Earnings call transcript: BXP beats Q2 2025 EPS forecast, stock dips

Published 30/07/2025, 18:28
Earnings call transcript: BXP beats Q2 2025 EPS forecast, stock dips

In its Q2 2025 earnings call, Boston Properties (BXP) reported a significant earnings per share (EPS) beat, posting $0.56 compared to the forecasted $0.41. Despite this positive surprise, the company’s stock fell by 3.62% in after-hours trading, closing at $70.43. With a market capitalization of $12 billion, InvestingPro analysis suggests the stock is currently undervalued. The market reaction may reflect broader concerns in the office real estate sector, overshadowing the company’s raised full-year guidance.

Key Takeaways

  • BXP reported a 36.59% EPS surprise for Q2 2025.
  • The company raised its full-year 2025 guidance to $6.84-$6.92 per share.
  • Despite strong earnings, BXP stock declined by 3.62% post-announcement.
  • Leasing activity was robust, with over 1.1 million square feet completed in Q2.
  • Portfolio occupancy declined slightly, affecting investor sentiment.

Company Performance

Boston Properties demonstrated strong financial performance in Q2 2025, with a notable EPS beat and revenue exceeding expectations. The company continues to benefit from its focus on premier workplace segments, which are outperforming the broader office market. However, a slight decline in portfolio occupancy and broader market concerns may have tempered investor enthusiasm.

Financial Highlights

  • Revenue: $868.5 million, surpassing the forecast of $849.66 million.
  • Earnings per share: $0.56, exceeding the forecast of $0.41.
  • FFO per share: $1.71, $0.05 above forecast.

Earnings vs. Forecast

Boston Properties reported an EPS of $0.56, significantly above the forecasted $0.41, resulting in a 36.59% surprise. This performance marks a substantial beat compared to previous quarters, highlighting the company’s operational strength and effective cost management.

Market Reaction

Despite the positive earnings surprise, BXP’s stock fell by 3.62% in after-hours trading. The decline may reflect broader market concerns or investor caution regarding the office real estate sector. Notable for income investors, the company offers a 5.57% dividend yield and has maintained dividend payments for 29 consecutive years. The stock’s current price is within its 52-week range of $54.22 to $90.11, suggesting ongoing volatility.

Outlook & Guidance

BXP raised its full-year 2025 guidance to $6.84-$6.92 per share, reflecting confidence in its strategic initiatives and market positioning. The company anticipates occupancy improvements and revenue growth through 2026-2027, driven by strong demand in key markets.

Executive Commentary

CEO Owen Thomas highlighted the recovery in premier workplace leasing, stating, "Premier workplace leasing and capital markets continue to recover from their lows in 2024." President Doug Linde emphasized the supply constraints in certain submarkets, while CFO Mike LaBelle noted the growing difference between leased and occupied square footage.

Risks and Challenges

  • Declining portfolio occupancy could impact future revenue.
  • Broader economic uncertainties may affect investor confidence.
  • Potential challenges in executing development projects within budget.
  • Competition in the office real estate sector remains intense.
  • Fluctuating demand due to changing work patterns post-pandemic.

Q&A

Analysts expressed interest in the 343 Madison Avenue project and its potential impact on BXP’s portfolio. Discussions also focused on AI’s influence on office demand and the company’s capital allocation strategies. The positive outlook on New York City’s real estate market was a key topic of interest.

Full transcript - BXP Inc (BXP) Q2 2025:

Conference Operator: Day, and thank you for standing by. Welcome to Q2 twenty twenty five BXP Earnings Conference Call. At this time, all participants are in a listen only mode. After the speakers’ presentation, there will be a question and answer session. To ask a question during the session, you will need to press 11 on your telephone.

You will then hear an automated message advising your hand is raised. To withdraw your question, please press 11 again. Please be advised that today’s conference is being recorded. I would now like to hand the conference over to your first speaker, Helen Hahn, Vice President of Investor Relations. Please go ahead.

Helen Hahn, Vice President of Investor Relations, BXP: Good morning, and welcome to BXP’s second quarter twenty twenty five earnings conference call. The press release and supplemental package were distributed last night and furnished on Form eight ks. In the supplemental package, BXP has reconciled all non GAAP financial measures to the most directly comparable GAAP measure in accordance with Reg G. If you did not receive a copy, these documents are available in the Investors section of our website at investors.bxp.com. A webcast of this call will be available for twelve months.

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. Although BXP believes the expectations reflected in any forward looking statements are based on reasonable assumptions, it can give no assurance that its 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 yesterday’s press release and from time to time in BXP’s filings with the SEC. BXP does not undertake a duty to update any forward looking statements. I’d like to welcome Owen Thomas, Chairman and Chief Executive Officer Doug Linde, President and Mike LaBelle, Chief Financial Officer.

During the q and a portion of our call, Ray Ritchie, Senior Executive Vice President and our regional management teams will be available to address any questions. We ask that those of you participating in the q and a portion of the call to please limit yourself to one and only one question. If you have an additional query or follow-up, please feel free to rejoin the queue. Would now like to turn the call over to Owen Thomas for his formal remarks.

Owen Thomas, Chairman and Chief Executive Officer, BXP: Thank you, Helen, and good morning to all of you. Our results in the second quarter demonstrate BXP’s continued strong execution and provide further evidence of the property and capital market recovery underway in our sector. Our FFO per share was $05 above our forecast and $04 above market consensus for the second quarter, primarily driven by improved operations. As a result, we’re also raising the mid midpoint of our earnings guidance for the full year 2025 by $02 We completed over 1,100,000 square feet of leasing in the quarter, bringing our total leasing in 2025 to 2,200,000 square feet. Over the last four quarters, our leasing volume of 5,700,000 square feet was 18% higher than the prior four quarters.

We continue to increase the preleasing of our development pipeline with 200,000 square feet of development leasing this quarter. Now regarding the operating environment, BXP’s leasing activity remains vibrant across many, though not all, submarkets. As discussed before, the primary drivers of BXP leasing activity are corporate confidence and the in person work behavior of our clients. Corporations generally see a favorable environment for their businesses unfolding this year with a pro growth tax bill recently passed in congress, less regulation, geopolitical risk relief in certain regions, resolution of US tariff agreements with many important nations, and the possibility of lower short term interest rates. As a proxy for corporate health, 2025 S and P 500 earnings growth projections, though revised lower since the beginning of the year, remain healthy at seven to 9%.

Investors are confirming this view with US equity market indices achieving new highs and credit spreads on US investment grade bonds trading at or near ten year lows. Further, in person work behaviors continue to improve. JLL recently completed a study of Fortune 100 firms’ office attendance policies. Over the last two years ended the 2025, Fortune 100 companies that are fully in the office climbed tenfold from 5% to 54%. Hybrid mandates dropped by nearly half from 78% to 41%, and fully remote policies dropped from 6% to only 1%.

These are material shifts that have undoubtedly augmented leasing activity. Return to office behavior is more advanced in our East Coast markets, particularly New York City, and well behind on the West Coast. Moving on to office market conditions, I’ll continue to emphasize that the premier workplace segment defined as roughly the top 10% of buildings in a market and where BXP primarily competes continues to materially outperform the broader office market. In our five core CBD markets, direct vacancy for premier workplaces is seven and a half percentage points or 38% less than the broader less than the broader market. And asking rents for premier workplaces continue to be more than 50% greater than the broader market.

Regarding the real estate private equity capital markets, office sales volume increased materially in the second quarter to $14,200,000,000 up 80% from the prior quarter and a 125% from the second quarter of last year. Financing at scale is increasingly available at tightening spreads for higher quality office assets with Walt, particularly in the CMBS market. Equity investors are also starting to reenter the office sector given improving operating performance in certain markets and attractive asset pricing versus other sectors. There were several notable office transactions completed or committed in the quarter. In Midtown New York City, five ninety Madison’s under contract for sale for $1,100,000,000 or a thousand 60 a square foot and a 5.2% cap rate.

