Boston Properties Aktie

All right. Good morning, everyone. Thanks for joining us. My name is Tony Paolone, and I'm a research analyst at JPMorgan, and it's my pleasure to moderate a company discussion here with BXP. With us is the management team. And I'm going to start from your left on the far end here and start with who we have here this morning.

We have Hilary Spann, who runs the company's New York region, which is going to be a great point of discussion here today. We have Mike LaBelle, who's Chief Financial Officer of the company; Doug Linde, President of the company; and to my right, Owen Thomas, Chairman and Chief Executive Officer. So thanks, everybody, for coming here this morning and for doing this.

I'm going to start with Owen here and just kick it off and give us a couple of minutes on BXP, the portfolio and what's happening today?

Yes. Great. Good morning, everybody. Tony, thank you for hosting and moderating the conversation today. I thought I would kick it off by giving all of you an update on the progress that we've made on the business plan that we outlined at our Investor Day in September of last year.

As a reminder, for those of you that follow us, it basically has 3 components. One, we're going to lease space and grow the occupancy of the company. Second, we're going to sell assets. And third, we're going to advance our development pipeline. And we've made, I would say, very -- we've been very successful in all 3 fronts and made tremendous progress.

I'm just going to hit some very high-level points because I know Tony has got some good questions for us to go through all the details of this. But just to start on the leasing, all of our markets today are stronger than they were in September of last year. We leased 1.1 million square feet in the first quarter of this year. We've leased well over 800,000 square feet already this quarter.

We have a pipeline of about 2.3 million square feet of leases that we're trying to close that are under letter of intent. We've got over 1 million square feet of pipeline beyond that. We have minimal rollover in '26 and '27, so we don't have that headwind. And we outlined a plan where we were going to improve our occupancy 2% in '26 to 89% and another 2% in '27, and we're very much on track to accomplish that.

On sales, what we said we were going to do is $1.9 billion by -- over the next 3 years as of September of last year. As of today, we've closed $1.2 billion in asset sales. We have $200 million of sales in addition that are under contract where we have hard deposits. And then we have about $400 million of sales that are in various stages of marketing. So if you add all that up, it's about $1.8 billion. Some of those sales will end up being happening in '27, but we're obviously very much on track to accomplish that $1.9 billion in -- certainly sooner than 3 years.

And then on development, we continue to make great progress in our pipeline and our development pipeline continues to be an important driver of external growth. We're delivering 290 Binney, which is our AstraZeneca lab project in Boston this quarter. I'm sure we're going to talk about 343 Madison, but we continue to derisk that project. We're 56% either signed leases or under letter of intent.

Our construction buys have gone well. We're in the middle of a recapitalization. We continue to believe that project will generate a 7.5% to 8% yield on cost to shareholders. We have a significant office pipeline in D.C. that's pre-leased. 72512, the building demolished. 2100 M, which is also 75% leased, commences in '28. And we're looking at, believe it or not, additional projects driven by clients, not necessarily driven by sites.

And then lastly, on residential, that continues to be an important part of our development pipeline. We're launching a project near Reston Town Center this year, we're going to be 20% of the equity, and we're also monetizing our land. We had a similar project called 17 Hartwell that we started last year. And we have similar types of projects on land that we control in Weston Mass, Walthton Mass and Santa Monica, California. So again, we've made terrific progress on all aspects of our business plan.

Sounds great. Well, 2 things you said stand out to me, and I think it pivots to where I want to go next. One is that you said across all your markets, things are stronger today than they were a year ago. And then two, on the development side, you talked about projects being tenant-driven or customer-driven. So these are some pretty big shifts in the office business. Talk to us a little bit more about the demand side, where you're seeing it, the types of tenants that are demanding space, the kind of space they want and start to touch on your markets.

So I would say, Tony, that your statement about things are getting better everywhere is absolutely true, even in the markets that are least good. But the BXP portfolio is seeing progress everywhere. It's really not concentrated in any one market. So this is not just a New York story or this is not just a West Coast story. This is all of our market story. The demand sources are slightly different depending upon the geography.

A market like Manhattan primarily is a financial services, professional services, asset manager, private equity hedge fund kind of an environment, although we saw in the first quarter and are seeing continued growth from smaller demand AI organizations in our buildings in Midtown South.

Our portfolio in the Greater Boston market is dominated by financial services and professional services firms in the urban core, which is in the Back Bay submarket of Boston. But in the -- what we refer to as the urban edge, interestingly, we are actually getting a reasonable amount of life science demand, although it's not the kind of life science demand that we would have typically thought when we started down the road of having a life science asset base.

It's companies that are actually not using wet labs that they're buying molecules from other organizations and then they're going through the SG&A. Company called Kailera Pharmaceutical is a good example of that, did a lease with us and just recently did an IPO and raised $600 million, and they don't actually have any wet lab space in their facility.

In our Northern Virginia marketplace, which again is another area of strength for us, it's about defense contracting and cybersecurity. And so as the defense establishment has sort of changed its apparatus government contracts to help the government and other countries, quite frankly, with those kinds of technologies has been a very vibrant source of demand in Northern Virginia.

And then artificial intelligence or technology is sort of the catchword of the day on the West Coast, primarily in San Francisco. And our portfolio south of Mission Street has been very much a beneficiary of that demand. In the first quarter of 2026, 80% of all leasing in San Francisco was AI related. And so we are sort of seeing these little different kinds of pockets of activity around our various market demand sources that are unique, but all accelerating. And then you mentioned Washington, D.C., which is sort of an interesting case in point for us. So that's really a brand experience for BXP.

What do I mean by that? We have clients that are literally coming to us and saying, we love a new building. If you can find a site, we will sign a lease. And in 2 cases, they've actually come to us and signed the lease before we controlled the site and in case -- in that same case, haven't even designed the building. So they're taking great pride and belief in that we can execute and deliver them a new building at a rent in the future that they have yet to see.

And that's really a source of clients upgrading. And Owen, I'm sure we'll talk about the sort of the difference between space and premier space. But in Washington, D.C., we're seeing a tremendous bifurcation between companies that are paying significant premiums at replacement cost rents to what they can afford to pay in an existing premier Class A trophy building that exists today.

Yes. I think you're going right where I was going to go with that, which is how much of the tenant activity you're seeing is expansion versus saying we need to be in a certain type of space to do our business and you have it or this is the kind of space we want. Like how would you parse through some of those items?

Yes. Well, I think it's a little bit of all. So Mike tracks all of our renewals and leasing where we know the size of the client before they did the renewal or the lease and the size later. And on average, Mike, we're -- our clients are growing. There are definitely examples where a client maybe had shrunk a little bit, but net-net, the clients are growing.

And then second, there's no question that there are many clients out there that are in non-premier assets that are prepared to spend the money required to move into a higher quality offering. And so if you look at the premier workplace segment of the market, which I think is we would define as probably the top 20% of the space, you've got net absorption, one, because some of the clients are growing, but also importantly, they're coming out of that bottom 80% and going into the top 20%.

And I think that's a very important thing if you're going to invest in office to understand. The research that I'm sure all of you look at, it's always by market and it includes every building. So if you look at those kind of stats on D.C., you're going to see 20% vacancy, not a lot of rent growth. Yet here we are, and we have now 3 and there are going to be more clients coming to us saying, we don't want to go into that 20% vacant space. We want something new, and so we're building new buildings.

I'd like to say it this way, the New York market is definitely stronger than San Francisco, but the premier assets in San Francisco are performing better than the non-premier assets in New York. So having that quality overlay is very important to understand.

And that's interesting. What -- and going back to the initial comments, things better this year across the board than last year. Can you give us any examples around some of these markets, what that has meant for net effective rents?

So before I get to net effective rents, appreciate that for BXP, the juice is in occupancy gain. And in the first quarter, we leased 700,000 square feet of vacant space. Owen said we have 2.3 million square feet of leases as of the beginning of the second quarter that we were in negotiation and 900,000 square feet of that is on vacant space. There's another 450,000 square feet on '26 and '27 expirations. So that's where we're getting our juice, right? So when you're leasing space at $75 to $100 a square foot, it all falls to the bottom line.

Now to get to your -- to answer to your specific question, we are seeing base rental rate growth in 3 primary markets. in Midtown Manhattan, in the Back Bay of Boston and in Northern Virginia in Reston. That's where the overall market dynamics because of the lack of supply and the significant amount of incremental demand from growing companies is allowing us to push rents. Typically, the rental rate will go up, and then you will slowly start to see concessions also retreating, meaning the tenant improvement allowance that we're offering to our clients and the amount of free rent or "buildout time" that we're allowing them to have.

And I would say most amount of growth is in Hilary's market in the Park Avenue segment of Midtown, where we're probably seeing 15 plus or minus percent annual increases. We're seeing close to double-digit increases in the Back Bay of Boston and high single-digit increases in Northern Virginia. And that's sort of -- again, that's a factor that is one component of the economics of our buildings, but we're also starting to see reductions in the tenant improvement allowances and in the free rent, which means that the overall net effective rent transactions are appreciating by more than that 10% or 15%.

And you mentioned AI earlier, so I want to start to go into that a bit here. What are you hearing from your tenants in terms of their space needs and whether the real estate folks or whoever you're speaking with that are making these decisions, has it started to enter into their thinking on space?

Well, Tony, I think it's a pretty broad question, but I do think one of the -- I think what you're getting at is what's the driver of all this interest in premier workplace. And I think it started with the work from home because I think that most companies who are competing, obviously, they're all in hotly competitive industries, they think they're going to compete better and be more productive if they have their employees in the office. And most of these companies, yes, they can set rules, but the way you really get people to work together well is when they want to come to the office as opposed to they're forced to.

And what's the best way to get people to come into the office. One, have an office that's easy to get to. So having things around making the commute as easy as possible is critical. I think that's why all these Grand Central projects are so important and so successful. And then when you arrive at the office, it's got to be great. Part of that's on the client, right? They've got to make sure their people are in there and so their employees are having a productive experience. But also the amenities in the building, they vary a little bit depending on what the building is. I mean, at 343 Madison, we're dedicating the top 2 floors of the property to amenity space as opposed to leasing that to third parties because our pitch is everyone can have access to the top floor because it's going to be amenity space. So that's, I think, what the clients are looking for. It's more than just a place to go to work. It's got a hospitality component.

So it sounds like, thus far, as you talk to your existing tenants, prospective tenants, they're not saying, "Hey, I thought I was going to need a certain amount of space, I need less because we're going to just use AI now or something."

Yes. What I would say is it's actually been the opposite. So more of the growth from the technology companies that we are working with today are adding employees at pretty strong rates, and they are, in our opinion, just in time relative to their occupancy needs from a spatial perspective. And so they are expanding because they need more bodies and those bodies need to be in spaces, and they want those bodies to be in spaces at the same time, right? This is not a -- well, we're going to sort of use our space efficiently and some people will come on Monday, Wednesday, Friday and others on Tuesday, Thursday, Friday. That's no longer sort of the way they're working.

And then again, you're asking a question that we sort of -- we look for anecdotal answers that would be consistent with what your postulate is, which is, well, I assume that artificial intelligence is somehow reducing the number of people that these organizations need to do their work. And time and time again, we're seeing professional services firms and the financial services firms that are our clients, and we don't necessarily have any bulge bracket investment banks with 35,000 employees as our clients, but we have lots of private equity firms and hedge funds and venture capital firms and asset managers, and they seem to be very consistent with their headcount with a modest amount of growth.

And then the professional services providers, the consultants, again, in certain cities are growing at a pretty significant rate. I mean Hilary can talk about our client, Kirkland & Ellis, who's at 601 and sort of what they are thinking and how they're thinking about AI and their law firm.

Sure. So Kirkland & Ellis is the major tenant at 601 Lexington Avenue, and they have been on a steady expansion trajectory for years now. They recently had to take space in an adjacent building because they were growing so strongly that we simply couldn't accommodate them at 601 Lex because we're 100% leased there.

They've recently announced a major investment in capital and in hiring within Kirkland & Ellis to develop their own internal AI sort of protocols and tools for their lawyers to use to be more productive with their billing and they're investing $500 million. And so that's a company that's expanding anyway, and they are looking for space to accommodate even more growth as a result of that investment and are sort of having a hard time finding it in Midtown proper.

I would add to the comments that in Midtown South, we've actually been leasing to AI-powered companies. So at 360 Park Avenue South at the beginning of 2025, that project, which we redeveloped and it was vacant during the redevelopment was about 20% leased. And over the course of 2025, it went to 90% leased. And we'll now be -- we're talking to 2 tenants about taking the last 2 floors. And with that, it would be 100% leased. And a lot of that demand is actually driven by AI.

That's very helpful. Maybe, Hilary, let's stay on you. And let's pivot over to 343 Madison. Big project. If anybody here hasn't walked by, go check it out. Tell us about where you are today with 343 Madison and what the leasing picture looks like.

Sure. So we have a signed anchor lease with Star for now 325,000 square feet because they executed a 2-floor expansion last week. And in addition to that, we are negotiating with 2 clients. We expect to sign those leases by the end of the second quarter for 200,000 incremental square feet. The combination of all of that leasing will take the project to 56% pre-leased.

We are 85% bought out on our construction trades under budget. And we have opened the first phase of the development, which is the entrance to the Madison Concourse at Grand Central Terminal. You can go see it on 45th Street. And if you commute to Long Island, it is a very, very convenient way to get into Grand Central.

Steel is going to be delivered to site in -- starting in July, and we'll begin erection of steel in early August. And all of that adds up to us delivering space to our clients in mid-'28 for them to take occupancy in mid-'29. And that puts us at least a couple of years ahead of any other building that's being constructed right now.

Can you tell us a bit about just the level of rents that these customers are willing to pay? And also just a bit about the cost.

So the base of the building would have rents just shy of $200 a square foot and the top of the building, we have 5 floors available on the top of the building. That's all we have remaining at this point. And we are receiving inbound interest on those floors. We're responding to those inbounds at $350 a square foot with relatively little flexibility on terms.

So the range is from, Tony, just under $200 a foot to well over $300 at the top of the building. which is consistent with what all the other buildings in the market have to charge. And I would point out that all of those buildings have more expensive land basis than we have and have more expensive construction costs than we have. So that number is actually -- it's going to sound a little strange for me to put it this way, but our rents for new construction are sort of a value option in the market compared to others.

In terms of construction costs, it costs about $2,000 a square foot to build a building. And so if you think about it from a return on cost perspective, that's why those rents are where they are.

And maybe this would be a good moment to pivot over to Mike. How are you paying for this?

So we're in the process -- right now, we own 100% of it, and we don't have any financing for it. We're doing it on our own balance sheet, which we can do. But we are in the process of capitalizing the project this year, and we expect that we're going to get a construction loan of about $1.2 billion, which is about 60% of the cost of the project. And we have a term sheet done with a syndicate of banks that are going to provide that financing, and we would expect to close that financing probably sometime in the third quarter.

And we're also out looking for private equity for somewhere between 20% and 50% of the equity. So somewhere between $150 million and $400 million of equity. And we're targeting international family offices who are interested in investing in a high-profile New York City development. And to date, we've got a couple of parties that are circled. We're working on term sheets to try to finalize that and bring in a portion of that equity capital later this year. So we're in good shape on that process. We kind of started it at the beginning of this year and have been working our way through it.

Yes. What has been demand from investors for office buildings right now or office projects.

Well, the marketplace has seen several transactions happen in New York City in the last, call it, 12 months, and they have traded some of them for partial interests as low as 3.9% cap rate. But the 49% interest that have traded more recently are between a 5.5% yield. So a development like 343, which would generate between 7.5% and 8% yield is really accretive compared to where you can buy in the spot market. And that's really why we haven't been aggressively pursuing acquisitions because the yields are just quite low.

Well, maybe on that point because we started again with office being better across the board. Have you seen that translate into liquidity in the market just broadly beyond just the best of the best assets? You do have assets for sale in the market, you mentioned earlier. How are those processes going?

Yes. So as I described earlier, we do have an extensive asset sale program underway. But they're not -- it's not all office. Office is a component of it. But actually, the sales that we've completed to date, there's been a fair -- a significant amount of land that we've sold to residential builders. We have sold 3 apartment complexes in the mid-4s cap rate. We sold a half interest in a lab complex in South San Francisco. So it hasn't all been office.

I do think there is maybe a more active market in office in what I'd call opportunity funds and family offices that are more value-oriented. The assets that we have put out have been attracting, I would say, fairly strong interest overall. So there is liquidity.

The other thing I would add is that in New York, the buildings that have transacted by and large, are not premier assets. They're really well located. They're Class A, but they're older. They may need some repositioning over time. The exception to that would be a small interest sale of One Vanderbilt a while back, but everything else is sort of not sort of top of the market premier dispositions.

Got it. I'm just going to -- I'm going to be a little bit provocative here. We are not in a position where the big private equity firms are trying to take public companies and privatize them because there's not enough liquidity in the single asset sale market, right? So if you sort of rewind the REIT world to when EOP, for example, got taken private by Blackstone, it's because there was a very vibrant buy wholesale, sell retail market. And my sense is that if you look at the NAVs of the -- certainly in the office company world, they're all at meaningful discounts to NAV in terms of where we're trading.

So were there the kind of bid that there was then and maybe there will be, you'll see a very different kind of environment for the private equity firms looking at the real estate office companies and saying, there's a lot of value here. We're going to privatize this thing and we're going to break it up and sell the assets on an individual basis. We're not there right now.

And so as Hilary said, the assets that are being sold are being sold to sort of what I would say is very highly levered private equity and very core plus, plus, plus kind of buyers like Vornado and SL Green, and they're sort of doing this on a one-off basis, and there's just not a very liquid market for overall core buyers of assets.

Great. We have a few minutes left here. So I want to open it up to the audience if there are any questions. And if you all think of any questions, just raise your hand. In the meantime, I want to go back to Mike because we've talked about the liquidity, financing 343. You did lay out a plan back at your Investor Day to bring leverage down. And so I was wondering if you could just refresh us on where that is and what's your target?

Sure. Thanks, Tony. So our plan, right, is to increase EBITDA by increasing occupancy of the company, increasing occupancy by 400 basis points over the next couple of years. It's going to delever us. The $1.9 billion in asset sales, which again is a mix of $400 million of land, $500 million of residential and about $1 billion of what we're calling the bottom 5% of our office portfolio, our noncore, nonstrategic office, our view is kind of a blended return on that of somewhere around 6% and using that capital to initially repay debt, which we would otherwise have to borrow in the high 5s today based upon where interest rates are today and then bring in private equity capital for some of the developments, so we reduce the funding need in our growth.

And so then we can add these developments and grow the company without bringing in public equity. And we can bring our leverage down today, which on a seasonally adjusted basis, the first quarter was about 8.1 net debt to EBITDA, down towards the low 7s in net debt to EBITDA over the next 18 to 24 months and then closer to 7. And what that will do is that will create a lot of additional balance sheet capacity for us for future investment endeavors.

Sounds good. We have a question here.

