3. Real Estate

Boston Properties, Inc.

Real estate consisted of the following at December 31 (in thousands):



	2015			2014
Land	$	4,806,021		$	4,785,772
Land held for future development	252,195			268,114
Buildings and improvements	11,709,285			11,666,105
Tenant improvements	1,920,247			1,752,115
Furniture, fixtures and equipment	29,852			27,986
Construction in progress	763,935			736,311
Total	19,481,535			19,236,403
Less: Accumulated depreciation	(3,925,894		)	(3,547,659		)
	$	15,555,641		$	15,688,744

Boston Properties Limited Partnership

Real estate consisted of the following at December 31 (in thousands):



	2015			2014
Land	$	4,700,793		$	4,680,181
Land held for future development	252,195			268,114
Buildings and improvements	11,394,119			11,349,851
Tenant improvements	1,920,247			1,752,115
Furniture, fixtures and equipment	29,852			27,986
Construction in progress	763,935			736,311
Total	19,061,141			18,814,558
Less: Accumulated depreciation	(3,846,816		)	(3,476,321		)
	$	15,214,325		$	15,338,237

Ground and Air Rights Lease

On July 31, 2015, the Company entered into a 99-year ground and air rights lease (the “Lease”) with the Massachusetts Department of Transportation (“MDOT”) with respect to the parking garage located at 100 Clarendon Street (the “Clarendon Garage”) and the concourse level of the Massachusetts Bay Transportation Authority’s Back Bay Station (the “Station”). The Lease amends and restates the air rights lease which the Company had assumed in 2010 at the time it acquired its interests in both the Clarendon Garage and the office tower located at 200 Clarendon Street (formerly known as the John Hancock Tower). The Lease requires the Company to pay a total of approximately $37.0 million and provides the Company with options to acquire certain air rights above both the Clarendon Garage and the Station with the amount of developable square footage associated with the air rights to be determined at a later date. The previous lease had 45 years remaining in its term. Upon execution of the Lease, the Company made a $5.0 million payment and the Lease requires the Company’s remaining obligation to be used to fund improvements to the Station.

Development/Redevelopment

On May 1, 2015, the Company commenced the redevelopment of Reservoir Place North, a Class A office project with approximately 73,000 net rentable square feet located in Waltham, Massachusetts.

On July 23, 2015, the Company commenced construction of its Cambridge Residential project, a residential project aggregating approximately 164,000 square feet comprised of 274 apartment units and approximately 9,000 square feet of retail space located in Cambridge, Massachusetts. On August 13, 2015, the Company acquired an approximately 8,700 square foot parcel of land necessary for the development for a purchase price of approximately $2.0 million.

On July 23, 2015, the Company commenced construction of its Reston Signature Site project, a residential project aggregating approximately 514,000 square feet comprised of 508 apartment units and approximately 24,000 square feet of retail space located in Reston Town Center in Reston, Virginia.

On August 14, 2015, the Company partially placed in-service 601 Massachusetts Avenue, a Class A office project with approximately 478,000 net rentable square feet located in Washington, DC.

On September 10, 2015, the Company partially placed in-service The Point (formerly 99 Third Avenue), a retail project with approximately 16,000 net rentable square feet of retail space located in Waltham, Massachusetts. This project was completed and fully placed in-service on November 1, 2015.

On November 1, 2015, the Company completed and fully placed in-service 535 Mission Street, a Class A office project with approximately 307,000 net rentable square feet located in San Francisco, California.

On December 2, 2015, the Company completed and fully placed in-service 690 Folsom Street, an office and retail project with approximately 26,000 net rentable square feet located in San Francisco, California.

Dispositions

On February 19, 2015, the Company completed the sale of a parcel of land within its Washingtonian North property located in Gaithersburg, Maryland for a gross sale price of $8.7 million. Net cash proceeds totaled approximately $8.4 million, resulting in a gain on sale of real estate totaling approximately $3.5 million. The parcel contains approximately 8.5 acres of the Company’s approximately 27 acre property.

On March 17, 2015, the Company completed the sale of its Residences on The Avenue property located in Washington, DC for a gross sale price of $196.0 million. Net cash proceeds totaled approximately $192.5 million, resulting in a gain on sale of real estate totaling approximately $91.4 million. The Company has agreed to provide net operating income support of up to $6.0 million if the property’s net operating income fails to achieve certain thresholds. This amount has been recorded as a reduction to the gain on sale. The Residences on The Avenue is comprised of 335 apartment units and approximately 50,000 net rentable square feet of retail space, subject to a ground lease that expires on February 1, 2068. The Residences on The Avenue contributed approximately $1.1 million of net income to the Company for the period from January 1, 2015 through March 16, 2015 and $2.7 million and $4.4 million for the years ended December 31, 2014 and 2013, respectively.

