UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934 (Amendment No. )
Filed by Registrant☒
Filed by a Party other than the Registrant☐
Check the appropriate box:
☐ | Preliminary Proxy Statement |
☐ | Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) |
☒ | Definitive Proxy Statement |
☐ | Definitive Additional Materials |
☐ | Soliciting Material Pursuant to §240.14a-12 |
BOSTON PROPERTIES, INC.
(Name of Registrant as Specified in Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
☒ | No fee required. |
☐ | Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. |
1) | Title of each class of securities to which transaction applies: |
2) | Aggregate number of securities to which transaction applies: |
3) | Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): |
4) | Proposed maximum aggregate value of transaction: |
5) | Total fee paid: |
☐ | Fee paid previously with preliminary materials. |
☐ | Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. |
1) | Amount Previously Paid: |
2) | Form, Schedule or Registration Statement No.: |
3) | Filing Party: |
4) | Date Filed: |
April 7, 20176, 2018
Dear Fellow Stockholder:
You are cordially invited to attend the 20172018 annual meeting of stockholders of Boston Properties, Inc. The annual meeting will be held on Tuesday,Wednesday, May 23, 20172018 at 9:00 a.m., EasternPacific Time, at 599 Lexington Avenue, 16th Floor, New York, New York.Salesforce Tower, 415 Mission Street, Lobby Level, San Francisco, California.
The proxy statement, with the accompanying formal notice of the meeting, describes the matters expected to be acted upon at the meeting. We urge you to review these materials carefully and to use this opportunity to take part in the affairs of Boston Properties by voting on the matters described in the proxy statement. Following the formal portion of the meeting, we will provide a brief report on the operations of our company and our directors and management team will be available to answer appropriate questions from stockholders.
Your vote is important. Your proxy or voting instruction card includes specific information regarding the several ways to vote your shares. We encourage you to vote as soon as possible, even if you plan to attend the meeting. You may vote over the internet, by telephone or by mail.
Thank you for your continued support of Boston Properties.
Sincerely,
Owen D. Thomas
Chief Executive Officer
Boston Properties, Inc. | 800 Boylston Street Suite 1900 Boston, MA 02199-8103 |
Notice of 20172018 Annual Meeting of Stockholders
Date: | ||||
Time: | 9:00 a.m., | |||
Place: | ||||
Record Date: | Wednesday, March | |||
Items of Business: | 1. | To elect the eleven nominees for director named in the proxy statement, each to serve for aone-year term and until their respective successors are duly elected and qualified. | ||
2. | To hold anon-binding, advisory vote on named executive officer compensation. | |||
3. | To | |||
To consider and act upon any other matters that are properly brought by or at the direction of the Board of Directors before the annual meeting and at any adjournments or postponements thereof. | ||||
Proxy Voting: | If you do not plan to attend the meeting and vote your shares of common stock in person, we urge you to vote your shares as instructed in the proxy statement. If you received a copy of the proxy card by mail, you may sign, date and mail the proxy card in the postage-paid envelope provided.
If your shares of common stock are held by a broker, bank or other nominee, please follow the instructions you receive from your broker, bank or other nominee to have your shares of common stock voted. | |||
Any proxy may be revoked at any time prior to its exercise at the annual meeting. |
Important Notice Regarding the Availability of Proxy Materials for the Stockholders Meeting to be Held on May 23, 2017.2018.The proxy statement and our 20162017 annual report to stockholders are available at www.edocumentview.com/bxp.
By Order of the Board of Directors
FRANK D. BURT, ESQ.
Secretary
April 7, 20176, 2018
This summary highlights information contained elsewhere in the proxy statement. This summary does not contain all of the information that you should consider, and you should read the entire proxy statement carefully before voting.
VOTING MATTERS
Voting Matter | Board’s Voting Recommendation | Page Reference for more Information | ||||||||
Election of Directors | FOR each nominee | 14 | ||||||||
Non-binding, Advisory Vote on Named Executive Officer Compensation | FOR | |||||||||
|
| |||||||||
Ratification of Independent Registered Public Accounting Firm | FOR |
DIRECTOR SUCCESSION
Led by our Nominating and Corporate Governance Committee, our Board of Directors remains focused on ensuring a smooth transition if and when directors decide to retire or otherwise leave our Board and that the composition of our Board is systematically refreshed so that, taken as a whole, the Board has the desired mix of skills, experience, reputation and diversity relevant to our strategic direction and operating environment, as well as the knowledge, ability and independence to continue to deliver a high standard of governance expected by investors. For more information on this process, see“Corporate Governance Principles and Board Matters – The Board of Directors – Director Succession Planning” beginning on page 1 of the proxy statement.
In our proxy statement for our 2016 annual meeting of stockholders, we stated that our Board of Directors anticipates that changes to its composition would likely occur gradually over several years. Consistent with this statement, in 2016 our Board nominated and our stockholders elected two new directors (Ms. Karen E. Dykstra and Mr. Bruce W. Duncan). Continuing with this process, our Board of Directors is delighted to nominate a new candidate – former United States Senator Kelly A. Ayotte – for election to our Board of Directors at the 2018 annual meeting of stockholders. Alan J. Patricof, a director of Boston Properties since 1997, is not standing forre-election. The Board of Directors extends its gratitude and appreciation to him for his dedication and countless contributions to Boston Properties.
Senator Ayotte brings significant legal experience and experience in government and public affairs, as well as leadership and strategic planning skills, having represented New Hampshire in the United States Senate and, prior to her election to the Senate, as New Hampshire’s first female Attorney General. Senator Ayotte currently serves on the Board of Directors of Caterpillar Inc., a global manufacturer of construction, mining and industrial equipment, and News Corporation, a global diversified media and information services company. She also serves on the advisory boards of Microsoft Corporation, Blink Health LLC, Chubb Insurance, Revision Military and Cirtronics Corporation.
For more information on Senator Ayotte, see“Proposal 1: Election of Directors – Information Regarding the Nominees and Executive Officers” beginning on page 15 of the proxy statement.
BOARD NOMINEES
Following the recommendation of the Nominating and Corporate Governance Committee, our Board of Directors has nominated the following eleven (11) candidates for election as directors at the 2018 annual meeting of stockholders.
Committee Membership | ||||||||||||||||||||||||||||
Name and Principal Occupation | Age | Independent | Director Since | Audit | Compensation | Nominating and Corporate Governance | Investment | |||||||||||||||||||||
Kelly A. Ayotte | ||||||||||||||||||||||||||||
Former United States Senator for the State of New Hampshire | 49 | ✓ | — | |||||||||||||||||||||||||
Bruce W. Duncan(1) | ||||||||||||||||||||||||||||
Chairman and former Chief Executive Officer of First Industrial Realty Trust, Inc. | 66 | ✓ | 2016 | ● | ||||||||||||||||||||||||
Karen E. Dykstra(1) | ||||||||||||||||||||||||||||
Former Chief Financial and Administrative Officer of AOL, Inc. | 59 | ✓ | 2016 | ● | ||||||||||||||||||||||||
Carol B. Einiger | ||||||||||||||||||||||||||||
Senior Advisor, Roundtable Investment Partners LLC | 68 | ✓ | 2004 | Chair | ||||||||||||||||||||||||
Dr. Jacob A. Frenkel | ||||||||||||||||||||||||||||
Chairman of JPMorgan Chase International | 75 | ✓ | 2010 | Chair | ||||||||||||||||||||||||
Joel I. Klein(2) | ||||||||||||||||||||||||||||
Chief Policy and Strategy Officer of Oscar Insurance Corporation | 71 | ✓ | 2013 | ● | ||||||||||||||||||||||||
Douglas T. Linde | ||||||||||||||||||||||||||||
President of Boston Properties, Inc. | 54 | 2010 | ● | |||||||||||||||||||||||||
Matthew J. Lustig | ||||||||||||||||||||||||||||
Head of North America Investment Banking and Head of Real Estate & Lodging at Lazard Fréres & Co. | 57 | ✓ | 2011 | ● | ||||||||||||||||||||||||
Owen D. Thomas | ||||||||||||||||||||||||||||
Chief Executive Officer of Boston Properties, Inc. | 56 | 2013 | ● | |||||||||||||||||||||||||
Martin Turchin | ||||||||||||||||||||||||||||
Non-Executive Vice Chairman of CBRE Group, Inc. | 76 | ✓ | 1997 | ● | ||||||||||||||||||||||||
David A. Twardock(1) | ||||||||||||||||||||||||||||
Former President of Prudential Mortgage Capital Company, LLC | 60 | ✓ | 2003 | Chair | ● |
(1) | Our Board of Directors determined that each of Ms. Dykstra and Mr. Twardock qualifies as an “audit committee financial expert” as that term is defined in the rules of the SEC. Our Board of Directors has also determined that Mr. Duncan qualifies as an audit committee financial expert if he is appointed to serve on our audit committee in the future. |
(2) | Mr. Klein serves as our lead independent director. |
SNAPSHOT OF BOARD COMPOSITION
Presented below is a snapshot of the expected composition of our Board of Directors immediately following the 2018 annual meeting, assuming the election of the eleven (11) nominees named in the proxy statement. For comparison purposes, we have also presented comparable metrics for the constituents of the S&P 500 Index, of which Boston Properties is a member. (Data for the S&P 500 Index is based on theSpencer Stuart Board Index2017.)
BXP % of independent directors: 82% S&P 500% of independent directors: 85% S&P 500 average# of independent directors: 9.2 S&P 500 average # female directors: 2.4 BXP #female directors: 3 BXP average age of all directors: 63.5 years BXP average age of independent directors: 65.2 years S&P 500 average age of independent directors: 63.1 years BXP average tenure: 8.0 years S&P 500 average tenure: 8.7 years Independence Independent Other directors Gender Diversity Male Female Age # of Directors 40s 50s 60s 70s Tenure # of Directors 0-5 years 5-10 years >10 years 5 4 3 2 1 0
GOVERNANCE AND COMPENSATION POLICIES
Below presents a snapshot of certain key governance and compensation policies.
✓ | Annual Election of All Directors |
✓ | Majority Voting for Directors |
✓ | Regular Executive Sessions of Independent Directors |
✓ | Lead Independent Director |
✓ | CEO Does Not Serve as Chairman |
✓ | Proxy Access Right |
✓ | Annual Board and Committee Self-Evaluations |
✓ | Disclosure of Policy on Company Political Spending |
✓ | Code of Business Conduct and Ethics for Employees and Directors |
✓ | Stock Ownership Requirements for Executives |
✓ | Stock Ownership Requirements for Directors |
✓ | Anti-Hedging, Anti-Short-Sale and Anti-Pledging Policies |
✓ | Compensation Clawback Policy |
✓ | “Double-Trigger” Vesting for Time-Based Equity Awards |
✓ | No Future TaxGross-Up Provisions |
✓ | We |
EXPIRATION OF SHAREHOLDER RIGHTS PLAN
Boston Properties, Inc. has had a shareholder rights plan in effect since June 16, 1997. However, the Board of Directors has determined to allow the shareholder rights plan to expire in accordance with its terms as of the close of business on June 29, 2017.
BOARD NOMINEES
Following the recommendation of the Nominating and Corporate Governance Committee, our Board of Directors has nominated the following eleven (11) candidates for election as directors at the 2017 annual meeting of stockholders.
Committee Membership | ||||||||||||||||||||||||||||
Name and Principal Occupation | Age | Independent | Director Since | Audit | Compensation | Nominating and Corporate Governance | Investment | |||||||||||||||||||||
Bruce W. Duncan(1) | ||||||||||||||||||||||||||||
Chairman and former Chief Executive Officer of First Industrial Realty Trust, Inc. | 65 | ✓ | 2016 | ● | ||||||||||||||||||||||||
Karen E. Dykstra(1) | ||||||||||||||||||||||||||||
Former Chief Financial and Administrative Officer of AOL, Inc. | 58 | ✓ | 2016 | ● | ||||||||||||||||||||||||
Carol B. Einiger | ||||||||||||||||||||||||||||
Senior Advisor, Roundtable Investment Partners LLC | 67 | ✓ | 2004 | Chair | ||||||||||||||||||||||||
Dr. Jacob A. Frenkel | ||||||||||||||||||||||||||||
Chairman of JPMorgan Chase International | 74 | ✓ | 2010 | Chair | ||||||||||||||||||||||||
Joel I. Klein(2) | ||||||||||||||||||||||||||||
Chief Policy and Strategy Officer of Oscar Insurance Corporation | 70 | ✓ | 2013 | ● | ||||||||||||||||||||||||
Douglas T. Linde | ||||||||||||||||||||||||||||
President of Boston Properties, Inc. | 53 | 2010 | ● | |||||||||||||||||||||||||
Matthew J. Lustig | ||||||||||||||||||||||||||||
Head of North America Investment Banking and Head of Real Estate & Lodging at Lazard Fréres & Co. | 56 | ✓ | 2011 | ● | ||||||||||||||||||||||||
Alan J. Patricof(1) | ||||||||||||||||||||||||||||
Managing Director of Greycroft LLC | 82 | ✓ | 1997 | ● | ● | |||||||||||||||||||||||
Owen D. Thomas | ||||||||||||||||||||||||||||
Chief Executive Officer of Boston Properties, Inc. | 55 | 2013 | ● | |||||||||||||||||||||||||
Martin Turchin | ||||||||||||||||||||||||||||
Non-executive Vice Chairman of CBRE Group, Inc. | 75 | ✓ | 1997 | ● | ||||||||||||||||||||||||
David A. Twardock(1) | ||||||||||||||||||||||||||||
Former President of Prudential Mortgage Capital Company, LLC | 59 | ✓ | 2003 | Chair | ● |
SNAPSHOT OF BOARD COMPOSITION
Presented below is a snapshot of the expected composition of our Board of Directors immediately following the 2017 annual meeting assuming the election of the eleven (11) nominees named in the proxy statement. For comparison purposes, we have also presented comparable metrics for the constituents of the S&P 500 Index, of which Boston Properties is a member. (Data for the S&P 500 Index is based on theSpencer Stuart Board Index 2016.)
PROXY STATEMENT | 1 | |||
CORPORATE GOVERNANCE PRINCIPLES AND BOARD MATTERS | 1 | |||
1 | ||||
2 | ||||
4 | ||||
7 | ||||
7 | ||||
12 | ||||
PROPOSAL 1: ELECTION OF DIRECTORS | 14 | |||
14 | ||||
15 | ||||
PRINCIPAL AND MANAGEMENT STOCKHOLDERS | ||||
COMPENSATION DISCUSSION AND ANALYSIS | ||||
COMPENSATION COMMITTEE REPORT | ||||
COMPENSATION OF EXECUTIVE OFFICERS | ||||
77 | ||||
COMPENSATION OF DIRECTORS | ||||
PROPOSAL 2: ADVISORY VOTE ON NAMED EXECUTIVE OFFICER COMPENSATION | ||||
PROPOSAL 3: | ||||
AUDIT COMMITTEE REPORT | ||||
CERTAIN RELATIONSHIPS AND RELATED PERSON TRANSACTIONS | ||||
INFORMATION ABOUT THE ANNUAL MEETING | ||||
How can I access Boston Properties’ proxy materials electronically? | ||||
OTHER MATTERS | ||||
Stockholder Nominations for Director and Proposals for the | ||||
APPENDIX A | A-1 | |||
A-1 | ||||
A-2 | ||||
A-3 | ||||
A-5 |
This proxy statement is being made available to stockholders of Boston Properties, Inc. (“we,” “us,” “our,” “Boston Properties” or the “Company”) on or about April 7, 20176, 2018 via the Internet or by delivering printed copies by mail, and is furnished in connection with the solicitation of proxies by the Board of Directors of Boston Properties, Inc. for use at our 20172018 annual meeting of stockholders to be held on Tuesday,Wednesday, May 23, 20172018 at 9:00 a.m., EasternPacific Time, at 599 Lexington Avenue, 16th Floor, New York, New York,Salesforce Tower, 415 Mission Street, Lobby Level, San Francisco, California, and at any adjournments or postponements thereof.
CORPORATE GOVERNANCE PRINCIPLES AND BOARD MATTERS
Composition of the Board of Directors
Boston Properties is currently governed by an eleven-member Board of Directors. The current members of our Board of Directors are Bruce W. Duncan, Karen E. Dykstra, Carol B. Einiger, Dr. Jacob A. Frenkel, Joel I. Klein, Douglas T. Linde, Matthew J. Lustig, Alan J. Patricof, Owen D. Thomas, Martin Turchin and David A. Twardock. At the 20172018 annual meeting of stockholders, directors will be elected to hold office for aone-year term expiring at the 20182019 annual meeting of stockholders or until his or her successor is duly elected and qualified, or until his or her earlier resignation or removal. Any director appointed to our Board of Directors to fill a vacancy will hold office for a term expiring at the next annual meeting of stockholders following such appointment.
Meetings
Our Board of Directors met seven times during 2016.2017. Each incumbent director attended at least 75% of the aggregate of (1) the total number of meetings of our Board of Directors in 20162017 held during the period for which he or she has been a director and (2) the total number of meetings in 20162017 of all committees of our Board of Directors on which the director served during the periods that he or she served. Directors are expected to attend annual meetings of our stockholders in person unless doing so is impracticable due to unavoidable conflicts. Nine of the elevenAll directors then serving attended the 20162017 annual meeting of stockholders. One director did not attend the 2016 annual meeting of stockholders because he was not standing for reelection and one director was unable to attend due to an unavoidable scheduling conflict.
Directors who qualify as“non-management” within the meaning of the NYSE rules of the New York Stock Exchange (“NYSE”) meet on a regular basis in executive sessions without management participation. The executive sessions occur after each regularly scheduled meeting of the entire Board and at such other times that thenon-management directors deem appropriate, and they are chaired by our lead independent director. Each director has the right to call an executive session. Currently, all of ournon-management directors are independent.
Director Succession Planning
Led by our Nominating and Corporate Governance Committee (the “NCG Committee”), our Board of Directors remains focused on ensuring a smooth transition if and when directors decide to retire or otherwise leave our Board and ensuring that the composition of our Board is systematically refreshed so that, taken as a whole, the Board has the desired mix of skills, experience, reputation and diversity relevant to our strategic direction and operating environment, as well as the knowledge, ability and
BOSTON PROPERTIES, INC. |2017 Proxy Statement 1
CORPORATE GOVERNANCE PRINCIPLES AND BOARD MATTERS
independence to continue to deliver a high standard of governance expected by investors. Among other aspects of the process, our Board of Directors:
BOSTON PROPERTIES, INC. |2018 Proxy Statement 1
CORPORATE GOVERNANCE PRINCIPLES AND BOARD MATTERS
Ø | identifying and evaluating potential director candidates; |
Ø | creating an even playing field between candidates identified regardless of the source; |
Ø | using the criteria, evaluations and references to prioritize candidates for consideration, regardless of the source; and |
Ø | assisting the Board in attracting and nominating candidates. |
Our Board of Directors recognizes the importance of continuity and that refreshment should not be effectuated all at once. In our proxy statement for our 2016 annual meeting of stockholders, we stated that our Board of Directors anticipates that changes to its composition would likely occur gradually over several years. Consistent with this statement, in 2016 our Board nominated and our stockholders elected two new directors (Ms. Karen E. Dykstra and Mr. Bruce W. Duncan); for 2017,. Continuing with this process, the NCG Committee recommended to our Board determined that it is advisable to nominate all eleven (11)of Directors for nomination, and our Board nominated, a new candidate for election at the 2018 annual meeting of stockholders – former U.S. Senator Kelly A. Ayotte. Senator Ayotte was initially recommended for consideration by Joel I. Klein, our lead independent director.
Upon the recommendation of our NCG Committee, our Board of Directors also nominated the following incumbent directors for election.election to our Board of Directors at the 2018 annual meeting of stockholders: Bruce W. Duncan, Karen E. Dykstra, Carol B. Einiger, Jacob A. Frenkel, Joel I. Klein, Douglas T. Linde, Matthew J. Lustig, Owen D. Thomas, Martin Turchin and David A. Twardock. Alan J. Patricof is not standing forre-election to our Board of Directors at the 2018 annual meeting of stockholders.
Leadership Structure
Since the 2016 annual meeting of stockholders, at which time Mortimer B. Zuckerman ceased serving as a director and our Board conferred upon him the honorary title of Chairman Emeritus, our Board of Directors has operated without a Chairman of the Board. Currently, Mr. Thomas serves as Chief Executive Officer and Mr. Klein serves as our lead independent director, as described in more detail below under ““–– Board Leadership – Lead Independent Director.” Our Board of Directors determined that this structure is appropriate because it (1) allows for the efficient and effective handling of the responsibilities of our Board of Directors with a key leading role played by our Chief Executive Officer, who is most directly responsible for developing and executing our strategic direction, and (2) helps ensure strong independent oversight by our Board of Directors through the role played by our lead independent director.
Our Board of Directors encourages strong communication among all of our independent directors and the Chief Executive Officer and believes that it is able to effectively provide independent oversight of our business and affairs, including risks facing the Company, through our lead independent director, the independent committees of our Board of Directors, the overall composition of our Board of Directors and contributions of all of our independent directors and other corporate governance processes in place.
2 BOSTON PROPERTIES, INC. |2018 Proxy Statement
CORPORATE GOVERNANCE PRINCIPLES AND BOARD MATTERS
Unless and until our Board of Directors elects a Chairman of the Board, our lead independent director will preside at all meetings of our Board of Directors and the other functional responsibilities of the Chairman of the Board will be divided between our lead independent director and the Chief Executive Officer.
2 BOSTON PROPERTIES, INC. |2017 Proxy Statement
CORPORATE GOVERNANCE PRINCIPLES AND BOARD MATTERS
Lead Independent Director
We have a lead independent director who is selected annually by the vote of a majority of our independent directors. Currently, Mr. Klein serves as our lead independent director and our independent directors have selected him to continue to serve as our lead independent director following the 20172018 annual meeting of stockholders. Our lead independent director has well-defined, substantive responsibilities that include, among others that may be assigned from time to time:
BOSTON PROPERTIES, INC. | 20172018 Proxy Statement 3
CORPORATE GOVERNANCE PRINCIPLES AND BOARD MATTERS
Our Board of Directors has the following four committees: (1) Audit, (2) Compensation, (3) Nominating and Corporate Governance (“NCG”) and (4) Investment. TheEach of the Audit Committee, Compensation Committee and NCG Committee each operates pursuant to a charter that was approved by our Board of Directors and that is reviewed and reassessed at least annually. A copy of each of these charters is available on our website athttp://www.bostonproperties.com under the heading “Corporate Governance.” Our Board of Directors may from time to time establish other special or standing committees to facilitate the management of Boston Properties or to discharge specific duties delegated to the committee by the full Board of Directors.
The membership and the function of each of the Audit Committee, Compensation Committee, NCG Committee and Investment Committee, and the number of meetings each held during 20162017 are described below.
Audit Committee
| ||
Members:
David A. Twardock (Chair)† Karen E. Alan J. Patricof† Martin
Number of Meetings in
† Our Board of Directors determined that each of Ms. Dykstra and Messrs. Patricof and Twardock qualifies as an “audit committee financial expert” as that term is defined in the rules of the SEC.
|
The Audit Committee, among other functions:
• has the sole authority to appoint, retain, terminate and determine the compensation of our independent registered public accounting firm;
• reviews with our independent registered public accounting firm the scope and results of the audit engagement;
• approves professional services provided by our independent registered public accounting firm;
• reviews the independence of our independent registered public accounting firm;
• oversees the planning and conduct of our annual risk assessment;
• evaluates the Company’s internal audit function and reviews the internal audit plan; and
• may perform such other oversight functions as may be requested by our Board of Directors from time to time.
Each member of the Audit Committee is “independent” as that term is defined in the rules of the Securities and Exchange Commission
For additional disclosures regarding the Audit Committee, including the Audit Committee Report, see“Proposal
|
4 BOSTON PROPERTIES, INC. | 20172018 Proxy Statement
CORPORATE GOVERNANCE PRINCIPLES AND BOARD MATTERS
Compensation Committee
| ||
Members:
Carol B. Einiger (Chair) Bruce W. David A. Twardock
Number of Meetings in
|
The Compensation Committee’s responsibilities include, among other duties, the responsibility to:
• review and approve the corporate goals and objectives relevant to the compensation of the Chief Executive Officer and certain designated senior executive officers;
• evaluate the performance of the Chief Executive Officer and designated senior executive officers in light of such goals and objectives and determine and approve compensation of these officers based on such evaluation;
• review and approve the compensation of other executive officers;
• review and approve grants and awards under all incentive-based compensation plans and equity-based plans; • review and make recommendations to the full Board of Directors regarding the compensation ofnon-employee directors; and
• perform other functions and duties deemed appropriate by our Board of Directors.
None of the members of the Compensation Committee is an employee of Boston Properties and each of them is an independent director under the NYSE rules.
The Compensation Committee makes all compensation decisions for all executive officers. With respect to compensation decisions relating to executive officers other than the Chief Executive Officer, the Compensation Committee takes into consideration recommendations made by the Chief Executive Officer
In
The Compensation Committee Report is included in this proxy statement on page
|
BOSTON PROPERTIES, INC. | 20172018 Proxy Statement 5
CORPORATE GOVERNANCE PRINCIPLES AND BOARD MATTERS
Nominating and Corporate Governance Committee
| ||
Members:
Jacob A. Frenkel (Chair) Joel I. Klein Matthew J. Alan J. Patricof
Number of Meetings in
|
The NCG Committee is responsible for, among other functions:
• identifying individuals qualified to become Board members, consistent with criteria established by the NCG Committee, and recommending to the Board director nominees for election at each annual meeting of stockholders;
• establishing a policy with regard to the consideration by the NCG Committee of director candidates recommended by securityholders;
• establishing procedures to be followed by securityholders submitting such recommendations and establishing a process for identifying and evaluating nominees for the Board of Directors, including nominees recommended by securityholders; and
• performing such other functions as may be requested by our Board of Directors from time to time.
The NCG Committee is also responsible for developing and annually reviewing and recommending to the Board of Directors a set of corporate governance guidelines. These Corporate Governance Guidelines provide that the NCG Committee, together with our Chief Executive Officer, is responsible for coordinating succession planning by the Board of Directors. A copy of the Corporate Governance Guidelines is available on our website athttp://www.bostonproperties.com under the heading “Corporate Governance” and subheading “Governance Guidelines.”
Each member of the NCG Committee is an independent director under the NYSE rules.
|
Investment Committee
| ||
Members:
Owen D. Thomas Douglas T. Linde
Number of Meetings in
The Investment Committee held numerous informal meetings and took action by written consent |
The Investment Committee may approve:
• acquisitions, dispositions, developments and redevelopments in amounts not to exceed $150 million per transaction; and
• financings where the gross proceeds less the amount of existing financing being repaid (if any) do not exceed $150 million (in cases of transactions undertaken by joint venture entities, the amount of the transaction is based upon Boston Properties Limited Partnership’s total direct and indirect ownership percentage).
The Investment Committee’s authority to approve acquisitions, dispositions, financings, developments and redevelopments is limited to an aggregate of $250 million per fiscal quarter. Any transactions approved by the Investment Committee will be reported to our Board of Directors at its next regularly scheduled meeting.
|
6 BOSTON PROPERTIES, INC. | 20172018 Proxy Statement
CORPORATE GOVERNANCE PRINCIPLES AND BOARD MATTERS
BOARD’S ROLE IN RISK OVERSIGHT
Our Board of Directors plays an important role in the risk oversight of Boston Properties. Our Board of Directors is involved in risk oversight through direct decision-making authority with respect to significant matters and the oversight of management by our Board of Directors and its committees. In particular, our Board of Directors administers its risk oversight function through (1) the review and discussion of regular periodic reports to our Board of Directors and its committees on topics relating to the risks that Boston Properties faces, including, among others, market conditions, tenant concentrations and credit worthiness, leasing activity and expirations, the status of current and anticipated development projects, compliance with debt covenants, management of debt maturities, access to debt and equity capital markets, existing and potential legal claims against Boston Properties, cyber attacks and intrusions, and various other matters relating to Boston Properties’ business, (2) the required approval by our Board of Directors (or a committee thereof) of significant transactions and other decisions, including, among others, acquisitions and dispositions of properties, development projects, new borrowings and the appointment and retention of Boston Properties’ senior management, (3) the direct oversight of specific areas of Boston Properties’ business by the Audit, Compensation and NCG Committees, and (4) regular periodic reports from Boston Properties’ independent registered public accounting firm and other outside consultants regarding various areas of potential risk, including, among others, those relating to the qualification of Boston Properties as a real estate investment trust (“REIT”) for tax purposes and Boston Properties’ internal control over financial reporting. Our Board of Directors also relies on management to bring significant matters impacting Boston Properties to its attention.
Pursuant to the Audit Committee’s charter, the Audit Committee is specifically responsible for discussing the guidelines and policies that govern the process by which Boston Properties’ exposure to risk is assessed and managed by management. As part of this process, the Audit Committee oversees the planning and conduct of an annual risk assessment that is designed to identify and analyze risks to achieving Boston Properties’ business objectives. The results of the risk assessment are then discussedwith management and used to develop Boston Properties’ annual internal audit plan. In addition, as one component of Boston Properties’ anti-fraud program, Boston Properties, under the supervision of the Audit Committee, established a hotline that is available for the anonymous and confidential submission of complaints relating to any matter to encourage the reporting of questionable activities directly to our senior management and the Audit Committee (see“– Communications with the Board” below).
Because of the role of our Board of Directors in the risk oversight of Boston Properties, our Board of Directors believes that any leadership structure that it adopts must allow it to effectively oversee the management of the risks relating to Boston Properties’ operations. Our Board of Directors recognizes that there are different leadership structures that could allow it to effectively oversee the management of the risks relating to Boston Properties’ operations, and while our Board believes its current leadership structure enables it to effectively manage such risks, it was not the primary reason our Board of Directors selected its current leadership structure over other potential alternatives. See the discussion under the heading “–Board Leadership – Leadership Structure” above for a discussion of why our Board of Directors has determined that its current leadership structure is appropriate.
Under the rules of the NYSE, a majority of the Board of Directors must qualify as “independent directors.” To qualify as an “independent director,” the Board of Directors must affirmatively determine that the director has no material relationship with us (either directly or as a partner, stockholder or officer of an organization that has a relationship with us). Our Board of Directors established categorical standards to assist it in making the required independence determinations.
BOSTON PROPERTIES, INC. | 20172018 Proxy Statement 7
CORPORATE GOVERNANCE PRINCIPLES AND BOARD MATTERS
Under these categorical standards, any relationship with us shall be deemed not material if:
1. | The relationship does not preclude a finding of independence under Sections 303A.02(b) |
2. | The relationship does not involve any of the following, whether currently existing or occurring since the end of the last fiscal year or during the past three fiscal years: |
(a) | a director being an executive officer of, or owning, or having owned, of record or beneficially in excess of ten percent (10%) equity interest in, any business or professional entity that has made during any of such fiscal years, or proposes to make during the Company’s current fiscal year, payments to the Company, an executive officer of the Company or an entity controlled by an executive officer of the Company for property or services in excess of five percent (5%) of: (i) the Company’s consolidated gross revenues for such fiscal year (or, in the case of proposed payments, its last fiscal year), or (ii) the other entity’s consolidated gross revenues for such fiscal year (or, in the case of proposed payments, its last fiscal year); |
(b) | a director being an executive officer of, or owning, or having owned, of record or beneficially in excess of ten percent (10%) equity interest in, any business or professional entity to which the Company, an executive officer of the Company or an entity controlled by an executive officer of the Company has made during any of such fiscal years, or proposes to make during the Company’s current fiscal year, payments for property or services in excess of five percent (5%) of: (i) the Company’s consolidated gross revenues for such fiscal year (or, in the case of proposed payments, its last fiscal year), or (ii) the other entity’s consolidated gross revenues for such fiscal year (or, in the case of proposed payments, its last fiscal year); |
(c) | a director or an immediate family member of the director being an officer, director or trustee of a charitable organization where the annual discretionary charitable contributions of the Company, an executive officer of the Company or an entity controlled by an executive officer of the Company in any single year to the charitable organization exceeded the greater of $1 million or two percent (2%) of that organization’s consolidated gross revenues for the fiscal year; |
(d) | a director or an immediate family member of a director being indebted to the Company, an executive officer of the Company or an entity controlled by an executive officer of the Company in an amount in excess of $120,000; |
(e) | a director being an executive officer, partner or greater than 10% equity owner of an entity, or being a trustee or a substantial beneficiary of a trust or estate, indebted to the Company, an executive officer of the Company or an entity controlled by an executive officer of the Company in an amount in excess of the greater of $120,000 or 5% of such entity’s total consolidated assets, or to whom the Company or an entity controlled by an executive officer of the Company is indebted (other than with respect to (i) any publicly traded debt securities of the Company or such entity or(ii) non-recourse loans secured by real estate where both the lender and the Company or such entity intend for the lender to transfer all right to, and control over, the loan within 12 months and the documentation includes customary provisions for loans targeted at the commercial mortgage backed securities (CMBS) or collateralized debt obligation (CDO) markets) in an amount in excess of 5% of the Company’s or such entity’s total consolidated assets; |
(f) | a transaction or currently proposed transaction (other than relating to the ownership of securities), which involved or involves the direct or indirect payment in a single year of in excess of $120,000 from the Company, an executive officer of the Company or an entity controlled by an executive officer of the Company to a director or an immediate family member of a director; |
8 BOSTON PROPERTIES, INC. | 20172018 Proxy Statement
CORPORATE GOVERNANCE PRINCIPLES AND BOARD MATTERS
(g) | a director or an immediate family member of a director being an executive officer, general or managing partner or owner of more than 10% of the outstanding equity securities of an entity that has aco-investment or is a joint venture partner with the Company where the amount of the entity’s equity investment in any single year exceeds the greater of $1 million or 2% of the total consolidated assets of the entity; or |
(h) | a director or an immediate family member of a director being an executive officer, general or managing partner or owner of more than 10% of the outstanding equity securities of an entity (other than the Company) in which an executive officer of the Company or an entity controlled by an executive officer of the Company is an executive officer, general or managing partner or owner of more than 10% of the outstanding equity securities of the entity. |
For purposes of these standards, “immediate family” member has the same meaning as in the NYSE Disqualifying Rules.
Relationships not specifically deemed not material by the above categorical standards may, in the Board’s judgment, be deemed not to be material.
The Board of Directors concluded that Mses. Ayotte, Dykstra and Einiger and Messrs. Duncan, Frenkel, Klein, Lustig, Patricof, Twardock and Turchin qualify as independent directors under NYSE rules because none of them (1) has any relationships that would disqualify him or her from being considered independent under the minimum objective standards contained in the NYSE rules or (2) has any relationships other than those deemed to be immaterial under the categorical standards adopted by the Board of Directors.
In determining that Mr. Twardock qualified as an independent director for purposes of his service on the Compensation Committee, the Board considered Mr. Twardock’s membership on the Board of Directors of Morgan Stanley Bank, N.A. and noted that he is anon-employee director. Morgan Stanley Bank, N.A. and/or its affiliates are commercial lenders to the Company and tenants in the Company’s properties and have acted as underwriters or sales agents for securities offerings of the Company. The Board’s conclusion that Mr. Twardock is independent was based on the following information, which in the view of the Board demonstrates the relatively de minimis nature of these transactions as they relate to Mr. Twardock’s independence: (1) the Company’s long-standing relationships with Morgan Stanley Bank, N.A. and its affiliates predate Mr. Twardock’s appointment to Morgan Stanley Bank, N.A.’s board and our Board of Directors; (2) as anon-employee director of Morgan Stanley Bank, N.A., Mr. Twardock receives no personal benefit, directly or indirectly, with regard to these transactions; (3) Mr. Twardock does not have any direct or indirect decision making authority or any other role, in any capacity, relating to these transactions; and (4) these transactions were arms’ length transactions undertaken in the ordinary course of business.
In determining that Mr. Duncan qualified as an independent director for purposes of his service on the Compensation Committee, the Board considered Mr. Duncan’s membership on the Board of Directors of Marriott International, Inc. and noted that he is anon-employee director. The Company’s joint venture with The Bernstein Companies is party to a lease agreement with an affiliate of Marriott International, Inc. In addition, Marriott International, Inc. manages the Company’s hotel property in Cambridge, MA. The Board’s conclusion that Mr. Duncan is independent was based on the following information, which in the view of the Board demonstrates the relatively de minimis nature of these transactions as they relate to Mr. Duncan’s independence: (1) the Company’s long-standing relationship with Marriott International, Inc. predates Mr. Duncan’s appointment to Marriott’s board by more than 30 years (Mr. Duncan joined the Marriott International, Inc. board in September 23, 2016 following Marriott’s acquisition of Starwood Hotel & Resorts Worldwide, Inc.); (2) as anon-employee director of Marriott International, Inc., Mr. Duncan receives no personal benefit, directly or indirectly, with regard to the success of these transactions; (3) Mr. Duncan does not have any direct or indirect
BOSTON PROPERTIES, INC. |2018 Proxy Statement 9
CORPORATE GOVERNANCE PRINCIPLES AND BOARD MATTERS
decision making authority or any other role, in any capacity, relating to these transactions; and (4) these transactions were arms’ length transactions undertaken in the ordinary course of business.
CONSIDERATION OF DIRECTOR NOMINEES
Securityholder Recommendations
The NCG Committee’s current policy is to review and consider any director candidates who have been recommended by securityholders in compliance with the procedures established from time to time by the NCG Committee. All securityholder recommendations for director candidates must be submitted to our Secretary at Boston Properties, Inc., 800 Boylston Street, Suite 1900, Boston, Massachusetts 02199-8103, who will forward all recommendations to the NCG Committee. We did not receive any securityholder recommendations for director candidates for election at the 20172018 annual meeting in compliance with the procedures set forth below. All securityholder recommendations for director
BOSTON PROPERTIES, INC. |2017 Proxy Statement 9
CORPORATE GOVERNANCE PRINCIPLES AND BOARD MATTERS
candidates for election at the 20182019 annual meeting of stockholders must be submitted to our Secretary on or before December 8, 20177, 2018 and must include the following information:
Board Membership Criteria
The NCG Committee has established criteria for NCG Committee-recommended director nominees. These criteria include the following specific, minimum qualifications that the NCG Committee believes must be met by an NCG Committee-recommended nominee for a position on the Board:
10 BOSTON PROPERTIES, INC. |2018 Proxy Statement
CORPORATE GOVERNANCE PRINCIPLES AND BOARD MATTERS
In addition to the minimum qualifications for each nominee set forth above, the NCG Committee will recommend director candidates to the full Board for nomination, or present director candidates to the full Board for consideration, to help ensure that:
10 BOSTON PROPERTIES, INC. |2017 Proxy Statement
CORPORATE GOVERNANCE PRINCIPLES AND BOARD MATTERS
Finally, in addition to any other standards the NCG Committee may deem appropriate from time to time for the overall structure and composition of the Board, the NCG Committee may consider the following factors when recommending director candidates to the full Board for nomination, or presenting director candidates to the full Board for consideration:
Identifying and Evaluating Nominees
The NCG Committee may solicit recommendations for director nominees from any or all of the following sources:non-management directors, the Chief Executive Officer, other executive officers, third-party search firms or any other source it deems appropriate.
The NCG Committee will review and evaluate the qualifications of any proposed director candidate that it is considering or has been recommended to it by a securityholder in compliance with the NCG Committee’s procedures for that purpose, and conduct inquiries it deems appropriate into the background of these proposed director candidates. In identifying and evaluating proposed director candidates, the NCG Committee may consider, in addition to the minimum qualifications for NCG Committee-recommended director nominees, all facts and circumstances that it deems appropriate or advisable, including, among other things, the skills of the proposed director candidate, his or her depth and breadth of business experience, his or her independence and the needs of our Board. Neither the NCG Committee nor the Board has a specific policy with regard to the consideration of diversity in identifying director nominees, although both may consider diversity when identifying and evaluating proposed director candidates. As noted above, the NCG Committee, when recommending director candidates to the full Board for nomination, may consider whether a director candidate, if elected, assists in achieving a mix of Board members that represents a diversity of background and experience. Other than circumstances in which we may be legally required by contract or otherwise to provide third parties with the ability to nominate directors, the NCG Committee will evaluate all proposed director candidates that it considers or who have been properly recommended to it by a securityholder based on the same criteria and in substantially the same manner, with no regard to the source of the initial recommendation of the proposed director candidate.
BOSTON PROPERTIES, INC. |2018 Proxy Statement 11
CORPORATE GOVERNANCE PRINCIPLES AND BOARD MATTERS
OurBy-laws include a proxy access right for stockholders, pursuant to which a stockholder, or group of no more than five stockholders, meeting specified eligibility requirements, may include director nominees in our proxy materials for annual meetings of our stockholders. In order to be eligible to utilize these proxy access provisions, a stockholder, or group of stockholders, must, among other requirements:
provide a notice requesting the inclusion of director nominees in our proxy materials and provide other required information to us not less than 120 days prior to the anniversary of the date of the proxy statement for the prior year’s annual meeting of stockholders (with
adjustments if the date for the upcoming annual meeting of stockholders is more than 30 days before or more than 60 days after the anniversary date of the prior year’s annual meeting).BOSTON PROPERTIES, INC. |2017 Proxy Statement 11
CORPORATE GOVERNANCE PRINCIPLES AND BOARD MATTERS
|
For purposes of the foregoing requirements, issued and outstanding common units, other than those owned by us, Boston Properties Limited Partnership (the “Operating Partnership”) or any of their directly or indirectly wholly owned subsidiaries and excluding issued and outstanding long term incentive units, will be treated as issued and outstanding shares of common stock.
Additionally, all director nominees submitted through these provisions must be independent and meet specified additional criteria, and stockholders will not be entitled to utilize this proxy access right at an annual meeting if we receive notice through our traditional advanced noticeby-law provisions that a stockholder intends to nominate a director at such meeting. The maximum number of director nominees that may be submitted pursuant to these provisions may not exceed 25% of the number of directors then in office.
The foregoing proxy access right is subject to additional eligibility, procedural and disclosure requirements set forth in ourBy-laws.
CODE OF BUSINESS CONDUCT AND ETHICS AND OTHER POLICIES
Code of Business Conduct and Ethics
Our Board of Directors adopted a Code of Business Conduct and Ethics (the “Code of Ethics”), which governs business decisions made and actions taken by our directors, officers and employees. A copy of this Code of Ethics is available on our website athttp://www.bostonproperties.com under the heading “Corporate Governance” and subheading “Code of Conduct and Ethics.” We intend to disclose on this website any amendment to, or waiver of, any provision of this Code of Ethics applicable to our directors and executive officers that would otherwise be required to be disclosed under the rules of the SEC or the NYSE rules.
Corporate Governance Guidelines
Our Board of Directors adopted Corporate Governance Guidelines, a copy of which is available on our website athttp://www.bostonproperties.com under the heading “Corporate Governance” and subheading “Governance Guidelines.”
12 BOSTON PROPERTIES, INC. |2018 Proxy Statement
CORPORATE GOVERNANCE PRINCIPLES AND BOARD MATTERS
Policy on Company Political Spending
Our Board of Directors adopted a Policy on Company Political Spending, a copy of which is available on our website athttp://www.bostonproperties.com under the heading “Corporate Governance” and subheading “Policy on Political Spending.”
Stockholders and other interested parties who wish to communicate with any of our directors or the Board of Directors as a group, may do so by writing to them at Name(s) of Director(s)/Board of Directors of Boston Properties, Inc., c/o Compliance Officer, Boston Properties, Inc., 800 Boylston Street, Suite 1900, Boston, Massachusetts 02199-8103.
Stockholders and other interested parties who wish to contact the Audit Committee to report complaints or concerns regarding accounting, internal accounting controls or auditing matters, may do so by:
• | following any of the “Procedures for Submission of Complaints under the Audit Committee Complaint Procedures” that are attached as Exhibit 1 to our Code of Ethics (see “– Code of Business Conduct and Ethics and Other Policies – Code of Business Conduct and Ethics” above), or |
12 BOSTON PROPERTIES, INC. |2017 Proxy Statement
CORPORATE GOVERNANCE PRINCIPLES AND BOARD MATTERS
You are welcome to make any such reports anonymously, but we prefer that you identify yourself so that we may contact you for additional information if necessary or appropriate.
Stockholders and other interested parties who wish to communicate with ournon-management directors as a group, may do so by writing toNon-Management Directors of Boston Properties, Inc., c/o Compliance Officer, Boston Properties, Inc., 800 Boylston Street, Suite 1900, Boston, Massachusetts 02199-8103.
We recommend that all correspondence be sent via certified U.S. mail, return receipt requested. All correspondence received by the Compliance Officer will be forwarded by the Compliance Officer promptly to the addressee(s).
BOSTON PROPERTIES, INC. | 20172018 Proxy Statement 13
PROPOSAL 1: ELECTION OF DIRECTORS
At the annual meeting, directors shall be elected to hold office for aone-year term expiring at the 20182019 annual meeting of stockholders or until his or her successor is duly elected and qualified, or until his or her earlier resignation or removal. Following the recommendation of the NCG Committee, our Board of Directors has nominated Kelly A. Ayotte, Bruce W. Duncan, Karen E. Dykstra, Carol B. Einiger, Jacob A. Frenkel, Joel I. Klein, Douglas T. Linde, Matthew J. Lustig, Alan J. Patricof, Owen D. Thomas, Martin Turchin, and David A. Twardock for election. Each nominee, other than Senator Ayotte, is currently serving as a director of Boston Properties. In making its recommendations, the NCG Committee considered a number of factors, including its criteria for Board membership, which include the minimum qualifications that must be possessed by a director candidate in order to be nominated for a position on our Board. Our Board of Directors anticipates that, if elected, the nominees will serve as directors. However, if any person nominated by our Board of Directors is unable to serve or for good cause will not serve, the proxies will be voted for the election of such other person as our Board of Directors may recommend.
OurBy-laws provide for a majority voting standard. This means that, in an uncontested election, nominees for director are elected if the votes cast for such nominee’s election exceed the votes cast against such nominee’s election. The majority voting standard would not apply in contested elections, which, generally, will include any situation in which Boston Properties receives a notice that a stockholder has nominated a person for election to our Board of Directors at a meeting of stockholders that is not withdrawn on or before the tenth day before Boston Properties first mails its notice for such meeting to the stockholders.
The majority voting standard will apply to the election of directors at the 20172018 annual meeting of stockholders. Accordingly, nominees for director will be elected if the votes cast for such nominee’s election exceed the votes cast against such nominee’s election. Brokernon-votes, if any, and abstentions will not be treated as votes cast.
Our Board of Directors has also adopted a resignation policy, included in our Corporate Governance Guidelines, under which a director who fails to receive the required number of votes forre-election will tender his or her resignation to our Board of Directors for its consideration. The NCG Committee will act on an expedited basis to determine whether it is advisable to accept the director’s resignation and will submit the recommendation for prompt consideration by our Board of Directors. Our Board of Directors will act on the tendered resignation within 90 days following certification of the stockholder vote and will promptly and publicly disclose its decision. The director whose resignation is under consideration will abstain from participating in any decision regarding his or her resignation. If the resignation is not accepted, the director will continue to serve until the next annual meeting of stockholders and until the director’s successor is duly elected and qualified or until the director’s earlier resignation or removal. The NCG Committee and our Board of Directors may consider any factors they deem relevant in deciding whether to accept a director’s resignation.
The Board of Directors unanimously recommends a voteFOReach of its nominees, Kelly A. Ayotte, Bruce W. Duncan, Karen E. Dykstra, Carol B. Einiger, Dr. Jacob A. Frenkel, Joel I. Klein, Douglas T. Linde, Matthew J. Lustig, Alan J. Patricof, Owen D. Thomas, Martin Turchin and David A. Twardock. Properly authorized proxies solicited by the Board of Directors will be votedFOReach of the nominees unless instructions to the contrary are given.
14 BOSTON PROPERTIES, INC. | 20172018 Proxy Statement
PROPOSAL 1: ELECTION OF DIRECTORS
INFORMATION REGARDING THE NOMINEES AND EXECUTIVE OFFICERS
The following biographical descriptions set forth certain information with respect to the nominees for election as directors at the annual meeting and the executive officers who are not directors, based on information furnished to Boston Properties by each nominee and executive officer. Each executive officer holds office until the regular meeting of the Board of Directors following the next annual meeting of stockholders and until his or her successor is duly elected and qualified, or until his or her earlier resignation or removal.
The biographical description below for each nominee includes the specific experience, qualifications, attributes and skills that led to the conclusion by our Board of Directors that such person should serve as a director of Boston Properties.
Nominees for Election
Senator Kelly A. Ayotte | ||
Independent | Senator Ayotte has significant legal experience and experience in government and public affairs, as well as leadership and strategic planning skills. Senator Ayotte represented New Hampshire in the United States Senate from 2011-2016, where she chaired the Armed Services Subcommittee on Readiness and the Commerce Subcommittee on Aviation Operations. She also served on the Budget, Homeland Security and Governmental Affairs, Small Business and Entrepreneurship, and Aging Committees. Senator Ayotte served as the “Sherpa” for Justice Neil Gorsuch, leading the effort to secure his confirmation to the United States Supreme Court. From 2004-2009, Senator Ayotte served as New Hampshire’s first female Attorney General having been appointed to that position by Republican Governor Craig Benson and reappointed twice by Democratic Governor John Lynch. Prior to that, she served as the Deputy Attorney General, Chief of the Homicide Prosecution Unit and as Legal Counsel to Governor Craig Benson. She began her career as a law clerk to the New Hampshire Supreme Court and as an associate at the McLane Middleton law firm. Senator Ayotte serves on the boards of Caterpillar Inc., News Corporation, BAE Systems and Bloom Energy Corporation and the advisory boards of Microsoft Corporation, Blink Health LLC, Chubb Insurance, Revision Military and Cirtronics Corporation. She is a Senior Advisor for Citizens for Responsible Energy Solutions. She also serves on thenon-profit boards of the One Campaign, the International Republican Institute, the McCain Institute and Veterans Count of New Hampshire. In 2017, Senator Ayotte was a joint visiting fellow at the Harvard Institute of Politics and the Belfer Center for Science and International Affairs. She is a visiting fellow at the University of Chicago’s Institute of Politics and the Perkins Bass Distinguished Visitor at Dartmouth College. She also is a member of the Aspen Institute’s Economic Strategy and Homeland Security groups. Senator Ayotte graduated with honors from the Pennsylvania State University and earned a Juris Doctor degree from the Villanova University School of Law. |
BOSTON PROPERTIES, INC. |2018 Proxy Statement 15
PROPOSAL 1: ELECTION OF DIRECTORS
Bruce W. Duncan | ||
Director since May 17, 2016
Independent Board Committees: Compensation | Mr. Duncan has more than 30 years of diverse real estate management and investment experience, including as a chief executive officer and a director of other publicly traded companies.