This building was constructed in 1981, is 85% leased, and sold by a pension fund to a local real estate operator with a financial partner. Also in Midtown, a half interest in 1345 Avenue Of The Americas was sold at a gross valuation of $1,400,000,000 or around $740 a square foot. The cap rate’s not particularly meaningful given stabilization is several years away, and the transaction was facilitated by $850,000,000 CMBS financing. The building was originally built in 1969, is 92% leased and transacted between investment management firms with the building manager staying in and owning the other half of the asset. And lastly, in Culver City, California, Entrada was sold for a gross price gross price of 212,000,000 or $675 a square foot at a 7.4% cap rate.

This building was recently constructed recently in 2021, 75% leased and transaction transacted between investment management firms, again, with the building manager staying in and owning a small stake in the property. Now let’s transition to BXP’s capital allocation activities. As discussed on many prior calls, BXP controls what we think is the best positioned, currently actionable office development site in New York City located at 343 Madison Avenue. The building will be a highly amenitized, sustainably designed, 46 story, 930,000 square foot premier workplace with direct escalator access into the Madison Concourse of Grand Central Terminal from the building’s lobby. Today, we are making several important announcements regarding this project.

First, we’re proceeding with the project for the terms of our ground lease with the MTA and plan to immediately commence full vertical construction of the building, which will allow delivery delivery in late twenty twenty nine. Site preparation, foundation work, and development of the Grand Central escalator access is well underway having commenced in October 2024. Second, we have executed a letter of intent with an anchor client for approximately 30% of the building with economics consistent with our investment underwriting. The client is a prestigious investment grade financial institution that will be leasing the lower middle section of the building. We have experienced strong client demand for the project and have active anchor tenant proposals out to six clients, representing in total approximately 1,300,000 square feet.

Negotiations continue with anchor clients for the base of the building, and we intend to be patient leasing the upper floors of the project, which we expect will be attractive to smaller users that make leasing commitments closer to the date when they can occupy their new space. Third, BXP is opting to buy out our 45% equity joint venture partner, which we will do no later than the end of this quarter, for approximately $44,000,000 at their cost basis. While our partner has been funding its share of predevelopment expenses since 2017, they have decided to prioritize investment in existing as opposed to development assets with as opposed to development assets, which better align with their current risk adjusted return objectives. Given the trophy status of the asset and very promising preleasing activity, we believe introducing a new capital partner for an interest in 343 Madison, if we elect to do so, is readily achievable. As a reminder, 3 forty three Madison has a total development cost of just under $2,000,000,000, including approximately $400,000,000 of imputed capital cost carry and a projected stabilized cash yield on cost of approximately seven and a half to 8% depending on how we ultimately elect to capitalize the project.

The leasing market in Midtown remains very strong with trophy buildings having a vacancy rate of 6.3% and no large blocks of space available in the plaza district of Park Avenue. As a result, office rents are growing at rates well above inflation, and the very few high quality building trades that have been completed were done at cap rates well below our projected development returns. Culminating thirteen years of effort by our New York region in securing and entitling the site, we believe 343 Madison will be a core long term holding for BXP and represents a very strong and significant value creation opportunity for BXP shareholders. Turning to asset sales. We’re in various stages of execution for the sale of 10 non in non income producing assets, both land sites and largely empty buildings, that we believe will generate, if successful, net proceeds of nearly $300,000,000 over the next two years.

We’re also exploring the sale of a handful of income producing properties that could generate another 300,000,000 in net proceeds more likely in twenty six than twenty five. There is strong demand for housing in the communities where many of our sites and out of service buildings are located, allowing us to create value through reentitlement, though the process can in select cases take up to two years to complete. Other sites are being sold for industrial or other nonoffice uses. In the aggregate, we do not expect these sales will be dilutive to BXP’s FFO because of the significant portion of nonincome producing assets. A great example of our creativity in monetizing a nonproducing asset is 17 Hartwell Avenue in Lexington, Massachusetts, which is a 30,000 square foot commercial building built in 1966, vacated in 2024, and recently demolished.

We successfully rezoned the property in the town of Lexington to build a 312 unit multifamily building on the five acre site and secured an institutional partner to provide both construction financing and 80% of the equity required to build the project. The stick frame construction development will cost a $180,000,000 and is projected to to deliver a 7.1% yield on cost, including land at current market value and capital cost carry upon stabilization in 2028. In terms of economics to BXP, we received 22,000,000 at closing for our land contribution. We own 20% of the project, which will require 10,000,000 of funding from BXP over time, and we’ll earn a development fee of more than $4,000,000. The inferred land value is $70,000 per residential unit or $22,000,000, which is $733 a square foot for the existing empty commercial building, significantly more than its as is value.

So in conclusion, premier workplace leasing and capital markets continue to recover from their lows in ’24 2024. Our clients are generally optimistic about their business prospects and are demanding more in person work from their professionals, both creating leasing demand. Further, new construction for office has virtually halted, and users are gravitating to higher quality assets with strong sponsorship, the combination creating occupancy and rent growth for many of our assets as we gain market share. Private equity investors are increasingly taking note of these trends and starting to invest in the office sector. With our current leasing momentum and limited rollover in 2026 and 2027, We expect to gain occupancy, revenue, and FFO in the years ahead, and development deliveries and potentially acquisitions will provide additional growth.

Let me turn over our report to Doug. Thanks, Owen. Good morning, everybody. Hope everyone is staying cool in this rather, warm and humid air on

Doug Linde, President, BXP: the East Coast. As we think about the demand for premier office space across our markets, the the pattern and the sources of demand that we’ve been describing for the last few quarters have have really basically continued to sort of go on as we’ve already talked about. Specifically, on the East Coast, submarkets with a concentration of financial and professional services businesses, which is the New York and the Boston CBDs. And we’ve had we’ve had, you know, real demand growth there. Defense services and cybersecurity businesses located in Northern Virginia have continued to weather the potential federal spending cuts, and there’s been growth there.

Biotech demand growth with extensive lab uses continues to be light, while demand from life science clients with needs for high quality office space continue in the urban edge of Boston. On the West Coast, there’s been an improvement in overall demand in San Francisco led led by organizations focused on AI, albeit with a large established tech companies still largely absent from growth. Venture funding from a deal count continues to be dominated by California, where there are 2.3 times the next state, which is, by the way, New York. And to reinforce the dominance of AI related venture investing, California companies have raised more than a $100,000,000,000 in the ’25, which is 10 x what was raised by New York City startups, the next largest ecosystem. Financial service and professional service clients are active, though not showing the same growth that’s present on the East Coast.

Owen mentioned our 2,200,000 square feet of leasing in the first half. During the ’25, we leased 810,000 square feet of vacant space and 750,000 square feet of space associated with 2025 expirations for a total of 1,560,000 square feet. Our 2025 plan calls for 4,000,000 square feet of total leasing with about 3,000,000 square feet of activity on vacant space and known 25 expirations. Leasing vacant space and near term expirations will drive improvements to our occupancy over the next twelve to eighteen months when we experience very modest expiration. We are on track.

Post 07/01/2025, the end of the second quarter, we have 1,800,000 square feet of leases in negotiation compared to 1,100,000 square feet at the beginning of the second quarter. If you include our letter of intent at 343 Madison, the number jumps to almost 2,100,000 square feet. Our pipeline covers 575,000 square feet of currently vacant space, 65,000 square feet of known 25 expirations, and 600,000 square feet of twenty six and twenty seven expirations. Additionally, we are engaged in more than 550,000 square feet of client initiated early lease renewals on leases that expire between 2831. We have active dialogue on space that is not yet in lease negotiations totaling about 1,000,000 square feet.

