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	105
	Report of Independent Registered Public Accounting Firm	106
	Consolidated Balance Sheets as of December 31, 2019 and 2018	108
	Consolidated Statements of Operations for the years ended December 31, 2019, 2018 and 2017	110
	Consolidated Statements of Comprehensive Income for the years ended December 31, 2019, 2018 and 2017	111
	Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2019, 2018 and 2017	112
	Consolidated Statements of Cash Flows for the years ended December 31, 2019, 2018 and 2017	114

Boston Properties Limited Partnership
	Management’s Report on Internal Control over Financial Reporting	117
	Report of Independent Registered Public Accounting Firm	118
	Consolidated Balance Sheets as of December 31, 2019 and 2018	120
	Consolidated Statements of Operations for the years ended December 31, 2019, 2018 and 2017	122
	Consolidated Statements of Comprehensive Income for the years ended December 31, 2019, 2018 and 2017	123
	Consolidated Statements of Capital and Noncontrolling Interests for the years ended December 31, 2019, 2018 and 2017	124
	Consolidated Statements of Cash Flows for the years ended December 31, 2019, 2018 and 2017	126

	Notes to Consolidated Financial Statements	129

Boston Properties, Inc.
	Financial Statement Schedule—Schedule 3 - Real Estate Investments and Accumulated Depreciation as of December 31, 2019	181

Boston Properties Limited Partnership
	Financial Statement Schedule—Schedule 3 - Real Estate Investments and Accumulated Depreciation as of December 31, 2019	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 2019 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, 2019 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, 2019 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in its report appearing on page 106, which expresses an unqualified opinion on the effectiveness of Boston Properties, Inc.’s internal control over financial reporting as of December 31, 2019.

Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders 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, 2019 and 2018, and the related consolidated statements of operations, of comprehensive income, of stockholders’ equity and of cash flows for each of the three years in the period ended December 31, 2019, 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, 2019, 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, 2019 and 2018, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2019 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, 2019, 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.

Critical Audit Matters

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Impairment Assessment of Long-Lived Assets

As described in Notes 2 and 3 to the consolidated financial statements, the Company’s consolidated real estate, net balance was $17.6 billion as of December 31, 2019. During the period ended December 31, 2019, the Company recognized an impairment loss related to long lived assets totaling approximately $24.0 million. As described in Note 2 to the consolidated financial statements, 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 that carrying amounts may not be recoverable. An impairment loss is recognized if the carrying amount of an asset is not recoverable and exceeds its fair value. As disclosed by management, the evaluation of anticipated cash flows is subjective and is based in part on assumptions regarding anticipated hold periods, future occupancy, future rental rates, future capital requirements, discount rates and capitalization rates that could differ materially from actual results in future periods.

The principal considerations for our determination that performing procedures relating to the impairment assessment of long-lived assets is a critical audit matter are (i) there was significant judgment by management in identifying events or changes in circumstances indicating that the carrying amounts of long-lived assets may not be recoverable, and to determine the hold period assumption used to assess whether the carrying amount of a long-lived asset was not recoverable, which led to a high degree of auditor judgment and subjectivity in performing procedures relating to the determination of those events or changes in circumstances and the hold period assumption; and (ii) there was significant auditor judgment and effort in evaluating the audit evidence.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the impairment assessment of long-lived assets, including controls over management’s identification of events or changes in circumstances that indicate an impairment of long-lived assets has occurred, and the development of significant assumptions used to determine the impairment loss. These procedures also included, among others, testing management’s process over (i) the identification of events or changes in circumstances that indicate an impairment of long lived assets has occurred; and (ii) developing the estimate of anticipated cash flows and estimate of the fair value of long-lived assets. Testing management’s process involved evaluating the reasonableness of the anticipated hold period assumption used by management, by considering; (i) the past performance of the asset; and (ii) whether the assumption was consistent with evidence obtained in other areas of the audit. Procedures were also performed to test the completeness and accuracy of the data utilized by management, and to evaluate the mathematical accuracy of the cash flows and impairment loss.

/s/ PricewaterhouseCoopers LLP

Boston, Massachusetts

March 2, 2020

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, 2019			December 31, 2018
ASSETS
Real estate, at cost (amounts related to variable interest entities (“VIEs”) of $6,497,031 and $7,481,015 at December 31, 2019 and 2018, respectively)	$	22,502,976		$	21,649,896
Right of use assets - finance leases (amount related to VIEs of $21,000 at December 31, 2019)	237,394			—
Right of use assets - operating leases	148,640			—
Less: accumulated depreciation (amounts related to VIEs of $(1,058,495) and $(965,500) at December 31, 2019 and 2018, respectively)	(5,266,798		)	(4,897,777		)
Total real estate	17,622,212			16,752,119
Cash and cash equivalents (amounts related to VIEs of $280,033 and $296,806 at December 31, 2019 and 2018, respectively)	644,950			543,359
Cash held in escrows	46,936			95,832
Investments in securities	36,747			28,198
Tenant and other receivables, net (amounts related to VIEs of $28,918 and $15,519 at December 31, 2019 and 2018, respectively)	112,807			86,629
Related party note receivable	80,000			80,000
Note receivable	15,920			19,468
Accrued rental income, net (amounts related to VIEs of $298,318 and $272,466 at December 31, 2019 and 2018, respectively)	1,038,788			934,896
Deferred charges, net (amounts related to VIEs of $214,769 and $263,402 at December 31, 2019 and 2018, respectively)	689,213			678,724
Prepaid expenses and other assets (amounts related to VIEs of $20,931 and $26,513 at December 31, 2019 and 2018, respectively)	41,685			80,943
Investments in unconsolidated joint ventures	955,647			956,309
Total assets	$	21,284,905		$	20,256,477
LIABILITIES AND EQUITY
Liabilities:
Mortgage notes payable, net (amounts related to VIEs of $2,918,806 and $2,929,326 at December 31, 2019 and 2018, respectively)	$	2,922,408		$	2,964,572
Unsecured senior notes, net	8,390,459			7,544,697
Unsecured line of credit	—			—
Unsecured term loan, net	498,939			498,488
Lease liabilities - finance leases (amount related to VIEs of $20,189 at December 31, 2019)	224,042			—
Lease liabilities - operating leases	200,180			—
Accounts payable and accrued expenses (amounts related to VIEs of $45,777 and $75,786 at December 31, 2019 and 2018, respectively)	377,553			276,645
Dividends and distributions payable	170,713			165,114
Accrued interest payable	90,016			89,267
Other liabilities (amounts related to VIEs of $140,110 and $200,344 at December 31, 2019 and 2018, respectively)	387,994			503,726
Total liabilities	13,262,304			12,042,509
Commitments and contingencies	—			—

Redeemable deferred stock units— 60,676 units outstanding at redemption value at December 31, 2019	8,365			—

BOSTON PROPERTIES, INC. CONSOLIDATED BALANCE SHEETS (in thousands, except for share and par value amounts)

	December 31, 2019			December 31, 2018
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, 2019 and December 31, 2018	200,000			200,000
Common stock, $0.01 par value, 250,000,000 shares authorized, 154,869,198 and 154,537,378 issued and 154,790,298 and 154,458,478 outstanding at December 31, 2019 and December 31, 2018, respectively	1,548			1,545
Additional paid-in capital	6,294,719			6,407,623
Dividends in excess of earnings	(760,523		)	(675,534		)
Treasury common stock at cost, 78,900 shares at December 31, 2019 and December 31, 2018	(2,722		)	(2,722		)
Accumulated other comprehensive loss	(48,335		)	(47,741		)
Total stockholders’ equity attributable to Boston Properties, Inc.	5,684,687			5,883,171
Noncontrolling interests:
Common units of Boston Properties Limited Partnership	600,860			619,352
Property partnerships	1,728,689			1,711,445
Total equity	8,014,236			8,213,968
Total liabilities and equity	$	21,284,905		$	20,256,477

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,
	2019			2018			2017
	(in thousands, except for per share amounts)
Revenue
Lease	$	2,758,014		$	—		$	—
Base rent	—			2,103,723			2,049,368
Recoveries from tenants	—			402,066			367,500
Parking and other	103,534			107,421			105,000
Hotel revenue	48,589			49,118			45,603
Development and management services	40,039			45,158			34,605
Direct reimbursements of payroll and related costs from management services contracts	10,386			9,590			—
Total revenue	2,960,562			2,717,076			2,602,076
Expenses
Operating
Rental	1,050,010			979,151			929,977
Hotel	34,004			33,863			32,059
General and administrative	140,777			121,722			113,715
Payroll and related costs from management services contracts	10,386			9,590			—
Transaction costs	1,984			1,604			668
Depreciation and amortization	677,764			645,649			617,547
Total expenses	1,914,925			1,791,579			1,693,966
Other income (expense)
Income from unconsolidated joint ventures	46,592			2,222			11,232
Gains on sales of real estate	709			182,356			7,663
Interest and other income	18,939			10,823			5,783
Gains (losses) from investments in securities	6,417			(1,865		)	3,678
Impairment losses	(24,038		)	(11,812		)	—
Interest expense	(412,717		)	(378,168		)	(374,481		)
(Losses) gains from early extinguishments of debt	(29,540		)	(16,490		)	496
Net income	651,999			712,563			562,481
Net income attributable to noncontrolling interests
Noncontrolling interests in property partnerships	(71,120		)	(62,909		)	(47,832		)
Noncontrolling interest—common units of the Operating Partnership	(59,345		)	(66,807		)	(52,210		)
Net income attributable to Boston Properties, Inc.	521,534			582,847			462,439
Preferred dividends	(10,500		)	(10,500		)	(10,500		)
Net income attributable to Boston Properties, Inc. common shareholders	$	511,034		$	572,347		$	451,939
Basic earnings per common share attributable to Boston Properties, Inc. common shareholders:
Net income	$	3.31		$	3.71		$	2.93
Weighted average number of common shares outstanding	154,582			154,427			154,190
Diluted earnings per common share attributable to Boston Properties, Inc. common shareholders:
Net income	$	3.30		$	3.70		$	2.93
Weighted average number of common and common equivalent shares outstanding	154,883			154,682			154,390

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,
	2019			2018			2017
	(in thousands)
Net income	$	651,999		$	712,563		$	562,481
Other comprehensive income (loss):
Effective portion of interest rate contracts	(6,751		)	(3,096		)	(6,133		)
Amortization of interest rate contracts (1)	6,664			6,664			6,033
Other comprehensive income (loss)	(87		)	3,568			(100		)
Comprehensive income	651,912			716,131			562,381
Net income attributable to noncontrolling interests	(130,465		)	(129,716		)	(100,042		)
Other comprehensive income (loss) attributable to noncontrolling interests	(507		)	(880		)	1,922
Comprehensive income attributable to Boston Properties, Inc.	$	520,940		$	585,535		$	464,261


(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 - Common Units			Noncontrolling Interests - Property Partnerships			Total
	Shares	Amount
Equity, December 31, 2016	153,790	1,538	$	200,000	$	6,333,424	$	(693,694	)	$	(2,722	)	$	(52,251	)	$	614,982		$	1,530,647		$	7,931,924
Cumulative effect of a change in accounting principle	—	—	—		—		(272		)	—			—			(1,763		)	—			(2,035		)
Redemption of operating partnership units to common stock	495	5	—		16,911		—			—			—			(16,916		)	—			—
Allocated net income for the year	—	—	—		—		462,439			—			—			52,210			47,832			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
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		)	(375		)	(2,453		)	(6,133		)
Amortization of interest rate contracts	—	—	—		—		—			—			5,127			581			325			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		)	604,739			1,683,760			8,102,456
Cumulative effect of a change in accounting principle	—	—	—		—		4,933			—			—			563			—			5,496
Redemption of operating partnership units to common stock	83	2	—		2,878		—			—			—			(2,880		)	—			—
Allocated net income for the year	—	—	—		—		582,847			—			—			66,807			62,909			712,563
Dividends/distributions declared	—	—	—		—		(550,971		)	—			—			(62,731		)	—			(613,702		)
Shares issued pursuant to stock purchase plan	6	—	—		797		—			—			—			—			—			797
Net activity from stock option and incentive plan	44	—	—		1,729		—			—			—			36,861			—			38,590
Contributions from noncontrolling interests in property partnerships	—	—	—		—		—			—			—			—			46,701			46,701
Distributions to noncontrolling interests in property partnerships	—	—	—		—		—			—			—			—			(82,501		)	(82,501		)
Effective portion of interest rate contracts	—	—	—		—		—			—			(2,781		)	(315		)	—			(3,096		)
Amortization of interest rate contracts	—	—	—		—		—			—			5,469			619			576			6,664
Reallocation of noncontrolling interest	—	—	—		24,311		—			—			—			(24,311		)	—			—
Equity, December 31, 2018	154,458	1,545	200,000		6,407,623		(675,534		)	(2,722		)	(47,741		)	619,352			1,711,445			8,213,968

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 - Common Units			Noncontrolling Interests - Property Partnerships			Total
	Shares	Amount
Cumulative effect of a change in accounting principle	—	—		—		—			(3,864		)	—			—			(445		)	(70		)	(4,379		)
Redemption of operating partnership units to common stock	145	2		—		4,883			—			—			—			(4,885		)	—			—
Allocated net income for the year	—	—		—		—			521,534			—			—			59,345			71,120			651,999
Dividends/distributions declared	—	—		—		—			(602,659		)	—			—			(69,234		)	—			(671,893		)
Shares issued pursuant to stock purchase plan	6	—		—		688			—			—			—			—			—			688
Net activity from stock option and incentive plan	181	1		—		8,771			—			—			—			36,228			—			45,000
Sale of an interest in property partnerships	—	—		—		(4,216		)	—			—			—			—			4,216			—
Acquisition of noncontrolling interest in property partnerships	—	—		—		(162,462		)	—			—			—			—			(24,501		)	(186,963		)
Contributions from noncontrolling interests in property partnerships	—	—		—		—			—			—			—			—			35,816			35,816
Distributions to noncontrolling interests in property partnerships	—	—		—		—			—			—			—			—			(69,913		)	(69,913		)
Effective portion of interest rate contracts	—	—		—		—			—			—			(6,060		)	(691		)	—			(6,751		)
Amortization of interest rate contracts	—	—		—		—			—			—			5,466			622			576			6,664
Reallocation of noncontrolling interest	—	—		—		39,432			—			—			—			(39,432		)	—			—
Equity, December 31, 2019	154,790	$	1,548	$	200,000	$	6,294,719		$	(760,523	)	$	(2,722	)	$	(48,335	)	$	600,860		$	1,728,689		$	8,014,236

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,
	2019			2018			2017
	(in thousands)
Cash flows from operating activities:
Net income	$	651,999		$	712,563		$	562,481
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	677,764			645,649			617,547
Amortization of right-of-use assets - operating leases	2,412			—			—
Impairment losses	24,038			11,812			—
Non-cash compensation expense	40,958			40,117			35,361
Income from unconsolidated joint ventures	(46,592		)	(2,222		)	(11,232		)
Distributions of net cash flow from operations of unconsolidated joint ventures	17,155			6,703			26,858
(Gains) losses from investments in securities	(6,417		)	1,865			(3,678		)
Non-cash portion of interest expense	22,254			21,303			(1,284		)
Settlement of accreted debt discount on redemption of unsecured senior notes	(763		)	(483		)	(1,980		)
Losses (gains) from early extinguishments of debt	29,540			16,490			(496		)
Gains on sales of real estate	(709		)	(182,356		)	(7,663		)
Change in assets and liabilities:
Tenant and other receivables, net	(24,876		)	29,204			2,433
Note receivable	4			(13		)	—
Accrued rental income, net	(56,817		)	(43,662		)	(58,355		)
Prepaid expenses and other assets	2,965			12,472			51,425
Lease liabilities - operating leases	1,616			—			—
Accounts payable and accrued expenses	12,627			1,353			10,482
Accrued interest payable	858			5,237			(160,521		)
Other liabilities	(49,569		)	4,955			(44,970		)
Tenant leasing costs	(117,282		)	(130,742		)	(104,429		)
Total adjustments	529,166			437,682			349,498
Net cash provided by operating activities	1,181,165			1,150,245			911,979
Cash flows from investing activities:
Acquisitions of real estate	(149,031		)	—			(15,953		)
Construction in progress	(546,060		)	(694,791		)	(608,404		)
Building and other capital improvements	(180,556		)	(189,771		)	(222,482		)
Tenant improvements	(251,831		)	(210,034		)	(205,331		)
Right of use assets - finance leases	(5,152		)	—			—
Proceeds from sales of real estate	90,824			455,409			29,810
Capital contributions to unconsolidated joint ventures	(87,392		)	(345,717		)	(109,015		)
Capital distributions from unconsolidated joint ventures	136,807			—			251,000
Cash and cash equivalents deconsolidated	(24,112		)	—			—
Deposit on capital lease	—			(13,615		)	—
Issuance of related party note receivable	—			(80,000		)	—
Issuance of note receivable	—			(19,455		)	—
Proceeds from note receivable	3,544			—			—
Investments in securities, net	(2,132		)	(902		)	(1,669		)
Net cash used in investing activities	(1,015,091		)	(1,098,876		)	(882,044		)

