the partner’s 50% interest. The Company recorded the noncontrolling interest at its acquisition-date fair value as temporary equity, due to the redemption option existing outside the control of the Company. The Company was accreting the changes in the redemption value quarterly over the period from the acquisition date to the earliest redemption date using the effective interest method. The Company was recording the accretion after the allocation of net income and distributions of cash flow to the noncontrolling interest account balance.

On August 6, 2015, the parties amended the joint venture agreement to require the Company to acquire its partner’s 50% interest on September 15, 2015 for approximately $100.9 million in cash. On September 15, 2015, the Company acquired its partner’s 50% interest in the consolidated entity that owns Fountain Square for cash of approximately $100.9 million plus working capital and closing prorations and the partner’s share of assumed mortgage indebtedness totaling approximately $105.6 million.

The following table reflects the activity of the noncontrolling interest—redeemable interest in property partnership in the Company’s Fountain Square consolidated entity for the year ended December 31, 2015 (in thousands):



Balance at December 31, 2014	$	104,692
Net loss	(7		)
Distributions	(2,900		)
Adjustment to reflect redeemable interest at redemption value	5,128
Acquisition of interest	(106,913		)
Balance at December 31, 2015	$	—

Noncontrolling Interest—Common Units

During the years ended December 31, 2017 and 2016, 495,637 and 190,857 OP Units, respectively, were presented by the holders for redemption (including 36,486 and 103,847 OP Units, respectively, issued upon conversion of LTIP Units, 2012 OPP Units, 2013 MYLTIP Units and 2014 MYLTIP Units) and were redeemed by Boston Properties, Inc. in exchange for an equal number of shares of Common Stock.

Boston Properties Limited Partnership exercised its right under the terms of its partnership agreement to convert an aggregate of 625,043 eligible LTIP Units (including an aggregate of 32,349 2012 OPP Units and 2013 MYLTIP Units) into Common Units effective as of May 2, 2016. These conversions were effected solely for administrative efficiency and had no substantive impact on the rights of Boston Properties Limited Partnership or the holders of these LTIP Units, as the economic and other rights of the LTIP Units converted were substantively

identical to those of the Common Units. In the future, Boston Properties Limited Partnership intends to convert LTIP Units (including 2012 OPP Units and MYLTIP Units) into Common Units promptly after they become eligible for conversion. The May 2016 conversions were, and future conversions will be, effected at the election of Boston Properties Limited Partnership and are without regard to the investment intentions of the holders of the units.

At December 31, 2017, Boston Properties Limited Partnership had outstanding 366,618 2015 MYLTIP Units, 473,360 2016 MYLTIP Units and 400,000 2017 MYLTIP Units (See Note 17). Prior to the applicable measurement date (February 4, 2018 for 2015 MYLTIP Units (See Note 20), February 9, 2019 for 2016 MYLTIP Units and February 6, 2020 for 2017 MYLTIP Units), holders of MYLTIP Units will be entitled to receive per unit distributions equal to one-tenth (10%) of the regular quarterly distributions payable on an OP Unit, but will not be entitled to receive any special distributions. After the measurement date, the number of MYLTIP Units, both vested and unvested, that MYLTIP award recipients have earned, if any, based on the establishment of a performance pool, will be entitled to receive distributions in an amount per unit equal to distributions, both regular and special, payable on an OP Unit.

On February 6, 2015, the measurement period for the Company’s 2012 OPP Unit awards ended and Boston Properties, Inc.’s TSR performance was sufficient for employees to earn and therefore become eligible to vest in a portion of the 2012 OPP Unit awards. The final outperformance pool was determined to be approximately $32.1 million, or approximately 80% of the total maximum outperformance pool of $40.0 million. As a result, 174,549 2012 OPP Units were automatically forfeited.

On February 4, 2016, the measurement period for the Company’s 2013 MYLTIP awards ended and, based on Boston Properties, Inc.’s relative TSR performance, the final awards were determined to be 109.5% of target, or an aggregate of approximately $13.5 million. As a result, 205,762 2013 MYLTIP Units were automatically forfeited.

On February 3, 2017, the measurement period for the Company’s 2014 MYLTIP awards ended and, based on Boston Properties, Inc.’s relative TSR performance, the final awards were determined to be 27.7% of target or an aggregate of approximately $3.5 million (after giving effect to voluntary employee separations and the unallocated reserve). As a result, an aggregate of 447,386 2014 MYLTIP Units that had been previously granted were automatically forfeited.

The following table presents Boston Properties Limited Partnership’s distributions on the OP Units and LTIP Units (including the 2012 OPP Units and 2013 MYLTIP Units and, after the February 3, 2017 measurement date, the 2014 MYLTIP Units) and its distributions on the 2014 MYLTIP Units (prior to the February 3, 2017 measurement date), 2015 MYLTIP Units, 2016 MYLTIP Units and 2017 MYLTIP Units (after the February 7, 2017 issuance date) paid in 2017:



Record Date	Payment Date	Distributions per OP Unit and LTIP Unit		Distributions per MYLTIP Unit
December 29, 2017	January 30, 2018		$0.80		$0.080
September 29, 2017	October 31, 2017		$0.75		$0.075
June 30, 2017	July 31, 2017		$0.75		$0.075
March 31, 2017	April 28, 2017		$0.75		$0.075
December 31, 2016	January 30, 2017		$0.75		$0.075

A holder of an OP Unit may present the OP Unit to Boston Properties Limited Partnership for redemption at any time (subject to restrictions agreed upon at the time of issuance of OP Units to particular holders that may restrict such redemption right for a period of time, generally one year from issuance). Upon presentation of an OP Unit for redemption, Boston Properties Limited Partnership must redeem the OP Unit for cash equal to the then value of a share of common stock of Boston Properties, Inc. Boston Properties, Inc. may, in its sole discretion, elect to assume and satisfy the redemption obligation by paying either cash or issuing one share of Common Stock. The value of the OP Units (not owned by Boston Properties, Inc. and LTIP Units (including the 2012 OPP Units, 2013 MYLTIP Units and 2014 MYLTIP Units) assuming that all conditions had been met for the conversion thereof) had all of such units been redeemed at December 31, 2017 was approximately $2.3 billion based on the last reported price of a share of Common Stock on the New York Stock Exchange of $130.03 per share on December 29, 2017.

