Real Estate

6 Months Ended

Jun. 30, 2019

3. Real Estate

Boston Properties, Inc.

Real estate consisted of the following at June 30, 2019 and December 31, 2018 (in thousands):



	June 30, 2019			December 31, 2018
Land	$	5,056,046		$	5,072,568
Right of use assets - finance leases	187,269			—
Right of use assets - operating leases	149,839			—
Land held for future development (1)	272,332			200,498
Buildings and improvements	13,271,691			13,356,751
Tenant improvements	2,486,269			2,396,932
Furniture, fixtures and equipment	44,462			44,351
Construction in progress	812,408			578,796
Total	22,280,316			21,649,896
Less: Accumulated depreciation	(5,050,606		)	(4,897,777		)
	$	17,229,710		$	16,752,119

_______________


(1)	Includes pre-development costs.

Boston Properties Limited Partnership

Real estate consisted of the following at June 30, 2019 and December 31, 2018 (in thousands):



	June 30, 2019			December 31, 2018
Land	$	4,955,593		$	4,971,475
Right of use assets - finance leases	187,269			—
Right of use assets - operating leases	149,839			—
Land held for future development (1)	272,332			200,498
Buildings and improvements	12,976,345			13,059,488
Tenant improvements	2,486,269			2,396,932
Furniture, fixtures and equipment	44,462			44,351
Construction in progress	812,408			578,796
Total	21,884,517			21,251,540
Less: Accumulated depreciation	(4,949,822		)	(4,800,475		)
	$	16,934,695		$	16,451,065

_______________


(1)	Includes pre-development costs.

Development

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 to be located at the Company’s 325 Main Street property at Kendall Center in Cambridge, Massachusetts. 325 Main Street currently consists of an approximately 115,000 net rentable square foot Class A office property that will be demolished and 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.

Ground Lease

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. During 2018, the Company executed the ground lease. 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 is reasonably certain that it will exercise the option to purchase the land and as a result, the Company has 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. The finance lease is for land only. Therefore, the Company will not depreciate the right of use asset - finance lease because land is assumed to have an indefinite life.

As of January 24, 2019, the lease payments from the finance lease related to the remaining parcels made available for lease to the Company are 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

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.

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 $(0.1) million and $(0.3) million of net loss to the Company for the three and six months ended June 30, 2018, respectively.

At March 31, 2019, the Company evaluated the expected hold period of its One Tower Center property 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 located in East Brunswick, New Jersey. One Tower Center contributed approximately $(0.1) million and $(0.9) million of net loss to the Company for the period from April 1, 2019 through June 2, 2019 and the period from January 1, 2019 through June 2, 2019, respectively, and contributed approximately $(0.7) million and $(1.3) million of net loss to the Company for the three and six months ended June 30, 2018, 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 and $(0.1) million of net loss to the Company for the period from April 1, 2019 through June 27, 2019 and the period from January 1, 2019 through June 27, 2019, respectively, and contributed approximately $(0.1) million and $(0.1) million of net loss to the Company for the three and six months ended June 30, 2018, respectively.