3. Real Estate

Boston Properties, Inc.

Real estate consisted of the following at September 30, 2017 and December 31, 2016 (in thousands):



	September 30, 2017			December 31, 2016
Land	$	4,880,331		$	4,879,020
Land held for future development (1)	212,585			246,656
Buildings and improvements	12,155,126			11,890,626
Tenant improvements	2,186,953			2,060,315
Furniture, fixtures and equipment	37,612			32,687
Construction in progress	1,386,638			1,037,959
Total	20,859,245			20,147,263
Less: Accumulated depreciation	(4,484,798		)	(4,222,235		)
	$	16,374,447		$	15,925,028

_______________


(1)	Includes pre-development costs.

Boston Properties Limited Partnership

Real estate consisted of the following at September 30, 2017 and December 31, 2016 (in thousands):



	September 30, 2017			December 31, 2016
Land	$	4,775,955		$	4,774,460
Land held for future development (1)	212,585			246,656
Buildings and improvements	11,848,024			11,581,795
Tenant improvements	2,186,953			2,060,315
Furniture, fixtures and equipment	37,612			32,687
Construction in progress	1,386,638			1,037,959
Total	20,447,767			19,733,872
Less: Accumulated depreciation	(4,394,077		)	(4,136,364		)
	$	16,053,690		$	15,597,508

_______________


(1)	Includes pre-development costs.

Development

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

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

On August 24, 2017, the Company entered into a 15-year lease with the General Services Administration under which the Company will develop the new headquarters for the Transportation Security Administration (TSA). The TSA will occupy 100% of the approximately 623,000 net rentable square feet of Class A office space and a parking garage at 6595 Springfield Center Drive located in Springfield, Virginia. Concurrently with the execution of the lease, the Company commenced development of the project and expects the building to be available for occupancy by the fourth quarter of 2020.

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

Ground Lease

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

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



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

Acquisitions

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



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

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



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

103 Carnegie Center contributed approximately $1.1 million of revenue and approximately ($0.1 million) of earnings to the Company for the period from May 15, 2017 through September 30, 2017.

Dispositions

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

On June 13, 2017, the Company completed the sale of 40 Shattuck Road located in Andover, Massachusetts for a gross sale price of $12.0 million. Net cash proceeds totaled approximately $11.9 million, resulting in a gain on sale of real estate totaling approximately $28,000 for Boston Properties, Inc. and approximately $0.6 million for Boston Properties Limited Partnership. 40 Shattuck Road is an approximately 122,000 net rentable square foot Class A office property. 40 Shattuck Road contributed approximately $(28,000) of net loss to the Company for the period from January 1, 2017 through June 13, 2017 and contributed approximately $(33,000) and $(18,000) of net loss to the Company for the three and nine months ended September 30, 2016, respectively.

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