Boston Properties Limited Partnership

The following table reflects the activity of noncontrolling interests—redeemable common units of Boston Properties Limited Partnership for the years ended December 31, 2017, 2016 and 2015 (in thousands):



Balance at December 31, 2014	$	2,310,046
Contributions	39,030
Net income	66,951
Distributions	(69,447		)
Conversion of redeemable partnership units	(14,343		)
Unearned compensation	(4,579		)
Other comprehensive loss	(554		)
Adjustment to reflect redeemable partnership units at redemption value	(40,415		)
Balance at December 31, 2015	2,286,689
Contributions	31,395
Net income	59,260
Distributions	(49,087		)
Conversion of redeemable partnership units	(6,461		)
Unearned compensation	(3,464		)
Other comprehensive loss	(4,379		)
Adjustment to reflect redeemable partnership units at redemption value	(51,913		)
Balance at December 31, 2016	2,262,040
Contributions	31,743
Net income	52,210
Distributions	(54,494		)
Conversion of redeemable partnership units	(16,916		)
Unearned compensation	1,650
Cumulative effect of a change in accounting principle	(1,763		)
Other comprehensive income	206
Adjustment to reflect redeemable partnership units at redemption value	17,587
Balance at December 31, 2017	$	2,292,263

Noncontrolling Interests—Property Partnerships

The noncontrolling interests in property partnerships consist of the outside equity interests in ventures that are consolidated with the financial results of the Company because the Company exercises control over the entities that own the properties. The equity interests in these ventures that are not owned by the Company, totaling approximately $1.7 billion and $1.5 billion at December 31, 2017 and 2016, respectively, are included in Noncontrolling Interests—Property Partnerships on the accompanying Consolidated Balance Sheets.

On September 18, 2015, a consolidated entity in which the Company has a 50% interest completed the sale of its 505 9th Street, N.W. property located in Washington, DC for approximately $318.0 million, including the assumption by the buyer of approximately $117.0 million of mortgage indebtedness. 505 9th Street, N.W. is an approximately 322,000 net rentable square foot Class A office building. Net cash proceeds totaled approximately $194.6 million, of which the partners’ share was approximately $97.3 million. The Company recognized a gain on sale of real estate totaling approximately $199.5 million and $199.7 million for Boston Properties, Inc. and Boston Properties Limited Partnership, respectively, of which approximately $101.1 million was allocated to the outside partners and is included within Noncontrolling Interests in Property Partnerships in the Company’s Consolidated Statements of Operations. On December 10, 2015, the consolidated entity was dissolved and the Company reclassified the remaining noncontrolling interest balance totaling approximately $4.1 million to Accounts Payable and Accrued Expenses on the Consolidated Balances Sheets, of which approximately $0.2 million was outstanding at December 31, 2016. No amount was outstanding as of December 31, 2017.

On May 12, 2016, the partners in the Company’s consolidated entity that owns Salesforce Tower located in San Francisco, California amended the venture agreement. Under the original venture agreement, if the Company elects to fund the construction of Salesforce Tower without a construction loan (or a construction loan of less than 50% of project costs) and the venture has commenced vertical construction of the project, then the partner’s capital funding obligation shall be limited, in which event the Company shall fund up to 2.5% of the total project costs (i.e., 50% of the partner’s 5% interest in the venture) in the form of a loan to the partner. This loan would bear interest at the then prevailing market interest rates for construction loans. Under the amended agreement, the partners agreed to structure this funding by the Company as preferred equity rather than a loan. The preferred equity contributed by the Company shall earn a preferred return equal to LIBOR plus 3.00% per annum and shall be payable to the Company out of any distributions to which the partner would otherwise be entitled until such preferred equity and preferred return have been repaid to the Company. As of December 31, 2017, the Company has contributed an aggregate of approximately $16.4 million of preferred equity to the venture. Also, under the joint venture agreement, (a) from and after the stabilization date, the partner has the right to cause the Company to purchase all (but not less than all) of the partner’s interest and (b) from and after the third anniversary of the stabilization date, the Company has the right to acquire all (but not less than all) of the partner’s interest, in each case at an agreed upon purchase price or appraised value. In addition, if certain threshold returns are achieved the partner will be entitled to receive an additional promoted interest. The term stabilization date is defined in the agreement to generally mean the first date after completion upon which Salesforce Tower is (1) at least 90% leased and (2) 50% occupied by tenants that are paying rent. The stabilization date has not yet occurred.

On June 6, 2017, in conjunction with the refinancing of the indebtedness of the Company’s consolidated entity in which it has a 60% interest and that owns 767 Fifth Avenue (the General Motors Building) located in New York City, the members of the consolidated entity amended the limited liability company agreement to provide for the contribution of the remaining unpaid principal balance of the members’ notes payable totaling approximately $273.9 million (of which the Company’s share of approximately $164.4 million is eliminated in consolidation) to equity in the consolidated entity, resulting in an increase of approximately $109.6 million to Noncontrolling Interests in Property Partnerships on the Company’s Consolidated Balance Sheets (See Note 6). There were no changes to the ownership interests or rights of the members as a result of the amendment.

The following table reflects the activity of the noncontrolling interests—property partnerships for the years ended December 31, 2017, 2016 and 2015 (in thousands):



Balance at December 31, 2014	$	1,602,467
Capital contributions	3,758
Dissolution	(4,082		)
Net income	144,734
Accumulated other comprehensive loss	(2,428		)
Distributions	(170,049		)
Balance at December 31, 2015	1,574,400
Capital contributions	10,756
Net loss	(2,068		)
Accumulated other comprehensive loss	(877		)
Distributions	(51,564		)
Balance at December 31, 2016	1,530,647
Capital contributions (1)	161,585
Net loss	47,832
Accumulated other comprehensive loss	(2,128		)
Distributions	(54,176		)
Balance at December 31, 2017	$	1,683,760


(1)	Includes the contribution of the remaining unpaid principal balance of the members’ notes payable totaling $109,576 to equity in the consolidated entity that owns 767 Fifth Avenue (the General Motors Building).

Stockholders’ Equity / Partners’ Capital

Boston Properties, Inc.

As of December 31, 2017, Boston Properties, Inc. had 154,325,286 shares of Common Stock outstanding.

On June 2, 2017, Boston Properties, Inc. renewed its “at the market” (“ATM”) stock offering program through which it may sell from time to time up to an aggregate of $600.0 million of its common stock through sales agents over a three-year period. This program replaced the Company’s prior $600.0 million ATM stock offering program that was scheduled to expire on June 3, 2017. The Company intends to use the net proceeds from any offering for general business purposes, which may include investment opportunities and debt reduction. No shares of common stock have been issued under this ATM stock offering program.

During the year ended December 31, 2017, Boston Properties, Inc. issued 6,688 shares of Common Stock upon the exercise of options to purchase Common Stock. During the year ended December 31, 2016, there were no options to purchase Common Stock exercised.

During the years ended December 31, 2017 and 2016, Boston Properties, Inc. issued 495,637 and 190,857 shares of Common Stock, respectively, in connection with the redemption of an equal number of redeemable OP Units from limited partners.