BOSTON PROPERTIES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS

	For the year ended December 31,
	2019			2018			2017
	(in thousands)
Cash flows from financing activities:
Proceeds from mortgage notes payable	—			—			2,300,000
Repayments of mortgage notes payable	(46,173		)	(18,634		)	(1,317,653		)
Proceeds from unsecured senior notes	1,548,106			996,410			847,935
Redemption of unsecured senior notes	(699,237		)	(699,517		)	(848,020		)
Borrowings on unsecured line of credit	380,000			745,000			580,000
Repayments of unsecured line of credit	(380,000		)	(790,000		)	(535,000		)
Proceeds from unsecured term loan	—			500,000			—
Repayments of mezzanine notes payable	—			—			(306,000		)
Repayments of outside members’ notes payable	—			—			(70,424		)
Payments on finance lease obligations	(502		)	—			—
Payments on capital lease obligations	—			(1,353		)	(493		)
Payments on real estate financing transactions	—			(960		)	(2,840		)
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	(13,213		)	(8,362		)	(50,705		)
Debt prepayment and extinguishment costs	(28,716		)	(15,973		)	(12,784		)
Net proceeds from equity transactions	13,710			(730		)	241
Dividends and distributions	(666,294		)	(587,628		)	(526,578		)
Contributions from noncontrolling interests in property partnerships	35,816			46,701			52,009
Distributions to noncontrolling interests in property partnerships	(69,913		)	(82,501		)	(54,342		)
Acquisition of noncontrolling interest in property partnership	(186,963		)	—			—
Net cash (used in) provided by financing activities	(113,379		)	82,453			55,346
Net increase in cash and cash equivalents and cash held in escrows	52,695			133,822			85,281
Cash and cash equivalents and cash held in escrows, beginning of year	639,191			505,369			420,088
Cash and cash equivalents and cash held in escrows, end of year	$	691,886		$	639,191		$	505,369

Reconciliation of cash and cash equivalents and cash held in escrows:
Cash and cash equivalents, beginning of period	$	543,359		$	434,767		$	356,914
Cash held in escrows, beginning of period	95,832			70,602			63,174
Cash and cash equivalents and cash held in escrows, beginning of period	$	639,191		$	505,369		$	420,088

Cash and cash equivalents, end of period	$	644,950		$	543,359		$	434,767
Cash held in escrows, end of period	46,936			95,832			70,602
Cash and cash equivalents and cash held in escrows, end of period	$	691,886		$	639,191		$	505,369

Supplemental disclosures:
Cash paid for interest	$	439,059		$	416,019		$	598,486
Interest capitalized	$	54,911		$	65,766		$	61,070

BOSTON PROPERTIES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS

	For the year ended December 31,
	2019			2018			2017
	(in thousands)
Non-cash investing and financing activities:
Write-off of fully depreciated real estate	$	(129,831	)	$	(135,431	)	$	(124,891	)
Change in real estate included in accounts payable and accrued expenses	$	89,245		$	(44,866	)	$	27,978
Real estate acquired through capital lease	$	—		$	12,397		$	28,962
Right-of-use assets obtained in exchange for lease liabilities	$	287,540		$	—		$	—
Prepaid rent reclassified to right of use asset	$	15,000		$	—		$	—
Building and other capital improvements deconsolidated	$	(12,767	)	$	—		$	—
Right of use asset - finance lease deconsolidated	$	(135,004	)	$	—		$	—
Investment in unconsolidated joint venture recorded on deconsolidation	$	29,246		$	—		$	—
Lease liability - finance lease deconsolidated	$	119,534		$	—		$	—
Outside members’ notes payable contributed to noncontrolling interests in property partnerships	$	—		$	—		$	109,576
Dividends and distributions declared but not paid	$	170,713		$	165,114		$	139,040
Conversions of noncontrolling interests to stockholders’ equity	$	4,885		$	2,880		$	16,916
Issuance of restricted securities to employees and directors	$	37,622		$	37,052		$	35,989

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 2019 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, 2019 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, 2019 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in its report appearing on page 118, which expresses an unqualified opinion on the effectiveness of Boston Properties Limited Partnership’s internal control over financial reporting as of December 31, 2019.

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, 2019 and 2018, and the related consolidated statements of operations, of comprehensive income, of capital and noncontrolling interests and of cash flows for each of the three years in the period ended December 31, 2019, 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, 2019, 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, 2019 and 2018, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2019 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, 2019, 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

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.

Critical Audit Matters

Impairment Assessment of Long-Lived Assets

As described in Notes 2 and 3 to the consolidated financial statements, the Partnership’s consolidated real estate, net balance was $17.3 billion as of December 31, 2019. During the period ended December 31, 2019, the Partnership recognized an impairment loss related to long lived assets totaling approximately $22.3 million. As described in Note 2 to the consolidated financial statements, 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 that carrying amounts may not be recoverable. An impairment loss is recognized if the carrying amount of an asset is not recoverable and exceeds its fair value. As disclosed by management, the evaluation of anticipated cash flows is subjective and is based in part on assumptions regarding anticipated hold periods, future occupancy, future rental rates, future capital requirements, discount rates and capitalization rates that could differ materially from actual results in future periods.

/s/ PricewaterhouseCoopers LLP

Boston, Massachusetts

March 2, 2020

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, 2019			December 31, 2018
ASSETS
Real estate, at cost (amounts related to variable interest entities (“VIEs”) of $6,497,031 and $7,481,015 at December 31, 2019 and 2018, respectively)	$	22,107,755		$	21,251,540
Right of use assets - finance leases (amount related to VIEs of $21,000 at December 31, 2019)	237,394			—
Right of use assets - operating leases	148,640			—
Less: accumulated depreciation (amounts related to VIEs of $(1,058,495) and $(965,500) at December 31, 2019 and 2018, respectively)	(5,162,908		)	(4,800,475		)
Total real estate	17,330,881			16,451,065
Cash and cash equivalents (amounts related to VIEs of $280,033 and $296,806 at December 31, 2019 and 2018, respectively)	644,950			543,359
Cash held in escrows	46,936			95,832
Investments in securities	36,747			28,198
Tenant and other receivables, net (amounts related to VIEs of $28,918 and $15,519 at December 31, 2019 and 2018, respectively)	112,807			86,629
Related party note receivable	80,000			80,000
Note receivable	15,920			19,468
Accrued rental income, net (amounts related to VIEs of $298,318 and $272,466 at December 31, 2019 and 2018, respectively)	1,038,788			934,896
Deferred charges, net (amounts related to VIEs of $214,769 and $263,402 at December 31, 2019 and 2018, respectively)	689,213			678,724
Prepaid expenses and other assets (amounts related to VIEs of $20,931 and $26,513 at December 31, 2019 and 2018, respectively)	41,685			80,943
Investments in unconsolidated joint ventures	955,647			956,309
Total assets	$	20,993,574		$	19,955,423
LIABILITIES AND CAPITAL
Liabilities:
Mortgage notes payable, net (amounts related to VIEs of $2,918,806 and $2,929,326 at December 31, 2019 and 2018, respectively)	$	2,922,408		$	2,964,572
Unsecured senior notes, net	8,390,459			7,544,697
Unsecured line of credit	—			—
Unsecured term loan, net	498,939			498,488
Lease liabilities - finance leases (amount related to VIEs of $20,189 at December 31, 2019)	224,042			—
Lease liabilities - operating leases	200,180			—
Accounts payable and accrued expenses (amounts related to VIEs of $45,777 and $75,786 at December 31, 2019 and 2018, respectively)	377,553			276,645
Dividends and distributions payable	170,713			165,114
Accrued interest payable	90,016			89,267
Other liabilities (amounts related to VIEs of $140,110 and $200,344 at December 31, 2019 and 2018, respectively)	387,994			503,726
Total liabilities	13,262,304			12,042,509

Commitments and contingencies	—			—

Redeemable deferred stock units— 60,676 units outstanding at redemption value at December 31, 2019	8,365			—

BOSTON PROPERTIES LIMITED PARTNERSHIP CONSOLIDATED BALANCE SHEETS (in thousands, except for unit amounts)

	December 31, 2019			December 31, 2018
Noncontrolling interests:
Redeemable partnership units—16,764,466 and 16,783,558 common units and 1,143,215 and 991,577 long term incentive units outstanding at redemption value at December 31, 2019 and December 31, 2018, respectively	2,468,753			2,000,591
Capital:
5.25% Series B cumulative redeemable preferred units, liquidation preference $2,500 per unit, 80,000 units issued and outstanding at December 31, 2019 and December 31, 2018	193,623			193,623
Boston Properties Limited Partnership partners’ capital—1,726,980 and 1,722,336 general partner units and 153,063,318 and 152,736,142 limited partner units outstanding at December 31, 2019 and December 31, 2018, respectively	3,380,175			4,054,996
Accumulated other comprehensive loss	(48,335		)	(47,741		)
Total partners’ capital	3,525,463			4,200,878
Noncontrolling interests in property partnerships	1,728,689			1,711,445
Total capital	5,254,152			5,912,323
Total liabilities and capital	$	20,993,574		$	19,955,423

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,
	2019			2018			2017
	(in thousands, except for per unit amounts)
Revenue
Lease	$	2,758,014		$	—		$	—
Base rent	—			2,103,723			2,049,368
Recoveries from tenants	—			402,066			367,500
Parking and other	103,534			107,421			105,000
Hotel revenue	48,589			49,118			45,603
Development and management services	40,039			45,158			34,605
Direct reimbursements of payroll and related costs from management services contracts	10,386			9,590			—
Total revenue	2,960,562			2,717,076			2,602,076
Expenses
Operating
Rental	1,050,010			979,151			929,977
Hotel	34,004			33,863			32,059
General and administrative	140,777			121,722			113,715
Payroll and related costs from management services contracts	10,386			9,590			—
Transaction costs	1,984			1,604			668
Depreciation and amortization	669,956			637,891			609,407
Total expenses	1,907,117			1,783,821			1,685,826
Other income (expense)
Income from unconsolidated joint ventures	46,592			2,222			11,232
Gains on sales of real estate	858			190,716			8,240
Interest and other income	18,939			10,823			5,783
Gains (losses) from investments in securities	6,417			(1,865		)	3,678
Impairment losses	(22,272		)	(10,181		)	—
Interest expense	(412,717		)	(378,168		)	(374,481		)
(Losses) gains from early extinguishments of debt	(29,540		)	(16,490		)	496
Net income	661,722			730,312			571,198
Net income attributable to noncontrolling interests
Noncontrolling interests in property partnerships	(71,120		)	(62,909		)	(47,832		)
Net income attributable to Boston Properties Limited Partnership	590,602			667,403			523,366
Preferred distributions	(10,500		)	(10,500		)	(10,500		)
Net income attributable to Boston Properties Limited Partnership common unitholders	$	580,102		$	656,903		$	512,866
Basic earnings per common unit attributable to Boston Properties Limited Partnership
Net income	$	3.37		$	3.82		$	2.99
Weighted average number of common units outstanding	172,200			171,912			171,661
Diluted earnings per common unit attributable to Boston Properties Limited Partnership
Net income	$	3.36		$	3.81		$	2.98
Weighted average number of common and common equivalent units outstanding	172,501			172,167			171,861

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,
		2019			2018			2017
	(in thousands)
Net income		$	661,722		$	730,312		$	571,198
Other comprehensive income (loss):
Effective portion of interest rate contracts		(6,751		)	(3,096		)	(6,133		)
Amortization of interest rate contracts (1)		6,664			6,664			6,033
Other comprehensive income (loss)		(87		)	3,568			(100		)
Comprehensive income		661,635			733,880			571,098
Comprehensive income attributable to noncontrolling interests		(71,696		)	(63,485		)	(45,704		)
Comprehensive income attributable to Boston Properties Limited Partnership		$	589,939		$	670,395		$	525,394


(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 CAPITAL AND NONCONTROLLING INTERESTS (in thousands)

	Units		Capital
	General Partner	Limited Partner	Partners’ Capital (General and Limited Partners)			Preferred Units			Accumulated Other Comprehensive Loss			Noncontrolling Interests - Property Partnerships			Total Capital			Noncontrolling interests - Redeemable Partnership Units

Equity, December 31, 2016	1,718	152,072	$	3,670,345		$	193,623		$	(52,251	)	$	1,530,647		$	5,342,364		$	2,262,040
Cumulative effect of a change in accounting principle	—	—	(272		)	—			—			—			(272		)	(1,763		)
Contributions	—	40	4,937			—			—			—			4,937			31,743
Allocated net income for the period	—	—	460,656			10,500			—			47,832			518,988			52,210
Distributions	—	—	(470,316		)	(10,500		)	—			—			(480,816		)	(54,494		)
Unearned compensation	—	—	(243		)	—			—			—			(243		)	1,650
Conversion of redeemable partnership units	2	494	16,916			—			—			—			16,916			(16,916		)
Adjustment to reflect redeemable partnership units at redemption value	—	—	(17,587		)	—			—			—			(17,587		)	17,587
Effective portion of interest rate contracts	—	—	—			—			(3,305		)	(2,453		)	(5,758		)	(375		)
Amortization of interest rate contracts	—	—	—			—			5,127			325			5,452			581
Contributions from noncontrolling interests in property partnerships	—	—	—			—			—			161,585			161,585			—
Distributions to noncontrolling interests in property partnerships	—	—	—			—			—			(54,176		)	(54,176		)	—
Equity, December 31, 2017	1,720	152,606	3,664,436			193,623			(50,429		)	1,683,760			5,491,390			2,292,263
Cumulative effect of a change in accounting principle	—	—	4,933			—			—			—			4,933			563
Contributions	1	49	1,642			—			—			—			1,642			34,680
Allocated net income for the period	—	—	590,096			10,500			—			62,909			663,505			66,807
Distributions	—	—	(540,471		)	(10,500		)	—			—			(550,971		)	(62,731		)
Unearned compensation	—	—	884			—			—			—			884			2,181
Conversion of redeemable partnership units	1	81	2,880			—			—			—			2,880			(2,880		)
Adjustment to reflect redeemable partnership units at redemption value	—	—	330,596			—			—			—			330,596			(330,596		)
Effective portion of interest rate contracts	—	—	—			—			(2,781		)	—			(2,781		)	(315		)
Amortization of interest rate contracts	—	—	—			—			5,469			576			6,045			619
Contributions from noncontrolling interests in property partnerships	—	—	—			—			—			46,701			46,701			—
Distributions to noncontrolling interests in property partnerships	—	—	—			—			—			(82,501		)	(82,501		)	—
Equity, December 31, 2018	1,722	152,736	4,054,996			193,623			(47,741		)	1,711,445			5,912,323			2,000,591

BOSTON PROPERTIES LIMITED PARTNERSHIP CONSOLIDATED STATEMENTS OF CAPITAL AND NONCONTROLLING INTERESTS (in thousands)

	Units		Capital
	General Partner	Limited Partner	Partners’ Capital (General and Limited Partners)			Preferred Units			Accumulated Other Comprehensive Loss			Noncontrolling Interests - Property Partnerships			Total Capital			Noncontrolling interests - Redeemable Partnership Units

Cumulative effect of a change in accounting principle	—	—	(3,864		)	—			—			(70		)	(3,934		)	(445		)
Contributions	3	185	17,115			—			—			—			17,115			34,217
Allocated net income for the period	—	—	520,757			10,500			—			71,120			602,377			59,345
Distributions	—	—	(592,159		)	(10,500		)	—			—			(602,659		)	(69,234		)
Unearned compensation	—	—	(7,655		)	—			—			—			(7,655		)	2,011
Conversion of redeemable partnership units	2	142	4,885			—			—			—			4,885			(4,885		)
Adjustment to reflect redeemable partnership units at redemption value	—	—	(447,222		)	—			—			—			(447,222		)	447,222
Effective portion of interest rate contracts	—	—	—			—			(6,060		)	—			(6,060		)	(691		)
Amortization of interest rate contracts	—	—	—			—			5,466			576			6,042			622
Acquisition of noncontrolling interest in property partnership	—	—	(162,462		)	—			—			(24,501		)	(186,963		)	—
Sale of an interest in property partnerships	—	—	(4,216		)	—			—			4,216			—			—
Contributions from noncontrolling interests in property partnerships	—	—	—			—			—			35,816			35,816			—
Distributions to noncontrolling interests in property partnerships	—	—	—			—			—			(69,913		)	(69,913		)	—
Equity, December 31, 2019	1,727	153,063	$	3,380,175		$	193,623		$	(48,335	)	$	1,728,689		$	5,254,152		$	2,468,753