BXP’s total portfolio occupancy for the second quarter ended at 86.4 percent, a decline of 50 basis points or 240,000 square feet. As previously communicated during our first quarter earnings call as well as our remarks in January, Biogen’s 355,000 square foot lease in the urban edge portfolio of Boston expired in May 2025 this quarter. We have relet 45,000 square feet and have 310,000 square feet of space available. There were two other notable declines in our in service property listings listings this quarter. At south of Market Inn in Reston, Meta terminated 51,000 square feet in May.

We have already executed a lease for the entire space done this month, but the space was neither occupied nor leased at 06:30. And at 599 Lexington Avenue, we early terminated a 100,000 square feet of late twenty five expiring space in conjunction with executed leases for the entire square footage. We demolished these floors so they were taken out of occupancy and are shown as leased at 06:30 twenty five but not occupied. Improvements at our other properties offset much of these declines. BXP’s total portfolio percentage leased for the second quarter was 89.1%, a decline of only 30 basis points.

As we highlighted last quarter and at our NAREIT meetings in June, the difference between leased and occupied square footage has grown again this quarter and now sits at 270 basis points versus a 190 basis points on 12/3124. 500,000 square feet of this approximately 1,300,000 square feet of space is expected to become occupied in ’25 with the bulk of the remaining 800,000 square feet commencing in the back half of 02/1926. Looking forward, we project the current in service portfolio to end the year at around 87% occupied, an improvement from where we are today. However, there will be three developments that are being added to the in service portfolio in the third quarter. 360 Park Avenue South, which is 450,000 square feet, 23% occupied and 28% leased.

1050 Winter Street, which is a 162,000 square feet and will be 100 occupied and leased when it’s added. And rest and next block d, which is 90,000 square feet, 4% occupied, and 95% leased when it is is added. If we were add to add these properties this quarter, occupancy would drop by about 70 basis points. When we quarter statistics next quarter, you will need to adjust for these additions to gauge the progress of the in service portfolio. We will be sure to highlight the impact on our occupancy in the third quarter earnings press release.

Our development portfolio lease percentage this quarter increased by another 500 basis points to 67%. Office market conditions are pretty consistent with my earlier comments on demand. Those markets with the strongest demand growth also have the most landlord favorable conditions, Midtown New York City, the Back Bay Of Boston, and Reston, Virginia. What this means is that availability is sparse, rents are increasing, and concessions are either improving or remaining constant. We completed 91 individual transactions this quarter, 236,000 in Boston, three forty four in New York, a 185 on the West Coast, and three fifty six in DC.

We had 20 clients expand in the portfolio by a total of a 190,000 square feet, and only two contractions for just over 3,000 square feet. 482,000 square feet of the leasing this quarter represented new clients in the portfolio, and the rest were either renewals and or extensions. The overall mark to market of leases signed this quarter on a cash basis was flat with modest increases in Boston and New York and slight decreases on the West Coast and DC. We only executed three leases in the in service portfolio that were greater than 50,000 square feet this quarter. The second generation rent change in the leasing statistics this quarter represents only about 400,000 square feet.

And if if if you’re curious, the LA numbers are skewed by a subsidized rent at the Santa Monica Business Park for a secondary school that was destroyed by Palisades Fire where we did a lease. Our activity in Boston this quarter was very granular and spread around the portfolio. We completed five renewal and expansions in the CBD, both in the back Bay and the and the Financial District. Last quarter, I described life science client activity without the need for lab infrastructure. The first of these was executed in the first quarter at 180 City Point, and we are in lease negotiations with two additional clients for another 75 76,000 square feet also at 180 City Point.

In addition, we have discussions going on with another group of companies that fit the same profile at our other urban edge assets. The economics of doing an office transaction on Ross Space, even though the building has been purpose built for lab and has the infrastructure, are far superior to a lab in a lab transaction today given the elevated tenant improvements necessary to compete in the lab market. We are in negotiations, however, with one true lab user for a second generation lab building, again, in the urban edge portfolio. In New York, our leasing activity was focused on the Midtown East portfolio this quarter. The highlight was leasing six floors at 510 Madison Avenue, where we have opened an enhanced amenity offering, including a new outdoor space.

We also completed a renewal at 399 Park Avenue and two law firm ex expansions, one at the General Motors building and another at 200 Fifth Avenue. The 550,000 square feet of client initiated extensions mentioned earlier are concentrated in our Midtown portfolio. At 360 Park Avenue South, we are currently in negotiations with two floors for approximately 47,000 square feet. One of those floors actually got executed last night, late breaking, so we’re now at 33% leased there. In Princeton, we completed over a 164,000 square feet of leasing with 13 clients, including 76,000 square feet of new clients and expansion.

Interestingly, all the growth in Princeton is from office requirements for life science users. In San Francisco, at Embarcadero Center, we completed about a 100,000 square feet of law firm transactions, including one sixty five thousand square foot renewal with no reduction in space square footage. Many of the traditional office users have continued to rationalize their space, which has led to little of any growth in the San Francisco CBD traditional demand. So incremental leasing is gonna be all about tenant relocations. Our largest block of available space in San Francisco is at 680 Folsom where we are finishing up an amenities improvement, including a new outdoor roof space there as well.

During the first six months of the year, we had 11 tours of the property. In the month of July, we had seven additional. Virtually every potential client is a technology company working in the AI space. The granular absorption of space is very much underway, and the South Of Mission Buildings are great options for these clients. Our listing agent at 680 Fulveston provided us a list of 37 AI related tenants in the market with aggregate demand growth of almost 1,200,000 square feet active in the market today.

Before I conclude my remarks, I do wanna discuss tariffs as they relate to construction activities, particularly because we are in the process of establishing our GMP contract for 343 Madison Avenue. Subcontractors are actively bidding the job after taking into consideration the sectorial tariffs associated with nondomestic suppliers and the recent preliminary country agreements. To date, we’ve either awarded or negotiating bids for three separate components of the job. And in each case, we are obtaining meaningful savings relative to our last g general contractor’s estimate. Given the overall slowdown in construction activity in Manhattan, there is enough subcontractor interest to provide savings in spite of the tariffs.

Remember that construction is a composition of labor, materials, and profit. And let me hand over the call to Mike to talk about our earnings piece.

Mike LaBelle, Chief Financial Officer, BXP: Great. Thanks. Thanks, Doug. Good morning. So today, I’m gonna talk about our second quarter earnings results as well as the update to full year 2025 earnings guidance.

And as Owen and Doug both described, we we delivered a really strong second quarter. Earnings surpassed expectations, and we’re raising our full year guidance. For the second quarter, we reported funds from operations of $1.71 per share. That is $05 ahead of the midpoint of our guidance range and $04 above consensus estimates for the quarter. Our portfolio generated approximately 4¢ of the outperformance.

A penny came from earlier than anticipated revenue recognition on leases, which was very granular and spread across the portfolio. We generated an additional penny per share from higher than anticipated service income from our clients, primarily in Boston and New York, which tracks the higher space utilization on the East Coast. And then the last 2¢ of outperformance in the portfolio came from lower than projected operating expenses. Lower expenses partially came from lower real estate taxes resulting from successfully negotiating reductions in our assessed values. We do anticipate about a penny per share of the expense reduction that related to repair and maintenance costs will be deferred into the third quarter and will not benefit our full year results.

Our g and a expenses also came in lower than we expected, resulting in a penny per share better earnings performance. The savings came from lower compensation expense due to capitalized wages and savings in professional fees versus our budget. Now turning to the increase in our full year 2025 guidance. We’re increasing the projected contribution from our same property portfolio from the second quarter strong performance combined with our ongoing leasing activity that Doug described, which continues to be aligned with our expectations. We now expect that the NOI from our same property portfolio will increase in 2025 by about point 25% at the midpoint from 2024.