The following table presents Boston Properties, Inc.’s dividends per share and Boston Properties Limited Partnership’s distributions per OP Unit and LTIP Unit paid or payable in 2017:



Record Date	Payment Date	Dividend (Per Share)		Distribution (Per Unit)
December 29, 2017	January 30, 2018		$0.80		$0.80
September 29, 2017	October 31, 2017	0.75		0.75
June 30, 2017	July 31, 2017	0.75		0.75
March 31, 2017	April 28, 2017	0.75		0.75
December 31, 2016	January 30, 2017	0.75		0.75

Preferred Stock

As of December 31, 2017, Boston Properties, Inc. had 80,000 shares (8,000,000 depositary shares each representing 1/100th of a share) outstanding of its 5.25% Series B Cumulative Redeemable Preferred Stock with a liquidation preference of $2,500.00 per share ($25.00 per depositary share). Boston Properties, Inc. pays cumulative cash dividends on the Series B Preferred Stock at a rate of 5.25% per annum of the $2,500.00 liquidation preference per share. Boston Properties, Inc. may not redeem the Series B Preferred Stock prior to March 27, 2018, except in certain circumstances relating to the preservation of Boston Properties, Inc.’s REIT status. On or after March 27, 2018, Boston Properties, Inc., at its option, may redeem the Series B Preferred Stock for a cash redemption price of $2,500.00 per share ($25.00 per depositary share), plus all accrued and unpaid dividends. The Series B Preferred Stock is not redeemable by the holders, has no maturity date and is not convertible into any other security of Boston Properties, Inc. or its affiliates.

The following table presents Boston Properties Inc.’s dividends per share on its outstanding Series B Preferred Stock paid or payable in 2017:



Record Date	Payment Date	Dividend (Per Share)
February 2, 2018	February 15, 2018		$32.8125
November 3, 2017	November 15, 2017	32.8125
August 4, 2017	August 15, 2017	32.8125
May 5, 2017	May 15, 2017	32.8125
February 3, 2017	February 15, 2017	32.8125

Boston Properties Limited Partnership

The following table presents the changes in the issued and outstanding partners’ capital units since January 1, 2015:



	General Partner Units	Limited Partner Units	Total Partners’ Capital Units
Outstanding at December 31, 2014	1,710,644	151,403,301	153,113,945
Units issued to Boston Properties, Inc. related to Common Stock issued under the Employee Stock Purchase Plan	59	6,140	6,199
Units issued to Boston Properties, Inc. related to Common Stock issued under the Stock Option and Incentive Plan, net	340	35,246	35,586
Units issued to Boston Properties, Inc. related to Common Stock issued in exchange for OP Units	4,049	420,187	424,236
Outstanding at December 31, 2015	1,715,092	151,864,874	153,579,966
Units issued to Boston Properties, Inc. related to Common Stock issued under the Employee Stock Purchase Plan	72	5,623	5,695
Units issued to Boston Properties, Inc. related to Common Stock issued under the Stock Option and Incentive Plan, net	172	13,485	13,657
Units issued to Boston Properties, Inc. related to Common Stock issued in exchange for OP Units	2,407	188,450	190,857
Outstanding at December 31, 2016	1,717,743	152,072,432	153,790,175
Units issued to Boston Properties, Inc. related to Common Stock issued under the Employee Stock Purchase Plan	21	6,296	6,317
Units issued to Boston Properties, Inc. related to Common Stock issued under the Stock Option and Incentive Plan, net	111	33,046	33,157
Units issued to Boston Properties, Inc. related to Common Stock issued in exchange for OP Units	1,665	493,972	495,637
Outstanding at December 31, 2017	1,719,540	152,605,746	154,325,286

As of December 31, 2017, Boston Properties, Inc. owned 1,719,540 general partnership units and 152,605,746 limited partnership units.

The following table reflects the activity of the Series B Preferred Units for the years ended December 31, 2017, 2016 and 2015 (in thousands), which activity is included within Boston Properties Limited Partnership’s Consolidated Statements of Partners’ Capital:



Balance at December 31, 2014	$	193,623
Net income	10,500
Distributions	(10,500		)
Balance at December 31, 2015	193,623
Net income	10,500
Distributions	(10,500		)
Balance at December 31, 2016	193,623
Net income	10,500
Distributions	(10,500		)
Balance at December 31, 2017	$	193,623

Future Minimum Rents

The properties are leased to tenants under net operating leases with initial term expiration dates ranging from 2018 to 2046. The future contractual minimum lease payments to be received (excluding operating expense reimbursements) by the Company as of December 31, 2017, under non-cancelable operating leases which expire on various dates through 2046, are as follows:



Years Ending December 31,	(in thousands)
2018	$	1,962,841
2019	1,998,102
2020	1,920,002
2021	1,783,066
2022	1,596,719
Thereafter	11,160,780

No single tenant represented more than 10.0% of the Company’s total rental revenue for the years ended December 31, 2017, 2016 and 2015.

Segment Information

The following tables present reconciliations of Net Income Attributable to Boston Properties, Inc. Common Shareholders to Net Operating Income and Net Income Attributable to Boston Properties Limited Partnership Common Unitholders to Net Operating Income for the years ended December 31, 2017, 2016 and 2015.

Boston Properties, Inc.



	Year ended December 31,
	2017		2016			2015
	(in thousands)
Net income attributable to Boston Properties, Inc. common shareholders	$	451,939	$	502,285		$	572,606
Add:
Preferred dividends	10,500		10,500			10,500
Noncontrolling interest—common units of the Operating Partnership	52,210		59,260			66,951
Noncontrolling interest—redeemable preferred units of the Operating Partnership	—		—			6
Noncontrolling interest in property partnerships	47,832		(2,068		)	149,855
Losses from interest rate contracts	—		140			—
Interest expense	374,481		412,849			432,196
Depreciation and amortization expense	617,547		694,403			639,542
Impairment loss	—		1,783			—
Transaction costs	668		2,387			1,259
General and administrative expense	113,715		105,229			96,319
Less:
Gains on sales of real estate	7,663		80,606			375,895
Gains (losses) from early extinguishments of debt	496		(371		)	(22,040		)
Gains (losses) from investments in securities	3,678		2,273			(653		)
Interest and other income	5,783		7,230			6,777
Gain on sale of investment in unconsolidated joint venture	—		59,370			—
Income from unconsolidated joint ventures	11,232		8,074			22,770
Development and management services income	34,605		28,284			22,554
Net Operating Income	$	1,605,435	$	1,601,302		$	1,563,931

Boston Properties Limited Partnership



	Year ended December 31,
		2017		2016			2015
		(in thousands)
Net income attributable to Boston Properties Limited Partnership common unitholders		$	512,866	$	575,341		$	648,748
Add:
Preferred distributions		10,500		10,500			10,500
Noncontrolling interest—redeemable preferred units		—		—			6
Noncontrolling interest in property partnerships		47,832		(2,068		)	149,855
Losses from interest rate contracts		—		140			—
Interest expense		374,481		412,849			432,196
Depreciation and amortization expense		609,407		682,776			631,549
Impairment loss		—		1,783			—
Transaction costs		668		2,387			1,259
General and administrative expense		113,715		105,229			96,319
Less:
Gains on sales of real estate		8,240		82,775			377,093
Gains (losses) from early extinguishments of debt		496		(371		)	(22,040		)
Gains (losses) from investments in securities		3,678		2,273			(653		)
Interest and other income		5,783		7,230			6,777
Gain on sale of investment in unconsolidated joint venture		—		59,370			—
Income from unconsolidated joint ventures		11,232		8,074			22,770
Development and management services income		34,605		28,284			22,554
Net Operating Income		$	1,605,435	$	1,601,302		$	1,563,931