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,
	2019			2018			2017
	(in thousands)
Cash flows from operating activities:
Net income	$	661,722		$	730,312		$	571,198
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	669,956			637,891			609,407
Amortization of right-of-use assets - operating leases	2,412			—			—
Impairment losses	22,272			10,181			—
Non-cash compensation expense	40,958			40,117			35,361
Income from unconsolidated joint ventures	(46,592		)	(2,222		)	(11,232		)
Distributions of net cash flow from operations of unconsolidated joint ventures	17,155			6,703			26,858
(Gains) losses from investments in securities	(6,417		)	1,865			(3,678		)
Non-cash portion of interest expense	22,254			21,303			(1,284		)
Settlement of accreted debt discount on redemption of unsecured senior notes	(763		)	(483		)	(1,980		)
Losses (gains) from early extinguishments of debt	29,540			16,490			(496		)
Gains on sales of real estate	(858		)	(190,716		)	(8,240		)
Change in assets and liabilities:
Tenant and other receivables, net	(24,876		)	29,204			2,433
Note receivable	4			(13		)	—
Accrued rental income, net	(56,817		)	(43,662		)	(58,355		)
Prepaid expenses and other assets	2,965			12,472			51,425
Lease liabilities - operating leases	1,616			—			—
Accounts payable and accrued expenses	12,627			1,353			10,482
Accrued interest payable	858			5,237			(160,521		)
Other liabilities	(49,569		)	4,955			(44,970		)
Tenant leasing costs	(117,282		)	(130,742		)	(104,429		)
Total adjustments	519,443			419,933			340,781
Net cash provided by operating activities	1,181,165			1,150,245			911,979
Cash flows from investing activities:
Acquisitions of real estate	(149,031		)	—			(15,953		)
Construction in progress	(546,060		)	(694,791		)	(608,404		)
Building and other capital improvements	(180,556		)	(189,771		)	(222,482		)
Tenant improvements	(251,831		)	(210,034		)	(205,331		)
Right of use assets - finance leases	(5,152		)	—			—
Proceeds from sales of real estate	90,824			455,409			29,810
Capital contributions to unconsolidated joint ventures	(87,392		)	(345,717		)	(109,015		)
Capital distributions from unconsolidated joint ventures	136,807			—			251,000
Cash and cash equivalents deconsolidated	(24,112		)	—			—
Deposit on capital lease	—			(13,615		)	—
Issuance of related party note receivable	—			(80,000		)	—
Issuance of note receivable	—			(19,455		)	—
Proceeds from note receivable	3,544			—			—
Investments in securities, net	(2,132		)	(902		)	(1,669		)
Net cash used in investing activities	(1,015,091		)	(1,098,876		)	(882,044		)

BOSTON PROPERTIES LIMITED PARTNERSHIP CONSOLIDATED STATEMENTS OF CASH FLOWS

	For the year ended December 31,
	2019			2018			2017
	(in thousands)
Cash flows from financing activities:
Proceeds from mortgage notes payable	—			—			2,300,000
Repayments of mortgage notes payable	(46,173		)	(18,634		)	(1,317,653		)
Proceeds from unsecured senior notes	1,548,106			996,410			847,935
Redemption/repurchase of unsecured senior notes	(699,237		)	(699,517		)	(848,020		)
Borrowings on unsecured line of credit	380,000			745,000			580,000
Repayments of unsecured line of credit	(380,000		)	(790,000		)	(535,000		)
Proceeds from unsecured term loan	—			500,000			—
Repayments of mezzanine notes payable	—			—			(306,000		)
Repayments of outside members’ notes payable	—			—			(70,424		)
Payments on finance lease obligations	(502		)	(1,353		)	(493		)
Payments on real estate financing transactions	—			(960		)	(2,840		)
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	(13,213		)	(8,362		)	(50,705		)
Debt prepayment and extinguishment costs	(28,716		)	(15,973		)	(12,784		)
Net proceeds from equity transactions	13,710			(730		)	241
Distributions	(666,294		)	(587,628		)	(526,578		)
Contributions from noncontrolling interests in property partnerships	35,816			46,701			52,009
Distributions to noncontrolling interests in property partnerships	(69,913		)	(82,501		)	(54,342		)
Acquisition of noncontrolling interest in property partnership	(186,963		)	—			—
Net cash (used in) provided by financing activities	(113,379		)	82,453			55,346
Net increase in cash and cash equivalents and cash held in escrows	52,695			133,822			85,281
Cash and cash equivalents and cash held in escrows, beginning of year	639,191			505,369			420,088
Cash and cash equivalents and cash held in escrows, end of year	$	691,886		$	639,191		$	505,369

Reconciliation of cash and cash equivalents and cash held in escrows:
Cash and cash equivalents, beginning of period	$	543,359		$	434,767		$	356,914
Cash held in escrows, beginning of period	95,832			70,602			63,174
Cash and cash equivalents and cash held in escrows, beginning of period	$	639,191		$	505,369		$	420,088

Cash and cash equivalents, end of period	$	644,950		$	543,359		$	434,767
Cash held in escrows, end of period	46,936			95,832			70,602
Cash and cash equivalents and cash held in escrows, end of period	$	691,886		$	639,191		$	505,369

Supplemental disclosures:
Cash paid for interest	$	439,059		$	416,019		$	598,486
Interest capitalized	$	54,911		$	65,766		$	61,070

BOSTON PROPERTIES LIMITED PARTNERSHIP CONSOLIDATED STATEMENTS OF CASH FLOWS

	For the year ended December 31,
	2019			2018			2017
	(in thousands)
Non-cash investing and financing activities:
Write-off of fully depreciated real estate	$	(129,253	)	$	(135,431	)	$	(123,714	)
Change in real estate included in accounts payable and accrued expenses	$	89,245		$	(44,866	)	$	27,978
Real estate acquired through capital lease	$	—		$	12,397		$	28,962
Right-of-use assets obtained in exchange for lease liabilities	$	287,540		$	—		$	—
Prepaid rent reclassified to right of use asset	$	15,000		$	—		$	—
Building and other capital improvements deconsolidated	$	(12,767	)	$	—		$	—
Right of use asset - finance lease deconsolidated	$	(135,004	)	$	—		$	—
Investment in unconsolidated joint venture recorded on deconsolidation	$	29,246		$	—		$	—
Lease liability - finance lease deconsolidated	$	119,534		$	—		$	—
Outside members’ notes payable contributed to noncontrolling interests in property partnerships	$	—		$	—		$	109,576
Distributions declared but not paid	$	170,713		$	165,114		$	139,040
Conversions of redeemable partnership units to partners’ capital	$	4,885		$	2,880		$	16,916
Issuance of restricted securities to employees and directors	$	37,622		$	37,052		$	35,989

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

1. 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, 2019 owned an approximate 89.6% (89.7% at December 31, 2018) 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 the OP Unit for cash equal to the value of a share of common stock of Boston Properties, Inc. (“Common Stock”). 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, 2017, 2018 and 2019 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, 2014 MYLTIP Units, 2015 MYLTIP Units and 2016 MYLTIP Units expired on February 6, 2015, February 4, 2016, February 3, 2017, February 4, 2018 and February 9, 2019, 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 2017 MYLTIP Units, 2018 MYLTIP Units and 2019 MYLTIP Units differ from other LTIP Units granted to employees (including the 2012 OPP Units, the 2013 MYLTIP Units, the 2014 MYLTIP Units, the 2015 MYLTIP Units and the 2016 MYLTIP Units, which have been earned). Therefore, unless specifically noted otherwise, all references to LTIP Units exclude the 2017 MYLTIP Units, 2018 MYLTIP Units and 2019 MYLTIP Units. LTIP Units (including the earned 2012 OPP Units, the 2013 MYLTIP Units, the 2014 MYLTIP Units, the 2015 MYLTIP Units and 2016 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 10, 16 and 19).

At December 31, 2019, 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 11).

Properties

At December 31, 2019, the Company owned or had interests in a portfolio of 196 commercial real estate properties (the “Properties”) aggregating approximately 52.0 million net rentable square feet of primarily Class A office properties, including 11 properties under construction/redevelopment totaling approximately 5.5 million net rentable square feet. At December 31, 2019, the Properties consisted of:


•	177 office properties (including nine properties under construction/redevelopment);


•	twelve retail properties;


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

The accompanying consolidated financial statements are presented using the accrual basis of accounting in conformity with accounting principles generally accepted in the United States of America. 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)

Consolidated VIEs are those for which 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 six of the eight entities that are VIEs (see “New Accounting Pronouncements Issued but not yet Adopted—Consolidation” within Note 2).

Consolidated Variable Interest Entities

As of December 31, 2019, Boston Properties, Inc. has identified six consolidated VIEs, including Boston Properties Limited Partnership. Excluding Boston Properties Limited Partnership, the VIEs consisted of 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.

The Company consolidates these VIEs because it is the primary beneficiary. The third parties’ interests in these consolidated entities (i.e., excluding Boston Properties Limited Partnership’s interest) are reflected as noncontrolling interest in property partnerships in the accompanying Consolidated Financial Statements (See Note 10).

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 Platform 16 Holdings LP and the landlord entity for its Platform 16 ground lease 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.

2. Summary of Significant Accounting Policies

Real Estate

Upon acquisitions of real estate, the Company assesses whether the transaction should be accounted for as an asset acquisition or as a business combination by applying a screen to determine whether the integrated set of assets and activities acquired meets the definition of a business. Acquisitions of integrated sets of assets and activities that do not meet the definition of a business are accounted for as asset acquisitions. The Company’s acquisitions of real estate or in-substance real estate generally will not meet the 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.

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 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 carrying amounts may not be recoverable. 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 subjective and is based in part on assumptions regarding anticipated hold periods, future occupancy, future rental rates, future capital requirements, discount rates and capitalization rates 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.

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 the project that benefited from the investment. 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.

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 complete 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, 2019, 2018 and 2017 were approximately $54.9 million, $65.8 million and $61.1 million, respectively. Salaries and related costs capitalized for the years ended December 31, 2019, 2018 and 2017 were approximately $10.4 million, $12.5 million and $13.2 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. 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, as amended (the “Code”), in connection with sales of the Company’s properties.

Investments in Securities

The Company accounts for investments in equity securities at fair value, with gains or losses resulting from changes in fair value recognized currently in earnings. The Company maintains deferred compensation plans that are designed to allow officers and non-employee directors of Boston Properties, Inc. to defer a portion of the officer’s current income or the non-employee director’s current compensation on a pre-tax basis and receive a tax-deferred return on these deferrals based on the performance of specific investments selected by the officer or non-employee director. The Company’s obligation under the plans is that of an unsecured promise to pay the deferred compensation to the plan participants in the future. At December 31, 2019 and 2018, the Company had maintained approximately $36.7 million and $28.2 million, respectively, in separate accounts, which are not restricted as to their use. The Company recognized gains (losses) of approximately $6.4 million, $(1.9) million and $3.7 million on its investments in the accounts associated with the Company’s deferred compensation plans during the years ended December 31, 2019, 2018 and 2017, respectively.

Tenant and Other Receivables

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

Notes Receivable

The Company accounts for notes receivable at their unamortized cost, net of any unamortized deferred fees or costs, premiums or discounts and an allowance for loan losses (see “New Accounting Pronouncements Issued but not yet Adopted—Financial Instruments - Credit Losses”). Loan fees and direct costs associated with loans originated by the Company are deferred and amortized over the term of the note as interest income.

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 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. The Company did not capitalize any external legal costs and internal leasing salaries and related costs for the year ended December 31, 2019 (see “New Accounting Pronouncements Adopted—Leases”). Internal leasing salaries and related costs capitalized for the years ended December 31, 2018 and 2017 were approximately $5.4 million and $5.0 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 classifies distributions received from equity method investees within its Consolidated Statements of Cash Flows using the nature of the distribution approach, which classifies the distributions received on the basis of the nature of the activity or activities of the investee that generated the distribution as either a return on investment (classified as cash inflows from operating activities) or a return of investment (classified as cash inflows from investing activities). 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 amounts has occurred and such decline is other-than-temporary. The evaluation of fair value is subjective and is based in part on assumptions regarding future occupancy, future rental rates, future capital requirements, discount rates and capitalization rates that could differ materially from actual results in future periods. 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 fair value below the carrying amount of an investment in an unconsolidated joint venture is other-than-temporary.

To the extent that the Company contributed assets to a joint venture, the Company’s investment in the joint venture was 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 610-20 “Gains and Losses from the Derecognition of Nonfinancial Assets” (“ASC 610-20”), the Company will recognize a full gain on both the retained and sold portions of real estate contributed or sold to a joint venture by recognizing its new equity method investment interest at fair value.

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

Revenue Recognition

In general, the Company commences lease/rental revenue recognition when the tenant takes possession of the leased space and the leased space is substantially ready for its intended use. Contractual lease/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 $58.4 million, $51.9 million and $54.8 million for the years ended December 31, 2019, 2018 and 2017, respectively, as the revenue recorded exceeded amounts billed. Accrued rental income, as reported on the Consolidated Balance Sheets, represents cumulative lease/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 $20.9 million, $23.8 million and $23.5 million for the years ended December 31, 2019, 2018 and 2017, 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
2020	$	5,440	$	10,673
2021	3,054		6,455
2022	357		5,699
2023	183		5,558
2024	135		4,043

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 (see “New Accounting Pronouncements Adopted—Leases”). The Company recognizes these reimbursements on a gross basis, as the Company obtains control of the goods and services before they are transferred to the tenant. The Company also receives reimbursements of payroll and payroll related costs from unconsolidated joint venture entities and third party property owners in connection with management services contracts which the Company reflects on a gross basis instead of on a net basis as the Company has determined that it is the principal and not the agent under these arrangements in accordance with the guidance in ASC 606 “Revenue from Contracts with Customers” (“ASC 606”).

The Company’s parking revenue is derived primarily from monthly and transient daily parking. In addition, the Company has certain lease arrangements for parking accounted for under the guidance in ASC 842 “Leases” (“ASC 842”). The monthly and transient daily parking revenue falls within the scope of ASC 606 and is accounted for at the point in time when control of the goods or services transfers to the customer and the Company’s performance obligation is satisfied.

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 the hotel rooms are occupied and the services are rendered to the hotel customers.

The Company earns management and development fees. Development and management services revenue is earned from unconsolidated joint venture entities and third-party property owners. The Company determined that the performance obligations associated with its development services contracts are satisfied over time and that the Company would recognize its development services revenue under the output method evenly over time from the development commencement date through the substantial completion date of the development management services project due to the stand-ready nature of the contracts. Significant judgments impacting the amount and timing of revenue recognized from the Company’s development services contracts include estimates of total development project costs from which the fees are typically derived and estimates of the period of time until substantial completion of the development project, the period of time over which the development services are required to be performed. The Company recognizes development fees earned from unconsolidated joint venture projects equal to its cost plus profit to the extent of the third party partners’ ownership interest. 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.

Gains on sales of real estate are recognized pursuant to the provisions included in ASC 610-20. Under ASC 610-20, the Company must first determine whether the transaction is a sale to a customer or non-customer. The Company typically sells real estate on a selective basis and not within the ordinary course of its business and therefore expects that its sale transactions will not be contracts with customers. The Company next determines whether it has a controlling financial interest in the property after the sale, consistent with the consolidation model in ASC 810 “Consolidation” (“ASC 810”). If the Company determines that it does not have a controlling financial interest in the real estate, it evaluates whether a contract exists under ASC 606 and whether the buyer has obtained control of the asset that was sold. The Company recognizes a full gain on sale of real estate when the derecognition criteria under ASC 610-20 have been met.

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” (“ASC 820”)) 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 ASC 820) if trading volumes are low. The Company determines the fair value of its related party note receivable, note receivable and mortgage notes payable using discounted cash flow analysis by discounting the spread between the future contractual interest payments and hypothetical future interest payments on note receivables / 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 related party note receivable, note receivable, and mortgage notes payable are categorized at a Level 3 basis (as defined in ASC 820) 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 or unsecured term loan, 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 Boston Properties Limited Partnership’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 (see “New Accounting Pronouncements Issued but not yet Adopted—Fair Value Measurement”).

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 related party note receivable, note receivable, mortgage notes payable, net, unsecured senior notes, net, unsecured line of credit and unsecured term loan, net and the Company’s corresponding estimate of fair value as of December 31, 2019 and December 31, 2018 (in thousands):



	December 31, 2019				December 31, 2018
	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value
Related party note receivable	$	80,000	$	81,931	$	80,000	$	80,000
Note receivable	15,920		14,978		19,468		19,468
Total	$	95,920	$	96,909	$	99,468	$	99,468

Mortgage notes payable, net	$	2,922,408	$	2,984,956	$	2,964,572	$	2,903,925
Unsecured senior notes, net	8,390,459		8,826,375		7,544,697		7,469,338
Unsecured line of credit	—		—		—		—
Unsecured term loan, net	498,939		500,561		498,488		500,783
Total	$	11,811,806	$	12,311,892	$	11,007,757	$	10,874,046

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 both the effective and ineffective portions of changes in the fair value of a derivative in other comprehensive income (loss) and subsequently reclassifies the fair value of the derivative to earnings over the term that the hedged transaction affects earnings and in the same line item as the hedged transaction within the statements of operations.