So this morning I woke up, I'm sure you probably saw the same headline from commercial observer. Manhattan office leasing on pace for best yearly performance in century. Yesterday, I met with the CEO of a small New York office landlord with an asset near Grand Central and a couple in the [indiscernible] district, he was telling me he has never seen anything like this before and the leases are being done at record levels. You guys are telling me basically the same story. And I know you don't like to comment on stock price, but as a group, you and SL Green and Vornado, it's like nothing happened. What's the market missing in your story?

I think the market is more interested in AI infrastructure. Honestly, I think that's part of the problem is it's not just office. I think it's traditional real estate right now. I mean some of the apartment companies have been selling assets and repurchasing shares. I mean I think the capital is -- I think that's -- the issue is not the story. All of what we just told you is paints a very positive picture and it's what we're experiencing as a management team, and we're delivering it in terms of the results of the company. But the market is the market, and it's driven by funds flows and other factors.

Great. I'm going to just give you one last one, if you want to chime in. You're meeting with a lot of people over the course of the conference. You probably met a bunch, you had an event last night. If you're going to leave us with 1 or 2 things that maybe we should be focusing more on as investors, analysts, folks looking at the company, what might those be just to take away?

Well, I think I just said it, but I just think that there's a disconnect between how the company is being valued and what the performance is based on the market condition. That's one. And then two, I do think that office is a less well-understood business today because it's changed. The research that's out there doesn't accurately reflect how the business works, which is you've got these top 20% assets and they compete in a different market from the rest of the office business and the statistics around that top 20% are very different from everything else.

Great. Well, with that, we're out of time, and thank you all for attending, and thank you very much to the management team.

Thank you, Tony.

Thanks, Tony.

Good day, and thank you for standing by. Welcome to Q1 2026 BXP Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded.

I would now like to hand the conference over to your first speaker, Helen Han, VP of Investor Relations. Please go ahead.

Good morning, and welcome to BXP's First Quarter 2026 Earnings Conference Call. The press release and supplemental package were distributed last night and furnished on Form 8-K. 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 12 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&A portion of our call, our regional management teams will be available to address any questions.

We ask that those of you participating in the Q&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.

I would now like to turn the call over to Owen Thomas for his formal remarks.

Thank you, Helen, and good morning to all of you. BXP had a successful first quarter. Our FFO per share result exceeded our own estimate by $0.02. Our FFO per share guidance for 2026 was raised by $0.01. And we made continued strong progress on our business plan articulated at last year's investor conference by completing significant leasing, closing additional asset sales and progressing our development pipeline. Last week, we also released our annual Sustainability & Impact report, outlining the positive outcomes achieved for shareholders and other important constituents from our industry-leading sustainability efforts.

Our first business plan priority is to lease space and improve portfolio occupancy. There is no question that AI has been and continues to be enormously beneficial to BXP's leasing activity despite the market anxiety regarding the impact of AI on job creation and resultant leasing demand. We are experiencing direct benefits by leasing space to AI companies in San Francisco, New York and Seattle as well as indirect benefits from both leasing space to companies displaced by growing AI firms and to our core financial, legal and business services clients serving the rapidly growing AI industry. The near- and medium-term negative impacts of AI on jobs are more likely in support functions, which are less present in premier workplaces, and in gateway markets.

We had a strong first quarter, completing over 1.1 million square feet of leasing. Our in-service portfolio occupancy rose 70 basis points to 87.4% and the spread between our leased and occupied square footage widened 80 basis points to 3.5%, a precursor to more occupancy gains ahead. The environment for leasing premier workplaces remains healthy and very active. Our current and prospective clients are generally experiencing increasing earnings due to the growing economy in the U.S. We are seeing more client growth and contraction in our leasing activity. In many cases, our clients are also upgrading their space and/or location to more readily effectuate their tightening in-person work policies.

All of these client factors, growth, more use of space and upgrading, have led to the consistent strength and outperformance of the premier workplace segment of the office market where BXP is a clear market leader. Premier workplaces represent roughly the top 14% of space and 8% of buildings in the 4 CBD markets where BXP has a major presence. Direct vacancy for premier workplaces in these 4 markets is 8.5% versus 13.8% for the broader office market, while asking rents for premier workplaces continue to command a premium of more than 60% over the non-premier buildings. Over the last 3 years, net absorption for premier workplaces has been a positive 11.9 million square feet versus only 420,000 square feet for the balance of the market. For the non-premier workplace segment, all markets had negative absorption except New York City.

Given these positive market and client trends and BXP's strong leasing over the last year, we have started to realize our forecasted occupancy gains the last 2 quarters, reinforcing our confidence that our target of 4 percentage points of total occupancy improvement over 2026 and 2027 remains achievable.

Our second business plan goal is to raise capital and optimize our portfolio through asset sales. During our investor conference, we communicated an objective to sell land, residential and nonstrategic office assets for approximately $1.9 billion in net aggregate sale proceeds by 2028. We continue to make great progress in the first quarter. We have raised $360 million in total net sale proceeds so far this year and $1.2 billion since our investor conference, including land sales for $250 million, apartment sales for $460 million and office, lab, retail sales for $500 million.

Further, we have under contract the sale of 3 assets with total net proceeds of approximately $40 million and are in various stages of marketing several additional assets. As of now, future net proceeds from dispositions projected in 2026 could aggregate up to an additional $400 million, and we are consistently exploring more asset sales.

We have been able to achieve attractively valued land sales by creatively positioning our office land for more valuable uses, particularly residential. Across multiple jurisdictions, we have received or are pursuing entitlements for over 3,500 residential units on land intended for office use, which is creating significant value for shareholders and will be the backbone of both our apartment development and land sales activity going forward. We have now sold 3 high-quality stabilized apartment buildings, which we built all at a mid-4% cap rate.

A notable office transaction we completed in the first quarter was the sale to our partner of our 50% interest in the Marriott headquarters building in Bethesda, Maryland, which we developed in 2021. The 743,000 square foot building is fully leased to Marriott and sold for a gross price of $430 million or $589 a square foot and a 6.8% initial cap rate. The Bethesda market is not strategic for BXP. We were able to achieve attractive exit pricing, and the development was very profitable for shareholders, generating a $35 million gain on a $47 million investment.

Supporting our disposition efforts, office transaction volume in the private markets remains healthy with financing available at scale, particularly in the CMBS market. In the first quarter, significant office sales were $14.1 billion, down from the seasonally elevated fourth quarter, but notably up 72% from the first quarter of 2025.

In addition to the Marriott headquarters sale, there were a couple of other transactions with relevance to BXP's portfolio. In New York City, 575 Fifth Avenue sold for $383 million or $734 a square foot and a 5.1% cap rate for the office portion of the building. The asset comprises 525,000 square feet and is 90% leased. In San Francisco, the Transamerica Pyramid sold for an allocated price of $600 million or $1,113 a square foot. The 525,000 square foot building is only 60% leased. So the in-place cap rate was 2.9%, but expected to be in the high 7% range in several years once the asset is leased and stabilized.

The third business plan goal is to grow FFO through new development, selectively with office, given market conditions and more actively for multifamily with an equity partner. For office, we have and expect to allocate more capital to developments than acquisitions because we continue to find premier workplace development opportunities with pre-leasing that we believe will generate cash yields upon delivery roughly 150 to 250 basis points higher than cap rates for lower quality asset acquisitions with ongoing CapEx requirements. The trade-off is timing as developments obviously take several years to deliver.

For multifamily, we have 3 projects with over 1,400 units under construction, are in various stages of entitlement and/or design for nearly 5,000 units and have 1 project in Herndon, Virginia, which we plan to commence in 2026. We expect to continue to capitalize new development starts with financial partners owning the majority of the equity.

BXP's largest development underway is 343 Madison Avenue, our market-leading premier workplace tower in New York City with direct access to Grand Central Terminal. As previously reported, we have a lease commitment for 29% of the building located in the mid-rise. We are also negotiating leases with tenants for another 27% of the building, which will bring us to 56% committed with available space at both the podium and high-rise of the tower.

Given strong market conditions and the lack of available competitive product, we are making multiple client presentations every week for the remaining space. We have procured 83% of the construction costs, have realized anticipated savings from our original budget, and our projections remain on track for a stabilized unleveraged cash return of 7.5% to 8% upon delivery in 2029. We are in discussions with several potential equity partners for a 30% to 50% leveraged interest in the property and also have an agreed letter of intent with a consortium of banks for construction financing at attractive terms. We intend to complete the recapitalization in 2026.

BXP's current development pipeline, comprising 6 office, life science and residential projects underway, totaling 3.4 million square feet and $3.6 billion of BXP investment, will deliver external growth over the longer term.

So in conclusion, we continue to successfully lease space and improve occupancy, creatively reposition and monetize noncore assets and derisk our development pipeline through leasing, construction and capital raising successes. New construction for office has virtually halted, leading to higher occupancy and rent growth in many submarkets where BXP operates. Debt and equity capital is available for premier workplaces.

BXP is building market share given our stability and consistent service to our clients and in many markets, less competition. BXP remains comfortably on track with our business plan, which, if successful, will lead to increasing portfolio occupancy and FFO per share, deleveraging, external growth from development and a more highly concentrated CBD and premier workplace in-service portfolio in the years ahead.

And let me turn over our report to Doug.

Thanks, Owen. Good morning, everybody. I'm going to speak towards demand this morning for the bulk of my comments. We can debate whether technology companies today are overstaffed, whether remote work strategies have had a demonstrable impact on premier property demand, whether the massive capital investment from data center infrastructure has led to a different perspective on human capital from the large tech companies and whether new AI models and AI agents will lead to changes in the makeup of the workforce. There are no answers, just conjectures.

What we do know is that the U.S. economy has gone through many technology cycles since the invention of the personal computer 45 years ago. And in this cycle, today, there is dramatic incremental office demand growth from new organizations that are developing AI. This new technology demand is focused in San Francisco and more recently in New York City. OpenAI and Anthropic are clearly the most recognizable expansions, but there are many meaningful space occupiers expanding across our markets. Databricks, Perplexity, Decagon, Harvey AI, Sierra AI, Snowflake, to name a few, with Decagon and Snowflake being new tenants in the BXP roster. It's clear that the clients that are growing are not the tech titans that expanded during the last decade, but there is meaningful office-using growth in our markets.

CBRE reports that there has been 3 million square feet of positive office absorption in San Francisco over the last 7 quarters, including an extraordinary 1.4 million square feet in the first quarter of 2026. This backdrop is important because it is increasingly translating into tangible leasing activity. In the first quarter, BXP's total leasing volume was 1.14 million square feet. As I discussed during our Investor Day, in-service vacant space leasing and covering near-term lease expirations will drive our occupancy improvements and same-store revenue growth.

During the first quarter, we executed leases on 700,000 square feet of vacant space and renewed or backfilled 235,000 square feet of '26 and '27 expirations. Post March 31, our current pipeline of leases in negotiation consists of 1.7 million square feet and covers 500,000 square feet of existing vacancies and 500,000 square feet of '26 and '27 expirations. We start the second quarter with 1.44 million square feet of executed leases on vacant space that we expect to commence in 2026 in the next 3 quarters. The remaining calendar year of '26 expirations are down to 770,000 square feet.

So if nothing else were to change, we should pick up 670,000 square feet or 150 basis points of occupancy and end the year at 89%. The majority of our remaining '26 expirations are known, so near-term upside will stem from leasing currently vacant space with immediate revenue commencement. We ended '25 with in-service occupancy of 86.7%. Our occupancy at the end of the first quarter is 87.4%, an increase of 70 basis points, with about 57% of that gain stemming from improvements in the portfolio leasing and the balance due to changes in the portfolio, including the sales described in the press release and the suburban office buildings I highlighted last quarter that we removed from service and expect to demolish and then redevelop into higher-value residential uses consistent with our portfolio optimization strategy.

Permits are progressing quickly in Santa Monica and Waltham, MA. Separately, we are finalizing documentation with an institutional partner to commence development at Worldgate in Herndon, Virginia, where we purchased 300,000 square feet of office buildings and re-entitled this as residential, townhomes and apartments. We anticipate closing the venture during the second quarter and immediately commencing construction.

We are in active conversations with new and renewing clients across all of our markets. Our total discussion pipeline, in addition to the 1.7 million square feet in negotiation, is another 1.4 million square feet, and we continue to anticipate a minimum of 4 million square feet of leasing in 2026, consistent with what we've put forth in our 2026 guidance. Post March 31, we've executed 300,000 square feet of leases, so the total for the year stands at 1.5 million square feet as of today.

We made a change to the way we are reporting our second-generation leasing statistics this quarter. Instead of providing statistics on leases based on the economic impact date of the lease commencement, which is backward looking, we are showing the change in the rents for all the leases executed in the current quarter where the comparative lease expired during the prior 24 months from the date of the new lease. Since all that data is in our supplemental, I'm not going to repeat it.

I do have a few comments on the transactions behind the aggregate numbers. In Boston, the data includes a 100,000 square foot lease in the urban edge space that was previously leased to Biogen. In New York, the bulk of the executed leases this quarter were at Times Square Tower, where we backfilled a law firm that was coming off a 20-year term with large bumps. In San Francisco, the largest portion of the leasing was at 680 Folsom. And in D.C., we extended a law firm for almost 6 years through 2038 in exchange for minimum TIs and a current rent reset.

This quarter, we executed several large leases, 17 leases over 20,000 square feet, with the largest just over 100,000 and a second with an expanding client that took 92,000 square feet. 34% of our square footage involved renewals, extensions or expansions and 66% was with new clients. Existing client expansions encompassed 150,000 square feet of activity, and we had about 50,000 square feet of contractions.

I want to make a few comments on our individual markets, which speak both to the sources of demand and the success we are having leasing vacancy across the portfolio. In the BXP portfolio, Midtown Manhattan, the Back Bay of Boston and Reston, Virginia continue to have the tightest supply and therefore, the most landlord favorable market conditions. This quarter, the most significant acceleration in activity was in the South of Mission market in San Francisco, Santa Monica and the CBD of Washington, D.C.

In the Back Bay portfolio, where we're 98.8% leased, much of our current activity is filling in small pockets of availability, but we have begun discussions with larger tenants that have expirations between 2028 and 2032, since there are no premier blocks of availability in the market.

In our Urban Edge portfolio, we completed a 100,000 square foot lease with a national restaurant operator at The Quarry in Weston and a 43,000 square foot lease with a life science company, relocating into 15,000 square feet of lab space and 28,000 square feet of office space at 180 CityPoint. Our current Urban Edge activity includes expanding hard-tech companies and additional life science companies that are looking exclusively for office space.

In New York, the most significant change in our activity has been in Midtown South. At 360 Park Avenue South, we completed another 6 floors and 138,000 square feet of leasing, which brings the building to 90% leased. Last week, we came to an agreement with an existing AI client to expand to an additional floor, which will bring the building to 95% leased. And across Madison Park, we leased an additional 32,000 square feet at 200 Fifth Avenue, leaving us with only 33,000 square feet of availability where we had 350,000 square feet vacant in 2025. At Times Square Tower, we executed over 100,000 square feet this quarter, including 85,000 square feet of currently vacant space.

In San Francisco, the most significant change in our portfolio continues to be at 680 Folsom and 50 Hawthorne. During the quarter, we executed leases for 103,000 square feet and in early April, executed another 63,000 square foot lease. Since the beginning of 2024, AI and tech leasing has steadily increased from 50% of the total leasing demand in the market to 57% to almost 80% in the first quarter of this year. And as I stated earlier, there have been over 3 million square feet of positive absorption over the last 7 quarters.

In Santa Monica, we've seen a pickup in interest from clients with near-term lease expirations and the need for new and expanding space. This is a meaningful change from the last few years.

Activity in D.C. this quarter was concentrated in 2 transactions. We did an early 153,000 square foot extension, with the anchor tenant at 1330 Connecticut, and we gave up our regional headquarters at 2200 Penn as part of a 58,000 square foot lease with the Washington Commanders. Currently, activity in the region is still concentrated at Reston Town Center, where we are 97.3% leased. This quarter, we completed 7 small leases with defense contractors and professional service firms, and we are in negotiation on over 150,000 square feet of transactions, including 100,000 square feet of '27 expiring leases, where in aggregate, the tenants will renew and expand.

Jake and Pete continue to field inbound requests from law firms that want us to identify sites and develop new projects similar to what we have achieved at 725 12th and 2100 M. We have some visibility on the third of these projects today.

That wraps up my comments. I'll turn it over to Mike.

Great. Thanks, Doug. Good morning, everybody. So today, I'm going to cover our results for our first quarter earnings and update our full year '26 earnings guidance.

So for the first quarter, we reported FFO of $1.59 per share, and that's $0.02 above the midpoint of our guidance range and $0.01 ahead of consensus estimates. The performance of our portfolio exceeded our expectations by $0.03 per share and was partially offset by $0.01 of higher net interest expense. Outperformance in our portfolio was comprised of $0.02 of better rental revenues and $0.01 of higher termination income. The rental revenue beat was from commencing leases more quickly in both 535 Mission and 680 Folsom as well as from some leases in the Urban Edge properties in Boston. And we also generated more service revenue from our clients, particularly in New York City and in San Francisco, reflecting increased utilization.

Termination income for the quarter totaled $12.8 million, and it primarily related to 2 clients. In the first case, we proactively took back 25,000 square feet from a client in Washington, D.C. that allowed us to lease 58,000 square feet to the Commanders at 2200 Penn. This is a great trade for us, creating incremental occupancy and extending lease maturity. The second case relates to a client that defaulted on its lease in the fourth quarter last year when we took a charge totaling $3.6 million to write off their accrued rent balance. This quarter, we received a termination payment totaling $6.25 million, which covers both the write-off from last quarter as well as nearly 12 months of potential downtime in rent.

Our net interest expense for the quarter came in higher by $0.01 per share from lower-than-anticipated interest income and higher commercial paper rates related to the market volatility in the fixed income markets. CP rates widened by 25 to 30 basis points during the first quarter. The rates have improved in the past few weeks, but they're still not quite back to where they were in the fourth quarter.

Now I'd like to turn to our updated guidance for full year 2026. Big picture, we've increased the midpoint of our FFO guidance by $0.01 per share at the midpoint by bringing up the bottom end to $6.90 per share and maintaining the top end at $7.04 per share. We have increased our assumption for termination income in 2026 by $8 million. It relates to several credit issues we're working through that impact about 200,000 square feet of space that we expect we will get back in 2026. More than half of this space is held in a joint venture, so the financial impact to us is less. The termination income we expect to receive is in lieu of approximately $5 million of lower rental income in 2026 from these clients. These spaces are readily leasable in the current market, and we expect we will be successful in backfilling them quickly.

Strong leasing performance across our same-property portfolio is giving us increased confidence in our growth outlook. In our same-property portfolio, we are increasing our assumption for our share of NOI growth from over 2025 by 15 basis points to between 1.4% and 2.4%. Keep in mind, we exclude termination income from our same-property NOI assumptions. So if not for the lease terminations, we would have increased our assumption for our share of same-property NOI growth by an additional 25 basis points. The increase is driven by the robust leasing activity that Doug outlined, which continues to exceed our expectations and supports a stronger occupancy recovery.