Net operating income (“NOI”) is a non-GAAP financial measure equal to net income attributable to Boston Properties, Inc. common shareholders and net income attributable to Boston Properties Limited Partnership common unitholders, as applicable, the most directly comparable GAAP financial measures, plus (1) preferred dividends/distributions, net income attributable to noncontrolling interests, losses from interest rate contracts, interest expense, depreciation and amortization, impairment loss, transaction costs and general and administrative expense less (2) gains on sales of real estate, gains (losses) from early extinguishments of debt, gains (losses) from investments in securities, interest and other income, gain on sale of investment in unconsolidated joint venture, income from unconsolidated joint ventures and development and management services revenue. The Company believes NOI is useful to investors as a performance measure and believes it provides useful information to investors regarding its results of operations and financial condition because, when compared across periods, it reflects the impact on operations from trends in occupancy rates, rental rates, operating costs and acquisition and development activity on an unleveraged basis, providing perspective not immediately apparent from net income attributable to Boston Properties, Inc. common shareholders and net income attributable to Boston Properties Limited Partnership common unitholders. For example, interest expense is not necessarily linked to the operating performance of a real estate asset and is often incurred at the corporate level as opposed to the property level. Similarly, interest expense may be incurred at the property level even though the financing proceeds may be used at the corporate level (e.g., used for other investment activity). In addition, depreciation and amortization expense, because of historical cost accounting and useful life estimates, may distort operating performance measures at the property level. NOI presented by the Company may not be comparable to NOI reported by other REITs or real estate companies that define NOI differently.

Asset information by segment is not reported because the Company does not use this measure to assess performance. Therefore, depreciation and amortization expense is not allocated among segments. Preferred dividends/distributions, noncontrolling interests, losses from interest rate contracts, interest expense, depreciation and amortization expense, impairment loss, transactions costs, general and administrative expense, gains on sales

of real estate, gains (losses) from early extinguishments of debt, gains (losses) from investments in securities, interest and other income, gain on sale of investment in unconsolidated joint venture, income from unconsolidated joint ventures and development and management services income are not included in NOI as internal reporting addresses these items on a corporate level.

The Company’s segments are based on the Company’s method of internal reporting which classifies its operations by both geographic area and property type. The Company’s segments by geographic area are Boston, New York, San Francisco and Washington, DC. Segments by property type include: Office, Residential and Hotel.

Beginning on January 1, 2016, the properties that were historically included in the Company’s Office/Technical segment are now included in the Office segment to align with its method of internal reporting, which shifted after the disposition of 415 Main Street in Cambridge, Massachusetts. As such, the amounts previously included in Office/Technical are now included in Office for all periods presented.

Information by geographic area and property type (dollars in thousands):

For the year ended December 31, 2017:



	Boston			New York			San Francisco			Washington, DC			Total
Rental Revenue:
Office	$	776,279		$	969,371		$	345,519		$	414,103		$	2,505,272
Residential	4,745			—			—			11,851			16,596
Hotel	45,603			—			—			—			45,603
Total	826,627			969,371			345,519			425,954			2,567,471
% of Grand Totals	32.20		%	37.75		%	13.46		%	16.59		%	100.00		%
Rental Expenses:
Office	301,097			372,810			105,253			144,515			923,675
Residential	2,044			—			—			4,258			6,302
Hotel	32,059			—			—			—			32,059
Total	335,200			372,810			105,253			148,773			962,036
% of Grand Totals	34.84		%	38.76		%	10.94		%	15.46		%	100.00		%
Net operating income	$	491,427		$	596,561		$	240,266		$	277,181		$	1,605,435
% of Grand Totals	30.61		%	37.15		%	14.97		%	17.27		%	100.00		%

For the year ended December 31, 2016:



	Boston			New York			San Francisco			Washington, DC			Total
Rental Revenue:
Office	$	727,265		$	1,012,518		$	318,609		$	402,561		$	2,460,953
Residential	4,812			—			—			11,887			16,699
Hotel	44,884			—			—			—			44,884
Total	776,961			1,012,518			318,609			414,448			2,522,536
% of Grand Totals	30.80		%	40.14		%	12.63		%	16.43		%	100.00		%
Rental Expenses:
Office	282,827			363,188			100,787			135,890			882,692
Residential	2,708			—			—			4,368			7,076
Hotel	31,466			—			—			—			31,466
Total	317,001			363,188			100,787			140,258			921,234
% of Grand Totals	34.41		%	39.42		%	10.94		%	15.23		%	100.00		%
Net operating income	$	459,960		$	649,330		$	217,822		$	274,190		$	1,601,302
% of Grand Totals	28.73		%	40.55		%	13.60		%	17.12		%	100.00		%

For the year ended December 31, 2015:



	Boston			New York			San Francisco			Washington, DC			Total
Rental Revenue:
Office	$	716,246		$	1,000,030		$	302,434		$	384,628		$	2,403,338
Residential	4,801			—			—			14,082			18,883
Hotel	46,046			—			—			—			46,046
Total	767,093			1,000,030			302,434			398,710			2,468,267
% of Grand Totals	31.08		%	40.52		%	12.25		%	16.15		%	100.00		%
Rental Expenses:
Office	287,341			346,897			98,206			131,581			864,025
Residential	2,006			—			—			6,221			8,227
Hotel	32,084			—			—			—			32,084
Total	321,431			346,897			98,206			137,802			904,336
% of Grand Totals	35.54		%	38.36		%	10.86		%	15.24		%	100.00		%
Net operating income	$	445,662		$	653,133		$	204,228		$	260,908		$	1,563,931
% of Grand Totals	28.50		%	41.76		%	13.06		%	16.68		%	100.00		%

Earnings Per Share / Common Unit

Boston Properties, Inc.

The following table provides a reconciliation of both the net income attributable to Boston Properties, Inc. common shareholders and the number of common shares used in the computation of basic earnings per share (“EPS”), which is calculated by dividing net income attributable to Boston Properties, Inc. common shareholders by the weighted-average number of common shares outstanding during the period. Unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities. As such, unvested restricted common stock of Boston Properties, Inc. and Boston Properties Limited Partnership’s LTIP Units, 2012 OPP Units and MYLTIP Units are considered participating securities. Participating securities are included in the computation of basic EPS of Boston Properties, Inc. using the two-class method. Participating securities are included in the computation of diluted EPS of Boston Properties, Inc. using the if-converted method if the impact is dilutive. Because the 2012 OPP Units, 2013 MYLTIP Units and 2014 MYLTIP Units required, and the 2015-2017 MYLTIP Units require, Boston Properties, Inc. to outperform absolute and relative return thresholds, unless such thresholds have been met by the end of the applicable reporting period, Boston Properties, Inc. excludes such units from the diluted EPS calculation. Other potentially dilutive common shares, including stock options, restricted stock and other securities of Boston Properties Limited Partnership that are exchangeable for Boston Properties, Inc.’s Common Stock, and the related impact on earnings, are considered when calculating diluted EPS.