Stock-Based Employee Compensation Plans

At December 31, 2019, 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.

Out-of-Period Adjustment

During the year ended December 31, 2019, the Company recorded a change in the balance sheet classification of deferred stock units held by non-employee directors of Boston Properties, Inc. that are outstanding under Boston Properties, Inc.’s 1997 Stock Option and Incentive Plan and 2012 Stock Option and Incentive Plan (the “Plans”). The reclassification resulted from a modification to the terms of the non-employee director compensation program to provide, subject to certain conditions, the non-employee directors holding these units with the ability to elect, following cessation of their service on the Company’s Board of Directors, to diversify their investment elections into non-employer securities, which will ultimately be settled in cash. The modification required a change to the classification of these deferred stock units from permanent equity to temporary equity on the Consolidated Balance Sheets of Boston Properties, Inc. and Boston Properties Limited Partnership within Redeemable Deferred Stock Units. During the year ended December 31, 2019, the Company recorded a change in the balance sheet classification of certain deferred stock units outstanding to correct the approximately $8.4 million overstatement of each of Additional Paid-in Capital of Boston Properties, Inc. and Partners’ Capital of Boston Properties Limited Partnership, the approximately $8.1 million understatement of each of Redeemable Deferred Stock Units of Boston Properties, Inc. and Boston Properties Limited Partnership, and the approximately $0.3 million understatement of each of Accounts Payable and Accrued Expenses of Boston Properties, Inc. and Boston Properties Limited Partnership in the year ended December 31, 2018. Because this adjustment was not material to the prior year’s consolidated financial statements and the impact of recording the adjustment in the year ended December 31, 2019 was not material to Boston Properties, Inc.’s or Boston Properties Limited Partnership’s consolidated financial statements, the Company recorded the related adjustment during the year ended December 31, 2019. The out-of-period adjustment was identified and recorded during the three months ended September 30, 2019.

New Accounting Pronouncements Adopted

Leases

General Adoption

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“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 for accounting purposes 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 the prior guidance in ASC 840 -“Leases” (“Topic 840”). ASU 2016-02 requires lessors to account for leases using an approach that is substantially equivalent to Topic 840 for sales-type leases, direct financing leases and operating leases. ASU 2016-02 supersedes previous leasing standards.

On July 30, 2018, the FASB issued ASU 2018-11, “Leases (Topic 842): Targeted Improvements” (“ASU 2018-11”), that (1) simplifies transition requirements for both lessees and lessors by adding an option that permits an organization to apply the transition provisions of the new standard at its adoption date instead of at the earliest comparative period presented in its financial statements and (2) allows lessors to elect, as a practical expedient, by class of underlying asset, to not separate nonlease components from the associated lease component and, instead, to account for those components as a single component if the nonlease components otherwise would be accounted for under the revenue guidance in ASC 606 that was adopted on January 1, 2018, and both of the following are met:

(1) the timing and pattern of transfer of the nonlease component(s) and associated lease components are the same; and

(2) the lease component, if accounted for separately, would be classified as an operating lease.

If the nonlease component or components associated with the lease component are the predominant component of the combined component, an entity is required to account for the combined component in accordance with ASC 606.

The Company adopted ASU 2016-02 and ASU 2018-11 effective January 1, 2019. For purposes of transition, the Company elected the practical expedient package, which has been applied consistently to all of its leases, but did not elect the hindsight practical expedient. The practical expedient package did not require the Company to reassess the following: (i) whether an expired or existing contract meets the definition of a lease; (ii) the lease classification at the adoption date for existing leases; and (iii) whether costs previously capitalized as initial direct costs would continue to be amortized. This allows the Company to continue to account for its ground leases as operating leases. However, as of January 1, 2019, any new or modified ground leases may be classified as financing leases unless they meet certain conditions. The Company also elected to apply the transition provisions as of the adoption date, January 1, 2019, and not change its comparative statements. The Company recorded an adjustment to the opening balance of retained earnings related to initial direct costs that, as of January 1, 2019, had not started to amortize and are no longer allowed to be capitalized in accordance with ASU 2016-02, totaling approximately $3.9 million to Dividends in Excess of Earnings of Boston Properties, Inc. and Partners’ Capital of Boston Properties Limited Partnership, approximately $0.4 million to Noncontrolling interests - Common Units of Boston Properties, Inc. and Noncontrolling Interest - Redeemable Partnership Units of Boston Properties Limited Partnership and $70,000 to Noncontrolling Interests - Property Partnerships of Boston Properties, Inc. and Noncontrolling Interests in Property Partnerships of Boston Properties Limited Partnership on the corresponding Consolidated Balance Sheets.

The Company made the policy election, when it is the lessee, to not apply the revenue recognition requirements of Topic 842 to short-term leases. This policy election is made by class of underlying assets and as described below, the Company considers real estate to be a class of underlying assets, and will not be further delineating it into specific uses of the real estate asset as the risk profiles are similar in nature. The Company will recognize the lease payments in net income on a straight-line basis over the lease term.

Lease payments from operating leases are recognized on a straight-line basis over the term of the leases. The cumulative difference between lease revenue recognized under this method and the contractual lease payment terms is recorded as deferred rent receivable on the Company’s Consolidated Balance Sheets. The Company reviews its trade accounts receivable, including its straight-line rent receivable, related to base rents, straight-line rent, expense reimbursements and other revenues for collectability. The Company analyzes its accounts receivable, customer creditworthiness and current economic trends when evaluating the adequacy of the collectability of the lessee’s total accounts receivable balance on a lease-by-lease basis. In addition, tenants in bankruptcy are analyzed and considerations are made in connection with the expected recovery of pre-petition and post-petition claims. If a lessee’s accounts receivable balance is considered uncollectible, the Company will write-off the receivable balances associated with the lease to Lease revenue and cease to recognize lease income, including straight-line rent, unless cash is received. If the Company subsequently determines that it is probable it will collect substantially all the remaining lessee’s lease payments under the lease term, the Company will then reinstate the straight-line balance, adjusting for the amount related to the period when the lease payments were considered not probable. The Company’s reported net earnings are directly affected by management’s estimate of the collectability of its trade accounts receivable.

In January 2018, the FASB issued ASU 2018-01, “Leases (Topic 842): Land Easement Practical Expedient for Transition to Topic 842” (“ASU 2018-01”), which provides an optional transition practical expedient to not evaluate, under Topic 842, existing or expired land easements that were not previously accounted for as leases under the leases guidance in Topic 840. An entity that elects this practical expedient should evaluate new or modified land easements under Topic 842 beginning at the date that the entity adopts Topic 842. An entity that does not elect this practical expedient should evaluate all existing or expired land easements in connection with the adoption of the new lease requirements in Topic 842 to assess whether they meet the definition of a lease. The effective date and transition requirements for ASU 2018-01 are the same as the effective date and transition requirements in ASU 2016-02. The Company adopted ASU 2018-01 on January 1, 2019.

Lessee

For leases in which the Company is the lessee (generally ground leases), on January 1, 2019, the Company recognized a right-of-use asset and a lease liability of approximately $151.8 million and $199.3 million, respectively. The lease liability was equal to the present value of the minimum lease payments in accordance with Topic ASC 840. In addition, the Company did not know the rate implicit in any of its ground leases that were classified as operating leases, and accordingly used the Company’s incremental borrowing rate (“IBR”) to determine the net present value of the minimum lease payments.

In order to determine the IBR, the Company utilized a market-based approach to estimate the incremental borrowing rate for each individual lease. The approach required significant judgment. Therefore, the Company utilized different data sets to estimate base IBRs via an analysis of the following weighted-components:


•	the interpolated rates from yields on outstanding U.S. Treasury issuances for up to 30 years and for years 31 and beyond, longer-term publicly traded educational institution debt issued by high credit quality educational institutions with maturity dates up to 2116,


•	observable mortgage rates spread over U.S. Treasury issuances, and


•	unlevered property yields and discount rates.

The Company then applied adjustments to account for considerations related to term and interpolated the IBR.

The Company has four non-cancelable ground lease obligations, which were classified as operating leases, with various initial term expiration dates through 2114. The Company recognizes ground rent expense on a straight-line basis over the term of the respective ground lease agreements. None of the amounts disclosed below for these ground leases contain variable payments, extension options or residual value guarantees. One of the ground leases does have an extension option. However, lease payments for this ground lease are based on fair market value and as such have not been included in the analysis below.

The Company has four finance lease obligations with various initial term expiration dates through 2094, see Note 3.

The following table provides lease cost information for the Company’s operating and finance leases for the year ended December 31, 2019 (in thousands):



Lease costs
Operating lease costs	$	14,573
Finance lease costs
Amortization of right of use asset (1)	$	29
Interest on lease liabilities (2)	$	47


(1)	The finance leases relate to either land, buildings or assets that remain in development. For land leases classified as finance leases because of a purchase option that the Company views as an economic incentive, the Company follows its existing policy and does not depreciate land because it is assumed to have an indefinite life. For all other finance leases, the Company would amortize the right of use asset over the shorter of the useful life of the asset or the lease term. If the finance lease relates to a property under development, the amortization of the right of use asset may be eligible for capitalization. For assets under development, depreciation may commence once the asset is placed in-service and depreciation would be recognized in accordance with the Company’s policy.

(1)

The finance leases relate to either land, buildings or assets that remain in development. For land leases classified as finance leases because of a purchase option that the Company views as an economic incentive, the Company follows its existing policy and does not depreciate land because it is assumed to have an indefinite life. For all other finance leases, the Company would amortize the right of use asset over the shorter of the useful life of the asset or the lease term. If the finance lease relates to a property under development, the amortization of the right of use asset may be eligible for capitalization. For assets under development, depreciation may commence once the asset is placed in-service and depreciation would be recognized in accordance with the Company’s policy.


(2)	Three of the finance leases relate to assets under development and as such, the entire interest amount was capitalized.

The following table provides other quantitative information for the Company’s operating and finance leases as of December 31, 2019:



	December 31, 2019
Other information
Weighted-average remaining lease term (in years)
Operating leases	51
Finance leases	71
Weighted-average discount rate
Operating leases	5.7	%
Finance leases	6.2	%

The following table provides a maturity analysis for the Company’s future contractual minimum lease payments to be made by the Company as of December 31, 2018, under non-cancelable ground leases which expire on various dates through 2114:



Years Ending December 31,	(in thousands)
2019	$	11,425
2020	18,425
2021	25,310
2022	8,894
2023	9,084
Thereafter	567,232

The following table provides a maturity analysis for the Company’s future minimum lease payments, as of December 31, 2018, related to the four capital leases, through 2036:



Years Ending December 31,	(in thousands)
2019	$	1,441
2020	12,682
2021	2,123
2022	1,253
2023	944
Thereafter	73,241
Total expected minimum lease payments	91,684
Interest portion	(27,497		)
Present value of expected net minimum lease payments	$	64,187

The following table provides a maturity analysis for the Company’s lease liabilities related to its operating and finance leases as of December 31, 2019 (in thousands):



	Operating			Finance
2020	$	10,050		$	834
2021	24,973			5,960
2022	18,041			10,208
2023	10,322			9,708
2024 (1)	9,277			48,518
Thereafter	557,954			1,383,242
Total lease payments	630,617			1,458,470
Less: interest portion	(430,437		)	(1,234,428		)
Present value of lease payments	$	200,180		$	224,042


(1)	Finance lease payments in 2024 include approximately $38.7 million related to a purchase option that the Company is reasonably certain it will exercise.

Lessor

The Company leases primarily Class A office, retail and residential space to tenants. These leases may contain extension and termination options that are predominately at the sole discretion of the tenant, provided certain conditions are satisfied. In a few instances, the leases also contain purchase options, which would be exercisable at fair market value. Also, certain of the Company’s leases include rental payments that are based on a percentage of the tenant sales in excess of contractual amounts.

ASU 2018-11 provides lessors a practical expedient to not separate nonlease components from the associated lease component if certain criteria stated above are met for each class of underlying assets. The guidance in Topic 842 defines “underlying asset” as “an asset that is the subject of a lease for which a right to use that asset has been conveyed to a lessee. The underlying asset could be a physically distinct portion of a single asset.” Based on the above guidance, the Company considers real estate assets as a class of underlying assets and will not be further delineating it into specific uses of the real estate asset as the risk profiles are similar in nature.

Lease components are elements of an arrangement that provide the customer with the right to use an identified asset. Nonlease components are distinct elements of a contract that are not related to securing the use of the leased asset and revenue is recognized in accordance with ASC 606. The Company considers common area maintenance (CAM) and service income associated with tenant work orders to be nonlease components because they represent delivery of a separate service but are not considered a cost of securing the identified asset. In the case of the Company’s business, the identified asset would be the leased real estate (office, retail or residential).

The Company assessed and concluded that the timing and pattern of transfer for nonlease components and the associated lease component are the same. The Company determined that the predominant component was the lease component and as such its leases will continue to qualify as operating leases and the Company has made a policy election to account for and present the lease component and the nonlease component as a single component in the revenue section of the Consolidated Statements of Operations labeled Lease. Prior to the adoption of Topic 842, nonlease components had been included within Recoveries from Tenants Revenue, Parking and Other Revenue and Development and Management Services Revenue on the Company’s Consolidated Statements of Operations.

In addition, under ASU 2016-02, lessors will only capitalize incremental direct leasing costs. As a result, starting January 1, 2019, the Company no longer capitalizes non-incremental legal costs and internal leasing wages. These costs are expensed as incurred. The expensing of these items is included within General and Administrative Expense on the Consolidated Statements of Operations.

The following table summarizes the components of lease revenue recognized during the year ended December 31, 2019 included within the Company’s Consolidated Statements of Operations (in thousands):



Lease Revenue
Fixed contractual payments	$	2,261,260
Variable lease payments	496,754
	$	2,758,014

The Company’s properties are leased to tenants under operating leases with initial term expiration dates ranging from 2020 to 2049. For the future contractual lease payments to be received by the Company, refer to Note 12.

New Accounting Pronouncements Issued but not yet Adopted

Financial Instruments - Credit Losses

In June 2016, the FASB issued ASU 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” (“ASU 2016-13”). ASU 2016-13 is intended to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date by replacing the current incurred loss impairment methodology with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. In November 2018, the FASB issued ASU 2018-19, “Codification Improvements to Topic 326, Financial Instruments - Credit Losses” (“ASU 2018-19”). ASU 2018-19 clarifies that receivables arising from operating leases are not within the scope of ASC 326-20, “Financial Instruments - Credit Losses - Measured at Amortized Cost,” which addresses financial assets measured at amortized cost basis, including net investments in leases arising from sales-type and direct financing leases. Instead, impairment of receivables arising from operating leases should be accounted for in accordance with ASC 842. ASU 2016-13 and ASU 2018-19 are effective for the Company for reporting periods beginning after December 15, 2019, with early adoption permitted. ASU 2016-13 and ASU 2018-19 are applicable to the Company with respect to (1) certain of its accounts receivable, except for amounts arising from operating leases accounted for under ASC 842, (2) its related party note receivable, (3) its note receivable and (4) certain of its off-balance sheet credit exposures. The Company adopted ASU 2016-13 and ASU 2018-19 effective January 1, 2020 using the modified retrospective approach. The

adoption of ASU 2016-13 and ASU 2018-19 did not have a material impact on the Company’s consolidated financial statements.

Fair Value Measurement

In August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement” (“ASU 2018-13”). ASU 2018-13 is intended to improve the effectiveness of disclosures required by entities regarding recurring and nonrecurring fair value measurements. ASU 2018-13 is effective for the Company for reporting periods beginning after December 15, 2019, with early adoption permitted. The adoption of ASU 2018-13 will not have a material impact on the Company’s consolidated financial statements.

Derivatives and Hedging

In October 2018, the FASB issued ASU 2018-16, “Derivatives and Hedging (Topic 815): Inclusion of the Secured Overnight Financing Rate (SOFR) Overnight Index Swap (OIS) Rate as a Benchmark Interest Rate for Hedge Accounting Purposes” (“ASU 2018-16”). ASU 2018-16 permits the use of the overnight index swap rate based on the Secured Overnight Financing Rate (“SOFR”) to be used as a U.S. benchmark interest rate for purposes of applying hedge accounting under ASC 815. ASU 2018-16 is effective for the Company, which has already adopted ASU 2017-12, for reporting periods beginning after December 15, 2018 and is required to be adopted on a prospective basis for qualifying new or re-designated hedging relationships entered into on or after the date of adoption. The adoption of ASU 2018-16 will not have a material impact on the Company’s consolidated financial statements.