On September 18, 2015, a consolidated entity in which the Company has a 50% interest completed the sale of its 505 9th Street, N.W. property located in Washington, DC for approximately $318.0 million, including the assumption by the buyer of approximately $117.0 million of mortgage indebtedness (See Note 6). 505 9th Street, N.W. is an approximately 322,000 net rentable square foot Class A office building. Net cash proceeds totaled approximately $194.6 million, of which the Company’s share was approximately $97.3 million. The Company recognized a gain on sale of real estate totaling approximately $199.5 million and $199.7 million for Boston Properties, Inc. and Boston Properties Limited Partnership, respectively, of which approximately $101.1 million was allocated to the outside partners and is included within Noncontrolling Interests in Property Partnerships in the Company’s Consolidated Statements of Operations (See Note 11). 505 9th Street, N.W. contributed approximately $2.3 million of net income to the Company for the period from January 1, 2015 through September 17, 2015 and $2.3 million and $1.9 million of net income for the years ended December 31, 2014 and 2013, respectively.

On October 1, 2015, the Company completed the sale of an additional parcel of land within its Washingtonian North property located in Gaithersburg, Maryland for a gross sale price of approximately $13.3 million. Net cash proceeds, which included reimbursements for certain infrastructure costs, totaled approximately $13.8 million, resulting in a gain on sale of real estate totaling approximately $2.0 million. The parcel sold consisted of approximately 5.8 acres of the Company’s remaining approximately 18.3 acre property.

On December 17, 2015, the Company completed the sale of its Innovation Place property for a gross sale price of $207.0 million. Net cash proceeds totaled approximately $199.3 million, resulting in a gain on sale of real estate totaling approximately $79.1 million and $80.1 million for Boston Properties, Inc. and Boston Properties Limited Partnership, respectively. Innovation Place, located in San Jose, California, is a 26-acre site with one occupied and three vacant existing office buildings and a total of approximately 574,000 square feet (approximately 463,000 square feet of which are vacant) located at 3100-3130 Zanker Road. The remainder of the site is currently used for 1,699 surface parking spaces, but the land supports an additional 537,000 square feet of office/R&D development and two parking structures with a total of approximately 3,000 parking spaces. Innovation Place contributed approximately $3.5 million of net loss to the Company for the period from January 1, 2015 through December 16, 2015 and $(3.1) million and $0.4 million of net income (loss) for the years ended December 31, 2014 and 2013, respectively.

The Company did not have any dispositions during the years ended December 31, 2015 and 2014 that qualified for discontinued operations presentation subsequent to its adoption of ASU 2014-08. The following table summarizes the income from discontinued operations related to One Preserve Parkway, 10 & 20 Burlington Mall Road, 1301 New York Avenue, 303 Almaden Boulevard and Montvale Center and the related gains on sales of real estate, gain on forgiveness of debt and impairment loss for the year ended December 31, 2013:

Boston Properties, Inc.



	For the year ended December 31, 2013
	(in thousands)
Total revenue	$	20,138
Expenses
Operating	6,996
Depreciation and amortization	4,760
Total expenses	11,756
Operating income	8,382
Other expense
Interest expense	360
Income from discontinued operations	$	8,022
Noncontrolling interest in income from discontinued operations – common units of the Operating Partnership	(803		)
Income from discontinued operations attributable to Boston Properties, Inc.	$	7,219
Gains on sales of real estate from discontinued operations	$	112,829
Gain on forgiveness of debt from discontinued operations	20,182
Impairment loss from discontinued operations	(3,241		)
Noncontrolling interest in gains on sales of real estate, gain on forgiveness of debt and impairment loss from discontinued operations – common units of the Operating Partnership	(13,348		)
Gains on sales of real estate, gain on forgiveness of debt and impairment loss from discontinued operations attributable to Boston Properties, Inc.	$	116,422

Boston Properties Limited Partnership



	For the year ended December 31, 2013
	(in thousands)
Total revenue	$	20,138
Expenses
Operating	6,996
Depreciation and amortization	4,760
Total expenses	11,756
Operating income	8,382
Other expense
Interest expense	360
Income from discontinued operations attributable to Boston Properties Limited Partnership	$	8,022
Gains on sales of real estate from discontinued operations attributable to Boston Properties Limited Partnership	$	115,459
Gain on forgiveness of debt from discontinued operations attributable to Boston Properties Limited Partnership	$	20,736
Impairment loss from discontinued operations attributable to Boston Properties Limited Partnership	$	(2,852	)

Prior Year Acquisitions Included in Pro Forma Information

The accompanying unaudited pro forma information for the year ended December 31, 2013 is presented as if the operating property acquisitions of (1) Mountain View Research Park and Mountain View Technology Park on April 10, 2013 and the approximately $26.5 million gain on consolidation and (2) 767 Fifth Avenue (the General Motors Building) on May 31, 2013 and the approximately $359.5 million gain on consolidation, had occurred on January 1, 2012. This unaudited pro forma information is based upon the historical consolidated financial statements of the Company and should be read in conjunction with the consolidated financial statements and notes thereto. This pro forma information does not purport to represent what the actual results of operations of the Company would have been had the above occurred, nor do they purport to predict the results of operations of future periods. Additional information for these transactions are provided below.

