If you did not receive a copy, these documents are available in the Investor Relations section of our website at www.bostonproperties.com. An audio webcast of this call will be available for 12 months in the Investor Relations section of our website.At this time, we would like to inform you that certain statements made during this conference call, which are not historical, may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Although Boston Properties believes the expectations reflected in any forward-looking statements are based on reasonable assumptions, it can give no assurance that those expectations will be attained. Factors and risks that could cause actual results to differ materially from those expressed or implied by forward-looking statements were detailed in Tuesday's press release and, from time to time, in the company's filings with the SEC. The company does not undertake a duty to update any forward-looking statement. Having said that, I'd like to welcome Mort Zuckerman, Chairman of the Board and Chief Executive Officer; Doug Linde, President; and Mike LaBelle, Chief Financial Officer. Also during the question-and-answer portion of our call, our regional management team will be available to answer questions as well. I would now like to turn the call over to Mort Zuckerman for his formal remarks. Mortimer B. Zuckerman Good morning all. Thank you for joining us for this discussion about the company and the environment in which it works. I'm going to spend most of my comments just sort of describing the general macroeconomic environment. It is still a time, it seems to me, when we have to be very cautious about where the economy is going in general. The unemployment numbers are very weak, the housing prices continue to go down, consumer sales are still weak, inventory buildup is primarily accounting for a good part of the growth that we've had. We face the risk of a situation in which, while there isn't that much in the way of additional layoffs, still that there are some, there's very little hiring going on across the country.
Nevertheless, within this context, the basic business strategy of Boston Properties still seems to be working out fairly well for the following reasons: Number one, we are in unique markets and the markets that have by and large done relatively well in this weak economy, and those markets are cities. And cities, which have certain characteristics including the level of employment that requires, shall we say, a knowledge base for their flourishing and, indeed, survival. And that is true of the cities that we are in: Cambridge and Boston and New York and Washington and its suburbs and San Francisco. San Francisco was the last city to sort of really get its gear in forward. But in the last year, 1.5 years, particularly as the social media boom spread throughout that community, we have seen a dramatic turnaround in the performance of that city and in the performance of our real estate in that city and in its surrounding areas.But in the other cities, we have continued through this entire period to do relatively well. I'm not saying that it is the kind of exuberant experience that we had for many, many years, but still, the basic strategy that the company followed from day 1, which was to be in certain markets that really had the best chance to continue to flourish even in difficult times and to be in those buildings within those markets that would be the ones that would attract tenants. Not that our rents haven't gone down somewhat, but we own, by and large, the kind of buildings that when those companies that are doing well look for a new place of occupancy, they look to our buildings. And so our basic occupancy has held up remarkably well throughout this period, and our basic strategy, it seems to me, continues to hold up remarkably well.
So the question in this sense is, are these cities going to continue to do well, and in particular, what is the national macroeconomy going to have to say about how well these cities are going to do. We think these cities are going to continue to do reasonably well. But isn't to say that we think, and I certainly don't think, that this economy is going to continue to do very well. It has not been doing well now for quite a few years, and we have been bearish about this economy, as many of you will remember over the years that we've been talking about it, for quite a few years. We're talking 4 or even 5 years. And I do think that this is going to go on for a year or 2, or maybe even more. My own view, it's going to take a minimum of 2 years and probably between 3 to 5 years for us to work through the overhang of debt that now suppresses the economy. It is also going to take us some time to see if after the next election, we can develop national policies that offer a much better chance to restimulate our economy on a macro level than the ones we have had to date. And this is something, no matter who comes into office, they're going to have to really think about it and see whether or not they can fashion such policies and get them passed into legislation.At this stage of the game, it really -- when you think that you're in the middle of the kind of political campaign that we have witnessed, it's hard to believe that anybody is going to come out of this campaign with the kind of authority, political authority and moral credibility to move the Congress and to have a Congress that's going to be very responsive to whomever the President is. But we're just going to have to wait and see on that. In any event, I do think that the economy is sort of getting somewhat better and not really getting worse. There is a chance that it will get worse because at some point, everybody is going to get exhausted with the fumes of optimism and really begin to think very differently about the economy. For the moment, that's a little bit away in terms of seeing it because the economy is growing, albeit at a very slow pace. But in our markets, as I say, we find ourselves really dealing by and large with reasonably good markets, not great markets, but reasonably good markets. This shows up both in terms of the level of occupancy and in terms of the rents that we are obtaining. And the real question is, we do have a unique advantage at this stage of the game, which is the cost of capital. The cost of long-term capital for a company like Boston Properties has dropped dramatically. We have never seen anything like that, not in the, I'm embarrassed to say, 50 years that I've been in this business. We've just never seen anything like the kind of rates that we're now able to realize, and this is going to give us an advantage on several grounds. One is we still can do a lot of leasing, in a sense, at somewhat lower rates. But if our financing costs have dropped significantly as they have, our margins will be maintained in one form or another, even sometimes greater than they were before. So that is one thing that will help us mitigate the current condition of the economy which while, as I said, it is not going down, it is still relatively weak in terms of the fiscal and monetary policies that we've had, trying to give it the kind of stimulus so that the economy would begin to self-generate itself at a higher level of growth of GDP. Anyway, that hasn't happened yet, but we think we're reasonably well positioned to continue to grow, to continue to find assets that we can acquire and develop, and to continue in a sense as we turn over the space in some of our buildings, these are buildings that are the highest quality within the markets they are in. They are, as we say, A buildings in A locations. Their replacement cost continues to go up every year and so it mitigates again the downward pressure on the space that we have, and we have kept a fairly high vacancy in virtually every market we are in. Read the rest of this transcript for free on seekingalpha.com