Mr. Duncan serves as Chairman of the Board of Directors of First Industrial Realty Trust, Inc. (“First Industrial”), a REIT that engages in the ownership, management, acquisition, sale, development and redevelopment of industrial real estate properties. Mr. Duncan has served as a director of First Industrial since January 2009 and as its Chairman of the Board since January 2016. He previously served as President and Chief Executive Officer of First Industrial from January 2009 until he stepped down as President in September 2016 and retired as Chief Executive Officer in November 2016. | |
| ||
|
BOSTON PROPERTIES, INC. |2017 Proxy Statement 15
PROPOSAL 1: ELECTION OF DIRECTORS
Mr. Duncan is a Life Trustee of Rush University Medical Center in Chicago, and | ||
16 BOSTON PROPERTIES, INC. |2018 Proxy Statement
PROPOSAL 1: ELECTION OF DIRECTORS
Karen E. Dykstra | ||
Director since May 17, 2016
Independent Board Committees: Audit | Ms. Dykstra has extensive strategic, management, financial, accounting and oversight experience, particularly with companies in the technology sector.
Ms. Dykstra served as Chief Financial and Administrative Officer of AOL, Inc., a global media technology company, from November 2013 until July 2015 and as Chief Financial Officer of AOL, Inc. from September 2012 until November 2013. From January 2007 until December 2010, Ms. Dykstra was a Partner of Plainfield Asset Management LLC (“Plainfield”), and she served as Chief Operating Officer and Chief Financial Officer of Plainfield Direct Inc., Plainfield’s business development company, from May 2006 to 2010, and as a director from 2007 to 2010. Prior to joining Plainfield, she spent over 25 years with Automatic Data Processing, Inc., serving most recently as Chief Financial Officer from January 2003 to May 2006, and as Vice President – Finance, Corporate Controller and in other capacities. Ms. Dykstra currently serves on the Board of Directors of Gartner, Inc. and VMware, Inc. Ms. Dykstra is a former director of Crane Co. and AOL, Inc. She received a BA in Accounting from Rider University and an MBA from Fairleigh Dickinson University. | |
| ||
|
16BOSTON PROPERTIES, INC. | 20172018 Proxy Statement 17
PROPOSAL 1: ELECTION OF DIRECTORS
Carol B. Einiger | ||
Director since May 5, 2004
Independent Board Committees:Compensation (Chair) | Ms. Einiger has more than 40 years of experience as an investment banker and investment advisor, during which time she has gained significant expertise in the operation of public and private debt and equity capital markets and the evaluation of investment opportunities.
Ms. Einiger is Senior Advisor of Roundtable Investment Partners LLC, a private investment advisory firm, a position she has held since January 2017. From 2005 to 2016, she was founder and President of Post Rock Advisors, LLC, a private investment advisory firm. From 1996 to 2005, she served as Chief Investment Officer of The Rockefeller University, where she was responsible for the management of the University’s endowment. Ms. Einiger began her investment career in 1971 at Goldman, Sachs & Co. and worked at The First Boston Corporation from 1973 to 1988, becoming Managing Director and Head of the Capital Markets Department; from 1988 to 1989 as Visiting Professor andExecutive-in-Residence at Columbia Business School; and from 1989 to 1992 as Managing Director at Wasserstein Perella & Co. From 1992 to 1996, Ms. Einiger served as Chief Financial Officer and then Acting President of the Edna McConnell Clark Foundation, before joining The Rockefeller University. Ms. Einiger is a Director and Chair of the Investment Committee ofUJA-Federation of New York, a member of the Investment Committee of the JPB Foundation, and a member of the Board of Overseers of Columbia Business School. She previously served on the Boards of Trustees and Investment Committees of the University of Pennsylvania, the Lasker Foundation and the Horace Mann School; as Vice Chair of the Investment Committee of The Museum of Modern Art; as a Director of Credit Suisse First Boston (USA) and The New York Stem Cell Foundation; and on the Advisory Board of Blackstone Alternative Asset Management. Ms. Einiger is the recipient of numerous awards, including the Alumni Award of Merit of the University of Pennsylvania, the Columbia Business School Distinguished Alumna Award, the AJC National Human Relations Award, the Anti-Defamation League Woman of Achievement Award and the Catalyst Award for Corporate Leadership. She received her BA from the University of Pennsylvania and her MBA with honors from Columbia Business School. | |
| ||
|
18BOSTON PROPERTIES, INC. | 20172018 Proxy Statement 17
PROPOSAL 1: ELECTION OF DIRECTORS
Dr. Jacob A. Frenkel | ||
Director since February 24, 2010
Independent Board Committees: NCG (Chair) | Dr. Frenkel has worked for more than 40 years in the financial industry, government and academia, during which time he has gained significant knowledge of global macroeconomics and experience advising large financial institutions.
Dr. Frenkel has been the Chairman of JPMorgan Chase International, the international unit of JPMorgan Chase & Co., since December 2009. Since November 2009, Dr. Frenkel has served as a director of Loews Corporation, one of the largest diversified holding companies in the United States. Dr. Frenkel is Chairman of the Board of Trustees of the Group of Thirty(G-30), a private, nonprofit, consultative group on international economic and monetary affairs. He has been a member of this group since 1988 and served as Chairman and Chief Executive Officer from 2000 to 2011. He previously served as Vice Chairman of American International Group, Inc. from 2004 to 2009. He was with Merrill Lynch Inc. between 2000 and 2004 and served as Chairman of Merrill Lynch International. Prior to that, he served for two terms as Governor of the Bank of Israel from 1991 to 2000. Dr. Frenkel was also Chairman of the Board of Governors of the Inter-American Development Bank, Vice Chairman of the Board of Governors of the European Bank for Reconstruction and Development and Economic Counselor and Director of Research at the International Monetary Fund. Dr. Frenkel also held numerous academic positions. Between 1971 and 1987, he was at the University of Chicago where he served as the David Rockefeller Professor of International Economics. He received a BA in Economics and Political Science from Hebrew University in Israel and an MA and Ph.D. in Economics from the University of Chicago. Dr. Frenkel is a laureate of the 2002 Israel Prize in Economics and the recipient of several honorary doctoral degrees and other decorations and awards. | |
| ||
|
18BOSTON PROPERTIES, INC. | 20172018 Proxy Statement 19
PROPOSAL 1: ELECTION OF DIRECTORS
Joel I. Klein | ||
Director since January 24, 2013
Lead Independent Director Board Committees: NCG | Mr. Klein has worked for more than 40 years in private industry and government during which time he has gained significant experience in senior policy making and executive roles, as well as a broad range of legal matters.
Mr. Klein is the Chief Policy and Strategy Officer of Oscar Insurance Corporation, a health insurance company. In addition, he has been a Director of News Corporation since January 2011 where he was also Executive Vice President, Office of the Chairman of News Corporation and Chief Executive Officer of Amplify, the education division of News Corporation, from January 2011 through December 2015. From 2002 through 2010, Mr. Klein was Chancellor of the New York City Department of Education where he oversaw a system of over 1,600 schools with 1.1 million students, 136,000 employees and a $22 billion budget. He was the U.S. Chairman and Chief Executive Officer of Bertelsmann, Inc. and Chief U.S. Liaison Officer to Bertelsmann AG, a media company, from 2001 to 2002. Mr. Klein also served with the Clinton administration in a number of roles, including Assistant U.S. Attorney General in charge of the Antitrust Division of the U.S. Department of Justice from 1997 until 2000 and Deputy White House Counsel to President Clinton from 1993 to 1995. Mr. Klein entered the Clinton administration after 20 years of public and private legal work in Washington, D.C. Mr. Klein received a BA with honors from Columbia University and a JD with honors from Harvard Law School. He has also received honorary degrees from ten colleges and universities. | |
| ||
|
Douglas T. Linde | ||
Director since January 21, 2010
Board Committees: Investment | Mr. Linde serves as President of Boston Properties, Inc. Prior to his appointment to this position in May 2007, he served as Executive Vice President since January 2005 and he also served as Chief Financial Officer and Treasurer from 2000 until November 2007. He joined Boston Properties in January 1997 as Vice President of Acquisitions and New Business to help identify and execute acquisitions and to develop new business opportunities and was promoted to Senior Vice President for Financial and Capital Markets in October 1998. Prior to joining Boston Properties, Mr. Linde served from 1993 to 1997 as President of Capstone Investments, a Boston real estate investment company. From 1989 to 1993, he served as Project Manager and Assistant to the Chief Financial Officer of Wright Runstad and Company, a private real estate developer in Seattle, WA. He began his career in the real estate industry with Salomon Brothers’ Real Estate Finance Group. Mr. Linde is a Director Emeritus of the Board of Directors of Beth Israel Deaconess Medical Center (“BIDMC”) andco-chairs the BIDMC capital campaign. He is a member of the Real Estate Roundtable and serves as a director of the Boston Municipal Research Bureau and Jobs for Massachusetts. Mr. Linde also serves on the Urban Studies and Planning Visiting Committee at MIT and is a member of the Wesleyan University Board of Trustees. Mr. Linde received a BA from Wesleyan University and an MBA from Harvard Business School. | |
|
20BOSTON PROPERTIES, INC. | 20172018 Proxy Statement 19
PROPOSAL 1: ELECTION OF DIRECTORS
Matthew J. Lustig | ||
Director since January 20, 2011
Independent Board Committees: NCG | Mr. Lustig has worked for more than 30 years in the real estate industry, during which time he has gained extensive experience providing strategic and financial advice and transaction execution to clients, and investing in real estate companies and assets as a principal.
Mr. Lustig has been Head of North America Investment Banking at Lazard Frères & Co. (“Lazard”), the investment bank, since 2012, and he is also Head of Real Estate & Lodging at Lazard, a position he has held for more than | |
| ||
|
| ||
|
| |
| ||
|
20 BOSTON PROPERTIES, INC. |2017 Proxy Statement
PROPOSAL 1: ELECTION OF DIRECTORS
Owen D. Thomas | ||
Director since April 2, 2013
Board Committees: Investment | Mr. Thomas has served as our Chief Executive Officer since April 2, 2013. Mr. Thomas served as Chairman of the Board of Directors of Lehman Brothers Holdings Inc. (“LBHI”) from March 2012 until March 2013 and continues to serve as a member of the Board of Directors of LBHI. From 1987 until 2011, Mr. Thomas held various positions at Morgan Stanley, including Chief Executive Officer of Morgan Stanley Asia Ltd., President of Morgan Stanley Investment Management, Head of Morgan Stanley Real Estate and Managing Director. Mr. Thomas was also a member of Morgan Stanley’s Management Committee from 2005 to 2011. He is a Director of the University of Virginia Investment Management Company, a Trustee of the Urban Land Institute, a director of the Urban Land Institute Foundation, an officer and a member of the Executive Board of | |
|
BOSTON PROPERTIES, INC. |2018 Proxy Statement 21
PROPOSAL 1: ELECTION OF DIRECTORS
Martin Turchin | ||
Director since June 23, 1997
Independent Board Committees: Audit | Mr. Turchin has more than 40 years of experience as a commercial real estate broker, consultant and advisor and has been involved in some of the largest real estate transactions in the United States. During his career, he has orchestrated more than 50 million square feet of real estate transactions.
Mr. Turchin serves asnon-executive Vice Chairman of CBRE Group, Inc., the world’s largest real estate services company. From 1985 until its merger with CBRE Group, Inc. in July 2003, Mr. Turchin served as Vice-Chairman of Insignia/ESG, Inc., a subsidiary of Insignia Financial Group, which was one of the nation’s largest commercial real estate brokerage, consulting and management firms. Prior to joining Insignia/ESG, Inc., he spent 14 years with Kenneth E. Laub & Company, Inc. where he was involved in real estate acquisition, financing, leasing and consulting. He is a three-time recipient of the Real Estate Board of New York’s “Most Ingenious Deal of the Year Award” and atwo-time recipient of the “Robert T. Lawrence Award.” Mr. Turchin serves on the Board of Directors of Aerojet Rocketdyne Holdings, Inc. and as Chairman of Easton Development Company, LLC, a subsidiary of Aerojet Rocketdyne Holdings, Inc. He holds a BS from City College of the University of New York and a JD from St. John’s Law School. | |
| ||
|
BOSTON PROPERTIES, INC. |2017 Proxy Statement 21
PROPOSAL 1: ELECTION OF DIRECTORS
David A. Twardock | ||
Director since May 7, 2003 Independent Board Committees: Audit (Chair) and Compensation
| Mr. Twardock has more than 30 years of experience in the real estate finance industry, during which time he has overseen the lending and asset management of billions of dollars of commercial mortgages and other real estate debt financing and the management and disposition of billions of dollars of real estate equity.
From December 1998 to March 2013, Mr. Twardock was the President of Prudential Mortgage Capital Company, LLC, the real estate finance affiliate of Prudential Financial, Inc., which had more than $70 billion in assets under management and administration as of December 31, 2012 and annually lent billions of dollars in real estate debt financing. Since 1982, Mr. Twardock has held numerous positions relating to real estate equity and debt with Prudential, including his position from 1996 to November 1998 as Senior Managing Director of Prudential Realty Group. Mr. Twardock is a member of the Board of Directors of Morgan Stanley Bank, N.A. and serves on the advisory committee of Blue Vista Capital Management and LBA Realty. Mr. Twardock is a member of the Urban Land Institute and the Economics Club of Chicago. Mr. Twardock previously served as a director of the Real Estate Roundtable and Chairman of the Real Estate Roundtable Capital Markets Committee. He received a BS in Civil Engineering from the University of Illinois and an MBA in Finance and Behavioral Science from the University of Chicago. | |
|
22 BOSTON PROPERTIES, INC. |2018 Proxy Statement
PROPOSAL 1: ELECTION OF DIRECTORS
Board Committees:
Audit (Chair) and
Compensation
Executive Officers who are not Directors
Raymond A. Ritcheyserves as Senior Executive Vice President. Prior to his appointment to this position in January 2016, Mr. Ritchey served as Executive Vice President, Head of our Washington, D.C. Office and National Director of Acquisitions and Development since April 1998 and Senior Vice President andCo-Manager of our Washington, D.C. office. Mr. Ritchey is responsible for all business development, leasing and marketing as well as new opportunity origination in the Washington, D.C. area. He also directly oversees similar activities on a national basis. Mr. Ritchey joined us in 1980, leading our expansion to become one of the dominant real estate firms in the Washington, D.C. metropolitan area. For four years prior to joining us, Mr. Ritchey was one of the leading commercial real estate brokers in the Washington, D.C. area with Coldwell Banker. Mr. Ritchey is the President of the Board of Spanish Education Development (SED) Center; a member of the Federal City Council; a member of The Economic Club of Washington; Founding member of the National Association of Industrial and Office Properties (NAIOP), Northern Virginia; Chair of the JDRF Real Estate Games; and an active volunteer with numerous civic, charitable, and real estate industry organizations. A sampling of Mr. Ritchey’s professional honors include: ULI Lifetime Achievement Award; Man of the Year, CREW; Brendan McCarthy Award, GWCAR; Good Scout of the Year, Boy Scouts; Trendsetter of the Year, Transwestern; Developer of the Year (numerous organizations); Junior Achievement Man of the Year. He is a graduate of the U.S. Naval Academy and a graduate of the U.S. Naval Post Graduate School in Monterey, California. He is 6667 years old.
Michael E. LaBelleserves as Executive Vice President, Chief Financial Officer and Treasurer. Prior to his appointment to this position in January 2016, Mr. LaBelle served as Senior Vice President, Chief Financial Officer and Treasurer since November 2007 and he also served as Senior Vice President, Finance from February 2005 to November 2007. In his current role, Mr. LaBelle oversees the finance, accounting, tax, information systems, internal audit and investor relations departments and is also responsible for capital raising, treasury management, credit underwriting, financial strategy and planning. Prior to joining us in March 2000, Mr. LaBelle held the position of Vice President & Relationship Manager with Fleet National Bank for nine years with the responsibility of financing large-scale commercial real estate developments. He started his career as an Associate National Bank Examiner with the Office of the Comptroller of the Currency in New York City specializing in commercial real estate debt portfolio analysis and valuation in commercial banks located throughout theMid-Atlantic and Northeastern United States. Mr. LaBelle is on the National Advisory Board for the University of Colorado Real Estate Center. Mr. LaBelle holds a BS degree in Economics from the University of Colorado. He is 5253 years old.
22 BOSTON PROPERTIES, INC. |2017 Proxy Statement
PROPOSAL 1: ELECTION OF DIRECTORS
Peter D. Johnstonserves as Executive Vice President, Washington, D.C. Region. Prior to his appointment to this position in January 2016, Mr. Johnston served as Senior Vice President and Regional Manager of our Washington, D.C. office. He is in charge of all operations including project development, leasing, construction, property management and administrative activities for our Washington, D.C. office, with a staff of approximately 181 people. Mr. Johnston joined the Company in 1987. In 1989 he was promoted to Project Manager, with subsequent promotions in 1991 to Vice President and in 1997 to Senior Vice President. In 2003 he was appointed head of the development team in the Washington, D.C. Region and held this position until his promotion in September 2005 to the position of Regional Manager. Mr. Johnston has been responsible for more than eight million square feet of new development and renovation projects. He is a past member of the board of directors of the Northern Virginia Chapter of the National Association of Industrial and Office Properties (NAIOP).NAIOP. Mr. Johnston received a BA in Business Administration from Roanoke College, an MA from Hollins College and an MBA from the University of Virginia. He is 5859 years old.
Bryan J. Koopserves as Executive Vice President, Boston Region. Prior to his appointment to this position in January 2016, Mr. Koop served as Senior Vice President and Regional Manager of our Boston office since 1999. Mr. Koop is responsible for overseeing the operation of our existing regional
BOSTON PROPERTIES, INC. |2018 Proxy Statement 23
PROPOSAL 1: ELECTION OF DIRECTORS
portfolio in the Boston area, which includes the Prudential Center and Kendall Center. He is also responsible for developing new business opportunities in the area. Prior to joining us in 1999, Mr. Koop served at Trammell Crow Company from 1982 to 1999 where his career covered high-rise office building leasing and the development of commercial office buildings and shopping centers. From 1993 to 1999, his position was Managing Director and Regional Leader for Trammell Crow Company’s New England region, which included all commercial office and shopping center operations. Mr. Koop is a member of the Board of Directors for the Massachusetts Chapter of NAIOP, the Boston Green Ribbon Commission and the Kendall Square Association and previously served as chairman of the Back Bay Association. Mr. Koop received a BBA and an MBA from Texas Christian University. He is 5859 years old.
Robert E. Pesterserves as Executive Vice President, San Francisco Region. Prior to his appointment to this position in January 2016, Mr. Pester served as Senior Vice President and Regional Manager of our San Francisco office since 1998. Mr. Pester is responsible for all of our activities on the West Coast. Mr. Pester is responsible for overseeing existing operations in San Francisco and our other Bay Area properties on the Peninsula and in Silicon Valley, and developing new business opportunities in the area. Prior to joining us in 1998, he served as Executive Vice President and Chief Investment Officer of Bedford Property Investors, a real estate investment trust in Lafayette, CA, where he led the acquisitions and development program. Prior to 1994, he was President of Bedford Property Development, a private West Coast development concern that held more than $2 billion in real estate assets. From 1980 to 1989, he was a leading commercial real estate broker with Cushman & Wakefield in northern California, where he last served as Vice President. He is a graduate of the University of California at Santa Barbara with a BA in Economics and Political Science. He is 6061 years old.
John F. Powers serves as Executive Vice President, New York Region. He oversees all aspects of our New York and Princeton, New Jersey activities, including development, acquisitions, leasing and building operations. Prior to joining us on January 2, 2014 as Senior Vice President and Regional Manager of our New York office, he served from 2004 as Chairman of CBRE, Inc. for the New YorkTri-State Region overseeing the strategic direction of CBRE’sTri-State operations. He joined the Edward S. Gordon Company, which was subsequently merged into CBRE, in 1986 after working eight years at Swiss Bank Corp (now UBS). At ESG, he developed and managed the Consulting Division into a strong and integral part of the firm’s service delivery platform, which facilitated its sustained leadership in the Manhattan office leasing market. He also brokered millions of square feet of transactions, representing both tenants and landlords, led numerous strategic consulting assignments for large corporate occupiers and advised on manyground-up developments. He is a frequent speaker on commercial real estate in New York valued for his insight linking economic trends and conditions to their eventual impact on the office
BOSTON PROPERTIES, INC. |2017 Proxy Statement 23
PROPOSAL 1: ELECTION OF DIRECTORS
market. He received a BA in Mathematics from St. Anselm College, an MA in Economics from the University of Massachusetts and an MBA from the University of Massachusetts. He also studied international economics at the Graduate Institute of International Studies, Geneva. He is 7071 years old.
Frank D. Burtserves as Senior Vice President, General Counsel and Secretary, positions he has held since 2003. He is responsible for overseeing the legal and risk management departments. Mr. Burt has served in various capacities since he joined us in 1986, and he represented us in the acquisition of the Prudential Center in Boston and the Embarcadero Center in San Francisco, as well as in the development activities at the Prudential Center. He previously worked in the real estate department at Nutter, McClennen & Fish in Boston. Mr. Burt is a member of the American College of Real Estate Lawyers and the Boston Bar Association and a speaker for the American College of Real Estate Lawyers, the Association of Corporate Counsel, Massachusetts Continuing Legal Education, NAIOP and NAREIT.Nareit. Mr. Burt received a BA, magna cum laude, from Brown University and a JD, cum laude, from the University of Pennsylvania Law School. He is 5859 years old.
24 BOSTON PROPERTIES, INC. |2018 Proxy Statement
PROPOSAL 1: ELECTION OF DIRECTORS
Michael R. Walshserves as Senior Vice President, Chief Accounting Officer. He is responsible for overseeing financial reporting, property accounting and tax compliance and is also responsible for providing transactional support on capital markets activity. Prior to his appointment to this position in May 2016, Mr. Walsh served as Executive Vice President, Chief Financial Officer and Treasurer of Paramount Group, Inc. (“Paramount”), a real estate investment trust focused on Class A office properties in New York City, Washington, D.C. and San Francisco, from March 2015 to March 2016. Before joining Paramount, Mr. Walsh was the Senior Vice President, Finance and Capital Markets at Boston Properties where he served in various capacities since 1986. While at Boston Properties, he was most recently responsible for overseeing its accounting, financial reporting, financial analysis and tax functions and participated extensively in investor relations matters. Mr. Walsh received a BS, magna cum laude, from Eastern Nazarene College. He is 5051 years old.
24BOSTON PROPERTIES, INC. | 20172018 Proxy Statement 25
PRINCIPAL AND MANAGEMENT STOCKHOLDERS
The table below shows the amount of common stock of Boston Properties, Inc. and units of partnership interest in our Operating Partnership beneficially owned as of February 1, 20172018 by:
On February 1, 2017,2018, there were:
(1) |
(2) |
(3) |
(4) |
All references in this proxy statement to LTIP units exclude LTIP units issued pursuant to 2014 MYLTIP awards, 2015 MYLTIP awards, 2016 MYLTIP awards and 20162017 MYLTIP awards because their three-year performance periods had not ended by February 1, 2017.2018. LTIP units issued pursuant to 2014 MYLTIP awards, 2015 MYLTIP awards, 2016 MYLTIP awards and 20162017 MYLTIP awards are collectively referred to herein as “Performance Awards.” None of our directors or NEOs beneficially owns preferred units or shares of our preferred stock.
26BOSTON PROPERTIES, INC. | 20172018 Proxy Statement 25
PRINCIPAL AND MANAGEMENT STOCKHOLDERS
Common Stock | Common Stock and Units | Common Stock | Common Stock and Units | |||||||||||||||||||||||||||||
Name and Address of Beneficial Owner* | Number of Shares Beneficially Owned(1) | Percent of Common Stock(2) | Number of Shares and Units Beneficially Owned(1) | Percent of Common Stock and Units(3) | Number of Shares Beneficially Owned(1) | Percent of Common Stock(2) | Number of Shares and Units Beneficially Owned(1) | Percent of Common Stock and Units(3) | ||||||||||||||||||||||||
Directors and Named Executive Officers | ||||||||||||||||||||||||||||||||
Directors, Nominees for Director and Named Executive Officers | ||||||||||||||||||||||||||||||||
Kelly A. Ayotte | — | ** | — | ** | ||||||||||||||||||||||||||||
Bruce W. Duncan(4) | — | ** | 1,013 | ** | — | ** | 2,063 | ** | ||||||||||||||||||||||||
Karen E. Dykstra(5) | 2,941 | ** | 2,941 | ** | 3,477 | ** | 4,002 | ** | ||||||||||||||||||||||||
Carol B. Einiger(6) | 15,282 | ** | 19,305 | ** | 16,563 | ** | 21,636 | ** | ||||||||||||||||||||||||
Jacob A. Frenkel(7) | 1,013 | ** | 6,395 | ** | 1,013 | ** | 7,445 | ** | ||||||||||||||||||||||||
Joel I. Klein(8) | 3,212 | ** | 6,325 | ** | 4,068 | ** | 8,231 | ** | ||||||||||||||||||||||||
Douglas T. Linde(9) | 281,778 | ** | 414,575 | ** | 289,287 | ** | 428,612 | ** | ||||||||||||||||||||||||
Matthew J. Lustig(10) | 4,351 | ** | 10,322 | ** | 5,116 | ** | 12,137 | ** | ||||||||||||||||||||||||
Alan J. Patricof(11) | 34,642 | ** | 38,665 | ** | 36,268 | ** | 41,341 | ** | ||||||||||||||||||||||||
Owen D. Thomas(12) | 63,399 | ** | 152,016 | ** | 63,399 | ** | 171,280 | ** | ||||||||||||||||||||||||
Martin Turchin(13) | 25,086 | ** | 26,047 | ** | 25,622 | ** | 27,633 | ** | ||||||||||||||||||||||||
David A. Twardock(14) | 28,198 | ** | 28,198 | ** | 30,746 | ** | 30,746 | ** | ||||||||||||||||||||||||
Raymond A. Ritchey(15) | 131,802 | ** | 433,559 | ** | 96,802 | ** | 415,256 | ** | ||||||||||||||||||||||||
Michael E. LaBelle(16) | 20,943 | ** | 89,943 | ** | 26,452 | ** | 96,943 | ** | ||||||||||||||||||||||||
Bryan J. Koop(17) | 31,238 | ** | 84,126 | ** | 21,535 | ** | 80,837 | ** | ||||||||||||||||||||||||
All directors and executive officers as a group (19 persons)(18) | 725,431 | ** | 1,474,570 | ** | 698,442 | ** | 1,512,469 | ** | ||||||||||||||||||||||||
5% Holders | ||||||||||||||||||||||||||||||||
The Vanguard Group(19) | 21,802,371 | 14.18% | 21,802,371 | 12.69% | 22,607,980 | 14.65% | 22,607,980 | 13.14% | ||||||||||||||||||||||||
BlackRock, Inc.(20) | 14,529,524 | 9.45% | 14,529,524 | 8.45% | 15,489,489 | 10.04% | 15,489,489 | 9.00% | ||||||||||||||||||||||||
Vanguard Specialized Funds – Vanguard REIT Index Fund(21) | 11,661,306 | 7.58% | 11,661,306 | 6.79% | 10,390,045 | 6.73% | 10,390,045 | 6.04% | ||||||||||||||||||||||||
FMR LLC(22) Abigail P. Johnson | 9,699,951 | 6.31% | 9,699,951 | 5.64% | ||||||||||||||||||||||||||||
State Street Corporation(23) | 8,887,364 | 5.78% | 8,887,364 | 5.17% | ||||||||||||||||||||||||||||
State Street Corporation(22) | 8,652,221 | 5.61% | 8,652,221 | 5.03% | ||||||||||||||||||||||||||||
FMR LLC(23) Abigail P. Johnson | 8,393,936 | 5.44% | 8,393,936 | 4.88% | ||||||||||||||||||||||||||||
Norges Bank (The Central Bank of Norway)(24) | 8,153,590 | 5.28% | 8,153,590 | 4.74% |
* | Unless otherwise indicated, the address is c/o Boston Properties, Inc., 800 Boylston Street, Suite 1900, Boston, Massachusetts 02199-8103. |
** | Less than 1%. |
(1) | The number of shares of common stock “beneficially owned” by each beneficial owner is determined under rules issued by the SEC regarding the beneficial ownership of securities. This information is not necessarily indicative of beneficial ownership for any other purpose. “Number of Shares Beneficially Owned” includes (a) shares of common stock that may be acquired upon the exercise of options that are exercisable on or within 60 days after February 1, |
BOSTON PROPERTIES, INC. |2018 Proxy Statement 27
PRINCIPAL AND MANAGEMENT STOCKHOLDERS
common units, as applicable) have the right to redeem such units for cash or, at our option, shares of common stock, subject to certain conditions. Except as otherwise noted, each beneficial owner has sole voting and investment power over the shares and units. Holders of common units, LTIP units and deferred stock units are not entitled to vote such units on any of the matters presented at the |
26 BOSTON PROPERTIES, INC. |2017 Proxy Statement
PRINCIPAL AND MANAGEMENT STOCKHOLDERS
(2) | The total number of shares outstanding used in calculating this percentage assumes (a) the exercise of all options to acquire shares of common stock that are exercisable on or within 60 days after February 1, |
(3) | The total number of shares outstanding used in calculating this percentage assumes (a) that all common units and LTIP units are presented (assuming conversion in full into common units, if applicable) to the Operating Partnership for redemption and are acquired by Boston Properties for shares of common stock, (b) does not separately include outstanding common units held by Boston Properties, as these common units are already reflected in the denominator by the inclusion of all outstanding shares of common stock, (c) the exercise of all options to acquire shares of common stock that are exercisable on or within 60 days after February 1, |
(4) | Represents |
(5) | Includes |
(6) | Represents 16,563 deferred stock units. Also includes, only under the “Number of Shares and Units Beneficially Owned” column, 5,073 LTIP units (of which |
(7) | Represents 1,013 shares of common |
(8) | Represents |
(9) | Includes |
(10) | Represents |
(11) | Represents |
(12) | Includes 9,117 shares of common stock held directly and 54,282 shares of common stock underlying exercisable stock options. Also includes, only under the “Number of Shares and Units Beneficiary Owned” column, |
(13) | Includes 3,007 shares of common stock held directly, |
(14) | Includes |
(15) | Represents |
28 BOSTON PROPERTIES, INC. |2018 Proxy Statement
PRINCIPAL AND MANAGEMENT STOCKHOLDERS
trustee, and |
(16) | Includes |
BOSTON PROPERTIES, INC. |2017 Proxy Statement 27
PRINCIPAL AND MANAGEMENT STOCKHOLDERS
(17) | Includes |
(18) | Includes an aggregate of |
(19) | Information regarding The Vanguard Group (“Vanguard”) is based solely on a Schedule 13G/A filed by Vanguard with the SEC on February |
(20) | Information regarding BlackRock, Inc. (“BlackRock”) is based solely on a Schedule 13G/A filed by BlackRock with the SEC on January |
(21) | Information regarding Vanguard Specialized Funds – Vanguard REIT Index Fund (“Vanguard REIT”) is based solely on a Schedule 13G/A filed by Vanguard REIT with the SEC on February |
(22) | Information regarding |
(23) | Information regarding FMR LLC and Abigail P. Johnson is based solely on a Schedule 13G/A filed jointly by FMR LLC and Abigail P. Johnson with the SEC on February 13, 2018. The address of FMR LLC and Abigail P. Johnson is 245 Summer Street, Boston, MA 02210. The Schedule 13G indicates that FMR LLC has sole voting power with respect to 3,828,750 shares of common stock and each of FMR LLC and Abigail P. Johnson has sole dispositive power with respect to the same 8,393,936 shares of common stock. |
(24) | Information regarding Norges Bank (The Central Bank of Norway) (“Norges Bank”) is based solely on a Schedule 13G filed by Norges Bank with the SEC on January 5, 2018. Norges Bank’s address is Bankplassen 2, PO Box 1179 Sentrum, NO 0107 Oslo, Norway. The Schedule 13G indicates that Norges Bank has sole voting and dispositive power with respect to all of the shares of common stock. |
SECTION 16(A)16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), requires the executive officers and directors of Boston Properties, and persons who own more than ten percent of a registered class of Boston Properties’ equity securities, to file reports of ownership and changes in ownership with the SEC and the NYSE. Officers, directors and greater than ten percent beneficial owners are required by SEC regulations to furnish Boston Properties with copies of all Section 16(a) forms they file. To our knowledge, based solely on our review of the copies of such reports furnished to us and written representations that no other reports were required during the fiscal year ended December 31, 2016,2017, all Section 16(a) filing requirements applicable to our executive officers, directors and greater than ten percent beneficial owners were timely satisfied.
28BOSTON PROPERTIES, INC. | 20172018 Proxy Statement 29
COMPENSATION DISCUSSION AND ANALYSIS
In this “Compensation Discussion and Analysis,” or “CD&A,” when we referreferences to (1) the “Committee” mean the Compensation Committee of the Board of Directors of Boston Properties, Inc. and (2) “executive compensation” we mean primarily the Compensation Committee’s decisions regarding the compensation of our named executive officers (“NEOs”). Our NEOs for 20162017 were Messrs. Thomas, Linde, Ritchey, LaBelle and Koop.
I. | EXECUTIVE SUMMARY |
2016 Performance OverviewIntroduction
OurWe are one of the largest owners, managers and developers of office properties in the United States, concentrated in Boston, New York, San Francisco, Washington, D.C. and Los Angeles. We have a demonstrated history of creating long-term shareholder value in large part because we take on complex, technically challenging development projects, leveraging the skills of our management team hadto successfully develop and reposition properties that other organizations may not have the capacity or resources to pursue. Some of our most successful development projects have taken longer than a very productive yeardecade to acquire, construct andlease-up to stabilization. In addition, we seek to sign long-term leases with creditworthy tenants, and we generally seek long-term fixed-rate financing in terms oforder to lock in our interest expense and proactively manage our debt maturities. We recognize that our business is thus long-term in nature, and our success requires that we make business decisions with a focus on our long-term objectives, even if they have short-term negative implications.
As a result, our Committee strives to make compensation decisions that reward management for executing our strategy and operatingpromoting the best interests of the Company and its stockholders over the long term. Our market focus and strategy for creating long-term value for investors differ from many of our business. Among other accomplishments discussed in this CD&A, highlights of 2016 included the following:
Process for Determining Executive Compensation
Following strong stockholder support in 19 years with2017 on our acquisition of a joint venture interest in Colorado Center in Santa Monica, California, and successfully executed our leasing plan for the property ahead of schedule;
Communication with Stockholders
As we have in prior years, we contacted representatives of approximately 25 stockholders, representing more than 60% of the total number of outstanding shares of our common stock, regarding matters to be voted on at the 2016 annual meeting, as well as other matters of interest to the stockholders. This was in addition to our ongoing dialoguecommunications with investors throughout the year, on a wide range of topics. We appreciate hearing and understandingour Committee continues to use the views of our stockholders and believe it helps us better align oursame general process when setting executive compensation, and corporate governance with general market expectationswhich includes:
• | using the median (50th percentile) of a peer group of 16 REITs that are constituents of the S&P 500 Index (the “Benchmarking Peer Group”) as the beginning reference point and as an indicator of competitive market trends; |
We are pleased that we received strong stockholder support innamed executive officers (“NEOs”) as a group, against the 2016“Say-on-Pay” advisory vote, with more than 90% of the votes cast in favor of the resolution. Together with the feedback received during the year, the Compensation Committee views these results as an indication of our stockholders’ strong support of our compensation programs. Accordingly, the Compensation Committee maintained the same principal elements of our executive compensation programs when setting compensation for 2016.
Alignment of Pay with Performance
At the start of each year, the Compensation Committee establishes for management a set of rigorous strategic, operational, capital and management goals, which are aligned with our short- and long-term
BOSTON PROPERTIES, INC. |2017 Proxy Statement 29
COMPENSATION DISCUSSION AND ANALYSIS
strategies and are reflected in the earnings guidance and related assumptions providedBenchmarking Peer Group to the market. As we have done in prior years, the Compensation Committee looks at performancedetermine their relative placement with respect to key operational and financial metricscompensation for the prior year;
30 BOSTON PROPERTIES, INC. |2018 Proxy Statement
COMPENSATION DISCUSSION AND ANALYSIS
I. EXECUTIVE SUMMARY
Like other REITs that are included infurther align management’s objectives with the S&P 500 Index, in lightinterests of our size relative to four of the five REITs that we consider direct competitors, we look to a larger, more diverse peer group of publicly traded real estate companies for benchmarking executive compensation. The sixteen companies in this peer group are comparable to us in terms of total capitalization, which is the most relevant indicator of the complexity of managing real estate assets, capital, operations and talent for a company like ours, irrespective of property focus. See “– Benchmarking Peer Group and Compensation Advisor’s Role” beginning on page 48. We use the median (50th percentile) of this larger peer group as the beginning reference point, and the Compensation Committee then adjusts executive compensation based on corporate and individual performance relative to thepre-determined goals.
We continue to believe, and our investor outreach over the last few years has confirmed, that combining a quantitative and a qualitative assessment againstpre-established goals allows the Compensation Committee to strike the appropriate balance between short-term and long-term strategies in assessing management’s performance, by giving proper emphasis to objective results while also considering subjective factors, if and when applicable. Given the nature of our business and our long-term strategy, we do not rely on a strict formulaic framework for measuring performance against short-term goals to determine compensation awards for a particular year. However, onceThe Committee believes that combining a quantitative and a qualitative assessment againstpre-established goals allows it to:
• | evaluate management’s performance annually while taking into account our focus on value creation over the long-term and the difficulty of making comparisons to peers with shorter-term objectives (see “–III. Assessing Performance – Focus on Long-Term Value Creation”); |
Investor Outreach and Results of 2017“Say-on-Pay” Advisory Vote
The following is a snapshot of our investor outreach and the results of our recentSay-on-Pay votes:
In addition to our usual investor outreach, our Board invitedbuy-side and sell-side representatives to make presentations to our Board on the REIT capital markets, investing in REITs generally, and fund flows, as well as to provide commentary on our Company and its perception among analysts and investors.
BOSTON PROPERTIES, INC. |2018 Proxy Statement 31
COMPENSATION DISCUSSION AND ANALYSIS
I. EXECUTIVE SUMMARY
2017 Performance Highlights
In addition to management meeting or exceeding the set of corporate goals established at the beginning of the year, as detailed in “– III. Assessing Performance –2017 Corporate Goals” below, highlights of our 2017 performance include the following:
Ø | completed approximately 6.4 million square feet of leasing, including 2.5 million square feet for development properties; | |||
Ø | commenced development of six projects in 2017 totaling approximately 2.7 million square feet and committed to three additional development projects for an aggregate of 1.7 million square feet; | |||
Ø | increased diluted FFO per share by 3.2% from $6.03 to $6.22, which includes the unbudgeted loss from early extinguishment of debt of approximately $13.9 million, or $0.08 per share, resulting from the early redemption of our 3.700% unsecured senior notes due 2018; excluding this loss, our FFO per share increased by 4.5%; | |||
Ø | increased our regular quarterly dividend by $0.05 per share, or 6.7%, in the fourth quarter; | |||
Ø | reduced our overall borrowing costs, including an approximately $38.4 million decrease in interest expense, and extended our debt maturities by refinancing $850 million of 3.700% unsecured senior notes that were scheduled to mature in November 2018 with the proceeds from the issuance of $850 million of 3.200% unsecured senior notes maturing in January 2025; | |||
Ø | generated a total shareholder return (“TSR”) of 5.9% compared to 5.3% for the Cohen & Steers Realty Majors Index (“C&S Realty Index”) and 3.2% for the FTSE NAREIT Office Index (the “NAREIT Office Index”) (as adjusted); and | |||
Ø | ranked #2 among U.S. Office REITs in the 2017 Global Real Estate Sustainability Benchmark assessment and in the top 5% of global participants (with 88 out of 100 overall points) earning a “Green Star” recognition for the sixth consecutive year. |
Highlights of 2017 Compensation Decisions
The Committee concluded that the Company, led by its management team, had a strong year in 2017, noting, in particular, our achievements in leasing, execution of the key NOI drivers, development economics and development starts. (See “–III. Assessing Performance– 2017 Corporate Goals.”) In light of the objective and subjective assessments of performance relative to the corporate goals, performance against our Office Peers and individual performance, and reported and realized NEO compensation, the Committee determined to award 2017 total compensation for the NEOs, as a group, at a level that reflects an increase of approximately 11% over 2016 total compensation, which based on advice from FPL, the Committee expects will result in the total compensation awarded to our NEOs ranking slightly above the median of our Benchmarking Peer Group.
As part of its benchmarking review, FPL analyzed the allocation between performance-based and time-based LTIs and, for 2017, the Committee determined that it would be advisable to migrate over time to
32 BOSTON PROPERTIES, INC. |2018 Proxy Statement
COMPENSATION DISCUSSION AND ANALYSIS
I. EXECUTIVE SUMMARY
an allocation of LTI equity awards for the NEOs that is determined,closer to the structure50% - 50% mix of performance-based and time-based LTI equity awards that is widely accepted in the market and prevalent among our peers. The precise allocation will vary among different NEOs and from year to year based on circumstances. (See “–V. Alignment of Pay with Performance” beginning on page 49).
The following are highlights of 2017 compensation:
2017 Pay Highlights | ||||||
CEO: | ||||||
0% | 92% | 71% | 53% | |||
Change in base salary between 2016 - 2018 | Amount of pay that is variable and not guaranteed | Amount paid in equity with remaining 29% paid in cash | Amount ofTSR-based performance equity | |||
All NEOs (as a group): | ||||||
0% | 90% | 64% | 50% | |||
Change in base salaries between 2016 - 2018 | Amount of pay that is variable and not guaranteed | Amount paid in equity with remaining 36% paid in cash | Amount ofTSR-based performance equity |
BOSTON PROPERTIES, INC. |2018 Proxy Statement 33
COMPENSATION DISCUSSION AND ANALYSIS
II. | COMPENSATION GOVERNANCE |
The objectives of our executive compensation program are to attract, retain and reward executives who have the motivation, experience and skills to lead the Company and continue our long-term track record of profitability, growth and TSR. The following are the key features of our executive compensation program:
WHAT WE DO | ||
✓ | We use the median (50th percentile) of the Benchmarking Peer Group as the beginning reference point and the Committee then adjusts compensation based on a quantitative and qualitative review of corporate and individual performance. | |
✓ | The vast majority of total compensation (for 2017, more than 90%) is variable pay (i.e., not guaranteed) and salaries comprise a small portion of each NEO’s total compensation opportunity. | |
✓ | Variable pay is based on an assessment of annual performance compared to pre-established management goals, as well as a comparison of performance against other office-focused REITs in key metrics. | |
✓ | We align our NEOs with our long-term investors by awarding a significant percentage (approximately 50% in 2017) of compensation in the form of multi-year, performance-based equity awards that use relative TSR as the main metric. | |
✓ | We enhance executive officer retention with time-based, multi-year vesting schedules for equity incentive awards granted for prior-year performance. | |
✓ | We have “double-trigger” vesting for time-based equity incentive awards following a change of control. | |
✓ | We have a clawback policy that allows for the recovery of previously paid incentive compensation in the event of a financial restatement. | |
✓ | We have stock ownership guidelines for our executives and directors. | |
✓ | We engage an independent compensation consultant to advise the Committee, which is comprised solely of independent directors. |
WHAT WE DON’T DO | ||
Ð | We do not directly target compensation above the market median (50th percentile) of the Benchmarking Peer Group. | |
Ð | We do not provide our CEO, and, since 2014, we have not and will not in the future provide any new executive with tax gross-ups with respect to payments made in connection with a change of control. | |
Ð | We do not allow hedging or pledging of Company securities. | |
Ð | We do not encourage unnecessary or excessive risk taking as a result of our compensation policies; incentive compensation is not based on a single performance metric and we do not have guaranteed minimum payouts. | |
Ð | We do not allow for repricing of stock options. | |
Ð | We do not rely on a strict formulaic framework for measuring annual performance against goals to determine compensation. |
34 BOSTON PROPERTIES, INC. |2018 Proxy Statement
COMPENSATION DISCUSSION AND ANALYSIS
III. | ASSESSING PERFORMANCE |
Business Strategy
The core elements of our business strategy are:
Focus on Long-Term Value Creation
Execution of our strategy spans multiple markets with different economic drivers over long periods. Development projects, which are particularly important to our strategy, take time to identify, acquire, permit, construct, lease and stabilize. This strategy of creating value for investors is multifaceted and differs from that of many of our competitors in the office REIT segment, which makes direct comparisons difficult and underlies our less formulaic approach to assessing performance, as contrasted with a purely quantitative “actual versus target” framework.
We manage every aspect of our business with a focus on the long-term, including, among others, developments, redevelopments, leasing, balance sheet management and our employees. To cite one recent example among many, we opened and commenced recognizing revenue at our Salesforce Tower development project in San Francisco in the fourth quarter of 2017. Salesforce Tower is an approximately 1,400,000 square foot office skyscraper in the South of Market district of downtown San Francisco, and as of December 31, 2017, it was 97% leased. Standing 1,070 feet high, it is now the tallest building in the San Francisco skyline and, according to the Council on Tall Buildings, the second-tallest building west of the Mississippi River. Our involvement in the project began with the formation of a joint venture with Hines in 2012 at which time we acquired a 50% interest in the project, and then in 2013 we acquired most of Hines’ remaining interest to become 95% owners of the project. The construction of the building was challenging due in large part to its proximity to the Transbay Transit Center and its location on a land fill near San Francisco’s original waterfront, requiring an advanced design modeled to withstand the strongest earthquakes. Salesforce Tower also features10-feet high clear glass windows, 100% fresh outside air indoors, 5th floor access to a5.4-acre Salesforce Park to be built and the largeston-site water recycling system in a commercial high-rise building in the United States. We expect the income from Salesforce Tower to have a significant impact on our results of
BOSTON PROPERTIES, INC. |2018 Proxy Statement 35
COMPENSATION DISCUSSION AND ANALYSIS
III. ASSESSING PERFORMANCE
operations in 2019, which will be seven years since our initial involvement (Hines has been involved in the project since 2007), and we expect it to generate acash-on-cash yield of more than 7% upon stabilization. Other successful development projects have taken even longer. For example, it took more than 20 years to acquire, design, permit, construct andlease-up to stabilization 888 Boylston Street in Boston.
Redevelopment and repositioning of existing properties is also an important component of maintaining and enhancing the overall quality and long-term value of our portfolio. However, redevelopment and repositioning activity often has a short-term dilutive impact. When we remove from service all or a portion of a property for redevelopment or repositioning, we typically recognize less rental revenue while the space is vacant. For example, our repositioning activity at 159 East 53rd Street in New York City required that we terminate the leases of some tenants, which required payments to some of the tenants. Among other things, this can have a material negative impact on our same property results. However, we absorb the short-term negative impact because we believe investing in our assets to maintain and enhance the quality of our portfolio is in the best interest of shareholders. In addition to maintaining a full-service real estate platform and providing superior service to our tenants, our focus on long-term performance also involves management of liquidity, leverage ratios, interest-rate risk, capital commitments and debt maturities to reduce the impact of capital market volatility and provide us with the flexibility to take advantage of opportunities as they arise.
For all these reasons, we look at performance not only for the latest year and on a year-over-year basis, but also with a view to managing compensation to appropriately incentivize, compensate and retain our executives.
Direct Peer Competitors
In addition to assessing our performance against ourpre-established internal goals, the Committee also reviews our performance against the same metrics for the five Office Peers listed below (with their total capitalizations as of December 31, 2017 shown in parentheses) because they operate in markets and/or have assets similar to ours. Boston Properties’ total capitalization as of the same date was $34.5 billion (see “– VII. Benchmarking Peer Group and Compensation Advisor’s Role”).
Performance Metrics
We focus on key drivers of value creation such as leasing, development activity, new investments, growth in FFO per share, same property NOI growth, acquisitions/dispositions and balance sheet management. While the Committee is aware that different companies may calculate relevant performance metrics differently, the Committee finds it useful to compare our performance to what these other office REITs disclose for similar measures, even though information is not always directly comparable among companies.
The Committee believes that internal and external data are important tools in the design and implementation of optimal compensation programs and that benchmarking against peers provides the Committee with a market check of its compensation awards. Different sections of this CD&A discuss in
36 BOSTON PROPERTIES, INC. |2018 Proxy Statement
COMPENSATION DISCUSSION AND ANALYSIS
III. ASSESSING PERFORMANCE
detail the data on which the Committee relied to make sure that different elements of compensation align with our performance. In addition, the Committee utilizes its collective experiences and judgment when establishing the appropriate types and amounts of compensation.