Reflecting this momentum, we've increased our occupancy outlook for 2026 by 25 basis points to an average for the year of 88.25%. On a cash basis, we have reduced our assumption for year-over-year growth in our share of same-property NOI by 25 basis points and that accounts for the lease termination activity as well as a couple of early renewals with free rent periods in 2026.

In our development portfolio, we expect to deliver 290 Binney Street more than a month early as we are just about -- complete with the tenant improvements. AstraZeneca already commenced cash rent payments as of April 1, and we expect to deliver the project by June 1 at the latest. We have 2 factors impacting our interest expense assumption for the year. First, the early delivery of 290 Binney requires that we cease capitalized interest early. Second, the likelihood for Fed rate cuts later this year has diminished, and we are now assuming that SOFR rates are flat for the remainder of 2026. Including our first quarter result, we have increased our 2026 assumption for net interest expense by approximately $10 million.

So overall, we're raising our guidance for 2026 FFO by $0.01 per share at the midpoint, and our new range is $6.90 to $7.04 per share. The changes come from increases in our assumption for growth in our share of same-property NOI of $0.02, increases in termination income of $0.04 and an increase of $0.01 from our development activity. These are partially offset by higher interest expense of $0.06.

As Owen described, we continue to execute on our plan. We have closed on asset sales generating $1.2 billion in net proceeds, including $360 million so far in 2026, in line with our guidance. We're making great progress at 343 Madison, with additional leases under negotiation and active discussions for both private equity capital and construction financing.

And importantly, our leasing activity has been consistent and above expectations. Signed leases that have yet to take occupancy for currently vacant space has grown to 1.6 million square feet. Our current pipeline of 3 million square feet of leases either under negotiation or in active discussions is higher than where it stood last quarter. And we remain highly confident in our ability to grow our occupancy meaningfully, driving higher portfolio performance and value.

That completes our formal remarks. Operator, can you open up the lines for questions?

[Operator Instructions] I show our first question comes from the line of Steve Sakwa from Evercore ISI.

It sounds like all of you have had very positive comments around the leasing environment. Things have certainly gotten better, and the tide seems to be turning in a number of markets, like New York, certainly San Francisco and parts of Boston. I guess the question is, to what extent are you able to kind of shorten the time from the time you start the discussions to getting leases signed and then the implications that might have for kind of the TI and CapEx that you might need to be spending on these deals? I guess, can you get tenants in the space faster? And might we see CapEx start to come down?

Steve, this is Doug. So what I would say is that the duration of the lease is really dependent upon the aggressiveness of the legal counsel for our tenant. And in some cases, we have counsels that are very thoughtful from our perspective, and we can get leases banged out in a couple of days. And in other cases, it can take 6 months. And so -- and I don't think that the market conditions have really impacted that. I would say our ability to say yes to requests from our tenants in terms of what their counsels are saying is clearly stiffened. And so maybe that's why it's taking longer to get leases done in some cases, I don't know.

From a capital expense perspective, there is no question that in the Back Bay of Boston and in Midtown Manhattan and in Northern Virginia and Reston, we are being more conservative relative to the kinds of concessions that we're offering, meaning they're lower. And they're lower in the form of the amount of free rent that we're giving, and they're lower in the amount of TIs that we're offering. I would say the West Coast still has a pretty significant concession package largely because there's still a significant amount of space available, even though the demand has accelerated materially. So I'd sort of say there are places where it's better and there are places where it's still, relatively speaking, consistent with what it's been over the last 3 or 4 quarters.

And I show our next question comes from the line of Anthony Paolone from JPMorgan.

I wanted to follow up on your comment about 80% of demand, I think, out in San Francisco coming from AI tenants. And so wondering how to think about that as to whether it's really incremental demand above and beyond what would be normal? Or if it kind of goes to this idea that only 20% of the demand is coming from stuff outside of AI? Just trying to think about like where that goes and what that tells us, if anything, about the rest of the tenants in the market.

So I'll start, and I'll let Rod comment. What my sort of inference on what's going on is that there is a clear acceleration of technology defined as these new AI-oriented companies that are absorbing the majority of the incremental space absorption in the market. What has changed and it's changed dramatically is if you went back to 2010 to 2019, virtually all of the absorption was coming from the tech titans, Google, LinkedIn, Microsoft, Meta, the larger companies. And that has clearly shut down. None of those companies are expanding in any material way in the city of San Francisco. And in fact, some of them have given back space.

I would say that the amount of space that is being absorbed is accelerating or has accelerated. I can't tell you if that's going to hold for a consistent basis for the next 3 or 4 or 5 quarters, but it's -- these companies are, relatively speaking, aggressively hiring people, and they've made a decision that in-place work is critically important to their business strategies. And so those are all great indicators from our perspective.

The professional services and the business services firms have not expanded the way they are expanding in Midtown Manhattan. And we're hopeful that as these companies become public and they change their capital flows and that improves the overall wealth creation in the West Coast, that there may be some more material improvements in financial services and professional services and business and administration services.

Rod, I don't know if you have any other comments.

I think you covered most of it, Doug, but I would just add that on the topic of the non-tech companies, the traditional tenants, and we have many of them, particularly at Embarcadero Center, what we're not seeing is downsizing. I mean they've gone through that already. And so we've executed a handful of different renewals with those types of tenants and some new tenants coming in. And so I'd say they're stable. And that's kind of -- and then when you look to the flip side of that and you think about where the demand is growing and where it's coming from, it's what you would expect from the Bay Area, which is it's a tech-driven market, and these are tech companies that are driving the market right now.

There are 20 requirements that are over 100,000 square feet. That's about 3.3 million square feet. This is in San Francisco specifically. And a year ago, that number was about 12 requirements. So it's definitely increased, and it's great. And as Doug said, these are with companies that we hadn't heard of before. So it's new, emerging, growing companies. So it's very positive.

And I show our next question comes from the line of John Kim from BMO Capital Markets.

Okay. 343 Madison, you talked about lease negotiations for another 27% of space. There's been some media speculation of who that is. But I'm wondering if you could just discuss whether or not you believe that space represents consolidation of space, expansion or musical chairs.

So this is Doug. So it's tenants, like it's not a tenant, it's tenants. And I think it's yes to all of those things. It's some consolidation and it's some growth.

And I show our next question comes from the line of Nicholas Yulico from Scotiabank.

Mike, I wanted to ask about leasing CapEx. It was higher this quarter, $178 million, hitting the FAD calculation. I think, last call, you said, for the year, it could be like $220 million to $250 million. So maybe you could just talk about kind of what drove that and how to think about leasing CapEx for the rest of the year.

So what drove the leasing cost this quarter was really a very significant amount of lease commencements, basically 2x what we normally see. And it was driven by several early renewals that we did a couple of years ago that hit this quarter. That was over 1 million square feet of that. And so that -- if you looked at leasing cost per square foot, they were $10 per square foot per lease year, which is pretty reasonable. That's well within kind of the range we would expect. But it was just these early renewals that hit that caused that FAD to be higher. So I would not expect that to continue at those levels for the next few quarters.

But I do expect that for the year, our lease transaction costs will be higher given the start that we have at $175 million for the quarter. So I would anticipate that our leasing costs will be closer to -- in excess of $400 million based upon the occupancy growth that we anticipate. And the -- there's a couple of other early renewals that are going to be coming in, in the second and fourth quarter.

And I show our next question comes from the line of Blaine Heck from Wells Fargo.

I was hoping you could talk about the trends you're seeing in the life science segment of the portfolio. You've disposed of your West Coast exposure and you've had some success in leasing up the Greater Boston portfolio. Is that potentially a source of funds if the transaction market is supportive? Or do you still kind of see the overall Boston Life Science portfolio as a longer-term hold for BXP?

So the BXP Life Science portfolio is in 2 submarkets. It's in Kendall Square in Cambridge, where we are building our new building for AstraZeneca, and we have buildings with Biogen and we have buildings with the Broad. And then it's our life science buildings in Waltham, Massachusetts at 180 CityPoint and at 880 and at 200 West Street and then 103 when we get that building leased. I don't think that we are looking at exiting any of those markets or any of those buildings.

We are clearly seeing a change relative to the demand that's currently in the market towards more office and less lab intensitivity. And so quite frankly, we're taking advantage of that in our traditional office buildings with life science companies. In fact, as part of the 1.7 million square feet of leases under negotiation, we signed a letter of intent last night for a 49,000 square foot life science company that's going to take 49,000 square feet of office space at one of our buildings. So I think that's going to -- we're going to see continuation of that.

I would tell you that there is no question that the life science market has already bottomed out and things on the margin are getting better in the Greater Boston ecosystem. I think you will find if you look at the companies that are "incubator-like," there's more activity and more interest in those incubators. And hopefully, that will, over time, roll its way into larger companies. And there's clearly consolidation in terms of big pharma purchasing life science companies that are -- that were born and bred in the Boston ecosystem, again, which I think is a good thing for the ecosystem here.

So I would say on the margin, things are better. We're strategically going to continue to maintain our portfolio, and we believe in the long-term viability of the life science business in Greater Boston.

And I show our next question comes from the line of Jana Galan from Bank of America Securities.

Congrats on the great leasing. Given the focus on occupancy and speed to occupancy, can you talk about any initiatives, like spec suites, to kind of attract tech and AI tenants quicker? And do AI tenants have different power or architectural requirements than the kind of the more traditional tenant groups?

So I'm going to let our regional management team sort of answer that question. I'd let Bryan talk about sort of turnkey builds where we are doing a significant amount of, what I would refer to as, we're going to do sort of the design and the build-out for medium-sized companies. And then Jake can talk about our prebuilt suite program in Northern Virginia. And Rod, you can talk about what we did and how we were successful at leasing 680 Folsom.

So Bryan, why don't you get going first?

Yes. So Urban Edge is the area where we're seeing this type of activity because our portfolio is effectively leased in Boston and Cambridge. But on the Urban Edge, we are seeing this turnkey ability with these new emerging companies and several of them in life science. Like Doug said, we're encouraged, and we feel it's bottomed out. But the activity, I wouldn't say is like overwhelmingly significant, but it has definitely ticked up.

And the companies that we're talking to, one of the things that I think is really interesting about these companies along with doing the turnkeys -- relates to Steve's earlier question about time to effectively put a lease together. One of the things that we haven't seen in a long time is that these clients are doing their best to gather what their growth will be. And that's been a little bit of a stall in that. We'll be working on a 30,000-foot deal and all of a sudden, they'll say, "We got good news. It could be 40,000." That's new.

But the turnkeys are really working out really well. We haven't done any, call it -- we've only done very small spec builds in that area. But turnkey, fast and quick occupancy.

Jake?

Sure. In Reston Town Center, we've delivered over 50 spec suites in -- there's 2 buildings in Reston that are -- we sort of have coined our incubator buildings. These are buildings that -- these groups that are 4,000 to 5,000 to 6,000 square feet want to be adjacent to the likes of a lot of the corporate headquarters that exist in Reston Town Center. And so we've been very successful with those prebuilt suites. Oftentimes, when we've gone forward to build 5 to 6 of them, prior to having lines done on paper and drawings and permits in hand, we've already leased those suites. So there's been an insatiable demand for that space.

In terms of -- I think your question was about power requirements and anything different. Nothing really different relative to those spec suites. Oftentimes, we're doing those on a short-form lease. We're oftentimes seeing term greater than 5 years and very, very, very competitive rental rates.

Rod?

Yes. So at 680 Folsom, it was a key part of our strategy in leasing that building up, was doing the spec suites. We did a full floor. In fact, we did a 34,000-foot full floor spec suite. And we did that last year. And it was extremely well received. We were able to show prospective clients what it would look like. And so once we had that built, our activity spooled up quickly. And so the activity that we reported is largely based on that strategy. So this is nothing new for us, by the way. We've been doing this for many years, and we continue to do it across all of our properties here in the Bay Area, and it's a great strategy. I mean most tech companies, it's -- they need the space quickly. And so when it's built and ready to go, we can deliver it quickly.

And then I'll just comment quickly on the power question that you asked. It's not happening in anything in San Francisco. So the office-using AI companies that we're dealing with are not necessarily looking for more power. But we are seeing that in some of our R&D portfolio properties down in Mountain View in particular. And those might be different type of robotics companies or different technology companies, but power is definitely something that they will seek out.

And I show our next question comes from the line of Alexander Goldfarb from Piper Sandler.

So a question on the development program. I think you guys talked about a new pipeline of deals. And just curious, 2 parts: one, the split between residential where you're monetizing land or buildings to ultimately sell versus office; and then as you contemplate office, just given, again, where the stock is trading and implied 8%, how you weigh starting a potential office deal future versus where the stock is trading right now?

It's Owen, Alex. So on the pipeline, as I mentioned, it's $3.5 billion or so. It's about to shrink because we're going to deliver 290 Binney Street. We do have a portfolio of new developments coming. We've talked about a couple that we're doing in Washington, D.C. So I think that will build back up.

I think on residential, you may have a situation where we have more projects, but it will be lower capital. The 17 Hartwell deal we did, we have -- we were 20% of the equity. Skymark, we were 20% of the equity. Those are the kind of models that you're going to see going forward. So I think, in the future, the amount of capital invested will be greater in office than it will be in residential.

And then on your last question as it relates to the development yield versus the capital allocation decision of starting a new office development at an 8% yield versus repurchasing shares. We think an 8% yield is higher than the underlying yield in the stock. The look-through cap rates are probably somewhere in the 7s for the stock. And at 8%, we think it's an accretive activity for shareholders, and it's certainly more attractive than some of the acquisitions that I described in my remarks.

The only other thing I would add, Owen, on the residential is we're going to generate more fee income because we're going to only own a minority interest in those, and we're going to generate development fees and other fees like that as we do that. So as those start to ramp up, we should see it in our fee income.

The only last thing I would say on development, Alex, is the company over a long period of time has generally had somewhere between $3 billion to $4 billion -- maybe somewhere in the $4 billion of development underway. And I think in the future, that could continue, but I think there'll be less projects because simply stated, the cost of these projects is much higher. So I think it will be concentrated in fewer individual projects.

And I show our next question comes from the line of Seth Bergey from Citi.

You mentioned the $400 million of kind of dispositions. What's kind of the target mix between nonstrategic office, residential, JV interests, land? And just given some of the interest rate movements that you kind of drove the change in that guidance piece, how pricing and conversations with potential buyers changed around that pool of assets?

Yes. I think I'm not sure that pricing has really changed all that much. I do think, slowly, more and more capital is coming back into the office sector. I provided the sales data to you earlier. And in the first quarter of this year, office sales were up 72% seasonally over the first quarter of last year. So I think that's kind of a marker that more deals or more capital is coming into the market.

So on your question about mix for the rest of the year, the residential is not fully complete, but largely complete. So I think you're going to see for the rest of the year more nonstrategic office and some land.

And I show our next question comes from the line of Caitlin Burrows from Goldman Sachs.

I was just wondering maybe back to 343 Madison JV, if you could give any incremental color on the conversations you've been having recently, timing expectations for an announcement and if you're pursuing just to have one partner with you in the project?

Well, as I said in my remarks, timing is this year. So our goal is to complete this recapitalization in 2026. And in terms of how the partnership will be structured, that is to be determined. But our guess at this point or our forecast at this point is that we will probably have multiple partners instead of one.

And I show our next question comes from the line of Brendan Lynch from Barclays.

Doug, I wanted to follow up on your commentary about the U.S. economy growing through a lot of tech cycles. Certainly appreciate the commentary there, and it's important to put the current moment in context. I guess the pushback would be, historically, office hasn't necessarily grown in conjunction with tech or even in conjunction with the broader economic growth in the country. Certainly, there's been a lot of lumps over the past couple of years with GFC and then excess supply in the teens and then COVID. So I guess, high-level question, how can we get confidence that this cycle in the next 5 to 10 years are going to be better than the last 20 or so?

I can't give you confidence that the next 5 years will be better than the last 20 years. What I can tell you is that much of the discourse and pontificating about the impacts of this very rapid utilization of artificial intelligence kinds of tools is not equivalent to what is actually going on in our markets. In our markets, we are seeing additional absorption of office space, growth from our clients in premier buildings in -- particularly, in markets like San Francisco and Midtown South, we're seeing significant growth of new organizations, many of whom names and ideas didn't exist 5 years ago, that are likely to be the next vehicles of growth from technology compared to what was a tech titan explosion between 2010 and 2019. And I think it's very clear that we did, in fact, see significant office demand growth during that period of time, then we had this COVID thing happen, which dramatically changed the economics of our business because of the amount of supply that suddenly was brought back on to the market through subleases and tenant defaults.

So I think that this time is not that different than other cycles that we have been through, but the source of the demand is a very different source. And Owen started his remarks by saying there may be and there likely will be some kinds of job disruptions from these types of technologies, but certainly doesn't feel like, and we have not seen any evidence that it's occurring in premier office assets, in our markets across the United States.

If I could add a little data point to that, Doug, this is Hilary from New York. In Midtown South, the first quarter of 2026 captured as much AI demand in leasing as the first half of 2025 did. So the demand from AI users in Midtown South is actually accelerating in New York year-over-year.

And I show our next question comes from the line of Upal Rana from KeyBanc Capital Markets.

In terms of capital allocation, the stock has come down a bit this year. So I was wondering if share buybacks are potentially on the table or not or if that's something you're considering.

Well, we think our stock is a very attractive investment, given that the look-through cap rate is in the 7s and all the comp sales that I provide every quarter are in the 5s and 6s. So we think the stock is a very attractive investment. That all being said, as we've described on this call, we are allocating capital to new developments, which are generating 8-plus percent yields to the company, which are accretive. And also, one of our goals, our leverage is at about 8x net debt to EBITDA, and our goal is to lower that over time, and that's why we're not repurchasing shares.

And I show our next question comes from the line of Floris Van Dijkum from Ladenburg Thalmann.

So you talked a little bit about the CapEx requirements. I'm just curious, you guys have -- I don't think you quantify your signed, not open pipeline. You have 350 basis points of delta between your leased and occupied space, and not all spaces created equal. Obviously, your Urban Edge portfolio is much lower rents. The occupancy there is much less valuable than in your urban portfolio. Maybe if you could quantify what your -- what the $350 million of incremental rents would be and what kind of impact that would have on your NOI and FFO potentially?

So I'm just going to go back to what I said during our Investor Day and -- because I can't answer your question explicitly without having a whole bunch of computer screens open. But big picture, our average rent is about $75 a square foot on our unoccupied vacant space. So if you take $75 a square foot, it all drops to the bottom line other than maybe a little bit of cleaning expense. And so you multiply that by the 350,000 square feet and you sort of get what the overall contribution would be if that was all flowing through at one time.