Consolidation

In October 2018, the FASB issued ASU 2018-17, “Consolidation (Topic 810): Targeted Improvements to Related Party Guidance for Variable Interest Entities” (“ASU 2018-17”). ASU 2018-17 is intended to improve the accounting when considering indirect interests held through related parties under common control for determining whether fees paid to decision makers and service providers are variable interests. ASU 2018-17 is effective for the Company for reporting periods beginning after December 15, 2019, with early adoption permitted. The adoption of ASU 2018-17 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,
	2019					2018					2017
	Per Share			%		Per Share			%		Per Share			%
Ordinary income	$	2.99		94.84	%	$	2.79		78.17	%	$	2.86		98.29	%
Capital gain income	0.16			5.16	%	0.78			21.83	%	0.05			1.71	%
Total	$	3.15	(1)	100.00	%	$	3.57	(2)	100.00	%	$	2.91	(3)	100.00	%


(1)	The fourth quarter 2019 regular quarterly dividend was $0.98 per common share of which approximately $0.04 per common share was allocable to 2019 and approximately $0.94 per common share is allocable to 2020.


(2)	The fourth quarter 2018 regular quarterly dividend was $0.95 per common share of which approximately $0.69 per common share was allocable to 2018 and approximately $0.26 per common share is allocable to 2019.


(3)	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.

Income Taxes

Boston Properties, Inc. has elected to be treated as a REIT under Sections 856 through 860 of 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, 2019 and 2018.

The Company owns a hotel property that it leases to one of its taxable REIT subsidiaries and that is 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 a 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, 2019, 2018 and 2017.

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.

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, 2019 and 2018.

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 a 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, 2019, 2018 and 2017.

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.

3. Real Estate

Boston Properties, Inc.

Real estate consisted of the following at December 31, 2019 and December 31, 2018 (in thousands):



	2019			2018
Land	$	5,111,606		$	5,072,568
Right of use assets - finance leases	237,394			—
Right of use assets - operating leases	148,640			—
Land held for future development (1)	254,828			200,498
Buildings and improvements	13,646,054			13,356,751
Tenant improvements	2,656,439			2,396,932
Furniture, fixtures and equipment	44,313			44,351
Construction in progress	789,736			578,796
Total	22,889,010			21,649,896
Less: Accumulated depreciation	(5,266,798		)	(4,897,777		)
	$	17,622,212		$	16,752,119


(1)	Includes pre-development costs.

Boston Properties Limited Partnership

Real estate consisted of the following at December 31, 2019 and December 31, 2018 (in thousands):



	2019			2018
Land	$	5,011,153		$	4,971,475
Right of use assets - finance leases	237,394			—
Right of use assets - operating leases	148,640			—
Land held for future development (1)	254,828			200,498
Buildings and improvements	13,351,286			13,059,488
Tenant improvements	2,656,439			2,396,932
Furniture, fixtures and equipment	44,313			44,351
Construction in progress	789,736			578,796
Total	22,493,789			21,251,540
Less: Accumulated depreciation	(5,162,908		)	(4,800,475		)
	$	17,330,881		$	16,451,065


(1)	Includes pre-development costs.

Developments/Redevelopments

On May 9, 2019, the Company entered into a 15-year lease with Google, LLC for approximately 379,000 net rentable square feet of Class A office space in a build-to-suit development project located at the Company’s 325 Main Street property at Kendall Center in Cambridge, Massachusetts. 325 Main Street consisted of an approximately 115,000 net rentable square foot Class A office property that was demolished and is being developed into an approximately 420,000 net rentable square foot Class A office property, including approximately 41,000 net rentable square feet of retail space. On May 9, 2019, the Company commenced development of the project. Boston Properties, Inc. and Boston Properties Limited Partnership recognized approximately $9.9 million and $9.5 million, respectively, of depreciation expense associated with the acceleration of depreciation on the assets being removed from service and demolished as part of the redevelopment of the property.

On June 1, 2019, the Company partially placed in-service 20 CityPoint, a Class A office project with approximately 211,000 net rentable square feet located in Waltham, Massachusetts.

On September 30, 2019, the Company commenced the redevelopment of 200 West Street, a Class A office project with approximately 261,000 net rentable square feet located in Waltham, Massachusetts. The redevelopment is a conversion of a 126,000 square foot portion of the property to laboratory space.

On October 24, 2019, the Company completed and placed in-service 145 Broadway, a build-to-suit Class A office project with approximately 483,000 net rentable square feet located in Cambridge, Massachusetts.

Ground Leases

On January 24, 2019, the ground lessor under the Company’s 65-year ground lease for land totaling approximately 5.6 acres at Platform 16 located in San Jose, California made available for lease to the Company the remaining land parcels. As a result, the Company recognized the remaining portion of the right of use finance lease asset and finance lease liability. The Company entered into the ground lease in 2018, however, at the inception of the ground lease only a portion of the land was available for lease from the lessor, resulting in the Company recognizing only a portion of the ground lease. In the aggregate, the land will support the development of approximately 1.1 million square feet of commercial office space. The ground lease provides the Company with the right to purchase all of the land during a 12-month period commencing February 1, 2020 at a purchase price of approximately $134.8 million. The Company was reasonably certain it would exercise the option to purchase the land and as a result, the Company concluded that the lease should be accounted for as a finance lease. As a result, the Company recorded an approximately $122.6 million right of use asset - finance lease and a lease liability - finance lease on the Company’s Consolidated Balance Sheets reflecting the remaining land parcels made available for lease to the Company. Finance lease assets and liabilities are accounted for at the lower of fair market value or the present value of future lease payments. For land leases classified as finance leases because of a purchase option that the Company views as an economic incentive, the Company follows its existing policy and does not depreciate land because it is assumed to have an indefinite life. See also “Dispositions” below and Notes 5 and 19.

As of January 24, 2019, the lease payments from the finance lease related to the remaining parcels made available for lease to the Company were as follows (in thousands):



Period from January 24, 2019 through December 31, 2019	$	17,918
2020	109,460
Total expected minimum lease payments	127,378
Interest portion	(4,815		)
Present value of expected net lease payments	$	122,563

On July 16, 2019, the Company executed a 75-year ground lease with The George Washington University for land parcels at 2100 Pennsylvania Avenue located in Washington, DC and commenced development of an approximately 470,000 net rentable square foot Class A office property pursuant to a development agreement that the Company entered into with The George Washington University in 2016. The development agreement provided for the execution of the ground lease upon completion of the entitlement process and relocation of existing tenants. Also in 2016, the Company made a deposit of $15.0 million that, upon execution of the ground lease, is credited against ground rent payable under the ground lease. The present value of the lease payments exceeds substantially all of the fair value of the underlying asset and as a result, the Company has concluded that the ground lease should be accounted for as a finance lease. As a result, the Company recorded an approximately $185.1 million right of use asset - finance lease and an approximately $165.0 million lease liability - finance lease on the Company’s Consolidated Balance Sheets. The difference between the right of use asset - finance lease and lease liability - finance lease is the $15.0 million deposit that was made in 2016 and approximately $5.1 million of initial direct costs. Although the finance lease is for land only, as this was not classified as a finance lease because of a purchase option, the right of use asset will be amortized over the shorter of the useful life of the asset or the lease term. As land is assumed to have an indefinite life, the right of use asset - finance lease will be amortized on a straight-line basis over the 75-year term. In 2017, the Company entered into a 16-year lease with a tenant for approximately 300,000 net rentable square feet of space at the property.

As of July 16, 2019, the lease payments from the finance lease were as follows (in thousands):



Period from July 16, 2019 through December 31, 2019	$	—
2020	—
2021	3,863
2022	8,576
2023	8,669
Thereafter	1,358,518
Total expected minimum lease payments	1,379,626
Interest portion	(1,214,649		)
Present value of expected net lease payments	$	164,977

Acquisitions

On January 10, 2019, the Company acquired land parcels at its Carnegie Center property located in Princeton, New Jersey for a gross purchase price of approximately $51.5 million, which includes an aggregate of approximately $8.6 million of additional amounts that are payable in the future to the seller upon the development or sale of each of the parcels. The land parcels could support approximately 1.7 million square feet of development.

On August 27, 2019, the Company acquired 880 and 890 Winter Street located in Waltham, Massachusetts for a gross purchase price of approximately $106.0 million in cash. 880 and 890 Winter Street consists of two Class A office properties aggregating approximately 392,000 net rentable square feet. The following table summarizes the allocation of the purchase price, including transaction costs, of 880 and 890 Winter Street at the date of acquisition (in thousands):



Land	$	29,510
Building and improvements	59,788
Tenant improvements	6,024
In-place lease intangibles	11,494
Above-market lease intangibles	246
Below-market lease intangibles	(1,092		)
Net assets acquired	$	105,970

The following table summarizes the estimated annual amortization of the acquired in-place lease intangibles, the acquired above-market lease intangibles and the acquired below-market lease intangibles for 880 and 890 Winter Street for the remainder of 2019 and each of the next five succeeding fiscal years (in thousands):



	Acquired In-Place Lease Intangibles		Acquired Above-Market Lease Intangibles		Acquired Below- Market Lease Intangibles
Period from August 27, 2019 through December 31, 2019	$	1,801	$	28	$	(226	)
2020	4,485		80		(599		)
2021	2,391		80		(237		)
2022	1,121		43		(30		)
2023	179		15		—
2024	60		—		—

880 and 890 Winter Street contributed approximately $4.9 million of revenue and approximately ($0.6) million of earnings to the Company for the period from August 27, 2019 through December 31, 2019.

Dispositions

On January 24, 2019, the Company completed the sale of its 2600 Tower Oaks Boulevard property located in Rockville, Maryland for a gross sale price of approximately $22.7 million. Net cash proceeds totaled approximately $21.4 million, resulting in a loss on sale of real estate totaling approximately $0.6 million. The Company recognized an impairment loss totaling approximately $3.1 million for Boston Properties, Inc. and approximately $1.5 million for Boston Properties Limited Partnership during the year ended December 31, 2018. 2600 Tower Oaks Boulevard is an approximately 179,000 net rentable square foot Class A office property. 2600 Tower Oaks contributed approximately $(0.2) million of net loss to the Company for the period from January 1, 2019 through January 23, 2019 and contributed approximately $(0.6) million and $(0.1) million of net loss to the Company for the years ended December 31, 2018 and 2017, respectively.

At March 31, 2019, the Company evaluated the expected hold period of its One Tower Center property located in East Brunswick, New Jersey and, based on a shorter-than-expected hold period, the Company reduced the carrying value of the property to its estimated fair value at March 31, 2019 and recognized an impairment loss totaling approximately $24.0 million for Boston Properties, Inc. and approximately $22.3 million for Boston Properties Limited Partnership. The Company’s estimated fair value was based on a pending offer from a third party to acquire the property and the subsequent execution of a purchase and sale agreement on April 18, 2019 for a gross sale price of $38.0 million. On June 3, 2019, the Company completed the sale of the property. Net cash proceeds totaled approximately $36.6 million, resulting in a loss on sale of real estate totaling approximately $0.8 million. One Tower Center is an approximately 410,000 net rentable square foot Class A office property. One Tower Center contributed approximately $(0.9) million of net loss to the Company for the period from January 1, 2019 through June 2, 2019 and contributed approximately $(2.7) million and $(3.5) million of net loss to the Company for the years ended December 31, 2018 and 2017, respectively.

On June 28, 2019, the Company completed the sale of its 164 Lexington Road property located in Billerica, Massachusetts for a gross sale price of $4.0 million. Net cash proceeds totaled approximately $3.8 million, resulting in a gain on sale of real estate totaling approximately $2.5 million for Boston Properties, Inc. and approximately $2.6 million for Boston Properties Limited Partnership. 164 Lexington Road is an approximately 64,000 net rentable square foot Class A office property. 164 Lexington Road contributed approximately $(0.1) million of net loss to the Company for the period from January 1, 2019 through June 27, 2019 and contributed approximately $(0.2) million and $(0.2) million of net loss to the Company for the years ended December 31, 2018 and 2017, respectively.

On September 20, 2019, the Company entered into a joint venture with Canada Pension Plan Investment Board (“CPPIB”) to develop Platform 16 located in San Jose, California. Platform 16 consists of a 65-year ground lease for land totaling approximately 5.6 acres that will support the development of approximately 1.1 million square feet of commercial office space. During 2018, the Company entered into the ground lease, which provides for the right to purchase all of the land during a 12-month period commencing February 1, 2020 at a purchase price of approximately $134.8 million. The Company contributed the ground lease interest and improvements totaling approximately $28.2 million for its initial 55% interest in the joint venture. CPPIB contributed cash totaling approximately $23.1 million for its initial 45% interest in the joint venture. Upon the CPPIB contribution, the Company ceased accounting for the joint venture entity on a consolidated basis and is accounting for the joint venture entity on an unconsolidated basis using the equity method of accounting, as it has reduced its ownership interest and no longer has a controlling financial or operating interest in the joint venture entity (See Note 5). The Company did not recognize a gain on the retained or sold interest in the real estate contributed to the joint venture, as the fair value of the real estate approximated its carrying value.

On December 20, 2019, the Company completed the sale of the remaining parcel of land at its Washingtonian North property located in Gaithersburg, Maryland for a gross sale price of approximately $7.8 million. Net cash proceeds totaled approximately $7.3 million, resulting in a loss on sale of real estate totaling approximately $0.1 million. The Company recognized an impairment loss totaling approximately $1.8 million during the year ended December 31, 2016.

4. Deferred Charges

Deferred charges consisted of the following at December 31, 2019 and December 31, 2018 (in thousands):



	2019			2018
Leasing costs, including lease related intangibles	$	1,155,958		$	1,191,297
Financing costs	12,728			12,796
	1,168,686			1,204,093
Less: Accumulated amortization	(479,473		)	(525,369		)
	$	689,213		$	678,724

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
2020	$	17,536
2021	11,001
2022	5,918
2023	4,286
2024	2,510

5. Investments in Unconsolidated Joint Ventures

The investments in unconsolidated joint ventures consist of the following at December 31, 2019 and 2018:



					Carrying Value of Investment (1)
Entity	Properties	Nominal % Ownership			December 31, 2019			December 31, 2018
					(in thousands)
Square 407 Limited Partnership	Market Square North	50.0	%		$	(4,872	)	$	(6,424	)
BP/CRF Metropolitan Square, LLC	Metropolitan Square	20.0	%		9,134			2,644
901 New York, LLC	901 New York Avenue	25.0	%	(2)	(12,113		)	(13,640		)
WP Project Developer LLC	Wisconsin Place Land and Infrastructure	33.3	%	(3)	36,789			38,214
Annapolis Junction NFM LLC	Annapolis Junction	50.0	%	(4)	25,391			25,268
540 Madison Venture LLC	540 Madison Avenue	60.0	%	(5)	2,953			66,391
500 North Capitol Venture LLC	500 North Capitol Street, NW	30.0	%		(5,439		)	(5,026		)
501 K Street LLC	1001 6th Street	50.0	%	(6)	42,496			42,557
Podium Developer LLC	The Hub on Causeway - Podium	50.0	%		49,466			69,302
Residential Tower Developer LLC	Hub50House	50.0	%		55,092			47,505
Hotel Tower Developer LLC	The Hub on Causeway - Hotel Air Rights	50.0	%		9,883			3,022
Office Tower Developer LLC	100 Causeway Street	50.0	%		56,606			23,804
1265 Main Office JV LLC	1265 Main Street	50.0	%		3,780			3,918
BNY Tower Holdings LLC	Dock 72	50.0	%		94,804			82,520
BNYTA Amenity Operator LLC	Dock 72	50.0	%		—			N/A
CA-Colorado Center Limited Partnership	Colorado Center	50.0	%		252,069			253,495
7750 Wisconsin Avenue LLC	7750 Wisconsin Avenue	50.0	%		56,247			69,724
BP-M 3HB Venture LLC	3 Hudson Boulevard	25.0	%		67,499			46,993
SMBP Venture LP	Santa Monica Business Park	55.0	%		163,937			180,952
Platform 16 Holdings LP	Platform 16	55.0	%	(7)	29,501			N/A
					$	933,223		$	931,219


(1)	Investments with deficit balances aggregating approximately $22.4 million and $25.1 million at December 31, 2019 and 2018, respectively, are included 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 three in-service buildings and two undeveloped land parcels.


(5)	The property was sold on June 27, 2019. As of December 31, 2019, the investment is comprised of undistributed cash. See note below for additional details.


(6)	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.


(7)	This entity is a VIE (See Note 1).