And on a cash basis, we expect the same property portfolio NOI to grow 1.25% at the midpoint year over year. This represents an improvement of approximately 25 basis points from our guidance last quarter or about $03 per share at the midpoint of our range. We continue to expect our in service occupancies to start to improve in the second half of the year, excluding changes to the portfolio. As Doug detailed, we will be adding several properties into service in the third quarter that will reduce our headline occupancy rate temporarily. We are increasing our assumption for interest expense on our floating rate debt this quarter due to the expectation for fewer interest rate cuts by the Federal Reserve.

Our prior guidance included the potential for three rate cuts starting in the third quarter, and we’ve now reduced this to a maximum of two cuts both in the fourth quarter. The result is approximately $3,000,000 of projected incremental interest expense for the year or $02 per share of higher expense. In our G and A, we recognized a penny of lower expense in the second quarter, and we anticipate that savings flowing through to the full year in our FFO guidance. So in summary, we have increased our guidance range to $6.84 to $6.92 per share. This represents an increase of 4¢ per share at the low end and 2¢ per share at the midpoint of our range.

The increase at the midpoint is from 3¢ of better same property NOI, 1¢ of lower g and a expense, partially offset by 2¢ of higher interest expense. Overall, we had a great quarter, highlighted by strong leasing activity at 343 Madison catalyzing its development start, more than 1,100,000 square feet of leases executed in the quarter, and an FFO beat and guidance raise driven by stronger core portfolio operations. The last thing I would like to remind everyone of is our upcoming Investor Day. It will be held in New York City on September 8 from 10AM to 5PM at 599 Lexington Avenue with a cocktail event at 6PM at our Coco’s Dining Club on the 30 Seventh Floor of the GM Building. And for those of you who are really ambitious, you can join Owen and James for the 6AM fun run through Central Park before the conference.

We already have over a 100 RSVPs, and it will be a highly informative event with leadership from across our regions attending. So if you haven’t responded and you would like to attend, please RSVP to the invite, or you can send Helen a note. That completes our formal remarks. Operator, can you open the line for questions?

Conference Operator: Thank you, sir. As a reminder, to ask a question, you would need to press 11 on your telephone. To withdraw your question, please press 11 again. We ask that you please limit your questions to no more than one, but feel free to go back into the queue. And if time permits, we’ll be happy to take your follow-up questions at that time.

And I show our first question comes from the line of Steve Sakwa from Evercore ISI. Please go ahead.

Steve Sakwa, Analyst, Evercore ISI: Yes. Thanks. Good morning. Thanks for all the detail and some of the additional information on 343 Madison. I was just wondering if you could provide kind of an outlook for the unlevered return that you expect on that project?

I realize when Norges was your partner, maybe fees were being factored in. But just sort of how are you thinking about that return on an unlevered basis? And of all the tenants that you’re talking to, are many of them new to the BXP portfolio? Or are, you know, number of the clients you’re talking to kind of existing BXP tenants?

Owen Thomas, Chairman and Chief Executive Officer, BXP: Yeah, Steve. So, you know, we think about this on a yield basis, and I’ve quoted those numbers as seven and a half to eight. That’s an unlevered cash yield upon delivery. You know, I think if you overlay that and look at IRR, obviously, the exit gap would be very important, but it would certainly be a high single digit number. And if you put a construction loan on the property, the IRR levered would depend on, one, what’s the exit cap and two, when you sold it, but you’re probably in the, mid to high teens on a levered basis.

Conference Operator: Thank you. And I show our next question comes from the line of Jamie Feldman from Wells Fargo. Please go ahead.

Jamie Feldman, Analyst, Wells Fargo: Great. Thanks for taking my question. Filling in for Blaine here. I just wanna get your you know, you gave a lot of color on, you know, what tenants are thinking, where they want space. AI, clearly a big driver of demand in San Francisco.

You know, you have a view across, you know, many of

Doug Linde, President, BXP: the largest markets across the

Jamie Feldman, Analyst, Wells Fargo: country and talk to a lot of tenants. So we’d love to get your thoughts on, you know, the impact of AI, where you think it’s a net demand driver, where you think it’s actually gonna shrink demand, What are companies saying about their space needs going forward and just what their what their labor force looks like going forward as it’s implemented more and more?

Owen Thomas, Chairman and Chief Executive Officer, BXP: Yep. So I’ll I’ll take a first crack at that. You know, we’ve been starting to say and talk about the impact of AI and, frankly, have been saying that we think it’s actually something that’s a lot more important than the work from home phenomena. And I my guess is we’re gonna have more conversations about this in the quarters ahead. Our basic premise, and we have spent time studying this with our board, with outside experts, and so forth, but our basic premise is we think that that there will be job creation at the top of the intellectual pyramid in the workforce.

Meaning, those companies that are industry leaders will be creating AI products, will be using AI products, and will experience and we will experience growth in demand from those companies, and some of which will be startups. I mean, Doug talked about the extensive AI demand that we’re starting to see in San Francisco, and all of that, you know, are newly created jobs. There is a lot of discussion that we’re aware of out in the market right now from CEOs in lots of different sectors about all the efficiency efficiencies that we’re getting that they’re getting from AI. We haven’t seen an impact yet from those companies. You know, no one’s come to us.

You know, we’re reducing our space because of AI. That all being said, could that happen in the future? Yes. It’s possible. I think where the job where jobs are gonna be reduced are gonna be more in the processing type of work.

So those are the kinds of jobs that can be automated, and I think that that’s where AI applications are gonna allow companies to save money. So our premise is, as a result, that we think that the the the top of the intellectual pyramid and where we see the most job creation are gonna be in those cities with the deepest talent pools. And, frankly, those are the gateway markets where we operate, the Bay Area, New York City, Boston, and so forth. I think the job destruction is gonna occur more in markets that, are common that are more value markets. Space is cheaper.

The workforce is more doing back office work as opposed to front office work, and that is less. And I think that also that concept also manifests itself in the quality of the buildings because our, you know, our strategy is to be at the top of the pyramid from a quality standpoint. We wanna have industry leading clients that are leasing our properties. We don’t have as much back office, uses in our buildings because most of our buildings aren’t necessarily people aren’t leasing them because they’re cheap. They’re leasing them because they’re very high quality.

So that’s in a very in a very high level way the way we see things going forward. Yeah. And, Jamie, I

Doug Linde, President, BXP: would I would just add the following. So from an empirical perspective, so our average lease length this quarter was nine point four years. And, you know, the the lease that we’re negotiating now at 343 Madison is a twenty year lease. And so the the clients that are signing up for for a space now are not doing on on a short term basis with an expectation that they’re gonna no longer need the space, a k a, they’re gonna be reducing their headcount. So so so that’s just sort of a fact pattern.

I I do think it is fair to acknowledge that there are what I would refer to as a number of established technology companies whose CEOs have come out and said that, you know, we think our our job growth is going to either slow down or go in the wrong in the in the negative direction. And we’ve seen layoffs from companies like, Meta and Microsoft and Google, you know, over the past year or so. And the question will be whether there will be an incremental addition of those companies that are in this AI field that are gonna take up the gap associated with the reductions in the headcount from those types of organizations if, in fact, there are no longer the same need for coders, for software engineers at those types of traditional companies, what will, you know, the the world look like for people looking for the kinds of of skills needed for the AI companies that are now being formed? And, you know, as I said, there are 37 of these companies in the market right now. I can’t tell you if one or two or 10 are gonna become unicorns and have a real need for significant numbers of employees, but there’s a meaningful amount of growth going on in that sector.

It’s just much more granular than it was in terms of what we’ve experienced in the sort of 2012 to 2019 period of time when all of the growth that we were seeing across the entire country from a demand perspective was coming from those, you know, quote, unquote tech titans.

Conference Operator: Thank you. And I show our next question comes from the line of John Kim from BMO Capital Markets. Please go ahead.