Finally, because management roles change over time, both for individuals and within the executive team as a whole, the Committee considers each individual’s personal contributions to our organization, as well as his skill sets, qualifications and experience. We value and seek to reward performance that develops talent at all levels of our organization, promotes our culture of excellence, enhances our reputation and extends our track record of profitability and growth. For example, in 2017, the Committee took note of Mr. Thomas’ being recognized in 2017 as the #1 CEO in the REIT sector by sell-side analysts in an annual survey conducted byInstitutional Investor, and continued to bring his total compensation closer to the median for CEOs within the Benchmarking Peer Group. The Committee also recognized Mr. LaBelle’s continued effectiveness in managing our balance sheet and his being recognized in 2017 for the third year in a row as the #1 CFO overall in the REIT sector, and #2 bybuy-side analysts and sell-side analysts, in an annual survey conducted byInstitutional Investor.
2017 Corporate Goals
In early 2017, the Committee established for management a rigorous set of operational, capital and management goals that the Committee believed challenged management to perform for our investors. Whenever possible, the Committee bases its overall assessment as to whether a goal was “exceeded,” “met” or “not met” on both quantitative and qualitative factors. We believe that doing so allows the Committee to strike the right balance, by giving proper emphasis to objective results while also considering subjective factors. For the reasons discussed under “–Assessing Performance” above, we do not rely on a strict formulaic framework for measuring annual performance against goals to determine compensation. The Committee believes that:
BOSTON PROPERTIES, INC. |2018 Proxy Statement 37
COMPENSATION DISCUSSION AND ANALYSIS
III. ASSESSING PERFORMANCE
The summary table below lists the principal operational, capital and management goals for 2017 and the Committee’s overall assessment of management’s performance with respect to each. Although the Committee did not ascribe quantitative weights to the various goals, the goals in each category are listed such that those deemed most important are listed first.
2017 Goals | Overall Assessment | |
Operational Goals: | ||
Leasing | Exceeded | |
Key NOI Drivers | Met | |
Growth in Diluted FFO per Share | Met | |
Growth in Same Property NOI | Met | |
Growth in Same Property NOI – Cash | Met | |
General and Administrative Expense | Met | |
Capital Goals: | ||
Development Economics | Met | |
Development Starts | Exceeded | |
Development Deliveries | Met | |
New Investments | Met | |
Balance Sheet Management/Financings | Exceeded | |
Dispositions | Not Met | |
Entitlement | Not Met | |
Redevelopment | Met | |
Management Goals: | ||
Investor Relations | Exceeded |
Operational Goals
Ø | Leasing |
Why it is important: We generate revenue and cash primarily by leasing our operating and development properties. When making leasing decisions, we consider, among other things, the creditworthiness of the tenant, the term of the lease, the rental rate to be paid at inception and throughout the lease term, the costs of tenant improvements and other landlord concessions, current and anticipated operating expenses, real estate taxes, vacancy and expected future demand for the space, the impact of any expansion rights and general economic factors.
Quantitative Assessment:Following our successful leasing activity in 2016, we set an even more aggressive leasing goal for 2017 of 5.7 million square feet (of which 3.7 million square feet were in ourin-service portfolio and 2.0 million square feet were in our development properties). We exceeded the goal by leasing a total of 6.4 million square feet, or 14.5% of the total square footage in ourin-service portfolio. A total of 3.9 million square feet was in ourin-service portfolio and 2.5 million square feet was in our development portfolio. Both the total number of square feet leased and the total as a percentage of ourin-service portfolio were greater than all five of our Office Peers.
We also met our goals of achieving 90% - 91% occupancy for ourin-service portfolio and proactively managing future lease rollover. We accomplished this goal despite our decision to take some properties out of service for redevelopment, which had a short-term dilutive impact on our
38 BOSTON PROPERTIES, INC. |2018 Proxy Statement
COMPENSATION DISCUSSION AND ANALYSIS
III. ASSESSING PERFORMANCE
in-service portfolio occupancy rate and rental revenue, but is consistent with our long-term strategy. Our occupancy as of December 31, 2017 was less than four of the five Office Peers. We also completed a significant amount of early lease renewals and extensions, most notably in New York City.
Qualitative Assessment: Following the record amount of leasing we achieved in 2016, we set an aggressive leasing goal for 2017, which management not only achieved, but surpassed by an additional 0.7 million square feet.
Overall Assessment: Goal exceeded.
Ø | Key NOI Drivers |
Why it is important: Our current strategy to drive future growth is to invest primarily in higher yielding new developments with significantpre-leasing commitments and in redevelopment opportunities, rather than lower yielding acquisitions of stabilized assets for which demand and pricing remain aggressive. Consistent with this strategy, beginning in 2015 we removed all or portions of some of our properties from service for redevelopment or repositioning, despite the near-term dilutive impact. In light of the significant amount of development and redevelopment projects, and the loss of occupancy and the dilutive impact of removing properties from service, management outlined for investors our plan to achieve incremental growth of approximately $352 million (including $242 million from development properties and $110 million from other key assets) in our share of annualized net operating income by 2020. The Key NOI Drivers goal is the manner by which the Committee assesses progress against the “bridge” in the years leading up to 2020.
Quantitative Assessment: In addition to the overall leasing goal discussed above, we set specific goals to lease an aggregate of approximately 1.2 million square feet of space at eight assets and renew our lease with Aramis (Estée Lauder) at 767 Fifth Avenue (the General Motors Building) in 2017. As of December 31, 2017, we had signed leases for approximately 1.5 million square feet, with another 29,000 square feet under letters of intent, and signed a lease renewal and subsequent lease expansion with Aramis for an aggregate of 300,000 square feet. In addition, as of December 31, 2017, we hadpre-leased 81% of the space in the development projects underlying our goal, representing an aggregate of approximately 6.2 million square feet.
Qualitative Assessment: In light of the successful leasing progress noted above, the Committee concluded that management successfully executed our strategy in 2017 and met this goal.
Overall Assessment: Goal met.
Ø | Growth in Diluted FFO per Share |
Why it is important: FFO is anon-GAAP financial measure that, when combined with the presentation of required GAAP financial measures, has improved the understanding of operating results of REITs among the investing public and has helped make comparisons of REIT operating results more meaningful. Management generally considers FFO and FFO per share to be useful measures for understanding and comparing our operating results because, by excluding gains and losses related to sales of previously depreciated operating real estate assets, impairment losses and real estate asset depreciation and amortization (which can differ across owners of similar assets in similar condition based on historical cost accounting and useful life estimates), FFO and FFO per share can help investors compare the operating performance of a company’s real estate across reporting periods and to the operating performance of other companies. Our computation of FFO may not be comparable to FFO reported by other REITs or real estate companies that do not define the term in accordance with the current NAREIT definition or that interpret the current NAREIT definition differently.
BOSTON PROPERTIES, INC. |2018 Proxy Statement 39
COMPENSATION DISCUSSION AND ANALYSIS
III. ASSESSING PERFORMANCE
Quantitative Assessment: Our goal was to exceed the midpoint of our diluted FFO guidance range of $6.05 to $6.23 (excluding the impact of any acquisitions and dispositions). This target range equated to 1.2% to 4.2% projected growth over 2016.
Our actual 2017 diluted FFO per share was $6.22, which includes the unbudgeted loss on extinguishment of debt of $0.08 per share resulting from the early redemption in December 2017 of $850 million of 3.700% unsecured senior notes that were scheduled to mature in November 2018. Excluding the loss, our diluted FFO per share would have been $6.30, or $0.07 greater than the high end of the guidance range set at the beginning of the year.
Our 3.2% year-over-year growth in diluted FFO per share was greater than three of the five Office Peers. (Refer to pages 96 through 100 of our Annual Report on Form10-K for information relating to the calculation of FFO and diluted FFO.)
Qualitative Assessment: Management successfully executed our strategy in 2017 and delivered performance that exceeded the goal.
Overall Assessment: Goal met.
Ø | Growth in Same Property NOI |
Why it is important: Same Property NOI reflects the combined impact of trends in occupancy rates, rental rates and operating costs on an unleveraged basis, providing perspective on the performance of our Same Property portfolio across fiscal periods which are not immediately apparent from net income.
Quantitative Assessment: Our goal for year-over-year growth in our share of Same Property NOI (excluding termination income) was a 2.0% - 3.5% increase. We met the goal with a 2.5% increase. The growth in our share of Same Property NOI (excluding termination income) was greater than two of the five Office Peers. (Refer to Appendix A to this proxy statement for reconciliations and other information regarding our share of Same Property NOI (excluding termination income) for the fiscal years ended December 31, 2017 and 2016, respectively.)
Qualitative Assessment: Management successfully executed our strategy in 2017 and delivered performance that met the goal.
Overall Assessment: Goal met.
Ø | Growth in Same Property NOI – Cash |
Why it is important: Same Property NOI – Cash allows investors to compare the performance of our Same Property portfolio across periods without taking into account the effects of straight-lining rent, fair value lease revenue, straight-lined ground rent expense and certain lease transaction costs that qualify as rent inducements.
Quantitative Assessment: Our goal for year-over-year growth in our share of Same Property NOI (excluding termination income) – Cash was a 2.0% - 4.0% increase. Our year-over-year growth was 1.5%, which was below four of the five Office Peers. (Refer to Appendix A to this proxy statement for reconciliations and other information regarding our share of Same Property NOI (excluding termination income) – Cash for the fiscal years ended December 31, 2017 and 2016, respectively.)
Qualitative Assessment: During 2017, we voluntarily entered into early lease terminations with a number of tenants that effectively resulted in the conversion of all or a portion of the remaining contractual rental revenue to termination income, which we exclude from our calculation of NOI. This shift in rental revenue to termination income resulted in growth that was short of the stated goal. Early lease terminations are not unique events, but we agreed to the terminations because
40 BOSTON PROPERTIES, INC. |2018 Proxy Statement
COMPENSATION DISCUSSION AND ANALYSIS
III. ASSESSING PERFORMANCE
on a net present value basis, the termination income plus anticipated replacement rental revenue (and, in some cases, any anticipated additional term) was greater than the rental revenue under the leases. The Committee believes these decisions were in the best long-term interests of our investors and thus concluded that management successfully executed our strategy in 2017 and met the goal.
Overall Assessment: Goal met.
Ø | General and Administrative Expense |
Why it is important:To understand our expense base, of which executive compensation is a meaningful line item, our Committee assesses our management of G&A expense by determining its percentage of total revenue.
Quantitative Assessment: Our goal was to manage G&A expense (excluding transaction expenses) to approximately $108 - $114 million. Our actual 2017 G&A expense was approximately $113.7 million (an 8.3% increase from 2016), which represents approximately 4.4% of our total revenue for 2017. We also managed our G&A expense to a smaller percentage of total revenue than all five Office Peers.
Overall Assessment: Goal met.
Capital Goals
Ø | Development Economics |
Why it is important: The success of our development projects and realization of our plans for growth depend on the stabilized unleveraged cash yields we generate.
Quantitative Assessment: One of our goals was to deliver the 888 Boylston Street development project and the Reservoir Place North redevelopment project on or below budget, which was an aggregate of $290 million, producing favorable yields. The actual costs for both projects totaled $290 million. Thecash-on-cash return for 888 Boylston Street was approximately 9.3% on a stabilized basis, exceeding management’s anticipated yield of 8.5%. Reservoir Place North, a 73,000 square foot redevelopment has not yet been leased. Upon stabilization, we expect 888 Boylston Street and Reservoir Place North to deliver a weighted-average, unleveragedcash-on-cash return of approximately 9.1%, which is more than 200 basis points greater than our target return for office developments.
Qualitative Assessment: In executing our strategy, management believes that, in general, the best use of our capital at this time is investing in new development activity and our ability to deliver development projects with unleveraged initial cash yields of approximately 7% is a product of our execution. In this current market, existing leased assets are selling at cap rates in the 4% range, so our development investments have significant projected imbedded value creation and are projected to drive our earnings growth over the next few years. Although Reservoir Place North, a relatively small space, remains unleased, the Committee concluded that management successfully executed our strategy in 2017 with the successful delivery of 888 Boylston Street and management therefore met the goal.
Overall Assessment: Goal met.
Ø | Development Starts |
Why it is important: Development starts are a useful indicator of future external growth, and they help us assess our ability to identify, underwrite and acquire new land parcels and air rights, secure lead tenants, obtain financing and/or joint venture partners, and commence construction of the building.
BOSTON PROPERTIES, INC. |2018 Proxy Statement 41
COMPENSATION DISCUSSION AND ANALYSIS
III. ASSESSING PERFORMANCE
Quantitative Assessment: Our goal was to start development at 145 Broadway in Cambridge, Massachusetts, a 475,000 square foot development with a budget of $375 million. In addition to meeting the goal by commencing development at 145 Broadway, we started five other developments in 2017, easily exceeding our goal. Specifically, we commenced development at:
When delivered, we expect these properties will total approximately 2.7 million square feet, which is more than five times the goal set for 2017. As of December 31, 2017, we had a weighted-average of 94%pre-leased for the four office development projects that commenced. Our development starts have an aggregate development budget (our share) of approximately $1.4 billion and represent approximately 6.1% of gross asset value, both of which are greater than all five Office Peers.
Qualitative Assessment: We expect that development will remain a key component of our strategy. Our development activity remains active with many newpre-leased projects either committed to or under pursuit. Committed to, but not yet commenced developments in the pipeline include 2100 Pennsylvania Avenue in Washington, DC, 17Fifty Presidents Street in Reston, Virginia, and Reston Gateway in Reston, Virginia, together representing 1.7 million square feet and approximately $1.2 billion in investment. As of December 31, 2017, we had approximately 6.2 million square feet under construction and redevelopment, including eight office and retail projects with a development budget (our share) of approximately $2.6 billion, and four residential projects with a development budget of approximately $792 million. In addition, we have a total of approximately 1.7 million square feet in our entitled future development pipeline, and an estimated 10.1 million square feet of future development projects in the entitlement process.
Overall Assessment: Goal exceeded.
Ø | Development Deliveries |
Why it is important: Development deliveries measure our ability to execute our development pipeline on time and within budget.
Quantitative Assessment: Our goal was to deliver two development projects totaling approximately 438,000 square feet with an aggregate development budget of approximately $309 million, which represents 1.3% of gross asset value. We met the goal by fully placingin-service 888 Boylston Street in Boston, Massachusetts, totaling approximately 417,000 square feet at a total cost of approximately $265 million, and delivering Reservoir Place North, a 73,000 square foot redevelopment in Waltham, Massachusetts at a total cost of $25 million, for a total of 490,000 square feet and an aggregate cost of $290 million. Our 2017 development deliveries met our goal of approximately 1.3% of gross asset value, a greater percentage than four of the five Office Peers.
Qualitative Assessment: Taken as a whole, management delivered 490,000 square feet of development space in 2017, which was 52,000 square feet, or 12%, greater than the goal. Upon stabilization, we expect 888 Boylston Street and Reservoir Place North to deliver a weighted-average, unleveragedcash-on-cash return of approximately 8.7%, which is greater than our target return for office developments of 7.0%.
42 BOSTON PROPERTIES, INC. |2018 Proxy Statement
COMPENSATION DISCUSSION AND ANALYSIS
III. ASSESSING PERFORMANCE
Overall Assessment: Goal met.
Ø | New Investments |
Why it is important: Active participation in new investments sustains our market-leading position and growth prospects, and new partnerships validate our strong reputation as a preeminent owner and developer.
Quantitative Assessment: Our goals were to make select acquisitions depending on market conditions, with a focus on opportunities in the Los Angeles market, and complete three new investments from a list of potential transactions that we were pursuing at the beginning of 2017. In 2017, market conditions in the private real estate equity market declined as office sale transaction volume decreased by 25% by the end of 2017 when compared to 2016. Due to these conditions, we did not complete any of the specified acquisitions included in this goal in 2017, but will continue to evaluate opportunities as they arise. For 2017, three of the five Office Peers invested a greater percentage of gross asset value percentage than we did.
Despite the market conditions, we made two new key investments in 2017: a 740,000 square foot building at 7750 Wisconsin Avenue in Bethesda, Maryland, which is fully leased to Marriott International to serve as its headquarters, and a 634,000 square foot development at 6595 Springfield Center Drive in Springfield, Virginia, fully leased by the TSA to serve as its headquarters. These two developments total approximately $525 million (our share) in new investment.
Qualitative Assessment: We remain committed to growing our presence and portfolio in Los Angeles and, in 2017, underwrote numerous opportunities in the market. However, due to pricing challenges, we decided not to proceed with them. We have been executing on our strategy to develop office properties at higher yields rather than acquire assets at lower yields as evidenced by thepre-leased projects launched in 2017 with anticipated unlevered initial cash yields of approximately 7%. Management remains disciplined in its underwriting of opportunities and will continue to do so as we look to grow. In addition to securing the Marriott and TSA investments, management has committed to approximately 1.7 million square feet and $1.2 billion in new investment.
Overall Assessment: Goal met.
Ø | Balance Sheet Management/Financings |
Why it is important: A strong balance sheet and superior access to capital help us minimize debt finance costs, enable us to act quickly on opportunistic investments and better manage our debt maturities to reduce the impact of capital market volatility.
Quantitative Assessment: In 2017, management excelled in its execution of our strategy to manage near-term debt maturities and maintain a conservative balance sheet. In April 2017, we amended and restated our credit facility, which increased the total commitment to an aggregate of $2.0 billion, reduced the variable interest rates and extended the maturity from July 2018 to April 2022. Included in the refinancing was the addition of a $500 million delayed-draw term loan facility. Also, in December 2017, we completed a public offering of $850 million in aggregate principal amount of 3.200% unsecured senior notes due 2025, the proceeds of which were used to redeem $850 million in aggregate principal amount of our 3.700% unsecured senior notes scheduled to mature in November 2018. This had the effect of reducing our borrowing costs and extending our debt maturities. Taken as whole, our financing activities in 2017 resulted in a decrease in interest expense of approximately $38.4 million compared to 2016 and extended the weighted-average maturity of our debt to 6.4 years from 5.0 years at the end of 2016.
BOSTON PROPERTIES, INC. |2018 Proxy Statement 43
COMPENSATION DISCUSSION AND ANALYSIS
III. ASSESSING PERFORMANCE
In addition, we completed significant financings for two of our joint venture properties. In June 2017, an entity in which we own a 60% interest completed a refinancing of a mortgage secured by interests in 767 Fifth Avenue (The General Motors Building), resulting in a $2.3 billion mortgage bearing interest at a fixed interest rate of 3.43% per annum and maturing in June 2027. This represented the largest loan secured by a single asset in United States history. Also, in July 2017, the entity in which we own a 50% interest in Colorado Center obtained a mortgage loan for $550 million. The mortgage loan bears interest at a fixed rate of 3.56% per annum and matures in August 2027.
Qualitative Assessment: In 2017, we completed an aggregate of $5.9 billion in debt financing and refinancing activity, preserving a strong balance sheet to maintain consistent access to capital and the flexibility to make opportunistic investments. The Committee concluded that management executed our strategy with great success in 2017 and exceeded the goal.
Overall Assessment: Goal exceeded.
Ø | Dispositions |
Why it is important: The disposition ofnon-core assets allows us to better leverage the properties in our portfolio. In addition, older buildings require relatively greater operating costs and capital expenditures than new buildings, so we believe a consistent review of our portfolio and the future growth opportunities of the properties therein is an important component of our overall strategy.
Quantitative Assessment: Our goal was $200 million in asset dispositions, depending on market conditions. During 2017, we completed $31 million in sales ofnon-core assets. We recognized a total gain of approximately $6.6 million. Our 2017 percentage of gross asset value from dispositions was lower than four of the five Office Peers.
Qualitative Assessment: Our disposition activity in 2017 was relatively low and is a result of our strategy to sell onlynon-core assets or assets with lower growth profiles. It is also important to note that as of December 31, 2017, we were also under contract or had signed letters of intent to sell two assets totaling $149 million, one of which closed in early January 2018.
Overall Assessment: Goal not met.
Ø | Entitlement |
Why it is important: Obtaining the necessary entitlements and permits is an essential component to the execution of our development and redevelopment pipelines.
Quantitative Assessment: Our goals were to (1) obtain the remaining entitlements and/or complete the development plans for five projects and (2) advance the development plans for five projects. We obtained the necessary entitlements for the three of the five projects, including the Reston Eastgate land parcel in Reston, Virginia that was sold in 2017, we commenced development of a402-unit residential building and supporting retail space at the MacArthur Station residences in Oakland, California, and we completed the development plan for 501 K Street in Washington, DC. In addition, we advanced our development plans at each of the five properties that comprised the goal. Among other things, we entered into lease agreements with tenants, but had not yet commenced development, at 2100 Pennsylvania Avenue in Washington, DC, 17Fifty Presidents Street in Reston, Virginia, and Reston Gateway in Reston, Virginia, together representing 1.7 million square feet and $1.2 billion in investment.
Qualitative Assessment: Although management made significant progress in 2017, there are elements of our business that are not within our control that prevented us from completing a number of the projects outlined at the beginning of 2017. While we remain focused on obtaining
44 BOSTON PROPERTIES, INC. |2018 Proxy Statement
COMPENSATION DISCUSSION AND ANALYSIS
III. ASSESSING PERFORMANCE
these entitlements so that we have more control over the timing of when to commence construction of these projects, the Committee concluded that management did not meet this goal.
Overall Assessment: Goal not met.
Ø | Redevelopment |
Why it is important: Redevelopment of existing properties is important in maintaining the overall high quality of our assets, and repositioning can better position specific properties for competition.
Qualitative Assessment: Our goal was to make progress on four of our properties identified as redevelopment opportunities. We’ve finalized plans for two of the properties. The other two properties are slated for lobby renovations with one project underway and the other awaiting local city approval.
Overall Assessment: Goal met.
Management Goals
Ø | Investor Relations |
Why it is important: A complex, long-term strategy like ours requires regular interaction with thebuy-side and sell-side analysts, as well as significant investors in our stock, particularly because it differs from that of many of our peers in the office sector. Producing clear and concise presentations for investors in a variety of forums helps us differentiate Boston Properties in the REIT sector.
Qualitative Assessment: During 2017, management continued to enhance our investor communications strategy, including conducting threenon-deal road-shows, two of which were outside of the United States, with a particular focus onnon-REIT dedicated and underweight investors. In October 2017, we held an investor conference attended by over 200 industry professionals from which we received positive feedback.
Overall Assessment: Goal exceeded.
BOSTON PROPERTIES, INC. |2018 Proxy Statement 45
COMPENSATION DISCUSSION AND ANALYSIS
IV. | PERFORMANCE-BASED EQUITY AWARDS; THREE-YEAR TSR DRIVES ACTUAL EARNED PAY |
Multi-Year Long-Term Incentive Program (MYLTIP)
Management’s performance against operational, capital and management goals drives the Committee’s annual compensation awards. What our NEOs actually earn is driven to a significant extent by our TSR through LTI awards under a rigorous performance-based program utilizes(our Multi-Year Long-Term Incentive Program, or “MYLTIP”). MYLTIP awards incorporate a formulaic systemlink to determine how much performance-based equityour relative TSR over three-year overlapping measurement periods.
Because we are the largest dedicated office REIT, our performance is ultimatelymost closely correlated with both the larger U.S. REITs and office-focused companies. Therefore, consistent with the 2017 MYLTIP, the 2018 MYLTIP design is built on a comparison of our TSR against (1) the C&S Realty Index, which reflects many of the largest andbest-in-class REITs, and (2) the NAREIT Office Index (which includes Boston Properties and is adjusted to include Vornado Realty Trust because it is one of the five Office Peers despite being categorized as a diversified REIT by FTSE NAREIT), which contains all other listed office REITs. MYLTIP awards include modifiers that potentially penalize management for low absolute TSR and reward management for high absolute TSR over the entire measurement period. If our annualized TSR is less than 0%, earned awards will be reduced by 20% from what they would be based on relative TSR alone. If our annualized TSR is more than 12%, then awards will be earned at the conclusion“threshold” (50% of target value) level even if, based on relative TSR alone, awards would be earned at a forward looking, three-yearlower level.One-half of any earned awards vest at the end of the performance measurement period. The remainingone-half is subject to one additional year of time-based vesting. Vesting is accelerated under certain circumstances. (See “– IX. Other Compensation Policies – Double-Trigger Acceleration of Vesting of Equity Awards upon a Change of Control” beginning on page 54.)
For 2018 MYLTIP awards, levels of payout opportunity range from zero to 200% of target value, on a straight-line basis, depending on relative TSR performance compared to each of the C&S Realty Index and NAREIT Office Index (as adjusted) as follows:
The Compensation Committee believes that this performance-based executivethe MYLTIP design provides management with quantifiable incentives that (i) span an appropriate, symmetrical range of relative TSR performance aligned with historical volatility in the REIT sector compared to our actual performance, (ii) will keep our management motivated over the entire three-year measurement period and (iii) reward management within a rigorouspay-for-performance philosophy. Based on advice from FPL, the Committee believes that the MYLTIP design is competitive as compared with current market practice in the REIT industry for similar plans and provides an appropriate risk-rewardtrade-off.
46 BOSTON PROPERTIES, INC. |2018 Proxy Statement
COMPENSATION DISCUSSION AND ANALYSIS
IV. PERFORMANCE-BASED EQUITY AWARDS; THREE-YEAR TSR DRIVES ACTUAL EARNED PAY
Status of MYLTIP Awards
The following summarizes the performance periods and outcomes of our 2013-2015 MYLTIP plans, all of which have ended, and the interim valuations as of December 31, 2017 for our 2016-2017 MYLTIP plans, in each case, based on calculations prepared by our valuation expert.
(1) | Percentages shown are estimates as of December 31, 2017, based on interim valuations performed by a valuation expert (which could change up or down over the balance of the respective measurement periods). |
BOSTON PROPERTIES, INC. |2018 Proxy Statement 47
COMPENSATION DISCUSSION AND ANALYSIS
IV. PERFORMANCE-BASED EQUITY AWARDS; THREE-YEAR TSR DRIVES ACTUAL EARNED PAY
Reported vs. Realized Pay
The Committee is cognizant that a direct correlation does not exist between the successful execution of our long-term strategy, as demonstrated year after year through the achievement of goals set for management, and our TSR, particularly on a relative basis. This is particularly true when TSR is compared over a limited period of time. For example, for the most recent 2015 MYLTIP program, Mr. Thomas earned $950,039, or 22% of the target value for those awards, and all NEOs as a group earned $2,634,349, or 22% of the target value for those awards. The following graph shows for our CEO (1) the reported value of the MYLTIP awards as of the respective grant dates, (2) the maximum payout opportunity that could have been earned under each plan based primarily on relative TSR performance, and (3) the actual realized pay for the 2013-2015 MYLTIP awards for which the measurement periods have ended, as well as interim valuations as of December 31, 2017 for the 2016 and 2017 MYLTIP awards:
2013 MYLTIP | 2014 MYLTIP | 2015 MYLTIP | Total (2013-2015) | 2016 MYLTIP | 2017 MYLTIP | |||||||||||||||||||
Reported Pay | $ | 1,125,000 | $ | 2,826,563 | $ | 4,145,625 | $ | 8,097,188 | $ | 5,000,000 | $ | 5,150,000 | ||||||||||||
Target Value | $ | 2,045,454 | $ | 2,884,247 | $ | 4,318,359 | $ | 9,248,060 | $ | 5,681,818 | $ | 6,204,819 | ||||||||||||
Maximum Payout Opportunity | $ | 6,136,362 | $ | 8,652,742 | $ | 10,795,898 | $ | 25,585,003 | $ | 14,204,545 | $ | 12,409,639 | ||||||||||||
Realized Pay | $ | 2,239,772 | $ | 798,257 | $ | 950,039 | $ | 3,988,068 | $ | 2,443,182 | (1) | $ | 2,854,217 | (1) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Payout as % of Target | 109% | 28% | 22% | 43% | 43% | (1) | 46% | (1) |
(1) | Amounts and percentages shown are estimated values for our CEO as of December 31, 2017, based on interim valuations performed by our valuation expert (which could change up or down over the balance of the respective measurement periods). |
48 BOSTON PROPERTIES, INC. |2018 Proxy Statement
COMPENSATION DISCUSSION AND ANALYSIS
V. | ALIGNMENT OF PAY WITH PERFORMANCE |
Based on the goal assessments, FPL’s benchmarking analysis and projections for compensation program,increases and decreases among our peers and the market generally, and other input received from FPL, the Committee decided that 2017 total compensation for the NEOs, as a group, should be set at a level that reflects an increase of approximately 11% over 2016 total compensation, with a view to retention and providing incentives aligned with the substantial componentsbest long-term interests of variable paythe Company and“at-risk” equity awards linked to the Company’s future total stockholder return (“TSR”), as described below, is well-aligned with our stockholders’ interests and in line with peer companies. its stockholders.
Variable Pay MixAssessing Performance” above, we do not rely on a strict formulaic framework for measuring annual performance against goals to determine compensation. The Committee believes that:
The vast majority
Majority of CompensationBOSTON PROPERTIES, INC. “At-Risk”| in TSR Performance-Based Equity Awards2018 Proxy Statement 37
COMPENSATION DISCUSSION AND ANALYSIS
For 2016, the ratios of TSR performance-based equity awards to time-based equity awards were (1) 75.0% performance-based and 25.0% time-based for our CEO and (2) approximately 66.3% performance-based and 33.7% time-based for all other NEOs as a group. See “– Alignment of Pay with Performance” beginning on page 43.
For performance-based equity awards the Compensation Committee relies on a rigorous program that uses relative TSR over three-year measurement periods as the main metric. This component of executive compensation aligns a significant portion of what our management actually earns over time with the Company’s multi-year TSR performance compared to two different indices, the Cohen & Steers Realty Majors Index (“C&S Realty Index”) (50%) and the FTSE NAREIT Office Index (the “NAREIT Office Index”) (as adjusted, 50%). See “– Majority of Compensation Awards are in TSR Performance-Based Equity Awards; Three-Year TSR Drives Actual Earned Pay” beginning on page 40.III. ASSESSING PERFORMANCE
30The summary table below lists the principal operational, capital and management goals for 2017 and the Committee’s overall assessment of management’s performance with respect to each. Although the Committee did not ascribe quantitative weights to the various goals, the goals in each category are listed such that those deemed most important are listed first.
2017 Goals | Overall Assessment | |
Operational Goals: | ||
Leasing | Exceeded | |
Key NOI Drivers | Met | |
Growth in Diluted FFO per Share | Met | |
Growth in Same Property NOI | Met | |
Growth in Same Property NOI – Cash | Met | |
General and Administrative Expense | Met | |
Capital Goals: | ||
Development Economics | Met | |
Development Starts | Exceeded | |
Development Deliveries | Met | |
New Investments | Met | |
Balance Sheet Management/Financings | Exceeded | |
Dispositions | Not Met | |
Entitlement | Not Met | |
Redevelopment | Met | |
Management Goals: | ||
Investor Relations | Exceeded |
Operational Goals
Ø | Leasing |
Why it is important: We generate revenue and cash primarily by leasing our operating and development properties. When making leasing decisions, we consider, among other things, the creditworthiness of the tenant, the term of the lease, the rental rate to be paid at inception and throughout the lease term, the costs of tenant improvements and other landlord concessions, current and anticipated operating expenses, real estate taxes, vacancy and expected future demand for the space, the impact of any expansion rights and general economic factors.
Quantitative Assessment:Following our successful leasing activity in 2016, we set an even more aggressive leasing goal for 2017 of 5.7 million square feet (of which 3.7 million square feet were in ourin-service portfolio and 2.0 million square feet were in our development properties). We exceeded the goal by leasing a total of 6.4 million square feet, or 14.5% of the total square footage in ourin-service portfolio. A total of 3.9 million square feet was in ourin-service portfolio and 2.5 million square feet was in our development portfolio. Both the total number of square feet leased and the total as a percentage of ourin-service portfolio were greater than all five of our Office Peers.
We also met our goals of achieving 90% - 91% occupancy for ourin-service portfolio and proactively managing future lease rollover. We accomplished this goal despite our decision to take some properties out of service for redevelopment, which had a short-term dilutive impact on our
38 BOSTON PROPERTIES, INC. | 20172018 Proxy Statement
COMPENSATION DISCUSSION AND ANALYSIS
III. ASSESSING PERFORMANCE
in-service portfolio occupancy rate and rental revenue, but is consistent with our long-term strategy. Our occupancy as of December 31, 2017 was less than four of the five Office Peers. We also completed a significant amount of early lease renewals and extensions, most notably in New York City.
Qualitative Assessment: Following the record amount of leasing we achieved in 2016, Executive Compensation Decisionswe set an aggressive leasing goal for 2017, which management not only achieved, but surpassed by an additional 0.7 million square feet.
Overall Assessment: Goal exceeded.
Ø | Key NOI Drivers |
Why it is important: Our current strategy to drive future growth is to invest primarily in higher yielding new developments with significantpre-leasing commitments and in redevelopment opportunities, rather than lower yielding acquisitions of stabilized assets for which demand and pricing remain aggressive. Consistent with this strategy, beginning in 2015 we removed all or portions of some of our properties from service for redevelopment or repositioning, despite the near-term dilutive impact. In light of the significant amount of development and redevelopment projects, and the loss of occupancy and the dilutive impact of removing properties from service, management outlined for investors our plan to achieve incremental growth of approximately $352 million (including $242 million from development properties and $110 million from other key assets) in our share of annualized net operating income by 2020. The Key NOI Drivers goal is the manner by which the Committee assesses progress against the “bridge” in the years leading up to 2020.
Quantitative Assessment: In addition to the overall leasing goal discussed above, we set specific goals to lease an aggregate of approximately 1.2 million square feet of space at eight assets and renew our lease with Aramis (Estée Lauder) at 767 Fifth Avenue (the General Motors Building) in 2017. As of December 31, 2017, we had signed leases for approximately 1.5 million square feet, with another 29,000 square feet under letters of intent, and signed a lease renewal and subsequent lease expansion with Aramis for an aggregate of 300,000 square feet. In addition, as of December 31, 2017, we hadpre-leased 81% of the space in the development projects underlying our goal, representing an aggregate of approximately 6.2 million square feet.
Qualitative Assessment: In light of the successful leasing progress noted above, the Committee concluded that management successfully executed our strategy in 2017 and met this goal.
Overall Assessment: Goal met.
Ø | Growth in Diluted FFO per Share |
Why it is important: FFO is anon-GAAP financial measure that, when combined with the presentation of required GAAP financial measures, has improved the understanding of operating results of REITs among the investing public and has helped make comparisons of REIT operating results more meaningful. Management generally considers FFO and FFO per share to be useful measures for understanding and comparing our operating results because, by excluding gains and losses related to sales of previously depreciated operating real estate assets, impairment losses and real estate asset depreciation and amortization (which can differ across owners of similar assets in similar condition based on historical cost accounting and useful life estimates), FFO and FFO per share can help investors compare the operating performance of a company’s real estate across reporting periods and to the operating performance of other companies. Our computation of FFO may not be comparable to FFO reported by other REITs or real estate companies that do not define the term in accordance with the current NAREIT definition or that interpret the current NAREIT definition differently.
BOSTON PROPERTIES, INC. |2018 Proxy Statement 39
COMPENSATION DISCUSSION AND ANALYSIS
III. ASSESSING PERFORMANCE
Quantitative Assessment: Our goal was to exceed the midpoint of our diluted FFO guidance range of $6.05 to $6.23 (excluding the impact of any acquisitions and dispositions). This target range equated to 1.2% to 4.2% projected growth over 2016.
Our actual 2017 diluted FFO per share was $6.22, which includes the unbudgeted loss on extinguishment of debt of $0.08 per share resulting from the early redemption in December 2017 of $850 million of 3.700% unsecured senior notes that were scheduled to mature in November 2018. Excluding the loss, our diluted FFO per share would have been $6.30, or $0.07 greater than the high end of the guidance range set at the beginning of the year.
Our 3.2% year-over-year growth in diluted FFO per share was greater than three of the five Office Peers. (Refer to pages 96 through 100 of our Annual Report on Form10-K for information relating to the calculation of FFO and diluted FFO.)
Qualitative Assessment: Management successfully executed our strategy in 2017 and delivered performance that exceeded the goal.
Overall Assessment: Goal met.
Ø | Growth in Same Property NOI |
Why it is important: Same Property NOI reflects the combined impact of trends in occupancy rates, rental rates and operating costs on an unleveraged basis, providing perspective on the performance of our Same Property portfolio across fiscal periods which are not immediately apparent from net income.
Quantitative Assessment: Our goal for year-over-year growth in our share of Same Property NOI (excluding termination income) was a 2.0% - 3.5% increase. We met the goal with a 2.5% increase. The Compensationgrowth in our share of Same Property NOI (excluding termination income) was greater than two of the five Office Peers. (Refer to Appendix A to this proxy statement for reconciliations and other information regarding our share of Same Property NOI (excluding termination income) for the fiscal years ended December 31, 2017 and 2016, respectively.)
Qualitative Assessment: Management successfully executed our strategy in 2017 and delivered performance that met the goal.
Overall Assessment: Goal met.
Ø | Growth in Same Property NOI – Cash |
Why it is important: Same Property NOI – Cash allows investors to compare the performance of our Same Property portfolio across periods without taking into account the effects of straight-lining rent, fair value lease revenue, straight-lined ground rent expense and certain lease transaction costs that qualify as rent inducements.
Quantitative Assessment: Our goal for year-over-year growth in our share of Same Property NOI (excluding termination income) – Cash was a 2.0% - 4.0% increase. Our year-over-year growth was 1.5%, which was below four of the five Office Peers. (Refer to Appendix A to this proxy statement for reconciliations and other information regarding our share of Same Property NOI (excluding termination income) – Cash for the fiscal years ended December 31, 2017 and 2016, respectively.)
Qualitative Assessment: During 2017, we voluntarily entered into early lease terminations with a number of tenants that effectively resulted in the conversion of all or a portion of the remaining contractual rental revenue to termination income, which we exclude from our calculation of NOI. This shift in rental revenue to termination income resulted in growth that was short of the stated goal. Early lease terminations are not unique events, but we agreed to the terminations because
40 BOSTON PROPERTIES, INC. |2018 Proxy Statement
COMPENSATION DISCUSSION AND ANALYSIS
III. ASSESSING PERFORMANCE
on a net present value basis, the termination income plus anticipated replacement rental revenue (and, in some cases, any anticipated additional term) was greater than the rental revenue under the leases. The Committee directed its independent advisor, FPL Associates L.P. (“FPL”), to, among other things: (1) benchmarkbelieves these decisions were in the best long-term interests of our 2015investors and thus concluded that management successfully executed our strategy in 2017 and met the goal.
Overall Assessment: Goal met.
Ø | General and Administrative Expense |
Why it is important:To understand our expense base, of which executive compensation againstis a meaningful line item, our benchmarking peer groupCommittee assesses our management of G&A expense by determining its percentage of total revenue.
Quantitative Assessment: Our goal was to manage G&A expense (excluding transaction expenses) to approximately $108 - $114 million. Our actual 2017 G&A expense was approximately $113.7 million (an 8.3% increase from 2016), which represents approximately 4.4% of our total revenue for 2017. We also managed our G&A expense to a smaller percentage of total revenue than all five Office Peers.
Overall Assessment: Goal met.
Capital Goals
Ø | Development Economics |
Why it is important: The success of our development projects and assistrealization of our plans for growth depend on the stabilized unleveraged cash yields we generate.
Quantitative Assessment: One of our goals was to deliver the 888 Boylston Street development project and the Reservoir Place North redevelopment project on or below budget, which was an aggregate of $290 million, producing favorable yields. The actual costs for both projects totaled $290 million. Thecash-on-cash return for 888 Boylston Street was approximately 9.3% on a stabilized basis, exceeding management’s anticipated yield of 8.5%. Reservoir Place North, a 73,000 square foot redevelopment has not yet been leased. Upon stabilization, we expect 888 Boylston Street and Reservoir Place North to deliver a weighted-average, unleveragedcash-on-cash return of approximately 9.1%, which is more than 200 basis points greater than our target return for office developments.
Qualitative Assessment: In executing our strategy, management believes that, in developing compensation objectives, (2) analyze trendsgeneral, the best use of our capital at this time is investing in compensationnew development activity and our ability to deliver development projects with unleveraged initial cash yields of approximately 7% is a product of our execution. In this current market, existing leased assets are selling at cap rates in the marketplace generally4% range, so our development investments have significant projected imbedded value creation and amongare projected to drive our benchmarking peers specificallyearnings growth over the next few years. Although Reservoir Place North, a relatively small space, remains unleased, the Committee concluded that management successfully executed our strategy in 2017 with the successful delivery of 888 Boylston Street and (3) recommendmanagement therefore met the components,goal.
Overall Assessment: Goal met.
Ø | Development Starts |
Why it is important: Development starts are a useful indicator of future external growth, and they help us assess our ability to identify, underwrite and acquire new land parcels and air rights, secure lead tenants, obtain financing and/or joint venture partners, and commence construction of the building.
BOSTON PROPERTIES, INC. |2018 Proxy Statement 41
COMPENSATION DISCUSSION AND ANALYSIS
III. ASSESSING PERFORMANCE
Quantitative Assessment: Our goal was to start development at 145 Broadway in Cambridge, Massachusetts, a 475,000 square foot development with a budget of $375 million. In addition to meeting the goal by commencing development at 145 Broadway, we started five other developments in 2017, easily exceeding our goal. Specifically, we commenced development at:
When delivered, we expect these properties will total approximately 2.7 million square feet, which is more than five times the goal set for 2017. As of December 31, 2017, we had a weighted-average of 94%pre-leased for the four office development projects that commenced. Our development starts have an aggregate development budget (our share) of approximately $1.4 billion and represent approximately 6.1% of gross asset value, both of which are greater than all five Office Peers.
Qualitative Assessment: We expect that development will remain a key component of our strategy. Our development activity remains active with many newpre-leased projects either committed to or under pursuit. Committed to, but not yet commenced developments in the pipeline include 2100 Pennsylvania Avenue in Washington, DC, 17Fifty Presidents Street in Reston, Virginia, and Reston Gateway in Reston, Virginia, together representing 1.7 million square feet and approximately $1.2 billion in investment. As of December 31, 2017, we had approximately 6.2 million square feet under construction and redevelopment, including eight office and retail projects with a development budget (our share) of approximately $2.6 billion, and four residential projects with a development budget of approximately $792 million. In addition, we have a total of approximately 1.7 million square feet in our entitled future development pipeline, and an estimated 10.1 million square feet of future development projects in the entitlement process.
Overall Assessment: Goal exceeded.
Ø | Development Deliveries |
Why it is important: Development deliveries measure our ability to execute our development pipeline on time and within budget.
Quantitative Assessment: Our goal was to deliver two development projects totaling approximately 438,000 square feet with an aggregate development budget of approximately $309 million, which represents 1.3% of gross asset value. We met the goal by fully placingin-service 888 Boylston Street in Boston, Massachusetts, totaling approximately 417,000 square feet at a total cost of approximately $265 million, and delivering Reservoir Place North, a 73,000 square foot redevelopment in Waltham, Massachusetts at a total cost of $25 million, for a total of 490,000 square feet and an aggregate cost of $290 million. Our 2017 development deliveries met our goal of approximately 1.3% of gross asset value, a greater percentage than four of the five Office Peers.
Qualitative Assessment: Taken as a whole, management delivered 490,000 square feet of development space in 2017, which was 52,000 square feet, or 12%, greater than the goal. Upon stabilization, we expect 888 Boylston Street and Reservoir Place North to deliver a weighted-average, unleveragedcash-on-cash return of approximately 8.7%, which is greater than our target return for office developments of 7.0%.
42 BOSTON PROPERTIES, INC. |2018 Proxy Statement
COMPENSATION DISCUSSION AND ANALYSIS
III. ASSESSING PERFORMANCE
Overall Assessment: Goal met.
Ø | New Investments |
Why it is important: Active participation in new investments sustains our market-leading position and growth prospects, and new partnerships validate our strong reputation as a preeminent owner and developer.
Quantitative Assessment: Our goals were to make select acquisitions depending on market conditions, with a focus on opportunities in the Los Angeles market, and complete three new investments from a list of potential transactions that we were pursuing at the beginning of 2017. In 2017, market conditions in the private real estate equity market declined as office sale transaction volume decreased by 25% by the end of 2017 when compared to 2016. Due to these conditions, we did not complete any of the specified acquisitions included in this goal in 2017, but will continue to evaluate opportunities as they arise. For 2017, three of the five Office Peers invested a greater percentage of gross asset value percentage than we did.
Despite the market conditions, we made two new key investments in 2017: a 740,000 square foot building at 7750 Wisconsin Avenue in Bethesda, Maryland, which is fully leased to Marriott International to serve as its headquarters, and a 634,000 square foot development at 6595 Springfield Center Drive in Springfield, Virginia, fully leased by the TSA to serve as its headquarters. These two developments total approximately $525 million (our share) in new investment.
Qualitative Assessment: We remain committed to growing our presence and portfolio in Los Angeles and, in 2017, underwrote numerous opportunities in the market. However, due to pricing challenges, we decided not to proceed with them. We have been executing on our strategy to develop office properties at higher yields rather than acquire assets at lower yields as evidenced by thepre-leased projects launched in 2017 with anticipated unlevered initial cash yields of approximately 7%. Management remains disciplined in its underwriting of opportunities and will continue to do so as we look to grow. In addition to securing the Marriott and TSA investments, management has committed to approximately 1.7 million square feet and $1.2 billion in new investment.
Overall Assessment: Goal met.
Ø | Balance Sheet Management/Financings |
Why it is important: A strong balance sheet and superior access to capital help us minimize debt finance costs, enable us to act quickly on opportunistic investments and better manage our debt maturities to reduce the impact of capital market volatility.
Quantitative Assessment: In 2017, management excelled in its execution of our strategy to manage near-term debt maturities and maintain a conservative balance sheet. In April 2017, we amended and restated our credit facility, which increased the total commitment to an aggregate of $2.0 billion, reduced the variable interest rates and extended the maturity from July 2018 to April 2022. Included in the refinancing was the addition of a $500 million delayed-draw term loan facility. Also, in December 2017, we completed a public offering of $850 million in aggregate principal amount of 3.200% unsecured senior notes due 2025, the proceeds of which were used to redeem $850 million in aggregate principal amount of our 3.700% unsecured senior notes scheduled to mature in November 2018. This had the effect of reducing our borrowing costs and extending our debt maturities. Taken as whole, our financing activities in 2017 resulted in a decrease in interest expense of approximately $38.4 million compared to 2016 and extended the weighted-average maturity of our debt to 6.4 years from 5.0 years at the end of 2016.
BOSTON PROPERTIES, INC. |2018 Proxy Statement 43
COMPENSATION DISCUSSION AND ANALYSIS
III. ASSESSING PERFORMANCE
In addition, we completed significant financings for two of our joint venture properties. In June 2017, an entity in which we own a 60% interest completed a refinancing of a mortgage secured by interests in 767 Fifth Avenue (The General Motors Building), resulting in a $2.3 billion mortgage bearing interest at a fixed interest rate of 3.43% per annum and maturing in June 2027. This represented the largest loan secured by a single asset in United States history. Also, in July 2017, the entity in which we own a 50% interest in Colorado Center obtained a mortgage loan for $550 million. The mortgage loan bears interest at a fixed rate of 3.56% per annum and matures in August 2027.
Qualitative Assessment: In 2017, we completed an aggregate of $5.9 billion in debt financing and refinancing activity, preserving a strong balance sheet to maintain consistent access to capital and the allocation among those components,flexibility to make opportunistic investments. The Committee concluded that management executed our strategy with great success in 2017 and exceeded the goal.
Overall Assessment: Goal exceeded.
Ø | Dispositions |
Why it is important: The disposition of compensationnon-core assets allows us to better leverage the properties in our portfolio. In addition, older buildings require relatively greater operating costs and capital expenditures than new buildings, so we believe a consistent review of our portfolio and the future growth opportunities of the properties therein is an important component of our overall strategy.
Quantitative Assessment: Our goal was $200 million in asset dispositions, depending on market conditions. During 2017, we completed $31 million in sales ofnon-core assets. We recognized a total gain of approximately $6.6 million. Our 2017 percentage of gross asset value from dispositions was lower than four of the five Office Peers.
Qualitative Assessment: Our disposition activity in 2017 was relatively low and is a result of our strategy to sell onlynon-core assets or assets with lower growth profiles. It is also important to note that as of December 31, 2017, we were also under contract or had signed letters of intent to sell two assets totaling $149 million, one of which closed in early January 2018.
Overall Assessment: Goal not met.
Ø | Entitlement |
Why it is important: Obtaining the necessary entitlements and permits is an essential component to the execution of our development and redevelopment pipelines.
Quantitative Assessment: Our goals were to (1) obtain the remaining entitlements and/or complete the development plans for five projects and (2) advance the development plans for five projects. We obtained the necessary entitlements for the three of the five projects, including the Reston Eastgate land parcel in Reston, Virginia that was sold in 2017, we commenced development of a402-unit residential building and supporting retail space at the MacArthur Station residences in Oakland, California, and we completed the development plan for 501 K Street in Washington, DC. In addition, we advanced our executive officers. FPL’s benchmarking reviewdevelopment plans at each of the five properties that comprised the goal. Among other things, we entered into lease agreements with tenants, but had not yet commenced development, at 2100 Pennsylvania Avenue in Washington, DC, 17Fifty Presidents Street in Reston, Virginia, and Reston Gateway in Reston, Virginia, together representing 1.7 million square feet and $1.2 billion in investment.