And one thing I can say is there's 800,000 square feet in Midtown Manhattan. Again, our leased versus occupied is there's a significant difference in Midtown based upon all the leasing that we have done in Midtown over the last kind of 6 to 12 months. So that's a meaningful component of it at very high rents.

Yes. Those -- that rents somewhere around $100 to $105 a square foot.

And I show our next question comes from the line of Dylan Burzinski from Green Street.

Just wanted to touch on 343 Madison. Obviously, leasing continues to be very strong in New York. You guys talked about having leases in negotiation that would bring that project to high 50% pre-let. It seems like dispositions are trending very well, and you guys continue to monetize that. I guess just sort of curious why have this big desire to want to recap the equity in 2026 when it seems like maybe you can wait some time, get that project closer to stabilization and get stronger pricing? So maybe just curious the thought process there.

So we did delay raising this capital and doing this recapitalization for a year to accomplish all of the things that we have accomplished and to derisk the asset, in all the ways that you described. We've now -- or about to lease more than 50% of it. We've bought most of the materials as savings. We are close to completing a construction loan, et cetera, et cetera. And we think the terms under which we will bring in capital into this transaction will be attractive to shareholders. It will be accretive to BXP, and it will allow us to free up capital to make additional investments and also to deleverage, which is one of the goals I described earlier.

And I show our last question in the queue comes from the line from Ronald Kamdem from Morgan Stanley.

Just had a quick one on same-store NOI. Just thinking about sort of the bread crumbs as you're going through this year and into next year. Clearly, this year, I think you talked about sort of flat. There are some buildings taken out of service. But can you just sort of walk through, as you sort of roll into sort of the next year, how we should be thinking about like the occupancy ramp? Any other buildings that could potentially come out of service? Or is it sort of pretty clear acceleration into '27 and beyond?

So at the moment, the only thing that you can -- we can say definitively is that we are going to sell assets. And as we sell assets, they are going to impact on portfolio size. But they're going to be on the margin. And so we are highly confident that we will end the year at 89%, hopefully a little bit higher, and that we will end 2027 at 91%, hopefully a little bit higher. And the majority, if not all, of the occupancy that we are working on today will be in place on 12/31/2026. So you'll have a 100% run rate on all the improvement in occupancy that we're achieving right now. And my guess is that we will get some more of that as we -- early on in 2027 as we continue to do leasing in this environment on both renewals and vacant space that will likely start during that year. So we are still pretty comfortable about the ramp-up in our same-store portfolio on a going-forward basis.

That concludes our Q&A session. At this time, I'd like to turn the call back over to Owen Thomas, Chairman and Chief Executive Officer, for closing remarks.

We have no further comments. Thank you all for your attention and interest in BXP.

Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.

The Citi's 2026 Global Property CEO Conference. I'm Nick Joseph here with Seth Berge with Citi Research. Pleased to have with us BXP and CEO, Owen Thomas. This session is for Citi clients only and disclosures have been made available at the corporate access desk. To ask a question, you can raise your hand or go to liveqa.com and enter code GPC-26 to submit questions.

Owen will turn over to you, introduce your company and team provided in the opening remarks, tell the audience the top reasons and investors should buy your stock today, and then we'll get into Q&A. And Red is actually on.

There we go. Good. Thank you for that I need little IT support here to kick things off. So anyway, Nick and Seth, thank you once again for having us. I'm joined by Doug Linde, who's our President; Mike LaBelle, our CFO; and also Helen Han, who's our Head of IR.

So just a quick overview for those that don't know about BXP, we're the largest public company in the U.S. that focuses on premier workplaces. We're in the S&P 500. We're investment-grade rated. We have about over 50 million square feet of in-service office assets. We're also -- we grow the company externally primarily through development. We have over 3 million square feet under development today. And though we're large, we're focused primarily on 4 markets, plus we have a smaller presence in 2 additional markets, and those are Boston, New York, D.C. and San Francisco which are the larger markets.

So what is our strategy? Our strategy simply put is we are -- want to be and are the preferred provider of premier workplaces to leading U.S. companies. That is our strategy. That's what we do and what we are trying to grow. So we have our ticket -- we had an Investor Day last year where we articulated a very clear and significant plan to pursue this particular strategy. So what was that plan? We said, one, we were going to lease space. Two, we were going to sell assets. And three, we were going to invest in new developments.

So that's our plan. And what is our goal from this plan? Well, one, we're going to grow our FFO per share, primarily through increasing the occupancy of the company and we said that we would grow our occupancy, we think about 2% in 2026 and another 2% in 2027.

So grow the FFO per share. Second, we want to deleverage our balance sheet and then third, we want to continue to improve our portfolio quality, focusing on the most premier assets in CBD locations. So how are we doing on that plan. We've had a press release this morning at the open, and we are very much on track with all aspects of that plan. Last year, we leased 5.5 million square feet of space. In the fourth quarter of last year, we leased 1.8 million square feet of space.

We announced this morning that this quarter, we've already leased 600,000 square feet of space. We have about 1 million square feet of space of additional leasing that's in a letter of intent stage, which we think will get signed. And then beyond that, we have a pipeline of 1.5 million square feet where we're in various stages of negotiations with clients. And by the way, of that leasing that I described for 2026, 50% of that is on vacant space. So that's the leasing. Second thing we said we were going to do is sell assets.

So we announced today the sale of a couple of additional assets. So that brings our total sales through this morning at about $1.1 billion of net proceeds. And in our plan that we announced last year, we said we would do $1.9 billion by 2028. So we're very much on track. We have $150 million of additional sales that are currently under contract that we believe will be closing in the near to medium term. And then on the new developments, we've been one of the most prolific developers of office in the country.

Last year, we launched 343 Madison, which is a major development in New York. We announced at the end of 2024, the development of 725 12th Street, which is a largely preleased office in Washington, D.C. And we also acquired a building, which is basically a development site in Washington last year, 2100 M Street, which is also pre-leased to a leading law firm.

So we've made great progress in our development pipeline as well. And then specifically on 343, we might want to get into this in Q&A, but we've made additional progress leasing the property and we've also made great progress in both securing a construction loan as well as attracting investors into the asset. And we've also made great progress in terms of our development spend and achieving our budgets.

So the last thing that I want to talk about because I think it's had a big impact on our shares over the last couple of weeks is the whole, what I call AI scar trade. And what I can tell you today is that AI has had nothing in our operations has had nothing but a positive impact on what we've been able to accomplish. What we've been articulating for a couple of years is that AI is going to create jobs, front office, client-facing, product facing, creative jobs, and it's also going to disrupt jobs that are more back office and processing. And our companies portfolio is geared towards that first group of employees, and that's what we're seeing. We've had great success leasing in San Francisco, either directly to AI companies or companies that are displaced by AI companies. There's been over 6 million square feet of net absorption in San Francisco due to AI companies. So it's been very positive. We've had no client -- by the way, the terms of the leases that we've been signing have been going longer.

So if a company was worried about AI, why are they in 2025 signing 10-year leases with us and so far in this quarter, the terms are even longer. So again, these companies, these are major financial commitments. They're signing long-term leases. So they're not -- I don't think forecasting big impacts AI on their space demand. We've seen no impact of AI on the asset sale program that we've embarked upon. Interestingly, there's been no impact on our credit spreads. Credit trades every day, credit spreads remain stable. We've had tremendous success attracting lenders to our 343 Madison project.

So the fixed income markets appear to be very, very steady. So with that, Nick, that concludes our opening remarks and delighted to answer questions.

Great. Well, thank you. And appreciate your comments on AI. It's certainly the question we get most frequently on, I feel like office broadly. Those insights are very, very timely. I guess my question is, do you think there's any merit to the concerns of office medium and longer term and maybe just less office space needed if these efficiencies do come to fruition. And look, maybe it's at different price points, right? Maybe the impact is the lower or lower quality office. But just broadly, do you think they're fully misplaced? Is it just misplaced relative to the quality of the public portfolios? How do you think about it medium and longer term?

Well, I think we've -- again, we've been saying for a couple of years that the issue that our shareholders and investors need to focus on is not work from home, actually, it's AI. And what we've articulated is a future where AI is going to create jobs, which it has, all the firms that are creating AI, creating AI infrastructure, all the financial and legal and business services that support all that and that's going to grow.

And our goal, as I mentioned at the outside, is to be the space provider to these leading companies. But what is AI going to do? It is going to automate certain job tasks. And that, we think, is going to be more in the support areas in the back office. There will certainly be exceptions to that, but I think that's where most of that is occurring. And generally, our strategy is not to be in markets that are primarily back office and to own buildings that are geared towards back office uses.

So I absolutely think it's going to have an impact. And that's why our strategy, I would describe it as a narrower path. Our company has always been our founders would articulate a strategy of owning the best buildings in the best markets, we've continued with that. And I would say today, we're pursuing an even narrower path, which is up quality, upping the quality further of the portfolio, focusing more on the CBD and getting even bigger in the gateway markets where we operate.

We've gotten some questions coming in on the audience just on that topic of AI. You focused on kind of those front office employees. For those employees who are kind of using AI tools and getting more efficient, how are you thinking about productivity and maybe those companies not needing to hire as many employees in those types of roles.

Yes. Look, there -- as I mentioned, I think there is going to be an automation benefit. I mean we've -- all of us that are using generative AI are seeing the benefits in whatever we're doing analysis, research, any of those types of things. But there's also a whole industry that's being created that's creating the AI. And so again, at least what we're seeing today in our leasing is those -- the creation of those jobs and the footprint that we have, far outstrips any the destruction of jobs or lack of hiring that might be going on as a result of their creation.

Maybe going back to some of the leasing activity that you announced this morning, can you just kind of broadly give us a market update where you're seeing strength and maybe tie it to some of those stats that you put out this morning? And kind of where does demand remain soft?

So let me go back to where we were in September when we had our investor conferences to sort of level set everyone? So what we said was we think we're going to achieve a couple of hundred basis points of occupancy gain in '26 and a couple of hundred occupancy gains in '27. So call it, 400 basis points, moving from 87% to 91%. We -- when we had our call a few weeks ago, said, look, we have 1.2 million square feet of leases that have been signed that have yet to commence. And we have, in 2026, lease expirations of just under 1.2 million square feet. So we actually -- if we do no leasing at all during calendar year 2026, we're going to be flat.

For the first quarter, sitting here today, our total activity is about 1.6 million square feet, 600,000 of that has been signed and another 1 million square feet, we are negotiating the document with our counterparty, our clients. Of that space, about 800,000 square feet is on currently vacant space and 450,000 square feet is on 2026 and 2027 lease expirations.

So we will have meaningful occupancy increases in 2026 and 2027. Our 2027 expirations today are about 1.8 million square feet. So we're going to gain occupancy this year. We're going to gain occupancy next year and we have another year of very limited rollover. Our activity, as we sit here today in 2026 is really pretty much across the portfolio. So we have somewhere in the neighborhood of 350,000 square feet of leasing in Manhattan, almost all of it is on vacant space.

So that's a 360 Park Avenue South, where we will probably be 90% leased by the end of the quarter at Times Square Tower, where we have signed a lease for 3.5 floors and are negotiating leases for another floor and a half, so that's another 100,000 square feet of space. And then we have signed leases that have yet to commence recently at 510 Madison Avenue, where we had almost 140,000 square feet of availability starting in 2025.

In our Boston portfolio, we have leases that we're negotiating on our rollover in '27 in our CBD portfolio, we are 98% leased in our CBD portfolio. So everything we are doing effectively is going forward lease expirations. And then in our Urban Edge portfolio, which is our Wealth and portfolio, we have another 200-plus thousand square feet of leases under negotiation and a pipeline of another, call it, 300,000 to 500,000 square feet behind that.

Jumping to Northern Virginia. The majority of our activity is in Northern Virginia/Reston. That's where we are seeing defense contracting and cybersecurity companies growing. Again, we are almost 95% leased there and the majority of the leasing we are doing there is on known expirations in '26 and '27. Interestingly, almost every one of the clients we are talking to is growing in that marketplace. And we're actually being asked by some of our existing clients to see if we can take back space early from their neighbors on floors so that they can grow.

And then finally, in San Francisco, the 2 largest components of our activity are south of mission. So at 680 Folsom and 50 Hawthorne, where on October 1, when we had our last call in 2025, we had no letters of intent or leases signed. And since that date, we have signed 3 leases for 120,000 square feet and a letter of intent that we expect to be executed in March for another 73,000 square feet.

So we'll have done almost 200,000 square feet of leasing in that building. And down in Mountain View, where we have an R&D park, we are leasing 2 of 3 vacant buildings for a total of about 115,000 square feet of space. So it's across the board. And we do have these other 2 sort of smaller markets, which are Seattle and West L.A. And while they are not recovering to the same degree as our other markets, there's actually incremental positive news there as well. So we are seeing more activity in those markets than we had in 2025.

So net-net, across our entire portfolio on the margin, things are better in 2026 than they are in 2025. From a rental rate perspective, we are seeing double-digit rental rate growth in our portfolio in Midtown Manhattan. We're seeing double-digit rental rate growth in our CBD Boston portfolio, which is primarily in the back day and we are seeing pretty strong growth of somewhere between, call it, 5% and 10% in our Northern Virginia portfolio, where concessions in all of those marketplaces are either static or decreasing. We still have some challenges in terms of concessions and rents in San Francisco, particularly in the high-rise product, and we're still having challenges from a rental rate perspective in West L.A. and NCL.

And then just maybe how is demand kind of -- it sounds like it's strong geographically. Is there anything to call out among the different tenant types or industries within tech. Any impact from software, professional services and then just on kind of overall leasing and tour activity, are you seeing any changes in terms of time from tour to lease execution?

Yes. So our markets are pretty different in terms of the kind of activity we're seeing. And so to try and do this very quickly. So in Boston, in our urban portfolio, it's almost exclusively asset management and legal. In our urban portfolio, it's a little smattering of everything. It's life science, some without lab and then general corporate. So for example, we have a national retailer that's relocating to Boston, where we're negotiating at least right now.

In Manhattan, it's primarily financial services and professional services. Those are the kind of companies that are looking at 343 in our portfolio in Midtown at 360 Park Avenue South, we have a little bit more tech -- some of it's AI related and some of it's Fintech. Down in Northern Virginia, the majority of our requirements are around defense contracting or cybersecurity. And in the city, almost exclusively, it's the legal profession. Although we're negotiating at least again with a corporate type in one of our availabilities on Pennsylvania Avenue. And then in San Francisco, the dominant amount of the activity that we're seeing from a volume perspective is truly artificial intelligence oriented companies or interestingly, companies that have been displaced because of that growth.

So as an example, we did a lease with a construction company at 680 Folsom Street because one of the large language model companies had rights on their space and they were kicked out of their building. And we're doing another deal with a technology company whose space was already sub led by OpenAI. So it's that kind of activity. The financial services and legal services activity in -- on the West Coast in San Francisco still is what I would say, a step behind what it has been in Boston and in New York.

Is that the type of activity you need to see accelerate in San Francisco for there to be increased demand for kind of your type of product in San Francisco? Or do you expect to see kind of increased demand from AI and tech for that type of tower product.

So we have sort of 2, I'd say, spheres of assets in San Francisco. So we have Embarcadero Center, and then we have our South of mission. And I would include Salesforce Tower in that. So Salesforce Tower is very much a place where both financial services and tech can locate or co-locate.

And 535 Mission Street, again, is also a tech building. We actually have a lot of small tech companies in there and then 680 Folsom and 50 Hawthorne or pure tech company buildings. Embarcadero Center is really the only asset that we have that is primarily financially services and/or legal services. And I think the question will be, will there be a multiplier effect associated with some of the other growth that's going on. And I think on the margin, there will be, there's a lot of wealth that's being created in California, particularly in San Francisco. There's this transfer of wealth that's going on around America that everyone is reading about.

My guess is that we will start to see more and more of those types of organizations, locating in urban locations in San Francisco, and they will primarily be in towers like Embarcadero Center. I would say that the overall level of tour activity in Embarcadero Center in the first quarter of 2026 is significantly stronger than it was in the first quarter of 2025.

And then you mentioned that L.A. and Seattle are a bit kind of slower to recover relative to San Francisco. And those are 2 markets where you have a smaller footprint. Just as you think about kind of the geographic exposure of the portfolio, how do you think about those 2 markets kind of medium to longer term?

Yes. Look, our goal is not to have 2 assets in a market. So our goal over the longer term would be to find additional assets and build those into regions like we have in the other cities. But whether it be COVID or what's going on right now with West Coast leasing, it's just been harder to accomplish.

And then conversely, as you think about the where different markets are and kind of the recovery cycle, where would you kind of like to allocate capital to?

So I think there are 2 answers to that question. What are we selling and what are we adding? So on the selling, the focus has been on land, on apartments that we built and on nonstrategic office. And so he asset sales actually have been spread around almost virtually all of our regions, not the 2 small regions, but over the 4 large regions we've been selling or in the process of selling assets and all of those. Very -- again, it's not specific so much to the market. It's specific to what the asset is. If it's a premier workplace in a CBD location in those 4 cities, we want to keep it, if it's not, it's -- at some point, I think we're going to want to -- we will want to monetize that asset.

And then in terms of new, again, it's opportunistic based on the investments that we can find. We believe in those 4 major cities that I described. And if we can find attractive investment opportunities that are accretive to shareholders, we're going to be interested. So -- and right now, and we have made some very significant investments over the last 18 months.

We started 343 Madison in New York, which is a $2 billion office building project that's located right next to Grand Central. And then we have launched a new development in Washington, D.C., which is pre-leased to 2 law firms, and that's about a $400 million project and then we have bought a building, which is basically going to be a site at 2100 M Street, and we have leased that substantially to a law firm as well. That project doesn't start until 2028.

So we believe in our markets and the capital allocation is being driven by the specifics of the opportunity.

And then just you mentioned 343 Madison. So I think it's a good time to shift to that. You kind of are in the process of seeking perhaps a new kind of equity investor, you've pre-leased 29% of the building. Kind of where do you stand today, if there's any updates you can provide on how you're thinking about bringing in a new partner for that construction financing and then just anything you can comment on with respect to kind of pre-leasing activity and discussions with anchor tenants?

Yes. We're very encouraged by the progress that we're making at 343 Madison, as everyone knows, it follows us, we signed a lease with STAR to lease 30% of the property, which is right in the and they're going to take the middle block of the building. And we're making great progress with another client that would be about another 15% of the property. And we're focused very much on the lower bank at this point. And we have dialogues going with several clients there.

So again, the leasing is going very well, and we're hitting the rents that we forecast to achieve the 7.5% to 8% yields that we've described. Second is it's a construction project. So we're on schedule with our construction. We've purchased roughly half of the job in terms of materials for construction and so forth and we are achieving savings from our budget on the construction by so far, which is also a big plus.