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 or the Company 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, 2019		December 31, 2018
	(in thousands)
ASSETS
Real estate and development in process, net (1)	$	3,904,400	$	3,545,906
Other assets	502,706		543,512
Total assets	$	4,407,106	$	4,089,418
LIABILITIES AND MEMBERS’/PARTNERS’ EQUITY
Mortgage and notes payable, net	$	2,218,853	$	2,017,609
Other liabilities (2)	749,675		582,006
Members’/Partners’ equity	1,438,578		1,489,803
Total liabilities and members’/partners’ equity	$	4,407,106	$	4,089,418
Company’s share of equity	$	591,905	$	622,498
Basis differentials (3)	341,318		308,721
Carrying value of the Company’s investments in unconsolidated joint ventures (4)	$	933,223	$	931,219


(1)	At December 31, 2019, this amount includes right of use assets - finance leases and right of use assets - operating leases totaling approximately $383.9 million and $12.1 million, respectively.


(2)	At December 31, 2019, this amount includes lease liabilities - finance leases and lease liabilities - operating leases totaling approximately $510.8 million and $17.3 million, respectively.

(3)

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, 2019 and 2018, there was an aggregate basis differential of approximately $311.3 million and $316.7 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.


(4)	Investments with deficit balances aggregating approximately $22.4 million and $25.1 million at December 31, 2019 and 2018, 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,
	2019			2018			2017
	(in thousands)
Total revenue (1)	$	322,817		$	271,951		$	222,517
Expenses
Operating	122,992			106,610			90,542
Transaction costs	1,000			—			—
Depreciation and amortization (2)	102,296			103,079			57,079
Total expenses	226,288			209,689			147,621
Other income (expense)
Gains on sales of real estate (3)	32,706			16,951			—
Interest expense	(84,409		)	(71,308		)	(46,371		)
Net income	$	44,826		$	7,905		$	28,525

Company’s share of net income	$	24,423		$	8,084		$	18,439
Basis differential (3)(4)	22,169			(5,862		)	(7,207		)
Income from unconsolidated joint ventures	$	46,592		$	2,222		$	11,232


(1)	Includes straight-line rent adjustments of approximately $32.4 million, $15.9 million and $21.7 million for the years ended December 31, 2019, 2018 and 2017, respectively.


(2)	During the year ended December 31, 2018, the joint venture that owns Metropolitan Square in Washington, DC, commenced a renovation project and recorded accelerated depreciation expense of approximately $22.4 million related to the remaining book value of the assets to be replaced. The Company’s share of the accelerated depreciation expense totaled approximately $4.5 million.

(3)

For the year ended December 31, 2019, represents the gain on sale of 540 Madison Avenue recognized by the joint venture, as described below. During 2008, the Company recognized an other-than-temporary impairment loss on its investment in the unconsolidated joint venture resulting in a basis differential between the carrying value of the Company’s investment in the joint venture and the joint venture’s basis in the assets and liabilities of the property. As a result of the historical basis difference, the Company recognized a gain on sale of real estate totaling approximately $47.2 million for the year ended December 31, 2019, which consists of its share of the gain on sale reported by the joint venture as well as an adjustment for the basis differential. The gain on sale of real estate is included in Income from Unconsolidated Joint Ventures in the Company’s Consolidated Statements of Operations.


(4)	Includes straight-line rent adjustments of approximately $2.1 million, $2.4 million and $1.9 million for the years ended December 31, 2019, 2018 and 2017, respectively. Also includes net above-/below-market rent adjustments of approximately $1.7 million, $1.6 million and $2.9 million for the years ended December 31, 2019, 2018 and 2017, respectively.

On January 24, 2019, a joint venture in which the Company has a 50% interest extended the loan collateralized by its Annapolis Junction Building Six property. At the time of the extension, the outstanding balance of the loan totaled approximately $13.0 million and was scheduled to mature on November 17, 2019, with a one-year extension option, subject to certain conditions. The extended loan has a total commitment amount of approximately $14.3 million, bears interest at a variable rate equal to LIBOR plus 2.00% per annum and matures on November 17, 2020. Annapolis Junction Building Six is a Class A office property with approximately 119,000 net rentable square feet located in Annapolis, Maryland.

On April 26, 2019, a joint venture in which the Company has a 50% interest obtained construction financing with a total commitment of $255.0 million collateralized by its 7750 Wisconsin Avenue development project located in Bethesda, Maryland. The construction financing bears interest at a variable rate equal to LIBOR plus 1.25% per annum and matures on April 26, 2023, with two, one-year extension options, subject to certain conditions. As of December 31, 2019, approximately $64.5 million has been drawn under the loan. 7750 Wisconsin Avenue is a 734,000 net rentable square foot build-to-suit Class A office project and below-grade parking garage.

On May 28, 2019, joint ventures in which the Company has a 50% interest and that own The Hub on Causeway - Podium and 100 Causeway Street development projects entered into an infrastructure development assistance agreement (the “IDAA”) with the Commonwealth of Massachusetts and the City of Boston. Per the IDAA, The Hub on Causeway - Podium development project would be reimbursed for certain costs of public infrastructure improvements using the proceeds of up to $30.0 million in aggregate principal amount of municipal bonds issued by the Commonwealth of Massachusetts. On September 16, 2019, the joint venture received the full reimbursement of costs for the public infrastructure improvements totaling approximately $28.8 million, which has been reflected as a reduction to the carrying value of the real estate of The Hub on Causeway - Podium property. The construction loan agreement for The Hub on Causeway - Podium was modified to require the joint venture to pay down the construction loan principal balance using the proceeds received from the reimbursement of costs of the public infrastructure improvements and on September 16, 2019, the joint venture that owns The Hub on Causeway - Podium development project paid down the construction loan principal balance in the amount of approximately $28.8 million. On November 22, 2019, the joint venture that owns The Hub on Causeway - Podium development project completed and fully placed in-service The Hub on Causeway - Podium development project, an approximately 382,000 net rentable square foot project containing retail and office space located in Boston, Massachusetts.

On June 27, 2019, a joint venture in which the Company has a 60% interest completed the sale of 540 Madison Avenue in New York City for a gross sale price of approximately $310.3 million, including the assumption by the buyer of the mortgage loan collateralized by the property totaling $120.0 million. The mortgage loan bore interest at a variable rate equal to LIBOR plus 1.10% per annum and was scheduled to mature on June 5, 2023. Net cash proceeds totaled approximately $178.7 million, of which the Company’s share was approximately $107.1 million, after the payment of transaction costs. During 2008, the Company recognized an other-than-temporary impairment loss on its investment in the unconsolidated joint venture. As a result, the Company recognized a gain on sale of real estate totaling approximately $47.2 million, which is included in Income from Unconsolidated Joint

Ventures in the accompanying Consolidated Statements of Operations. 540 Madison Avenue is an approximately 284,000 net rentable square foot Class A office property.

On September 5, 2019, a joint venture in which the Company has a 50% interest obtained construction financing with a total commitment of $400.0 million collateralized by its 100 Causeway Street development project located in Boston, Massachusetts. The construction financing bears interest at a variable rate equal to LIBOR plus 1.50% per annum (LIBOR plus 1.375% per annum upon stabilization, as defined in the loan agreement) and matures on September 5, 2023, with two, one-year extension options, subject to certain conditions. As of December 31, 2019, approximately $81.1 million has been drawn under the loan. 100 Causeway Street is an approximately 632,000 net rentable square foot Class A office project.

On September 20, 2019, the Company entered into a joint venture with CPPIB to develop Platform 16 located in San Jose, California. Platform 16 consists of a 65-year ground lease for land totaling approximately 5.6 acres that will support the development of approximately 1.1 million square feet of commercial office space (See Note 19). The Company contributed the ground lease interest and improvements totaling approximately $28.2 million for its initial 55% interest in the joint venture (See Note 3). CPPIB contributed cash totaling approximately $23.1 million for its initial 45% interest in the joint venture. The Company will provide customary development, property management and leasing services to the joint venture.

On October 1, 2019, a joint venture in which the Company has a 50% interest partially placed in-service Dock 72, a Class A office project with approximately 670,000 net rentable square feet located in Brooklyn, New York.

On October 1, 2019, a joint venture in which the Company has a 50% interest partially placed in-service Hub50House, an approximately 320,000 square foot project comprised of 440 residential units located in Boston, Massachusetts.

On December 6, 2019, a joint venture in which the Company has a 50% interest extended the mortgage loan collateralized by Annapolis Junction Building Seven and Building Eight. At the time of the extension, the outstanding balance of the loan totaled approximately $34.8 million, bore interest at a variable rate equal to LIBOR plus 2.35% per annum and was scheduled to mature on December 7, 2019, with three, one-year extension options, subject to certain conditions. The extended loan matures on March 6, 2020. Annapolis Junction Building Seven and Building Eight are Class A office properties with approximately 127,000 and 126,000 net rentable square feet, respectively, located in Annapolis, Maryland.

6. Mortgage Notes Payable, Net

The Company had outstanding mortgage notes payable totaling approximately $2.9 billion and $3.0 billion as of December 31, 2019 and 2018, 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 $2.9 billion and $3.0 billion at December 31, 2019 and 2018, respectively, with contractual interest rates ranging from 3.43% to 6.94% per annum at December 31, 2019 and 3.43% to 7.69% at December 31, 2018 (with a weighted-average interest rate of 3.73% and 3.77% per annum at December 31, 2019 and 2018, respectively). There were no variable rate mortgage loans at December 31, 2019 and 2018.

On December 19, 2019, the Company used available cash to repay the bond financing collateralized by its New Dominion Technology Park, Building One property totaling approximately $26.5 million. The bond financing bore interest at a weighted-average fixed rate of approximately 7.69% per annum and was scheduled to mature on January 15, 2021. The Company recognized a loss from early extinguishment of debt totaling approximately $1.5 million, which amount included the payment of a prepayment penalty totaling approximately $1.4 million. New Dominion Technology Park, Building One is an approximately 235,000 net rentable square foot Class A office property located in Herndon, Virginia (See Note 19).

No mortgage loans at December 31, 2019 and December 31, 2018 had been accounted for at fair value. Prior to December 31, 2017, the Company had mortgage loans that were accounted for at fair value and the impact of recording them at fair value resulted in a decrease to interest expense of approximately $19.6 million for the year ended December 31, 2017.

Contractual aggregate principal payments of mortgage notes payable at December 31, 2019 are as follows (in thousands):



	Principal Payments
2020	$	17,168
2021	17,276
2022	614,710
2023	—
2024	—
Thereafter	2,300,000
Total aggregate principal payments	2,949,154
Deferred financing costs, net	(26,746		)
Total carrying value of mortgage notes payable, net	$	2,922,408

7. Unsecured Senior Notes

The following summarizes the unsecured senior notes outstanding as of December 31, 2019 (dollars in thousands):



	Coupon/ Stated Rate		Effective Rate(1)		Principal Amount			Maturity Date(2)
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
10 Year Unsecured Senior Notes	4.500	%	4.628	%	1,000,000			December 1, 2028
10 Year Unsecured Senior Notes	3.400	%	3.505	%	850,000			June 21, 2029
10.5 Year Unsecured Senior Notes	2.900	%	2.984	%	700,000			March 15, 2030
Total principal					8,450,000
Net unamortized discount					(17,451		)
Deferred financing costs, net					(42,090		)
Total					$	8,390,459


(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 June 21, 2019, Boston Properties Limited Partnership completed a public offering of $850.0 million in aggregate principal amount of its 3.400% unsecured senior notes due 2029. The notes were priced at 99.815% of the principal amount to yield an effective rate (including financing fees) of approximately 3.505% per annum to maturity. The notes will mature on June 21, 2029, unless earlier redeemed. The aggregate net proceeds from the offering were approximately $841.4 million after deducting underwriting discounts and transaction expenses.

On September 3, 2019, Boston Properties Limited Partnership completed a public offering of $700.0 million in aggregate principal amount of its 2.900% unsecured senior notes due 2030. The notes were priced at 99.954% of the principal amount to yield an effective rate (including financing fees) of approximately 2.984% per annum to maturity. The notes will mature on March 15, 2030, unless earlier redeemed. The aggregate net proceeds from the offering were approximately $693.8 million after deducting underwriting discounts and transaction expenses.

On September 18, 2019, Boston Properties Limited Partnership completed the redemption of $700.0 million in aggregate principal amount of its 5.625% senior notes due November 15, 2020. The redemption price was approximately $740.7 million. The redemption price included approximately $13.5 million of accrued and unpaid interest to, but not including, the redemption date. Excluding the accrued and unpaid interest, the redemption price was approximately 103.90% of the principal amount being redeemed. The Company recognized a loss from early extinguishment of debt totaling approximately $28.0 million, which amount included the payment of the redemption premium totaling approximately $27.3 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, 2019, Boston Properties Limited Partnership was in compliance with each of these financial restrictions and requirements.

8. Unsecured Credit Facility

On April 24, 2017, Boston Properties Limited Partnership amended and restated its unsecured 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 permitted Boston Properties Limited Partnership to draw upon it provided that amounts drawn 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.

On April 24, 2018, Boston Properties Limited Partnership exercised its option to draw $500.0 million on its Delayed Draw Facility. The Delayed Draw Facility bears interest at a variable rate equal to LIBOR plus 0.90% per annum based on Boston Properties Limited Partnership’s current credit rating and matures on April 24, 2022.

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, 2019 credit rating, (1) the applicable Eurocurrency margins for the Revolving Facility and Delayed Draw Facility are 0.825% and 0.90%, 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 0.125% per annum.

At December 31, 2019 and 2018, Boston Properties Limited Partnership had $500.0 million of borrowings outstanding under its Delayed Draw Facility and no amounts outstanding under its Revolving 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, 2019, Boston Properties Limited Partnership was in compliance with each of these financial and other covenant requirements.

9. 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 $21.0 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, either the Company or its partners may be entitled to an additional promoted interest or payments. See also Note 10.

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, tenants 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, 2019, the maximum funding obligation under the guarantee was approximately $70.2 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, 2019, 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 fees 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 (the Company’s partner in the 7750 Wisconsin Avenue joint venture) 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, 2019, no amounts related to the contingent aspect of any of the guarantees are recorded as liabilities in the Company’s consolidated financial statements.

In connection with the sale and development of the Company’s 6595 Springfield Center Drive development project, the Company has guaranteed the completion of the project and the payment of certain cost overruns in accordance with the development management agreement with the buyer. Although the project has been sold and the lease with the Federal Government tenant has been assigned to the buyer, pursuant to the terms of the Federal Government lease, the Federal Government tenant is not obligated to release the prior owner/landlord from such landlord’s obligations under the lease until completion of the construction. As a result, the entity which previously owned the land remains liable to the Federal Government tenant for the completion of the construction obligations under the lease. The buyer is obligated to fund the balance of the costs to meet such construction obligations, subject to the Company’s obligation to fund cost overruns (if any), as noted above. An affiliate of the buyer has provided a guaranty of the obligations of the buyer to fund such construction costs and the buyer has agreed to use commercially reasonable efforts to require the construction lender to provide certain remedies to the Company in the event the buyer does not fund such construction obligations. As of December 31, 2019, no amounts related to the contingent aspect of the guarantee are recorded as a liability in the Company’s consolidated financial statements (See Note 3).

In connection with the redevelopment of the Company’s 325 Main Street property located in Cambridge, Massachusetts, the Company is required, pursuant to the local zoning ordinance, to commence construction of a residential building of at least 200,000 square feet with 25% of the project designated as income-restricted (with a minimum of 20% of the square footage devoted to home ownership units) prior to the occupancy of the 325 Main Street property. 325 Main Street consisted of an approximately 115,000 net rentable square foot Class A office property that was demolished and is being developed into an approximately 420,000 net rentable square foot Class A office property, including approximately 41,000 net rentable square feet of retail space (See Note 3).

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 the years 2014 through 2018, the Company received distributions aggregating approximately $18.0 million, leaving a remaining claim of approximately $27.2 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, 2019.

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.

Insurance

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 the Federal Terrorism Risk Insurance Act (as amended, “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 2019, the program trigger was $180 million and the coinsurance was 19%, however, both will increase in subsequent years pursuant to

TRIA. 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 TRIA. The Company may elect to terminate the NBCR Coverage if the Federal Government seeks recoupment for losses paid under TRIA, if TRIA is not extended after its expiration on December 31, 2027, 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.

The Company also currently carries earthquake insurance on its properties located in areas known to be subject to earthquakes. 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 and Los Angeles regions with a $240 million per occurrence limit, and a $240 million annual aggregate limit, $20 million of which is provided by IXP, as a direct insurer. 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 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.

10. 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, 2019, the noncontrolling interests in Boston Properties Limited Partnership consisted of 16,764,466 OP Units, 1,143,215 LTIP Units (including 118,067 2012 OPP Units, 68,659 2013 MYLTIP Units, 23,100 2014 MYLTIP Units, 28,724 2015 MYLTIP Units and 98,706 2016 MYLTIP Units), 394,921 2017 MYLTIP Units, 336,195 2018 MYLTIP Units and 220,734 2019 MYLTIP Units held by parties other than Boston Properties, Inc.