Qualitative Assessment: Although management made significant progress in 2017, there are elements of our business that are not within our control that prevented us from completing a number of the projects outlined at the beginning of 2017. While we remain focused on obtaining
44 BOSTON PROPERTIES, INC. |2018 Proxy Statement
COMPENSATION DISCUSSION AND ANALYSIS
III. ASSESSING PERFORMANCE
these entitlements so that we have more control over the timing of when to commence construction of these projects, the Committee concluded that management did not meet this goal.
Overall Assessment: Goal not met.
Ø | Redevelopment |
Why it is important: Redevelopment of existing properties is important in maintaining the overall high quality of our assets, and repositioning can better position specific properties for competition.
Qualitative Assessment: Our goal was based,to make progress on four of our properties identified as redevelopment opportunities. We’ve finalized plans for two of the properties. The other two properties are slated for lobby renovations with one project underway and the other awaiting local city approval.
Overall Assessment: Goal met.
Management Goals
Ø | Investor Relations |
Why it is important: A complex, long-term strategy like ours requires regular interaction with thebuy-side and sell-side analysts, as well as significant investors in part, on information disclosedour stock, particularly because it differs from that of many of our peers in the peer companies’ 2016 proxy statements,office sector. Producing clear and concise presentations for investors in a variety of forums helps us differentiate Boston Properties in the REIT sector.
Qualitative Assessment: During 2017, management continued to enhance our investor communications strategy, including conducting threenon-deal road-shows, two of which disclosewere outside of the United States, with a particular focus onnon-REIT dedicated and underweight investors. In October 2017, we held an investor conference attended by over 200 industry professionals from which we received positive feedback.
Overall Assessment: Goal exceeded.
BOSTON PROPERTIES, INC. |2018 Proxy Statement 45
COMPENSATION DISCUSSION AND ANALYSIS
IV. | PERFORMANCE-BASED EQUITY AWARDS; THREE-YEAR TSR DRIVES ACTUAL EARNED PAY |
Multi-Year Long-Term Incentive Program (MYLTIP)
Management’s performance against operational, capital and management goals drives the Committee’s annual compensation awards. What our NEOs actually earn is driven to a significant extent by our TSR through LTI awards under a rigorous performance-based program (our Multi-Year Long-Term Incentive Program, or “MYLTIP”). MYLTIP awards incorporate a formulaic link to our relative TSR over three-year overlapping measurement periods.
Because we are the largest dedicated office REIT, our performance is most closely correlated with both the larger U.S. REITs and office-focused companies. Therefore, consistent with the 2017 MYLTIP, the 2018 MYLTIP design is built on a comparison of our TSR against (1) the C&S Realty Index, which reflects many of the largest andbest-in-class REITs, and (2) the NAREIT Office Index (which includes Boston Properties and is adjusted to include Vornado Realty Trust because it is one of the five Office Peers despite being categorized as a diversified REIT by FTSE NAREIT), which contains all other listed office REITs. MYLTIP awards include modifiers that potentially penalize management for 2015 (the latestlow absolute TSR and reward management for high absolute TSR over the entire measurement period. If our annualized TSR is less than 0%, earned awards will be reduced by 20% from what they would be based on relative TSR alone. If our annualized TSR is more than 12%, then awards will be earned at the “threshold” (50% of target value) level even if, based on relative TSR alone, awards would be earned at a lower level.One-half of any earned awards vest at the end of the performance measurement period. The remainingone-half is subject to one additional year for which comprehensive data was publicly available). Seeof time-based vesting. Vesting is accelerated under certain circumstances. (See ““– Benchmarking Peer Group and IX. Other Compensation Advisor’s RolePolicies – Double-Trigger Acceleration of Vesting of Equity Awards upon a Change of Control”” beginning on page 48. FPL also reviewed54.)
For 2018 MYLTIP awards, levels of payout opportunity range from zero to 200% of target value, on a straight-line basis, depending on relative TSR performance compared to each of the 2016C&S Realty Index and NAREIT Compensation Survey (which FPL conducts)Office Index (as adjusted) as follows:
The Committee believes that the MYLTIP design provides management with quantifiable incentives that (i) span an appropriate, symmetrical range of relative TSR performance aligned with historical volatility in the REIT sector compared to our actual performance, (ii) will keep our management motivated over the entire three-year measurement period and additional proprietary real estate compensation surveys conducted throughout the year by FPL for additional context.(iii) reward management within a rigorouspay-for-performance philosophy. Based on this information,advice from FPL, advised the Compensation Committee believes that total compensationthe MYLTIP design is competitive as compared with current market practice in the REIT industry for similar plans and provides an appropriate risk-rewardtrade-off.
46 BOSTON PROPERTIES, INC. |2018 Proxy Statement
COMPENSATION DISCUSSION AND ANALYSIS
IV. PERFORMANCE-BASED EQUITY AWARDS; THREE-YEAR TSR DRIVES ACTUAL EARNED PAY
Status of MYLTIP Awards
The following summarizes the performance periods and outcomes of our 2013-2015 MYLTIP plans, all of which have ended, and the interim valuations as of December 31, 2017 for our 2016-2017 MYLTIP plans, in each case, based on calculations prepared by our valuation expert.
(1) | Percentages shown are estimates as of December 31, 2017, based on interim valuations performed by a valuation expert (which could change up or down over the balance of the respective measurement periods). |
BOSTON PROPERTIES, INC. |2018 Proxy Statement 47
COMPENSATION DISCUSSION AND ANALYSIS
IV. PERFORMANCE-BASED EQUITY AWARDS; THREE-YEAR TSR DRIVES ACTUAL EARNED PAY
Reported vs. Realized Pay
The Committee is cognizant that a direct correlation does not exist between the successful execution of our long-term strategy, as demonstrated year after year through the achievement of goals set for management, and our TSR, particularly on a relative basis. This is particularly true when TSR is compared over a limited period of time. For example, for the most recent 2015 MYLTIP program, Mr. Thomas earned $950,039, or 22% of the target value for those awards, and all NEOs as a group for 2015 ranked at approximately the 55th - 60th percentile.
The Compensation Committee then assessed corporate and individual performance. The Compensation Committee concluded that the management team performed very well against its 2016 goals, with particular emphasis on the following: leasing, development deliveries, development starts, strategic entry into new markets and acquisitions, growth in diluted funds from operations (FFO) per share, growth in same property combined net operating income (NOI), balance sheet management, dispositions, G&A expense, capital expenditures,non-office revenue and investor relations. See “– Assessing Performance– 2016 Corporate Goals” beginning on page 34 for a listearned $2,634,349, or 22% of the goalstarget value for those awards. The following graph shows for our CEO (1) the reported value of the MYLTIP awards as of the respective grant dates, (2) the maximum payout opportunity that could have been earned under each plan based primarily on relative TSR performance, and assessment(3) the actual realized pay for the 2013-2015 MYLTIP awards for which the measurement periods have ended, as well as interim valuations as of performance with respect to each goal.December 31, 2017 for the 2016 and 2017 MYLTIP awards:
2013 MYLTIP | 2014 MYLTIP | 2015 MYLTIP | Total (2013-2015) | 2016 MYLTIP | 2017 MYLTIP | |||||||||||||||||||
Reported Pay | $ | 1,125,000 | $ | 2,826,563 | $ | 4,145,625 | $ | 8,097,188 | $ | 5,000,000 | $ | 5,150,000 | ||||||||||||
Target Value | $ | 2,045,454 | $ | 2,884,247 | $ | 4,318,359 | $ | 9,248,060 | $ | 5,681,818 | $ | 6,204,819 | ||||||||||||
Maximum Payout Opportunity | $ | 6,136,362 | $ | 8,652,742 | $ | 10,795,898 | $ | 25,585,003 | $ | 14,204,545 | $ | 12,409,639 | ||||||||||||
Realized Pay | $ | 2,239,772 | $ | 798,257 | $ | 950,039 | $ | 3,988,068 | $ | 2,443,182 | (1) | $ | 2,854,217 | (1) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Payout as % of Target | 109% | 28% | 22% | 43% | 43% | (1) | 46% | (1) |
(1) | Amounts and percentages shown are estimated values for our CEO as of December 31, 2017, based on interim valuations performed by our valuation expert (which could change up or down over the balance of the respective measurement periods). |
48 BOSTON PROPERTIES, INC. |2018 Proxy Statement
COMPENSATION DISCUSSION AND ANALYSIS
V. | ALIGNMENT OF PAY WITH PERFORMANCE |
Based on the goal assessments, FPL’s benchmarking analysis and projections for compensation increases/increases and decreases among our peers and the market generally, and other input received from FPL, the Compensation Committee decided that 20162017 total compensation for the NEOs, as a group, should be set at a level that reflects an increase of approximately 3%11% over 20152016 total compensation. For each NEO, the Compensation Committee approved the appropriate amount and mix of pay based on his role, responsibilities and performance.
BOSTON PROPERTIES, INC. |2017 Proxy Statement 31
COMPENSATION DISCUSSION AND ANALYSIS
HOW WE SET EXECUTIVE COMPENSATION
The objectives of our executive compensation, program are to attract, retain and reward executives who have the motivation, experience and skills to lead the Company and continue our long-term track record of profitability, growth and TSR. The following are the key features of our executive compensation program:
32 BOSTON PROPERTIES, INC. |2017 Proxy Statement
COMPENSATION DISCUSSION AND ANALYSIS
The core elements of our strategy are:
Execution of this strategy spans multiple markets with different economic drivers over a number of years. Development projects, which are particularly important to our strategy, take time to identify, acquire, permit, construct and stabilize. To cite one recent example among many, our 888 Boylston Street office development in Boston, Massachusetts, which we partially placedin-service in 2016, was contemplated by a master plan for the Prudential Center property when we acquired it in 1998. Our focus on long-term performance involves management of liquidity, leverage ratios, interest-rate risk, capital commitments and debt maturities so we can take advantage of opportunities as they arise while maintaining our operating parameters within appropriate ranges. For all these reasons, we look at performance not only for the latest year and on a year-over-year basis, but also with a view to managing compensation to appropriately incentivize, compensateretention and retain our executives.
In addition to assessing our performance against ourpre-established internal goals,providing incentives aligned with the Compensation Committee also reviews our performance against a backdrop of performance for the following five office REITs (with their total capitalizations as of December 31, 2016 shown in parentheses) because they operate in markets and/or have assets similar to ours (our total capitalization asbest long-term interests of the same date was $33.1 billion):
We focus on key drivers of value creation such as leasing, development activity, FFO per share, same property NOI growth, acquisitions/dispositionsCompany and balance sheet management. While the Compensation Committee is aware that different companies may calculate relevant performance
BOSTON PROPERTIES, INC. |2017 Proxy Statement 33
COMPENSATION DISCUSSION AND ANALYSIS
metrics differently, the Compensation Committee finds it useful to compare our performance to what these other office REITs disclose for similar measures, even though information is not always directly comparable among companies.
The Compensation Committee believes that internal and external data are important tools in the design and implementation of optimal compensation programs and that benchmarking against peers provides the Compensation Committee with a market check of its compensation awards. Different sections of this CD&A discuss in detail the data on which the Compensation Committee relied to make sure that different elements of compensation align with our performance. In addition, the Compensation Committee utilizes its collective experiences and judgment when establishing the appropriate types and amounts of compensation.stockholders.
Finally, insofar as management roles change over time, both for individuals and within the executive team as a whole, the Compensation Committee considers each individual’s personal contributions to our organization, as well as his skill sets, qualifications and experience. We value and seek to reward performance that develops talent at all levels of our organization, promotes our culture of excellence and extends our track record of profitability and growth. These subjective factors are also considered in reaching compensation decisions.
2016 Corporate Goals
In early 2016, the Compensation Committee established for management a set of rigorous strategic, operational, capital and management goals. Whenever possible, the Compensation Committee bases its overall assessment as to whether a goal was “exceeded,” “met” or “not met” on both quantitative and qualitative factors. We believe that doing so allows the Compensation Committee to strike the right balance, by giving proper emphasis to objective results while also considering subjective factors, if and when applicable. For the reasons discussed under “– Assessing Performance” above, we do not rely on a strict formulaic framework for measuring annual performance against goals to determine compensation. The Compensation Committee believes that:
34BOSTON PROPERTIES, INC. | 20172018 Proxy Statement 37
COMPENSATION DISCUSSION AND ANALYSIS
III. ASSESSING PERFORMANCE
The summary table below lists each goalthe principal operational, capital and management goals for 2017 and the Compensation Committee’s overall assessment of management’s performance with respect to each. Although the goal, followed by a detailed analysis ofCommittee did not ascribe quantitative weights to the various goals, the goals in each goal:category are listed such that those deemed most important are listed first.
Overall Assessment | ||
Operational Goals: | ||
Leasing | Exceeded | |
Met | ||
Growth in Diluted FFO per Share | ||
Growth in Same Property | ||
Growth in Same Property | ||
Met | ||
Met | ||
Capital | ||
Development Economics | Met | |
Exceeded | ||
Development Deliveries | Met | |
New Investments | Met | |
Balance Sheet Management/Financings | Exceeded | |
Dispositions | Not Met | |
Entitlement | Not Met | |
Redevelopment | Met | |
Management Goals: | ||
Investor Relations | Exceeded |
Operational Goals
Ø | Leasing |
Why it is important: We generate revenue and cash primarily by leasing our operating and development properties. When making leasing decisions, we consider, among other things, the creditworthiness of the tenant, the term of the lease, the rental rate to be paid at inception and throughout the lease term, the costs of tenant improvements and other landlord concessions, current and anticipated operating expenses, real estate taxes, vacancy and expected future demand for the space, the impact of any expansion rights and general economic factors.
Quantitative Assessment:We hadFollowing our successful leasing activity in 2016, we set an even more aggressive 2016 leasing goal for 2017 of 5.45.7 million square feet (of which 4.43.7 million square feet was forwere in ourin-service portfolio)portfolio and 2.0 million square feet were in our development properties). We exceeded the goal by executing 344 leases representing approximatelyleasing a total of 6.4 million square feet, of space, or 14.7%14.5% of the total square footage atin ourin-service properties. Theportfolio. A total of 3.9 million square feet was in ourin-service portfolio and 2.5 million square feet was in our development portfolio. Both the total number of square feet leased was greater than all five office REITs that we consider our direct competitors, and the total as a percentage of ourin-service portfolio waswere greater than fourall five of the five office REITs that we consider our direct competitors. Leases for approximately 5.7 million of the 6.4 million square feet were in ourin-service portfolio, including 400,000 square feet at the recently acquired Colorado Center in Santa Monica, California.Office Peers.
We also had a goalmet our goals of achieving 90.5%90% - 91% occupancy for ourin-service portfolio. Leasing activity was balanced across allportfolio and proactively managing future lease rollover. We accomplished this goal despite our decision to take some properties out of service for redevelopment, which had a short-term dilutive impact on our regions, with average occupancy rates in our
38 BOSTON PROPERTIES, INC. |2018 Proxy Statement
COMPENSATION DISCUSSION AND ANALYSIS
III. ASSESSING PERFORMANCE
in-service portfolio beginning the year at 91.4%, dropping slightly to a low of 89.6%,occupancy rate and ending the year on the upswing at 90.2% (or 90.5% excluding Colorado Center). Excluding Colorado Center,rental revenue, but is consistent with our long-term strategy. Our occupancy as of December 31, 20162017 was less than four of the five office REITs thatOffice Peers. We also completed a significant amount of early lease renewals and extensions, most notably in New York City.
Qualitative Assessment: Following the record amount of leasing we considerachieved in 2016, we set an aggressive leasing goal for 2017, which management not only achieved, but surpassed by an additional 0.7 million square feet.
Overall Assessment: Goal exceeded.
Ø | Key NOI Drivers |
Why it is important: Our current strategy to drive future growth is to invest primarily in higher yielding new developments with significantpre-leasing commitments and in redevelopment opportunities, rather than lower yielding acquisitions of stabilized assets for which demand and pricing remain aggressive. Consistent with this strategy, beginning in 2015 we removed all or portions of some of our direct competitors.
Management has identified nine key assets that, if leasedproperties from service for redevelopment or repositioning, despite the near-term dilutive impact. In light of the significant amount of development and redevelopment projects, and the loss of occupancy and the dilutive impact of removing properties from service, management outlined for investors our plan to plan, would addachieve incremental growth of approximately $352 million (including $242 million from development properties and $110 million annually tofrom other key assets) in our share of annualized net operating income by 2020. The Key NOI on a combined basisDrivers goal is the manner by which the end of 2019. Accordingly,Committee assesses progress against the “bridge” in the years leading up to 2020.
Quantitative Assessment: In addition to the overall leasing goalsgoal discussed above, we set nine specific leasing goals for theseto lease an aggregate of approximately 1.2 million square feet of space at eight assets for 2016.and renew our lease with Aramis (Estée Lauder) at 767 Fifth Avenue (the General Motors Building) in 2017. As of December 31, 2016,2017, we completed five of these goals and achieved total leasing that we expect will generate approximately 50% of the longer-term goal for increased NOI.
Qualitative Assessment: During the fourth quarter of 2016 alone, wehad signed leases totalingfor approximately 3.01.5 million square feet, which waswith another 29,000 square feet under letters of intent, and signed aquarterly record lease renewal and subsequent lease expansion with Aramis for an aggregate of 300,000 square feet. In addition, as of December 31, 2017, we hadpre-leased 81% of the space in the development projects underlying our history. Average net rental rates ongoal, representing an aggregate of approximately 6.2 million square feet.
Qualitative Assessment: In light of the successful leasing progress noted above, the Committee concluded that management successfully executed our second generation leases signedstrategy in 2016 increased by 24.6%, resulting in overall same property revenue growth.2017 and met this goal.
Overall Assessment: Goal met.
Ø | Growth in Diluted FFO per Share |
Overall Assessment:Why it is important: Goal exceeded.FFO is anon-GAAP financial measure that, when combined with the presentation of required GAAP financial measures, has improved the understanding of operating results of REITs among the investing public and has helped make comparisons of REIT operating results more meaningful. Management generally considers FFO and FFO per share to be useful measures for understanding and comparing our operating results because, by excluding gains and losses related to sales of previously depreciated operating real estate assets, impairment losses and real estate asset depreciation and amortization (which can differ across owners of similar assets in similar condition based on historical cost accounting and useful life estimates), FFO and FFO per share can help investors compare the operating performance of a company’s real estate across reporting periods and to the operating performance of other companies. Our computation of FFO may not be comparable to FFO reported by other REITs or real estate companies that do not define the term in accordance with the current NAREIT definition or that interpret the current NAREIT definition differently.
BOSTON PROPERTIES, INC. | 20172018 Proxy Statement 3539
COMPENSATION DISCUSSION AND ANALYSIS
III. ASSESSING PERFORMANCE
Quantitative Assessment: Our goal was to exceed the midpoint of our diluted FFO guidance range of $6.05 to $6.23 (excluding the impact of any acquisitions and dispositions). This target range equated to 1.2% to 4.2% projected growth over 2016.
Our actual 2017 diluted FFO per share was $6.22, which includes the unbudgeted loss on extinguishment of debt of $0.08 per share resulting from the early redemption in December 2017 of $850 million of 3.700% unsecured senior notes that were scheduled to mature in November 2018. Excluding the loss, our diluted FFO per share would have been $6.30, or $0.07 greater than the high end of the guidance range set at the beginning of the year.
Our 3.2% year-over-year growth in diluted FFO per share was greater than three of the five Office Peers. (Refer to pages 96 through 100 of our Annual Report on Form10-K for information relating to the calculation of FFO and diluted FFO.)
Qualitative Assessment: Management successfully executed our strategy in 2017 and delivered performance that exceeded the goal.
Overall Assessment: Goal met.
Ø | Growth in Same Property NOI |
Why it is important: Same Property NOI reflects the combined impact of trends in occupancy rates, rental rates and operating costs on an unleveraged basis, providing perspective on the performance of our Same Property portfolio across fiscal periods which are not immediately apparent from net income.
Quantitative Assessment: Our goal for year-over-year growth in our share of Same Property NOI (excluding termination income) was a 2.0% - 3.5% increase. We met the goal with a 2.5% increase. The growth in our share of Same Property NOI (excluding termination income) was greater than two of the five Office Peers. (Refer to Appendix A to this proxy statement for reconciliations and other information regarding our share of Same Property NOI (excluding termination income) for the fiscal years ended December 31, 2017 and 2016, respectively.)
Qualitative Assessment: Management successfully executed our strategy in 2017 and delivered performance that met the goal.
Overall Assessment: Goal met.
Ø | Growth in Same Property NOI – Cash |
Why it is important: Same Property NOI – Cash allows investors to compare the performance of our Same Property portfolio across periods without taking into account the effects of straight-lining rent, fair value lease revenue, straight-lined ground rent expense and certain lease transaction costs that qualify as rent inducements.
Quantitative Assessment: Our goal for year-over-year growth in our share of Same Property NOI (excluding termination income) – Cash was a 2.0% - 4.0% increase. Our year-over-year growth was 1.5%, which was below four of the five Office Peers. (Refer to Appendix A to this proxy statement for reconciliations and other information regarding our share of Same Property NOI (excluding termination income) – Cash for the fiscal years ended December 31, 2017 and 2016, respectively.)
Qualitative Assessment: During 2017, we voluntarily entered into early lease terminations with a number of tenants that effectively resulted in the conversion of all or a portion of the remaining contractual rental revenue to termination income, which we exclude from our calculation of NOI. This shift in rental revenue to termination income resulted in growth that was short of the stated goal. Early lease terminations are not unique events, but we agreed to the terminations because
40 BOSTON PROPERTIES, INC. |2018 Proxy Statement
COMPENSATION DISCUSSION AND ANALYSIS
III. ASSESSING PERFORMANCE
on a net present value basis, the termination income plus anticipated replacement rental revenue (and, in some cases, any anticipated additional term) was greater than the rental revenue under the leases. The Committee believes these decisions were in the best long-term interests of our investors and thus concluded that management successfully executed our strategy in 2017 and met the goal.
Overall Assessment: Goal met.
Ø | General and Administrative Expense |
Why it is important:To understand our expense base, of which executive compensation is a meaningful line item, our Committee assesses our management of G&A expense by determining its percentage of total revenue.
Quantitative Assessment: Our goal was to manage G&A expense (excluding transaction expenses) to approximately $108 - $114 million. Our actual 2017 G&A expense was approximately $113.7 million (an 8.3% increase from 2016), which represents approximately 4.4% of our total revenue for 2017. We also managed our G&A expense to a smaller percentage of total revenue than all five Office Peers.
Overall Assessment: Goal met.
Capital Goals
Ø | Development |
Why it is important: The success of our development projects and realization of our plans for growth depend on the stabilized unleveraged cash yields we generate.
Quantitative Assessment:: Our goal One of our goals was to deliver fivethe 888 Boylston Street development projects totaling approximately 1.0 million square feetproject and a developmentthe Reservoir Place North redevelopment project on or below budget, (our share) of approximately $546 million. We fully placedin-service four of the projects totaling approximately 965,000 square feet at a total cost of approximately $471 million (our share), which was well below thean aggregate budgetof $290 million, producing favorable yields. The actual costs for those fourboth projects of $530totaled $290 million. We also partially placedThein-servicecash-on-cash the fifth project, which is a retail expansion at the Prudential Center in Boston that comprises the remainder of the 1.0 million square feet. Our 2016 development deliveries represented approximately 2.1% of gross asset value, a greater percentage than four of the five office REITs that we consider our direct competitors.
Qualitative Assessment: In total, we placedin-service approximately 98.8% of the approximately 1.0 million square feet that comprised the goal,return for a total cost that888 Boylston Street was approximately $60 million below budget. In addition, as9.3% on a stabilized basis, exceeding management’s anticipated yield of December 31, 2016, the four office properties fully placedin-service were approximately 96%8.5%. Reservoir Place North, a 73,000 square foot redevelopment has not yet been leased. Upon stabilization, we expect them888 Boylston Street and Reservoir Place North to deliver a weighted averageweighted-average, unleveragedcash-on-cash return of approximately 8.4%9.1%, which is more than 200 basis points greater than our target return for office developments of 7.0%. The fifth development project that was partially placedin-service during 2016 is 100% leased.developments.
Overall Assessment:Qualitative Assessment: In executing our strategy, management believes that, in general, the best use of our capital at this time is investing in new development activity and our ability to deliver development projects with unleveraged initial cash yields of approximately 7% is a product of our execution. In this current market, existing leased assets are selling at cap rates in the 4% range, so our development investments have significant projected imbedded value creation and are projected to drive our earnings growth over the next few years. Although Reservoir Place North, a relatively small space, remains unleased, the Committee concluded that management successfully executed our strategy in 2017 with the successful delivery of 888 Boylston Street and management therefore met the goal.
Overall Assessment:Goal met.
Ø | Development Starts |
Why it is important: Development starts are a useful indicator of future external growth, and they help us assess our ability to identify, underwrite and acquire new land parcels and air rights, secure lead tenants, obtain financing and/or joint venture partners, and commence construction of the building.
BOSTON PROPERTIES, INC. |2018 Proxy Statement 41
COMPENSATION DISCUSSION AND ANALYSIS
III. ASSESSING PERFORMANCE
Quantitative Assessment:: Our goal was to start fourdevelopment at 145 Broadway in Cambridge, Massachusetts, a 475,000 square foot development with a budget of $375 million. In addition to meeting the goal by commencing development at 145 Broadway, we started five other developments in 2017, easily exceeding our goal. Specifically, we commenced development at:
When delivered, we expect these properties will total approximately 1.12.7 million square feet, withwhich is more than five times the goal set for 2017. As of December 31, 2017, we had a weighted-average of 94%pre-leased for the four office development projects that commenced. Our development starts have an aggregate development budget (our share) of approximately $502 million. We started three projects totaling$1.4 billion and represent approximately 393,000 square feet, with a development budget of approximately $186 million. Our 2016 development starts represented approximately 0.8%6.1% of gross asset value, both of which is aare greater percentage than four of theall five office REITs that we consider our direct competitors. The fourth project is dependent on the execution of a lease for abuild-to-suit development, and we are still awaiting a decision by the prospective tenant.Office Peers.
Qualitative Assessment:: We continueexpect that development will remain a key component of our strategy. Our development activity remains active with many newpre-leased projects either committed to replenish our developmentor under pursuit. Committed to, but not yet commenced developments in the pipeline after delivering approximately 6.3include 2100 Pennsylvania Avenue in Washington, DC, 17Fifty Presidents Street in Reston, Virginia, and Reston Gateway in Reston, Virginia, together representing 1.7 million square feet of new development since 2011.and approximately $1.2 billion in investment. As of December 31, 2016,2017, we had approximately 4.06.2 million square feet under construction and redevelopment, including eight office and retail projects with a development budget (our share) of approximately $1.9$2.6 billion, and twofour residential projects with a development budget of approximately $375$792 million. In addition, we have a total of approximately 5.01.7 million square feet in our entitled future development pipeline, and in excess of an estimated 1010.1 million square feet of future development projects in the entitlement process.
Overall Assessment:Assessment: Goal not met.exceeded.
Ø |
Why it is important: Development deliveries measure our ability to execute our development pipeline on time and within budget.
Quantitative Assessment:: Our goal was to pursue acquisitions selectively in both new and existing markets, depending on market conditions. In July 2016, we entered the Los Angeles market through our acquisition of a 49.8% interest in an existing joint venture that owns and operates Colorado Center in Santa Monica, California, asix-building office complex that sits on a15-acre site and contains an aggregate ofdeliver two development projects totaling approximately 1.1 million net rentable438,000 square feet with an underground parking garage for 3,100 vehicles,aggregate development budget of approximately $309 million, which represents 1.3% of gross asset value. We met the goal by fully placingin-service 888 Boylston Street in Boston, Massachusetts, totaling approximately 417,000 square feet at a total cost of approximately $265 million, and delivering Reservoir Place North, a 73,000 square foot redevelopment in Waltham, Massachusetts at a total cost of $25 million, for a net purchase pricetotal of 490,000 square feet and an aggregate cost of $290 million. Our 2017 development deliveries met our goal of approximately $503 million1.3% of gross asset value, a greater percentage than four of the five Office Peers.
Qualitative Assessment: Taken as a whole, management delivered 490,000 square feet of development space in cash. In April 2016,2017, which was 52,000 square feet, or 12%, greater than the goal. Upon stabilization, we acquired 3625-3635 Peterson Way in Santa Clara, California, an approximately 218,000 net rentable square foot office property leasedexpect 888 Boylston Street and Reservoir Place North to deliver a single tenant through March 2021, for a purchase priceweighted-average, unleveragedcash-on-cash return of approximately $78.0 million in cash. Following the lease expiration, we intend to develop the site into a Class A8.7%, which is greater than our target return for office campus containing an aggregatedevelopments of approximately 630,000 net rentable square feet. In addition, in November 2016, we7.0%.
3642 BOSTON PROPERTIES, INC. | 20172018 Proxy Statement
COMPENSATION DISCUSSION AND ANALYSIS
III. ASSESSING PERFORMANCE
acquired a 50% interest in the rights to develop an approximately440-unit residential property and an approximate270-room hotel, both on air rights above our Hub on Causeway development project located adjacent to the North Station transportation hub and the TD Garden sports and entertainment complex in Boston. We simultaneously executed a long-term lease with a hotel operator who will develop and ground lease the hotel. In the aggregate, these acquisitions represented approximately 2.6% of gross asset value, a smaller percentage than three of the five office REITs that we consider our direct competitors.
Qualitative Assessment: Los Angeles is the first new market for us in 19 years and we are committed to growing our presence and portfolio and expect to continue to underwrite investments in this market. We also continued to actively review an increasing number ofvalue-add and development opportunities in our core markets. Management did an excellent job maintaining its discipline when underwriting acquisitions to meet our desired return levels. We acquired Colorado Center, a premier office campus located in the West Los Angeles submarket, at an attractive valuation consistent with it being 68% leased at rents that we believe were below market, and through active management, repositioning and leasing we expect to improve occupancy and cash flows over time. As of December 31, 2016, the complex was approximately 87% leased, including leases that had not yet commenced. 3625-3635 Peterson Way is 100% leased to a single tenant through 2021 and, importantly, is located in anin-fill location with increasing density; during the remaining lease term, we plan to entitle the property for an approximately 630,000 square foot office campus.
Overall Assessment: Goal met.
Ø |
Why it is important: Active participation in new investments sustains our market-leading position and growth prospects, and new partnerships validate our strong reputation as a preeminent owner and developer.
Quantitative AssessmentAssessment:: Our goal wasgoals were to exceedmake select acquisitions depending on market conditions, with a focus on opportunities in the midpointLos Angeles market, and complete three new investments from a list of our diluted FFO guidance range of $5.50 to $5.70 (excluding the impact of any acquisitions and dispositions other than 415 Main Street in Cambridge, MA, which was under contract for sale when the goal was established). This goal was set based on assumptions underlying our 2016 earnings guidance. This target range equated to 1.0% to 4.0% projected growth over 2015.
Our actual 2016 diluted FFO per share was $6.03, which was 12.5% greater than $5.36 per share in 2015. After adjusting for the acquisitions of 3625-3635 Peterson Way in Santa Clara, California, and Colorado Center in Santa Monica, California, and the sale of a portion of our interest in Metropolitan Square in Washington, D.C., our diluted FFO per share would have been $5.95, or 6.25% greater than the goal, and $0.25, or 4.39%, greater than the high end of the guidance range setpotential transactions that we were pursuing at the beginning of 2017. In 2017, market conditions in the year.
In addition, our 12.5% year-over-year percentage growthprivate real estate equity market declined as office sale transaction volume decreased by 25% by the end of 2017 when compared to 2016. Due to these conditions, we did not complete any of the specified acquisitions included in diluted FFO per share was greater than fourthis goal in 2017, but will continue to evaluate opportunities as they arise. For 2017, three of the five office REITs thatOffice Peers invested a greater percentage of gross asset value percentage than we considerdid.
Despite the market conditions, we made two new key investments in 2017: a 740,000 square foot building at 7750 Wisconsin Avenue in Bethesda, Maryland, which is fully leased to Marriott International to serve as its headquarters, and a 634,000 square foot development at 6595 Springfield Center Drive in Springfield, Virginia, fully leased by the TSA to serve as its headquarters. These two developments total approximately $525 million (our share) in new investment.
Qualitative Assessment: We remain committed to growing our direct competitors. (Referpresence and portfolio in Los Angeles and, in 2017, underwrote numerous opportunities in the market. However, due to our Annual Reportpricing challenges, we decided not to proceed with them. We have been executing on Form10-K for information relating to the calculation of FFO and diluted FFO.)
Qualitative Assessment: The goal for 2016 was established based on models and budgets for executing our overall corporate strategy, including operating, leasing, investment and financing objectives. Management successfully executed our strategy to develop office properties at higher yields rather than acquire assets at lower yields as evidenced by thepre-leased projects launched in 20162017 with anticipated unlevered initial cash yields of approximately 7%. Management remains disciplined in its underwriting of opportunities and delivered performance that exceededwill continue to do so as we look to grow. In addition to securing the goal.Marriott and TSA investments, management has committed to approximately 1.7 million square feet and $1.2 billion in new investment.
Overall Assessment: Goal exceeded.
Quantitative Assessment: Our goal for year-over-year growth in Same Property Combined NOI (excluding termination income) was to be flat with 2015. We exceeded the goal with an increase of 0.6%. Our growth in Same Property Combined NOI (excluding termination income) was below four of the five office REITs that we consider our direct competitors. (Refer to Appendix A to this proxy
BOSTON PROPERTIES, INC. |2017 Proxy Statement 37
COMPENSATION DISCUSSION AND ANALYSIS
statement for reconciliations and other information regarding Same Property Combined NOI (excluding termination income) for the fiscal years ended December 31, 2016 and 2015, respectively.)
Qualitative Assessment: The goal for 2016 was established based on models and budgets for executing our overall corporate strategy, including operating, leasing, investment and financing objectives. Management successfully executed our strategy in 2016 and delivered performance that exceeded the goal.
Overall Assessment: Goal exceeded.
Quantitative Assessment: Our goal for year-over-year growth in Same Property Combined NOI (excluding termination income) – Cash was a 2.5% increase. We exceeded this goal with an increase of 3.5%, which was below four of the five office REITs that we consider our direct competitors. (Refer to Appendix A to this proxy statement for reconciliations and other information regarding Same Property Combined NOI (excluding termination income) – Cash for the fiscal years ended December 31, 2016 and 2015, respectively.)
Qualitative Assessment: The goal for 2016 was established based on models and budgets for executing our overall corporate strategy, including operating, leasing, investment and financing objectives. Management successfully executed our strategy in 2016 and delivered performance that exceeded the goal.
Overall Assessment: Goal exceeded.met.
Ø | Balance Sheet |
We remain focusedWhy it is important: A strong balance sheet and superior access to capital help us minimize debt finance costs, enable us to act quickly on managingopportunistic investments and better manage our debt maturities to reduce the impact of capital market volatility.
Quantitative Assessment: In 2017, management excelled in its execution of our strategy to manage near-term debt maturities and maintain a conservative balance sheet. In April 2017, we amended and restated our exposurecredit facility, which increased the total commitment to possible increasesan aggregate of $2.0 billion, reduced the variable interest rates and extended the maturity from July 2018 to April 2022. Included in interest rates. In January 2016,the refinancing was the addition of a $500 million delayed-draw term loan facility. Also, in December 2017, we completed a public offering of $1.0 billion$850 million in aggregate principal amount of 3.650%3.200% unsecured senior unsecured notes due 2026, with an effective yield (including financing fees)2025, the proceeds of approximately 3.766% per annum. In August 2016, we completed a public offering of $1.0 billionwhich were used to redeem $850 million in aggregate principal amount of 2.750%our 3.700% unsecured senior unsecured notes due 2026, withscheduled to mature in November 2018. This had the effect of reducing our borrowing costs and extending our debt maturities. Taken as whole, our financing activities in 2017 resulted in a decrease in interest expense of approximately $38.4 million compared to 2016 and extended the weighted-average maturity of our debt to 6.4 years from 5.0 years at the end of 2016.
BOSTON PROPERTIES, INC. |2018 Proxy Statement 43
COMPENSATION DISCUSSION AND ANALYSIS
III. ASSESSING PERFORMANCE
In addition, we completed significant financings for two of our joint venture properties. In June 2017, an effective yield (including financing fees and the impactentity in which we own a 60% interest completed a refinancing of the settlement of certain forward-startinga mortgage secured by interests in 767 Fifth Avenue (The General Motors Building), resulting in a $2.3 billion mortgage bearing interest at a fixed interest rate swap contracts) of approximately 3.495%3.43% per annum. The 2.750% stated coupon on these bonds equaledannum and maturing in June 2027. This represented the lowest10-year bond coupon ever issuedlargest loan secured by a public REIT. We usedsingle asset in United States history. Also, in July 2017, the net proceeds from this offering and available cash to repayentity in which we own a 50% interest in Colorado Center obtained a mortgage loans secured by (1) 599 Lexington Avenue in New York City totaling $750.0 million, which boreloan for $550 million. The mortgage loan bears interest at a fixed rate of 5.57%3.56% per annum (5.41% per annum includingand matures in August 2027.
Qualitative Assessment: In 2017, we completed an aggregate of $5.9 billion in debt financing and refinancing activity, preserving a strong balance sheet to maintain consistent access to capital and the impact of financing costs and interest rate hedges) and was scheduledflexibility to mature on March 1,make opportunistic investments. The Committee concluded that management executed our strategy with great success in 2017 and (2) Embarcadero Center Four in San Francisco, California totaling approximately $344.8 million, which bore interest at a fixed rate of 6.10% per annum (7.02% per annum includingexceeded the impact of financing costs and interest rate hedges) and was scheduled to mature on December 1, 2016.goal.
In addition, we completed financings having aggregate total commitments of approximately $347.8 million for the following joint venture properties: 1265 Main Street in Waltham, Massachusetts, Annapolis Junction Buildings Six, Seven and Eight in Annapolis, Maryland, and the Dock 72 development project in Brooklyn, New York.
Overall Assessment:Assessment: Goal met.exceeded.
Ø | Dispositions |
Why it is important: The disposition ofnon-core assets allows us to better leverage the properties in our portfolio. In addition, older buildings require relatively greater operating costs and capital expenditures than new buildings, so we believe a consistent review of our portfolio and the future growth opportunities of the properties therein is an important component of our overall strategy.
Quantitative Assessment:: Our goal was $200 million in asset dispositions, depending on market conditions. During 2016,2017, we completed three transactions, including the sale$31 million in sales of a portion of our interest in Metropolitan Square in Washington, D.C., for an aggregate gross sales price of
38 BOSTON PROPERTIES, INC. |non-core 2017 Proxy Statement
COMPENSATION DISCUSSION AND ANALYSIS
approximately $233 million.assets. We recognized a total gain of approximately $133 million and realized an unleveraged IRR of 11.3% on the three investments.$6.6 million. Our 2016 dispositions represented approximately 1.0%2017 percentage of gross asset value a smaller percentagefrom dispositions was lower than four of the five office REITs that we consider our direct competitors.Office Peers.
Qualitative Assessment:: Our moderate level of disposition activity reflectedin 2017 was relatively low and is a result of our strategy ofto sell only sellingnon-core assets or assets with lower growth profiles. It is also important to note that as of December 31, 2017, we were also under contract or had signed letters of intent to sell two assets totaling $149 million, one of which closed in early January 2018.
Overall Assessment:Assessment: Goal not met.
Ø |
Our goal wasWhy it is important: Obtaining the necessary entitlements and permits is an essential component to manage G&A expense (excluding transaction expenses) to approximately $105 million. Our actual 2016 G&A expense was approximately $105 million (a 9% increase from 2015), which represents approximately 4.1%the execution of our total revenuedevelopment and redevelopment pipelines.
Quantitative Assessment: Our goals were to (1) obtain the remaining entitlements and/or complete the development plans for 2016.five projects and (2) advance the development plans for five projects. We managed G&A expense to a lower percentage of revenue than all fiveobtained the necessary entitlements for the three of the office REITsfive projects, including the Reston Eastgate land parcel in Reston, Virginia that was sold in 2017, we commenced development of a402-unit residential building and supporting retail space at the MacArthur Station residences in Oakland, California, and we completed the development plan for 501 K Street in Washington, DC. In addition, we advanced our development plans at each of the five properties that comprised the goal. Among other things, we entered into lease agreements with tenants, but had not yet commenced development, at 2100 Pennsylvania Avenue in Washington, DC, 17Fifty Presidents Street in Reston, Virginia, and Reston Gateway in Reston, Virginia, together representing 1.7 million square feet and $1.2 billion in investment.
Qualitative Assessment: Although management made significant progress in 2017, there are elements of our business that are not within our control that prevented us from completing a number of the projects outlined at the beginning of 2017. While we remain focused on obtaining
44 BOSTON PROPERTIES, INC. |2018 Proxy Statement
COMPENSATION DISCUSSION AND ANALYSIS
III. ASSESSING PERFORMANCE
these entitlements so that we consider our direct competitors.have more control over the timing of when to commence construction of these projects, the Committee concluded that management did not meet this goal.
Overall Assessment:Assessment: Goal not met.
Ø |
Each year, we develop a planWhy it is important: Redevelopment of existing properties is important in maintaining the overall high quality of our assets, and repositioning can better position specific properties for capital expenditures that is intendedcompetition.
Qualitative Assessment: Our goal was to upgrade and refresh somemake progress on four of our properties identified as redevelopment opportunities. We’ve finalized plans for two of the olderproperties. The other two properties in our portfolio (particularly in connectionare slated for lobby renovations with a major tenant transition), and help us maintain/increase occupancy and maintain/achieve premium rental rates, thereby leading to enhanced value for our investors over the long-term. Because the development of the plan requires the allocation of resources to different projects in light of our overall corporate strategy and liquidity, and in the case of certain projects may require the approval of a joint venture partner, planned capital expenditures for a given year may increase or decrease materially from the previous year. In 2016, we managed capital expenditures according to plan, completing capital projects for a total cost of approximately $108 million (excluding approximately $37 million that was part of development and tenant improvement budgets but reported under GAAP as capital expenditures), as compared to a budget of $117 million. The amount of 2016 capital expenditures represented a substantial increase (52.2%) over 2015. Both as a percentage of gross asset value (0.5%) and on a per square foot basis ($2.51), our capital expenditures program was larger than four of the five office REITs that we consider our direct competitors.
Overall Assessment: Goal met.
Quantitative Assessment: One of our goals was to increase revenue fromnon-office assets (including 100% of unconsolidated joint ventures) by expanding our parking, residential and retail offerings to approximately $268 million in 2016. For purposes of this goal, revenue does not include recoveries from tenants. Our 2016non-office revenue was approximately $265 million, consisting of approximately $102 million in parking revenue, approximately $14 million in residential revenue and approximately $149 million in retail revenue.
Qualitative Assessment: Retail revenue decreased by approximately $5 million in 2016 compared to 2015 primarily due to the termination of retail leases to allow for the retail redevelopment at 601 Lexington Avenueone project underway and the temporary store for Apple Inc. at 767 Fifth Avenue in New York City. These decisions are consistent with our long-term plan, despite their short-term impact. other awaiting local city approval.
Overall we believe we are well positioned to grownon-officeAssessment revenue in the upcoming years as a result of these decisions and management’s focus on retail and residential opportunities. For example, we signed a lease extension with Apple Inc. that includes additional space, and we signed a lease with Under Armour, Inc., in both cases for retail space at 767 Fifth Avenue in New York City. We expect
: Goal met.
BOSTON PROPERTIES, INC. |2017 Proxy Statement 39
COMPENSATION DISCUSSION AND ANALYSIS
these leases will substantially increase our retail revenue in future years. In addition, in October 2016 we secured an option to ground lease, with the future right to purchase, property adjacent to the MacArthur BART station in Oakland, California, that could support the development of a400-unit residential building and supporting retail space. Finally, in November 2016, we entered into a joint venture with our partner at our North Station development to acquire the air rights for the future development of a40-story, residential tower consisting of approximately 440 apartment units and approximately 320,000 rentable square feet.
Overall Assessment: Goal met.Management Goals
Ø | Investor Relations |
Why it is important: A complex, long-term strategy like ours requires regular interaction with thebuy-side and sell-side analysts, as well as significant investors in our stock, particularly because it differs from that of many of our peers in the office sector. Producing clear and concise presentations for investors in a variety of forums helps us differentiate Boston Properties in the REIT sector.
Qualitative Assessment:During 2016,2017, management continued to enhance our investor communications strategy, including conducting seventhreenon-deal road-shows, focusingtwo of which were outside of the United States, with a particular focus onnon-REIT dedicated and underweight investors, providing additional metrics as part of quarterly disclosures and completing the rollout of our new corporate brand. Ourinvestors. In October 2017, we held an investor relations program was ranked #1 among REITsconference attended by over 200 industry professionals from which we received positive feedback.
buy-sideOverall Assessment analysts and overall in an annual survey conducted byInstitutional Investor:. Goal exceeded.
Overall Assessment:BOSTON PROPERTIES, INC. Goal exceeded.|2018 Proxy Statement 45
COMPENSATION DISCUSSION AND ANALYSIS
MAJORITY OF COMPENSATION AWARDS ARE IN TSR PERFORMANCE-BASED EQUITY AWARDS; THREE-YEAR TSR DRIVES ACTUAL EARNED PAY
IV. | PERFORMANCE-BASED EQUITY AWARDS; THREE-YEAR TSR DRIVES ACTUAL EARNED PAY |
Multi-Year Long-Term Incentive Program (MYLTIP)
Our TSR drives a significant portion of what our NEOs actually earn over time, while, as discussed above, management’sManagement’s performance against strategic, operational, capital and management goals drives the Compensation Committee’s annual compensation awards. To align executive compensation with the Company’sWhat our NEOs actually earn is driven to a significant extent by our TSR performance, the Compensation Committee relies onthrough LTI awards under a rigorous performance-based program (our Multi-Year Long-Term Incentive Program, or “MYLTIP”). MYLTIP awards incorporate a formulaic link to our relative TSR over three-year overlapping measurement periods.
Because we are the largest dedicated office REIT, our performance is most closely correlated with both the larger U.S. REITs and office-focused companies. Therefore, consistent with the 2017 MYLTIP, the 2018 MYLTIP design is built on a comparison of our TSR against (1) the C&S Realty Index, which reflects many of the largest andbest-in-class REITs, as well asand (2) the NAREIT Office Index (which includes Boston Properties and is adjusted to include Vornado Realty Trust because it is one of the five office REITs that we consider our direct competitorsOffice Peers despite being categorized as a diversified REIT by FTSE)FTSE NAREIT), which contains all other listed office REITs.One-half of the awards earned on the basis of performance, if any, vest at the end of the performance measurement period. The balance is subject to one additional year of time-based vesting.
For 2016, our TSR underperformed both the NAREIT Office Index (0.71% versus 13.17%) and three of the five office REITs that we consider our direct competitors. We underperformed the C&S Realty Index (0.71% versus 4.93%). This negatively impacted our multi-year TSR performance relative to those indices and thus the actual amount earned by our NEOs with respect to 2014 MYLTIP awards (the value of which was determined by our relative TSR over the period from February 4, 2014 through February 3, 2017) was only 28% of target, or an aggregate of approximately $2.7 million compared to the aggregate target value of the awards of approximately $9.8 million.
40 BOSTON PROPERTIES, INC. |2017 Proxy Statement
COMPENSATION DISCUSSION AND ANALYSIS
Although they are not among the metrics driving MYLTIP awards, the Compensation Committee also receives information regarding the MSCI U.S. REIT Index (commonly referred to as the “RMS Index”), because it is a broad index for the domestic REIT sector, and the S&P 500 Index, because we are included in that index and it is a benchmark for many institutional investors. Our 2016 TSR was less than the TSR of both the RMS Index and the TSR of the S&P 500 Index, which impacted negatively both our three- and five-year TSR performance.
BOSTON PROPERTIES, INC. |2017 Proxy Statement 41
COMPENSATION DISCUSSION AND ANALYSIS
The Compensation Committee believes that MYLTIP awards appropriately align our management’s focus on achieving the Company’s strategy with the relative TSR expectations of our stockholders. Experience with past MYLTIP awards demonstrates that the performance-based compensation our NEOs actually earn validates our strongpay-for-performance philosophy. As of February 3, 2017, the performance measurement period for 2014 MYLTIP awards ended and the performance measurement periods for 2015 and 2016 MYLTIP awards were almosttwo-thirds andone-third complete, respectively. The following charts reflect the (1) actual value earned by NEOs as a group for their 2014 MYLTIP awards and (2) estimated values for NEOs as a group for their 2015 and 2016 MYLTIP awards as of December 31, 2016, based on tracking valuations performed by a valuation expert (which could change up or down over the balance of the respective measurement periods).
42 BOSTON PROPERTIES, INC. |2017 Proxy Statement
COMPENSATION DISCUSSION AND ANALYSIS
For 2017 MYLTIP awards, the Compensation Committee established levels of payout opportunity along a range from zero to 200% of target value, on a straight-line basis, depending on relative TSR performance compared to each of the C&S Realty Index and NAREIT Office Index (as adjusted) as follows:
This compares to anon-linear range from 50% to 250% of target value for 2016 MYLTIP awards as follows: “threshold” at 50% of target value for performance at 400 basis points below the relevant index, “target” for performance at 50 basis points above the relevant index, and “high” at 250% of target value for performance at 725 basis points above the relevant index. The Compensation Committee believes that the simplified and rebalanced design for 2017 MYLTIP awards provides management with quantifiable incentives, spanning a wider, symmetrical range of relative TSR performance that are better correlated with our actual performance and are intended to keep our management motivated over the entire three-year measurement period. The change in range of payout opportunities between 2016 MYLTIP awards and 2017 MYLTIP awards resulted in a greater amount of potential pay being eliminated at the high end above target than was added at the low end below target.