So we're -- as we described last year, we continue to derisk the project. So now we're getting -- guessing the capitalization, and there's really 2 pieces of that. One is the equity partner and the other is, as we bring in a partner, we're going to need a construction loan. So on the equity partner, we're out speaking with a dozen or so investors. We have materials. We're making progress -- we have not signed a letter of intent with anyone yet, but we've had multiple investors expressed strong interest in the property. My guess is it will probably not go to a single investor, but we'll probably have multiple partners in the project is how it's going to shake out. And then Mike, Mike should get into the conversation here, talk about the success that we're having with the construction loan.

Sure. Thanks, Owen. So we -- in January, we launched a process to get a construction loan, and as Owen described, it's a $2 billion project roughly and at our Investor Day, we said that we were going to be looking to raise about $1 billion in construction financing. We went out to the market and indicated that we would raise between $1 billion and $1.2 billion of construction financing, which is basically 50% to 65% of cost and we went out to a group of large domestic financial institutions, which would be capable of leading a large syndicate construction financing.

And there's a handful of those types of lenders out there. We got term sheets from all of them. We ended up creating our own kind of term sheet that was a little bit more aggressive than that and we were able to secure interest from all of the institutions that we talk to. So we effectively are going to do a club deal with a bunch of major institutions that are all interested in the project, given the high-quality nature of the project, the sponsorship that we're bringing, the pre-leasing that we have.

So we're very excited. So at this point, we're finalizing term sheets to try to get to a full commitment in loan documents, and we're in great shape to be in a position to close the construction financing later this year, which would line up with the equity financing that we need to do.

Just overall on the financing both on the equity and debt. Just in the context of AI, have any of the investors kind of expressed hesitations or anything? Or how have the conversations kind of evolve from when you first announced the project to where you sit today?

AI is not an issue in the private equity market for our product at the current time. questions and the analysis that we get is who's going to lease the space? What's the time frame for that? What are the rents, things typical questions that you would expect from an investor investing in a development project. We have not heard anything about AI risk related to this development.

I think overall, the top markets for office have continued to improve. So the availability of financing, both in the bank market where those banks have seen an inordinate amount of loan runoff in 2025 compared to what they saw in 2023 and 2024, which is leading them to want to replace and grow those assets this year.

We're seeing that. And then the CMBS market, both on the conduit side as well as the single asset securitization side for the larger loans is also improving through 2025 to the current date with every month, conduit deals going off with office of 15% to 25% of the pools and the single asset securitizations occurring every month at more attractive pricing with AAA somewhere in the low hundreds today, which is better than it was 12 months ago.

And then how much -- is there like a pre-leasing threshold you like to get the building to -- or that your debt partners would like you to get to before kind of finalizing a construction loan or how much would you like to kind of get done on that?

I think from the loan perspective, we only need to have the lease that we have signed already. Obviously, they know about the interest that we had, and we expect that we will be signing additional leases this year. As Owen described, we continue to derisk the project not only from a leasing perspective, but from a construction cost perspective to make the offering that much more attractive to investors.

Maybe just switching gears a little bit to kind of policy and the geopolitical environment in some of your markets. In New York, how are you underwriting the risk of either property tax increases or income tax increases? And how is the policy landscape in Seattle kind of impacted your appetite to be in that market?

I think we -- let me just step back for a second. We've had a progressive mayor in Boston for the last 4 years. And we have had a very constructive working relationship with the mayor, although -- and there's also shared agendas with the progressive mayors on things like affordable housing and things like that.

Obviously, there's disagreements about how that should best be funded. But in Boston, some of the things that the mayor wanted to do like switch the tax base from residential to commercial couldn't get passed in the state house. And I think you have a similar, if not more, direct environment in New York State because the governor because of the financial history of New York and the fact that the state, to some degree, rescued in New York in the '70s, there's a tremendous approval rights for major policies by the state in New York City. So -- and the governor has been very much on the record that she doesn't support additional tax burden in New York City. So that's kind of the state that we're in right now. I would also point to the fact that Mayor Mamdani has done things that I think have been well received and feel very practical and commerce-friendly like reappointing the Chief of Police, Jessica Tisch, which was not certainly assured when he was reelected and law and order is a critical factor for Citi's health as well as obviously for real estate, and that's been a positive.

We do want to touch on AI and kind of the impact to BXP directly, put aside the kind of the office questions, but how BXP is actually using AI to be more efficient or create value and different opportunities internally.

So I would say that our -- we are never first movers on stuff. We are, I'd say, a little bit more circumspect on things. And so our perspective on AI is how can we use AI to reduce cost. Not "make people jobs better and happier, but actually how to reduce cost. And so at the moment, what we are doing is we are looking at ways and we've actually -- we have an experiment that's going to go live at the end of the first quarter, where we are using an AI bot to do a series of accounting processes that are currently being done by individuals, not a BXP but under a contract with a sensor in another part of the country or another part of the world. And so we're going to be eliminating somewhere between 6 and 8 FTEs and there's a cost associated with that, but the payback is basically a year plus. Those are the kind of things we're doing. As another example, we are looking at whether or not we any longer need to do a lease abstract.

If there is a large language model that can answer a lease question for us succinctly and clearly, and it sort of works, then we don't need to go out and do a lease abstract and lease abstracts are, again, outsourced, but somebody has to check them. But if we don't need that, then that's creating another reduction in cost. Third, we're looking at how we can bring more of our legal activities in-house by giving productivity enhancing measures to our legal departments so that we don't have to use outside counsel to do as many things.

So are there tools as an example, that will reduce the amount of time it takes to review the comments on a lease that are being negotiated with a counterparty. And if we can have one of our outside counsel, do things much more quickly, therefore, they won't need to use outside counsel to do as many things. Those are the kinds of things that we are doing internally. We are not doing it to do our analysis on tenant credits yet. We're not using it to do our accounting internally yet. We're not doing -- using it to do a financial analysis of an investment. Those are, I'd say, longer-term kinds of things, and we'll see if, in fact, the language models get good enough to do those things. And what we're seeing is the cost of these things are coming down pretty dramatically.

So there's not a lot of advantage at quickly deploying one of these tools because 6 to 9 months later, you can do it for a significantly reduced cost.

Maybe just quickly touching on our rapid fire. Will there be more -- will the office sector have more or fewer or the same number of public companies in a year from now?

I always say fewer, and I'm right half the time.

And then what will net effective rent growth be for the office sector overall in 2027?

6%. Thank you.

Good day, and thank you for standing by. Welcome to the Q4 2025 BXP Earnings Conference Call. [Operator Instructions]

Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker, Helen Han, Vice President, Investor Relations. Please go ahead.

Good morning, and welcome to BXP's Fourth Quarter and Full Year 2025 Earnings Conference Call. The press release and supplemental package were distributed last night and furnished on Form 8-K. 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 12 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 a change.

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&A portion of our call, Ray Ritchey, 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&A portion of the call to please limit yourself to 1 and only 1 question. If you have an additional query or follow-up, please feel free to rejoin the queue.

I would now like to turn the call over to Owen Thomas for his formal remarks.

Thank you, Helen, and good morning to all of you. BXP had a very strong year of performance in 2025 in all areas critical to our business, namely leasing, asset sales, development starts and deliveries, financing and client service, notwithstanding our below reforecast FFO per share outcome for the fourth quarter. .

We remain on track, if not ahead, in executing the detailed business plan we outlined for shareholders at our investor conference last September. This morning, I'll review our progress toward achieving the critical components of this plan, which are leasing and growing occupancy, asset sales and deleveraging and external growth primarily through new development, capital raising for 343 Madison Avenue and increasing focus on urban premier workplace concentration.

Though Doug will provide details on BXP's leasing activity, in summary, we had a strong fourth quarter and full year of leasing and our forecast occupancy gains have commenced. We completed over 1.8 million square feet of leasing for the fourth quarter and over 5.5 million square feet for the full year 2025, well above our goals for the year.

As we've explained on prior calls, leasing activity is tied to both our clients' growth and use of their space. We have every reason to be confident that the positive environment we are experiencing for leasing will continue into 2026 as earnings for companies in both the S&P 500 and Russell 2000 indices, a proxy for our client base are expected to grow at double-digit rates, an acceleration above 2025 growth levels.

Return to office mandates from corporate users continue to grow and take effect. Placer.ai's office utilization data indicates December 2025 was the busiest in office December since the pandemic and showed a 10% increase in office visits nationwide from December 2024. Concerns and speculation about the impact of AI on job growth and by extension leasing activity are not supported by the actions of our clients, many of which are growing their footprint, upgrading their space, and/or executing long-term leases.

In fact, we're experiencing accelerating demand from AI companies, particularly in the Bay Area and New York City. The near-term negative impacts of AI on jobs are more likely in support functions, which are generally not occupying premier workplaces. Providing further support for our leasing activity is the consistent strength and outperformance of the premier workplace segment of the office market where BXP is a market leader.

Premier workplaces represent roughly the top 14% of space and 7% of buildings in the 5 CBD markets where BXP competes. Direct vacancy for premier workplaces in these 5 markets is 11.6%, 560 basis points lower than the broader market, while asking rents for Premier Workplaces continue to command a premium of more than 50% over the broader market.

Over the last 3 years, net absorption for Premier Workplaces has been a positive 11.4 million square feet versus a negative 8 million square feet for the balance of the market, which is nearly a 20 million square foot difference. Given these positive supply and demand market trends and our strong leasing in 2025, we believe our target of 4% occupancy gain over the next 2 years remains achievable and more likely than when we made the forecast last September.

Our second goal is to raise capital and optimize our portfolio through asset sales. During our Investor Day, we communicated an objective to sell 27 land, residential and nonstrategic office assets for approximately $1.9 billion in net aggregate sale proceeds by 2028. We are off to a strong start. So far, we've closed the sale of 12 assets for total net proceeds of over $1 billion, $850 million in 2025 and $180 million this month.

In addition, we have under contract or agreed to terms the sale of 8 assets with estimated total net proceeds of approximately $230 million in 2026. In total, we have 21 transactions closed or well underway with estimated net proceeds of roughly $1.25 billion.

As of now, dispositions estimated for 2026 aggregate over $400 million, and we will be exploring additional sales. For the $1 billion in dispositions that have been closed, there are 7 land sales for $220 million, 2 apartment sales for $400 million and 3 office lab sales for $400 million. We have been able to achieve attractively valued land sales by creatively positioning our office land for other uses.

To date, we have sold or are in the process of selling land to a corporate user, a municipal user, a light manufacturing developer, a utility and most importantly, developers for residential use, both apartments and for-sale townhomes. Across Lexington, Waltham and Westin Massachusetts, Montgomery County, Maryland, Fairfax County, Virginia, Santa Monica, California and West Windsor Township, New Jersey, we have received or are pursuing entitlements for over 3,500 residential units which is creating significant value for shareholders and will be the backbone of both our apartment development and land sales activity going forward.

We sold 2 high-quality apartment buildings, which we built in Reston Town Center in Cambridge, Massachusetts for approximately 4.6% cap rates both were profitable developments for BXP. Lastly, on office sales, we elected not to participate in a debt restructuring at Market Square North and sold our interest to our partner for our share of the existing debt balance. We sold 140 Kendrick Street, our only asset located south of the I-90 interchange on Route 128 in suburban Boston at a relatively high cap rate of 9.5%. However, we maximized its income potential, having leased the building to 96%, and the local market is not strategic to BXP given our lack of scale.

Lastly, we sold our 50% interest in Gateway Commons to a strategic buyer that has significant scale in South San Francisco for a 6.2% cap rate and the property is 63% leased. Though we think South San Francisco is an attractive life science market longer term, given high vacancy rates and low net absorption, it will take some time to capture the upside and we received a reasonable price from a logical buyer.

With this deal, we have exited the Life Science business on the West Coast, but remain committed to the sector through our substantial life science holdings in the Boston region. Supporting our disposition efforts, office transaction volume in the private market continues to improve as more equity investors become constructive on the sector, and financing is available at scale, particularly in the CMBS market, with tightening credit spreads.

In the fourth quarter, Significant office sales were $17.3 billion, which is up 43% from the third quarter of 2025 and up 21% from the fourth quarter of the prior year. The transaction most relevant to BXP's portfolio that occurred in the fourth quarter was the sale of a 47.5% interest in 101 California Street in San Francisco, for a 5.25% cap rate and $775 a square foot. The building is a market leader in San Francisco, comprising 1.25 million square feet and is 88% leased with attractive property level financing through 2029.

The third goal is to grow FFO through new development selectively with office given market conditions and more actively for multifamily with an equity partner. For office, we continue to allocate more capital to developments than acquisitions because we're finding very high-quality development opportunities with pre-leasing that we believe will generate over 8% cash yield upon delivery, which is roughly 150 to 250 basis points higher than cap rates for debatably equivalent quality asset acquisitions.

Additional advantage as new buildings generally have longer weighted average lease term and limited near- and medium-term CapEx requirements. The trade-off is timing as developments obviously takes several years to deliver. This past quarter, we created a second preleased premier workplace development in the Washington, D.C. CBD market. Following our success at 725 12th Street, we were approached by Sidley Austin to find them a new Washington, D.C. headquarters. We identified 2100 M Street as an attractive site with frontage on New Hampshire Avenue and 21st Streets. We simultaneously negotiated a purchase of this site for $55 million or $170 a square foot and executed a 15-year lease for 75% of the to-be built not yet designed 320,000 square foot premier workplace.

The total development budget is estimated to be approximately $380 million, and the forecast unleveraged cash yield upon delivery is in excess of 8%. Though we have closed on the site, construction will not commence until 2028 and building delivery is expected in 2031. For multifamily, we have 3 projects with over 1,400 units under construction and are in various stages of entitlement and/or design for 11 projects totaling over 5,000 units, one of which will commence in 2026.

We expect to continue to capitalize new development starts with financial partners owning the majority of the equity. We continue to advance our development pipeline with 8 office, life science, residential and retail projects underway, comprising 3.5 million square feet and $3.7 billion of BXP investment. We expect these projects will deliver strong external growth both in the near term with the delivery of 290 Binney Street midway through the year and over the longer term.

Our final goal is to introduce a financial partner into 343 Madison Avenue, our leading premier workplace development in New York City, given its location with direct access to Grand Central Terminal and state-of-the-art design and amenities. We finalized a lease commitment with Starr for 29% of the space in the middle bank of the tower and are negotiating a letter of intent for another 16% of the building located just above Starr. We have committed to nearly 50% of the construction costs and our projections remain on track for a stabilized unleveraged cash return of 7.5% to 8% upon delivery in 2029.

We are in discussions with several potential equity partners for a 30% to 50% leverage interest in the property and also have had constructive discussions with several construction lenders for financing at attractive terms. Our leasing, construction and capital markets execution continues to derisk the 343 Madison investment, and we intend to complete this recapitalization in 2026.

We are making strong progress with our strategy for BXP to reallocate capital to premier workplace assets in CBD locations. We recently launched new developments at 343 Madison Avenue in New York City and 5 725 12th Street in Washington, D.C. We plan to launch construction of 2100 M Street in 2028 and the majority of the office and land assets we are selling are in suburban locations. We continue to evaluate additional premier workplace development and acquisition opportunities but remain disciplined about quality, pricing, and the result in leverage and earnings impacts.

In conclusion, our clients are, in general, growing, healthy and more intensively using their space, creating increasingly positive leasing market conditions concentrated in the premier workplace segment of the market. New construction for office has virtually halted leading to higher occupancy and rent growth in many submarkets where BXP operates. Debt and equity investors are becoming constructive on the office sector, resulting in more availability of capital at better pricing. BXP is very much on track executing our business plan as outlined last September, which we believe will deliver both FFO growth and deleveraging in the years ahead. And I'll turn it over to Doug.

Thanks, Owen. Good morning, everybody. So filling in some details on our leasing progress. When we made our presentations at our Investor Day, we had all of our regional executives on the dais and they described a very constructive and an improving environment for our portfolio across each of our markets.

Our remarks last quarter reinforced that outlook. Our leasing results this quarter continue to affirm the sentiment. As you read last night, the fourth quarter total leasing volumes were strong and exceeded our expectations, and our occupancy jumped about 70 basis points, with about 35% of that gain stemming from improvements in the portfolio leasing and [ the other parts ] from reductions to the portfolio size, aka, the asset sales. We are excited to announce our new development leasing and those investments are going to drive net operating income growth from [ 29% to 32% ], but we are in the here and the now.

It's our in-service vacant space leasing and covering near-term lease expirations that will drive our occupancy improvements and same-store revenue growth in '26 and '27. In the fourth quarter, we completed about 500,000 square feet of vacant space leasing, which included about 70,000 square feet of leases that were expiring in the fourth quarter, and we executed leases on 550,000 square feet of '26 and '27 expiring space.

In the full year '25, we executed leases totaling over 1.7 million square feet of vacant space and we start 2026, with 1.243 million square feet of executed leases on vacant space that have yet to commence. Calendar year '26 expirations have been reduced down to 1.225 million square feet. The bottom line is that if we were to do no additional leasing in '26, our occupancy would remain flat for the year. The good news is that we have lots of activity, and we are going to doing lots of leasing and we have begun to execute leases.

We expect to complete 4 million square feet of leasing in 2026, which is consistent with what we suggested during our Investor Day presentations. We have 1.1 million square feet in negotiations today, including more than 750,000 square feet of currently vacant space and 125,000 square feet associated with 2026 expirations. On top of that, our discussion pipeline currently sits at about 1.3 million square feet and includes more than 700,000 square feet of vacant space.

This is about 10% larger than the pipeline from the third quarter call. We've made significant progress on residential entitlement work, as Owen described, across a number of our assets, and some of this work is going to allow us to take out of service and demolish suburban office buildings and then redevelop those parcels into higher-value residential uses consistent with our portfolio optimization strategy.

In Waltham, our rezoning efforts have reached a point where we have removed 1000 Winter Street, a 275,000 square foot office building from the in-service portfolio this quarter. Next quarter, as leases expire, we will be removing 2800 28th Street, a 115,000 square foot office building and 2850 28th Street, a 146,000 square foot office building, both in the Santa Monica Business Park from the in-service portfolio. We've submitted our project application in mid-December for 385 units on the site of our 2800 28th Street office building, which is about 50% leased today. We will be relocating many of these existing tenants and hope to be under construction in early '27 on the first residential project in Santa Monica.

We've also reached an agreement with an institutional partner to commence development at World Gate in Herndon, Virginia, where we purchased 300,000 square feet of office space with plans to reentitle and demolish it. These buildings were never in service. The entitlements are nearing completion, and we anticipate starting during the second quarter. As Owen said, we also received our zoning approvals to build [ 100 town ] homes, which we are actively marketing and 200 apartments in Westin Nash on unentitled land and are moving forward with site plan approval.

As Owen discussed, we sold a number of assets at the end of '25 and in January, we completed 2 more transactions. On a combined basis, these sales reduced our portfolio by 2 million square feet and the assets were 78% leased. The in-service portfolio as we sit here today, is 46.6 million square feet. Owen mentioned our expected property sales for '26. Based on the transactions in documentation today and the removal of the 2 buildings at [ SMBP ], the portfolio is expected to be reduced by another 1 million square feet by the end of the first quarter.

