2014 Boston Properties Annual Report BOSTON PROPERTIES BOSTON NEW YORK SAN FRANCISCO WASHINGTON, DC Corporate Headquarters Boston 800 Boylston Street at The Prudential Center Boston, MA 02199 (617) 236-3300 www.bostonproperties.com Boston BOSTON 800 Boylston Street at The Prudential Center Boston, MA 02199 PROPERTIES, (617) 236-3300 INC. New York 599 Lexington Avenue 2014 New York, NY 10022 ANNUAL (212) 326-4000 REPORT San Francisco Four Embarcadero Center San Francisco, CA 94111 (415) 772-0700 Washington, DC 2200 Pennsylvania Avenue, NW Washington, DC 20037 (202) 585-0800 46497Cover.indd 1 3/24/15 12:33 PM On the Cover Pictured top: Corporate Information 535 Mission Street, San Francisco, CA (left) Rendering of 601 Massachusetts Avenue, NW, Washington, DC (right) Corporate Counsel Form 10-K Pictured middle: Rendering of 888 Boylston Street, Boston, MA Goodwin Procter LLP Boston Properties’ Form 10-K is incorporated herein and has been fi led with the Securities Exchange Place and Exchange Commission. Additional copies of the Annual Report and Form 10-K may be Pictured bottom: 53 State Street obtained from the Company free of charge by calling Investor Relations at (617) 236-3322; Rendering of 804 Carnegie Center, Princeton, NJ Boston, MA 02109 or by submitting a request through the Contact feature on the Company’s website at www.bostonproperties.com. Independent Registered Public Accounting Firm Stock Information PricewaterhouseCoopers LLP Our common stock is listed on the New York Stock Exchange (NYSE) under the ticker symbol 125 High Street “BXP.” On January 30, 2015, the closing sale price per common share on the NYSE was $138.80 Boston, MA 02110 and there were approximately 1,382 common shareholders of record. This does not include the number of persons whose shares are held in nominee or “street name” accounts through Transfer Agent and Registrar banks or brokers. The table below sets forth the quarterly high and low sales prices and distributions per common share for fi scal year 2014. Registered shareholders with questions Contents about their account or inquiries related 2014 Quarter Ended High Low Distributions to our Dividend Reinvestment and Stock Purchase Plan should contact: December 31 $137.15 $115.06 $5.15 1 IFC Company Description September 30 $124.04 $112.75 $0.65 Computershare Trust Company, N.A. 1-10 Letter to Shareholders June 30 $122.40 $113.62 $0.65 P.O. Box 30170 March 31 $115.20 $99.55 $0.65 11 Sustainability College Station, TX 77842 12 Board of Directors and Offi cers (888) 485-2389 1 www.computershare.com Paid on January 28, 2015 to shareholders of record on December 31, 2014. Amount includes the $4.50 per 13 Form 10-K common share special dividend. IBC Corporate Information Investor Relations Annual Meeting of Shareholders Investor inquiries may be directed to: The annual meeting of shareholders of Boston Properties, Inc. will be held on May 19, 2015 Investor Relations at 10:00 a.m. at 399 Park Avenue, 13th fl oor, New York, NY. Boston Properties About Boston Properties 800 Boylston Street, Suite 1900 Boston, MA 02199 (617) 236-3322 [email protected] Boston Properties, Inc., a self-administered and self-managed real estate investment trust (REIT), is one of the largest owners, managers and developers of Class A offi ce properties in the United States, with a signifi cant presence in four markets: Boston, You may also contact us through our New York, San Francisco and Washington, DC. The Company was founded in 1970 by Mortimer B. Zuckerman and Edward H. website at www.bostonproperties.com. Linde in Boston, where it maintains its headquarters. Boston Properties became a public company in June 1997 and is traded on the New York Stock Exchange under the symbol “BXP.” The Company acquires, develops and manages its properties through full-service regional offi ces. Its property portfolio is comprised primarily of Class A offi ce properties and also includes one hotel, three residential properties and fi ve retail properties. Boston Properties is well-known for its in-house building management expertise and responsiveness to tenants’ needs. The Company holds a superior track record in developing premium Central Business District (CBD) offi ce buildings, suburban offi ce centers and build-to-suit projects for the U.S. government and a diverse array of creditworthy tenants. Boston Properties and the logo are registered service marks of Boston Properties Limited Partnership. This Annual Report contains “forward-looking statements” within the meaning of the federal securities laws. See the discussion under “Forward-Looking Statements” in the Form 10-K for matters to be considered in this regard. This Annual Report also contains certain non-GAAP fi nancial measures within the meaning of Regulation G. The calculations of these non-GAAP fi nancial measures may diff er from those used by other REITs. Calculations of these terms, the reasons for their use and reconciliations to the most directly