	For the Year Ended December 31, 2017
	Income (Numerator)			Shares (Denominator)	Per Share Amount
	(in thousands, except for per share amounts)
Basic Earnings:
Net income attributable to Boston Properties, Inc. common shareholders	$	451,939		154,190	$	2.93
Effect of Dilutive Securities:
Stock Based Compensation	—			200	—
Diluted Earnings:
Net income attributable to Boston Properties, Inc. common shareholders	$	451,939		154,390	$	2.93

	For the Year Ended December 31, 2016
	Income (Numerator)			Shares (Denominator)	Per Share Amount
	(in thousands, except for per share amounts)
Basic Earnings:
Net income attributable to Boston Properties, Inc. common shareholders	$	502,285		153,715	$	3.27
Allocation of undistributed earnings to participating securities	(283		)	—	—
Net income attributable to Boston Properties, Inc. common shareholders	$	502,002		153,715	$	3.27
Effect of Dilutive Securities:
Stock Based Compensation	—			262	(0.01		)
Diluted Earnings:
Net income attributable to Boston Properties, Inc. common shareholders	$	502,002		153,977	$	3.26

	For the Year Ended December 31, 2015
	Income (Numerator)			Shares (Denominator)	Per Share Amount
	(in thousands, except for per share amounts)
Basic Earnings:
Net income attributable to Boston Properties, Inc. common shareholders	$	572,606		153,471	$	3.73
Effect of Dilutive Securities:
Stock Based Compensation	—			373	(0.01		)
Diluted Earnings:
Net income attributable to Boston Properties, Inc. common shareholders	$	572,606		153,844	$	3.72

Boston Properties Limited Partnership

The following table provides a reconciliation of both the net income attributable to Boston Properties Limited Partnership common unitholders and the number of common units used in the computation of basic earnings per common unit, which is calculated by dividing net income attributable to Boston Properties Limited Partnership common unitholders by the weighted-average number of common units outstanding during the period. Unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents (whether paid or unpaid) are participating securities. As such, unvested restricted common stock of Boston Properties, Inc. and Boston Properties Limited Partnership’s LTIP Units, 2012 OPP Units and MYLTIP Units are considered participating securities. Participating securities are included in the computation of basic earnings per common unit using the

two-class method. Participating securities are included in the computation of diluted earnings per common unit using the if-converted method if the impact is dilutive. Because the 2012 OPP Units, 2013 MYLTIP Units and 2014 MYLTIP Units required, and the 2015-2017 MYLTIP Units require, Boston Properties, Inc. to outperform absolute and relative return thresholds, unless such thresholds have been met by the end of the applicable reporting period, Boston Properties Limited Partnership excludes such units from the diluted earnings per common unit calculation. Other potentially dilutive common units and the related impact on earnings are considered when calculating diluted earnings per common unit. Included in the number of units (the denominator) below are approximately 17,471,000, 17,646,000 and 17,668,000 redeemable common units for the years ended December 31, 2017, 2016 and 2015, respectively.



	For the Year Ended December 31, 2017
	Income (Numerator)		Units (Denominator)	Per Unit Amount
	(in thousands, except for per unit amounts)
Basic Earnings:
Net income attributable to Boston Properties Limited Partnership common unitholders	$	512,866	171,661	$	2.99
Effect of Dilutive Securities:
Stock Based Compensation	—		200	(0.01		)
Diluted Earnings:
Net income attributable to Boston Properties Limited Partnership common unitholders	$	512,866	171,861	$	2.98



	For the Year Ended December 31, 2016
	Income (Numerator)			Units (Denominator)	Per Unit Amount
	(in thousands, except for per unit amounts)
Basic Earnings:
Net income attributable to Boston Properties Limited Partnership common unitholders	$	575,341		171,361	$	3.36
Allocation of undistributed earnings to participating securities	(316		)	—	—
Net income attributable to Boston Properties Limited Partnership common unitholders	$	575,025		171,361	$	3.36
Effect of Dilutive Securities:
Stock Based Compensation	—			262	(0.01		)
Diluted Earnings:
Net income attributable to Boston Properties Limited Partnership common unitholders	$	575,025		171,623	$	3.35

	For the Year Ended December 31, 2015
	Income (Numerator)			Units (Denominator)	Per Unit Amount
	(in thousands, except for per unit amounts)
Basic Earnings:
Net income attributable to Boston Properties Limited Partnership common unitholders	$	648,748		171,139	$	3.79
Effect of Dilutive Securities:
Stock Based Compensation	—			373	(0.01		)
Diluted Earnings:
Net income attributable to Boston Properties Limited Partnership common unitholders	$	648,748		171,512	$	3.78

Employee Benefit Plans

Effective January 1, 1985, the predecessor of the Company adopted a 401(k) Savings Plan (the “Plan”) for its employees. Under the Plan, as amended, employees, as defined, are eligible to participate in the Plan after they have completed three months of service. Upon formation, the Company adopted the Plan and the terms of the Plan.

Under the Plan, as amended, the Company’s matching contribution equals 200% of the first 3% of participant’s eligible earnings contributed (utilizing earnings that are not in excess of an amount established by the IRS ($270,000, $265,000 and $265,000 in 2017, 2016 and 2015, respectively), indexed for inflation) with no vesting requirement. The Company’s aggregate matching contribution for the years ended December 31, 2017, 2016 and 2015 was $4.1 million, $4.0 million and $3.7 million, respectively.

The Plan also provides for supplemental retirement contributions to certain employees who had at least ten years of service on January 1, 2001, and who were 40 years of age or older as of January 1, 2001. The maximum supplemental retirement contribution will not exceed the annual limit on contributions established by the IRS. The Company will record an annual supplemental retirement credit for the benefit of each participant. The Company’s supplemental retirement contribution and credit for the years ended December 31, 2017, 2016 and 2015 was $18,000, $21,000 and $42,000, respectively.

The Company also maintains a deferred compensation plan that is designed to allow officers of Boston Properties, Inc. to defer a portion of their current income on a pre-tax basis and receive a tax-deferred return on these deferrals. The Company’s obligation under the plan is that of an unsecured promise to pay the deferred compensation to the plan participants in the future. At December 31, 2017 and 2016, the Company had maintained approximately $29.2 million and $23.8 million, respectively, in a separate account, which is not restricted as to its use. The Company’s liability under the plan is equal to the total amount of compensation deferred by the plan participants and earnings on the deferred compensation pursuant to investments elected by the plan participants. The Company’s liability as of December 31, 2017 and 2016 was $29.2 million and $23.8 million, respectively, which are included in the accompanying Consolidated Balance Sheets.