We ended the year with in-service occupancy of 86.7%. I said we are negotiating leases on 750,000 square feet of vacant space. We expect 600,000 of that to be in occupancy in the fourth -- by the fourth quarter of '26. Again, we're also negotiating leases on 125,000 square feet of '26 expirations. This 725,000 square feet of leasing on a portfolio of 45.6 million square feet will add 160 basis points of occupancy by the end of '26.

We will sign additional leases on vacant space and/or renew '26 expirations and thereby achieve 200 basis points of occupancy improvement by the end of the year, ending the year at about 89%, just as we stated in September. The overall mark-to-market on leases signed this quarter was flat on a cash basis, though the regional variations were pretty meaningful. We had a 10% increase in Boston, New York and D.C. were essentially flat, and the West Coast was actually down 10%.

Boston was led by strong markups in the Back Bay portfolio. New York was very space sensitive. In other words, we had 1 lease at the [ General Owners ] building that was up 9%, along with another lease in the same building, same elevator bank that was a negative 13%. In our West Coast portfolio, in particular in Embarcadero Center, the structure of the leases made a big difference. For example, we had 2 leases in Embarcadero Center 4 in close proximity that had a $20 square foot difference due to 1 lease having a very small TI allowance and no free rent and the other having a full build in the year.

This quarter, we executed a number of large leases. Excluding the 2 development property assets, we signed 17 leases over 20,000 square feet, with the largest at about 115,000 square feet. 44% were involving renewals, extensions or expansions and 56% were with new clients. Existing client expansions encompassed about 162,000 square feet of the activity. We also had about 100,000 square feet of clients that renewed but contracted.

The second generation rents in the leasing [indiscernible] this quarter represent about 900,000 square feet and the gross rents were down about 3%. The DC number reflects the reality of 10 years of 2.25% to 3% annual escalation on top of operating expense increases. As I've said in prior calls, almost every DC area lease has a cash roll down of upon expiration. In San Francisco, the statistics include only 57,000 square feet and just 23,000 square feet of that was CBD office.

The change in the office portfolio rent was a decline of about 9%. Before I pass the call to Mike, I want to make a few comments on our individual markets. In the BXP portfolio, Midtown New York, the Back Bay of Boston and Western Virginia continue to have the tightest supply and therefore, the most landlord favorable market conditions. And this quarter, the most significant improvements we've seen were at -- in the Park Avenue South submarket in Midtown and the [ South of Mission ] market in San Francisco. In the Boston CBD, where we are 97.5% occupied we completed another early renewal and extension in the Back Bay portfolio.

We executed a 115,000 square foot lease, which included an 18,000 square foot of expansion that involved BXP freeing up space from other clients in the building. When you're 97.5% occupied, it's hard to lease vacant space. We completed a second large transaction in the Back Bay that was a 57,000 square foot renewal of a 95,000 square foot block. The client had sublet the remaining space in '24, and we're negotiating [indiscernible] with a current subtenant to go direct for 10 years when the prime lease expires in 2027. Again, an indication of the tightness in the market.

In our Urban Edge portfolio, we signed another life science client at 180 CityPoint, actually done yesterday, which brings that building to 92% leased. Our remaining first-generation life science availability from the Urban Edge is now limited to 27,000 square feet at 180 and 113,000 square feet at 103, totaling 140,000 square feet.

In our view, the macro issues around life science bottomed at the beginning of '25. Nonetheless, demand for wet lab space has not recovered. There are a few users actively touring but the requirements from early-stage clients continue to be limited. Construction at 290 Binney Street in Cambridge is nearing an end. Rent is going to commence in April and we expect to deliver the building into occupancy in June.

In New York, the most significant change in our activity has been in the Midtown South portfolio. On January 1, '25, we had signed leases of just over 100,000 square feet at our 450,000 square foot 360 Park Avenue South development. We executed leases on 4 floors in the fourth quarter, which brought the total leasing in the building to 262,000 square feet or 59%. We are negotiating leases on an additional 6 floors that should bring the building to 90% leased during the first quarter.

We will have 2 floors available in the building. And across Madison Square Park, we leased an additional 32,000 square feet at 200 Fifth 5 in early January, leaving us with a total of 33,000 square feet of availability where we had 350,000 square feet vacated in 2025. Starr is currently a tenant in 240,000 square feet at 399 Park. We expect their relocation to 343 Madison will occur in the third quarter of 2029. We have already received inquiries about their space.

At each of our properties, at the 53rd Street campus, the average in-place fully escalated rent is less than $110 a square foot, which is significantly below the current market. As a case in point, we signed a lease of 599 Lexington Avenue in the fourth quarter of 2024. We are documenting a lease on an adjacent floor in the building today with a starting rent that is 25% higher.

In San Francisco, the most significant change in the portfolio is at 680 Folsom and 50 Hawthorne. You will recall that in late October, about 90 days ago, I described the strong interest we were seeing at the building, where we had 208,000 square feet of vacancy and 63,000 square feet of expirations in June 2026, but no leases in negotiation.

Today, we have executed 2 leases totaling 69,000 square feet and are negotiating leases for an additional 132,000 square feet. All of these leases agreed to terms during the last 60 days of 2025. While the AI demand has not translated into commensurate growth in ancillary professional service tenants in high-rise assets in the markets, overall, non-AI client activity is also improving.

This quarter, we completed almost 200,000 square feet of leases at Embarcadero Center and 535 Mission, which is almost double what we did in the third quarter. Many of our asset sales were on the Peninsula of San Francisco. Our remaining in-service assets are in Mountain View. Client tours continue to accelerate in this market as well, and we have signed an LOI for a 52,000 square foot building at Mountain View Research. Finally, D.C. Activity in D.C. continues to be concentrated in Reston Town Center. This quarter, we were able to manufacture 43,000 square feet of expansion space for a growing defense contractor by doing an early termination with a client that was acquired not using their space and had a 2032 expiration. We also completed 195,000 square feet of additional transactions with 15 clients.

Any leasing pause associated with the government shutdown from the fall is fully recovered. That wraps up my comments, and we'll turn it over to Mike to talk about guidance for 2026.

Great. Thanks, Doug. Good morning, everybody. So this morning, I plan to cover the details of our fourth quarter and our full year 2025 performance. I'm going to spend most of my time, though on our 2026 initial earnings guidance that we included in our press release, with additional details in the supplemental financial package. For 2025, we reported total consolidated revenues of $3.5 billion and full year FFO of $1.2 billion or $6.85 per share. Our fourth quarter FFO was $1.76 per share, and it came in short of the midpoint of our guidance by $0.05 per share due primarily to higher-than-anticipated G&A expense and noncash reserves for accrued rental income.

Our G&A expense for the quarter was $3.5 million or $0.02 higher than our projection. $0.01 per share of this was from higher compensation expense and $0.01 was from higher legal expenses that were related to the elevated leasing activity that we saw in the quarter. We also recorded approximately $6 million or $0.03 per share of credit reserves for the accrued rent balances for 2 clients in the portfolio.

One is a 60,000 square foot firm that provides educational services to federal employees in Washington, D.C. and the other is a 10,000 square foot restaurant in New York City. Both clients remain in occupancy today, and we fully reserved their accrued rent balances due to our concerns of future rent collection. In aggregate, the rental obligation at our share is relatively small at $4 million annually. The balance of the portfolio performed in line with our expectations with revenues modestly above budget and higher expenses, largely driven by elevated utility costs in the Northeast due to colder-than-normal weather.

We also reported gains on sale in the quarter of $208 million on $890 million of asset sales. Gains on sale are not part of our FFO, but they are part of net income and EPS. We received net proceeds from the sales activity of $800 million that has increased our liquidity and will be used to reduce debt. We currently have $1.5 billion in cash and cash equivalents, a portion of which will be utilized in February to redeem our $1 billion bond that expires this quarter.

With that, I will turn to our 2026 guidance. We are introducing 2026 FFO guidance with a range of $6.88 to $7.04 per share, which is within consensus estimates. The midpoint of our guidance for FFO was $6.96 per share, and it represents an increase of $0.11 per share from 2025. At a high level, our 2026 guidance can be summarized as follows: internal growth in NOI from higher occupancy in our same-property portfolio, external growth in NOI generated by our development deliveries, lower interest expense from utilizing the proceeds of asset sales to reduce debt.

These are partially offset by a reduction in NOI from executing asset sales in 2025 and 2026 that is consistent with our strategic asset sales plan that we described at our Investor Day. Noncash amortization of our new stock-based outperformance plan, which is designed to align management incentives with long-term shareholder value creation and a reduction in NOI from taking buildings out of service for future residential development, positioning them for higher value creation.

To get into details, I will start with the expected growth in our same-property portfolio. Doug did a great job describing the ramp-up in occupancy from both signed leases that have not yet started and our active leasing pipeline. As we described, we expect occupancy to climb from 86.7% at year-end 2025 to approximately 89% by the end of 2026, which is a meaningful increase. We expect first quarter occupancy in the same property pool to be relatively flat, followed by improvement with average occupancy during the year of between 87.5% to 88.5%. We -- as a result, we expect our same-property NOI growth to build throughout the year.

Our assumptions for 2026 same-property NOI growth are between 1.75% and 2.25% from 2025. Based upon our same-property NOI of $1.88 billion, this equates to approximately $33 million or $0.19 per share of incremental NOI at the midpoint. On a cash basis, our results will be impacted by several terminations that we have proactively manufactured to accommodate either growing existing clients or new clients, like the one Doug described. In each of these cases, we will have new clients taking occupancy with free rent periods during 2026, so we are effectively trading cash rent for GAAP rent in the near term to accommodate growing clients, and we're getting valuable additional lease term.

One of these occurred in the fourth quarter, resulting in $8 million of cash termination income in 2025. Our 2026 guidance assumes termination income of $11 million to $15 million, A portion of this is from 3 additional terminations that we're negotiating. The incremental increase in termination income in 2026 is approximately $2 million or $0.01 per share at the midpoint of our guidance. Even though termination income is cash income, we do exclude it from our same property guidance, and the impact is muting our cash same-property growth in 2026.

Our assumption for 2026 cash same-property NOI growth is 0% to 0.5% from 2025. Our assumption for termination income at the midpoint would equate to an additional 70 basis points of same-property cash NOI growth. As Doug described, we're taking 3 buildings out of service for redevelopment into future residential sites and are in varying stages of entitlement. We are not doing any new leases in these buildings and expect to relocate existing clients to other buildings. The reduction in NOI from these buildings in 2026 is $13 million or $0.07 per share.

Turning to our development portfolio. In 2025, we delivered 3 new properties totaling 700,000 square feet and $518 million of total investment. These properties include 1050 Winter Street in Waltham and Reston Next Phase 2, which are 100% and 92% leased, respectively. We also delivered 360 Park Avenue South, where we're 59% leased today. And as Doug described, we have leases under negotiation to bring it to around 90%. We expect to have occupancy of all of this space by the year-end 2026, and we will have a full year of revenue in 2027.

The most meaningful development that will impact 2026 is our 573,000 square foot 290 Binney Street life science project in Cambridge that is 100% leased to AstraZeneca. We own 55% of this project, and it will deliver at the end of June with a total investment of our share of approximately $500 million. In aggregate, we project that the contribution from our developments will add an incremental 2026 NOI of $44 million to $52 million. And at the midpoint, the developments are projected to add $0.27 per share of incremental NOI to 2026.

As we described at our Investor Day, we have embarked on a disposition program that will fund our development activities and optimize our portfolio of premier workplaces. To date, we have closed $1.1 billion in 12 transactions and generated net proceeds of $1 billion. Our guidance assumes an additional $360 million of sales in 2026 that are either under contract or in negotiation, which we expect will generate net proceeds of approximately $230 million.

The financial impact of our sales activity is expected to result in a reduction of portfolio NOI from 2025 to 2026 of $70 million to $74 million. Investing the sales proceeds to reduce debt results in lower net interest expense in 2026. We expect the net impact of sales on our 2026 FFO will be dilution of $0.06 to $0.08 per share, which is in line with the guidance that we provided at our Investor Day in September.

Overall, we expect our net interest expense will be $38 million to $48 million lower in 2026 versus 2025. A portion of this is in our unconsolidated joint venture portfolio where we anticipate lower interest expense at our share of $11 million to $14 million that is primarily from the repayment of secured mortgages. Our guidance assumes our share of joint venture interest expense of $60 million to $63 million in 2026.

We expect a reduction in our 2026 consolidated interest expense net of interest income of $25 million to $37 million from 2025. And that results in a 2026 range for consolidated net interest expense of $581 million to $593 million. Our guidance includes refinancing our $1 billion bond issue that has a GAAP interest rate of 3.5% and expires on October 1 of this year. We currently expect to refinance it at maturity with a new 10-year unsecured bond.

Our current credit spreads for 10 years are in the 130 to 140 basis point area. So a new 10-year bond issuance today would price between 5.5% and 5.75%. We have not incorporated into our guidance the likely changing capital structure of our 343 Madison development. As Owen mentioned, we're having active discussions with prospective private equity capital partners for 30% to 50% of the project, which would reduce our funding needs. We've also started the process of construction financing for approximately 50% of the cost or about $1 billion, the response to date has been excellent, and the banks we are working with are active lending to high-quality sponsors and projects and are excited to participate.

The closing will likely occur late in the year, and I expect the financial impact on our 2026 earnings will be modest. Turning to our G&A. We project total G&A expense in 2026 of $176 million to $183 million. That is an increase from 2025 of $13 million to $20 million or $0.09 per share at the midpoint. $0.07 per share of the increase is noncash and is comprised of amortization of the imputed value of our recently announced outperformance compensation plan.

While there is an annual noncash expense related to the plan, it is completely aligned with growing shareholder value and only results in a payout through additional share issuance if our dividend adjusted stock price rose at between 35% and 80% from our current price over the next 4 years.

Lastly, we anticipate that our development and management services fee income will be $30 million to $34 million in 2026, which is a decrease of $3 million to $7 million from 2025. The decline year-over-year is from a reduction of development fee income from completing several joint venture developments, like 360 Park and 290 Binney, and lower property management fees from selling joint venture properties as part of our asset sales program.

So to sum all this up, our initial guidance range for 2026 FFO is $6.88 to $7.04 per share representing an increase of $0.11 per share from 2025. At the midpoint, the increase is comprised of higher same-property portfolio NOI of $0.19, incremental contribution from our development pipeline of $0.27, lower net interest expense of $0.24 and higher termination income of $0.01. The increases are partially offset by a reduction of NOI from asset sales of $0.41, the removal of properties from service of $0.07, increased G&A expense of $0.09 and lower fee income of $0.03.

2026 represent a return to FFO growth for BXP. We expect our quarterly FFO run rate to consistently improve through 2026, leading us to a strong base for 2027 and our portfolio is well positioned for additional occupancy growth in 2027 as we see improving trends in our leasing markets, combined with very low rollover exposure. That completes our remarks. Operator, can you open the lines up for questions?

[Operator Instructions] And I show our first question comes from the line of Steve Sakwa from Evercore ISI.

I guess maybe it's a combination for the 3 of you, but it sounds like you've had good success on the disposition front and maybe even accelerated the timing. I'm just curious, Owen, if you've kind of taken a harder or a sharper pencil to the portfolio and thought about maybe more dispositions to really tighten up the portfolio. And to the extent that you have I guess, how do you balance that in terms of Mike's comment about FFO growth? And I guess, are you willing to sell more to kind of sharpen the portfolio even if it has kind of negative FFO consequences in the short term?

Steve, our original goal that we outlined in September last year was $1.9 billion of sales for over the 3 years from September and I think at this point, I'd say we're sticking with that forecast. That all being said, we have a list of assets that we'd like to sell. And if we get a price that we find attractive, we will execute on it. We are paying attention to the dilutive impacts to earnings. One thing that we have repeated over and over, and I think it's important for everyone to understand One thing that's helping us with this is a lot of the sales that we're doing are land, and those are completely accretive because they're not generating any income.

I'm not sure they're being valued in the public market, and we're using the proceeds to reduce debt. So -- and we're going to continue to sell land assets. I described 3,500 residential units that we're currently getting entitled on land that [ former office ] development sites or buildings out of service. And when we go to sell that land, that will be accretive sales. But it will be balanced out with some additional office. I gave some an example, the 140 Kendrick was an example this quarter, which was a little bit of a higher cap rate, which is an offset. So net-net, the answer to your question is we're sticking with our forecast, we might sell more. We're paying attention to the dilutive impacts, but we're also paying attention to optimizing our portfolio and deleveraging and creating capital for our development program.

I would just add one thing. I mean, of the $1.9 billion that we discussed -- that Owen just discussed, we're off to a great start.

Yes.

And I would say the pace of the first $1.1 billion that we've got kind of closed is slightly ahead of where we anticipated. So when you look at the $0.06 to $0.08 of dilution I just described, it is within the range that we gave at the Investor Day. The range of the Investor Day was $0.04 to $0.09. It's a little bit at the higher end. And the reason for that is that a couple of the office sales occurred more quickly than we anticipated, which is great.

Yes. My only additional comment, Steve, is that -- so Owen described all this residential activity we had. I'm just sort of putting an order of magnitude on it, there's probably somewhere between $200 million and $300 million of land value there. And assuming a portion of it is just going to be sold as townhome sites that we will not have an equity interest, and we'll just [indiscernible]. I assume a majority of it is going to be residential.

We're -- I assume we're 20% of that. And then our 20% is going to be added to our development pipeline, right? So we're going to take cash off the table and make incremental investment in development as we do that on a going forward basis. So there's a little bit of dilution on a relative basis, but there's actually accretion because we're going to be making what we believe to be highly accretive investments relative to what the residential yields will be.

And I share our next question in the queue comes from the line of Michael Goldsmith from UBS.

Doug, I think you said you had 1.1 million square feet in negotiations and 1.3 million square feet in discussions. What conversion rate are you underwriting for this pool? How is that maybe compared to the last couple of years? And the historical conversion rate during prior improvement cycles.

Yes. So Michael, on the 1.1 million, it's actually now at 1.2 million as of late last night of deals that are in "lease" negotiation, I think our conversion rate is like 95%. We rarely see something drop off there. And then on our sort of pipeline of things, I'd say the conversion rate there is somewhere in the 0.5 million square feet, plus or minus, but it keeps growing, right? So the -- as I said to you before, we're going to lease 4 million square feet of space. And so we've identified as of today about 2.3 million square feet or 2.4 million square feet of space. we will probably have identified 5 million square feet of space to get to that 4 million square feet at the end of the year.

And I show our next question comes from the line of Anthony Prolong from JPMorgan.

You mentioned in your commentary that you didn't feel that AI was cannibalizing any space needs in the portfolio. So can you maybe talk in a little bit more detail about how you're tracking that, if you think that, perhaps, it's cannibalizing other types of space that's not in your portfolio? Or just any more color on that would be helpful, I think.