Noncontrolling Interest—Common Units

During the years ended December 31, 2019 and 2018, 144,481 and 83,136 OP Units, respectively, were presented by the holders for redemption (including 92,678 and 48,389 OP Units, respectively, issued upon conversion of LTIP Units, 2012 OPP Units, 2013 MYLTIP Units, 2014 MYLTIP Units and 2016 MYLTIP Units) and were redeemed by Boston Properties, Inc. in exchange for an equal number of shares of Common Stock.

At December 31, 2019, Boston Properties Limited Partnership had outstanding 394,921 2017 MYLTIP Units, 336,195 2018 MYLTIP Units and 220,734 2019 MYLTIP Units (See Note 16). Prior to the applicable measurement date (February 6, 2020 for 2017 MYLTIP Units (See Note 19), February 5, 2021 for 2018 MYLTIP Units and February 4, 2022 for 2019 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 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 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.

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 employee separations). As a result, an aggregate of 337,847 2015 MYLTIP Units that had been previously granted were automatically forfeited.

On February 9, 2019, the measurement period for the Company’s 2016 MYLTIP awards ended and, based on Boston Properties, Inc.’s relative TSR performance, the final awards were determined to be 69.5% of target or an aggregate of approximately $13.6 million (after giving effect to employee separations). As a result, an aggregate of 364,980 2016 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, 2013 MYLTIP Units, 2014 MYLTIP Units and 2015 MYLTIP Units and, after the February 9, 2019 measurement date, the 2016 MYLTIP Units) and its distributions on the 2016 MYLTIP Units (prior to the February 9, 2019 measurement date), 2017 MYLTIP Units, 2018 MYLTIP Units and 2019 MYLTIP Units (after the February 5, 2019 issuance date) that occurred during the year ended December 31, 2019:



Record Date	Payment Date	Distributions per OP Unit and LTIP Unit		Distributions per MYLTIP Unit
December 31, 2019	January 30, 2020		$0.98		$0.098
September 30, 2019	October 31, 2019		$0.95		$0.095
June 28, 2019	July 31, 2019		$0.95		$0.095
March 29, 2019	April 30, 2019		$0.95		$0.095
December 31, 2018	January 30, 2019		$0.95		$0.095

The following table presents Boston Properties Limited Partnership’s distributions on the OP Units and LTIP Units (including the 2012 OPP Units, 2013 MYLTIP Units, 2014 MYLTIP Units and, after the February 4, 2018 measurement date, the 2015 MYLTIP Units) and its distributions on the 2015 MYLTIP Units (prior to the February 4, 2018 measurement date), 2016 MYLTIP Units, 2017 MYLTIP Units and 2018 MYLTIP Units (after the February 6, 2018 issuance date) that occurred during the year ended December 31, 2018:



Record Date	Payment Date	Distributions per OP Unit and LTIP Unit		Distributions per MYLTIP Unit
December 31, 2018	January 30, 2019		$0.95		$0.095
September 28, 2018	October 31, 2018		$0.95		$0.095
June 29, 2018	July 31, 2018		$0.80		$0.080
March 29, 2018	April 30, 2018		$0.80		$0.080
December 29, 2017	January 30, 2018		$0.80		$0.080

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, 2014 MYLTIP Units, 2015 MYLTIP Units and 2016 MYLTIP Units) assuming that all conditions had been met for the conversion thereof) had all of such units been redeemed at December 31, 2019 was approximately $2.5 billion based on the last reported price of a share of Common Stock on the New York Stock Exchange of $137.86 per share on December 31, 2019.

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 at December 31, 2019 and 2018, are included in Noncontrolling Interests—Property Partnerships on the accompanying Consolidated Balance Sheets.

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 elected 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 commenced vertical construction of the project, then the partner’s capital funding obligation would be limited, in which event the Company would 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 venture 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 earned a preferred return equal to LIBOR plus 3.00% per annum and was payable to the Company out of any distributions to which the partner would otherwise be entitled until such preferred equity and preferred return was repaid to the Company. The Company contributed an aggregate of approximately $22.6 million of preferred equity to the venture. Also, under the amended venture agreement, (a) from and after the stabilization date, the partner had 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 had 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 were achieved the partner may be entitled to receive an additional promoted interest with respect to cash flow distributions. The term stabilization date was 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. Salesforce Tower is an approximately 1,421,000 net rentable square foot Class A office property.

On January 18, 2019, the Company and its partner further amended the venture agreement. Per the amendment, the partner exercised its right to cause the Company to purchase, on April 1, 2019, its 5% ownership interest and promoted profits interest in the venture for cash totaling approximately $210.9 million, which amount was reduced by approximately $24.1 million, consisting of the repayment of the Company’s preferred equity and preferred return as provided for in the amended venture agreement.

On April 1, 2019, the Company completed the acquisition of its partner’s 5% ownership interest and promoted profits interest in the consolidated entity for cash totaling approximately $210.9 million, which amount was reduced by approximately $24.1 million to $186.8 million to reflect the repayment of the Company’s preferred equity and preferred return in the venture, as described above. The Company now owns 100% of Salesforce Tower. The Company has accounted for the transaction as an equity transaction for financial reporting purposes and has reflected the difference between the fair value of the total consideration paid and the related carrying value of the noncontrolling interest - property partnership totaling approximately $162.5 million as a decrease to Additional Paid-in Capital and Partners’ Capital in the Consolidated Balance Sheets of Boston Properties, Inc. and Boston Properties Limited Partnership, respectively.

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. There were no changes to the ownership interests or rights of the members as a result of the amendment.

11. Stockholders’ Equity / Partners’ Capital

Boston Properties, Inc.

As of December 31, 2019, Boston Properties, Inc. had 154,790,298 shares of Common Stock outstanding.

As of December 31, 2019, Boston Properties, Inc. owned 1,726,980 general partnership units and 153,063,318 limited partnership units in Boston Properties Limited Partnership.

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, 2019, Boston Properties, Inc. issued 145,088 shares of Common Stock upon the exercise of options to purchase Common Stock. During the year ended December 31, 2018, there were no options to purchase Common Stock exercised.

During the years ended December 31, 2019 and 2018, Boston Properties, Inc. issued 144,481 and 83,136 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 2019 and 2018:



Record Date	Payment Date	Dividend (Per Share)		Distribution (Per Unit)
December 31, 2019	January 30, 2020		$0.98		$0.98
September 30, 2019	October 31, 2019		$0.95		$0.95
June 28, 2019	July 31, 2019		$0.95		$0.95
March 29, 2019	April 30, 2019		$0.95		$0.95

December 31, 2018	January 30, 2019		$0.95		$0.95
September 28, 2018	October 31, 2018		$0.95		$0.95
June 29, 2018	July 31, 2018		$0.80		$0.80
March 29, 2018	April 30, 2018		$0.80		$0.80
December 29, 2017	January 30, 2018		$0.80		$0.80

Preferred Stock

As of December 31, 2019, 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. did 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 and 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 2019 and 2018:



Record Date	Payment Date	Dividend (Per Share)
February 4, 2020	February 18, 2020		$32.8125
November 1, 2019	November 15, 2019		$32.8125
August 2, 2019	August 15, 2019		$32.8125
May 3, 2019	May 15, 2019		$32.8125

February 4, 2019	February 15, 2019		$32.8125
November 2, 2018	November 15, 2018		$32.8125
August 3, 2018	August 15, 2018		$32.8125
May 4, 2018	May 15, 2018		$32.8125
February 2, 2018	February 15, 2018		$32.8125

12. Future Minimum Rents

On January 1, 2019, the Company adopted ASU 2016-02, “Leases” (see “New Accounting Pronouncements Adopted—Leases” section of Note 2).

The Company’s properties are leased to tenants under operating leases with initial term expiration dates ranging from 2020 to 2049.

The future contractual minimum lease payments to be received (excluding operating expense reimbursements) by the Company as of December 31, 2018, under non-cancelable operating leases which expire on various dates through 2049:



Years Ending December 31,	(in thousands)
2019	$	2,088,171
2020	2,106,963
2021	2,015,031
2022	1,838,699
2023	1,736,636
Thereafter	12,295,464

The future contractual lease payments to be received (excluding operating expense reimbursements) by the Company as of December 31, 2019, under non-cancelable operating leases which expire on various dates through 2049:



Years Ending December 31,	(in thousands)
2020	$	2,205,675
2021	2,222,643
2022	2,126,968
2023	2,068,871
2024	1,974,144
Thereafter	13,892,504

No single tenant represented more than 10.0% of the Company’s total rental revenue for the years ended December 31, 2018 and 2017 and no single tenant represented more than 10.0% of the Company’s total lease revenue for the year ended December 31, 2019.

13. Segment Information

The following tables present reconciliations of Net Income Attributable to Boston Properties, Inc. Common Shareholders to the Company’s share of Net Operating Income and Net Income Attributable to Boston Properties Limited Partnership Common Unitholders to the Company’s share of Net Operating Income for the years ended December 31, 2019, 2018 and 2017.

Boston Properties, Inc.



	Year ended December 31,
	2019		2018			2017
	(in thousands)
Net income attributable to Boston Properties, Inc. common shareholders	$	511,034	$	572,347		$	451,939
Add:
Preferred dividends	10,500		10,500			10,500
Noncontrolling interest—common units of the Operating Partnership	59,345		66,807			52,210
Noncontrolling interests in property partnerships	71,120		62,909			47,832
Interest expense	412,717		378,168			374,481
Losses (gains) from early extinguishments of debt	29,540		16,490			(496		)
Impairment losses	24,038		11,812			—
Net operating income from unconsolidated joint ventures	97,716		79,893			64,008
Depreciation and amortization expense	677,764		645,649			617,547
Transaction costs	1,984		1,604			668
Payroll and related costs from management services contracts	10,386		9,590			—
General and administrative expense	140,777		121,722			113,715
Less:
Net operating income attributable to noncontrolling interests in property partnerships	183,989		177,365			174,245
Gains (losses) from investments in securities	6,417		(1,865		)	3,678
Interest and other income	18,939		10,823			5,783
Gains on sales of real estate	709		182,356			7,663
Income from unconsolidated joint ventures	46,592		2,222			11,232
Direct reimbursements of payroll and related costs from management services contracts	10,386		9,590			—
Development and management services revenue	40,039		45,158			34,605
Company’s share of Net Operating Income	$	1,739,850	$	1,551,842		$	1,495,198

Boston Properties Limited Partnership



	Year ended December 31,
		2019		2018			2017
		(in thousands)
Net income attributable to Boston Properties Limited Partnership common unitholders		$	580,102	$	656,903		$	512,866
Add:
Preferred distributions		10,500		10,500			10,500
Noncontrolling interests in property partnerships		71,120		62,909			47,832
Interest expense		412,717		378,168			374,481
Losses (gains) from early extinguishments of debt		29,540		16,490			(496		)
Impairment losses		22,272		10,181			—
Net operating income from unconsolidated joint ventures		97,716		79,893			64,008
Depreciation and amortization expense		669,956		637,891			609,407
Transaction costs		1,984		1,604			668
Payroll and related costs from management services contracts		10,386		9,590			—
General and administrative expense		140,777		121,722			113,715
Less:
Net operating income attributable to noncontrolling interests in property partnerships		183,989		177,365			174,245
Gains (losses) from investments in securities		6,417		(1,865		)	3,678
Interest and other income		18,939		10,823			5,783
Gains on sales of real estate		858		190,716			8,240
Income from unconsolidated joint ventures		46,592		2,222			11,232
Direct reimbursements of payroll and related costs from management services contracts		10,386		9,590			—
Development and management services revenue		40,039		45,158			34,605
Company’s share of Net Operating Income		$	1,739,850	$	1,551,842		$	1,495,198

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, interest expense, losses (gains) from early extinguishments of debt, impairment losses, depreciation and amortization expense, transaction costs, payroll and related costs from management services contracts and corporate general and administrative expense less (2) gains (losses) from investments in securities, interest and other income, gains on sales of real estate, income from unconsolidated joint ventures, direct reimbursements of payroll and related costs from management services contracts 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, interest expense, losses (gains) from early extinguishments of debt, impairment losses, depreciation and amortization expense, transaction costs, payroll and related costs from management services contracts, corporate general and administrative expense, gains (losses) from investments in securities, interest and other income, gains on sales of real estate, direct reimbursements of payroll and related costs from management services contracts and development and management services revenue are not included in NOI and are provided as reconciling items to the Company’s reconciliations of its share of NOI to net income attributable to common shareholders/unitholders.

The Company’s segments are based on the Company’s method of internal reporting which classifies its operations by geographic area. The Company’s segments by geographic area are Boston, Los Angeles, New York, San Francisco and Washington, DC. The Company also presents information for each segment by property type, including Office, Residential and Hotel.

Beginning in 2019, the Company modified the presentation of its geographic area classification for all periods presented to include the Los Angeles geographic area to align with its method of internal reporting. The Company expanded its presence in the Los Angeles geographic area with its equity method investment in Santa Monica Business Park located in Santa Monica, California. As of December 31, 2019, the Company has equity interests in a portfolio of 27 office and retail properties in the Los Angeles geographic area aggregating approximately 2.3 million net rentable square feet, all of which are owned through investments in unconsolidated joint ventures. The Company began presenting the Los Angeles geographic area as a reportable segment to align with its method of internal reporting given the increased significance as a result of commencing a full reporting period of ownership of the Santa Monica Business Park portfolio. The inclusion of the Los Angeles geographic area has also resulted in a change in the reported measure of segment profit or loss from NOI to the Company’s share of NOI. This change has been reflected in all periods presented and the impact of the change can been seen within the tables below. The Company has not presented rental revenue and rental expenses for properties owned through investments in unconsolidated joint ventures, including those in the Los Angeles geographic area, as the Company accounts for these properties using the equity method of accounting.

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

For the year ended December 31, 2019:



	Boston			Los Angeles			New York			San Francisco			Washington, DC			Total
Rental Revenue: (1)
Office	$	895,098		$	—		$	1,011,912		$	533,189		$	384,435		$	2,824,634
Residential	13,786			—			—			—			23,128			36,914
Hotel	48,589			—			—			—			—			48,589
Total	957,473			—			1,011,912			533,189			407,563			2,910,137
% of Grand Totals	32.90		%	—		%	34.78		%	18.32		%	14.00		%	100.00		%
Rental Expenses:
Office	322,282			—			389,532			177,994			144,217			1,034,025
Residential	5,071			—			—			—			10,914			15,985
Hotel	34,004			—			—			—			—			34,004
Total	361,357			—			389,532			177,994			155,131			1,084,014
% of Grand Totals	33.34		%	—		%	35.93		%	16.42		%	14.31		%	100.00		%
Net operating income	$	596,116		$	—		$	622,380		$	355,195		$	252,432		$	1,826,123
% of Grand Totals	32.64		%	—		%	34.09		%	19.45		%	13.82		%	100.00		%
Less: Net operating income attributable to noncontrolling interests in property partnerships	(40,109		)	—			(143,432		)	(448		)	—			(183,989		)
Add: Company’s share of net operating income from unconsolidated joint ventures	5,494			61,338			4,174			—			26,710			97,716
Company’s share of net operating income	$	561,501		$	61,338		$	483,122		$	354,747		$	279,142		$	1,739,850
% of Grand Totals	32.27		%	3.53		%	27.77		%	20.39		%	16.04		%	100.00		%


(1)	Rental Revenue is equal to Total Revenue per the Company’s Consolidated Statements of Operations, less Development and Management Services Revenue and Direct Reimbursements of Payroll and Related Costs from Management Services Contracts Revenue per the Consolidated Statements of Operations.

For the year ended December 31, 2018:



	Boston			Los Angeles			New York			San Francisco			Washington, DC			Total
Rental Revenue: (1)
Office	$	838,341		$	—		$	959,050		$	397,180		$	396,088		$	2,590,659
Residential	6,694			—			—			—			15,857			22,551
Hotel	49,118			—			—			—			—			49,118
Total	894,153			—			959,050			397,180			411,945			2,662,328
% of Grand Totals	33.59		%	—		%	36.02		%	14.92		%	15.47		%	100.00		%
Rental Expenses:
Office	315,653			—			377,992			130,016			142,886			966,547
Residential	3,632			—			—			—			8,972			12,604
Hotel	33,863			—			—			—			—			33,863
Total	353,148			—			377,992			130,016			151,858			1,013,014
% of Grand Totals	34.86		%	—		%	37.32		%	12.83		%	14.99		%	100.00		%
Net operating income	$	541,005		$	—		$	581,058		$	267,164		$	260,087		$	1,649,314
% of Grand Totals	32.80		%	—		%	35.23		%	16.20		%	15.77		%	100.00		%
Less: Net operating income attributable to noncontrolling interests in property partnerships	(33,862		)	—			(143,562		)	59			—			(177,365		)
Add: Company’s share of net operating income from unconsolidated joint ventures	2,866			42,750			6,590			—			27,687			79,893
Company’s share of net operating income	$	510,009		$	42,750		$	444,086		$	267,223		$	287,774		$	1,551,842
% of Grand Totals	32.86		%	2.75		%	28.63		%	17.22		%	18.54		%	100.00		%


(1)	Rental Revenue is equal to total Revenue per the Company’s Consolidated Statements of Operations, less Development and Management Services Revenue and Direct Reimbursements of Payroll and Related Costs from Management Services Contracts Revenue per the Consolidated Statements of Operations.