John Kim, Analyst, BMO Capital Markets: Thank you. On 343 Madison, you disclosed $390,000,000 of capitalized interest at the project. And I’m wondering if you can clarify if that’s capitalized interest going forward. And then in terms of financing the project, you discussed $600,000,000 of asset sales. But I was wondering if you could discuss your other options and your preference in terms of finding another JV partner, construction loan, or if an equity raise is on the table for you.

Mike LaBelle, Chief Financial Officer, BXP: So that’s two questions. We’ll we’ll answer them both. Thank you. So, you know, capitalized interest for this project, we always impute capitalized interest in all of our development budgets that are on our development pipeline based upon, you know, a blended cost of equity and debt that we anticipate. And so for this property, you know, we’re assuming a blended rate of around seven and a half percent for the four year development and and kinda lease up period beyond that.

So that’s how we come up with that number. What the actual capitalized interest will be at the end of the day based on how we capitalize it actually may be less than that, you know, again, on how we end up capitalizing it. With regard to funding $3.43 and and funding any growth that we have, right, we have a lot of different sources. The three forty three project is a four year time horizon. And if you look at the ramp up of the costs, most of the of the costs really don’t start to ramp up until late in ’26, kinda ’27, ’28.

So we have time to address the funding needs for that project in specific. But as with any funding decision, and, you know, we’ve described this previously, we have multiple sources of capital to fund our growth. And we talked about pursuing asset sales. You know, Owen mentioned that. We can certainly raise private equity or we could raise public equity.

We can reset the dividend, and we can use either property specific mortgage slash slash construction debt or corporate debt in addition to the excess operating cash flow that we generate. So we have a lot of different opportunities. And and as I as I said, we have time to kind of select which combination of these we will use.

Conference Operator: Thank you. And I show our next question comes from the line of Nicolas Yulico from Scotiabank. Please go ahead.

Nicolas Yulico, Analyst, Scotiabank: Thanks. I was hoping to just hear a little bit more about the mark to market you reported this quarter. I know this is on the number in the sup is on commencements, but it did mark to market looked a little bit worse than last quarter even in like New York. Maybe you just talk about like what drove that and then from a real time leasing standpoint, how the numbers could be different on the releasing spreads? Thanks.

Conference Operator: Yes. So, Nick, like I

Doug Linde, President, BXP: said so so I gave you the number for the leases that we signed this quarter. And the and this quarter, the night the numbers were slightly up, meaning, you know, call it small single digits in Boston and New York, and they were slightly down Washington, DC and on the West Coast. So that’s the that’s like the today number on terms of the space that we pushed forward and actually got executed this quarter. And in the numbers that were in the statistics that are reported in the supplemental, first of all, it’s only 400,000 square feet of space. So so it’s not the entirety of the leasing that would that commenced this quarter.

And in Boston, there was a 44,000 square foot deal at the space that was expiring from Biogen. It was an as is deal, so there were no TIs associated with it. Obviously, when you have no transaction costs, your your rent will be reflected in that. In New York City, we had a couple of fifteen year leases in the lower portions of the building expiring, which we relet to another client. And so there was a natural increase over that period of time, so there was a slight downturn there.

In San Francisco, the majority of the leasing was either at Gateway, which is obviously got some distress associated with it relative to life science demand, and leases that we did in Mountain View in our r and d spaces. And there, I can tell you that there, in fact, has been a reduction in in rental rates. So, I mean, we were as as much as, call it, you know, $4.04 and a half or $5 per square foot per month. And today, we’re doing deals in the mid threes. So there has been a reduction in rents there.

Again, very little in the way of transaction costs. And then, again, in in DC, there were a number of very low TI deals that also impacted the number. So so it’s you know, unfortunately, it’s very much a question of what exactly is coming online in the quarter. So I would not read much into sort of where those numbers were, and I explained sort of the, you know, the the dramatic negative in in, the the stuff that was done in Los Angeles.

Conference Operator: Thank you. And I show our next question comes from the line of Jayna Gallen from Bank of America Securities. Please go ahead.

Helen Hahn, Vice President of Investor Relations, BXP: Thank you. Good morning. One more on 343 Madison. Can you remind us of the terms of the MTA ground lease?

Doug Linde, President, BXP: Hillary, do you wanna take that one?

Hillary, Unnamed Executive, BXP: Sure. The terms of the MTA ground lease are basically a ninety nine year ground lease, and the company has the opportunity to move forward with this. There was a termination right that needed to be exercised by July 31. We have said that we are not exercising that because we’re moving forward. And so as we move forward with the lease, the, the lease itself has very, knowable and documented increases in payments.

And, over time, we think that that makes it a really attractive lease for us to underwrite both from the perspective of tenant interest and from the perspective of financing.

Mike LaBelle, Chief Financial Officer, BXP: One of the one of the things I think that’s important in this ground lease that’s maybe different from some other ground leases in New York City is that there’s no reset associated with market valuation estimates in the future. And so the as as Hillary said, there there’s increases that are basically known or related to the performance of the property, not the performance of the overall market values.

Conference Operator: Thank you. And I show our next question comes from the line of Michael Goldsmith from UBS. Please go ahead.

Helen Hahn, Vice President of Investor Relations, BXP0: Good morning. Thanks a lot for taking my question. Questions on the guidance, you beat on the second quarter earnings, but only took the bottom end of the annual range up. And then can you just talk a little bit about the timing of the shift? Seems like it’s a little bit more fourth quarter weighted than third quarter.

Just trying to understand kind of the cadence of earnings through the back half of the year. Thank you.

Mike LaBelle, Chief Financial Officer, BXP: Sure. Thanks, Michael. So, yeah, you’re you’re correct. We increased the bottom end. You know, the way we build our guidance, right, is we have a base model, and then we have a kind of a list of things that are kinda underway or could happen.

So some of those could happen things happen in the quarter, so we’re able to increase our bottom end. And as I mentioned, most of it was in the portfolio. And the reason that the full year guidance isn’t increased as much as the quarterly beat is because we’re giving back a little bit of the expense savings in the second quarter into the third quarter, and we have a little bit higher interest expense that we expect later in the year. In the third quarter, our seasonal operating expenses are always highest. It’s the hottest as Doug mentioned, it’s hot out.

It is the hottest time frame in the location for many of our assets, so our utilities expenses are higher. So the third quarter will seasonally be a lower FFO than the fourth quarter because the fourth quarter operating expenses will be less, and that makes up about 5¢ quarter to quarter if you look at what our guidance is. And then the other impact is the occupancy ramp that we expect later this year, and, you most of it will have more of an impact in the fourth quarter than it does in the third quarter. So our property NOI should be higher in the fourth quarter.

Conference Operator: Thank you. And I show our next question comes from the line of Caitlin Burrows from Goldman Sachs. Please go ahead.

Helen Hahn, Vice President of Investor Relations, BXP1: Hi, good morning everyone. You mentioned a number of funding sources for three forty three Madison. So I realize you kind of already talked about it, but as a potential follow-up to that, you mentioned the dividend reset was one of them. Realized it could happen. It might not.

But based on, I guess, your taxable income today, how much would you be able to reduce the dividend if you wanted? And to the extent you do have that flexibility, what would make you wait rather than do that sooner?

Mike LaBelle, Chief Financial Officer, BXP: So we’ve, you know, we’ve maintained a steady dividend for several years now, even though the current dividend has been higher than our taxable income during that time frame. But that’s that is why we’re putting it in as a list of potential funding sources as you mentioned, Caitlin. The other thing I would say about our dividend is it’s consistently been covered by our FAD, which is the reason we kept it stable even though we’ve, you know, had external growth that has been going on and and funding needs going on. You know, we haven’t made any decisions. You know, you can see our reported return of capital for ’24, which I think was about 41¢ a share.