Stock Option and Incentive Plan

At Boston Properties, Inc.’s 2012 annual meeting of stockholders held on May 15, 2012, its stockholders approved the Boston Properties, Inc. 2012 Stock Option and Incentive Plan (the “2012 Plan”). The 2012 Plan replaced the 1997 Stock Option and Incentive Plan (the “1997 Plan”). The material terms of the 2012 Plan include, among other things: (1) the maximum number of shares of common stock reserved and available for issuance under the 2012 Plan is the sum of (i) 13,000,000 newly authorized shares, plus (ii) the number of shares available for grant under the 1997 Stock Plan immediately prior to the effective date of the 2012 Plan, plus (iii) any shares underlying grants under the 1997 Plan that are forfeited, canceled or terminated (other than by exercise) in the future; (2) “full-value” awards (i.e., awards other than stock options) are multiplied by a 2.32 conversion ratio to calculate the number of shares available under the 2012 Plan that are used for each full-value award, as opposed to a 1.0 conversion ratio for each stock option awarded under the 2012 Plan; (3) shares tendered or held back for taxes will not be added back to the reserved pool under the 2012 Plan; (4) stock options may not be re-priced without stockholder approval; and (5) the term of the 2012 Plan is for ten years from the date of stockholder approval.

On January 25, 2017, Boston Properties, Inc.’s Compensation Committee approved the 2017 MYLTIP awards under its 2012 Plan to certain officers and employees of Boston Properties, Inc. The 2017 MYLTIP awards utilize Boston Properties, Inc.’s total stockholder return (“TSR”) over a three-year measurement period, on an annualized, compounded basis, as the performance metric. Earned awards will be based on Boston Properties, Inc.’s TSR relative to (i) the Cohen & Steers Realty Majors Portfolio Index (50% weight) and (ii) the Nareit Office Index adjusted to include Vornado Realty Trust (50% weight). Earned awards will range from zero to a maximum of approximately $42.7 million depending on Boston Properties, Inc.’s TSR relative to the two indices, with four tiers (threshold: approximately $10.7 million; target: approximately $21.3 million; high: approximately $32.0 million; exceptional: approximately $42.7 million) and linear interpolation between tiers. Earned awards measured on the basis of relative TSR performance are subject to an absolute TSR component in the form of relatively simple modifiers that (A) reduce the level of earned awards in the event Boston Properties, Inc.’s annualized TSR is less than 0% and (B) cause some awards to be earned in the event Boston Properties, Inc.’s annualized TSR is more

than 12% even though on a relative basis alone Boston Properties, Inc.’s TSR would not result in any earned awards.

Earned awards (if any) will vest 50% on February 6, 2020 and 50% on February 6, 2021, based on continued employment. Vesting will be accelerated in the event of a change in control, termination of employment by Boston Properties, Inc. without cause, or termination of employment by the award recipient for good reason, death, disability or retirement. If there is a change of control prior to February 6, 2020, earned awards will be calculated based on TSR performance up to the date of the change of control. The 2017 MYLTIP awards are in the form of LTIP Units issued on the grant date which (i) are subject to forfeiture to the extent awards are not earned and (ii) prior to the performance measurement date are only entitled to one-tenth (10%) of the regular quarterly distributions payable on common partnership units and no special distributions.

Under ASC 718, the 2017 MYLTIP awards have an aggregate value of approximately $17.7 million, which amount will generally be amortized into earnings over the four-year plan period under the graded vesting method.

On February 4, 2016, the measurement period for the Company’s 2013 MYLTIP awards ended and, based on Boston Properties, Inc.’s relative TSR performance, the final awards were determined to be 109.5% of target or an aggregate of approximately $13.5 million. As a result, 205,762 2013 MYLTIP Units were automatically forfeited.

On March 11, 2013, Boston Properties, Inc. announced that Owen D. Thomas would succeed Mortimer B. Zuckerman as its Chief Executive Officer, effective April 2, 2013. Mr. Zuckerman continued to serve as Executive Chairman for a transition period which was completed effective as of the close of business on December 31, 2014 and thereafter served as the non-executive Chairman of the Board of Boston Properties, Inc. until May 17, 2016. In connection with succession planning, Boston Properties, Inc. and Mr. Zuckerman entered into a Transition Benefits Agreement. Because Mr. Zuckerman remained employed by Boston Properties, Inc. through July 1, 2014, he was entitled to receive on January 1, 2015 a lump sum cash payment of $6.7 million and an equity award with a targeted value of approximately $11.1 million. The cash payment and equity award vested one-third on each of March 10, 2013, October 1, 2013 and July 1, 2014.

Boston Properties, Inc. issued 37,414, 22,067 and 34,150 shares of restricted common stock and Boston Properties Limited Partnership issued 113,918, 147,872 and 190,563 (including 85,962 LTIP Units issued on January 1, 2015 to Mortimer B. Zuckerman, non-executive Chairman of the Board of Boston Properties, Inc., pursuant to the Transition Benefits Agreement dated March 10, 2013) LTIP Units to employees and non-employee directors under the 2012 Plan during the years ended December 31, 2017, 2016 and 2015, respectively. Boston Properties, Inc. did not issue any non-qualified stock options under the 2012 Plan during the years ended December 31, 2017, 2016 and 2015. Boston Properties Limited Partnership issued 400,000 2017 MYLTIP Units, 475,004 2016 MYLTIP Units and 375,000 2015 MYLTIP Units to employees under the 2012 Plan during the years ended December 31, 2017, 2016 and 2015, respectively. Employees and non-employee directors paid $0.01 per share of restricted common stock and $0.25 per LTIP Unit, OPP Unit and MYLTIP Unit. When issued, LTIP Units are not economically equivalent in value to a share of Common Stock, but over time can increase in value to one-for-one parity with Common Stock if there is sufficient appreciation in the value of the Company’s assets. The aggregate value of the LTIP Units is included in noncontrolling interests in the Consolidated Balance Sheets. Grants of restricted stock and LTIP Units to employees vest in four equal annual installments. Restricted stock is measured at fair value on the date of grant based on the number of shares granted and the closing price of Boston Properties, Inc.’s Common Stock on the date of grant as quoted on the New York Stock Exchange. Such value is recognized as an expense ratably over the corresponding employee service period. Non-qualified stock options, which are valued using the Black-Scholes option-pricing model, are recognized as an expense ratably over the corresponding employee service period. As the 2012 OPP Awards, 2013 MYLTIP Awards, 2014 MYLTIP Awards,