comparable GAAP measures are either included in the Form 10-K or proxy statement. Design: Webster www.websterdesign.com 46497Cover.indd 2 3/25/15 12:15 PM Mortimer B. Zuckerman Chairman of the Board Owen D. Thomas Chief Executive Offi cer Douglas T. Linde President To Our Shareholders Boston Properties had a very strong year in 2014 and made signifi cant progress in the execution of our strategy. We achieved record levels of leasing in our combined in-service and development properties, we found new development opportunities in which to invest signifi cant additional capital and we executed on a number of exciting capital markets transactions that demonstrated the long-term value creation we have achieved through both development and acquisitions. Specifi cally, we: • added six development projects with an incremental projected development cost of $1.2 billion bringing our development • increased diluted FFO per share from $4.91 to $5.26, despite pipeline underway to $2.1 billion with a projected initial the reduction of $0.11 per share of FFO from the sale of assets, unleveraged cash yield of more than 7%, and • sold all or part of nine assets for $2.3 billion at a weighted • strengthened our balance sheet by repaying approximately average cap rate of 4.3%, $1.4 billion in company fi nancing reducing our total adjusted debt • declared total dividends of $7.10 per share, including a special to total adjusted market capitalization ratio from 38% to 29%. dividend of $4.50 per share, We were rewarded for our accomplishments in 2014 through strong • completed 7.7 million square feet of leasing, an annual record absolute and relative share price performance. Specifi cally, total for Boston Properties, in both existing and under development shareholder return in 2014 for Boston Properties was 35.5% while buildings, including securing the anchor tenant for Salesforce total returns in 2014 for the FTSE NAREIT Offi ce Index and Cohen & Tower in San Francisco, California, Steers Realty Majors Portfolio Index of large capitalization REIT were • generated 2014 same property cash NOI growth of 5.4% 25.9% and 34.6%, respectively. over 2013, Boston Properties has provided outstanding absolute and relative • delivered three development projects representing $1.5 billion shareholder returns since its IPO in 1997. Specifi cally, we have in cost at a weighted average initial projected unleveraged delivered total shareholder return of 1,082% compared to the S&P cash yield of more than 6%, 500 Index total return of 218% and FTSE NAREIT All REITs total return of 408%. 1 446497Eds6497Eds rrev.inddev.indd 1 33/25/15/25/15 111:241:24 AAMM Rendering of North Station mixed-use development, Boston, MA Strategy Total Shareholder Return Since IPO Boston Properties remains committed to our strategy, which has 1200% BXP served the company and our shareholders well through our S&P 500 Index 18-year history as a public company. Our strategy is as follows: 1000% FTSE NAREIT All REITs Index 800% • maintain a keen focus on select markets that exhibit the strongest economic growth and investment characteristics 600% over time, currently Boston, New York, San Francisco and 400% Washington, DC, 200% • invest in the highest quality buildings that are able to maintain high occupancy and achieve premium rental rates through 0% economic cycles, ’97 ’99 ’01 ’03 ’05 ’07 ’09 ’11 ’13 • in our core markets, maintain scale and a full service real estate This graph assumes an investment of $100 on June 17, 1997 and the capability (leasing, development, construction and property reinvestment of dividends. Data shown is based on the share price or index values, as applicable as of December 31 of each year shown. management) to ensure we (1) see all relevant investment deal Source: NASDAQ OMX. fl ow and (2) maintain an ability to execute on all types of real estate opportunities, such as acquisitions, dispositions, repositioning and development, throughout the real estate investment cycle, 2 46497Eds rev.indd 2 3/25/15 11:26 AM • ensure a strong balance sheet to maintain consistent access to capital and the resultant ability to make opportunistic investments, and • foster a culture and reputation of integrity and fair dealing, making us the counterparty of choice for real estate industry participants. Economy and Operating Environment The key drivers of real estate value are economic growth, translating into rent and occupancy growth, and cost of capital, translating into return expectations and valuation. In 2014, six years after the fi nancial crisis, the U.S. economy exhibited reasonable strength. GDP growth was 2.4% and the un- employment rate dropped to under 6%. Commodity markets, most importantly oil prices, have weakened markedly. However, the U.S. economy is diverging from the rest of the world, most of which is experiencing declining growth and infl ation, as well as material fi scal intervention resulting in unprecedented lower interest rates outside the U.S.