So that was our return of capital or overfunding, you know, in 2024. And we also were able to carry over our full fourth quarter dividend into ’25, which is 98¢. So that’ll give you some sense as to the Obviously, we would we we need some amount of carry forward. Right?

That’s not gonna go to zero. And, you know, with respect to timing, you know, as I said, we have plenty of time to make these decisions, and we haven’t made any decisions at this point on the dividend.

Conference Operator: Thank you. And I show our next question comes from the line of Vikram Malhotra from Mizuho. Please go ahead.

Helen Hahn, Vice President of Investor Relations, BXP2: Morning. Thanks for taking the questions. I just want to clarify two things, the two comments you made. I guess just first on March, you outlined 7.5% initial here. Do you mind just giving us a sense of, like, what what rents broadly are you targeting, say, compared to one Vanderbilt?

Just, you know, $200 plus. Just maybe give us a broad sense of what you hope to achieve and how you get to that 7% yield in meaning, is there other fee stream or anything else baked in? And then just second clarification, you mentioned occupancy trajectory. I just want to clarify, does that your comments, does it suggest you end up towards kind of the lower end of the range or 86 ish percent by year end?

Owen Thomas, Chairman and Chief Executive Officer, BXP: So I’ll answer $3.43, turn it over to Doug on the occupancy. So on the rents for 343, our assumption is that in the lower part of the building, we’re in the mid to upper 1 hundreds. And at the top of the building, we’re in the mid to upper 2 hundreds per square foot gross, and the average rent roughly throughout the property is in the low 2 hundreds. And the prelease that we have, the 30% client where we have a have a letter of intent for a lease is in line with the economics that we assumed for this project. So, if you put all that, you put those rents into the, into the model and you use the costs as we have outlined, including the carry, the, yield on cost is roughly seven and a half percent unleveraged, and that’s to the project.

And I quoted a seven and a half to 8% range because if we bring in a capital partner into the project, our yield go up somewhat because we’re able to put in less capital and earn some fees for all the property and investment services that we provide the partner. So that’s the basics of how the three forty three economics work.

Doug Linde, President, BXP: And and on our occupancy, so the portfolio in service as it sits today, we believe will end the year around 87% occupied and, obviously, significantly higher leased. We are gonna add these three assets in the third quarter, and those those assets will have a impact of about 70 basis points of reduction in the overall portfolio as we reported at the end of the year based upon where those buildings are currently leased. And and, again, of those of those assets, 360 Park Avenue South is the one that has sort of the most amount of available space in it, and unlikely it will be occupied by the end of the year. We may get a floor or two additionally, but not incrementally more. And then the rest of the next asset is going to be leased in 2000 and late two thousand twenty six, early two thousand twenty seven.

Occupied has already been leased. And, similarly, I, you know, I said we’re ten fifty one. So so it’s kind of like that’s going to be the net, quote, unquote, new portfolio as we exit the third quarter. And so I don’t want people to to be, quote, unquote, surprised by the a reduction in our in service portfolio because our in service portfolio is changing by the addition of these developments. The in service portfolio as it sits today is going to have an increase in occupancy as we move to the end of the year.

Conference Operator: Thank you. And I show our next question comes from the line of Omotayo Okunsanya from Deutsche Bank. Please go ahead.

Helen Hahn, Vice President of Investor Relations, BXP3: Yes. Good morning, everyone. Just curious about your thoughts on the emerging mayoral race in New York City. If we do end up with with Mamdani as as mayor, how do you think that kind of changes regulation as it impacts kind of CRE development in New York City? And and how do you guys kind of think about preparing for that?

Owen Thomas, Chairman and Chief Executive Officer, BXP: Yeah. Hey. Why don’t I take a first crack at this? And, Hillary, I’m gonna please jump in on anything that you’d like to add. So, look, I think we’d acknowledge that some of the policies articulated by a candidate Mamdani are are not particularly constructive for commercial real estate.

But a few things I would mention. One, the election he won the primary. The election has not occurred yet, and I think his election is a real possibility, but it hasn’t happened yet. The the second thing I think that’s important is the system in New York due to the seventies financial crisis is that New York State, you know, headquartered in Albany, obviously, has, you know, significant truck controls, over the operations and governance of of New York City. You know, specifically, the state controls the MTA, the Port Authority, and various other agencies in the city.

And the state also has approval rights over many matters that are important to business such as local taxes. And my guess is that some of the policies of candidate Mamdani won’t won’t be supported at the state level, you know, particularly things like tax increases. And then the only last thing I would say is New York is a force in and of itself. It is a vibrant city. It has continued to excel through many different mayors with different political stances on lots of different topics.

And, my strong, bet is that New York will continue to thrive, regardless of the election outcome. Hillary, what did I miss?

Hillary, Unnamed Executive, BXP: Well, I I would just confirm what you’re saying, Owen, and just point to the fact that we have investment grade credit tenant committing to a twenty year term at 343 Madison Avenue as evidence that the businesses that are successful in New York City plan beyond the length of a mayoral term or two for their future success. And so I think they’re looking out, much farther than the next four or eight years.

Doug Linde, President, BXP: Good point.

Conference Operator: Thank you. And I show our next question in the queue comes from the line of Anthony Paolone from JPMorgan. Please go ahead.

Helen Hahn, Vice President of Investor Relations, BXP4: Thank you. Mike, you talked about just the various options you have for raising capital. But maybe can you step back and just give us a sense, the over 8x leverage, where do you want that to be? And you know, I know you have time before you have to to spend some of this money, but I guess, you know, why wait and, you know, and and perhaps, you know, pull some of these levers if in fact you want that that leverage to be lower than the the eight plus times over time?

Mike LaBelle, Chief Financial Officer, BXP: So, you know, we’ve talked many times about our leverage and how we think about current leverage and pro form a leverage. Right? And, you know, we believe that our, you know, the company, our our target, I guess, for the company is somewhere in the mid sixes to the mid sevens, and that’s been very consistent over a long period of time. You know, I do expect our leverage is gonna continue to move up for the next couple of quarters, but we are delivering 290 Benning Street in the middle of next year. It’s a 100% leased, and it delivers substantial EBITDA to the company, and it will act to, you know, counteract that and reduce leverage a little bit.

We also have the other developments that Doug talked about that, you know, we’ll be leasing up over time and providing EBITDA. And then the last thing is occupancy improvement. And occupancy improvement over the next eighteen to twenty four months can be very powerful because it’s gonna generate a lot of EBITDA if we can achieve our business plan and bring our leverage down into our desired range. And then we talked about asset sales. You know, Owen described $600,000,000 of asset sales we’re working on right now, and that will further reduce our leverage.

So we are already working on things, right, that will moderate our leverage, and we’re thinking about what the future leverage looks like and getting back to that range that, you know, we we think is the best range for the company to operate at.

Conference Operator: Thank you. And I show our next question in the queue comes from Dylan Brudzinski from Green Street. Please go ahead.

John Kim, Analyst, BMO Capital Markets: Hi, guys. Thanks for taking the question. I guess just touching on that last point on occupancy. It sounds like like occupancy has bottomed and is expected to improve throughout the rest of this year. You obviously mentioned that the pipeline remains strong.

Leasing activity year to date is is tracking above the initial expectations that you guys set forth at the beginning of the year. And it just sounds like the overall narrative and in demand backdrop continues to remain strong. So in our view, it seems like there’s a a clear path here to be actually in service portfolio level occupancy as it sits today to get to call it 90% plus occupancy in short order. You know, does that seem fair? I mean, I guess, is there anything we might be missing as we sort of think about that that trajectory here over the next eighteen months?