2015 MYLTIP Awards, 2016 MYLTIP Awards and 2017 MYLTIP Awards are subject to both a service condition and a market condition, the Company recognizes the compensation expense related to the 2012 OPP Awards, 2013 MYLTIP Awards, 2014 MYLTIP Awards, 2015 MYLTIP Awards 2016 MYLTIP Awards and 2017 MYLTIP Awards under the graded vesting attribution method. Under the graded vesting attribution method, each portion of the award that vests at a different date is accounted for as a separate award and recognized over the period appropriate to that portion so that the compensation cost for each portion should be recognized in full by the time that portion vests. The Company recognizes forfeitures as they occur on its awards of stock-based compensation (See Note 2). Dividends paid on both vested and unvested shares of restricted stock are charged directly to Dividends in Excess of Earnings in Boston Properties, Inc.’s Consolidated Balance Sheets and Partners’ Capital in Boston Properties Limited Partnership’s Consolidated Balance Sheets. Aggregate stock-based compensation expense associated with restricted stock, non-qualified stock options, LTIP Units, 2012 OPP Units, 2013 MYLTIP Units, 2014 MYLTIP Units, 2015 MYLTIP Units, 2016 MYLTIP Units and 2017 MYLTIP Units was approximately $33.2 million, $30.6 million and $26.9 million for the years ended December 31, 2017, 2016 and 2015, respectively. At December 31, 2017, there was (1) an aggregate of approximately $19.2 million of unrecognized compensation expense related to unvested restricted stock, LTIP Units, 2013 MYLTIP Units and 2014 MYLTIP Units and (2) an aggregate of approximately $21.0 million of unrecognized compensation expense related to unvested 2015 MYLTIP Units, 2016 MYLTIP Units and 2017 MYLTIP Units that is expected to be recognized over a weighted-average period of approximately 2.3 years.

The shares of restricted stock were valued at approximately $4.9 million ($130.32 per share weighted-average), $2.5 million ($113.51 per share weighted-average) and $4.8 million ($140.88 per share weighted-average) for the years ended December 31, 2017, 2016 and 2015, respectively.

LTIP Units were valued using a Monte Carlo simulation method model in accordance with the provisions of ASC 718. LTIP Units issued during the years ended December 31, 2017, 2016 and 2015 were valued at approximately $13.6 million, $15.4 million and $13.5 million (excluding the number issued to Mr. Zuckerman, as discussed above), respectively. The weighted-average per unit fair value of LTIP Unit grants in 2017, 2016 and 2015 was $119.41, $103.83 and $128.94, respectively. The per unit fair value of each LTIP Unit granted in 2017, 2016 and 2015 was estimated on the date of grant using the following assumptions; an expected life of 5.7 years, 5.7 years and 5.7 years, a risk-free interest rate of 2.14%, 1.61% and 1.47% and an expected price volatility of 28.0%, 33.0% and 26.0%, respectively.

There were no non-qualified stock options granted during the years ended December 31, 2017, 2016 and 2015.

A summary of the status of Boston Properties, Inc.’s stock options as of December 31, 2017, 2016 and 2015 and changes during the years then ended are presented below:



	Shares		Weighted-Average Exercise Price
Outstanding at December 31, 2014	553,312		$	97.21
Exercised	(11,447	)	$	92.50
Special dividend adjustment	5,264		$	96.38
Outstanding at December 31, 2015	547,129		$	96.38
Exercised	—		$	—
Outstanding at December 31, 2016	547,129		$	96.38
Exercised	(6,688	)	$	99.15
Outstanding at December 31, 2017	540,441		$	96.35

The following table summarizes information about Boston Properties, Inc.’s stock options outstanding at December 31, 2017:



Options Outstanding				Options Exercisable
Number Outstanding at 12/31/17	Weighted-Average Remaining Contractual Life	Exercise Price		Number Exercisable at 12/31/17	Exercise Price
118,502	3.1 years	$	86.86	118,502	$	86.86
54,282	5.3 years	$	95.69	54,282	$	95.69
202,030	5.1 years	$	98.46	202,030	$	98.46
165,627	4.1 years	$	100.77	165,627	$	100.77

The total intrinsic value of the outstanding and exercisable stock options as of December 31, 2017 was approximately $18.2 million. In addition, Boston Properties, Inc. had 514,360 and 465,371 options exercisable at a weighted-average exercise price of $96.32 and $96.10 at December 31, 2016 and 2015, respectively.

Boston Properties, Inc. adopted the 1999 Non-Qualified Employee Stock Purchase Plan (the “Stock Purchase Plan”) to encourage the ownership of Common Stock by eligible employees. The Stock Purchase Plan became effective on January 1, 1999 with an aggregate maximum of 250,000 shares of Common Stock available for issuance. The Stock Purchase Plan provides for eligible employees to purchase on the business day immediately following the end of the biannual purchase periods (i.e., January 1-June 30 and July 1-December 31) shares of Common Stock at a purchase price equal to 85% of the average closing prices of the Common Stock during the last ten business days of the purchase period. Boston Properties, Inc. issued 6,317, 5,695 and 6,199 shares with the weighted average purchase price equal to $105.97 per share, $109.27 per share and $108.73 per share under the Stock Purchase Plan during the years ended December 31, 2017, 2016 and 2015, respectively.

Related Party Transactions

Prior to joining Boston Properties, Inc. effective January 2, 2014, Mr. John F. Powers provided commercial real estate brokerage services to the Company, on behalf of his prior employer, CBRE, in connection with certain leasing transactions. Mr. Powers received approximately $22,000, $315,000 and $616,000 during the years ended December 31, 2017, 2016 and 2015, respectively, in connection with these transactions. Mr. John F. Powers is an Executive Vice President of Boston Properties, Inc. and the Regional Manager of its New York office.

A firm controlled by Mr. Raymond A. Ritchey’s brother was paid aggregate leasing commissions of approximately $368,000, $374,000 and $384,000 for the years ended December 31, 2017, 2016 and 2015, respectively, related to certain exclusive leasing arrangements for certain Northern Virginia properties. Mr. Ritchey is a Senior Executive Vice President of Boston Properties, Inc.

In accordance with Boston Properties, Inc.’s 2012 Plan, and as approved by its Board of Directors, five non-employee directors made elections to receive deferred stock units in lieu of cash fees for 2017. The deferred stock units will be settled in shares of common stock upon the cessation of such director’s service on the Board of Directors of Boston Properties, Inc. As a result of these elections, the aggregate cash fees otherwise payable to a non-employee director during a fiscal quarter are converted into a number of deferred stock units equal to the aggregate cash fees divided by the last reported sales price of a share of Boston Properties, Inc.’s common stock on the last trading of the applicable fiscal quarter. The deferred stock units are also credited with dividend equivalents as dividends are paid by Boston Properties, Inc. On May 17, 2016, in connection with the cessation of a director’s service on the Board of Directors of Boston Properties, Inc., Boston Properties, Inc. issued 1,507 shares of common stock in settlement of the director’s outstanding deferred stock units. At December 31, 2017 and 2016, Boston Properties, Inc. had outstanding 105,479 and 99,035 deferred stock units, respectively.