Tony, I'll kick it off, and Doug and Mike may also have comments on this. This is incredibly hard thing to forecast. I think all of you on this call realize that. The points that we can only make to you right now is what we're experiencing, which is accelerating leasing activity. And I just -- Doug described it, I described it, our clients are -- they're growing more than they're shrinking. They're taking better space, they're signing longer leases.

And in fact, I would say AI so far for BXP's footprint has been a net plus, not a negative because we've had very significant AI leasing not only at BXP but maybe more importantly, in the Bay Area, which is an important market. It's been a very important driver of net absorption there. So that's what we're seeing today. Our instinct on this is as we think about AI, and we use it in our own work is that it's much more likely in the near term to dislocate more repetitive tasks and support jobs. And those kinds of positions generally are not resident in premier workplaces, which is substantially our portfolio. But again, I'd just go back to -- this is hard to forecast. This is what we're seeing right now.

And I'm going to ask -- I guess I will ask Rod and Hillary sort of make some comments on their markets because I think that they're emblematic of what is going on. And Rod will, I assume, talk about just the growth in technology jobs in the form of AI companies and AI "sort" of vertical and/or horizontal business structures that are coming. And Hillary is going to describe what's going on with not only technology but with sort of the financial services and professional services sectors that are so much and so important to New York. So Rod, why don't you start?

Yes. Thanks, Doug. So I think if we're talking about the cannibalization. I don't know that I can speak to that specifically. But with respect to the demand that we're seeing in San Francisco and the Bay Area in general, from AI, it's just been tremendous. We've been talking about it on calls in the past, and that definitely now is showing up in the statistics. The overall tenant demand in San Francisco right now sits just around 8 million square feet and 36% of that is from AI or AI-related technology companies.

So that's pretty -- it's a lot. And every time we turn around, there's another deal that's being talked about or getting signed. So there's the big ones, the OpenAI, the Anthropics of the world, and then there's a lot of small wins, too, that keep [ getting informed ]. So I just -- it's definitely a wave of demand that we're taking advantage of. We spoke about 680 Folsom and the tenant demand down there. and it's happening. So that's all positive as far as we're concerned for our portfolio.

Hilary?

We are seeing real strength in the financial services sector. We continue to see companies having a difficult time securing space that they need for expansion or simply if they're trying to locate in Manhattan for the first time. I heard a statistic the other day that there is only 1 space that is direct with a landlord above 100,000 square feet in the premier buildings in Midtown.

And I think that's a pretty telling statistic. So we've continued to see demand from our existing clients wanting to expand. We have seen stronger interest from tech and media and Midtown South, which is reflected in the statistics that Doug mentioned regarding our lease-up at 360 Park Avenue South, which is approaching 90% when we complete the leasing that's underway now. Many of those tenants are either AI powered or have an AI component to their business. And then we still are leasing to more traditional financial services businesses, and those have come down -- some of them have come down from Midtown to Midtown South as they're seeking premier workplaces.

The other thing I would mention, and Rod referred to Anthropic. There was an article out last week that Anthropic is seeking between 250,000 and 450,000 square feet in New York City. So there's definitely an expansion of AI businesses in New York. And I think that, that is driving some of the demand pickup in Midtown South and the [ Flatiron ] District. But for Midtown proper in the Park Avenue submarket and the Plaza District in Premier Workplace, very heavily dominated by financial services industries who continue to expand.

So just to sort of come to a conclusion, I think that both things can be true. You can have job displaced from artificial intelligence products, but you can also have growth in certain submarkets in certain cities in the country. And as Owen said, we happen to be in those places where we're seeing the growth. So is there going to be a less overall job growth because of AI over the next decade, maybe, but we're not seeing it impacting our portfolio.

And I show our next question in the queue comes from the line of John Kim from BMO Capital Markets.

I wanted to go to Mike's comments in his prepared remarks about quarterly FFO consistently growing throughout the year as occupancy improves, which sets up for a strong '27. Should we interpret that as the fourth quarter '26 being the quarterly baseline run rate for next year?

for '27, John.

Yes.

Yes. I mean I think that's a good start. I think that we provide guidance for the first quarter of '26, which is always seasonally our lowest quarter because of the vesting for G&A. And we also expect that our kind of in-service occupancy from the same property portfolio will be flat in the first quarter. And then the occupancy will build after that.

And we'll see consistent growth. I would say there's more in the back half than the first half, and that will lead to 2027 growth as we get a full year of some of this occupancy growth in '26. And then given the low rollover we have, we anticipate that we're going to have higher occupancy in '27. Owen touched on, again, the 400 basis points. So we expect and we still anticipate seeing that. So I can't give you a 2027 guidance right now. So we feel really optimistic about where we stand.

Yes. So John, my comment would be -- I sort of gave you a lot of numbers in my remarks, which you can go back and read if you have the time. But big picture, right, what I said was our lease expirations in 2026 have been covered by the leases that we've already signed that have yet to commence, and we are going to lease more vacant space.

We are also going to lease more space that's rolling over in 2027. It would not be a surprise for me to be talking to you in January of 2027 and saying, "Oh, by the way, we've already covered the vast majority of our exposure for 2027. So any occupancy increases that we get are going to be driven -- driving to the bottom line." AKA, what we're seeing in '26 is going to happen in '27. And obviously, we're getting in '25 to '26, the improvements from our development portfolio, which Mike described. In '27, we're going to have full year from an occupancy perspective on 290 Binney Street, and we're going to have all of this occupancy that is going to be in the portfolio in 2026, driving 2027. So that's why we were pretty bullish about both the growth in our earnings from our same store and our growth in our development assets coming online as when we talk to you in September in Manhattan when we did our Investor Day. We just -- and we're just as bullish today as we were there.

And our next question comes from the line of Alexander Goldfarb from Piper Sandler.

sort of building on Steve and John's question, Owen, certainly appreciate the focus on minimizing dilution for earnings and Mike, your comment on FFO acceleration on a quarterly basis. As you guys think about leasing, is there a way to reimagine leasing? I'm not talking about development, but I'm talking when you have existing space to shorten the downtime, meaning I don't know if there's a better way to do the build-out, the demolition or how leases are structured, but one of the frustrating things that we see in [ REIT land ] is just the amount of time like 2 years or whatever between the tenant moving out and a new one moving in. And I didn't know if there's a way to shorten that. So from an earnings perspective, all the good stuff that you're doing takes effect sooner versus waiting the 2 years or so that we often have to wait for office.

So Alex, you're sort of asking, is there an accounting solution to the fact that you have turnover, and I think the answer is not really. I think, as we've said in the past, the condition of our space is what matters. And what I would say is that the one thing that I think we have done, which doesn't help in the short term, but certainly decreases the amount of downtime is that we've been doing more turnkey builds.

And when we're doing a turnkey build, we're kind of controlling the date when the space will get completed, and we're reducing the free rent component of the deal so that when the tenant comes in, instead of having free rent, they're having much less free rent. And so that's sort of truncating that. And wherever possible, we are trying to deliver space in its current condition. And if we're able to deliver space in its current condition, we can start recognizing revenue when the space is accepted by our next client if it's a move. But I would say we're -- our focus always is on trying to reduce downtime. And so we look at lots of different levers to do that, but I don't think we're going to be able to eliminate it in a material way.

Yes, I would just add, Alex, I mean we provide these tools to our leasing teams on things that they can do to structure leases so that we can recognize revenue more quickly regarding how the build-out is completed and who's doing the build-out and things like that. Ultimately, it's a negotiation with the client though because the client has an opinion as well on how they want that completed. So there's just a negotiation that has to occur. And obviously, ultimately, getting the transaction completed is the most important thing.

And I show our next question comes from the line of Johnson Zhu from Scotiabank.

This is Nick Yulico. So question on -- in terms of -- I know the focus has been a return to FFO growth. Clearly, there's leasing that's a big aspect of that. But can you just talk about a couple of the other ways to sort of help that process, whether it's on the G&A side? Are you able to find any better efficiencies through AI or other venues? And then also on the development side, how you're thinking about kind of managing the size of the pipeline and also bring in equity stakes earlier to projects kind of like what you're talking about with 343 Madison as a way to sort of manage dilution from development, which you guys can take a while. I guess I'm also wondering like 121 Broadway if you're considering any sort of partner there in relation to that?

Okay. So you asked like 6 questions there. And I'm going to speed answer a couple of them, and then I'll let Owen kind of hit the last one. So with regarding to sort of how we are going to accelerate our FFO growth the first, the second and the third thing that we can do is lease vacant space. That is, by far, the largest opportunity set.

And we're doing that, and you're going to see that quarter after quarter after quarter, we believe accelerating in terms of the value from that. Second, on the G&A side, we are spending as much time as any organization thinking about whether or not there are ways to reduce "our overhead" costs relative to using tools from artificial intelligence. I will tell you that my view right now is that we're in AI 1.0, which is, I would say, unquantifiable productivity enhancement tools as opposed to cost reduction tools for a business that's the size of BXP.

And so we are being thoughtful about how we deploy those things. So net-net, not much in the way of where you're going to see reductions in G&A. And obviously, our G&A as a percentage of our revenues is de minimis and a significant portion of our G&A, you don't see because it's embedded in our properties, and it's part of our operating expenses. So there's not much impact on FFO that would occur from that other than when leases roll over, and we have a gross lease. On the capital side relative to development, I'll let Owen answer that one.

Yes. So Nick, I would break the portfolio into 2 pieces. One is the future residential and then the office development. On future residential, we intend to bring a partner in for everything. So if you look at the last deals that we've done, Skymark [indiscernible], we have 80% partners on those, and we're working on another one right now at World Gate where we also have, we think, an 80% partner.

So I think you should expect that to continue to be the case for the residential. On the office, this is core to the company. And we think the developments that we're putting together are very profitable. I mean we think delivering these premier workplaces at over an 8 yield yields great profits for shareholders, so we're reluctant to share. But we are sharing because we're focused on our leverage. So we're starting with 343 Madison, as you heard from Mike and I, that's an important goal to recapitalize that project this year. And then in terms of bringing in partners on additional office developments, it's going to depend on what our leverage profile looks like and how many additional new developments we're able to identify and secure

And I show our next question comes from the line of Blaine Heck from Wells Fargo.

Can you talk about the cadence we should expect for FAD or AFFO over the next several quarters? And I guess how we should think about the impact of higher concessions associated with the lease-up of the office portfolio? Should we expect FAD to be down year-over-year given those increased costs driven by leasing successes?

So on FFO, I actually expect it will be up slightly. We had less rollover to deal with. We are going to increase our occupancy. So we will have additional leasing that will commence for that. But net-net, having less rollover exposure is going to help us. Our expectation on leasing costs are pretty much in line somewhere between $220 million and $240 million or $250 million a year depending on what the transaction costs are. And our CapEx is somewhere between $100 million and $125 million, I would say.

So if you look at the midpoint of our FFO, I think our AFFO will probably be somewhere in the [ 440 to 460 ] range, something like that, which is, I think, a little bit higher than it was this year. So we feel pretty good about where that is. And I think that on the cadence wise, it will follow the FFO -- although 1 thing to point out is that as we're gaining occupancy, a lot of these leases have free rent in the beginning of years. So I think that the AFFO will lag a little bit FFO because those deals will be in free rent. And if you looked at our free rent guidance for next year, it's $130 million to $150 million, which is higher than it was last year. So that's a little bit of an offset. But that will -- in 2027, that free rent will turn into cash rent. So the FFO should increase

Thank you. And I show our next question comes from the line of Jana Galan from Bank of America Securities.

Question on 343 Madison, great to hear about the additional 16% in negotiations. Can you talk a little bit more about the demand and touring activity? And then is New York City market rents for trophy increases, how does that relationship work for potentially higher rents for an asset 3 years out?

Sure. So I'm going to let Hilary give you the specifics on this. I'll just make a couple of comments. So the first is I'm pretty sure that we're the only building that's going to be delivering new construction before 2029, which is a unique position relative to timing of the demand that Hilary is seeing. And second, we're going to be more, I would say, thoughtful about whether we want to lease the top portion of this building because it's probably some of the more valuable real estate in our -- in the BXP portfolio.

And we think that getting closer to the ability to deliver that space to smaller tenants will enure to us. But Hilary, why don't you talk about in general, the demand that we're seeing for 343, particularly from medium-sized companies.

Sure. So I would say that we have very strong demand in financial services tenancies from tenants that are about 150,000 square feet. That is very typically an asset or wealth management business or in some instances, more of a foreign bank type tenancy. And they continue to come through at a pretty decent clip, looking at space in the podium of the building as the [ midrise or upper midrise ] is now more or less spoken for. And so I think that we feel very good about where rents are trending for the building and we will meet the market for rents, whatever that is.

And we've had no trouble whatsoever meeting our pro forma on the terms that we're negotiating with existing and prospective clients. So there was some indication earlier in the call, I think Doug said it that rents are going up across Midtown, the Plaza District and Park Avenue. And my observation is that rents have gone up around 15% over the last 12 months. Now 343 Madison is at the top of the market in terms of rents. There are only a couple of other buildings in Midtown that are asking and receiving similar rent, so that market is a little bit in its own stratosphere with regards to the tenants and the demand for it. But I think demand continues to accelerate and therefore, that will continue to put pressure on pricing from the tenant side and that will enure to our benefit as we go forward.

And I show our next question comes from the line of Seth Bergey from Citi.

I guess I just wanted to ask maybe a little bit of a bigger picture question here, but you mentioned rents in New York are up around 15%. In the opening comments, you kind of mentioned the regional variation in the [indiscernible] with Boston, 10%; New York, D.C. flat, [indiscernible] is down 10%. Just kind of understand that different markets are on a different recovery trajectory, but how do you kind of balance kind of some of the rent improvements with kind of the decline of rents from premarket levels? I'm just trying to get at a little bit of kind of what's the overall mark-to-market in the portfolio? And then as you kind of maybe start to lap some of the COVID rent roll-downs or pre-COVID rent roll downs, kind of when does that kind of turn more into a headwind?

So you asked a really hard question to answer with a simple number. The way we think about things is we look at all of the space that we have that is currently occupied. So we're ignoring the space that's vacant because the mark-to-market on vacant space is 100%, right?

I mean it's from a 0. And so the mark-to-market on space that's currently occupied across our portfolio, we sort of go through on a building-by-building basis every quarter, and we make a sort of a guesstimate as to where we think the market terms would be for that space. And I would say, as of today, across the entire portfolio, it's somewhere in the, call it, high 4s to low 5% range. And that's, I'd say, a meaningful jump from a year ago and a modest jump from where we were a quarter ago. And why is it only a modest jump. I think it's only a modest jump because where we've seen the biggest improvements have been in the Back Bay of Boston where our rents have gone up. And in our Manhattan portfolio, where rents have gone up and that the top of our buildings on the West Coast, in particular, where rents have gone up.

But we're seeing still sort of, I'd say, a stability in terms of not -- no real movement in rental rates. And again, I'm ignoring concessions for a minute and sort of the basis of buildings on the West Coast, and our Washington, D.C. portfolio where, as I said, the issue on a cash basis is the structure of leases in D.C., and I blame [ Dick Stroman ] for this is that he gets these relatively significant annual increases in the rents, and he leaves us with this problem where the cash rent upon the expiration of the lease is higher than what the market rent is, right?

Because you just -- it is really, really hard to -- over 10 or 15 years, every single year have a 3 plus or minus percent increase. So that's kind of the sort of the makeup of the portfolio. And then within each of the individual markets, I think that we are in a position where we will see a modest amount of gains in our revenues from roll-ups or -- and mitigating roll downs across the portfolio but a much more meaningful impact from the occupancy gain, which is why, honestly, we focus on the occupancy gain and not really on what the mark-to-market is. And I think that's going to be the case at least in '26 and '27.

And I show our next question comes from the line of Richard Anderson from Cantor Fitzgerald.

Kind of by design at BXP, there's always sort of a lot going on, good solid real estate decisions that nevertheless can be disruptive in the short term to growth. So you're getting more than 200 basis points of occupancy gains in 2026 per your guidance, and that results in, call it, flattish same-store NOI growth for this year. Doug, you kind of alluded to occupancy falling more to the bottom line in 2027 sort of matriculating to the bottom line just because of all the work that's being done today in this year.

Do you foresee sort of a less noisy 2027 so that the next 200 basis points of occupancy gains can be something more representative at the same-store NOI line something in the mid-single-digit type of number. I'm not asking for guidance, but I'm just wondering if you're trying to get ahead of a lot of this work so that you have a cleaner story to tell next year.

Yes. I mean I think the answer is yes. I mean, I don't want to suggest that we're not going to let our regional executives find really interesting things for us to do that might put us in a -- take us slightly off that. But based upon our business in front of us today, we see -- I think, Mike, what was your same-store was 1.5% to 2.5%. .

[ 1.25% to 2.25%].

[ 1.25% to 2.25% ] and my expectation is that that will be better next year than it is this year because of the nature of the vacancy that's being pulled up and the fact that so much of it is in the back end of the year.

Yes. I think that's an important point. And we went through this at our Investor Day with the graph we showed of the buildup in occupancy where the first and the second quarter of '26 is not going to have as meaningful of increases as the back half of '26 based upon when we anticipate. When we have the signed leases starting and when we anticipate the pipeline leases starting. And then that occupancy will build on itself into '27, right? So for '26, our average increase is only up about 100 basis points. By the end of the year, a little over 200 basis points, and then you get a full year of that in '27, plus the incremental occupancy we should get in '27. So it should continue to build on itself and improve.

Our next question comes from the line of Caitlin Burrows from Goldman Sachs.

Just maybe more specific question on 290 Binney. You mentioned that rents are going to commence in April and you expect to deliver the building into occupancy in June. So I was just wondering if you could clarify when does GAAP NOI start to be recognized? And when does capitalized interest come off? Does that happen at the same time? And is it early April, late June or something in between?

It does happen at the same time. And the way this transaction was structured is we had a hard rent start date, but the tenant improvement design and costs have taken a little bit longer than the original expectation based upon some design changes that were made by the client. And so those tenant improvements are not going to be complete and get [indiscernible] a until sometime probably late in June.

And our revenue recognition rules are that we can't start revenue recognition until it's done. So we have to wait until the end of June to start revenue and then we will stop capitalizing interest also on that. And just as a reminder, we're capitalizing interest at 100% of the cost because of a consolidated joint venture, even though we only own 55%.

That was something we talked about at our Investor Day, and it's just important because it impacts our net interest expense guidance. It's embedded in the guidance that I provided. So cash rent will start in April. It will be prepaid rent on the balance sheet. And then in June 30, all that cash rent will come in and be straight lined through the full lease term starting in June.

And I show our next question comes from the line of Floris Gerbrand Van Dijkum from Ladenburg Thalmann.

My question was sort of philosophical on your outlook for tenant improvements. And you mentioned in one of your earlier prepared comments that -- some of the spreads that you reported were negative because you didn't provide TIs. What is happening in your opinion on TI packages. And maybe talk a little bit about -- because obviously, it depends a little bit on markets as well on market specifics, which markets are seeing improvements.