Doug Linde, President, BXP: It’s it’s it’s entirely fair, and it’s it’s what our expectation is in in terms you know, again, we have to be careful about what the exact timing is, but you said over the next, you know, period of time, and I think that is absolutely true. And we have again, we’ve got leases that are signed that have yet to commence. The majority of our activity going for currently in the pipeline is around are available in our near term expirations, a k ’26 and ’27. And then if you look at the expiration schedules that we have that are outlined, it’s they’re very, very low. And so if we’re able to maintain, you know, a modest reduction in the amount of leasing that we’re doing, you know, in 02/2025 into 2026 into 02/1927, we’re gonna we’re gonna be having a meaningful increase in our occupancy.

Conference Operator: Thank you. And I show our next question comes from the line of Alexander Goldfarb from Piper Sandler. Please go ahead.

Helen Hahn, Vice President of Investor Relations, BXP5: Hey, good morning. Good morning down there. Just want to go back to the asset sales. And maybe I missed it at the front. I had multiple calls going.

But I think you outlined $600,000,000 of sales, including 300,000,000 of net proceeds from income producing. So as we think about income producing assets sold later this year, what would be the earnings hit on an annualized basis? Just trying to understand as we think into next year. And then also, Mike, to your point on deleveraging, if you’re losing income, obviously, that also leverage. So just wanna understand the income FFO impact of planned asset sales.

Mike LaBelle, Chief Financial Officer, BXP: The the $600,000,000 that we’re talking about, Alex, and I’m not I can’t I’m not gonna give you an exact number for this because these things are still, you know, in process, being thought about, and certainly not finalized. But the the income producing that we’re talking about combined with the land that we’re talking about, if you utilize that money to reduce the borrowing that the company needs to do, it is not dilutive to the company.

Conference Operator: Thank you. And I show our next question comes from the line of Upar Rana from KeyBanc Capital Markets. Please go ahead.

John Kim, Analyst, BMO Capital Markets: Thanks for taking my question. Could you give us an update on three sixty Park Avenue leasing? You know, Doug, you mentioned you got a lease done last night, so the project’s now 33% leased. Maybe you can give us a sense of the current pipeline as it stands today.

Doug Linde, President, BXP: Sure. I’ll I’ll give you a, I’ll give you a a, a numerical view, and I’ll let Hillary talk about what’s going on from a market perspective. So, we have two additional leases in progress. As I said, one of them got executed last night. That So brings us to 33% leased.

And there’s another that’s actually on a piece of space that I believe is close to being completed or will be completed in 02/2025. So that will, you know, bring us up by another, call it, eight or five to six basis points. So we’ll be closer to, you know, 40% at the end of calendar year 02/2025, assuming no other leasing gets done. Hillary, you can talk about your pipeline.

Hillary, Unnamed Executive, BXP: Thanks, Doug. I would say that the pipeline for Midtown South has been thinner than Midtown Proper north of 40 Second Street, but we are seeing consistent activity for the property. We’ve seen tenants as large as 200,000 square feet looking at the property in recent weeks. And again, as Doug pointed out, we’ve also got a couple of single floor tenants that are looking at the property. There has been a notable, I would call it, micro trend of businesses that are in the AI space looking at the building.

And so both the lease that was executed last night and the one that Doug is is talking about for future execution are businesses that are in that space. So it’s interesting to see that New York is starting to see a pickup in those businesses leasing space here on the heels of the demand that we’ve seen out on the West Coast.

Conference Operator: Thank you. And I show our next question in the queue comes from the line of Ronald Kamdem from Morgan Stanley. Please go ahead.

Helen Hahn, Vice President of Investor Relations, BXP6: Hey. Just back on 343, just the building has I think the floors are a little bit maybe smaller than some of the typical sort of trophy buildings that we’re used to. Just curious if that lens to sort of a different type of tenant base as you’re leasing up the portfolio. And my quick follow-up is just the the the pipeline development pipeline showed six fifty one Gateway stabilization pushed out. Just any comments on that assets and just life science leasing in general.

Thanks.

Doug Linde, President, BXP: Yep. So I’ll I’ll I’ll answer the last two of your three questions, and I’ll let Hillary answer the first. So six fifty one Gateway, you know, again, we’re we’re going by Alexandria’s accounting for when it clinical comes into service. We would have already put into service based upon our accounting, but but that’s the way they do things. And the I would say the leasing activity for pure lab out in that part of the of the world is relatively quiet still.

There are, I would say, more maker you tenants looking at space that was, quote, unquote, designed for lab in the sort of Northern Peninsula market than there are pure lab tenants looking for blocks of space right now, interestingly. And then there are a few, quote, unquote, office companies that are looking for space down there as well. But I’d say that the lab market in itself for a you know, we wanna be in a pure wet lab is a pretty thin market still in the in sort of the Bay Area. The the other question was 343 plate. 343.

343. So I’ll let Hillary answer that answer that one.

Hillary, Unnamed Executive, BXP: Sure. So the floor plates at 343 Madison range from about 27,000 square feet at the base to 22 at the top. You know, I I think there’s a case to be made that that lends itself to tenants that are in the two hundred two hundred and fifty thousand square foot range. But honestly, we have a million and a half square feet of LOIs that we’ve issued, and some of those some of those prospective clients are as large as 700,000 square feet. I don’t think 700,000 square feet is a likely size, particularly not given what we’ve just done.

But I we have seen real demand in the, call it, three to 400,000 square foot range. So I think that what that really points to is that there is such a lack of premier workplace availability in the Park Avenue and Madison Avenue submarkets that really high quality investment grade firms that are looking for really high quality space don’t have that many options. And so three forty three is extremely well positioned to capture a range of client sizes. And I think as Owen noted in his initial comments, you know, we continue to think that it makes sense to work on leasing the base of the building. And then I think, you know, we’ll be patient with regards to the upper floors because I do think those will tend to lend themselves to clients that are single, double, maybe three, four, lease profiles.

Conference Operator: Thank you. And I I just before

Doug Linde, President, BXP: you before you go on, I just wanna add one thing to to, sort of what what Hillary was just describing. A bunch of people have, you know, called Mike or Helen or myself and said, who’s who’s the tenant? Who’s the tenant for 343? And as we said, we’re not we’re not gonna announce who the tenant is. We’re gonna let tenant announce, you know, their decision to their employees, and then it will it will become public.

And people are also asking the question, oh, is it someone in your portfolio? And I would just point everyone to the rents that are in our existing portfolio in Midtown, and the average rents in the buildings are I believe, if you look at $6.00 1 or $5.99 or $3.99, about a $100 a square foot. And I think, Hillary, you would love to get some space back in those buildings if you could, to lease in in this market, which is obviously, you know, something that is not gonna happen in the short term. So anybody who’s sort of concerned about where the tenant might be coming from and if it’s one of our portfolio tenants, if that were the case, it would be a great opportunity for us, to release space that is dramatically under lease. And as Owen said, the average rents at 343 are in the mid 2 hundreds.

Right? So we’re talking about huge upside potential there.

Hillary, Unnamed Executive, BXP: And I I just, to Doug’s point, we have existing clients in our Midtown portfolio that do not have room to expand and who would like to expand. So I would view getting space back at any of our Midtown assets as a net positive for the company, not only from the perspective of being able to increase rents, but also from the perspective of being able to accommodate important clients who want to expand with us.

Conference Operator: Thank you. And I show our next question comes from Peter Abramowitz from Jefferies. Please go ahead.

Helen Hahn, Vice President of Investor Relations, BXP7: Yes. Thank you for taking the question. I know, Doug, you touched a little bit on it with your comments around some of the AI tenants in San Francisco. But just wondering if you could talk about kind of the portfolio by Embarcadero and demand that you’re seeing in that part of the city versus some of the assets South Of Mission. The South Of Mission seem to be picking up and participating in that recovery?

Just curious how how that’s kind of unfolding.

Doug Linde, President, BXP: So so let me let me answer in the general, and I’ll let Rod, you know, take the time to answer in the specifics. So the the South Of Mission market is clearly getting better, and there is clearly a AI related resurgence from a demand perspective because of the growth. So that’s that is unequivocal. Raj, you can talk about the the demand that we’re seeing in and around the Barcadero Center as well as the other parts of the market.