As was the case for 2016 MYLTIP awards, 2017 MYLTIP awards include modifiers that potentially penalize management for low absolute TSR and reward management for high absolute TSR over the entire measurement period. If our annualized TSR is less than 0%, earned awards will be reduced by 20% from what they would be based on relative TSR alone. If our annualized TSR is more than 12%, then awards will be earned at the “threshold” (50% of target value) level even if, based on relative TSR alone, awards would be earned at a lower level.One-half of any earned awards vest at the end of the performance measurement period. The remainingone-half is subject to one additional year of time-based vesting. Vesting is accelerated under certain circumstances. (See “– IX. Other Compensation Policies – Double-Trigger Acceleration of Vesting of Equity Awards upon a Change of Control” beginning on page 54.)
For 2018 MYLTIP awards, levels of payout opportunity range from zero to 200% of target value, on a straight-line basis, depending on relative TSR performance compared to each of the C&S Realty Index and NAREIT Office Index (as adjusted) as follows:
The Committee believes that the MYLTIP design provides management with quantifiable incentives that (i) span an appropriate, symmetrical range of relative TSR performance aligned with historical volatility in the REIT sector compared to our actual performance, (ii) will keep our management motivated over the entire three-year measurement period and (iii) reward management within a rigorouspay-for-performance philosophy. Based on advice from FPL, the Compensation Committee believes that the 2017 MYLTIP design is competitive as compared with current market practice in the REIT industry for similar plans and provides an appropriate risk-rewardtrade-off.
46 BOSTON PROPERTIES, INC. |2018 Proxy Statement
COMPENSATION DISCUSSION AND ANALYSIS
IV. PERFORMANCE-BASED EQUITY AWARDS; THREE-YEAR TSR DRIVES ACTUAL EARNED PAY WITH PERFORMANCE
Status of MYLTIP Awards
The Compensation Committee directed FPL to, among other things: (1) benchmarkfollowing summarizes the performance periods and outcomes of our 2015 executive compensation against our benchmarking peer group2013-2015 MYLTIP plans, all of which have ended, and assist in developing compensation objectives, (2) analyze trends in compensation in the marketplace generally and among our benchmarking peers specifically, and (3) recommend the components and amountsinterim valuations as of compensationDecember 31, 2017 for our top executive officers. We look to a group of sixteen publicly traded real estate companies for benchmarking executive compensation (see “– Benchmarking Peer Group and Compensation Advisor’s Role” beginning2016-2017 MYLTIP plans, in each case, based on page 48). We use the median (50th percentile) of this benchmarking peer group as the beginning reference point and as the indicator of competitive market trends. FPL’s benchmarking review wascalculations prepared by our valuation expert.
(1) | Percentages shown are estimates as of December 31, 2017, based on interim valuations performed by a valuation expert (which could change up or down over the balance of the respective measurement periods). |
BOSTON PROPERTIES, INC. | 20172018 Proxy Statement 4347
COMPENSATION DISCUSSION AND ANALYSIS
IV. PERFORMANCE-BASED EQUITY AWARDS; THREE-YEAR TSR DRIVES ACTUAL EARNED PAY
based, in part,Reported vs. Realized Pay
The Committee is cognizant that a direct correlation does not exist between the successful execution of our long-term strategy, as demonstrated year after year through the achievement of goals set for management, and our TSR, particularly on information disclosed ina relative basis. This is particularly true when TSR is compared over a limited period of time. For example, for the peer companies’ 2016 proxy statements, which disclose compensationmost recent 2015 MYLTIP program, Mr. Thomas earned $950,039, or 22% of the target value for 2015 (the latest year for which comprehensive data was publicly available). FPL also reviewed the 2016 NAREIT Compensation Survey (which FPL conducts)those awards, and additional proprietary real estate compensation surveys conducted throughout the year by FPL for additional context. Based on this information, FPL advised the Compensation Committee that total compensation for ourall NEOs as a group earned $2,634,349, or 22% of the target value for 2015 ranked at approximatelythose awards. The following graph shows for our CEO (1) the 55th – 60th percentile.reported value of the MYLTIP awards as of the respective grant dates, (2) the maximum payout opportunity that could have been earned under each plan based primarily on relative TSR performance, and (3) the actual realized pay for the 2013-2015 MYLTIP awards for which the measurement periods have ended, as well as interim valuations as of December 31, 2017 for the 2016 and 2017 MYLTIP awards:
The Compensation Committee then assesses corporate and individual performance. The Compensation Committee concluded that the management team performed very well against its 2016 strategic, operational, capital and management goals as discussed under “
2013 MYLTIP | 2014 MYLTIP | 2015 MYLTIP | Total (2013-2015) | 2016 MYLTIP | 2017 MYLTIP | |||||||||||||||||||
Reported Pay | $ | 1,125,000 | $ | 2,826,563 | $ | 4,145,625 | $ | 8,097,188 | $ | 5,000,000 | $ | 5,150,000 | ||||||||||||
Target Value | $ | 2,045,454 | $ | 2,884,247 | $ | 4,318,359 | $ | 9,248,060 | $ | 5,681,818 | $ | 6,204,819 | ||||||||||||
Maximum Payout Opportunity | $ | 6,136,362 | $ | 8,652,742 | $ | 10,795,898 | $ | 25,585,003 | $ | 14,204,545 | $ | 12,409,639 | ||||||||||||
Realized Pay | $ | 2,239,772 | $ | 798,257 | $ | 950,039 | $ | 3,988,068 | $ | 2,443,182 | (1) | $ | 2,854,217 | (1) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Payout as % of Target | 109% | 28% | 22% | 43% | 43% | (1) | 46% | (1) |
(1) | Amounts and percentages shown are estimated values for our CEO as of December 31, 2017, based on interim valuations performed by our valuation expert (which could change up or down over the balance of the respective measurement periods). |
48 BOSTON PROPERTIES, INC. | – Assessing Performance2018 Proxy Statement.”
COMPENSATION DISCUSSION AND ANALYSIS
V. | ALIGNMENT OF PAY WITH PERFORMANCE |
Based on the goal assessments, FPL’s benchmarking analysis and projections for compensation increases/increases and decreases among our peers and the market generally, and other input received from FPL, the Compensation Committee decided that 20162017 total compensation for the NEOs, as a group, should be set at a level that reflects an increase of approximately 3%11% over 20152016 total compensation.compensation, with a view to retention and providing incentives aligned with the best long-term interests of the Company and its stockholders.
Variable Pay Mix
For each NEO, the Compensation Committee approves the appropriate level and mix of pay based on his role, responsibilities and performance. For 2016, the Compensation Committee took note of Mr. Thomas’ being recognized in 2016 as the #3 CEO in the REIT sector by sell-side analysts in an annual survey conducted byInstitutional Investor, and continued to bring his total compensation closer to, although still below, the median for CEOs within our benchmarking peer group. The Compensation Committee also recognized Mr. LaBelle’s continued effectiveness in managing our balance sheet and his being recognized in 2016 for the second year in a row as the #1 CFO in the REIT sector bybuy-side analysts, sell-side analysts and overall, in an annual survey conducted byInstitutional Investor, and continued to bring his total compensation closer to the median for CFOs within our benchmarking peer group.
44 BOSTON PROPERTIES, INC. |2017 Proxy Statement
COMPENSATION DISCUSSION AND ANALYSIS
The Compensation Committee believes that our executive compensation is well-aligned with our stockholders’ interests and in line with our benchmarking peer group.the Benchmarking Peer Group. Variable pay, consisting of LTI equity awards and annual cash bonus, constitutes the vast majority of our executive compensation (for our CEO, variable pay constitutes 91.5%increased to 92.4% of total compensation for 20162017 performance). This allows the Compensation Committee to reward good performance and penalize poor performance. To build even strongerpay-for-performance alignment with our stockholders, LTI equity awards are predominantly“at-risk,” performance-based MYLTIP awards, the ultimate value of which depends mostly on the Company’s future relative TSR. The following charts present the allocation of total pay among different components for our CEO and the weighted averageweighted-average of each component for our otherall NEOs as a group:
BOSTON PROPERTIES, INC. | 20172018 Proxy Statement 4549
COMPENSATION DISCUSSION AND ANALYSIS
V. ALIGNMENT OF PAY WITH PERFORMANCE
2017 Compensation
The following table presents the total direct compensation of our NEOs, inclusive of salary, bonus and LTI equity awards, but not other items required by SEC rules to be reported in the Summary Compensation Table presented under “Compensation of Executive Officers.” We believe that this table most accurately reflects the awards made by the Compensation Committee with respect to executive compensation for 20162017 compared to 2015,2016, including MYLTIP awards whose value will be determined over a forward three-year period based on our relative TSR. To link annual awards of long-term equity incentive compensation to annual performance, the Compensation Committee, consistent with the majority of other companies whose fiscal year ends on December 31, typically makes equity awards for a particular year in late January or early February of the following year. SEC rules for equity awards (unlike for cash bonuses) require that they be presented as compensation for the year in which they were actually granted, and therefore equity awards shown in the Summary Compensation Table presented under ““Compensation of Executive Officers”Officers” on page 5661 lag a year (i.e., awards made in January 2017February 2018 to reward performance in 20162017 are not reflected in this year’s Summary Compensation Table).
Salary1 | Cash Bonus | |||||||||||||||||||||||
Executive | 2016 | 2015 | % Change | 2016 | 2015 | % Change | ||||||||||||||||||
Owen D. Thomas | $ | 875,000 | $ | 775,000 | 12.9% | $ | 2,558,333 | $ | 2,558,333 | 0.0% | ||||||||||||||
Douglas T. Linde | $ | 725,000 | $ | 715,000 | 1.4% | $ | 1,847,500 | $ | 1,805,000 | 2.4% | ||||||||||||||
Raymond A. Ritchey | $ | 720,000 | $ | 710,000 | 1.4% | $ | 1,555,000 | $ | 1,495,000 | 4.0% | ||||||||||||||
Michael E. LaBelle | $ | 500,000 | $ | 490,000 | 2.0% | $ | 900,000 | $ | 830,000 | 8.4% | ||||||||||||||
Bryan J. Koop | $ | 400,000 | $ | 390,000 | 2.6% | $ | 835,000 | $ | 821,250 | 1.7% | ||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||
Total | $ | 3,220,000 | $ | 3,080,000 | 4.5% | $ | 7,695,833 | $ | 7,509,583 | 2.5% | ||||||||||||||
LTI Equity Awards | Total Compensation | |||||||||||||||||||||||
Executive | 2016 | 2015 | % Change | 2016 | 2015 | % Change | ||||||||||||||||||
Owen D. Thomas | $ | 6,866,667 | $ | 6,666,667 | 3.0% | $ | 10,300,000 | $ | 10,000,000 | 3.0% | ||||||||||||||
Douglas T. Linde | $ | 4,777,500 | $ | 4,680,000 | 2.1% | $ | 7,350,000 | $ | 7,200,000 | 2.1% | ||||||||||||||
Raymond A. Ritchey | $ | 4,225,000 | $ | 4,095,000 | 3.2% | $ | 6,500,000 | $ | 6,300,000 | 3.2% | ||||||||||||||
Michael E. LaBelle | $ | 2,100,000 | $ | 1,980,000 | 6.1% | $ | 3,500,000 | $ | 3,300,000 | 6.1% | ||||||||||||||
Bryan J. Koop | $ | 1,365,000 | $ | 1,338,750 | 2.0% | $ | 2,600,000 | $ | 2,550,000 | 2.0% | ||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||
Total | $ | 19,334,167 | $ | 18,760,417 | 3.1% | $ | 30,250,000 | $ | 29,350,000 | 3.1% |
Salary(1) | Cash Bonus | |||||||||||||||||||||||
Executive | 2017 | 2016 | % Change | 2017 | 2016 | % Change | ||||||||||||||||||
Owen D. Thomas | $ | 875,000 | $ | 875,000 | —% | $ | 2,425,000 | $ | 2,558,333 | (5.2)% | ||||||||||||||
Douglas T. Linde | $ | 725,000 | $ | 725,000 | —% | $ | 1,935,000 | $ | 1,847,500 | 4.7% | ||||||||||||||
Raymond A. Ritchey | $ | 720,000 | $ | 720,000 | —% | $ | 2,080,000 | $ | 1,555,000 | 33.8% | ||||||||||||||
Michael E. LaBelle | $ | 500,000 | $ | 500,000 | —% | $ | 1,325,000 | $ | 900,000 | 47.2% | ||||||||||||||
Bryan J. Koop | $ | 400,000 | $ | 400,000 | —% | $ | 1,280,000 | $ | 835,000 | 53.3% | ||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||
Total | $ | 3,220,000 | $ | 3,220,000 | —% | $ | 9,045,000 | $ | 7,695,833 | 17.5% | ||||||||||||||
LTI Equity Awards | Total Compensation | |||||||||||||||||||||||
Executive | 2017 | 2016 | % Change | 2017 | 2016 | % Change | ||||||||||||||||||
Owen D. Thomas | $ | 8,189,000 | $ | 6,866,667 | 19.3% | $ | 11,489,000 | $ | 10,300,000 | 11.5% | ||||||||||||||
Douglas T. Linde | $ | 5,331,000 | $ | 4,777,500 | 11.6% | $ | 7,991,000 | $ | 7,350,000 | 8.7% | ||||||||||||||
Raymond A. Ritchey | $ | 4,509,000 | $ | 4,225,000 | 6.7% | $ | 7,309,000 | $ | 6,500,000 | 12.4% | ||||||||||||||
Michael E. LaBelle | $ | 2,050,000 | $ | 2,100,000 | (2.4)% | $ | 3,875,000 | $ | 3,500,000 | 10.7% | ||||||||||||||
Bryan J. Koop | $ | 1,308,000 | $ | 1,365,000 | (4.2)% | $ | 2,988,000 | $ | 2,600,000 | 14.9% | ||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||||||
Total | $ | 21,387,000 | $ | 19,334,167 | 10.6% | $ | 33,652,000 | $ | 30,250,000 | 11.2% |
(1) | The |
4650 BOSTON PROPERTIES, INC. | 20172018 Proxy Statement
COMPENSATION DISCUSSION AND ANALYSIS
VI. | ALLOCATION OF LTI EQUITY AWARDS |
The Compensation Committee approved LTI equity awards to NEOs for 20162017 performance as a dollar amount that was then converted into a mix of performance-based MYLTIP awards and time-based, full-value equity awards. At the direction of the Committee, FPL conducted a multi-year, backward- and forwarding-looking analysis of peer equity award pay mix with the objective of finding the appropriate allocation to maintain the focus and dedication of a talented management team, which, in our case, has met or exceeded its goals as a whole. Based on the information received from FPL, the Committee determined that it would be advisable to migrate over time to an allocation of LTI equity awards for the NEOs that is closer to the 50% - 50% mix of performance-based and time-based that is widely accepted in the market and prevalent among our peers, although the precise allocation will vary among different NEOs and from year to year based on circumstances. Messrs. Thomas’ and Linde’s reallocation resulted in relatively larger portions of performance-based 2018 MYLTIP awards as compared to past LTI equity award mixes, and Messrs. Ritchey, LaBelle and Koop received relatively larger portions in time-based incentive equity. The following table sets forth the total combined valuedollar values of the performance-based and time-based equity awards to NEOs:NEOs for 2017:
Total LTI Equity Awards Grant Date Value | Performance-Based LTI Equity Awards as a Percentage of Total1 | Time-Based LTI Equity Awards as a Percentage of Total1 | ||||||||||||||||||
Executive | 2016 | 2015 | % Change | 2016 | 2016 | |||||||||||||||
Owen D. Thomas | $ | 6,866,667 | $ | 6,666,667 | 3.0% | 75.0% | 25.0% | |||||||||||||
Douglas T. Linde | $ | 4,777,500 | $ | 4,680,000 | 2.1% | 75.0% | 25.0% | |||||||||||||
Raymond A. Ritchey | $ | 4,225,000 | $ | 4,095,000 | 3.2% | 65.0% | 35.0% | |||||||||||||
Michael E. LaBelle | $ | 2,100,000 | $ | 1,980,000 | 6.1% | 60.0% | 40.0% | |||||||||||||
Bryan J. Koop | $ | 1,365,000 | $ | 1,338,750 | 2.0% | 50.0% | 50.0% | |||||||||||||
|
|
|
| |||||||||||||||||
Total | $ | 19,334,167 | $ | 18,760,417 | 3.1% |
Executive | Performance- Based LTI Equity Awards | Time-Based LTI Equity Awards | Total LTI Equity Awards | Total LTI Equity Awards as % of Total Compensation | ||||||||||||
Owen D. Thomas | $ | 4,339,000 | $ | 3,850,000 | $ | 8,189,000 | 71% | |||||||||
Douglas T. Linde | $ | 2,861,000 | $ | 2,470,000 | $ | 5,331,000 | 67% | |||||||||
Raymond A. Ritchey | $ | 2,100,000 | $ | 2,409,000 | $ | 4,509,000 | 62% | |||||||||
Michael E. LaBelle | $ | 912,500 | $ | 1,137,500 | $ | 2,050,000 | 53% | |||||||||
Bryan J. Koop | $ | 560,000 | $ | 748,000 | $ | 1,308,000 | 44% | |||||||||
|
|
|
|
|
| |||||||||||
Total | $ | 10,772,500 | $ | 10,614,500 | $ | 21,387,000 | 64% |
The performance-based portion of LTI equity awards for 20162017 performance was made through 20172018 MYLTIP awards, with a three-year performance period (February 7, 20176, 2018 to February 6, 2020)5, 2021), an additional year of time-based vesting, a total target value for NEOs of approximately $16.2$13.1 million and an aggregate payout opportunity ranging from zero to a maximum of $32.3$26.3 million. The baseline share price for 20172018 MYLTIP awards was $130.484$118.46 (the average closing price per share of our common stock on the NYSE for the five trading days prior to and including February 7, 2017)6, 2018). The following table sets forth the 2017 MYLTIP awards to NEOs:
Executive | Percentage of 2017 MYLTIP | Grant Date Value | Target Value | |||||||||
Owen D. Thomas | 29.064% | $ | 5,150,000 | $ | 6,204,819 | |||||||
Douglas T. Linde | 20.222% | $ | 3,583,125 | $ | 4,317,018 | |||||||
Raymond A. Ritchey | 15.499% | $ | 2,746,250 | $ | 3,308,735 | |||||||
Michael E. LaBelle | 7.111% | $ | 1,260,500 | $ | 1,518,072 | |||||||
Bryan J. Koop | 3.852% | $ | 682,500 | $ | 822,289 | |||||||
|
|
|
|
|
| |||||||
Total | 75.748% | $ | 13,422,375 | $ | 16,170,933 |
Under the Financial Accounting Standards Board’s Accounting Standards Codification 718 “Compensation – Stock Compensation” (“ASC Topic 718”), we expect that 20172018 MYLTIP awards to NEOs will have an aggregate value of approximately $13.4$10.8 million, which amount will generally be amortized into earnings over the four-year plan period under the graded vesting method. 20172018 MYLTIP awards arewere made in the form of LTIP units that are subject to forfeiture to the extent they are not earned or do not become vested. The number of LTIP units issued was an estimate of the maximum number of LTIP units that NEOs could earn, based on certain assumptions. The number of LTIP units actually earned will be determined at the end of the performance period by dividing each NEO’s share of the total pool, if any, by the average per share closing price of our common stock on the NYSE for the fifteen trading days immediately preceding the measurement date. If fewer LTIP units than the number issued initially are earned, the balance will be forfeited. Prior to the measurement date, LTIP units issued on account of 2017 MYLTIP awards will be entitled to receive per unit distributions equal to 10% of the
BOSTON PROPERTIES, INC. |2017 Proxy Statement 47
COMPENSATION DISCUSSION AND ANALYSIS
regular quarterly distributions payable on a common unit, but will not be entitled to receive any special distributions, as opposed to distributions per unit equal to those, both regular and special, payable on a common unit after the measurement date.
BOSTON PROPERTIES, INC. |2018 Proxy Statement 51
COMPENSATION DISCUSSION AND ANALYSIS
VI. ALLOCATION OF LTI EQUITY AWARDS
The time-based portion of LTI equity awards granted for 20162017 performance to the NEOs other than Mr. Ritchey consisted of LTIP units or restricted shares of our common stock that vest ratably over a four-year period (25% per year). In the case of Mr. Ritchey, the time-based portion of his 20162017 LTI equity award was fully vested upon issuance because he had attained the retirement age of 65. Pursuant to our Equity Award Grant Policy discussed below, time-based full-value equity awards were issued as of the close of business on February 8, 20162, 2018 based on the closing price per share of our common stock on the NYSE on that date ($111.14)119.34).
BENCHMARKING PEER GROUP AND COMPENSATION ADVISOR’S ROLE
VII. | BENCHMARKING PEER GROUP AND COMPENSATION ADVISOR’S ROLE |
The Compensation Committee monitors the effectiveness of our executive compensation program on an ongoing basis. For it to be effective, among other things, we believe it is necessary for compensation to be competitive with other large public real estate companies with which we compete for executive talent. The Compensation Committee uses industry peer group data as one tool in assessing and determining pay for our executive officers. Other REITs, however, both in the office sector and in other sectors, are not always comparable to us because of differences in underlying business fundamentals. Peer group data is intended to provide the Compensation Committee with insight into overall market pay levels, market trends, “best” governance practices, and overall industry performance. The median (50th percentile) serves as a reference point and indicator of competitive market trends and the Compensation Committee uses it as the starting point when setting our executive compensation. We believe this use of peer company data is consistent with how stockholders and proxy advisory firms use such data.
The Compensation Committee has retained FPL as its advisor since 2012 and every yearre-assesses andre-affirms the independence of FPL in connection with renewal of the engagement. The Compensation Committee directed FPL to, among other things: (1) benchmark our executive compensation against our peers and assist in developing compensation objectives, (2) analyze trends in compensation in the marketplace generally and among our peers specifically and (3) recommend the components and amounts of compensation for our top executive officers.
FPL selected the companies to be included in the peer group we use for benchmarking executive compensation based on a review of the methodologies employed by sixteen of the REITs included in the S&P 500 Index. Based on these criteria, FPL recommended to the Compensation Committee the same peer group of sixteen publicly traded real estate companies as it did in previous years, which are comparable to the Company in terms of total capitalization and assets, irrespective of property focus. FPL felt that size, as measured by total capitalization rather than equity market capitalization, is the most relevant criterion because top executives are ultimately responsible for managing the entire organization and total capitalization best depicts scale, complexity and breadth of operations, as well as the amount of capital and assets managed. Notably, fifteen out of the sixteen members of this benchmarking peer groupBenchmarking Peer Group also list us as a peer company.
4852 BOSTON PROPERTIES, INC. | 20172018 Proxy Statement
COMPENSATION DISCUSSION AND ANALYSIS
VII. BENCHMARKING PEER GROUP AND COMPENSATION ADVISOR’S ROLE
The following table provides the names and key information for each peer companycompany:
Name | Property Focus | Headquarters | Number of Employees(1) | UPREIT Market Capitalization (in millions)(2) | Total Capitalization (in millions)(3) | |||||||||||
Alexandria Real Estate Equities, Inc. | Office | Pasadena, CA | 323 | $12,591 | $17,980 | |||||||||||
American Tower Corporation | Specialty | Boston, MA | 4,752 | $61,185 | $83,567 | |||||||||||
AvalonBay Communities, Inc. | Multi-family | Arlington, VA | 3,112 | $24,638 | $31,766 | |||||||||||
Digital Realty Trust, Inc. | Specialty | San Francisco, CA | 1,436 | $24,366 | $34,294 | |||||||||||
Equity Residential | Multi-family | Chicago, IL | 2,700 | $24,315 | $33,351 | |||||||||||
General Growth Properties, Inc. | Regional Mall | Chicago, IL | 1,700 | $22,615 | $36,677 | |||||||||||
HCP, Inc. | Health Care | Irvine, CA | 190 | $12,407 | $20,019 | |||||||||||
Host Hotels & Resorts, Inc. | Hotel | Bethesda, MD | 205 | $14,859 | $18,849 | |||||||||||
The Macerich Company | Regional Mall | Santa Monica, CA | 853 | $9,919 | $15,260 | |||||||||||
Prologis, Inc. | Industrial | San Francisco, CA | 1,565 | $35,350 | $47,741 | |||||||||||
Public Storage | Self-Storage | Glendale, CA | 5,600 | $36,423 | $41,897 | |||||||||||
Simon Property Group, Inc. | Regional Mall | Indianapolis, IN | 4,150 | $61,503 | $85,144 | |||||||||||
SL Green Realty Corp. | Office | New York, NY | 1,065 | $10,294 | $17,659 | |||||||||||
Ventas, Inc. | Health Care | Chicago, IL | 493 | $21,520 | $33,022 | |||||||||||
Vornado Realty Trust | Office | New York, NY | 3,989 | $15,759 | $26,904 | |||||||||||
Welltower, Inc. | Health Care | Toledo, OH | 392 | $23,618 | $36,759 | |||||||||||
Median | 1,501 | $23,116 | $33,187 | |||||||||||||
Average | 2,033 | $25,710 | $36,306 | |||||||||||||
Boston Properties, Inc. | 740 | $22,359 | $34,462 | |||||||||||||
Relative Percentile Rank | 31%-ile | 45%-ile | 60%-ile |
Source: S&P Dow Jones Indices, a Division of S&P Global. Data as of December 31, 2016:2017.
Name | Property Focus | Headquarters | Number of Employees | UPREIT Market Capitalization (in millions) | Total Capitalization (in millions) | |||||||||||
American Tower Corporation | Specialty | Boston, MA | 4,507 | $45,136 | $66,948 | |||||||||||
AvalonBay Communities, Inc. | Multi-family | Arlington, VA | 3,071 | $24,329 | $31,429 | |||||||||||
Digital Realty Trust, Inc. | Specialty | San Francisco, CA | 1,345 | $15,868 | $22,761 | |||||||||||
Equity Residential | Multi-family | Chicago, IL | 2,700 | $24,489 | $33,524 | |||||||||||
General Growth Properties, Inc. | Regional Mall | Chicago, IL | 1,800 | $22,221 | $35,285 | |||||||||||
HCP, Inc. | Health Care | Irvine, CA | 188 | $14,111 | $23,514 | |||||||||||
Host Hotels & Resorts, Inc. | Hotel | Bethesda, MD | 220 | $14,066 | $17,754 | |||||||||||
Kimco Realty Corporation | Shopping Center | New Hyde Park, NY | 551 | $10,717 | $16,693 | |||||||||||
The Macerich Company | Regional Mall | Santa Monica, CA | 848 | $10,950 | $16,237 | |||||||||||
Prologis, Inc. | Industrial | San Francisco, CA | 1,530 | $28,756 | $42,515 | |||||||||||
Public Storage | Self-Storage | Glendale, CA | 5,500 | $38,782 | $43,570 | |||||||||||
Simon Property Group, Inc. | Regional Mall | Indianapolis, IN | 3,100 | $64,024 | $87,183 | |||||||||||
SL Green Realty Corp. | Office | New York, NY | 1,075 | $11,285 | $18,761 | |||||||||||
Ventas, Inc. | Health Care | Chicago, IL | 493 | $22,317 | $33,536 | |||||||||||
Vornado Realty Trust | Office | New York, NY | 4,225 | $20,952 | $33,600 | |||||||||||
Welltower, Inc. | Health Care | Toledo, OH | 466 | $24,269 | $38,507 | |||||||||||
Median | 1,438 | $22,269 | $33,530 | |||||||||||||
Average | 1,976 | $24,517 | $35,114 | |||||||||||||
Boston Properties, Inc. | 785 | $21,606 | $33,133 | |||||||||||||
Relative Percentile Rank | 32%-ile | 43%-ile | 45%-ile |
(1) | Represents the number of employees on a full time equivalent basis. |
(2) | Represents market value of outstanding common stock. May include the value of OP units, where available. |
(3) | Total capitalization includes debt and the book value of any preferred stock. |
FPL’s benchmarking review was based, in part, on information disclosed in the peer companies’ 2016 proxy statements filed in 2017 (the latest year for which comprehensive data is publicly available). FPL also reviewed the 20162017 NAREIT Compensation Survey (which FPL conducts) and additional proprietary real estate compensation surveys conducted throughout the year by FPL for additional context. FPL’s review compared our executive pay practices to cash andnon-cash compensation awarded to executives in comparable positions at peer companies. FPL advised the Compensation Committee that the peer companies generally have compensation programs comparable to ours, with annual bonuses generally in the form of cash and annual long-term compensation generally in the form of equity with time-based vesting over three to five years and a focus on performance-based compensation.
BOSTON PROPERTIES, INC. |2018 Proxy Statement 53
COMPENSATION DECISIONSDISCUSSION AND ANALYSIS
VIII. | ROLE OF MANAGEMENT IN COMPENSATION DECISIONS |
Our CEO and President make recommendations to the Compensation Committee on the compensation of executive officers who report to them based on their assessment of achievement of the Company’s strategic and tactical plans, executives’ individual performance and a variety of other factors (e.g., compensation history, tenure, responsibilities, market data for competitive positions and retention concerns). The Compensation Committee considers these recommendations together with input from FPL. All final decisions affecting executive compensation are made by the Compensation Committee.
BOSTON PROPERTIES, INC. |2017 Proxy Statement 49
COMPENSATION DISCUSSION AND ANALYSIS
IX. | OTHER COMPENSATION POLICIES |
Double-Trigger Acceleration of Vesting of Equity Awards Upon a Change of Control
Time-based equity awards made in 2015 or later include “double-trigger” vesting, meaning that, if there is a “change of control” and the awards are not otherwise cancelled in connection with the change of control transaction, then they only become fully vested if, within 24 months after the change of control, the executive’s employment is terminated by the Company or its successor without “cause” or the executive resigns for “good reason.” We believe that this policy regarding acceleration of vesting upon a change of control is in line with current best practice while also continuing to remove potential disincentives for executives to pursue a change of control transaction that would benefit stockholders.
Although not required, the Compensation Committee decided to make the policy applicable to senior officers, including our Chief Executive Officer, who were entitled to single-trigger vesting under their employment agreements, and those executives voluntarily agreed to the change. The Compensation Committee believes that this demonstrates its and management’s responsiveness to stockholders and that the new policy addresses two key objectives:
• | Aligning executives’ interests with stockholders’ |
• | Minimizing conflicts of interest: double-trigger vesting in the context of a potential change of control reduces distraction and the risk that executives would leave the Company before a transaction is completed, while also preventing executives from receiving a windfall by compensating them only if their employment is terminated. |
Clawback Policy
We have a formal “clawback” policy, which allows us to recoup from all executive officers and certain other specified officers incentive compensation paid on the basis of financial results that are subsequently restated. Under the policy, if we are required to prepare an accounting restatement due to materialnon-compliance with any financial reporting requirement, the Compensation Committee may require those officers to repay or forfeit “excess compensation,” which includes annual cash bonus and long-term incentive compensation in any form (including stock options, restricted stock and LTIP units, whether time-based or performance-based) received by them during the three-year period preceding the publication of the restated financial statements, that the Compensation Committee determines was in excess of the amount that they would have received had such compensation been determined based on the financial results reported in the restated financial statements.
The Compensation Committee may take into account any factors it deems reasonable in determining (1) whether to seek recoupment of previously paid excess compensation, (2) the amount of excess compensation to recoup from each individual officer, which may reflect whether the Compensation Committee concluded that he or she engaged in wrongdoing or committed grossly negligent acts or omissions, and (3) the form of the compensation to be recouped. The Compensation Committee intends to periodically review this policy and, as
54 BOSTON PROPERTIES, INC. |2018 Proxy Statement
COMPENSATION DISCUSSION AND ANALYSIS
IX. OTHER COMPENSATION POLICIES
appropriate, conform it to any applicable final rules adopted pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act.
Gross-Up for Excess Parachute Payments
In January 2014, we adopted a formal “no taxgross-up” policy with respect to our senior executives. Pursuant to this policy, we will not make or promise to make any taxgross-up payment to any senior executive in the future, other than payments in accordance with obligations existing at the time of the policy’s adoption or pursuant to arrangements applicable to our management employees generally,
50 BOSTON PROPERTIES, INC. |2017 Proxy Statement
COMPENSATION DISCUSSION AND ANALYSIS
such as a relocation policy. RecentAll of the employment agreements that we have entered into with new senior executives since 2013, including our original and new employment agreements with our CEO, Mr. Thomas, do not provide for taxgross-up payments and, accordingly, this policy represents the formalization of the Compensation Committee’spre-existing practice with respect to taxgross-ups. In addition, our Senior Executive Severance Plan and Executive Severance Plan provide that executives who become eligible to participate in these plans in the future will not be entitled to any taxgross-up payments under the plans.
Policy Concerning Hedging and Pledging Transactions
We have a policy prohibiting executive officers and directors from engaging in short sales and derivative transactions, purchasing our securities on margin and pledging our securities as collateral for a loan. Transactions such as purchases and sales of publicly traded put and call options, short sales, hedging transactions such as prepaid variable forwards, equity swaps and collars create a heightened compliance risk or could create the appearance of misalignment between management and stockholders. In addition, securities held in a margin account or pledged as collateral may be sold without consent if the owner fails to meet a margin call or defaults on the loan, thus creating the risk that a sale may occur at a time when an officer or director is aware of material,non-public information or otherwise is not permitted to trade in Company securities. An exception from the policy may be granted on acase-by-case basis where an executive officer or director who wishes to pledge Company securities as collateral for a loan (not including margin debt) clearly demonstrates the financial capacity to repay the loan without resort to the pledged securities. No such exceptions have ever been granted.
Mandatory Minimum Equity Ownership Policy for Senior Executives
To align senior management with our stockholders and demonstrate to the investment community that our senior management is personally committed to our continued financial success, we have a policy that requires the following officer positions to maintain equity ownership equal to a multiple of their base salaries as follows:
Title | Multiple of Base Salary | |||
Chief Executive Officer | 6.0x | |||
President | 5.0x | |||
Senior Executive Vice President | 5.0x | |||
Executive Vice President, Chief Financial Officer | 3.0x | |||
Executive Vice President, Regional Manager | 2.0x | |||
Senior Vice President | 1.5x |
If an executive’s ownership falls below the applicable guideline due solely to a decline in the value of our common stock, the executive will not be required to acquire additional shares to meet the
BOSTON PROPERTIES, INC. |2018 Proxy Statement 55
COMPENSATION DISCUSSION AND ANALYSIS
IX. OTHER COMPENSATION POLICIES
guideline, but he or she will be required to retain all shares then held (except for shares withheld to pay withholding taxes or the exercise price of options) until such time as the executive again attains the target multiple.
Employees who are hired or promoted to senior management positions will have a five-year period beginning on January 1 of the year following their appointment to achieve this ownership requirement. Exceptions may be made for significant extenuating personal circumstances. The types of securities that will be counted toward the equity ownership requirement include shares of our common stock, common units and LTIP units (excluding performance-based LTIP units until and unless they have been earned), in each case both vested and unvested, as well as shares acquired and held through our stock purchase and dividend reinvestment plans. Stock options will not be counted.
BOSTON PROPERTIES, INC. |2017 Proxy Statement 51
COMPENSATION DISCUSSION AND ANALYSIS
Equity Award Grant Policy
We have a policy that annual grants to employees are approved by the Compensation Committee in or around the third or fourth week of January each year, with an effective grant date immediately following the closing of the NYSE on the second trading day after we publicly release financial results for the prior year. We believe this policy provides the necessary certainty and transparency for both employees and stockholders, while allowing the Compensation Committee desired flexibility.
Our Compensation Committee approves equity awards in dollar values. To the extent these awards are paid in the form of full-value awards (either shares of restricted stock and/or LTIP units), the number of shares/units granted is calculated by dividing the dollar value of the approved awards by the closing market price on the NYSE of a share of our common stock on the effective date of grant. To the extent these awards are made in the form of stock options, the number of shares underlying option grants is determined by dividing the dollar value of the approved awards by the fair value of aten-year option with the exercise price equal to the closing market price on the NYSE of a share of our common stock on the effective date of grant, as calculated by an independent valuation expert in accordance with ASC Topic 718 using assumptions approved by the Compensation Committee. The Equity Award Grant Policy does not apply to MYLTIP awards because they are not “full-value” awards upon issuance and their value depends on our future TSR performance; accordingly, consistent with past practice for performance-based equity awards, the Compensation Committee determined that the MYLTIP baseline share price, from which TSR performance is measured, should be based on the average closing stock price for the five trading days prior to and including the effective date of grant.
LTIP Units
Since 2003, we have used a class of partnership interests in our Operating Partnership, called long term incentive units, or LTIP units, as a form of equity-based award for annual long-term incentive equity compensation. LTIP units are designed to qualify as “profits interests” in the Operating Partnership for federal income tax purposes, meaning that initially they are not economically equivalent in value to a share of our common stock, but over time can increase in value toone-for-one parity with common stock by operation of special tax rules applicable to profits interests. LTIP units are designed to offer executives a long-term incentive comparable to restricted stock, while allowing them to enjoy a more favorable income tax treatment. Each LTIP unit awarded is deemed equivalent to an award of one share of common stock reserved under our incentive equity plan. The key difference between LTIP units and restricted stock is that at the time of award, LTIP units do not have full economic parity with common units, but can achieve such parity over time upon the occurrence of specified events in accordance with partnership tax rules. Until and unless such parity is reached, the value that an executive will realize for a given number of vested LTIP units is less than the value of an equal number of shares of our common stock.
56 BOSTON PROPERTIES, INC. |2018 Proxy Statement
COMPENSATION DISCUSSION AND ANALYSIS
IX. OTHER COMPENSATION POLICIES
Under the 2015, 2016, 2017 and 20172018 MYLTIP, during the performance period holders of LTIP units will receive distributions equal toone-tenth (1/10th)(1 / 10th) of the amount of regular quarterly distributions paid on a common unit, but will not receive any special distributions. After the end of the performance period, holders of earned LTIP units, both vested and unvested, will be entitled to receive distributions in an amount per LTIP unit equal to the distributions, both regular and special, payable on a common unit (which equal per share dividends (both regular and special) on our common stock). LTIP units awarded with time-based vesting conditions only, both vested and unvested, are entitled to receive distributions in an amount per LTIP unit equal to the distributions, both regular and special, payable on a common unit.
52 BOSTON PROPERTIES, INC. |2017 Proxy Statement
COMPENSATION DISCUSSION AND ANALYSIS
Employment Agreements
We have employment agreements with each of our NEOs. (See “Compensation of Executive Officers – Potential Payments Upon Termination or Change in Control” beginning on page 64.69.) TheseFor NEOs other than Mr. Thomas, these agreements provide for a certain level of severance, generally the sum of base salary plus the prior year’s cash bonus, 12 additional months of vesting in equity-based awards and participation in our health plan for up to 12 months, in the event of a termination of employment by us without cause or by the executives for good reason. The employment agreement with Mr. Thomas provides for stipulated severance benefits in lieu of participation in severance plans for which other NEOs are eligible. In return, each executive agrees, during the term of employment and for one year thereafter, not to compete with us, solicit our tenants or employees or interfere with our relationship with our tenants, suppliers, contractors, lenders, employees or with any governmental agency. We believe that these agreements are fair to the executives and to our stockholders and, because the severance benefits are negotiated at the time of the agreement, avoid the need for protracted negotiations in the event of termination.
Change in Control Arrangements
We have an employment agreement with Mr. Thomas that provides him with cash severance and certain benefits in the event of his termination under certain circumstances within 24 months following a change in control. Although Mr. Thomas was entitled to “single-trigger” vesting upon a change in control under his original employment agreement, he has agreed to be subject to the “double-trigger” vesting policy adopted for all time-based LTI equity awards made in 2015 or later. We also have two change in control severance plans, one for our President, Senior Executive Vice President and Executive Vice Presidents, and the other for our Senior Vice Presidents and those Vice Presidents with ten (10) or more years of tenure with us. These plans also provide cash severance and certain benefits in the event of termination of employment under certain circumstances within 24 months following a change in control. The two change in control severance plans are “double trigger” arrangements, providing severance benefits only upon involuntary termination or constructive termination of the executive officer following a change in control. (See “Compensation of Executive Officers – Potential Payments Upon Termination or Change in Control” beginning on page 64.69.) Officers who became eligible under the two severance plans described above prior to their amendment in January 2014 upon adoption by the Compensation Committee of a formal “no taxgross-up” policy are entitled to agross-up payment in the event they become subject to the 20% golden parachute excise tax. This was market practice when these plans were adopted in 1998. Mr. Thomas is not entitled to a taxgross-up payment under his employment agreement.
In our experience, change in control cash severance protection for executive officers is common in the REIT industry. Our Compensation Committee believes it is fair to provide severance protection in the event of an involuntary termination or constructive termination of employment following a change in control because very often senior manager positions are eliminated following a change in control. By agreeing up front to provide severance benefits in the event of an involuntary termination or constructive
BOSTON PROPERTIES, INC. |2018 Proxy Statement 57
COMPENSATION DISCUSSION AND ANALYSIS
IX. OTHER COMPENSATION POLICIES
termination of employment following a change in control, the Compensation Committee believes we can reinforce and encourage the continued attention and dedication of senior management to their assigned duties without distraction in the face of an actual or threatened change in control and ensure that management is motivated to negotiate the best consideration for our stockholders. For treatment of equity awards in the event of a change in control, please see“– Double-Trigger Acceleration of Vesting of Equity Awards upon a Change of Control”Control”above.
Perquisites
We provide Messrs. Linde, Ritchey and Koop a monthly car allowance of $750 and we provide all of our executive officers a designated parking space. Mr. Thomas’ employment agreement provides that he is entitled to the use of a Company-owned or leased vehicle, but Mr. Thomas has declined this benefit at
BOSTON PROPERTIES, INC. |2017 Proxy Statement 53
all times since 2013. Apart from these arrangements, we do not provide any other perquisites to our executive officers.
Deferred Compensation Plan
We offer a deferred compensation plan that enables our executives to defer up to 20% of their base salaries and bonuses. The amounts deferred are not included in the executive’s current taxable income and, therefore, are not currently deductible by us. The executives select from a limited number of mutual funds which serve as measurement funds, and the deferred amounts are increased or decreased to correspond to the market value of the mutual fund investments. Because the measurement funds are publicly traded securities, we do not consider any of the earnings credited under the deferred compensation plan to be “above market.” We do not provide any matching contribution to any executive officer who participates in this plan, other than a limited amount to make up for any loss of matching contributions under our Section 401(k) plan. We have made this plan available to our executives in order to ensure that our benefits are competitive. See “Compensation of Executive Officers – Nonqualified Deferred Compensation” beginning on page 62.68.
Retirement and Health and Welfare Benefits
We have never had a traditional or defined benefit pension plan. We maintain a Section 401(k) retirement plan in which all salaried employees can participate which provides a Company matching contribution of 200% of the first 3% of compensation contributed to the plan (utilizing earnings not in excess of an amount established by the Internal Revenue Service ($265,000270,000 in 2016)2017)). Other benefits, such as health and dental plans, group term life insurance, short- and long-term disability insurance and travel accident insurance, are also available generally to all of our salaried employees. Our executives participate in Company-sponsored benefit programs available broadly to generally all of our salaried employees, including our employee stock purchase plan and our Section 401(k) plan.
Deductibility of Executive Compensation
The Compensation Committee’s policy is to consider the tax treatment of compensation paid to our executive officers while simultaneously seeking to provide our executives with appropriate rewards for their performance. Under Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”), a publicly-held corporation may not deduct compensation of more than $1 million paid to any “covered employee” unless certain exceptions are met primarily related to performance-based compensation. Substantially all of the services rendered by our executive officers were performed on behalf of our operating partnership or its subsidiaries. The Internal Revenue Service has issued a series of private letter rulings which indicate that compensation paid by an operating partnership to executive officers of a REIT that serves as its general partner is not subject to limitation under Section 162(m) to the extent such
58 BOSTON PROPERTIES, INC. |2018 Proxy Statement
COMPENSATION DISCUSSION AND ANALYSIS
IX. OTHER COMPENSATION POLICIES
compensation is attributable to services rendered to the operating partnership. We have not obtained a ruling on this issue, but have no reason to believe that the same conclusion would not apply to us. To the extent that compensation paid to our executive officers is subject to and does not qualify for deduction under Section 162(m), our Compensation Committee is prepared to exceed the limit on deductibility under Section 162(m) to the extent necessary to establish compensation programs that we believe provide appropriate incentives and reward our executives relative to their performance. Because we qualify as a REIT under the Code, we generally distribute at least 100% of our net taxable income each year and therefore do not pay federal income tax. As a result, and based on the level of cash compensation paid to our executive officers, the possible loss of a federal tax deduction would not be expected to have a material impact on us.
Accounting for Stock-Based Compensation
We account for stock-based awards in accordance with the requirements of ASC Topic 718.
BOSTON PROPERTIES, INC. |2017 Proxy Statement 54
COMPENSATION DISCUSSION AND ANALYSIS
Assessment of Compensation-Related Risks
The Compensation Committee is responsible for overseeing the risks relating to compensation policies and practices affecting senior management on an ongoing basis. The Compensation Committee believes that because of the following there is a low likelihood that our compensation policies and practices would encourage excessive risk-taking:
Risk Mitigation Factors
• | our policies and programs are generally intended to encourage executives to focus on long-term objectives; |
• | overall compensation is maintained at levels that are competitive with the market; |
• | the mix of compensation rewards long-term performance with a significantat-risk component; |
• | variable pay is based on the achievement of a variety of financial and operational performance measures with the |
• | all equity awards are subject to multi-year vesting; |
• | executive officers are subject to minimum stock ownership guidelines and limitations on trading in our securities, including prohibitions on hedging and pledging; and |
• | a clawback policy permits the Company to recoup compensation paid on the basis of financial results that are subsequently restated. |
BOSTON PROPERTIES, INC. |2018 Proxy Statement 59
The Compensation Committee of Boston Properties has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of RegulationS-K with management and, based on such review and discussions, the Compensation Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this proxy statement.
Submitted by the Compensation Committee:
Carol B. Einiger, Chair
Bruce W. Duncan
David A. Twardock
60BOSTON PROPERTIES, INC. | 20172018 Proxy Statement 55
COMPENSATION OF EXECUTIVE OFFICERS
The following table shows the compensation for each of our NEOs in accordance with Item 402(c) of RegulationS-K.