Selected Interim Financial Information (unaudited)

Boston Properties, Inc.

The tables below reflect Boston Properties, Inc.’s selected quarterly information for the years ended December 31, 2017 and 2016.



	2017 Quarter Ended
	March 31,		June 30,		September 30,		December 31,
	(in thousands, except for per share amounts)
Total revenue	$	632,228	$	656,907	$	657,712	$	655,229
Income before gains on sales of real estate	$	115,431	$	163,243	$	144,813	$	131,331
Net income attributable to Boston Properties, Inc. common shareholders	$	97,083	$	133,709	$	117,337	$	103,829
Income attributable to Boston Properties, Inc. per share—basic	$	0.63	$	0.87	$	0.76	$	0.67
Income attributable to Boston Properties, Inc. per share—diluted	$	0.63	$	0.87	$	0.76	$	0.67



	2016 Quarter Ended
	March 31,		June 30,		September 30,		December 31,
	(in thousands, except for per share amounts)
Total revenue	$	665,985	$	623,546	$	625,228	$	636,061
Income before gains on sales of real estate	$	148,599	$	117,357	$	58,521	$	164,894
Net income attributable to Boston Properties, Inc. common shareholders	$	181,747	$	96,597	$	76,753	$	147,214
Income attributable to Boston Properties, Inc. per share—basic	$	1.18	$	0.63	$	0.50	$	0.96
Income attributable to Boston Properties, Inc. per share—diluted	$	1.18	$	0.63	$	0.50	$	0.96

Boston Properties Limited Partnership

The tables below reflect Boston Properties Limited Partnership’s selected quarterly information for the years ended December 31, 2017 and 2016.



	2017 Quarter Ended
	March 31,		June 30,		September 30,		December 31,
	(in thousands, except for per unit amounts)
Total revenue	$	632,228	$	656,907	$	657,712	$	655,229
Income before gains on sales of real estate	$	117,578	$	165,328	$	146,767	$	133,285
Net income attributable to Boston Properties Limited Partnership common unitholders	$	110,662	$	151,844	$	132,693	$	117,667
Income attributable to Boston Properties Limited Partnership per unit—basic	$	0.64	$	0.88	$	0.77	$	0.69
Income attributable to Boston Properties Limited Partnership per unit—diluted	$	0.64	$	0.88	$	0.77	$	0.68



	2016 Quarter Ended
	March 31,		June 30,		September 30,		December 31,
	(in thousands, except for per unit amounts)
Total revenue	$	665,985	$	623,546	$	625,228	$	636,061
Income before gains on sales of real estate	$	150,586	$	119,341	$	63,687	$	167,384
Net income attributable to Boston Properties Limited Partnership common unitholders	$	207,296	$	109,938	$	91,306	$	166,801
Income attributable to Boston Properties Limited Partnership per unit—basic	$	1.21	$	0.64	$	0.53	$	0.97
Income attributable to Boston Properties Limited Partnership per unit—diluted	$	1.21	$	0.64	$	0.53	$	0.97

Subsequent Events

On January 9, 2018, the Company completed the sale of its 500 E Street, S.W. property located in Washington, DC for a net contract sale price of approximately $118.6 million, which exceeds its carrying value. 500 E Street, S.W. is an approximately 262,000 net rentable square foot Class A office property.

On January 24, 2018, the Company entered into a lease agreement with a tenant for a build-to-suit project with approximately 276,000 net rentable square feet of Class A office space at the Company's 17Fifty Presidents Street development project located in Reston, Virginia. The Company expects that the building will be complete and available for occupancy during the first quarter of 2020.

On January 31, 2018, the Company partially placed in-service its Signature at Reston development project comprised of 508 apartment units and retail space aggregating approximately 515,000 square feet located in Reston, Virginia.

On February 2, 2018 and February 6, 2018, Boston Properties, Inc. issued an aggregate of 18,226 shares of restricted common stock and Boston Properties Limited Partnership issued an aggregate of 195,546 LTIP units under the 2012 Plan to certain employees of Boston Properties, Inc.

On February 4, 2018, the measurement period for the Company’s 2015 MYLTIP awards ended and, based on Boston Properties, Inc.’s relative TSR performance, the final awards were determined to be 22.0% of target or an aggregate of approximately $3.6 million (after giving effect to voluntary employee separations). As a result, an aggregate of 337,847 2015 MYLTIP Units that had been previously granted were automatically forfeited.

On February 6, 2018, Boston Properties, Inc.’s Compensation Committee approved the 2018 Multi-Year Long-Term Incentive Program (the “2018 MYLTIP”) awards under Boston Properties, Inc.’s 2012 Plan to certain officers and employees of Boston Properties, Inc. The 2018 MYLTIP awards utilize Boston Properties, Inc.’s total stockholder return (“TSR”) over a three-year measurement period, on an annualized, compounded basis, as the performance metric. Earned awards will be based on Boston Properties, Inc.’s TSR relative to (i) the Cohen & Steers Realty Majors Portfolio Index (50% weight) and (ii) the Nareit Office Index adjusted to include Vornado Realty Trust (50% weight). Earned awards will range from zero to a maximum of approximately $32.3 million depending on Boston Properties, Inc.’s TSR relative to the two indices, with a target of approximately $16.2 million and linear interpolation between zero and maximum. Earned awards measured on the basis of relative TSR performance are subject to an absolute TSR component in the form of relatively simple modifiers that (A) reduce the level of earned awards in the event Boston Properties, Inc.’s annualized TSR is less than 0% and (B) cause some awards to be earned in the event Boston Properties, Inc.’s annualized TSR is more than 12% even though on a relative basis alone Boston Properties, Inc.’s TSR would not result in any earned awards. Earned awards (if any) will vest 50% on February 5, 2021 and 50% on February 5, 2022, based on continued employment. Vesting will be accelerated in the event of a change in control, termination of employment by Boston Properties, Inc. without cause, or termination of employment by the award recipient for good reason, death, disability or retirement. If there is a change of control prior to February 5, 2021, earned awards will be calculated based on TSR performance up to the date of the change of control. The 2018 MYLTIP awards are in the form of LTIP Units issued on the grant date which (i) are subject to forfeiture to the extent awards are not earned and (ii) prior to the performance measurement date are only entitled to one-tenth (10%) of the regular quarterly distributions payable on common partnership units. Under ASC 718, the 2018 MYLTIP awards have an aggregate value of approximately $13.3 million, which amount will generally be amortized into earnings over the four-year plan period under the graded vesting method.

On February 23, 2018, the Company entered into a lease agreement with Fannie Mae to lease approximately 850,000 net rentable square feet of Class A office space at the Company's Reston Gateway development project located in Reston, Virginia. The initial phase of the project will consist of approximately 1.0 million net rentable square feet. The Company expects to begin construction in the second half of 2018 upon receipt of all necessary approvals.

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