Helen Hahn, Vice President of Investor Relations, BXP8: Yeah. So definitely, demand in around Embarcadero Center has been what it has traditionally been, which is mostly the financial services and traditional companies. I mean, that’s that’s who we are leased to, and that’s who we see most of the demand from. You know, we are at you know, we’re getting good activity, outside of Embarcadero from the AI companies. Doug mentioned previously the, interest that we’ve seen down at the 680 Folsom Block of space, which is our largest block with over 200,000 feet.

But, yeah, the downtown central downtown around Embarcadero Center, yeah, has been has been thriving with the traditional companies, and we’ve been happy to to do deals with some of these that have been in the market, and we’re gonna continue to do that. We have we have an active program of doing spec suites, prebuilt spaces, and and that’s been successful. And we’re continuing to do that both at Embarcadero and at 535 Mission. So and then I would just add too in terms of just sort of the overall vibrancy of the, the downtown around Embarcadero Center. You know, we just recently completed eight retail transactions.

I mean, that’s a lot of deals to get done in a short amount of time. And these are very much homegrown companies, little small businesses, but we’re bringing them in to Embarcadero Center, and it’s creating, you know, much more enjoyable place for our tenants, and it’s getting great attention. So we’re we’re very pleased about that.

Conference Operator: Thank you. One moment for our next question. And our next question comes from the line of Brendan Lynch from Barclays. Please go ahead.

Doug Linde, President, BXP: Great. Thanks for taking my question. You mentioned clients starting renewal discussions for 2028 to 2031 already. When you look back at past cycles, how common is it for tenants to start negotiations so early? I would say that it’s it is common for larger tenants, particularly in in certain of our CBD markets to get out there, you know, two to three years in advance if they want to consider new development To the extent that the market is soft, they tend to wait longer and longer.

And I think it’s an indication of the tightness of the market that a company that has x 100,000 square feet of space would be considering doing early renewal or extensions prior to getting into that sort of shorter window. And I look. It’s all part of this this the same phenomenon, which is we are we are in a very supply constrained market in certain of our submarkets. So in the back bay of Boston where where you saw us do, you know, a a year ago a deal and last year a deal with two large financial institutions. And now, you know, you’ll my guess is you’ll see some of the same thing happening in our portfolio, in Midtown Manhattan because it it’s really hard to find a three or four or 500,000 square feet piece piece of space or even 200,000 square feet piece of space, and not be able to go into a new building given the the challenges associated with leasing conferences, etcetera.

So so tenants are, you know, I’d say, thinking hard about what they need to do to protect their, their footprints, you know, over a in a, quote, unquote, improving market.

Conference Operator: Thank you. And I show our next question comes from the line of Nicholas Yulico from Scotiabank. Please go ahead.

Nicolas Yulico, Analyst, Scotiabank: Hi. Thanks for the follow-up. Just going back to 343 Madison, I just wanted to ask, in terms of the funding, I know you’ve talked about it there, you have a lot of different levers to pull, but it’s also now a bigger funding amount than might have previously been expected because of the JV partner existing JV partner not being there anymore. And so I guess what I’m wondering is like do you guys have a timing standpoint from when you plan to give an update about which direction you’re looking to go to in terms of how you’re going to exactly you’re going to capitalize the project? Is this something that, you know, is it you’re lay out the investor day?

Or any any sort of sense of timing on an update there would be helpful. Thanks.

Mike LaBelle, Chief Financial Officer, BXP: Look, Vic, you know, what what I mentioned was that we don’t have a lot of costs going out this year and early next year. I think we’re gonna be, you know, focusing on this a high level of focus over the next couple of quarters and cementing what we wanna do. I think with respect to, you know, raising private equity, I think we’d like to get this lease signed. And we have other proposals that we’re working on for the rest of the base of the building. And if we can get some of those going, I think that creates a very, very more even more enticing package for that.

So I think that, you know, that part of it, could align with finishing up that work.

Conference Operator: Thank you. And I show our next question comes from the line of Caitlin Burrows from Goldman Sachs. Please go ahead.

Helen Hahn, Vice President of Investor Relations, BXP1: Hi. Sorry. Two more follow ups. You were just talking about how you would like to get space back in Midtown because of the positive mark to market, which just makes sense. So I was wondering if you could kinda square that with the reported leasing spreads from the quarter being down.

Were those just specific spaces or something else I’m not appreciating? And then just as you think about guidance for the full year, it seems like you are expecting a pickup in the fourth quarter. So I was wondering if that’s solely related to occupancy pickup or if there’s something kind of more nuance like gains on land sales or something included. Thanks.

Doug Linde, President, BXP: Okay. I’ll try and do the first part of your follow-up question, and I’ll let Mike do the second part. So regarding mark to markets in our Manhattan portfolio in the quarter that is in the supplemental, there were a bunch of smaller transactions, at $7.67 at the lower portions of the building where we aggregated space and did did did leasing, and those rents were coming off, you know, relatively high rents for that that space. And so that’s where most of the negative mark to market came from. If I were to to look today at the the deals that are being done in Midtown Manhattan, as I said earlier, we have a positive mark to market, including at that same building.

And so I would expect that, you know, over over the next few quarters when I’m reporting what’s going on, that number will continue to get higher and higher. And so from my perspective, the improvement in rents in Midtown Manhattan is real, and we are seeing double digit annual increases in asking rents in our portfolio in Midtown.

Mike LaBelle, Chief Financial Officer, BXP: On on the kind of ramp up of our FFO into the fourth quarter, you know, as I mentioned, you know, part of this is due to expenses being higher in the third and the fourth, but part of it is also due to our expectation that we’re gonna be growing occupancy. So, yes, I would say a meaningful portion of that is that we expect that our the NOI from the portfolio is gonna be higher in the fourth quarter. With regard to asset sales, we don’t expect to have any of these standing property existing property asset sales to occur in 2025. I wouldn’t expect that. We will have some of the land sales.

It should occur later in later in 2025, and so that will kind of reduce you know, we’ll either earn more interest income or reduce interest expense a little bit on that, but it’s gonna be later in the year, so I don’t think it has a super meaningful impact.

Doug Linde, President, BXP: And, again, Mike’s numbers also include the occupancy ramp up as we move into the year. But, you know, the the the the square footage I said is likely it’s gonna start and become online as we move into the third and fourth quarter.

Helen Hahn, Vice President of Investor Relations, BXP3: Thank you.

Conference Operator: One moment for our next question. And I show our next and last question in the queue comes from the line of Alexander Goldfarb from Piper Sandler. Please go ahead.

Helen Hahn, Vice President of Investor Relations, BXP5: Hey. Thank you for taking the the question. Just quickly going back on the Norges, on the 343 Madison that you guys are buying out their interest, are there others in the in the Nordisk JV? Like, should we think about others of the Nordisk JV assets being sold? Are you guys buying out interest in others of the of your partnership with them in in other assets?

Owen Thomas, Chairman and Chief Executive Officer, BXP: Alex, we have never described our partner at three forty three as being Norges. So let me just put that on the table. And then second, our partnership with Norges is stable. We’re not buying out. They’re not buying us out of any assets.

And from time to time, we look at new investments together.

Helen Hahn, Vice President of Investor Relations, BXP5: Okay. Thank you.

Conference Operator: Thank you. This concludes our Q and A session. At this time, I would like to turn the call back to Owen Thomas, Chairman and CEO, for closing remarks.

Owen Thomas, Chairman and Chief Executive Officer, BXP: Thank you all for your attention and interest in BXP. I’ll just close by reminding everyone of our investor conference on September 8, and we look forward to continued engagement. Thank you very much.

Conference Operator: Thank you. This concludes today’s conference call. Thank you for participating. You may now disconnect.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

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