Name and Principal Position | Year | Salary ($) | Bonus ($) | Stock Awards ($)(4) | All Other Compensation ($)(8) | Total ($)(9) | Year | Salary ($) | Bonus ($)(1) | Stock Awards ($)(2) | All Other Compensation ($)(6) | Total ($) | ||||||||||||||||||||||||||||||||||||
Owen D. Thomas Chief Executive Officer | 2016 | 867,308 | 2,558,333 | (1) | 6,560,000 | (5) | 16,380 | 10,002,021 |
|
2017
|
|
|
875,000
|
|
|
2,425,000
|
|
|
6,745,617
|
(3)
|
|
16,680
|
|
|
10,062,297
|
| ||||||||||||||||||||||
2015 | 773,077 | 2,558,333 | (2) | 5,421,975 | (6) | 16,380 | 8,769,765 |
|
2016
|
|
|
867,308
|
|
|
2,558,333
|
|
|
6,560,000
|
(4)
|
|
16,380
|
|
|
10,002,021
|
| |||||||||||||||||||||||
2014 | 750,000 | 1,972,500 | (3) | 3,698,841 | (7) | 16,200 | 6,437,541 |
|
2015
|
|
|
773,077
|
|
|
2,558,333
|
|
|
5,421,975
|
(5)
|
|
16,380
|
|
|
8,769,765
|
| |||||||||||||||||||||||
Douglas T. Linde President | 2016 | 724,231 | 1,847,500 | (1) | 4,605,120 | (5) | 33,300 | 7,210,151 |
|
2017
|
|
|
725,000
|
|
|
1,935,000
|
|
|
4,777,500
|
(3)
|
|
33,600
|
|
|
7,471,100
|
| ||||||||||||||||||||||
2015 | 713,462 | 1,805,000 | (2) | 4,418,624 | (6) | 32,700 | 6,969,786 |
|
2016
|
|
|
724,231
|
|
|
1,847,500
|
|
|
4,605,120
|
(4)
|
|
33,300
|
|
|
7,210,151
|
| |||||||||||||||||||||||
2014 | 693,462 | 1,686,377 | (3) | 3,975,284 | (7) | 32,400 | 6,387,523 |
|
2015
|
|
|
713,462
|
|
|
1,805,000
|
|
|
4,418,624
|
(5)
|
|
32,700
|
|
|
6,969,786
|
| |||||||||||||||||||||||
Raymond A. Ritchey Senior Executive Vice | 2016 | 719,231 | 1,555,000 | (1) | 3,915,844 | (5) | 32,796 | 6,222,871 |
|
2017
|
|
|
720,000
|
|
|
2,080,000
|
|
|
4,077,125
|
(3)
|
|
33,096
|
|
|
6,910,221
|
| ||||||||||||||||||||||
2015 | 708,462 | 1,495,000 | (2) | 3,853,737 | (6) | 29,088 | 6,086,287 |
|
2016
|
|
|
719,231
|
|
|
1,555,000
|
|
|
3,915,844
|
(4)
|
|
32,796
|
|
|
6,222,871
|
| |||||||||||||||||||||||
2014 | 688,462 | 1,480,000 | (3) | 3,719,578 | (7) | 28,908 | 5,916,948 |
|
2015
|
|
|
708,462
|
|
|
1,495,000
|
|
|
3,853,737
|
(5)
|
|
29,088
|
|
|
6,086,287
|
| |||||||||||||||||||||||
Michael E. LaBelle Executive Vice President, Chief Financial Officer and Treasurer | 2016 | 499,231 | 900,000 | (1) | 1,929,312 | (5) | 24,300 | 3,352,843 |
|
2017
|
|
|
500,000
|
|
|
1,325,000
|
|
|
2,100,000
|
(3)
|
|
24,600
|
|
|
3,949,600
|
| ||||||||||||||||||||||
2015 | 488,846 | 830,000 | (2) | 1,540,000 | (6) | 23,700 | 2,882,546 |
|
2016
|
|
|
499,231
|
|
|
900,000
|
|
|
1,929,312
|
(4)
|
|
24,300
|
|
|
3,352,843
|
| |||||||||||||||||||||||
2014 | 473,846 | 785,000 | (3) | 1,323,988 | (7) | 23,400 | 2,606,234 |
|
2015
|
|
|
488,846
|
|
|
830,000
|
|
|
1,540,000
|
(5)
|
|
23,700
|
|
|
2,882,546
|
| |||||||||||||||||||||||
Bryan J. Koop Executive Vice President, | 2016 | 399,231 | 835,000 | (1) | 1,295,910 | (5) | 33,300 | 2,563,441 |
|
2017
|
|
|
400,000
|
|
|
1,280,000
|
|
|
1,316,874
|
(3)
|
|
33,600
|
|
|
3,030,474
|
| ||||||||||||||||||||||
2015 | 388,846 | 821,250 | (2) | 1,243,150 | (6) | 32,700 | 2,485,946 |
|
2016
|
|
|
399,231
|
|
|
835,000
|
|
|
1,295,910
|
(4)
|
|
33,300
|
|
|
2,563,441
|
| |||||||||||||||||||||||
|
2015
|
|
|
388,846
|
|
|
821,250
|
|
|
1,243,150
|
(5)
|
|
32,700
|
|
|
2,485,946
|
|
(1) |
(2) |
A discussion of the assumptions used in calculating these values can be found in Note 17 to our |
Represents the |
Represents the |
(5) | Represents the grant date fair value of restricted common stock and LTIP unit awards and 2015 MYLTIP awards granted in 2015, determined in accordance with ASC Topic 718, disregarding for this purpose the estimate of forfeitures related to service-based vesting conditions. |
56BOSTON PROPERTIES, INC. | 20172018 Proxy Statement 61
COMPENSATION OF EXECUTIVE OFFICERS
The table below shows the components of “All Other Compensation” for |
Name | Life Insurance ($) | 401(k) Company Match ($) | Car Allowance ($) | Parking ($) | Total ($) | Life Insurance ($) | 401(k) Company Match ($) | Car Allowance ($) | Parking ($) | Total ($) | ||||||||||||||||||||||||||||||
Mr. Thomas | 480 | 15,900 | — | — | 16,380 |
|
480
|
|
|
16,200
|
|
|
—
|
|
|
—
|
|
|
16,680
|
| ||||||||||||||||||||
Mr. Linde | 480 | 15,900 | 9,000 | 7,920 | 33,300 |
|
480
|
|
|
16,200
|
|
|
9,000
|
|
|
7,920
|
|
|
33,600
|
| ||||||||||||||||||||
Mr. Ritchey | 480 | 15,900 | 9,000 | 7,416 | 32,796 |
|
480
|
|
|
16,200
|
|
|
9,000
|
|
|
7,416
|
|
|
33,096
|
| ||||||||||||||||||||
Mr. LaBelle | 480 | 15,900 | — | 7,920 | 24,300 |
|
480
|
|
|
16,200
|
|
|
—
|
|
|
7,920
|
|
|
24,600
|
| ||||||||||||||||||||
Mr. Koop | 480 | 15,900 | 9,000 | 7,920 | 33,300 |
|
480
|
|
|
16,200
|
|
|
9,000
|
|
|
7,920
|
|
|
33,600
|
|
62BOSTON PROPERTIES, INC. | 20172018 Proxy Statement 57
COMPENSATION OF EXECUTIVE OFFICERS
20162017 GRANTS OF PLAN-BASED AWARDS
The following table provides information about the awards granted to our NEOs during the year ended December 31, 2016.2017.
Name | Grant Date | Date of Compensation Committee Approval(1) | Estimated Future Payouts Under Equity Incentive Plan Awards | All Other Stock Awards: Number of Shares of Stock or Units (#)(3) | Grant Date Stock and Option ($)(4) | Grant Date | Date of Compensation Committee Approval(1) | Estimated Future Payouts Under Equity Incentive Plan Awards | All Other Stock Awards: Number of Shares of Stock or Units (#)(3) | Grant Date Fair Value of Stock and Option Awards ($)(4) | ||||||||||||||||||||||||||||||||||||||||||||||
Threshold ($)(2) | Target ($)(2) | Maximum ($)(2) | Threshold ($)(2) | Target ($)(2) | Maximum ($)(2) | |||||||||||||||||||||||||||||||||||||||||||||||||||
Owen D. Thomas | 2/8/2016 | 1/25/2016 | — | — | — | 14,996 | 1,560,000 |
|
2/3/2017
|
|
|
1/25/2017
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
13,132
|
|
|
1,595,617
|
| ||||||||||||||||||||||||||||
2/10/2016 | 1/25/2016 | 2,840,909 | 5,681,818 | 14,204,545 | — | 5,000,000 |
|
2/7/2017
|
|
|
1/25/2017
|
|
|
0
|
|
|
6,204,819
|
|
|
12,409,639
|
|
|
—
|
|
|
5,150,000
|
| |||||||||||||||||||||||||||||
Douglas T. Linde | 2/8/2016 | 1/25/2016 | — | — | — | 10,527 | 1,095,120 |
|
2/3/2017
|
|
|
1/25/2017
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
9,136
|
|
|
1,194,375
|
| ||||||||||||||||||||||||||||
2/10/2016 | 1/25/2016 | 1,994,318 | 3,988,636 | 9,971,590 | — | 3,510,000 |
|
2/7/2017
|
|
|
1/25/2017
|
|
|
0
|
|
|
4,317,018
|
|
|
8,634,036
|
|
|
—
|
|
|
3,583,125
|
| |||||||||||||||||||||||||||||
Raymond A. Ritchey | 2/8/2016 | 1/25/2016 | — | — | — | 12,895 | 1,254,094 |
|
2/3/2017
|
|
|
1/25/2017
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
11,312
|
|
|
1,330,875
|
| ||||||||||||||||||||||||||||
2/10/2016 | 1/25/2016 | 1,512,357 | 3,024,715 | 7,561,788 | — | 2,661,750 |
|
2/7/2017
|
|
|
1/25/2017
|
|
|
0
|
|
|
3,308,735
|
|
|
6,617,470
|
|
|
—
|
|
|
2,746,250
|
| |||||||||||||||||||||||||||||
Michael E. LaBelle | 2/8/2016 | 1/25/2016 | — | — | — | 7,126 | 741,312 |
|
2/3/2017
|
|
|
1/25/2017
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
6,425
|
|
|
840,000
|
| ||||||||||||||||||||||||||||
2/10/2016 | 1/25/2016 | 675,000 | 1,350,000 | 3,375,000 | — | 1,188,000 |
|
2/7/2017
|
|
|
1/25/2017
|
|
|
0
|
|
|
1,518,072
|
|
|
3,036,145
|
|
|
—
|
|
|
1,260,000
|
| |||||||||||||||||||||||||||||
Bryan J. Koop | 2/8/2016 | 1/25/2016 | — | — | — | 6,022 | 626,535 |
|
2/3/2017
|
|
|
1/25/2017
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
5,221
|
|
|
634,374
|
| ||||||||||||||||||||||||||||
2/10/2016 | 1/25/2016 | 380,326 | 760,653 | 1,901,633 | — | 669,375 |
|
2/7/2017
|
|
|
1/25/2017
|
|
|
0
|
|
|
822,289
|
|
|
1,644,578
|
|
|
—
|
|
|
682,500
|
|
(1) | For a discussion of the Company’s policy with respect to the effective grant dates for annual equity-based awards, see “Compensation Discussion and Analysis – Other Compensation Policies – Equity Award Grant Policy” beginning on page |
(2) | Represents |
(3) | Stock awards were made in the form of shares of restricted common stock and/or LTIP units at the election of each NEO. Each NEO elected to receive all LTIP units. LTIP units were awarded under the Boston Properties, Inc. 2012 Stock Option and Incentive Plan (the “2012 Plan”) by the Compensation Committee. Dividends are payable on restricted common stock and distributions are payable on the LTIP units to the same extent and on the same date that dividends and distributions are paid on Boston Properties common stock and common units of our Operating Partnership, respectively. Grantees of restricted common stock pay $0.01 per share and grantees of LTIP units pay $0.25 per unit. The awards generally vest over a four-year period with 25% vesting on January 15 of each year beginning January 15, |
58 BOSTON PROPERTIES, INC. |2017 Proxy Statement
COMPENSATION OF EXECUTIVE OFFICERS
|
BOSTON PROPERTIES, INC. |2018 Proxy Statement 63
COMPENSATION OF EXECUTIVE OFFICERS
(4) | The amounts included in this column represent the full grant date fair value of the restricted common stock and LTIP unit awards and |
64BOSTON PROPERTIES, INC. | 20172018 Proxy Statement 59
COMPENSATION OF EXECUTIVE OFFICERS
OUTSTANDING EQUITY AWARDS AT DECEMBER 31, 20162017
The following table sets forth information regarding outstanding equity awards held by our NEOs as of December 31, 20162017 pursuant to Item 402(f) of RegulationS-K.
Option Awards(1) | Stock Awards(1) | Option Awards(1) | Stock Awards(1) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Name | Number of Securities Underlying Unexercised Options (#) Exercisable | Number of Securities Underlying Unexercised Options (#) Unexercisable | Option Exercise Price ($) | Option Expiration Date | Number of Shares or Units of Stock That Have Not Vested (#) | Market Value of Shares or Units of That Have Not Vested ($)(2) | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#) | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($)(2) | Number of Securities Underlying Unexercised Options (#) Exercisable | Number of Securities Underlying Unexercised Options (#) Unexercisable | Option Exercise Price ($) | Option Expiration Date | Number of Shares or Units of Stock That Have Not Vested (#) | Market Value of Shares or Units of Stock That Have Not Vested ($)(2) | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#) | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($)(2) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Owen D. Thomas | 40,711 | 13,571 | (3) | 95.69 | 4/2/2023 | 54,282 | — | 95.69 | 4/2/2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
6,058 | (5) | 761,975 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
4,358 | (6) | 548,149 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
7,308 | (7) | 919,200 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
14,996 | (8) | 1,886,197 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
14,311 | (9) | 1,800,038 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
11,495 | (12) | 1,445,841 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
9,540 | (3) | 1,240,486 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2,179 | (4) | 283,335 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
3,066 | (5) | 398,672 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
4,872 | (6) | 633,506 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
11,247 | (7) | 1,462,447 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
13,132 | (8) | 1,707,554 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
16,897 | (9) | 2,197,117 | (9) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
17,211 | (13) | 2,164,800 | 22,232 | (10) | 2,890,827 | (10) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
45,290 | (14) | 5,696,576 | 24,279 | (11) | 3,156,998 | (11) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Douglas T. Linde | 27,455 | — | 86.86 | 1/28/2021 | 27,455 | — | 86.86 | 1/28/2021 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
34,476 | — | 100.77 | 2/3/2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
30,819 | 10,273 | (4) | 98.46 | 2/1/2023 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
5,120 | (10) | 643,994 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
4,640 | (6) | 583,619 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
5,842 | (7) | 734,807 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
10,527 | (8) | 1,324,086 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
16,939 | (11) | 2,130,587 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
10,893 | (9) | 1,370,122 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
12,239 | (12) | 1,539,421 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
13,758 | (13) | 1,730,481 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
31,794 | (14) | 3,999,049 | 34,476 | — | 100.77 | 2/3/2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Raymond A. Ritchey(15) | 24,739 | — | 86.86 | 1/28/2021 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
32,120 | — | 100.77 | 2/3/2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
39,943 | — | 98.46 | 2/1/2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
15,810 | (11) | 1,988,582 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
10,162 | (9) | 1,278,176 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
10,095 | (12) | 1,269,749 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
10,875 | (13) | 1,367,858 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
41,092 | — | 98.46 | 2/1/2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
7,262 | (3) | 944,278 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2,320 | (4) | 301,670 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
3,264 | (5) | 424,418 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
3,895 | (6) | 506,467 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
7,896 | (7) | 1,026,717 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
9,136 | (8) | 1,187,954 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
13,507 | (9) | 1,756,315 | (9) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
15,607 | (10) | 2,029,378 | (10) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
16,892 | (11) | 2,196,467 | (11) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Raymond A. Ritchey(12) | 24,739 | — | 86.86 | 1/28/2021 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
32,120 | — | 100.77 | 2/3/2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
39,943 | — | 98.46 | 2/1/2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
6,775 | (3) | 880,953 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2,693 | (5) | 350,171 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
10,677 | (9) | 1,388,330 | (9) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
11,835 | (10) | 1,538,905 | (10) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
24,110 | (14) | 3,032,556 | 12,947 | (11) | 1,683,498 | (11) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Michael E. LaBelle | 7,749 | — | 100.77 | 2/3/2022 | 7,749 | — | 100.77 | 2/3/2022 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
6,441 | 2,147 | (4) | 98.46 | 2/1/2023 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
1,071 | (10) | 134,710 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
3,180 | (6) | 399,980 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
4,072 | (7) | 512,176 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
7,126 | (8) | 896,308 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
7,905 | (11) | 994,291 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
5,314 | (9) | 668,395 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2,796 | (12) | 351,681 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
3,197 | (13) | 402,119 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
10,761 | (14) | 1,353,519 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Bryan J. Koop | 5,616 | — | 86.86 | 1/28/2021 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
7,067 | — | 100.77 | 2/3/2022 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
6,200 | 2,067 | (4) | 98.46 | 2/1/2023 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
1,031 | (10) | 129,679 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2,544 | (6) | 319,984 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
3,418 | (7) | 429,916 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
6,022 | (8) | 757,447 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
6,493 | (11) | 816,690 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
4,184 | (9) | 526,264 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2,237 | (12) | 281,370 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2,683 | (13) | 337,468 | 8,588 | — | 98.46 | 2/1/2023 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
6,063 | (14) | 762,604 | 3,542 | (3) | 460,566 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
1,590 | (4) | 206,748 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
746 | (5) | 97,002 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2,715 | (6) | 353,031 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
5,345 | (7) | 695,010 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
6,425 | (8) | 835,443 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
3,138 | (9) | 408,034 | (9) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
5,282 | (10) | 686,818 | (10) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
5,940 | (11) | 772,378 | (11) |
60BOSTON PROPERTIES, INC. | 20172018 Proxy Statement 65
COMPENSATION OF EXECUTIVE OFFICERS
Option Awards(1) | Stock Awards(1) | |||||||||||||||||||||||||||||||||||
Name | Number of Securities Underlying Unexercised Options (#) Exercisable | Number of Securities Underlying Unexercised Options (#) Unexercisable | Option Exercise Price ($) | Option Expiration Date | Number of Shares or Units of Stock That Have Not Vested (#) | Market Value of Shares or Units of Stock That Have Not Vested ($)(2) | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#) | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($)(2) | ||||||||||||||||||||||||||||
Bryan J. Koop | 5,616 | — | 86.86 | 1/28/2021 | ||||||||||||||||||||||||||||||||
7,067 | — | 100.77 | 2/3/2022 | |||||||||||||||||||||||||||||||||
8,267 | — | 98.46 | 2/1/2023 | |||||||||||||||||||||||||||||||||
2,789 | (3) | 362,654 | ||||||||||||||||||||||||||||||||||
1,272 | (4) | 165,398 | ||||||||||||||||||||||||||||||||||
597 | (5) | 77,628 | ||||||||||||||||||||||||||||||||||
2,279 | (6) | 296,338 | ||||||||||||||||||||||||||||||||||
4,517 | (7) | 587,346 | ||||||||||||||||||||||||||||||||||
5,221 | (8) | 678,887 | ||||||||||||||||||||||||||||||||||
2,634 | (9) | 342,499 | (9) | |||||||||||||||||||||||||||||||||
2,976 | (10) | 386,969 | (10) | |||||||||||||||||||||||||||||||||
3,217 | (11) | 418,307 | (11) |
(1) | This table does not include LTIP unit and restricted common stock awards and |
(2) | The market value of such holdings is based on the closing price of our common stock as reported on the NYSE on December |
(3) | On February 5, 2013, the NEOs, other than Mr. Thomas, received 2013 MYLTIP awards, and on April 2, 2013, Mr. Thomas received |
(4) |
On January 31, 2014, these NEOs received awards of LTIP units and/or shares of restricted common stock under the 2012 Plan as follows: Mr. Thomas – 8,716 LTIP units; Mr. Linde – an aggregate of 9,280 LTIP units and shares of restricted common stock; Mr. LaBelle – 6,360 LTIP units; and Mr. Koop – 5,088 LTIP units. These LTIP units and restricted common shares vest ratably over four years, with 25% of the total award vesting on January 15 of each year beginning January 15, 2015, subject to acceleration under certain circumstances. |
On February 4, 2014, these NEOs received 2014 MYLTIP awards. On February 3, 2017, the measurement period for the 2014 MYLTIP awards ended and the Company’s TSR was sufficient for employees to earn and therefore become eligible to vest in a portion of the 2014 MYLTIP awards. These earned 2014 MYLTIP awards vested 50% on February 3, 2017 and 50% on February 3, 2018, subject to exceptions discussed under “– Potential Payments Upon Termination or Change in Control” below. |
(6) | On February 3, 2015, these NEOs received awards of LTIP units and/or shares of restricted common stock under the 2012 Plan as follows: Mr. Thomas – 9,744 LTIP units; Mr. Linde – 7,789 shares of restricted common stock; Mr. LaBelle – 5,429 shares of restricted common stock; and Mr. Koop – 4,557 LTIP units. These LTIP units and restricted common shares vest ratably over four years, with 25% of the total award vesting on January 15 of each year beginning January 15, 2016, subject to acceleration under certain circumstances. |
On February 8, 2016, these NEOs received awards of LTIP units under the 2012 Plan as follows: Mr. Thomas – 14,996 LTIP units; Mr. Linde – 10,527 LTIP units; Mr. LaBelle – 7,126 LTIP units; and Mr. Koop – 6,022 LTIP units. These LTIP units vest ratably over four years, with 25% of the total award vesting on January 15 of each year beginning January 15, 2017, subject to acceleration under certain circumstances. |
66 BOSTON PROPERTIES, INC. |2018 Proxy Statement
COMPENSATION OF EXECUTIVE OFFICERS
On February |
On February |
|
BOSTON PROPERTIES, INC. |2017 Proxy Statement 61
COMPENSATION OF EXECUTIVE OFFICERS
for the same period for the NAREIT Office Index, adjusted to exclude Boston Properties, Inc., was |
On February |
On February |
All of Mr. Ritchey’s |
20162017 OPTION EXERCISES AND STOCK VESTED
The following table sets forth the aggregate number of options to purchase shares of our common stock exercised by our NEOs in 20162017 and the aggregate number of shares of common stock and LTIP units that vested in 2016. The Value Realized on Exercise is the product of (1) the fair market value of a share of common stock on the date of exercise minus the exercise price, multiplied by (2) the number of shares of common stock underlying exercised options.2017. The Value Realized on Vesting is the product of (1) the closing price on the NYSE of a share of common stock on the vesting date (or, if the vesting date was not a trading day, the immediately preceding trading date), multiplied by (2) the number of shares/LTIP units vesting. In each case, the value realized is before payment of any applicable taxes and brokerage commissions.
Name | Number of Shares Acquired on Exercise (#) | Value Realized on Exercise ($) | Number of Shares Acquired on Vesting (#) | Value Realized on Vesting ($) | Number of Shares Acquired on Exercise (#) | Value Realized on Exercise ($) | Number of Shares Acquired on Vesting (#) | Value Realized on Vesting ($) | ||||||||||||||||||||||||
Owen D. Thomas | — | — | 15,443 | 1,823,499 |
|
—
|
|
|
—
|
|
|
22,259
|
|
|
2,877,680
|
| ||||||||||||||||
Douglas T. Linde | — | — | 26,334 | 3,086,446 |
|
—
|
|
|
—
|
|
|
35,852
|
|
|
4,658,538
|
| ||||||||||||||||
Raymond A. Ritchey | — | — | 24,188 | 2,740,180 |
|
—
|
|
|
—
|
|
|
33,201
|
|
|
4,338,770
|
| ||||||||||||||||
Michael E. LaBelle | — | — | 10,830 | 1,267,410 |
|
—
|
|
|
—
|
|
|
16,221
|
|
|
2,106,903
|
| ||||||||||||||||
Bryan J. Koop | — | — | 9,077 | 1,062,587 |
|
—
|
|
|
—
|
|
|
13,431
|
|
|
1,744,198
|
|
BOSTON PROPERTIES, INC. |2018 Proxy Statement 67
COMPENSATION OF EXECUTIVE OFFICERS
NONQUALIFIED DEFERRED COMPENSATION
We provide our executives with the opportunity to defer up to 20% of their base salary and cash bonuses. Deferrals are credited with earnings or losses based upon the executive’s selection of one or more of 28 measurement funds which are all publicly traded mutual funds. Executives may change their selection of measurement funds on a daily basis.
62 BOSTON PROPERTIES, INC. |2017 Proxy Statement
COMPENSATION OF EXECUTIVE OFFICERS
The table below summarizes the annual rates of return for the year ended December 31, 20162017 for the 28 measurement funds:
Name of Fund | 2016 Rate of Return (%) | Name of Fund | 2016 Rate of Return (%) | |||||||
American Beacon Small Cap Value | 29.32 | T. Rowe Price Retirement 2025 | 8.86 | |||||||
Artisan Mid Cap | 1.72 | T. Rowe Price Retirement 2030 | 9.14 | |||||||
Dodge & Cox Income | 5.54 | T. Rowe Price Retirement 2035 | 9.23 | |||||||
Dodge & Cox International | 10.63 | T. Rowe Price Retirement 2040 | 9.33 | |||||||
Domini Impact Equity | 12.77 | T. Rowe Price Retirement 2045 | 9.42 | |||||||
Oakmark Equity & Income | 11.87 | T. Rowe Price Retirement 2050 | 9.51 | |||||||
PIMCO Low Duration Bond | 1.79 | T. Rowe Price Retirement 2055 | 9.45 | |||||||
T. Rowe Price Dividend Growth | 13.30 | T. Rowe Price Retirement 2060 | 9.44 | |||||||
T. Rowe Price Growth Stock | 3.77 | T. Rowe Price Retirement Balanced Fund | 7.15 | |||||||
T. Rowe PriceMid-Cap Value | 25.58 | VanguardSmall-Cap Index | 20.34 | |||||||
T. Rowe Price Retirement 2005 | 7.41 | Vanguard Total Bond Market Index | 2.37 | |||||||
T. Rowe Price Retirement 2010 | 7.88 | Vanguard Total International Stock Index | 6.79 | |||||||
T. Rowe Price Retirement 2015 | 8.26 | Vanguard Total Stock Market Index 1 | 14.45 | |||||||
T. Rowe Price Retirement 2020 | 8.57 | Virtus Real Estate Securities A | 8.50 |
Name of Fund | 2017 Rate of Return (%) | Name of Fund | 2017 Rate of Return (%) | |||||||
American Beacon Small Cap Value
|
|
7.90
|
|
T. Rowe Price Retirement 2025
|
|
17.01
|
| |||
Artisan Mid Cap
|
|
19.74
|
|
T. Rowe Price Retirement 2030
|
|
18.71
|
| |||
Dodge & Cox Income
|
|
4.28
|
|
T. Rowe Price Retirement 2035
|
|
20.07
|
| |||
Dodge & Cox International
|
|
22.24
|
|
T. Rowe Price Retirement 2040
|
|
21.19
|
| |||
Domini Impact Equity
|
|
14.28
|
|
T. Rowe Price Retirement 2045
|
|
21.55
|
| |||
Oakmark Equity & Income
|
|
13.83
|
|
T. Rowe Price Retirement 2050
|
|
21.54
|
| |||
PIMCO Low Duration Bond
|
|
1.94
|
|
T. Rowe Price Retirement 2055
|
|
21.50
|
| |||
T. Rowe Price Dividend Growth
|
|
18.59
|
|
T. Rowe Price Retirement 2060
|
|
21.45
|
| |||
T. Rowe Price Growth Stock
|
|
32.46
|
|
T. Rowe Price Retirement Balanced Fund
|
|
9.90
|
| |||
T. Rowe PriceMid-Cap Value
|
|
10.84
|
|
VanguardSmall-Cap Index
|
|
15.45
|
| |||
T. Rowe Price Retirement 2005
|
|
10.24
|
|
Vanguard Total Bond Market Index
|
|
3.54
|
| |||
T. Rowe Price Retirement 2010
|
|
11.15
|
|
Vanguard Total International Stock Index
|
|
26.68
|
| |||
T. Rowe Price Retirement 2015
|
|
12.87
|
|
Vanguard Total Stock Market Index
|
|
20.18
|
| |||
T. Rowe Price Retirement 2020
|
|
15.12
|
|
Virtus Real Estate Securities A
|
|
5.80
|
|
Benefits under the deferred compensation plan are generally paid in a lump sum upon the executive’s termination of employment prior to attainment of retirement age (age 55 with five years of service) or the executive’s death, or in a lump sum or annual installments for a period of up to 15 years (as previously selected by the executive) upon the executive’s retirement. Payment will generally start or be made by January 15 following the year of termination or retirement, or six months after the executive’s termination or retirement, whichever is later. Executives may also at the time of deferral elect a fixed distribution date, which must be at least five years after the end of the calendar year in which amounts are deferred. The deferred compensation plan also permits anin-service withdrawal of the executive’s account balance attributable topre-2005 deferrals, subject to a withdrawal penalty equal to 10% of the amount withdrawn.
68 BOSTON PROPERTIES, INC. |2018 Proxy Statement
COMPENSATION OF EXECUTIVE OFFICERS
The following table shows deferrals made by our NEOs to the deferred compensation plan during the year ended December 31, 2016,2017, the earnings and withdrawals/distributions during the year, and the aggregate account balance of each NEO under the deferred compensation plan as of December 31, 2016.2017.
Name | Executive Contributions in 2016 ($)(1)(2) | Registrant Contributions in 2016 ($) | Aggregate Earnings in 2016 ($) | Aggregate Withdrawals/ Distributions ($) | Aggregate Balance at 12/31/2016($)(3) | |||||||||||||||
Owen D. Thomas | 173,462 | — | 31,855 | — | 510,700 | |||||||||||||||
Douglas T. Linde | — | — | — | — | — | |||||||||||||||
Raymond A. Ritchey | 221,423 | — | 261,069 | — | 2,387,871 | |||||||||||||||
Michael E. LaBelle | 24,962 | — | 77,677 | — | 930,838 | |||||||||||||||
Bryan J. Koop | 130,033 | — | 80,536 | — | 946,280 |
BOSTON PROPERTIES, INC. |2017 Proxy Statement 63
COMPENSATION OF EXECUTIVE OFFICERS
Name | Executive Contributions in 2017 ($)(1)(2) | Registrant Contributions in 2017 ($) | Aggregate Earnings in 2017 ($) | Aggregate Withdrawals/ Distributions ($) | Aggregate Balance at 12/31/2017($)(3) | |||||||||||||||
Owen D. Thomas
|
|
175,000
|
|
|
—
|
|
|
112,675
|
|
|
—
|
|
|
798,375
|
| |||||
Douglas T. Linde
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
| |||||
Raymond A. Ritchey
|
|
72,000
|
|
|
—
|
|
|
394,152
|
|
|
—
|
|
|
2,854,023
|
| |||||
Michael E. LaBelle
|
|
—
|
|
|
—
|
|
|
193,181
|
|
|
—
|
|
|
1,124,019
|
| |||||
Bryan J. Koop
|
|
131,500
|
|
|
—
|
|
|
127,602
|
|
|
—
|
|
|
1,205,382
|
|
(1) | These amounts do not include any contributions out of bonus payments that were made during |
(2) | Of the amounts reported in the contributions column, (a) |
(3) | Of the amounts reported in the aggregate balance column, (a) $173,462 of Mr. Thomas’ aggregate balance, $71,923 of Mr. Ritchey’s aggregate balance, $24,962 of Mr. LaBelle’s aggregate balance and $47,908 of Mr. Koop’s aggregate balance are also included in the Summary Compensation Table as salary for 2016, (b) $154,615 of Mr. Thomas’ aggregate balance, $70,846 of Mr. Ritchey’s aggregate balance, $24,442 of Mr. LaBelle’s aggregate balance and $46,662 of Mr. Koop’s aggregate balance are also included in the Summary Compensation Table as salary for 2015 |
POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL
We have various contractual arrangementsEach NEO’s employment with us is at-will, but all of our NEOs have employment agreements that provide them the right to providereceive severance and other benefits in the event of the termination of their employment under certain circumstancesby the Company without “cause” (as defined in the applicable employment agreement), by the NEO with “good reason” (as defined in the applicable employment agreement), or upon the occurrence of a change in control. These includecontrol and certain triggering events. All of the NEOs other than our CEO participate in the Company’s change in control severance plan, whereas the payments and benefits to which our CEO is entitled following a termination within twenty-four (24) months after a change in control are provided in his employment agreements with our NEOs, severance arrangements, our 2012 Plan, LTI equity award agreementsagreement. In consideration for the benefits and protections afforded by the terms of our MYLTIP programs. In return for such protection,employment agreements, each NEO has agreed to be bound by confidentiality,non-competition,non-interference andnon-solicitation covenants and to provide to us post-termination litigation and regulatory cooperation. Below isIn addition, our 2012 Plan and LTI equity award agreements (including MYLTIP awards) provide for vesting or forfeiture of LTI equity awards upon termination of employment of our NEOs under different circumstances, including termination without “cause” or for “good reason,” in each case both prior to and following a description of thechange in control, upon death or disability, and upon qualified retirement. The material terms of these arrangements.various arrangements are summarized below.
General Terms of Employment Agreements
We have employment agreements with each NEO. Each NEO’s employment with the Company isat-will and mayoriginally hired Mr. Thomas to be terminated by the Company with or without “cause” (as defined in the employment agreement) and may be terminated by the NEO with or without “good reason” (as defined in the employment agreement) upon prior written notice to the other party.
our CEO effective April 2, 2013. The initial term of Mr. Thomas’ employment agreement was three years, beginning on April 2, 2013 with automaticone-year renewals commencing on the third and
BOSTON PROPERTIES, INC. |2018 Proxy Statement 69
COMPENSATION OF EXECUTIVE OFFICERS
fourth anniversary date.anniversaries of the effective date unless prior written notice of termination was given. The current term of Mr. Thomas’ original employment agreement expiresexpired on April 2, 2018. In the event of2018 on which date we entered into a “change in control,” the termnew employment agreement with him. The following is a summary of Mr. Thomas’ new employment agreement shall be automatically extended until 24 months followingagreement:
Term. April 2, 2018 through June 30, 2023.
Duties. As CEO, Mr. Thomas reports directly to the dateBoard of the “change in control.” During the term of Mr. Thomas’ employment agreement, he willDirectors, and must devote substantially all of his businessworking time and efforts to the Company’s business and affairs, butperformance of his duties.
Board Membership. Our Board will be allowedcontinue to continue certain outside positions, including servicenominate Mr. Thomas forre-election as a director/trusteemember of Lehman Brothers Holdings Inc.the Board of Directors, while he remains CEO, and he has agreed to resign from the UniversityBoard upon termination of Virginia Investment Management Company. In addition,employment.
Outside Activities. Mr. Thomas is expressly permitted tomay participate as an officer or director of, or advisor to, any organization that is not engaged in commercial real estate activities (e.g., NAREIT)Nareit) and also to engage in religious, charitable or other community activities provided that such activitiesthey do not materially restrict his ability to fulfill his obligations to us as an employee and officer of the Company. We have agreed that, while Mr. Thomas remains Chief Executive Officer, he will be nominated for re-election to our Board each year.officer. Mr. Thomas may not servealso continue serving on other boards of directors offor-profit companies without the consent of our Board of Directors.Lehman Brothers Holdings Inc. and may engage in “Minority Interest Passive Investments,” which are defined as acquiring, holding and exercising the voting rights associated with an investment made through (1) a non-controlling, minority interest in an entity or (2) the lending of money, in either case with the purpose or intent of obtaining a return on such investment but without management of the property or business to which the investment directly or indirectly relates and without any business or strategic consultation by Mr. Thomas.
Mr. Thomas’ employment agreement provided for an initial base salary of $750,000, and it is reviewed annually by the Compensation CommitteeBase Salary. $875,000, subject to annual review and may be increased but not decreased at its discretion. His current base salary is $875,000, which remains unchanged from 2016. Mr. Thomas’ annual target bonus is 230%decreased.
Target Bonus. 250% of his base salary, whichwith the actual amount to be determined at the discretion of the Compensation Committee.
Incentive Equity. The amount shall be determined at the discretion of the Compensation Committee based on Company and individual performance and competitive peer group information. LTI equity awards may be provided in the form of stock options, restricted stock, restricted stock units and/or LTIP units and may be subject to either time-based and/or performance-based vesting as determined by the Compensation Committee.
Benefits. Mr. Thomas is entitled to participate in all of our employee benefit plans or programs as in effect from time to time for our senior executive employees, including medical/dental insurance, life insurance, disability insurance and deferred compensation plans, plus the use of a Company-owned or leased automobile.
No TaxGross-Ups. Mr. Thomas is not entitled to participate in any of the Company’s change in control severance plans or programs. As such, Mr. Thomas is not entitled to receive any taxgross-up payments, but, in the event that any payment or benefit to be paid or provided to Mr. Thomas would be subject to the golden parachute excise tax, the payments and benefits will be reduced to the extent necessary to avoid the imposition of the excise tax if doing so would result in a greaterpro-ratedafter-tax for any partial yearbenefit to Mr. Thomas.
Attainment of employment.Age 62 with 10 or More Years of Service. Future LTI equity award agreements shall provide that if Mr. Thomas is employed by us when he attains age 62 and has completed at least ten (10) years of employment with us:
64
regardless of whether he remains employed, the full number of LTIP units (and/or shares of common stock or other equity-based awards, if applicable) he earns (if any) under any
70 BOSTON PROPERTIES, INC. | 20172018 Proxy Statement
COMPENSATION OF EXECUTIVE OFFICERS
LTI equity awards with performance-based vesting (e.g., a MYLTIP award) shall be determined in the same manner and at the same time as otherwise would have been the case if he had remained employed through the full vesting period for the applicable award, including without limitation with respect to performance hurdles and lapse of restrictions on transfer, without any proration of the award due to service time, and with any service-based vesting requirements deemed satisfied over the relevant service-vesting schedule, so long as he agrees to be bound by the post-employmentnon-competition, non-interference andnon-solicitation covenants (which are otherwise applicable for one (1) year under the agreement) until the latest date of full vesting applicable to any performance-based award entitled to the foregoing benefits. |
Mr. Thomas is also eligible to participate in the Company’s long term incentive program at the discretionExpiration of the Compensation Committee and he is also entitled to participateTerm. The expiration of Mr. Thomas’ agreement on June 30, 2023 will not constitute or result in all employee benefit plans or programsa termination of employment by the Company generally available to its senior level executive employees. He is also entitled towithout cause, and the use of a Company-owned or leased automobile, but to date he has declined this benefit.severance provisions (other than retirement eligibility) shall not apply.
Mr. Thomas’ employment agreement prohibits Mr. Thomas, whileRestrictive Covenants. While he is an officer of the Company and for one year thereafter from (1) (or longer as provided above with respect to LTI equity awards with performance-based vesting), Mr. Thomas is prohibited from:
Mr. Thomas may engage in certain “minority interest passive investments,” which means acquiring, holdingis also subject to confidentiality requirements and exercising the voting rights associated with investments made through (1) the purchase of securities that represent anon-controlling, minority interest in an entity or (2) the lending of money, in either case with the purpose or intent of obtaining a return on such investment but without management by Mr. Thomas of the property or business to which such investment directly or indirectly relatespost-termination litigation and without any business or strategic consultation by Mr. Thomas with such entity. regulatory cooperation obligations.
In addition, the employment agreement provides that thenon-competition provision shall not apply if Mr. Thomas’ employment is terminated following a change in control (as defined in the 2012 Plan, as amended from time to time).
Attorneys’ Fees. We have agreed to pay Mr. Thomas’ actual advisor fees (legal and tax) incurred in connection with the contemplation, preparation, negotiation and execution of the Company.his employment agreement up to a maximum of $25,000.
During the terms of theWe also have employment agreements with our other NEOs—Messrs. Linde, Ritchey, LaBelle and Koop,Koop—under which each of these NEOs willhas agreed to devote substantially all of his business time to our business and affairs. The initial term of each of these employment agreements was two years beginning November 29, 2002 (January 24, 2008 in the case of Mr. LaBelle), with automaticone-year renewals commencing on each anniversary date unless written notice of termination is given at least 90 days prior to such date by either party. The base salary for each of each NEOthese NEOs is to be reviewed annually by the Compensation Committee and may be increased but not decreased in its discretion. Each NEO is also eligible to receive a cash bonus compensation, includingand equity-based compensation to be determined inat the discretion of the Compensation Committee. These
Similar to Mr. Thomas’ employment agreement, the other NEOs’ employment agreements containnon-competition,non-interference andnon-solicitation restrictions (which shall not apply if the NEO’s employment is terminated following a change in control (as defined in the senior executive severance plan)) and permissions that are similar to those of Mr. Thomas’ agreement, except that they are permittedpermit them to participate as an officer or director of, or advisor to, any charitable or other
BOSTON PROPERTIES, INC. |2018 Proxy Statement 71
COMPENSATION OF EXECUTIVE OFFICERS
tax exempt organization only and the scope of the noncompetition provision in each employment agreement is limited to our markets at the time of termination of their employment. In addition, thenon-competition provision shall not apply if the NEO’s employment is terminated following a change in control of the Company.
Potential Payments under Contractual ArrangementsTermination Provisions
The following discussion describes the payments and benefits to which the NEOs would be entitled upon the occurrence of a change in control or certain termination triggering events. The tables that follow show the potential payments and benefits that would have been provided to our NEOs assuming such events occurred on December 31, 2016.
Voluntary Termination; Termination with Cause“Cause”
Upon a voluntary termination by the NEO, other than a “good reason” termination, or a termination with “cause” by the Company, the NEOs are not entitled to any additional or special payments pursuant to their employment agreements, severance arrangements or other contractual arrangements.
BOSTON PROPERTIES, INC. |2017 Proxy Statement 65
COMPENSATION OF EXECUTIVE OFFICERS
Termination Without “Cause” or for “Good Reason” Prior to a Change in Control
Each NEO will be entitled to the following payments and benefits upon a termination by the Company without “cause” or by the NEO for ”good“good reason” prior to a change in control pursuant to their employment agreements, except for performance-based LTI equity awards, which are governed by the relevant award agreements.agreements:
• | For performance-based LTI equity awards for which the three-year performance period has ended and that have been earned (i.e., as of December 31, |
• | For performance-based LTI equity awards for which the three-year performance period has not ended (i.e., as of December 31, 2017, the 2015-2017 MYLTIP awards), the number of LTIP units the NEO will earn, if any, will be determined in the same manner, with respect to the performance hurdles, and at the same time as it otherwise would have been (i.e., as of the end of the performance period or upon a change in control) and will then bepro-rated based on the portion of the three-year performance period during which the NEO was employed by us. |
Receipt of these payments and benefits (other than the pro rata target bonus and performance-based LTI equity awards) in connection with a termination without cause or for good reason is subject to the NEO’s execution of a general release of claims with us.
Termination by the Company Without “Cause” or by the NEO for “Good Reason” within 24 Months after a Change in Control
Each NEO will be entitled to the following payments and benefits uponUpon a termination by the Company without “cause” or by the NEO for “good reason,” in either case within 24 months following a change in control. Each NEO’scontrol, each NEO will be entitled to the payments and benefits exceptlisted below. Except in the case of Mr. Thomas’, these payments and benefits are governed by our
72 BOSTON PROPERTIES, INC. |2018 Proxy Statement
COMPENSATION OF EXECUTIVE OFFICERS
senior executive severance plans.plan. Mr. Thomas does not participate in any of our severance plans; his payments and benefits are governed by his employment agreement.
66 BOSTON PROPERTIES, INC. |2017 Proxy Statement
COMPENSATION OF EXECUTIVE OFFICERS
Pursuant to the relevant MYLTIP award agreements for performance-based LTI equity awards, the number of LTIP units earned by each NEO will be determined on the date of the change in control (see “–Change in Control without Termination”below).
In addition, each NEO exceptother than Mr. Thomas, will be entitled to receive a tax gross–upgross-up payment in the event he becomes subject to the golden parachute excise tax (as discussed above under “Compensation Discussion and Analysis – IX. Other Compensation Policies –Gross-Up for Excess Parachute Payments”). Mr. Thomas’ employment agreement does not entitle him to receive any taxgross-up payments from the Company, but it does provide that, in the event that any payment or benefit to be paid or provided to Mr. Thomas would be subject to the golden parachute excise tax, the payments and benefits will be reduced to the extent necessary to avoid the imposition of such excise tax if such reduction would result in a greater after-tax benefit to Mr. Thomas.
Change in Control without Termination
Under our 2012 Plan, all time-based LTI equity awards made prior to December 31, 2014 become fully vested upon a “change of control” (as defined in the 2012 Plan). Time-basedHowever, time-based LTI equity awards made in 2015 or later include “double-trigger” vesting, meaning that, if there is a “change of control” and the awards are not otherwise cancelled in connection with the change of control transaction, then they only become fully vested if, within 24 months after the change of control, the executive’s employment is terminated by the Company or its successor without “cause” or the executive resigns for “good reason.” Although Mr. Thomas was entitled to single-trigger vesting upon a “change of control” under his employment agreement, he has agreed to be subject to the new policy.
Under the relevant performance-based LTI equity award agreements, in the event of a change in control prior to the end of the three-year performance period, the number of LTIP units earned, if any, will be calculated as of the date of the change in control (without proration) based on our performance through such date. Any LTIP units earned will be fully vested. In the event of a change in control following the end of the three-year performance period any LTIP units that had been earned prior to the date of the change in control will become fully vested.
Termination upon Death or Disability
Except for performance-based LTI equity awards, which are governed by the relevant award agreements, each NEO will be entitled to the following payments and benefits upon a termination upon death or disability pursuant to their employment agreements:
• | Full vesting of all performance-based LTI equity awards for which the three-year performance period has ended and that have been earned (i.e., as of December 31, |
BOSTON PROPERTIES, INC. |2018 Proxy Statement 73
COMPENSATION OF EXECUTIVE OFFICERS
• | For performance-based LTI equity awards for which the three-year performance period has not ended, the number of LTIP units that the NEO will earn, if any, will be determined in the same manner, with respect to the performance hurdles, and at the same time as it otherwise would have been (i.e., as of the end of the performance period or upon a change in control) and the NEO will be fully vested in all of the LTIP units earned. |
BOSTON PROPERTIES, INC. |2017 Proxy Statement 67
COMPENSATION OF EXECUTIVE OFFICERS
Qualified Retirement
In general,Our outstanding time-based LTI equity awards provide that when an employee attains age 65, or attains age 62 and completes 20 years of service with us, the employee becomes fully vested in all time-based LTI equity awards. As of December 31, 2016,2017, Mr. Ritchey satisfied the age condition and, therefore, all of his time-based LTI equity awards had vested.
In the case of outstanding performance-based LTI equity awards for which the three-year performance period has ended and that have been earned (i.e., as of December 31, 2016, 2012 OPP awards and 20132017, 2014 MYLTIP awards), if an employee retires after attaining age 65 or attaining age 62 with 20 years of service with us, then the unvested LTIP units will no longer be subject to forfeiture but the NEO will not be permitted to transfer the LTIP units until they otherwise would have vested under the terms of the awards.
Performance-based LTI equity awards for which the three-year performance period has not ended (i.e., as of December 31, 2016, 20142017, 2015-2017 MYLTIP awards, 2015 MYLTIP awards and 2016 MYLTIP awards) generally provide that:
• | If an employee retires after (1) attaining age 62 with 20 years of service with us, or (2) attaining age 65 with less than 15 years of service with us, then the number of LTIP units the employee will earn will be determined in the same manner, with respect to the performance hurdles, and at the same time as it otherwise would have been (i.e., as of the end of the performance period or upon a change in control) and will then bepro-rated based on the number of days elapsed in the performance period plus 365 (i.e., one additional year). |
In both cases, any LTIP Units that are earned will not be subject to forfeiture but the employee will not be permitted to transfer the LTIP units until they otherwise would have vested under the terms of the awards.
With respect to future grants of LTI equity awards, Mr. Thomas’ new employment agreement governs the terms and conditions of the vesting of such awards upon his attainment of age 62 with 10 or more years of service. (See “– General Terms of Employment Agreements.”)
68
74 BOSTON PROPERTIES, INC. | 20172018 Proxy Statement
COMPENSATION OF EXECUTIVE OFFICERS
Estimated Payments Upon Termination or Change in Control
The tables that follow show the potential payments and benefits that would have been provided to our NEOs assuming such events occurred on December 31, 2017.