For the year ended December 31, 2017:



	Boston			Los Angeles			New York			San Francisco			Washington, DC			Total
Rental Revenue: (1)
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		%
Less: Net operating income attributable to noncontrolling interests in property partnerships	(31,857		)	—			(142,916		)	528			—			(174,245		)
Add: Company’s share of net operating income from unconsolidated joint ventures	1,962			26,816			8,832			—			26,398			64,008
Company’s share of net operating income	$	461,532		$	26,816		$	462,477		$	240,794		$	303,579		$	1,495,198
% of Grand Totals	30.87		%	1.79		%	30.94		%	16.10		%	20.30		%	100.00		%


(1)	Rental Revenue is equal to total Revenue per the Company’s Consolidated Statements of Operations, less Development and Management Services Revenue and Direct Reimbursements of Payroll and Related Costs from Management Services Contracts Revenue per the Consolidated Statements of Operations.

14. 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 also 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, 2014 MYLTIP Units, 2015 MYLTIP Units and 2016 MYLTIP Units required, and the 2017-2019 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, 2019
	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	$	511,034		154,582	$	3.31
Effect of Dilutive Securities:
Stock Based Compensation	—			301	(0.01		)
Diluted Earnings:
Net income attributable to Boston Properties, Inc. common shareholders	$	511,034		154,883	$	3.30

	For the Year ended December 31, 2018
	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	$	572,347		154,427	$	3.71
Allocation of undistributed earnings to participating securities	(101		)	—	—
Net income attributable to Boston Properties, Inc. common shareholders	$	572,246		154,427	$	3.71
Effect of Dilutive Securities:
Stock Based Compensation	—			255	(0.01		)
Diluted Earnings:
Net income attributable to Boston Properties, Inc. common shareholders	$	572,246		154,682	$	3.70

	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

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 also 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, 2014 MYLTIP Units, 2015 MYLTIP Units and 2016 MYLTIP Units required, and the 2017-2019 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 17,618,000, 17,485,000 and 17,471,000 redeemable common units for the years ended December 31, 2019, 2018 and 2017, respectively.



	For the Year Ended December 31, 2019
	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	$	580,102	172,200	$	3.37
Effect of Dilutive Securities:
Stock Based Compensation	—		301	(0.01		)
Diluted Earnings:
Net income attributable to Boston Properties Limited Partnership common unitholders	$	580,102	172,501	$	3.36



	For the Year ended December 31, 2018
	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	$	656,903		171,912	$	3.82
Allocation of undistributed earnings to participating securities	(113		)	—	—
Net income attributable to Boston Properties Limited Partnership common unitholders	$	656,790		171,912	$	3.82
Effect of Dilutive Securities:
Stock Based Compensation	—			255	(0.01		)
Diluted Earnings:
Net income attributable to Boston Properties Limited Partnership common unitholders	$	656,790		172,167	$	3.81



	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

15. Employee Benefit Plans

Effective January 1, 1985, the predecessor of the Company adopted a 401(k) Savings Plan (the “Plan”) for its employees. 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 ($280,000, $275,000 and $270,000 in 2019, 2018 and 2017, respectively), indexed for inflation) with no vesting requirement. The Company’s aggregate matching contribution for the years ended December 31, 2019, 2018 and 2017 was approximately $4.2 million, $4.1 million and $4.1 million, respectively.

The Company also maintains a deferred compensation plan that is designed to allow officers of Boston Properties, Inc. to defer a portion of the officer’s current income on a pre-tax basis and receive a tax-deferred return on these deferrals based on the performance of specific investments selected by the officer. 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, 2019 and 2018, the Company had maintained approximately $36.0 million and $28.2 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, 2019 and 2018 was approximately $36.0 million and $28.2 million, respectively, which are included in the accompanying Consolidated Balance Sheets.

16. 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 10 years from the date of stockholder approval.

On February 5, 2019, Boston Properties, Inc.’s Compensation Committee approved the 2019 MYLTIP awards under the 2012 Plan to certain officers and employees of Boston Properties, Inc. The 2019 MYLTIP awards utilize Boston Properties, Inc.’s 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 the Nareit Office Index, adjusted to include Vornado Realty Trust. Earned awards will range from zero to a maximum of 220,734

LTIP Units depending on Boston Properties, Inc.’s TSR relative to the Nareit Office Index, adjusted to include Vornado Realty Trust, with a target of approximately 110,367 LTIP Units and linear interpolation between zero and maximum. Earned awards (if any) will vest 50% on February 4, 2022 and 50% on February 4, 2023, 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 4, 2022, earned awards will be calculated based on TSR performance up to the date of the change of control. The 2019 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 “Compensation - Stock Compensation”, the 2019 MYLTIP awards have an aggregate value of approximately $13.5 million, which amount will generally be amortized into earnings over the four year plan period under the graded vesting method.

Boston Properties, Inc. issued 26,503, 20,320 and 37,414 shares of restricted common stock and Boston Properties Limited Partnership issued 181,919, 205,838 and 113,918 LTIP Units to employees and non-employee directors under the 2012 Plan during the years ended December 31, 2019, 2018 and 2017, respectively. Boston Properties, Inc. did not issue any non-qualified stock options under the 2012 Plan during the years ended December 31, 2019, 2018 and 2017. Boston Properties Limited Partnership issued 220,734 2019 MYLTIP Units, 342,659 2018 MYLTIP Units and 400,000 2017 MYLTIP Units to employees under the 2012 Plan during the years ended December 31, 2019, 2018 and 2017, 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, 2017 MYLTIP Awards, 2018 MYLTIP Awards and 2019 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, 2017 MYLTIP Awards, 2018 MYLTIP Awards and 2019 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. 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, 2013 MYLTIP Units, 2014 MYLTIP Units, 2015 MYLTIP Units, 2016 MYLTIP Units, 2017 MYLTIP Units, 2018 MYLTIP Units and 2019 MYLTIP Units was approximately $39.8 million, $38.0 million and $33.2 million for the years ended December 31, 2019, 2018 and 2017, respectively. At December 31,

2019, there was (1) an aggregate of approximately $23.3 million of unrecognized compensation expense related to unvested restricted stock and LTIP Units and (2) an aggregate of approximately $12.4 million of unrecognized compensation expense related to unvested 2017 MYLTIP Units, 2018 MYLTIP Units and 2019 MYLTIP Units that is expected to be recognized over a weighted-average period of approximately 2.4 years.

The shares of restricted stock were valued at approximately $3.5 million ($131.27 per share weighted-average), $2.4 million ($119.27 per share weighted-average) and $4.9 million ($130.32 per share weighted-average) for the years ended December 31, 2019, 2018 and 2017, 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, 2019, 2018 and 2017 were valued at approximately $22.1 million, $22.7 million and $13.6 million, respectively. The weighted-average per unit fair value of LTIP Unit grants in 2019, 2018 and 2017 was $121.50, $110.29 and $119.41, respectively. The per unit fair value of each LTIP Unit granted in 2019, 2018 and 2017 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 2.68%, 2.63% and 2.14% and an expected price volatility of 27.0%, 27.0% and 28.0%, respectively.

There were no non-qualified stock options granted during the years ended December 31, 2019, 2018 and 2017.

A summary of the status of Boston Properties, Inc.’s stock options as of December 31, 2019, 2018 and 2017 and changes during the years then ended are presented below:



	Shares		Weighted-Average Exercise Price
Outstanding at December 31, 2016	547,129		$	96.38
Exercised	(6,688	)	$	99.15
Outstanding at December 31, 2017	540,441		$	96.35
Exercised	—		$	—
Outstanding at December 31, 2018	540,441		$	96.35
Exercised	(145,088	)	$	96.27
Outstanding at December 31, 2019	395,353		$	96.37

The following table summarizes information about Boston Properties, Inc.’s stock options outstanding at December 31, 2019:



Options Outstanding				Options Exercisable
Number Outstanding at 12/31/19	Weighted-Average Remaining Contractual Life	Exercise Price		Number Exercisable at 12/31/19	Exercise Price
81,458	1.1 years	$	86.86	81,458	$	86.86
54,282	3.3 years	$	95.69	54,282	$	95.69
142,422	3.1 years	$	98.46	142,422	$	98.46
117,191	2.1 years	$	100.77	117,191	$	100.77

The total intrinsic value of the outstanding and exercisable stock options as of December 31, 2019 was approximately $16.4 million. In addition, Boston Properties, Inc. had 540,441 options exercisable at a weighted-average exercise price of $96.35 at December 31, 2018 and 2017.

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 5,862, 6,268 and 6,317 shares with the weighted-average purchase price equal to $104.11 per share, $107.20 per share and $105.97 per share under the Stock Purchase Plan during the years ended December 31, 2019, 2018 and 2017, respectively.

17. Related Party Transactions

A firm controlled by Mr. Raymond A. Ritchey’s brother was paid aggregate leasing commissions of approximately $21,000, $921,000 and $368,000 for the years ended December 31, 2019, 2018 and 2017, 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, seven non-employee directors made elections to receive deferred stock units in lieu of cash fees for 2019. 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. The deferred stock units may be settled in shares of Common Stock upon the cessation of such director’s service on the Board of Directors of Boston Properties, Inc. The Company modified the terms of the non-employee director compensation program to provide, subject to certain conditions, the non-employee directors holding deferred stock units with the ability to elect, following cessation of their service on the Company’s Board of Directors, to diversify their investment elections into non-employer securities on a pre-tax basis and receive tax-deferred returns on such deferrals, which will ultimately be settled in cash. The Company’s obligation under the plan is that of an unsecured promise to pay the deferred compensation to the non-employee director in the future. At December 31, 2019, the Company had maintained approximately $0.7 million 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 non-employee director and earnings on the deferred compensation pursuant to investments elected by the non-employee director. The Company’s liability as of December 31, 2019 was approximately $0.7 million, which is included in the accompanying Consolidated Balance Sheets. The modification of the terms of the non-employee director compensation program required a change to the classification of these deferred stock units from permanent equity to temporary equity on the Consolidated Balance Sheets of Boston Properties, Inc. and Boston Properties Limited Partnership within Redeemable Deferred Stock Units (See Note 2). On May 21, 2019, in connection with the cessation of a director’s service on the Board of Directors of Boston Properties, Inc., Boston Properties, Inc. issued 17,949 shares of Common Stock in settlement of a portion of the director’s outstanding deferred stock units. In addition, on September 3, 2019, the Company converted 4,917 of such director’s deferred stock units as a result of such director’s election to diversify their investment elections into non-employer securities. On May 23, 2018, in connection with the cessation of a director’s service on the Board of Directors of Boston Properties, Inc., Boston Properties, Inc. issued 36,836 shares of Common Stock in settlement of the director’s outstanding deferred stock units. At December 31, 2019 and 2018, Boston Properties, Inc. had outstanding 60,676 and 74,966 deferred stock units, respectively.

18. 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, 2019 and 2018.



	2019 Quarter Ended
	March 31,		June 30,		September 30,		December 31,
	(in thousands, except for per share amounts)
Total revenue	$	725,767	$	733,741	$	743,553	$	757,501
Net income	$	131,159	$	203,461	$	141,370	$	176,009
Net income attributable to Boston Properties, Inc. common shareholders	$	98,105	$	164,318	$	107,771	$	140,824
Income attributable to Boston Properties, Inc. per share—basic	$	0.63	$	1.06	$	0.70	$	0.91
Income attributable to Boston Properties, Inc. per share—diluted	$	0.63	$	1.06	$	0.70	$	0.91



	2018 Quarter Ended
	March 31,		June 30,		September 30,		December 31,
	(in thousands, except for per share amounts)
Total revenue	$	661,151	$	664,484	$	686,284	$	705,157
Net income	$	216,312	$	160,565	$	150,445	$	185,241
Net income attributable to Boston Properties, Inc. common shareholders	$	176,021	$	128,681	$	119,118	$	148,529
Income attributable to Boston Properties, Inc. per share—basic	$	1.14	$	0.83	$	0.77	$	0.96
Income attributable to Boston Properties, Inc. per share—diluted	$	1.14	$	0.83	$	0.77	$	0.96

Boston Properties Limited Partnership

The tables below reflect Boston Properties Limited Partnership’s selected quarterly information for the years ended December 31, 2019 and 2018.



	2019 Quarter Ended
	March 31,		June 30,		September 30,		December 31,
	(in thousands, except for per unit amounts)
Total revenue	$	725,767	$	733,741	$	743,553	$	757,501
Net income	$	134,837	$	205,822	$	143,212	$	177,851
Net income attributable to Boston Properties Limited Partnership common unitholders	$	113,382	$	185,715	$	122,117	$	158,888
Income attributable to Boston Properties Limited Partnership per unit—basic	$	0.66	$	1.08	$	0.71	$	0.92
Income attributable to Boston Properties Limited Partnership per unit—diluted	$	0.66	$	1.08	$	0.71	$	0.92



	2018 Quarter Ended
	March 31,		June 30,		September 30,		December 31,
	(in thousands, except for per unit amounts)
Total revenue	$	661,151	$	664,484	$	686,284	$	705,157
Net income	$	220,766	$	162,986	$	153,676	$	192,884
Net income attributable to Boston Properties Limited Partnership common unitholders	$	200,907	$	145,961	$	136,201	$	173,834
Income attributable to Boston Properties Limited Partnership per unit—basic	$	1.17	$	0.85	$	0.79	$	1.01
Income attributable to Boston Properties Limited Partnership per unit—diluted	$	1.17	$	0.85	$	0.79	$	1.01

19. Subsequent Events

On January 28, 2020, the Company entered into a joint venture with a third party to own, operate and develop properties at its Gateway Commons complex located in South San Francisco, California. The Company contributed its 601, 611 and 651 Gateway properties and development rights with an agreed upon value aggregating approximately $350.0 million for its 50% interest in the joint venture. 601, 611 and 651 Gateway consist of three Class A office properties aggregating approximately 768,000 net rentable square feet. The partner contributed three properties and development rights with an agreed upon value aggregating approximately $280.8 million at closing and will contribute cash totaling approximately $69.2 million in the future for its 50% ownership interest in the joint venture.

On January 28, 2020, a joint venture in which the Company has a 55% interest commenced development of the first phase of its Platform 16 project located in San Jose, California. The first phase of the Platform 16 development project consists of an approximately 390,000 net rentable square foot Class A office building and a below-grade parking garage. On February 20, 2020, the joint venture acquired the land under the ground lease for a purchase price totaling approximately $134.8 million. The joint venture had previously made a deposit totaling $15.0 million, which deposit was credited against the purchase price. Platform 16 consists of a parcel of land totaling approximately 5.6 acres that will support the development of approximately 1.1 million square feet of commercial office space (See Notes 3 and 5).

On January 28, 2020, the Company exercised its option to acquire real property at 425 Fourth Street located in San Francisco, California for a purchase price totaling approximately $134.1 million. 425 Fourth Street will support the development of approximately 804,000 square feet of primarily commercial office space. The Company expects to complete the acquisition during the second quarter of 2020.

On January 31, 2020 and February 4, 2020, Boston Properties, Inc. issued an aggregate of 24,503 shares of restricted Common Stock and Boston Properties Limited Partnership issued an aggregate of 196,927 LTIP Units under the 2012 Plan to certain employees of Boston Properties, Inc.

On February 4, 2020, Boston Properties, Inc.’s Compensation Committee approved the 2020 Multi-Year Long-Term Incentive Program (the “2020 MYLTIP”) awards under Boston Properties, Inc.’s 2012 Plan to certain officers and employees of Boston Properties, Inc. Earned awards will range from zero to a maximum of 203,278 LTIP Units depending on Boston Properties, Inc.’s TSR relative to the FTSE Nareit Office Index, adjusted to include Vornado Realty Trust, with a target of approximately 101,638 LTIP Units and linear interpolation between zero and maximum. Under ASC 718, the 2020 MYLTIP awards have an aggregate value of approximately $13.7 million.

On February 6, 2020, the measurement period for the Company’s 2017 MYLTIP awards ended and, based on Boston Properties, Inc.’s relative TSR performance, the final awards were determined to be 83.8% of target or an aggregate of approximately $17.6 million (after giving effect to employee separations). As a result, an aggregate of 270,942 2017 MYLTIP Units that had been previously granted were automatically forfeited.

On February 20, 2020, the Company completed the sale of its New Dominion Technology Park located in Herndon, Virginia for a gross sale price of $256.0 million. New Dominion Technology Park is comprised of two Class A office properties aggregating approximately 493,000 net rentable square feet (See Note 6).

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