Boston Properties, Inc.



Pro Forma (Unaudited)	Year ended December 31, 2013
(in thousands, except per share data)
Total revenue	$	2,257,098
Income from continuing operations	$	302,354
Net income attributable to Boston Properties, Inc.	$	400,017
Basic earnings per share:
Net income per share attributable to Boston Properties, Inc.	$	2.58
Diluted earnings per share:
Net income per share attributable to Boston Properties, Inc.	$	2.57

Boston Properties Limited Partnership



Pro Forma (Unaudited)	Year ended December 31, 2013
(in thousands, except per unit data)
Total revenue	$	2,257,098
Income from continuing operations	$	314,307
Net income attributable to Boston Properties Limited Partnership	$	452,813
Basic earnings per unit:
Net income per unit attributable to Boston Properties Limited Partnership	$	2.68
Diluted earnings per unit:
Net income per unit attributable to Boston Properties Limited Partnership	$	2.67

On April 10, 2013, the Company acquired the Mountain View Research Park and Mountain View Technology Park properties from Boston Properties Office Value-Added Fund, L.P. (the “Value-Added Fund”) for an aggregate net purchase price of approximately $233.1 million. Mountain View Research Park is a 16-building complex of Office/Technical properties aggregating approximately 604,000 net rentable square feet. Mountain View Technology Park is a seven-building complex of Office/Technical properties aggregating approximately 135,000 net rentable square feet. The following table summarizes the allocation of the aggregate purchase price of Mountain View Research Park and Mountain View Technology Park at the date of acquisition (in thousands) in accordance with the guidance in ASC 805 “Business Combinations.”



Land	$	126,521
Building and improvements	82,451
Tenant improvements	7,326
In-place lease intangibles	23,279
Above-market rents	843
Below-market rents	(7,336		)
Net assets acquired	$	233,084

On May 31, 2013, the Company’s two joint venture partners in 767 Venture, LLC (the entity that owns 767 Fifth Avenue (the General Motors Building) located in New York City) transferred all of their interests in the joint venture to third parties. 767 Fifth Avenue (the General Motors Building) is a Class A office property totaling approximately 1.8 million net rentable square feet. In connection with the transfer, the Company and its new joint venture partners modified the Company’s relative decision making authority and consent rights with respect to the joint venture’s assets and operations. These changes resulted in the Company having sufficient financial and operating control over 767 Venture, LLC such that, effective as of May 31, 2013, the Company accounts for the assets, liabilities and operations of 767 Venture, LLC on a consolidated basis in its financial statements instead of under the equity method of accounting (See Note 11). The following table summarizes the allocation of the aggregate purchase price of 767 Fifth Avenue (the General Motors Building) at the date of consolidation on May 31, 2013 (in thousands) in accordance with the guidance in ASC 805 “Business Combinations.”



Real estate and related intangibles recorded upon consolidation
Land	$	1,796,252
Building and improvements	1,447,446
Tenant improvements	85,208
In-place lease intangibles	357,781
Above market rents	101,897
Below market rents	(239,641		)
Above market assumed debt adjustments	(192,943		)
	$	3,356,000
Debt recorded upon consolidation
Mortgage notes payable	$	(1,300,000	)
Mezzanine notes payable	(306,000		)
Members’ notes payable	(450,000		)	(1)
	$	(2,056,000	)
Working capital recorded upon consolidation
Cash and cash equivalents	$	79,468
Cash held in escrows	2,403
Tenant and other receivables	7,104
Prepaid expenses and other assets	4,269
Accounts payable and accrued expenses	(2,418		)
Accrued interest payable	(182,369		)	(2)
Other liabilities	(6,304		)
	$	(97,847	)
Noncontrolling interest recorded upon consolidation
Noncontrolling interests	$	(520,000	)
Noncontrolling interests - working capital	39,139
	$	(480,861	)
Net assets recorded upon consolidation	$	721,292

_______________


(1)	The Company’s member loan totaling $270.0 million eliminates in consolidation.


(2)	The Company’s share of the accrued interest payable on the members’ loans totaling approximately $105.5 million eliminates in consolidation.

Mountain View Research Park and Mountain View Technology Park contributed approximately $16.7 million of revenue and approximately $0.4 million of earnings to the Company for the period from April 10, 2013 through December 31, 2013. 767 Fifth Avenue (the General Motors Building) contributed approximately $168.4 million of revenue and approximately $8.4 million of earnings to the Company for the period from May 31, 2013 through December 31, 2013.