Payments Upon Termination | Qualified Retirement ($) | Involuntary Not for Cause Termination/ Good Reason Termination ($) | Involuntary or Good Reason Termination Following Change in Control ($)(1) | Change in Control Without Termination ($)(1) | Death or Disability ($) | Qualified Retirement ($) | Involuntary Not for Cause Termination/ Good Reason Termination ($) | Involuntary or Good Reason Termination Following Change in Control ($)(1) | Change in Control Without Termination ($)(1) | Death or Disability ($) | ||||||||||||||||||||||||||||||
Owen D. Thomas | ||||||||||||||||||||||||||||||||||||||||
Bonus | — | 2,012,500 | 2,012,500 | — | 2,012,500 | — | 2,012,500 | 2,012,500 | — | 2,012,500 | ||||||||||||||||||||||||||||||
Severance | — | 6,866,666 | 8,880,833 | — | — | — | 6,866,666 | 9,714,166 | — | — | ||||||||||||||||||||||||||||||
Unvested Equity Awards(2)(3) | — | 5,074,412 | 6,323,911 | 3,518,513 | 6,323,911 | |||||||||||||||||||||||||||||||||||
2014 MYLTIP awards(4) | — | — | — | — | — | |||||||||||||||||||||||||||||||||||
2015 MYLTIP awards(4) | — | — | — | — | — | |||||||||||||||||||||||||||||||||||
2016 MYLTIP awards(4) | — | 1,386,399 | 4,671,092 | 4,671,092 | 4,671,092 | |||||||||||||||||||||||||||||||||||
Unvested Equity Awards(3)(4) | — | 4,384,741 | 5,726,001 | 1,922,494 | 5,726,001 | |||||||||||||||||||||||||||||||||||
2015 MYLTIP awards(5) | — | 850,781 | 878,873 | 878,873 | 878,873 | |||||||||||||||||||||||||||||||||||
2016 MYLTIP awards(5) | — | 1,566,630 | 2,486,174 | 2,486,174 | 2,486,174 | |||||||||||||||||||||||||||||||||||
2017 MYLTIP awards(5) | — | 868,119 | 2,904,350 | 2,904,350 | 2,904,350 | |||||||||||||||||||||||||||||||||||
Benefits Continuation | — | 37,686 | 56,529 | — | 28,265 | — | 42,332 | 63,498 | — | 31,749 | ||||||||||||||||||||||||||||||
Other Benefits(5) | — | — | 150,000 | — | — | |||||||||||||||||||||||||||||||||||
Other Benefits(6) | — | — | 150,000 | — | — | |||||||||||||||||||||||||||||||||||
Excise TaxGross-Up | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||||||||
Total | — | 15,377,663 | 22,094,865 | 8,189,605 | 13,035,768 | — | 16,591,769 | 23,935,562 | 8,191,891 | 14,039,647 | ||||||||||||||||||||||||||||||
Douglas T. Linde | ||||||||||||||||||||||||||||||||||||||||
Bonus | — | 725,000 | — | — | 725,000 | — | 725,000 | — | — | 725,000 | ||||||||||||||||||||||||||||||
Severance | — | 2,530,000 | 7,153,877 | — | — | — | 2,572,500 | 7,513,877 | — | — | ||||||||||||||||||||||||||||||
Unvested Equity Awards(2)(3) | — | 4,379,577 | 7,067,873 | 5,008,980 | 7,067,873 | |||||||||||||||||||||||||||||||||||
2014 MYLTIP awards(4) | — | — | — | — | — | |||||||||||||||||||||||||||||||||||
2015 MYLTIP awards(4) | — | — | — | — | — | |||||||||||||||||||||||||||||||||||
2016 MYLTIP awards(4) | — | 973,245 | 3,279,085 | 3,279,085 | 3,279,085 | |||||||||||||||||||||||||||||||||||
Unvested Equity Awards(3)(4) | — | 2,562,761 | 4,391,503 | 1,670,365 | 4,391,503 | |||||||||||||||||||||||||||||||||||
2015 MYLTIP awards(5) | — | 680,096 | 702,552 | 702,552 | 702,552 | |||||||||||||||||||||||||||||||||||
2016 MYLTIP awards(5) | — | 1,099,755 | 1,745,263 | 1,745,263 | 1,745,263 | |||||||||||||||||||||||||||||||||||
2017 MYLTIP awards(5) | — | 604,022 | 2,020,796 | 2,020,796 | 2,020,796 | |||||||||||||||||||||||||||||||||||
Benefits Continuation | — | 18,843 | 57,969 | — | 28,265 | — | 21,166 | 64,818 | — | 31,749 | ||||||||||||||||||||||||||||||
Other Benefits(5) | — | — | 150,000 | — | — | |||||||||||||||||||||||||||||||||||
Other Benefits(6) | — | — | 150,000 | — | — | |||||||||||||||||||||||||||||||||||
Excise TaxGross-Up | — | — | 4,429,511 | — | — | — | — | 5,676,775 | — | — | ||||||||||||||||||||||||||||||
Total | — | 8,626,665 | 22,138,315 | 8,288,065 | 11,100,223 | — | 8,265,300 | 22,265,584 | 6,138,976 | 9,616,863 | ||||||||||||||||||||||||||||||
Raymond A. Ritchey | ||||||||||||||||||||||||||||||||||||||||
Bonus | — | 720,000 | — | — | 720,000 | — | 720,000 | — | — | 720,000 | ||||||||||||||||||||||||||||||
Severance | — | 2,215,000 | 6,521,250 | — | — | — | 2,275,000 | 6,690,000 | — | — | ||||||||||||||||||||||||||||||
Unvested Equity Awards | 3,266,758 | 2,414,599 | 3,266,758 | 3,266,758 | 3,266,758 | 1,231,124 | 1,231,124 | 1,231,124 | 1,231,124 | 1,231,124 | ||||||||||||||||||||||||||||||
2014 MYLTIP awards(4) | — | — | — | — | — | |||||||||||||||||||||||||||||||||||
2015 MYLTIP awards(4) | — | — | — | — | — | |||||||||||||||||||||||||||||||||||
2016 MYLTIP awards(4) | 2,395,833 | 738,054 | 2,486,671 | 2,486,671 | 2,486,671 | |||||||||||||||||||||||||||||||||||
2015 MYLTIP awards(5) | 555,358 | 537,607 | 555,358 | 555,358 | 555,358 | |||||||||||||||||||||||||||||||||||
2016 MYLTIP awards(5) | 1,323,445 | 833,952 | 1,323,445 | 1,323,445 | 1,323,445 | |||||||||||||||||||||||||||||||||||
2017 MYLTIP awards(5) | 1,496,445 | 462,937 | 1,548,787 | 1,548,787 | 1,548,787 | |||||||||||||||||||||||||||||||||||
Benefits Continuation | — | 17,130 | 52,830 | — | 25,695 | — | 19,242 | 59,046 | — | 28,863 | ||||||||||||||||||||||||||||||
Other Benefits(5) | — | — | 150,000 | — | — | |||||||||||||||||||||||||||||||||||
Other Benefits(6) | — | — | 150,000 | — | — | |||||||||||||||||||||||||||||||||||
Excise TaxGross-Up | — | — | — | — | — | — | — | 4,377,034 | — | — | ||||||||||||||||||||||||||||||
Total | 5,662,591 | 6,104,783 | 12,477,509 | 5,753,429 | 6,499,124 | 4,606,372 | 6,079,862 | 15,934,794 | 4,658,714 | 5,407,577 |
BOSTON PROPERTIES, INC. | 20172018 Proxy Statement 6975
COMPENSATION OF EXECUTIVE OFFICERS
Payments Upon Termination | Qualified Retirement ($) | Involuntary Not for Cause Termination/ Good Reason Termination ($) | Involuntary or Good Reason Termination Following Change in Control ($)(1) | Change in Control Without Termination ($)(1) | Death or Disability ($) | Qualified Retirement ($) | Involuntary Not for Cause Termination/ Good Reason Termination ($) | Involuntary or Good Reason Termination Following Change in Control ($)(1) | Change in Control Without Termination ($)(1) | Death or Disability ($) | ||||||||||||||||||||||||||||||
Michael E. LaBelle | ||||||||||||||||||||||||||||||||||||||||
Bonus | — | 500,000 | — | — | 500,000 | — | 500,000 | — | — | 500,000 | ||||||||||||||||||||||||||||||
Severance | — | 1,330,000 | 3,780,000 | — | — | — | 1,400,000 | 4,015,000 | — | — | ||||||||||||||||||||||||||||||
Unvested Equity Awards(2)(3) | — | 2,005,227 | 3,664,517 | 2,256,032 | 3,664,517 | |||||||||||||||||||||||||||||||||||
2014 MYLTIP awards(4) | — | — | — | — | — | |||||||||||||||||||||||||||||||||||
2015 MYLTIP awards(4) | — | — | — | — | — | |||||||||||||||||||||||||||||||||||
2016 MYLTIP awards(4) | — | 329,380 | 1,109,757 | 1,109,757 | 1,109,757 | |||||||||||||||||||||||||||||||||||
Unvested Equity Awards(3)(4) | — | 1,381,309 | 2,647,800 | 764,316 | 2,647,800 | |||||||||||||||||||||||||||||||||||
2015 MYLTIP awards(5) | — | 157,972 | 163,188 | 163,188 | 163,188 | |||||||||||||||||||||||||||||||||||
2016 MYLTIP awards(5) | — | 372,238 | 590,726 | 590,726 | 590,726 | |||||||||||||||||||||||||||||||||||
2017 MYLTIP awards(5) | — | 212,405 | 710,614 | 710,614 | 710,614 | |||||||||||||||||||||||||||||||||||
Benefits Continuation | — | 18,843 | 57,969 | — | 28,265 | — | 21,166 | 64,818 | — | 31,749 | ||||||||||||||||||||||||||||||
Other Benefits(5) | — | — | 150,000 | — | — | |||||||||||||||||||||||||||||||||||
Other Benefits(6) | — | — | 150,000 | — | — | |||||||||||||||||||||||||||||||||||
Excise TaxGross-Up | — | — | 2,501,081 | — | — | — | — | 2,741,403 | — | — | ||||||||||||||||||||||||||||||
Total | — | 4,183,450 | 11,263,324 | 3,365,789 | 5,302,539 | — | 4,045,090 | 11,083,549 | 2,228,844 | 4,644,077 | ||||||||||||||||||||||||||||||
Bryan J. Koop | ||||||||||||||||||||||||||||||||||||||||
Bonus | — | 400,000 | — | — | 400,000 | — | 400,000 | — | — | 400,000 | ||||||||||||||||||||||||||||||
Severance | — | 1,221,250 | 3,240,750 | — | — | — | 1,235,000 | 3,538,750 | — | — | ||||||||||||||||||||||||||||||
Unvested Equity Awards(2)(3) | — | 1,670,857 | 3,036,450 | 1,849,087 | 3,036,450 | |||||||||||||||||||||||||||||||||||
2014 MYLTIP awards(4) | — | — | — | — | — | |||||||||||||||||||||||||||||||||||
2015 MYLTIP awards(4) | — | — | — | — | — | |||||||||||||||||||||||||||||||||||
2016 MYLTIP awards(4) | — | 185,577 | 625,252 | 625,252 | 625,252 | |||||||||||||||||||||||||||||||||||
Unvested Equity Awards(3)(4) | — | 1,119,298 | 2,168,250 | 605,680 | 2,168,250 | |||||||||||||||||||||||||||||||||||
2015 MYLTIP awards(5) | — | 132,671 | 137,052 | 137,052 | 137,052 | |||||||||||||||||||||||||||||||||||
2016 MYLTIP awards(5) | — | 209,758 | 332,877 | 332,877 | 332,877 | |||||||||||||||||||||||||||||||||||
2017 MYLTIP awards(5) | — | 115,044 | 384,889 | 384,889 | 384,889 | |||||||||||||||||||||||||||||||||||
Benefits Continuation | — | 18,843 | 57,969 | — | 28,265 | — | 21,166 | 64,818 | — | 31,749 | ||||||||||||||||||||||||||||||
Other Benefits(5) | — | — | 150,000 | — | — | |||||||||||||||||||||||||||||||||||
Other Benefits(6) | — | — | 150,000 | — | — | |||||||||||||||||||||||||||||||||||
Excise TaxGross-Up | — | — | 2,057,938 | — | — | — | — | 2,296,957 | — | — | ||||||||||||||||||||||||||||||
Total | — | 3,496,527 | 9,168,359 | 2,474,339 | 4,089,967 | — | 3,232,937 | 9,073,593 | 1,460,498 | 3,454,817 |
(1) | Assumes termination occurs simultaneously with a change in control. |
(2) | We entered into a new employment agreement with Mr. Thomas on April 2, 2018. |
(3) | Restricted common stock, LTIP units and LTIP units that would have been earned pursuant to |
Includes the following shares of restricted common stock and LTIP units (including outstanding performance-based LTI equity awards for which the three-year performance period has ended and that have been earned (i.e., |
• | Involuntary not for cause termination or a good reason termination prior to a change in control: Mr. Thomas – |
70 BOSTON PROPERTIES, INC. |2017 Proxy Statement
COMPENSATION OF EXECUTIVE OFFICERS
• | Involuntary not for cause termination or a good reason termination within 24 months following a change in control and death or |
76 BOSTON PROPERTIES, INC. |2018 Proxy Statement
COMPENSATION OF EXECUTIVE OFFICERS
• | Change in control without termination: Mr. Thomas – |
• | Qualified retirement: Mr. Ritchey – |
As of December 31, |
Includes outplacement services valued at 15% of the sum of current base salary plus bonus with respect to the immediately preceding year up to a maximum of $75,000 paid in a lump sum, and financial counseling and tax preparation services valued at $25,000 per year for 36 months. |
Under his employment agreement, Mr. Thomas is not entitled to receive taxgross-up payments in the event he becomes subject to the golden parachute excise tax. However, in the event that any payment or benefit to be paid or provided to Mr. Thomas would have been subject to the golden parachute excise tax, the payments and benefits will be reduced to the extent necessary to avoid the imposition of such excise tax if such reduction would result in a greaterafter-tax benefit to Mr. Thomas. The amounts set forth in the table above have not been adjusted to reflect any such reduction that might be applicable. |
All of Mr. Ritchey’s LTIP units (other than LTIP units earned pursuant to the |
The above discussion and the amounts shown in the above tables do not include payments and benefits to the extent they have been earned prior to the termination of employment or are provided on anon-discriminatory basis to salaried employees upon termination of employment. These include:
• | distribution of plan balances under our 401(k) plan and thenon-qualified deferred compensation plan (see “–Nonqualified Deferred Compensation” beginning on page |
As required by Section 953(b) of the Dodd-Frank Wall Street Reform and Consumer Protection Act and Item 402(u) of RegulationS-K, we are providing the following information about the relationship of the annual total compensation of our employees and the annual total compensation of Mr. Thomas, our CEO:
For 2017, our last completed fiscal year:
BOSTON PROPERTIES, INC. | 20172018 Proxy Statement 7177
COMPENSATION OF EXECUTIVE OFFICERS
Based on this information, for 2017 the ratio of the annual total compensation of Mr. Thomas to the median of the annual total compensation of all other employees was 96 to 1.
We identified the median employee by totaling (1) cash compensation (i.e., wages, overtime and bonus) as reflected on our payroll records for 2017 and (2) the value of LTI equity awards that were granted in 2017 and subject to time-based vesting, for all individuals, excluding our CEO, who we employed on December 31, 2017 (whether on a full-time, part-time, temporary or seasonal basis). In addition, we annualized the wages of full-time employees who were hired during 2017 but did not work for us the entire fiscal year. We did not make any other assumptions, adjustments, or estimates with respect to total cash compensation or LTI compensation.
After identifying the median employee, we calculated annual total compensation for such employee using the same methodology we use for our NEOs as set forth in the Summary Compensation Table.
In promulgating Item 402(u) of RegulationS-K, the SEC permits registrants to use reasonable estimates and certain prescribed alternative methodologies. As a result, our calculation of the CEO pay ratio may differ from the calculations used by other companies.
78 BOSTON PROPERTIES, INC. |2018 Proxy Statement
Our directors who are also employees receive no additional compensation for their services as directors. During 2016,2017, we paid ournon-employee directors:
Annual cash retainer for their services(1) | $ | 67,500 | ||
Annual cash retainer to the lead independent director(1) | $ | 15,000 | ||
Annual cash retainer to the Chair of each of the Audit Committee, Compensation Committee and NCG Committee(1) | $ | 15,000 | ||
Fee for each Board meeting attended | $1,500 | |||
Fee for each Committee meeting attended | $1,500 |
(1) | Payable in quarterly installments |
Committee attendance fees are received whether or not the committee meeting is held on the same day as a meeting of our Board of Directors.Non-employee directors also are reimbursed for reasonable expenses incurred to attend Board of Directors and committee meetings.
Non-employee directors may elect, in accordance with our 2012 Plan, to defer all cash retainer and meeting attendance fees payable to such director and to receive his or her deferred cash compensation in the form of our common stock uponfollowing the director’s retirement from our Board of Directors. Each director is credited with the number of deferred stock units determined by dividing the amount of the cash compensation deferred during each calendar quarter by the closing market price of our common stock on the NYSE on the last trading day of the quarter. Hypothetical dividends on the deferred stock units are “reinvested” in additional deferred stock units based on the closing market price of the common stock on the cash dividend payment date. Payment of a director’s account may only be made in either a lump sum of shares of our common stock equal to the number of deferred stock units in a director’s account uponor in ten annual installments following the director’s retirement from our Board of Directors.
Additionally, in 20162017 each continuingnon-employee director was entitled to receive, on the fifth business day after the annual meeting of stockholders, a number of shares of restricted common stock or, if elected by such director, LTIP units (or a combination of both) valued at $127,500. In addition, any newnon-employee director that is appointed to our Board of Directors other than at an annual meeting of stockholders would be entitled to receive, on the fifth business day after the appointment, a number of shares of restricted common stock (or, if offered by the Board of Directors and elected by such director, LTIP units) valued at $127,500 (prorated based on the number of months from the date the director is first appointed to our Board of Directors to the date of the Company’s next annual meeting of stockholders).
Annual and initial grants of restricted common stock or, if elected by the director, LTIP units (or a combination of both) are made pursuant to a policy adopted by the Board of Directors so that the equity compensation ofnon-employee directors will be determined by a formula. The actual number of shares of restricted common stock or LTIP units that we grant is determined by dividing the fixed value of the grant by the closing market price of our common stock on the NYSE on the grant date. Pursuant to this policy, on May 24, 2016,31, 2017, Mses. Einiger and Dykstra and Messrs. Duncan, Frenkel, Klein, Lustig, Patricof, Turchin and Twardock each received 1,0131,050 LTIP units, shares of restricted common stock or a combination of both. Annual and initial grants of LTIP units and restricted common stock will vest 100% on the earlier of (1) the first anniversary of the grant date and (2) the date of the next annual meeting of stockholders.
In addition to The Board of Directors adopted a policy that no person shall be nominated by the foregoing compensationBoard of Directors for election as anon-employee directors, Mr. Zuckerman was entitled to $350,000 per yeardirector following his or her 75th birthday. The Board of Directors may waive this policy for serving as Chairman, withone-third ( 1⁄3rd)an incumbent director who attained the age of this amount paid in equal quarterly cash installments andtwo-thirds ( 2⁄3rds) paid in shares of restricted common stock, or at his election,
7279 BOSTON PROPERTIES, INC. | 20172018 Proxy Statement
COMPENSATION OF DIRECTORS
LTIP units, on the fifth business day after each annual meeting of stockholders. See “Certain Relationships and Related Person Transactions” beginning on page 82.
The Compensation Committee reviews and makes recommendationsor prior to the full Board of Directors regarding the compensation ofnon-employee directors, and the full Board of Directors is responsible for approving any changesFebruary 22, 2018 if it deems advisable to the compensation program fornon-employee directors. The compensation program fornon-employee directors remained the same for calendar years 2013, 2014 and 2015. In late 2015, the Compensation Committee engaged Frederic W. Cook & Co., Inc. (“Cook”), an independent compensation consultant,have additional time to assist it in conductingrecruit a comprehensive review and assessment of the Company’snon-employee director compensation program. More specifically, Cook reviewed (1) how the use of each component of total compensation (e.g., cash retainers, meeting fees and equity awards) compared to market practice and (2) how the total compensation for Board and committee members compared to market practice. Cook’s report presented data comparing our director compensation to market levels using the same peer group of 16 publicly-traded REITs in a variety of asset classes used by the Compensation Committee in benchmarking executive compensation. The Compensation Committee oversaw the selection of the peer group and the overall project.
Cook’s findings showed that total annualized compensation paid to thenon-employee directors was slightly below the peer group median. Based on those findings, Cook recommended an increase to total annualized compensation in the form of increased annual cash retainers and annual equity grants fornon-employee directors. As a result, the Compensation Committee recommended, and our Board of Directors approved, effective January 1, 2016, (1) an increase of $7,500 (from $60,000 to $67,500) to the annual cash retainer and (2) an increase of $7,500 (from $120,000 to $127,500) in the value of the shares of restricted common stock (or, if offered bydesired successor nominee. If the Board of Directors waives this policy for an incumbent director, (b) such incumbent director isre-electedand elected(c) such incumbent director voluntarily resigns prior to the end of his or her term in order to facilitate the appointment of a successor director, then the policy of the Board will be to accelerate the vesting of any outstanding, unvested time-based equity awards held by such incumbent director LTIP units) that each (x) continuingnon-employee director is entitled to receive on the fifth business day after each annual meeting of stockholders and (y) newnon-employee director is entitled to receive, which amount will be prorated based on the number of months from the date the director is first appointed or elected to our Board of Director to the date of the Company’s next annual meeting of stockholders. All other terms and conditions of the annual equity grant, including the vesting schedule, remained unchanged. Cook did not recommend, and the Compensation Committee did not make, any changes to the cash meeting fees or the retainers for the lead independent director and committee chairs. The Board of Directors made no further changes since this most recent review.
BOSTON PROPERTIES, INC. |2017 Proxy Statement 73
COMPENSATION OF DIRECTORS
otherwise would have vested during such incumbent director’s then-current term.
The following table summarizes the compensation earned by ournon-employee directors during the year ended December 31, 2016.2017.
Name | Fees Earned or Paid in Cash ($)(1) | Stock Awards ($)(2) | Option Awards ($) | All Other Compensation ($) | Total ($) | Fees Earned or Paid in Cash ($)(1) | Stock Awards ($)(2) | Option Awards ($) | All Other Compensation ($) | Total ($) | ||||||||||||||||||||||||||||||
Mortimer B. Zuckerman(3) | 74,320 | — | 380,687 | (4) | 199,652 | (5) | 654,659 | |||||||||||||||||||||||||||||||||
Bruce W. Duncan | 55,595 | 110,836 | — | — | 166,431 | 97,500 | 114,750 | — | — | 212,250 | ||||||||||||||||||||||||||||||
Karen E. Dykstra | 55,595 | 110,836 | — | — | 166,431 | 90,000 | 121,125 | — | — | 211,125 | ||||||||||||||||||||||||||||||
Carol B. Einiger | 99,354 | 110,836 | — | — | 210,190 | 112,500 | 114,750 | — | — | 227,250 | ||||||||||||||||||||||||||||||
Dr. Jacob A. Frenkel | 103,500 | 110,836 | — | — | 214,336 | 97,500 | 114,750 | — | — | 212,250 | ||||||||||||||||||||||||||||||
Joel I. Klein | 97,854 | 120,000 | — | — | 217,854 | 97,500 | 114,750 | — | — | 212,250 | ||||||||||||||||||||||||||||||
Matthew J. Lustig | 81,000 | 110,836 | — | — | 191,836 | 82,500 | 114,750 | — | — | 197,250 | ||||||||||||||||||||||||||||||
Alan J. Patricof | 100,187 | 110,836 | — | — | 211,023 | 94,500 | 114,750 | — | — | 209,250 | ||||||||||||||||||||||||||||||
Ivan G. Seidenberg | 37,277 | 120,000 | — | — | 157,277 | |||||||||||||||||||||||||||||||||||
Martin Turchin | 90,000 | 115,418 | — | — | 205,418 | 90,000 | 114,750 | — | — | 204,750 | ||||||||||||||||||||||||||||||
David A. Twardock | 117,041 | 120,000 | — | — | 237,041 | 123,000 | 127,500 | — | — | 250,500 |
(1) |
Name | Deferred Stock
| |||
| ||||
Carol B. Einiger | ||||
Joel I. Klein | ||||
Matthew J. Lustig | ||||
Alan J. Patricof | ||||
| ||||
David A. Twardock |
74BOSTON PROPERTIES, INC. | 20172018 Proxy Statement 80
COMPENSATION OF DIRECTORS
(2) | Represents the total fair value of common stock and LTIP unit awards granted tonon-employee directors in |
Name | LTIP Units (#) | Common Stock (#) | ||||||
Bruce W. Duncan | 1,013 | — | ||||||
Karen E. Dykstra | — | 1,013 | ||||||
Carol B. Einiger | 1,013 | — | ||||||
Dr. Jacob A. Frenkel | — | 1,013 | ||||||
Joel I. Klein | 1,013 | — | ||||||
Matthew J. Lustig | 1,013 | — | ||||||
Alan J. Patricof | 1,013 | — | ||||||
Ivan G. Seidenberg | — | — | ||||||
Martin Turchin | 506 | 507 | ||||||
David A. Twardock | — | 1,013 |
Name | LTIP Units (#) | Common Stock (#) | ||||||
Bruce W. Duncan | 1,050 | — | ||||||
Karen E. Dykstra | 525 | 525 | ||||||
Carol B. Einiger | 1,050 | — | ||||||
Dr. Jacob A. Frenkel | 1050 | — | ||||||
Joel I. Klein | 1,050 | — | ||||||
Matthew J. Lustig | 1,050 | — | ||||||
Alan J. Patricof | 1,050 | — | ||||||
Martin Turchin | 1,050 | — | ||||||
David A. Twardock | — | 1,050 |
DIRECTOR STOCK OWNERSHIP GUIDELINES
Our Board believes it is important to align the interests of the directors with those of the stockholders and for directors to hold equity ownership positions in Boston Properties. Accordingly, eachnon-employee director is expected to retain an aggregate number of shares of our common stock, our deferred stock units (and related dividend equivalent rights), and LTIP units and common units in our Operating Partnership, whether vested or not, equal to at least the aggregate number of such shares or units received by the director as annual retainers during the first three years following the later of: (a) our 2007 annual meeting of stockholders or (b) our annual meeting of stockholders at which the director was initially elected or, if earlier, the first annual meeting of stockholders following the initial appointment of the director. Compliance with these ownership guidelines will be measured as of the end of each fiscal year. Any director who is prohibited by law or by applicable regulation of his or her employer from owning equity in the Company shall be exempt from this requirement. The NCG Committee may consider whether exceptions should be made for any director on whom this requirement could impose a financial hardship.
81BOSTON PROPERTIES, INC. | 20172018 Proxy Statement 75
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The current members of the Compensation Committee are Ms. Einiger and Messrs. Duncan and Twardock. Mr. Frenkel also served on the Compensation Committee during the fiscal year ended December 31, 2016. None of these persons has served as an officer or employee of Boston Properties. None of these persons had any relationships with Boston Properties requiring disclosure under applicable rules and regulations of the SEC. None of Boston Properties’ executive officers served as a director or a member of a compensation committee (or other committee serving a similar function) of any other entity, an executive officer of which served as a director of Boston Properties or a member of the Compensation Committee during 2016.
76BOSTON PROPERTIES, INC. | 20172018 Proxy Statement 82
PROPOSAL 2: ADVISORY VOTE ON NAMED EXECUTIVE OFFICER COMPENSATION
Section 14A(a)(1) of the Exchange Act generally requires each public company to include in its proxy statement a separate resolution subject to anon-binding stockholder vote to approve the compensation of the Company’s NEOs, as disclosed in its proxy statement pursuant to Item 402 of RegulationS-K, not less frequently than once every three years. This is commonly known as a“Say-on-Pay” proposal or resolution.
At our 20112017 annual meeting of stockholders, our stockholders voted on, among other matters, a proposal regarding the frequency of holding anon-binding, advisory vote on the compensation of our NEOs. A majorityMore than 85% of the votes cast on the frequency proposal were cast in favor of holding anon-binding, advisory vote on the compensation of the Company’s named executive officers every year, which was consistent with the recommendation of our Board of Directors. Our Board of Directors considered the voting results with respect to the frequency proposal and other factors, and the Board of Directors currently intends for the Company to hold anon-binding, advisory vote on the compensation of the Company’s NEOs every year until the next required advisory vote on the frequency of holding thenon-binding, advisory vote on the compensation of our named executive officers,NEOs, which will occur atnot later than the 20172023 annual meeting of stockholders.
Accordingly, we will ask our stockholders to vote “FOR” the following resolution at the 20172018 annual meeting:
“RESOLVED, that the compensation paid to the Company’s named executive officers, as disclosed in this proxy statement pursuant to the Item 402 of RegulationS-K, including the Compensation Discussion and Analysis, compensation tables and narrative discussion, is hereby APPROVED.”
The vote is advisory, and therefore not binding on Boston Properties, the Compensation Committee or our Board of Directors. However, our Board of Directors and our Compensation Committee value the opinions of our stockholders and intend to take into account the results of the vote when considering future compensation decisions for our named executive officers.
The Board of Directors unanimously recommends a voteFOR the approval of the Company’s NEO compensation on an advisory basis. Properly authorized proxies solicited by the Board of Directors will be votedFORthis proposal unless instructions to the contrary are given.
The affirmative vote of a majority of shares of common stock present in person or represented by proxy at the meeting and entitled to vote on this proposal is required for the approval of this proposal. Abstentions shall be included in determining the number of shares present and entitled to vote on the proposal, thus having the effect of a vote against the proposal. Brokernon-votes, if any, are not counted in determining the number of shares present and entitled to vote and will therefore have no effect on the outcome.
BOSTON PROPERTIES, INC. |2017 Proxy Statement 77
PROPOSAL 3: FREQUENCY OF ADVISORY VOTE ON NAMED EXECUTIVE OFFICER COMPENSATION
Section 14A(a)(2) of the Exchange Act requires us to submit anon-binding, advisory proposal to stockholders not less frequently than every six years enabling stockholders to vote on whether advisory “Say-on-Pay” votes on named executive officer compensation, such as Proposal 2 of this proxy statement, should be held every one, two or three years.
Our Board has determined that, of the three alternatives, an advisory vote on NEO compensation that occurs every year is the most appropriate alternative for Boston Properties, and therefore our Board recommends that you vote for aone-year interval for the advisory vote on executive compensation. Annual advisory votes will provide us with direct input on the compensation philosophy, policies and practices as disclosed in the proxy statement every year and is consistent with our general policy of seeking input from, and engaging in discussions with, our investors on executive compensation and corporate governance matters. Annual advisory votes are also consistent with the frequency that was approved at our 2011 annual meeting of stockholders and that we have been following since 2011. Accordingly, the administrative process of submitting anon-binding, advisorysay-on-pay proposal to stockholders on an annual basis is not expected to impose substantial additional costs.
On this proposal, stockholders may vote for one of the following alternatives: every year (box “1 Year” on the proxy card), every two years (box “2 Years” on the proxy card), every three years (box “3 Years” on the proxy card), or abstain. By selecting one of these alternatives, stockholders are voting to approve the alternative voted for (or abstain from this vote), and are not voting to approve or disapprove of our recommendation. The vote on this proposal is advisory, and therefore not binding on Boston Properties or our Board of Directors. Our Board of Directors currently intends for the Company to hold a “Say-on-Pay” vote every year. However, our Board values the opinions of our stockholders and intends to consider the results of this vote when determining how frequently to submit advisory votes on NEO compensation to our stockholders in the future. We understand that our stockholders may have different views as to what is the best approach for Boston Properties, and we look forward to reviewing the voting results on this proposal.
The Board of Directors unanimously recommends a vote for a frequency ofEVERY YEAR (box “1 Year” on the proxy card) for future advisory stockholder votes on executive compensation. Properly authorized proxies solicited by the Board will be voted for the alternative ofEVERY YEAR unless instructions to the contrary are given.
In order for any of the three alternatives regarding the frequency of future advisory votes on NEO compensation to be approved, it must receive the affirmative vote of a majority of shares of common stock present in person or represented by proxy at the meeting and entitled to vote on this proposal. Because there are three alternatives, it is possible that none of the three alternatives will be approved. However, stockholders will still be able to communicate their preference with respect to this advisory vote by choosing from among these three alternatives even if none of the alternatives is approved. Abstentions shall be included in determining the number of shares present and entitled to vote on the proposal. Brokernon-votes, if any, are not counted in determining the number of shares present and entitled to vote and will therefore have no effect on the outcome.
7883 BOSTON PROPERTIES, INC. | 20172018 Proxy Statement
PROPOSAL 4:3: RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Audit Committee of the Board of Directors is directly responsible for the appointment, compensation, retention and oversight of the independent registered public accounting firm retained to audit our consolidated financial statements. The Audit Committee has selected and appointed PricewaterhouseCoopers LLP as our independent registered public accounting firm to audit our consolidated financial statements for the year ending December 31, 2017.2018. PricewaterhouseCoopers LLP has audited our consolidated financial statements continuously since our initial public offering in June 1997. In order to ensure continuing auditor independence, the Audit Committee periodically considers whether there should be a regular rotation of the independent registered public accounting firm. Further, in conjunction with the mandated rotation of the PricewaterhouseCoopers LLP’s lead engagement partner, the Audit Committee and its Chair were directly involved in the selection of PricewaterhouseCoopers LLP’s lead engagement partner. The members of the Audit Committee and the Board of Directors believe that the continued retention of PricewaterhouseCoopers LLP to serve as our independent registered public accounting firm is in the best interests of Boston Properties and its stockholders.
Although ratification by stockholders is not required by law or by ourBy-laws, the Audit Committee believes that submission of its selection to stockholders is a matter of good corporate governance. Even if the appointment is ratified, the Audit Committee, in its discretion, may select a different independent registered public accounting firm at any time if the Audit Committee believes that such a change would be in the best interests of Boston Properties and its stockholders. If our stockholders do not ratify the appointment of PricewaterhouseCoopers LLP, the Audit Committee will consider that fact, together with such other factors it deems relevant, in determining its next selection of independent auditors.
It is anticipated that a representative of PricewaterhouseCoopers LLP will attend the annual meeting of stockholders, will have an opportunity to make a statement if he or she desires to do so and will be available to respond to appropriate questions.
The Board of Directors unanimously recommends a voteFOR the ratification of the appointment of PricewaterhouseCoopers LLP as the Company’s independent registered public accounting formfirm for the year ending December 31, 2017.2018. Properly authorized proxies solicited by the Board of Directors will be votedFOR this proposal unless instructions to the contrary are given.
BOSTON PROPERTIES, INC. | 20172018 Proxy Statement 7984
PROPOSAL 4:3: RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
FEES TO INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Audit Committee is responsible for the audit fee negotiations associated with the retention of PricewaterhouseCoopers LLP. Aggregate fees for professional services rendered by PricewaterhouseCoopers LLP for the years ended December 31, 20162017 and 20152016 were as follows:
2016 | 2015 | |||||||
Audit Fees | ||||||||
Recurring audit, quarterly reviews and accounting assistance for new accounting standards and potential transactions | $ | 2,108,417 | $ | 1,947,295 | ||||
Comfort letters, consents and assistance with documents filed with the SEC and securities offerings | 93,411 | 128,889 | ||||||
|
|
|
| |||||
Subtotal | 2,201,828 | 2,076,184 | ||||||
Audit-Related Fees | ||||||||
Audits required by lenders, joint ventures and tenants | 341,937 | 414,148 | ||||||
Tax Fees | ||||||||
Recurring tax compliance(1) | 407,618 | 271,769 | ||||||
Tax planning and research | 61,781 | 237,428 | ||||||
REIT and other compliance matters(1) | 0 | 132,958 | ||||||
Tax assistance for potential transactions | 16,176 | 50,437 | ||||||
State and local tax examinations | 6,648 | 14,356 | ||||||
|
|
|
| |||||
Subtotal | 492,223 | 706,948 | ||||||
All Other Fees | ||||||||
Software licensing fee | 1,800 | 1,800 | ||||||
|
|
|
| |||||
Total | $ | 3,037,788 | $ | 3,199,080 |
2017 | 2016 | |||||||
Audit Fees | ||||||||
Recurring audit, quarterly reviews and accounting assistance for new accounting standards and potential transactions | $ | 2,204,421 | $ | 2,108,417 | ||||
Comfort letters, consents and assistance with documents filed with the SEC and securities offerings | 173,580 | 93,411 | ||||||
|
|
|
| |||||
Subtotal | 2,378,001 | 2,201,828 | ||||||
Audit-Related Fees | ||||||||
Audits required by lenders, joint ventures and tenants | 341,042 | 341,937 | ||||||
Tax Fees | ||||||||
Recurring tax compliance and REIT and other compliance matters | 409,640 | 407,618 | ||||||
Tax planning and research | 120,810 | 61,781 | ||||||
Tax assistance for potential transactions | 7,480 | 16,176 | ||||||
State and local tax examinations | 37,750 | 6,648 | ||||||
|
|
|
| |||||
Subtotal | 575,680 | 492,223 | ||||||
All Other Fees | ||||||||
Software licensing fee | 2,700 | 1,800 | ||||||
|
|
|
| |||||
Total | $ | 3,297,423 | $ | 3,037,788 |
AUDIT ANDNON-AUDIT SERVICESPRE-APPROVAL POLICY
The Audit Committee has approved a policy concerning thepre-approval of audit andnon-audit services to be provided by PricewaterhouseCoopers LLP, our independent registered public accounting firm. The policy requires that all services provided by PricewaterhouseCoopers LLP to us, including audit services, audit-related services, tax services and other services, must bepre-approved by the Audit Committee. In some cases,pre-approval is provided by the full Audit Committee for up to a year, relates to a particular category or group of services and is subject to a particular budgeted maximum. In other cases, specificpre-approval is required. The Audit Committee has delegated authority to the Chair of the Audit Committee topre-approve additional services, and any suchpre-approvals must then be communicated to the full Audit Committee.
The Audit Committee approved all audit andnon-audit services provided to us by PricewaterhouseCoopers LLP during the 20162017 and 20152016 fiscal years and none of the services described above were approved pursuant to Rule2-01(c)(7)(i)(c) of RegulationS-X, which relates to circumstances where the Audit Committeepre-approval requirement is waived.
The affirmative vote of a majority of shares of common stock present in person or represented by proxy at the meeting and entitled to vote on this proposal is required for the ratification of the
80 BOSTON PROPERTIES, INC. |2017 Proxy Statement
PROPOSAL 4: RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
appointment of PricewaterhouseCoopers LLP. Abstentions shall be included in determining the number of shares present and entitled to vote on the proposal, thus having the effect of a vote against the
85 BOSTON PROPERTIES, INC. |2018 Proxy Statement
PROPOSAL 3: RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
proposal. Brokernon-votes, if any, are not counted in determining the number of shares present and entitled to vote and will therefore have no effect on the outcome.
The members of the Audit Committee of the Board of Directors of Boston Properties submit this report in connection with the committee’s review of the financial reports for the fiscal year ended December 31, 20162017 as follows:
1. | The Audit Committee has reviewed and discussed with management the audited financial statements for Boston Properties, Inc. for the fiscal year ended December 31, |
2. | The Audit Committee has discussed with representatives of PricewaterhouseCoopers LLP the matters required to be discussed pursuant to Auditing Standard No. 1301, as adopted by the Public Company Accounting Oversight Board. |
3. | The Audit Committee has received the written disclosures and the letter from the independent accountant required by the applicable requirements of the Public Company Accounting Oversight Board regarding the independent accountant’s communications with the Audit Committee concerning independence, and has discussed with the independent accountant the independent accountant’s independence. |
Based on the review and discussions referred to above, the Audit Committee recommended to our Board of Directors that the audited financial statements be included in the Company’s Annual Report on Form10-K for the fiscal year ended December 31, 20162017 for filing with the SEC.
The Audit Committee operates pursuant to a charter that was approved by our Board of Directors. A copy of the Audit Committee Charter is available on our website athttp://www.bostonproperties.com under the heading “Corporate Governance.”
Submitted by the Audit Committee:
David A. Twardock, Chair
Karen E. Dykstra
Alan J. Patricof
Martin Turchin
BOSTON PROPERTIES, INC. | 20172018 Proxy Statement 8186
CERTAIN RELATIONSHIPS AND RELATED PERSON TRANSACTIONS
The Board of Directors has adopted a Related Person Transaction Approval and Disclosure Policy for the review, approval or ratification of any related person transaction. This written policy provides that all related person transactions, other than a transaction for which an obligation to disclose under Item 404 of RegulationS-K (or any successor provision) arises solely from the fact that a beneficial owner of more than 5% of a class of the Company’s voting securities (or an immediate family member of any such beneficial owner) has an interest in the transaction, must be reviewed and approved by a majority of the disinterested directors on our Board of Directors in advance of us or any of our subsidiaries entering into the transaction; provided that, if we or any of our subsidiaries enter into a transaction without recognizing that such transaction constitutes a related person transaction, the approval requirement will be satisfied if such transaction is ratified by a majority of the disinterested directors on the Board of Directors promptly after we recognize that such transaction constituted a related person transaction. Disinterested directors are directors that do not have a personal financial interest in the transaction that is adverse to our financial interest or that of our stockholders. The term “related person transaction” refers to a transaction required to be disclosed by us pursuant to Item 404 of RegulationS-K (or any successor provision) promulgated by the SEC. For purposes of determining whether such disclosure is required, a related person will not be deemed to have a direct or indirect material interest in any transaction that is deemed to be not material (or would be deemed not material if such related person was a director) for purposes of determining director independence pursuant to the Company’s categorical standards of director independence. Please refer to the categorical standards under “Corporate Governance Principles and Board Matters – Director Independence” beginning on page 7.
As previously disclosed, on March 10, 2013, we entered into a Transition Benefits Agreement (the “TBA”) with Mr. Zuckerman in connection with the appointment of Mr. Thomas as our Chief Executive Officer. The TBA provided that, asnon-executive Chairman, Mr. Zuckerman would be entitled to retain the perquisites provided to him when he entered into the TBA on a basis comparable to what was provided to him in the past. These benefits consisted of: his existing office suite or, at his election, other Company-owned office space, including related furnishings, equipment and technical support; a full-time secretary; drivers and 50% of the cost of an automobile; and 50% of the cost of an additional secretary and of a financial administrative assistant.
As previously disclosed, on March 9, 2015, following Mr. Zuckerman’s transition from Executive Chairman tonon-executive Chairman of the Board, we entered into a supplemental agreement (the “Letter Agreement”) with Mr. Zuckerman addressing his compensation following this transition. Pursuant to the Letter Agreement, we agreed to pay Mr. Zuckerman the same compensation that we pay to all of our othernon-employee directors plus $350,000 per year to be allocated between cash and equity in the same manner as the existingnon-employee director retainer (i.e.,one-third payable in equal quarterly cash installments andtwo-thirds payable in shares of restricted common stock or, at his election, LTIP units). In addition, we agreed that Mr. Zuckerman would continue to be entitled to receive the benefits provided for in the TBA for so long as he was serving as a director, without regard to his service as Chairman. We also agreed that, if he no longer serves on the Board of Directors, he will continue to receive these benefits (other than an additional secretary and financial administrative assistant) until December 31, 2019, he will be entitled to the use of office facilities until December 31, 2024 and, in the event of his death, his executors, administrators and/or heirs will be allowed to use his office facilities until June 30, 2020 (or for six months if death occurs after January 1, 2020) and will have the support of a secretary for six months. Finally, we agreed to extend the period for the exercise of Mr. Zuckerman’s stock options until the earlier of one year from when he ceases to be a director or the original option expiration date.
82 BOSTON PROPERTIES, INC. |2017 Proxy Statement
CERTAIN RELATIONSHIPS AND RELATED PERSON TRANSACTIONS
Mr. Zuckerman completed his term as a director on May 17, 2016. In light of the extraordinary contributions that Mr. Zuckerman made to the Company over his career and in recognition of his long and dedicated service as Chairman of the Board, our Board of Directors conferred the honorary title of Chairman Emeritus upon Mr. Zuckerman effective upon the completion of his term as a director. In connection with his transition from Chairman of the Board to Chairman Emeritus, on March 9, 2016, we modified the terms of the Letter Agreement to provide that, for so long as he holds the title of Chairman Emeritus, we will provide Mr. Zuckerman with the compensation and benefits in accordance with the terms of the Letter Agreement to the same extent as if he was continuing to serve as the Chairman of the Board. Mr. Zuckerman will be entitled to retain the title of Chairman Emeritus for so long as he is generally willing and able to attend meetings of our Board of Directors.
Prior to joining the Company effective January 2, 2014, Mr. John F. Powers provided commercial real estate brokerage services to the Company, on behalf of his prior employer, CBRE, Inc., in connection with certain leasing transactions. Mr. Powers received approximately $315,000 during 2016 and is expected to receive less than $120,000 in 2017 in the form of residual payments related to these transactions. Mr. Powers is the Executive Vice President, New York Region for Boston Properties.
Since January 1, 2016,2017, the Company has paid a firm controlled by Mr. Raymond A. Ritchey’s brother aggregate leasing commissions of approximately $589,000.$1,289,115. Given current leasing activity, the Company expects to pay additional commissions to this firm during 2017.2018. Mr. Ritchey is the Senior Executive Vice President of Boston Properties. The Company believes the terms of the related agreements are comparable to, and in most cases more favorable to us than, similar arrangements with other brokers in relevant markets.
During 2016,2017, we received lease and related payments of approximately $475,000$454,000 from Fidelity Brokerage Services LLC. Based on a Schedule 13G/A filed with the SEC on February 14, 2017,13, 2018, FMR LLC, the parent entity of Fidelity Brokerage Services LLC, is the beneficial owner of more than 5% of our common stock.
We are partners with affiliates of Norges Bank Investment Management in joint ventures relating to Times Square Tower, 601 Lexington Avenue, 100 Federal Street and Atlantic Wharf Office. Based on a Schedule 13G filed with the SEC on January 5, 2018, Norges Bank (The Central Bank of Norway), an affiliate of Norges Bank Investment Management, is the beneficial owner of more than 5% of our common stock.
87BOSTON PROPERTIES, INC. | 20172018 Proxy Statement 83
INFORMATION ABOUT THE ANNUAL MEETING
Why did I receive a Notice of Internet Availability of Proxy Materials?
In order to both save money and help conserve natural resources, we are making this proxy statement and our 20162017 annual report, including a copy of our annual report on Form10-K and financial statements for the year ended December 31, 2016,2017, available to our stockholders electronically via the Internet instead of mailing the full set of printed proxy materials, in accordance with the rules of the SEC. On or about April 7, 2017,6, 2018, we began mailing to many of our stockholders a Notice of Internet Availability of Proxy Materials (“Notice”) containing instructions on how to access this proxy statement and our annual report online, as well as instructions on how to vote. Also on or about April 7, 2017,6, 2018, we began mailing printed copies of these proxy materials to stockholders that have requested printed copies. If you received a Notice by mail, you will not receive a printed copy of the proxy materials in the mail unless you request a copy. Instead, the Notice instructs you on how to access and review all of the important information contained in the proxy statement and annual report. The Notice also instructs you on how you may vote via the Internet. If you received a Notice by mail and would like to receive a printed copy of our proxy materials, you should follow the instructions for requesting such materials included in the Notice. Our 20162017 annual report is not part of the proxy solicitation material.
What is the purpose of the annual meeting?
At the annual meeting, stockholders will be asked to vote upon the matters set forth in the accompanying notice of annual meeting, including the election of directors, an advisory resolution on named executive officer compensation an advisory vote on the frequency of holding an advisory vote on named executive officer compensation and the ratification of the appointment of our independent registered public accounting firm.
Will other matters be voted on at the annual meeting?
We are not currently aware of any other matters to be presented at the 20172018 annual meeting other than those described in this proxy statement. If any other matters not described in this proxy statement are properly presented at the meeting, any proxies received by us will be voted in the discretion of the proxy holders.
If you were a stockholder of record as of the close of business on March 29, 2017,28, 2018, which is referred to in this proxy statement as the “record date,” you are entitled to receive notice of the annual meeting and to vote the shares of common stock that you held as of the close of business on the record date. Each stockholder is entitled to one vote for each share of common stock held by such stockholder on the record date. Holders of common units, LTIP units, preferred stock and deferred stock units are not entitled to vote such securities on any of the matters presented at the 20172018 annual meeting.
All stockholders of record of shares of common stock of Boston Properties, Inc. at the close of business on the record date, or their designated proxies, are authorized to attend the annual meeting. Each stockholder and proxy will be asked to present a valid government-issued photo identification, such as a driver’s license or passport, before being admitted. If you are not a stockholder of record but you hold your shares in “street name” (i.e., your shares are held in an account maintained by a bank, broker or other nominee), then you should provide proof of beneficial ownership as of the record date, such as an account statement reflecting your stock ownership as of the record date, a copy of the voting instruction card provided by your broker, bank or other nominee, or other similar evidence of ownership. We reserve the right to determine the validity of any purported proof of beneficial
84BOSTON PROPERTIES, INC. | 20172018 Proxy Statement 88
INFORMATION ABOUT THE ANNUAL MEETING
ownership. If you do not have proof of ownership, you may not be admitted to the annual meeting. Cameras, recording devices and other electronic devices will not be permitted, and attendees may be subject to security inspections and other security precautions. You may obtain directions to the annual meeting on our website athttp://www.bostonproperties.com/proxy.
The presence, in person or by proxy, of holders of at least a majority of the total number of outstanding shares of common stock entitled to vote is necessary to constitute a quorum for the transaction of business at the annual meeting. As of the record date, there were 153,849,232154,347,768 shares of common stock outstanding and entitled to vote at the annual meeting. Each share of common stock outstanding on the record date is entitled to one vote on each matter properly submitted at the annual meeting and, with respect to the election of directors, one vote for each director to be elected. Abstentions or “brokernon-votes” (i.e., shares represented at the meeting held by brokers, as to which instructions have not been received from the beneficial owners or persons entitled to vote such shares and with respect to which, on one or more but not all matters, the broker does not have discretionary voting power to vote such shares) will be counted for purposes of determining whether a quorum is present for the transaction of business at the annual meeting.
Voting in Person at the Meeting
If you are a stockholder of record and attend the annual meeting, you may vote in person at the meeting. If your shares of common stock are held in street name and you wish to vote in person at the meeting, you will need to obtain a “legal proxy” from the broker, bank or other nominee that holds your shares of common stock of record.
Voting by Proxy for Shares Registered Directly in the Name of the Stockholder
If you hold your shares of common stock in your own name as a holder of record with our transfer agent, Computershare Trust Company, N.A., you may instruct the proxy holders named in the proxy card how to vote your shares of common stock in one of the following ways:
• | Vote by Internet.You may vote via the Internet by following the instructions provided in the Notice or, if you received printed materials, on your proxy card. The website for Internet voting is printed on the Notice and also on your proxy card. Please have your Notice or proxy card in hand. Internet voting is available 24 hours per day until 11:59 p.m., Eastern Time, on May 22, |
If you vote via the Internet, you do not need to return your proxy card.
• | Vote by Telephone.If you received printed copies of the proxy materials, you also have the option to vote by telephone by calling the toll-free number listed on your proxy card. Telephone voting is available 24 hours per day until 11:59 p.m., Eastern Time, on May 22, |
If you vote by telephone, you do not need to return your proxy card.
• | Vote by Mail.If you received printed materials, and would like to vote by mail, then please mark, sign and date your proxy card and return it promptly to our transfer agent, |
89BOSTON PROPERTIES, INC. | 20172018 Proxy Statement 85
INFORMATION ABOUT THE ANNUAL MEETING
Computershare Trust Company, N.A., in the postage-paid envelope provided. If you did |
Voting by Proxy for Shares Registered in Street Name
If your shares of common stock are held in street name, then you will receive instructions from your broker, bank or other nominee that you must follow in order to have your shares of common stock voted.
May I revoke my proxy instructions?
You may revoke your proxy at any time before it has been exercised by:
If you are a stockholder of record as of the record date attending the annual meeting you may vote in person whether or not a proxy has been previously given, but your presence (without further action) at the annual meeting will not constitute revocation of a previously given proxy.
How can I access Boston Properties’ proxy materials electronically?
This proxy statement and our 20162017 annual report are available athttp://www.edocumentview.com/bxp.bxp. Instead of receiving copies of our future annual reports, proxy statements, proxy cards and, when applicable, Notices of Internet Availability of Proxy Materials, by mail, we encourage you to elect to receive an email that will provide electronic links to our proxy materials and also will give you an electronic link to the proxy voting site. Choosing to receive your future proxy materials online will save us the cost of producing and mailing the proxy materials or Notices of Internet Availability of Proxy Materials to you and help conserve natural resources. You may sign up for electronic delivery by visitinghttp://www.bostonproperties.com/proxy.proxy.
If you and other residents at your mailing address own shares of common stock in street name, your broker, bank or other nominee may have sent you a notice that your household will receive only one annual report, Notice of Internet Availability of Proxy Materials, notice of annual meeting and/or proxy statement. This procedure, known as “householding,” is intended to reduce the volume of duplicate information stockholders receive and also reduce our printing and postage costs. Under applicable law, if you consented or were deemed to have consented, your broker, bank or other nominee may send one copy of our annual report, Notice of Internet Availability of Proxy Materials, notice of annual meeting and/or proxy statement to your address for all residents that own shares of common stock in street name. If you wish to revoke your consent to householding, you must contact your broker, bank or other nominee. If you are receiving multiple copies of our annual report, Notice of Internet Availability of Proxy Materials, notice of annual meeting and/or proxy statement, you may be able to request householding by contacting your broker, bank or other nominee.
If you wish to request extra copies free of charge of our annual report or proxy statement, please send your request to Investor Relations, Boston Properties, Inc., 800 Boylston Street, Suite 1900, Boston, Massachusetts 02199-8103; call us with your request at(617) 236-3322; or visit our website athttp://www.bostonproperties.com.
86BOSTON PROPERTIES, INC. | 20172018 Proxy Statement 90
The cost of solicitation of proxies will be borne by Boston Properties. In an effort to have as many votes cast at the annual meeting as possible, special solicitation of proxies may, in certain instances, be made personally or by telephone, electronic communication or mail by one or more employees of Boston Properties. We also may reimburse brokers, banks, nominees and other fiduciaries for postage and reasonable clerical expenses of forwarding the proxy material to their principals who are beneficial owners of shares of our common stock. In addition, MacKenzie Partners, Inc., a proxy solicitation firm, has been engaged by Boston Properties to act as proxy solicitor and will receive a fee of $7,500 plus reimbursement of reasonableout-of-pocket expenses.
STOCKHOLDER NOMINATIONS FOR DIRECTOR AND PROPOSALS FOR THE 20182019 ANNUAL MEETING OF STOCKHOLDERS
Rule14a-8 Proposals
Any stockholder proposals submitted pursuant to Exchange Act Rule14a-8 for inclusion in Boston Properties’ proxy statement and form of proxy for its 20182019 annual meeting of stockholders must be received by Boston Properties on or before December 8, 20177, 2018 in order to be considered for inclusion in our proxy statement and form of proxy. The proposals must also comply with the requirements as to form and substance established by the SEC if they are to be included in the proxy statement and form of proxy. Any such proposal should be mailed to: Boston Properties, Inc., 800 Boylston Street, Suite 1900, Boston, Massachusetts 02199-8103, Attn.: Secretary.
Director Nominees (Proxy Access)
In order for an eligible stockholder or group of stockholders to nominate a director nominee for election at Boston Properties’ 20182019 annual meeting pursuant to the proxy access provision of ourBy-laws, notice of such nomination and other required information must be received by Boston Properties on or before December 8, 20177, 2018 unless our 20182019 annual meeting of stockholders is scheduled to take place before April 23, 20182019 or after July 22, 2018.2019. OurBy-laws state that such notice and other required information must be received by Boston Properties not less than 120 days prior to the anniversary of the date of the proxy statement for the prior year’s annual meeting of stockholders; provided, however, that in the event the annual meeting is scheduled to be held on a date more than 30 days before the anniversary of the date of the immediately preceding annual meeting, or the annual meeting anniversary date, or more than 60 days after the annual meeting anniversary date, or if no annual meeting was held in the preceding year, the deadline for the receipt of such notice and other required information shall be the close of business on the later of (1) the 180th day prior to the scheduled date of such annual meeting or (2) the 15th day following the day on which public announcement of the date of such annual meeting is first made.
In addition, ourBy-laws require the eligible stockholder or group of stockholders to update and supplement such information (or provide notice stating that there are no updates or supplements) as of specified dates. Notices and other required information must be received by our Secretary at our principal executive office, which is currently Boston Properties, Inc., 800 Boylston Street, Suite 1900, Boston, Massachusetts 02199-8103.
Other Proposals or Nominees
Stockholder proposals and nominations of directors to be presented at Boston Properties’ 20182019 annual meeting, other than stockholder proposals submitted pursuant to Exchange Act Rule14a-8 for inclusion in Boston Properties’ proxy statement and form of proxy for our 20182019 annual meeting or
91BOSTON PROPERTIES, INC. | 20172018 Proxy Statement 87
OTHER MATTERS
submitted pursuant to the proxy access provision of ourBy-laws, must be received in writing at our principal executive office not earlier than January 23, 2018,2019, nor later than March 9, 2018,2019, unless our 20182019 annual meeting of stockholders is scheduled to take place before April 23, 20182019 or after July 22, 2018.2019. OurBy-laws state that the stockholder must provide timely written notice of such proposal or a nomination and supporting documentation as well as be present at such meeting, either in person or by a representative. A stockholder’s notice shall be timely received by Boston Properties at its principal executive office not less than seventy-five (75) days nor more than one hundred twenty (120) days prior to the annual meeting anniversary date; provided, however, that in the event the annual meeting is scheduled to be held on a date more than thirty (30) days before the annual meeting anniversary date or more than sixty (60) days after the annual meeting anniversary date, a stockholder’s notice shall be timely if received by Boston Properties at its principal executive office not later than the close of business on the later of (1) the seventy-fifth (75th) day prior to the scheduled date of such annual meeting or (2) the fifteenth (15th) day following the day on which public announcement of the date of such annual meeting is first made by Boston Properties. Proxies solicited by our Board of Directors will confer discretionary voting authority with respect to these proposals, subject to SEC rules and regulations governing the exercise of this authority. Any such proposals must be received by our Secretary at our principal executive office, which is currently Boston Properties, Inc., 800 Boylston Street, Suite 1900, Boston, Massachusetts 02199-8103.
88BOSTON PROPERTIES, INC. | 20172018 Proxy Statement 92
Reconciliation of Net Income Attributable to Boston Properties, Inc. Common Shareholders to
BXP’s Share of Same Property Combined Net Operating Income (Loss) (NOI) (excluding
(excluding termination income)
For the year ended December 31, | For the year ended December 31, | |||||||||||||||
2016 | 2015 | 2017 | 2016 | |||||||||||||
(unaudited and in thousands) | (unaudited and in thousands) | |||||||||||||||
Net Income Attributable to Boston Properties, Inc. Common Shareholders | $ | 502,285 | $ | 572,606 | $ | 451,939 | $ | 502,285 | ||||||||
Preferred dividends | 10,500 | 10,500 | 10,500 | 10,500 | ||||||||||||
|
|
|
| |||||||||||||
Net Income Attributable to Boston Properties, Inc. | 512,785 | 583,106 | 462,439 | 512,785 | ||||||||||||
Net Income Attributable to Noncontrolling Interests: | ||||||||||||||||
Noncontrolling interest – common units of the Operating Partnership | 59,260 | 66,951 | 52,210 | 59,260 | ||||||||||||
Noncontrolling interest – redeemable preferred units of the Operating Partnership | — | 6 | ||||||||||||||
Noncontrolling interests in property partnerships | (2,068 | ) | 149,855 | 47,832 | (2,068 | ) | ||||||||||
|
|
|
| |||||||||||||
Net Income | 569,977 | 799,918 | 562,481 | 569,977 | ||||||||||||
Gains on sales of real estate | 80,606 | 375,895 | 7,663 | 80,606 | ||||||||||||
|
|
|
| |||||||||||||
Income Before Gains on Sales of Real Estate | 489,371 | 424,023 | 554,818 | 489,371 | ||||||||||||
Other Expenses: | ||||||||||||||||
Add: | ||||||||||||||||
Losses from interest rate contracts | 140 | — | — | 140 | ||||||||||||
Losses from early extinguishments of debt | 371 | 22,040 | ||||||||||||||
Interest expense | 412,849 | 432,196 | 374,481 | 412,849 | ||||||||||||
Other Income: | ||||||||||||||||
Subtract: | ||||||||||||||||
Gains (losses) from investments in securities | 2,273 | (653 | ) | |||||||||||||
Less: | ||||||||||||||||
Gains (losses) from early extinguishments of debt | 496 | (371 | ) | |||||||||||||
Gains from investments in securities | 3,678 | 2,273 | ||||||||||||||
Interest and other income | 7,230 | 6,777 | 5,783 | 7,230 | ||||||||||||
Gain on sale of investment in unconsolidated joint venture | 59,370 | — | — | 59,370 | ||||||||||||
Income from unconsolidated joint ventures | 8,074 | 22,770 | 11,232 | 8,074 | ||||||||||||
|
|
|
| |||||||||||||
Operating Income | 825,784 | 849,365 | 908,110 | 825,784 | ||||||||||||
Other Expenses: | ||||||||||||||||
Add: | ||||||||||||||||
Depreciation and amortization | 694,403 | 639,542 | ||||||||||||||
Depreciation and amortization expense | 617,547 | 694,403 | ||||||||||||||
Impairment loss | 1,783 | — | — | 1,783 | ||||||||||||
Transaction costs | 2,387 | 1,259 | 668 | 2,387 | ||||||||||||
General and administrative expense | 105,229 | 96,319 | 113,715 | 105,229 | ||||||||||||
Other Revenue: | ||||||||||||||||
Subtract: | ||||||||||||||||
Development and management services | 28,284 | 22,554 | ||||||||||||||
Less: | ||||||||||||||||
Development and management services revenue | 34,605 | 28,284 | ||||||||||||||
|
|
|
| |||||||||||||
Net Operating Income (NOI) | $ | 1,601,302 | $ | 1,563,931 | ||||||||||||
Add: | ||||||||||||||||
BXP’s share of NOI from unconsolidated joint ventures | 50,031 | 47,308 | ||||||||||||||
|
| |||||||||||||||
Combined NOI | 1,651,333 | 1,611,239 | ||||||||||||||
Subtract: | ||||||||||||||||
Net Operating Income (Loss) (NOI) | 1,605,435 | 1,601,302 | ||||||||||||||
Less: | ||||||||||||||||
Termination income | 59,293 | 38,894 | 23,058 | 59,293 | ||||||||||||
BXP’s share of termination income from unconsolidated joint ventures | 16 | 197 | ||||||||||||||
|
| |||||||||||||||
Combined NOI (excluding termination income) | $ | 1,592,024 | $ | 1,572,148 | ||||||||||||
|
| |||||||||||||||
Net Operating Income (NOI) | $ | 1,601,302 | $ | 1,563,931 | ||||||||||||
Subtract: | ||||||||||||||||
NOI from non Same Properties (excluding termination income) | 61,515 | 60,361 | 50,167 | 45,687 | ||||||||||||
Termination income | 59,293 | 38,894 | ||||||||||||||
|
|
|
| |||||||||||||
Same Property NOI (excluding termination income) | 1,480,494 | 1,464,676 | 1,532,210 | 1,496,322 | ||||||||||||
Less: | ||||||||||||||||
Partners’ share of NOI from consolidated joint ventures (excluding termination income)(1) | 175,876 | 176,998 | ||||||||||||||
BXP’s share of NOI from non Same Properties from unconsolidated joint ventures (excluding termination income) | 28,489 | 14,982 | ||||||||||||||
Add: | ||||||||||||||||
BXP’s share of NOI from unconsolidated joint ventures (excluding termination income) | 50,015 | 47,111 | ||||||||||||||
Subtract: | ||||||||||||||||
BXP’s share of NOI from non Same Properties from unconsolidated joint ventures (excluding termination income) | 16,261 | 6,367 | ||||||||||||||
Partners’ share of NOI from non Same Properties from consolidated joint ventures (excluding termination income) | (1,648 | ) | 1,914 | |||||||||||||
BXP’s share of NOI from unconsolidated joint ventures (excluding termination income)(2) | 63,345 | 50,015 | ||||||||||||||
|
|
|
| |||||||||||||
Same Property Combined NOI (excluding termination income) | $ | 1,514,248 | $ | 1,505,420 | ||||||||||||
BXP’s Share of Same Property NOI (excluding termination income) | $ | 1,389,542 | $ | 1,356,271 | ||||||||||||
|
|
|
|
(1) | See “Consolidated Joint Ventures” in this Appendix for additional details. |
(2) | See “Unconsolidated Joint Ventures” in this Appendix for additional details. |
BOSTON PROPERTIES, INC. | 20172018 Proxy Statement A-1
Reconciliation of Net Income Attributable to Boston Properties, Inc. Common Shareholders to
BXP’s Share of Same Property Combined Net Operating Income (Loss) (NOI) (excluding– Cash
(excluding termination income) – Cash
For the year ended December 31, | For the year ended December 31, | |||||||||||||||
2016 | 2015 | 2017 | 2016 | |||||||||||||
(unaudited and in thousands) | (unaudited and in thousands) | |||||||||||||||
Net Income Attributable to Boston Properties, Inc. Common Shareholders | $ | 502,285 | $ | 572,606 | $ | 451,939 | $ | 502,285 | ||||||||
Preferred dividends | 10,500 | 10,500 | 10,500 | 10,500 | ||||||||||||
|
|
|
| |||||||||||||
Net Income Attributable to Boston Properties, Inc. | 512,785 | 583,106 | 462,439 | 512,785 | ||||||||||||
Net Income Attributable to Noncontrolling Interests: | ||||||||||||||||
Noncontrolling interest – common units of the Operating Partnership | 59,260 | 66,951 | 52,210 | 59,260 | ||||||||||||
Noncontrolling interest – redeemable preferred units of the Operating Partnership | — | 6 | ||||||||||||||
Noncontrolling interests in property partnerships | (2,068 | ) | 149,855 | 47,832 | (2,068 | ) | ||||||||||
|
|
|
| |||||||||||||
Net Income | 569,977 | 799,918 | 562,481 | 569,977 | ||||||||||||
Gains on sales of real estate | 80,606 | 375,895 | 7,663 | 80,606 | ||||||||||||
|
|
|
| |||||||||||||
Income Before Gains on Sales of Real Estate | 489,371 | 424,023 | 554,818 | 489,371 | ||||||||||||
Other Expenses: | ||||||||||||||||
Add: | ||||||||||||||||
Losses from interest rate contracts | 140 | — | — | 140 | ||||||||||||
Losses from early extinguishments of debt | 371 | 22,040 | ||||||||||||||
Interest expense | 412,849 | 432,196 | 374,481 | 412,849 | ||||||||||||
Other Income: | ||||||||||||||||
Subtract: | ||||||||||||||||
Gains (losses) from investments in securities | 2,273 | (653 | ) | |||||||||||||
Less: | ||||||||||||||||
Gains (losses) from early extinguishments of debt | 496 | (371 | ) | |||||||||||||
Gains from investments in securities | 3,678 | 2,273 | ||||||||||||||
Interest and other income | 7,230 | 6,777 | 5,783 | 7,230 | ||||||||||||
Gain on sale of investment in unconsolidated joint venture | 59,370 | — | — | 59,370 | ||||||||||||
Income from unconsolidated joint ventures | 8,074 | 22,770 | 11,232 | 8,074 | ||||||||||||
|
|
|
| |||||||||||||
Operating Income | 825,784 | 849,365 | 908,110 | 825,784 | ||||||||||||
Other Expenses: | ||||||||||||||||
Add: | ||||||||||||||||
Depreciation and amortization | 694,403 | 639,542 | ||||||||||||||
Depreciation and amortization expense | 617,547 | 694,403 | ||||||||||||||
Impairment loss | 1,783 | — | — | 1,783 | ||||||||||||
Transaction costs | 2,387 | 1,259 | 668 | 2,387 | ||||||||||||
General and administrative expense | 105,229 | 96,319 | 113,715 | 105,229 | ||||||||||||
Other Revenue: | ||||||||||||||||
Subtract: | ||||||||||||||||
Development and management services | 28,284 | 22,554 | ||||||||||||||
Less: | ||||||||||||||||
Development and management services revenue | 34,605 | 28,284 | ||||||||||||||
|
|
|
| |||||||||||||
Net Operating Income (NOI) | 1,601,302 | 1,563,931 | ||||||||||||||
Subtract: | ||||||||||||||||
Net Operating Income (Loss) (NOI) | 1,605,435 | 1,601,302 | ||||||||||||||
Less: | ||||||||||||||||
Straight-line rent | 33,739 | 79,998 | 53,511 | 33,739 | ||||||||||||
Fair value lease revenue | 30,381 | 35,897 | 22,290 | 30,381 | ||||||||||||
Termination income | 23,058 | 59,293 | ||||||||||||||
Add: | ||||||||||||||||
Straight-line ground rent expense adjustment | 3,951 | (790 | ) | 2,489 | 3,951 | |||||||||||
Lease transaction costs that qualify as rent inducements | 8,853 | 12,668 | 920 | 8,853 | ||||||||||||
|
|
|
| |||||||||||||
NOI – cash basis | 1,549,986 | 1,459,914 | ||||||||||||||
Subtract: | ||||||||||||||||
NOI (excluding termination income) – cash basis from non Same Properties | 61,490 | 51,371 | ||||||||||||||
Termination income | 59,293 | 38,894 | ||||||||||||||
NOI – cash (excluding termination income) | 1,509,985 | 1,490,693 | ||||||||||||||
Less: | ||||||||||||||||
NOI – cash from non Same Properties (excluding termination income) | 42,337 | 48,266 | ||||||||||||||
|
|
|
| |||||||||||||
Same Property NOI (excluding termination income) – cash basis | 1,429,203 | 1,369,649 | ||||||||||||||
Same Property NOI – cash (excluding termination income) | 1,467,648 | 1,442,427 | ||||||||||||||
Less: | ||||||||||||||||
Partners’ share of NOI – cash from consolidated joint ventures (excluding termination income)(1) | 166,732 | 162,672 | ||||||||||||||
BXP’s share of NOI – cash from non Same Properties from unconsolidated joint ventures (excluding termination income) | 18,960 | 8,952 | ||||||||||||||
Add: | ||||||||||||||||
BXP’s share of NOI (excluding termination income) – cash basis from unconsolidated joint ventures | 39,242 | 46,683 | ||||||||||||||
Subtract: | ||||||||||||||||
BXP’s share of NOI (excluding termination income) – cash basis from non Same Properties from unconsolidated joint ventures | 10,141 | 7,238 | ||||||||||||||
Partners’ share of NOI – cash from non Same Properties from consolidated joint ventures (excluding termination income) | (1,558 | ) | 2,316 | |||||||||||||
BXP’s share of NOI – cash from unconsolidated joint ventures (excluding termination income)(2) | 50,983 | 39,242 | ||||||||||||||
|
|
|
| |||||||||||||
Same Property Combined NOI (excluding termination income) – cash | $ | 1,458,304 | $ | 1,409,094 | ||||||||||||
BXP’s Share of Same Property NOI – cash (excluding termination income) | $ | 1,331,381 | $ | 1,312,361 | ||||||||||||
|
|
|
|
(1) | See “Consolidated Joint Ventures” in this Appendix for additional details. |
(2) | See “Unconsolidated Joint Ventures” in this Appendix for additional details. |
A-2 BOSTON PROPERTIES, INC. | 20172018 Proxy Statement
for the year ended December 31, 2017
(unaudited and dollars in thousands)
Norges Joint Ventures | ||||||||||||||||
767 Fifth Avenue (The GM Building) | Times Square Tower 601 Lexington Avenue 100 Federal Street Atlantic Wharf Office | Salesforce Tower | Total Consolidated Joint Ventures | |||||||||||||
REVENUE | ||||||||||||||||
Rental | $ | 273,163 | $ | 355,720 | $ | 3,462 | $ | 632,345 | ||||||||
Straight-line rent | 7,229 | (343 | ) | (2,791 | ) | 4,095 | ||||||||||
Fair value lease revenue | 15,372 | 944 | — | 16,316 | ||||||||||||
Termination income | 14,228 | (1,415 | ) | — | 12,813 | |||||||||||
Parking and other | 2,357 | 5,379 | — | 7,736 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total revenue | 312,349 | 360,285 | 671 | 673,305 | ||||||||||||
EXPENSES | ||||||||||||||||
Operating | 114,987 | 133,691 | 296 | 248,974 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
NET OPERATING INCOME (LOSS) (NOI) | 197,362 | 226,594 | 375 | 424,331 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Development and management services revenue | (2,355 | ) | (3,132 | ) | (50 | ) | (5,537 | ) | ||||||||
Interest and other income | (773 | ) | (1,308 | ) | (60 | ) | (2,141 | ) | ||||||||
Interest expense | 89,184 | 30,045 | — | 119,229 | ||||||||||||
Interest expense – outside members’ notes | 16,256 | — | — | 16,256 | ||||||||||||
Fair value interest adjustment | (20,227 | ) | — | — | (20,227 | ) | ||||||||||
Depreciation and amortization | 103,314 | 82,189 | 129 | 185,632 | ||||||||||||
Gain from early extinguishment of debt | (14,606 | ) | — | — | (14,606 | ) | ||||||||||
Other | — | 78 | — | 78 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
SUBTOTAL | 170,793 | 107,872 | 19 | 278,684 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
NET INCOME | $ | 26,569 | $ | 118,722 | $ | 356 | $ | 145,647 | ||||||||
|
|
|
|
|
|
|
| |||||||||
BXP’s ownership percentage | 60.00% | 55.00% | 95.00% | |||||||||||||
|
|
|
|
|
| |||||||||||
Partners’ share of NOI(1) | $ | 78,945 | $ | 101,967 | $ | 19 | $ | 180,931 | ||||||||
|
|
|
|
|
|
|
| |||||||||
BXP’s share of NOI | $ | 118,417 | $ | 124,627 | $ | 356 | $ | 243,400 | ||||||||
|
|
|
|
|
|
|
| |||||||||
Reconciliation of Partners’ share of NOI(1): | ||||||||||||||||
Rental revenue | $ | 124,939 | $ | 162,129 | $ | 34 | $ | 287,102 | ||||||||
Less: Termination income | 5,691 | (636 | ) | — | 5,055 | |||||||||||
|
|
|
|
|
|
|
| |||||||||
Rental revenue (excluding termination income) | 119,248 | 162,765 | 34 | 282,047 | ||||||||||||
Operating expenses | 45,995 | 60,161 | 15 | 106,171 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
NOI (excluding termination income) | $ | 73,253 | $ | 102,604 | $ | 19 | $ | 175,876 | ||||||||
|
|
|
|
|
|
|
| |||||||||
Rental revenue (excluding termination income) | $ | 119,248 | $ | 162,765 | 34 | $ | 282,047 | |||||||||
Less: Straight-line rent | 2,892 | (155 | ) | (140 | ) | 2,597 | ||||||||||
Fair value lease revenue | 6,149 | 423 | — | 6,572 | ||||||||||||
Add: Lease transaction costs that qualify as rent inducements(2) | 25 | — | — | 25 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Subtotal | 110,232 | 162,497 | 174 | 272,903 | ||||||||||||
Less: Operating expenses | 45,995 | 60,161 | 15 | 106,171 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
NOI – cash (excluding termination income) | $ | 64,237 | $ | 102,336 | $ | 159 | $ | 166,732 | ||||||||
|
|
|
|
|
|
|
|
(1) | Amounts represent the partners’ share based on their respective ownership percentage. |
(2) | Consists of lease transaction costs that qualify as rent inducements in accordance with GAAP. |
BOSTON PROPERTIES, INC. |2018 Proxy Statement A-3
CONSOLIDATED JOINT VENTURES
for the year ended December 31, 2016
(unaudited and dollars in thousands)
Norges Joint Ventures | ||||||||||||||||
767 Fifth Avenue (The GM Building) | Times Square Tower 601 Lexington Avenue 100 Federal Street Atlantic Wharf Office | Salesforce Tower | Total Consolidated Joint Ventures | |||||||||||||
REVENUE | ||||||||||||||||
Rental | $ | 262,511 | $ | 350,933 | $ | — | $ | 613,444 | ||||||||
Straight-line rent | 13,069 | (2,230 | ) | — | 10,839 | |||||||||||
Fair value lease revenue | 18,178 | 6,331 | — | 24,509 | ||||||||||||
Termination income | (109 | ) | 3,443 | — | 3,334 | |||||||||||
Parking and other | 2,815 | 5,630 | — | 8,445 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total revenue | 296,464 | 364,107 | — | 660,571 | ||||||||||||
EXPENSES | ||||||||||||||||
Operating | 109,513 | 133,607 | 15 | 243,135 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
NET OPERATING INCOME (LOSS) (NOI) | 186,951 | 230,500 | (15 | ) | 417,436 | |||||||||||
|
|
|
|
|
|
|
| |||||||||
Management services income | (1,204 | ) | (2,331 | ) | — | (3,535 | ) | |||||||||
Interest and other income | (160 | ) | (639 | ) | — | (799 | ) | |||||||||
Interest expense | 96,004 | 32,993 | — | 128,997 | ||||||||||||
Interest expense – outside members’ notes | 34,322 | — | — | 34,322 | ||||||||||||
Fair value interest adjustment | (45,545 | ) | — | — | (45,545 | ) | ||||||||||
Depreciation and amortization | 112,933 | 137,870 | — | 250,803 | ||||||||||||
Other | — | 78 | — | 78 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
SUBTOTAL | 196,350 | 167,971 | — | 364,321 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
NET INCOME (LOSS) | $ | (9,399 | ) | $ | 62,529 | $ | (15 | ) | $ | 53,115 | ||||||
|
|
|
|
|
|
|
| |||||||||
BXP’s ownership percentage | 60.00% | 55.00% | 95.00% | |||||||||||||
|
|
|
|
|
| |||||||||||
Partners’ share of NOI(1) | $ | 74,780 | $ | 103,725 | $ | (1 | ) | $ | 178,504 | |||||||
|
|
|
|
|
|
|
| |||||||||
BXP’s share of NOI | $ | 112,171 | $ | 126,775 | $ | (14 | ) | $ | 238,932 | |||||||
|
|
|
|
|
|
|
| |||||||||
Reconciliation of Partners’ share of NOI(1): |
| |||||||||||||||
Rental revenue | $ | 118,586 | $ | 163,847 | $ | — | $ | 282,433 | ||||||||
Less: Termination income | (44 | ) | 1,550 | — | 1,506 | |||||||||||
|
|
|
|
|
|
|
| |||||||||
Rental revenue (excluding termination income) | 118,630 | 162,297 | — | 280,927 | ||||||||||||
Operating expenses | 43,805 | 60,123 | 1 | 103,929 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
NOI (excluding termination income) | $ | 74,825 | $ | 102,174 | $ | (1 | ) | $ | 176,998 | |||||||
|
|
|
|
|
|
|
| |||||||||
Rental revenue (excluding termination income) | $ | 118,630 | $ | 162,297 | $ | — | $ | 280,927 | ||||||||
Less: Straight-line rent | 5,228 | (1,004 | ) | — | 4,224 | |||||||||||
Fair value lease revenue | 7,271 | 2,848 | — | 10,119 | ||||||||||||
Add: Lease transaction costs that qualify as rent inducements(2) | 17 | — | — | 17 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Subtotal | 106,148 | 160,453 | — | 266,601 | ||||||||||||
Less: Operating expenses | 43,805 | 60,123 | 1 | 103,929 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
NOI – cash (excluding termination income) | $ | 62,343 | $ | 100,330 | $ | (1 | ) | $ | 162,672 | |||||||
|
|
|
|
|
|
|
|
(1) | Amounts represent the partners’ share based on their respective ownership percentage. |
(2) | Consists of lease transaction costs that qualify as rent inducements in accordance with GAAP. |
A-4 BOSTON PROPERTIES, INC. |2018 Proxy Statement
for the year ended December 31, 2017
(unaudited and dollars in thousands)
540 Madison Avenue | Market Square North | Metropolitan Square | 901 New York Avenue | Wisconsin Place Parking Facility | Annapolis Junction(1) | |||||||||||||||||||
REVENUE | ||||||||||||||||||||||||
Rental | $ | 26,036 | $ | 15,864 | $ | 18,883 | $ | 27,543 | $ | 3,909 | $ | 8,043 | ||||||||||||
Operating recoveries | 2,994 | 3,327 | 5,394 | 4,983 | 1,335 | 2,220 | ||||||||||||||||||
Straight-line rent | (550 | ) | 2,559 | 6,861 | 2,186 | — | 845 | |||||||||||||||||
Fair value lease revenue | — | — | — | — | — | — | ||||||||||||||||||
Termination income | 694 | — | (13 | ) | — | — | — | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total revenue | 29,174 | 21,750 | 31,125 | 34,712 | 5,244 | 11,108 | ||||||||||||||||||
EXPENSES | ||||||||||||||||||||||||
Operating | 14,073 | 9,264 | 14,695 | 13,903 | 2,540 | 6,523 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
NET OPERATING INCOME (LOSS) (NOI) | 15,101 | 12,486 | 16,430 | 20,809 | 2,704 | 4,585 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Interest expense | 3,336 | 6,010 | 9,433 | 8,301 | — | 4,696 | ||||||||||||||||||
Depreciation and amortization | 7,745 | 5,956 | 7,676 | 6,089 | 5,540 | 4,269 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
SUBTOTAL | 11,081 | 11,966 | 17,109 | 14,390 | 5,540 | 8,965 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
NET INCOME (LOSS) | $ | 4,020 | $ | 520 | $ | (679 | ) | $ | 6,419 | $ | (2,836 | ) | $ | (4,380 | ) | |||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
BXP’s nominal ownership percentage | 60.00% | 50.00% | 20.00% | 25.00% | 33.33% | 50.00% | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
BXP’s share of net income (loss) | $ | 2,410 | $ | 260 | $ | (135 | ) | $ | 7,008 | (3) | $ | (946 | ) | $ | (2,190 | ) | ||||||||
Total basis differential(5) | 683 | (561 | ) | (214 | ) | (300 | ) | (30 | ) | (102 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Income (loss) from unconsolidated joint ventures | $ | 3,093 | $ | (301 | ) | $ | (349 | ) | $ | 6,708 | (3) | $ | (976 | ) | $ | (2,292 | ) | |||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
BXP’s share of revenue | $ | 17,504 | $ | 10,875 | $ | 6,225 | $ | 16,682 | $ | 1,748 | $ | 5,554 | ||||||||||||
BXP’s share of operating expenses | 8,445 | 4,632 | 2,940 | 6,682 | 847 | 3,263 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
BXP’s share of NOI | 9,059 | 6,243 | 3,285 | 10,000 | (3) | 901 | 2,291 | |||||||||||||||||
Less: | ||||||||||||||||||||||||
BXP’s share of termination income | 416 | — | (3 | ) | — | (3) | — | — | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
BXP’s share of NOI (excluding termination income) | 8,643 | 6,243 | 3,288 | 10,000 | (3) | 901 | 2,291 | |||||||||||||||||
Less: | ||||||||||||||||||||||||
BXP’s share of straight-line rent | (330 | ) | 1,279 | 1,372 | 1,050 | (3) | — | 422 | ||||||||||||||||
BXP’s share of fair value lease revenue | — | — | — | — | (3) | — | — | |||||||||||||||||
Add: | ||||||||||||||||||||||||
BXP’s share of lease transaction costs that qualify as rent inducements | — | 381 | 470 | 34 | (3) | — | 163 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
BXP’s share of NOI – cash (excluding termination income) | $ | 8,973 | $ | 5,345 | $ | 2,386 | $ | 8,984 | (3) | $ | 901 | $ | 2,032 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
BOSTON PROPERTIES, INC. |2018 Proxy Statement A-5
UNCONSOLIDATED JOINT VENTURES
for the year ended December 31, 2017(continued)
(unaudited and dollars in thousands)
500 North Capitol Street, N.W. | Colorado Center | 1265 Main Street | Other Joint Ventures(2) | Total Unconsolidated Joint Ventures | ||||||||||||||||
REVENUE | ||||||||||||||||||||
Rental | $ | 11,713 | $ | 53,725 | $ | 3,987 | $ | 1,764 | $ | 171,467 | ||||||||||
Operating recoveries | 4,976 | 2,006 | 1,015 | — | 28,250 | |||||||||||||||
Straight-line rent | 295 | 9,534 | — | — | 21,730 | |||||||||||||||
Fair value lease revenue | — | 384 | — | — | 384 | |||||||||||||||
Termination income | — | (12 | ) | — | — | 669 | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total revenue | 16,984 | 65,637 | 5,002 | 1,764 | 222,500 | |||||||||||||||
EXPENSES | ||||||||||||||||||||
Operating | 5,611 | 21,257 | 1,066 | 1,608 | 90,540 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
NET OPERATING INCOME (LOSS) (NOI) | 11,373 | 44,380 | 3,936 | 156 | 131,960 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Interest expense | 4,475 | 8,588 | 1,538 | — | 46,377 | |||||||||||||||
Depreciation and amortization | 3,811 | 16,806 | 1,635 | — | 59,527 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
SUBTOTAL | 8,286 | 25,394 | 3,173 | — | 105,904 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
NET INCOME (LOSS) | $ | 3,087 | $ | 18,986 | $ | 763 | $ | 156 | $ | 26,056 | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
BXP’s nominal ownership percentage | 30.00% | 50.00% | 50.00% | 50.00% | ||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||
BXP’s share of net income (loss) | $ | 927 | $ | 9,465 | $ | 382 | $ | 276 | $ | 17,457 | ||||||||||
Total basis differential(5) | 20 | (5,704 | )(4) | (20 | ) | 3 | (6,225 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Income (loss) from unconsolidated joint ventures | $ | 947 | $ | 3,761 | $ | 362 | $ | 279 | $ | 11,232 | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
BXP’s share of revenue | $ | 5,095 | $ | 37,530 | $ | 2,501 | $ | 882 | $ | 104,596 | ||||||||||
BXP’s share of operating expenses | 1,684 | 10,608 | 533 | 803 | 40,437 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
BXP’s share of net operating income (loss) | 3,411 | 26,922 | 1,968 | 79 | 64,159 | |||||||||||||||
Less: | ||||||||||||||||||||
BXP’s share of termination income | — | 401 | — | — | 814 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
BXP’s share of NOI (excluding termination income) | 3,411 | 26,521 | 1,968 | 79 | 63,345 | |||||||||||||||
Less: | ||||||||||||||||||||
BXP’s share of straight-line rent | 88 | 7,672 | — | — | 11,553 | |||||||||||||||
BXP’s share of fair value lease revenue | — | 1,857 | — | — | 1,857 | |||||||||||||||
Add: | ||||||||||||||||||||
BXP’s share of lease transaction costs that qualify as rent inducements | — | — | — | — | 1,048 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
BXP’s share of NOI – cash (excluding termination income) | $ | 3,323 | $ | 16,992 | $ | 1,968 | $ | 79 | $ | 50,983 | ||||||||||
|
|
|
|
|
|
|
|
|
|
(1) | Annapolis Junction includes four properties in service and two undeveloped land parcels. |
(2) | Includes The Hub on Causeway, 1001 6th Street, Dock 72 and 7750 Wisconsin Avenue. |
(3) | Reflects the allocation percentages pursuant to the achievement of specified investment return thresholds as provided for in the joint venture agreement. |
(4) | The Company’s purchase price allocation under ASC 805 for Colorado Center differs from the historical basis of the venture resulting in the majority of the basis differential for this venture. |
(5) | Represents adjustments related to the carrying values and depreciation of certain of the Company’s investment in unconsolidated joint ventures. |
A-6 BOSTON PROPERTIES, INC. |2018 Proxy Statement
UNCONSOLIDATED JOINT VENTURES
for the year ended December 31, 2016
(unaudited and dollars in thousands)
540 Madison Avenue | Market Square North | Metropolitan Square(1) | 901 New York Avenue | Wisconsin Place Parking Facility | Annapolis Junction(2) | |||||||||||||||||||
REVENUE | ||||||||||||||||||||||||
Rental | $ | 25,325 | $ | 15,388 | $ | 20,250 | $ | 25,166 | $ | 4,020 | $ | 9,903 | ||||||||||||
Operating recoveries | 3,707 | 3,254 | 5,212 | 4,552 | 1,195 | 2,690 | ||||||||||||||||||
Straight-line rent | 533 | 3,527 | 5,575 | 2,432 | — | 167 | ||||||||||||||||||
Fair value lease revenue | (4 | ) | — | — | — | — | — | |||||||||||||||||
Termination income | 51 | 34 | (61 | ) | — | — | — | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total revenue | 29,612 | 22,203 | 30,976 | 32,150 | 5,215 | 12,760 | ||||||||||||||||||
EXPENSES | ||||||||||||||||||||||||
Operating | 14,469 | 9,077 | 14,288 | 13,419 | 2,180 | 7,099 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
NET OPERATING INCOME (LOSS) (NOI) | 15,143 | 13,126 | 16,688 | 18,731 | 3,035 | 5,661 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Interest expense | 2,620 | 6,119 | 9,732 | 8,300 | — | 2,643 | ||||||||||||||||||
Depreciation and amortization | 7,499 | 3,665 | 6,800 | 5,464 | 5,531 | 4,099 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
SUBTOTAL | 10,119 | 9,784 | 16,532 | 13,764 | 5,531 | 6,742 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
NET INCOME (LOSS) | $ | 5,024 | $ | 3,342 | $ | 156 | $ | 4,967 | $ | (2,496 | ) | $ | (1,081 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
BXP’s nominal ownership percentage | 60.00% | 50.00% | 20.00% | 25.00% | 33.33% | 50.00% | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
BXP’s share of net income (loss) | $ | 3,014 | $ | 1,671 | $ | 76 | $ | 1,372 | $ | (830 | ) | $ | (540 | ) | ||||||||||
Total basis differential(5) | 687 | (25 | ) | 59,526 | (27 | ) | (28 | ) | (11 | ) | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Income (loss) from unconsolidated joint ventures | $ | 3,701 | $ | 1,646 | $ | 59,602 | $ | 1,345 | (3) | $ | (858 | ) | $ | (551 | ) | |||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
BXP’s share of revenue | $ | 17,269 | $ | 10,680 | $ | 13,187 | $ | 14,897 | $ | 1,640 | $ | 5,977 | ||||||||||||
BXP’s share of operating expenses | 8,184 | 4,116 | 5,680 | 5,925 | 628 | 3,145 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
BXP’s share of net operating income (loss) | 9,085 | 6,564 | 7,507 | 8,972 | (3) | 1,012 | 2,832 | |||||||||||||||||
Less: | ||||||||||||||||||||||||
BXP’s share of termination income | 30 | 17 | (31 | ) | — | — | — | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
BXP’s share of NOI (excluding termination income) | 9,055 | 6,547 | 7,538 | 8,972 | 1,012 | 2,832 | ||||||||||||||||||
Less: | ||||||||||||||||||||||||
BXP’s share of straight-line rent | 320 | 1,764 | 2,390 | 1,161 | — | 84 | ||||||||||||||||||
BXP’s share of fair value lease revenue | (2 | ) | — | — | — | — | — | |||||||||||||||||
Add: | ||||||||||||||||||||||||
BXP’s share of lease transaction costs that qualify as rent inducements | — | — | 15 | — | — | — | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
BXP’s share of NOI – cash (excluding termination income) | $ | 8,737 | $ | 4,783 | $ | 5,163 | $ | 7,811 | (3) | $ | 1,012 | $ | 2,748 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
BOSTON PROPERTIES, INC. |2018 Proxy Statement A-7
UNCONSOLIDATED JOINT VENTURES
for the year ended December 31, 2016 (continued)
(unaudited and dollars in thousands)
500 North Capitol Street, N.W. | Colorado Center | 1001 6th Street | 1265 Main Street | Total Unconsolidated Joint Ventures | ||||||||||||||||
REVENUE | ||||||||||||||||||||
Rental | $ | 10,728 | $ | 19,866 | $ | 895 | $ | 994 | $ | 132,535 | ||||||||||
Operating recoveries | 4,672 | 878 | — | 205 | 26,365 | |||||||||||||||
Straight-line rent | 1,163 | 4,673 | — | — | 18,070 | |||||||||||||||
Fair value lease revenue | — | 192 | — | — | 188 | |||||||||||||||
Termination income | — | — | — | — | 24 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total revenue | 16,563 | 25,609 | 895 | 1,199 | 177,182 | |||||||||||||||
EXPENSES | ||||||||||||||||||||
Operating | 5,177 | 9,613 | 1,192 | 227 | 76,741 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
NET OPERATING INCOME (LOSS) (NOI) | 11,386 | 15,996 | (297 | ) | 972 | 100,441 | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Interest expense | 4,500 | — | — | 102 | 34,016 | |||||||||||||||
Depreciation and amortization | 3,707 | 6,589 | — | 379 | 43,733 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
SUBTOTAL | 8,207 | 6,589 | — | 481 | 77,749 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
NET INCOME (LOSS) | $ | 3,179 | $ | 9,407 | $ | (297 | ) | $ | 491 | $ | 22,692 | |||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
BXP’s nominal ownership percentage | 30.00% | 49.80% | 50.00% | 50.00% | ||||||||||||||||
|
|
|
|
|
|
|
| |||||||||||||
BXP’s share of net income (loss) | $ | 954 | $ | 4,685 | $ | (150 | ) | $ | 246 | $ | 10,498 | |||||||||
Total basis differential(5) | (4 | ) | (3,168 | )(4) | — | (4 | ) | 56,946 | ||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Income (loss) from unconsolidated joint ventures | $ | 950 | $ | 1,517 | $ | (150 | ) | $ | 242 | $ | 67,444 | |||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
BXP’s share of revenue | $ | 4,627 | $ | 15,096 | $ | 448 | $ | 600 | $ | 84,421 | ||||||||||
BXP’s share of operating expenses | 1,212 | 4,788 | 598 | 114 | 34,390 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
BXP’s share of net operating income (loss) | 3,415 | 10,308 | (150 | ) | 486 | 50,031 | ||||||||||||||
Less: | ||||||||||||||||||||
BXP’s share of termination income | — | — | — | — | 16 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
BXP’s share of NOI (excluding termination income) | 3,415 | 10,308 | (150 | ) | 486 | 50,015 | ||||||||||||||
Less: | ||||||||||||||||||||
BXP’s share of straight-line rent | 349 | 3,760 | — | — | 9,828 | |||||||||||||||
BXP’s share of fair value lease revenue | — | 1,005 | — | — | 1,003 | |||||||||||||||
Add: | ||||||||||||||||||||
BXP’s share of lease transaction costs that qualify as rent inducements | 43 | — | — | — | 58 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
BXP’s share of NOI – cash (excluding termination income) | $ | 3,109 | $ | 5,543 | $ | (150 | ) | $ | 486 | $ | 39,242 | |||||||||
|
|
|
|
|
|
|
|
|
|
(1) | On October 20, 2016, the Company and its partner in the unconsolidated joint venture that owns Metropolitan Square, completed the sale of an 80% interest in the joint venture. Prior to the sale, the Company owned a 51% interest and its partner owned a 49% interest in the joint venture. Following the sale, the Company continues to own a 20% interest in the joint venture with the buyer owning the remaining 80%. |
(2) | Annapolis Junction includes four properties in service and two undeveloped land parcels. |
(3) | Reflects the allocation percentages pursuant to the achievement of specified investment return thresholds as provided for in the joint venture agreement. |
(4) | The Company’s purchase price allocation under ASC 805 for Colorado Center differs from the historical basis of the venture resulting in the majority of the basis differential for this venture. |
(5) | Represents adjustments related to the carrying values and depreciation of certain of the Company’s investment in unconsolidated joint ventures. |
A-8 BOSTON PROPERTIES, INC. |2018 Proxy Statement
Electronic Voting Instructions | ||||||||||
You can vote by Internet or telephone! | ||||||||||
Available 24 hours per day, 7 days per week! | ||||||||||
Instead of mailing your proxy, you may choose one of the two voting methods outlined below to vote your proxy. | ||||||||||
VALIDATION DETAILS ARE LOCATED BELOW IN THE TITLE BAR. | ||||||||||
Proxies submitted by the Internet or telephone must be received by 11:59 p.m., Eastern Time, on May 22, | ||||||||||
|
Vote by Internet | |||||||||
• Go towww.envisionreports.com/BXP | ||||||||||
• Or scan the QR code with your smartphone | ||||||||||
• Follow the steps outlined on the secure website | ||||||||||
Vote by telephone | ||||||||||
• Call toll free1-800-652-VOTE (8683) within the USA, US territories & Canada on a touch tone telephone | ||||||||||
Using ablack inkpen, mark your votes with anXas shown in this example. Please do not write outside the designated areas. | ☒ |
• Follow the instructions provided by the recorded message |
q IF YOU HAVE NOT VOTED VIA THE INTERNETOR TELEPHONE, FOLD ALONG THE PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE. q
The Board of Directors recommends a vote “FOR” all of the nominees for director listed.
| + | |||||||||||||||||||||||||||
1. | To elect the eleven nominees for director named in the proxy statement, each to serve for aone-year term and until their respective successors are duly elected and qualified: | |||||||||||||||||||||||||||
For | Against | Abstain | For | Against | Abstain | For | Against | Abstain | ||||||||||||||||||||
01 - | ☐ | ☐ | ☐ | 05 - | ☐ | ☐ | ☐ | 09 - Owen D. Thomas | ☐ | ☐ | ☐ | |||||||||||||||||
02 - | ☐ | ☐ | ☐ | 06 - | ☐ | ☐ | ☐ | 10 - Martin Turchin | ☐ | ☐ | ☐ | |||||||||||||||||
03 - | ☐ | ☐ | ☐ | 07 - | ☐ | ☐ | ☐ | 11 - David A. Twardock | ☐ | ☐ | ☐ | |||||||||||||||||
04 - | ☐ | ☐ | ☐ | 08 - | ☐ | ☐ | ☐ | |||||||||||||||||||||
The Board of Directors recommends a vote “FOR” Proposal 2. | The Board of Directors recommends a vote “FOR” Proposal 2. | The Board of Directors recommends a vote “FOR” Proposal 4. | The Board of Directors recommends a vote “FOR” Proposal 2.
| The Board of Directors recommends a vote “FOR” Proposal 3.
| ||||||||||||||||||||||||||||||||||||||||
2. | To approve, by non-binding, advisory resolution, the Company’s named executive officer compensation. | For
☐ | Against
☐ | Abstain
☐ | 3. | To ratify the Audit Committee’s appointment of PricewaterhouseCoopers LLP as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2018. | For
☐ | Against
☐ | Abstain
☐ | |||||||||||||||||||||||||||||||||||
For
| Against | Abstain | For | Against | Abstain | |||||||||||||||||||||||||||||||||||||||
2. | To approve, bynon-binding, advisory resolution, the Company’s named executive officer compensation. | ☐ | ☐ | ☐ | 4. | To ratify the Audit Committee’s appointment of PricewaterhouseCoopers LLP as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2017. | ☐ | ☐ | ☐ | |||||||||||||||||||||||||||||||||||
The Board of Directors recommends a vote for a frequency ofevery year (Box “1 Year” below) on Proposal 3. | ||||||||||||||||||||||||||||||||||||||||||||
1 Year | 2 Years | 3 Years | Abstain | |||||||||||||||||||||||||||||||||||||||||
3. | To approve, bynon-binding, advisory vote, the frequency of holding the advisory vote on the Company’s named executive officer compensation. | ☐ | ☐ | ☐ | ☐ | 5. | In their discretion, the proxies are authorized to vote upon any other matters that are properly brought by or at the direction of the Board of Directors before the Annual Meeting and at any adjournments or postponements thereof. | |||||||||||||||||||||||||||||||||||||
4. | In their discretion, the proxies are authorized to vote upon any other matters that are properly brought by or at the direction of the Board of Directors before the Annual Meeting and at any adjournments or postponements thereof. |
IF VOTING BY MAIL, YOUMUST COMPLETE BOTH SIDES OF THIS CARD.
|
02HD1E02SHSB
q IF YOU HAVE NOT VOTED VIA THE INTERNETOR TELEPHONE, FOLD ALONG THE PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE. q
Proxy
| + | |
BOSTON PROPERTIES, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR THE 20172018 ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON MAY 23, 20172018
The undersigned hereby appoints Douglas T. Linde and Frank D. Burt, and each of them, as proxies for the undersigned, each with the power to appoint his substitute, and hereby authorizes them to attend the 20172018 Annual Meeting of Stockholders of Boston Properties, Inc. (the “Annual Meeting”) to be held at 599 Lexington Avenue, 16th Floor, New York, NY 10022Salesforce Tower, 415 Mission Street, Lobby Level, San Francisco, CA 94105 on May 23, 20172018 at 9:00 a.m., EasternPacific Time, and at any adjournments or postponements thereof, to vote, as designated on the reverse side, all of the shares that the undersigned is entitled to vote at the Annual Meeting and otherwise to represent the undersigned with all of the powers the undersigned would possess if personally present at the Annual Meeting. The undersigned hereby acknowledges receipt of the Notice of Annual Meeting of Stockholders, the Proxy Statement and the Annual Report to Stockholders and revokes any proxy heretofore given with respect to the Annual Meeting.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED AS DIRECTED HEREIN. UNLESS DIRECTION IS GIVEN TO THE CONTRARY, THIS PROXY WILL BE VOTED “FOR” ALL NOMINEES FOR DIRECTOR AND “FOR” PROPOSALS 2 AND 4, AND FOR “ONE YEAR” ON PROPOSAL 3. IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE ON SUCH OTHER MATTERS THAT ARE PROPERLY BROUGHT BY OR AT THE DIRECTION OF THE BOARD OF DIRECTORS BEFORE THE ANNUAL MEETING AND AT ANY ADJOURNMENTS OR POSTPONEMENTS THEREOF, INCLUDING WHETHER OR NOT TO ADJOURN THE ANNUAL MEETING. THIS PROXY ALSO CONFERS DISCRETIONARY AUTHORITY ON THE PROXIES TO VOTE WITH RESPECT TO THE ELECTION OF ANY INDIVIDUAL FOR DIRECTOR WHERE ONE OR MORE NOMINEES ARE UNABLE TO SERVE, OR FOR GOOD CAUSE WILL NOT SERVE, AND WITH RESPECT TO MATTERS INCIDENTAL TO THE CONDUCT OF THE ANNUAL MEETING.
PLEASE MARK, SIGN AND DATE AND RETURN PROMPTLY, OR VOTE BY TELEPHONE OR INTERNET.
THIS PROXY IS CONTINUED ON REVERSE SIDE
Please sign exactly as name appears hereon. Joint owners should each sign. Executors, administrators, trustees, guardians or other fiduciaries should give full title as such. If signing for a company or partnership, please sign in full company or partnership name by a duly authorized officer or partner.
Date (mm/dd/yyyy) — Please print date below.
| Signature 1 — Please keep signature within the box. | Signature 2 — Please keep signature within the box. |
/ / |
IF VOTING BY MAIL, YOUMUST COMPLETE BOTH SIDES OF THIS CARD.
+