I was wondering your peers called out the fact that I think New York office TI packages, they expect to come down in '26. So maybe if you could talk about that a little bit, that would be useful.

Sure. So I'll just sort of go around our horn in big picture. So I would tell you that our tenant improvement concession in our downtown portfolio is getting stronger, meaning it's becoming a lower number. Our tenant concession package in our Urban Edge portfolio is pretty stable. In our Greater Washington, D.C. portfolio, our concession package and our CBD assets is stable. Our concession package in our Northern Virginia assets is getting slightly lower.

In our Midtown portfolio, we are pulling back on the concessions that we're offering by a modest amount. And on the West Coast, I would say the concession packages are still not going down. They're not going up the way they went up in 2024 to '25 -- in '25, but they are -- they're still pretty elevated, and that's largely just due to the overall availability of space.

And I show our next question comes from the line of Brendan Lynch from Barclays.

Congrats on all the leasing momentum. We have, however, seen a number of announcements from Fortune 500 companies suggesting they will be shrinking headcount. How do -- how should we think about that impacting your portfolio? And maybe I could see it from 2 perspectives: one, they might need less space, but Conversely, it could also be driving more return to office for the employees that are retained. So any thoughts on those dynamics would be helpful.

That's a hard one to answer. Look, when we see announcements for job losses, it's obviously can't be a positive per se for us. But we -- as we've described, hopefully, very clearly on this call, we're just not seeing weakness in our leasing activity from our clients. We track our clients that we renew are they growing or shrinking? And over the last several years, our indicator is that they've been growing. So it's just not our experience. We try to read into these layoffs and what exactly is going on. It feels in some of these cases, like it's business units that are being closed and things like that. So we're just not seeing the impact of it in our leasing activity.

And I show our next question comes from the line of Vikram Malhotra from Mizuho.

I guess -- just maybe a bigger picture, longer-term question for either anyone on the team or all of you, I guess. Given the momentum you're talking about [indiscernible] going into '27 building further. I guess would you venture, whether it's like 3 years or 5 years, like what do you think BXP kind of structural peak occupancies for the portfolio that you keep refining versus, say, pre-COVID or pre-GFC. And then can you link that to rent spreads or rent growth in your buildings, particularly maybe expand upon San Francisco?

Nick, what I would say is that getting above 93% on a portfolio with an average lease length of 8 to 9 years is probably attainable, but will be hard to surpass. And with regard to San Francisco, that's where we have the most opportunity for improvement. San Francisco obviously had the most difficult time of it from pre-COVID through COVID and now the recovery is obviously happening.

And so I would say there, we have the most significant amount of upward opportunity there, from a rollover perspective, I think we're going to -- on the overall portfolio of spaces that are currently in occupancy, we're probably modestly rolling down over that portfolio, and that's largely because the rents and the basis of the building have not kept up with the increases in the rents at the top of the building.

We are seeing positive mark-to-market on the top 20% to 30% of every one of our towers in San Francisco. And when [ Salesforce Tower ] ultimately starts to roll over, we'll have significant positive mark-to-market. In the short term, the rollover that we have in Embarcadero Center, which is lower down in [indiscernible], there's probably a modest roll down that will occur there.

And I think it's clear that rental rates are directly linked to occupancy. And that's why we're feeling in the Back Bay of Boston and in Midtown, New York, where the occupancy has tightened and rents are accelerating. So clearly, as we get the portfolio better leased, there's going to be less space for us for lease. We can be more choosy and charge more for those spaces.

And then we also look for opportunities to work those spaces early like we are now with some of the terminations that we talked about where we're trying to take advantage of opportunities where there's not enough space in a building and trying to accommodate growth from our clients and grow our revenue stream. .

Our next question comes from the line of Dylan Bazinsky from Green Street.

Okay. I guess just maybe sort of paralleling the question that was asked 2 questions ago about just job growth in that sort of not being as strong with layoffs going on? And maybe sort of adding the fact about return to office that I think you mentioned at the beginning of the call, Owen, I think a lot of what's going on is just pent-up demand having a significant amount of leasing activity given [indiscernible] that's been happening over the last several years. Are you able to talk about sort of how long -- how much longer you guys would expect is sort of return to office movement to continue driving leasing activity. Is this sort of a 12-month phenomenon, 18 months? Just sort of curious where you guys think we're at as it relates to this return to office normalization driving the pent-up demand?

Well, I think there's room to go. I gave you the office visits. We try to come up with indices that help us understand what's going on. I've quoted the Placer.ai data. I think that we've got some additional improvement that could happen. The questions that were -- that you all are giving us are around these layoffs and jobs, the other side of it is, historically, our leasing activity has been tied to earnings growth because when companies are making money, at least they take risks, they go into new businesses, they hire people, and they lease space.

And if you look at the forecast for broad indices of U.S. corporations, earnings are projected to be higher in 2026. The job -- the earnings growth is projected to be higher in '26 than it was in '25. These layoffs that are going on, are they office-using jobs, are they jobs that are in premier workplaces. So front office jobs, there's lots of data that you need to have in addition to a press release to understand what the impact is of these layoffs are on office usage, particularly in the premier workplace segment.

Dylan, I'll give you my perspective on sort of what we're seeing in our portfolio and juxtapose that to what you read about from a job announcement. So one of the shipping companies as announced [ 40,000 ] job losses. My assumption is none of those jobs are being lost in any office space in Manhattan, Boston, Washington, D.C. or on the West Coast of California and San Francisco, Seattle or West L.A. .

And when I look at the portfolio makeup in terms of where the growth is coming from and where the demand is coming from, what I would tell you is that our financial service clients, and I'm using that and asset management sort of in the same venue, those companies are just growing. This is not about we need more space because our people weren't showing up. They're basically hiring more people for various strategies associated with whatever their business plan is and therefore, they need more space.

It has nothing to do with return to work. Any of the expansion from our legal firms, I don't believe it's about return to work. It's about, I think our firms are hiring more attorneys because they have desires to grow their businesses and they're finding -- they're poaching from other organizations that may be losing. And because of that, they need another office for those people. I don't think they're saying, and now you have to come back to work 5 days a week and you're only coming back to work 1 day a week and therefore, we're changing our makeup.

I just don't see a lot of that going on. And then when I think about our portfolio, in Northern Virginia, which is really more corporate America, and I'll let Jake sort of talk about where that demand is coming from I don't think any of it is about while we now need more space because we have more people coming to the office every day. And Jake, you can sort of comment on where all of our expansion has been and our demand has come from in Northern Virginia and how that's all working.

Yes, sure. Thanks, Doug. Yes, Dylan, what I would just say is that, in particular, in Reston Town Center between the defense and cybersecurity industry, it's really a who's who of corporate campuses. And most of the employees of these organizations are tech-related, usually former military background, folks that are in their 30s that have a home and want to have a house and kids and a [indiscernible] fence and so they're typically live in Reston Town Center, Western Fairfax County and Logan County. And with Reston Town Center, it's really the first stop for those groups as it relates to where that talent rests every night.

Thank you. And I show our next question comes from the line of Ronald Kamdem from Morgan Stanley.

A lot of my questions have been asked, but I just wanted a quick update, just looking at the data for -- excuse me, L.A. and Seattle and some of the occupancy moves there and the market has been going in the wrong direction. Obviously, smaller markets for you all. But just a quick update on the market and sort of the strategy there on the grounds for the few assets you have.

Sure. Rod, do you want to take that one?

Yes, sure. So just starting up in Seattle. I mean we have our 2 assets in the CBD. And we've actually had really good demand from some of our in-place tenants that have expressed some [indiscernible], so we're accommodating that. I don't think when you compare Seattle to the demand that we're seeing in San Francisco, it hasn't quite rared that yet, but it's starting to. And historically, Seattle has kind of lagged San Francisco, call it, a year to 18 months. And so I expect this year, we're going to see some continued demand -- increasing demand up there. We're optimistic that we're going to capture some of that.

Down in L.A., it's a little different story. Remember, we're just in West L.A., out in Santa Monica. We have 2 projects there. And I think that market is still kind of recovering still from many things, COVID being one of them, but then just the contraction in the entertainment business and the consolidation of that is affecting us in terms of demand down there. But that being said, we've actually started the year with some good activity. We've got a couple of proposals [ in Jason ]. So we think that things have picked up there maybe as well. But it's been slower than we're seeing in the Bay Area.

And Ron, I mean, I said it and Owen said it. I mean, we're taking 2 San Monica business park buildings out of service totaling about 260,000 square feet of space. We're going to build high-value very accretive, exciting residential multifamily projects there because we think that there's much more value in that asset class at that location than there is and hoping for a recovery in the office market in the short term. And so that's -- those are the decisions we're making. And we think that over time, we may see more and more of that going on in that particular asset. And that's a 30-acre asset, which could have an awful lot of residential use over the next decade or 2.

And I show our last question comes from the line of Michael Lewis from Truist Securities.

I feel almost guilty asking another question. My question is about leasing capital. So we saw this $128 a square foot of the TIs and LCs this quarter. It sounds like from your comments, that's probably unique to the leases in the quarter and you're not seeing more pressure on leasing capital. I was going to ask if you're able to share how much leasing capital you have committed but not spent yet because I would guess as you're leasing up and improving occupancy, maybe that pool of capital is building significantly more than you normally see. So I don't know if you have any comments around that. .

I think you're asking how much of -- how much leasing have we "provided" to our clients that they have yet to spend, right? That's the question you're asking .

Yes, that's right.

I do not have that number in front of me right now. And we do disclose that number in every Q and every K, however...

Yes. Is that an interesting trend to look at? Or do you think that's kind of off base on thinking about the pool of capital that might be building?

I don't know how much it's necessarily building. I mean it is a significant number because many of our clients do take a long time to actually [ act ] for the money, or spend the money. So there is an amount of dollars out there that is in the hundreds of millions of dollars that will be spent sometime over the next few years as those clients complete that work. I have not seen it trend significantly higher. I think if you look at our transaction costs over time, you're right that this quarter is a definite outlier. They've really ranged between $85 a square foot and a little over $100 a square foot as every quarter, which is a mix of renewal and new and it includes leasing commissions and tenant improvement costs. So when I look at our AFFO projections, right, I'm not assuming $128 a square foot. But I am assuming somewhere around $100 a square foot on a going-forward basis based upon kind of where we are in the market right now.

Yes. The other thing, Michael, but just about this stuff, it's in our supplemental is that those leasing costs are based upon leases that are having "a revenue" event this quarter. And so it's typically a backward-looking portfolio. So there are leases that may have been signed in late 2023, early 2024 that are just starting to move into that revenue recognition change. And so over time, we would expect to see that trending slowly coming down as the market improves as well.

That concludes our Q&A session. At this time, I'd like to turn the call over to Owen Thomas, Chairman and Chief Executive Officer, for closing remarks.

Thank you all for your questions. I'm not sure there's much more we could possibly say, have a good rest of the day. Thank you.

Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.

Good day, and thank you for standing by. Welcome to Q3 2025 BXP Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker, Helen Han, Vice President, Investor Relations. Please go ahead.

Good morning, and welcome to the BXP Third Quarter 2025 Earnings Conference Call. The press release and supplemental package were distributed last night and furnished on Form 8-K. 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 12 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 exceptions, it can give no assurance that 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&A portion of our call, Ray Ritchie, Senior Executive Vice President, and our regional management teams will be available to address any questions.

[Operator Instructions] I would now like to turn the call over to Owen Thomas for his formal remarks.

Thank you, Helen, and good morning to all of you. Our financial results for the third quarter demonstrate a continuation of BXP's positive momentum. FFO per share was $0.04 above our forecast and $0.02 above market consensus, and we raised the midpoint of our earnings guidance for the full year 2025 by $0.03. This past quarter, BXP also completed a very well attended and successful Investor Day, during which we provided a detailed execution plan on how we intend to increase FFO per share fund development costs and deleverage over the next 2.5 years.

This morning, I will provide a reminder of the action steps in our plan as well as an early update on our progress. Our first goal is to lease space and grow occupancy given the modest rollover exposure BXP faces over the next 9 quarters. In the third quarter, we completed over 1.5 million square feet of leasing, 39% greater than the third quarter of 2024, and 130% of our last 5-year average leasing for the third quarter. Year-to-date, we've leased 3.8 million square feet, which is 14% greater than the first 3 quarters of 2024.

As we have explained on prior calls, leasing activity is tied to both our clients' growth and the use of their space. As a proxy for BXP's client base, over 87% of the S&P 500 companies that have reported earnings this quarter as of last Friday are beating estimates. S&P 500 earnings have been growing for 9 straight quarters and for 2025 are projected to grow around 11% to 12%, up from single-digit estimates last quarter.

Return to office mandates continue to grow and take effect, though the West Coast lags the East Coast on this measure. Placer AI just released their office utilization data showing a material uptick in office utilization from a year ago. In September 2024, office utilization was 34.8% below 2019 levels, and last month's utilization was 26.3% lower indicating a 13% increase in office utilization over the last year. This data captures a large set of office assets across the U.S. and though premier workplace utilization in gateway cities is higher, the overall trend is relevant.

Our second goal is to raise capital and optimize our portfolio through asset sales. During our Investor Day, we communicated an objective to sell 27 land, residential and nonstrategic office assets for approximately $1.9 billion in net aggregate sale proceeds by year-end 2027. We are off to a strong start. So far, we've closed the sale of 4 land assets for total net proceeds of $57 million, have under contract 9 assets for total net proceeds of approximately $400 million and are in the market with 10 additional properties for estimated total net proceeds of $750 million to $800 million.

In total, we have 23 transactions closed or underway with estimated net proceeds of roughly $1.25 billion. Dispositions completed for 2025 could aggregate approximately $500 million to $700 million in net proceeds. Office transaction volume in the private market continues to improve as more equity investors get constructive on the sector, and financing becomes more available at scale, particularly in the CMBS market with tightening credit spreads. In the third quarter, significant office sales were $12.9 billion, up 6% from the second quarter of '25 and up 55% from the third quarter last year.

Relevant transaction activity that took place in the third quarter is as follows: In New York City, Park Avenue Tower, a nearly fully leased 620,000 foot office building located at 55th Street, is under agreement to sell for $730 million or approximately a 6% cap rate and nearly $1,200 a square foot. Another 5% interest in One Vanderbilt located adjacent to Grand Central Station in New York City sold for over $2,800 a square foot and presumably a very low cap rate. In Boston, 399 Burlton Street, a 245,000 square foot office asset that is 90% leased with relatively short weighted average lease term is under agreement to sell for $124 million or just over $500 a foot and an 8.3% cap rate; in Beverly Hills, Maple Plaza, a 290,000 square-foot office asset that is 75% leased sold for $205 million or $713 a foot and a 6.5% cap rate; and lastly, in Redmond, Washington, [indiscernible], a 250,000 square foot office building fully leased to Microsoft on a long-term basis sold for $225 million or a 6.5% cap rate and over $900 a square foot.

Our third goal is to increase our portfolio concentration of premier workplace assets in CBD locations in our core gateway markets. As a backdrop, the premier workplace segment, defined as roughly the top 14% of space and 7% of buildings in the 5 CBD markets where BXP competes continues to materially outperform the broader office market. Direct vacancy for Premier workplaces in these 5 markets is 11.7%, 5.7 percentage points or 22% lower than the broader market and asking rents for Premier workplaces climbed to a 55% premium over the broader market.

Over the last 3 years, net absorption for Premier workplaces has been a positive 10.3 million square feet versus a negative 9.2 million square feet for the balance of the market, nearly a 20 million square foot difference. For BXP, we continue to reallocate capital to Premier Workplace assets in CBD locations. We recently launched new developments at 343 Madison Avenue in New York City and 725 12th Street in Washington, D.C., and most of the office and land assets we are selling are in suburban locations. There are an increasing number of higher quality office assets in our core markets available for acquisition, some on an off-market basis. We evaluate everything, pursue deals selectively, but are being disciplined about quality, pricing and the resultant leverage and earnings dilution impact.

The fourth goal is to grow FFO through new development more selectively with office given market conditions and more actively for multifamily, which we'll do with a financial partner. For office, we are allocating capital more to developments and acquisitions because we are finding very high-quality development opportunities with pre-leasing that we believe will generate over 8% cash yield upon delivery, which are roughly 150 to 200 basis points higher than cap rates for debatably equivalent quality asset acquisitions.

An additional advantage as new buildings generally have longer weighted average lease term and limited near- and medium-term CapEx requirements. The trade-off is timing as developments obviously take several years to deliver. For multifamily, we are selling 4 properties totaling over 1,300 units, have 3 projects with over 1,400 units under construction and our various stages of entitlement and/or design for 11 projects totaling over 5,000 units, 2 of which could commence in 2026. We expect to capitalize new development starts with financial partners owning the majority of the equity.

We continue to advance our development pipeline. This quarter, we delivered 3 office projects: 1050 Winter Street, Reston Town Office Phase 2. The office component of both these assets are fully leased and 360 Park Avenue South, currently 38% leased and experiencing accelerating leasing activity. We have 8 office life science, residential and retail projects underway, comprising 3.5 million square feet and $3.7 billion of BXP investment. We expect these projects will deliver strong external growth, both in the near term with the delivery of 290 Binney Street midway through next year and over the longer term. Our Washington, D.C. team is also working on another Premier Workplace build-to-suit opportunity.

A final goal is to introduce a financial partner into our 343 Madison development project, which is under construction. As we have described, 343 Madison is a leading premier workplace new development project in New York City given its location with direct access to Grand Central Terminal and state-of-the-art amenities and design. We are finalizing a lease commitment with a financial services client for 30% of the space in the middle bank of the building. We are also in discussions with several other large users for the balance of the space in the project.

Our financial goal is to introduce an equity partner for a 30% to 50% interest in the property. While we are in very preliminary discussions with a small number of investors who have expressed interest, we believe the value of the asset will appreciate given our leasing progress and the accelerating market rent growth in the Midtown office market and do not expect to finalize an investment until sometime in 2026.

In conclusion, our clients, in general, are growing, healthy and more intensive [indiscernible] space, creating increasingly positive leasing market conditions concentrated in the premier workplace segment of the market. New construction for office has virtually halted leading to higher occupancy and rent growth in many submarkets where BXP operates. Debt and equity investors are becoming constructive on the office sector, resulting in more availability of capital at better pricing.

BXP is very much on track executing our business plan as outlined last month, which we believe will deliver both FFO growth and deleveraging in the years ahead. Let me turn it over to Doug.

Thanks, Owen. Good morning, everybody. So it's been 6.5 weeks since we made our presentation at our Investor Day, and I'm going to begin my comments this morning by affirming our expectations relative to our same-store leasing, occupancy growth and bottom line contribution to future earnings. As you probably noticed, our beat this quarter came directly from better operating portfolio performance.

We have entered a 30-month period of very light lease expirations 60% of historical annual average over the last 10 years, and we've now reduced our '26 and '27 expirations by another 8% from [ 630 25. ] So the total expiring square footage on our 49 million square foot portfolio is 3.8 million square feet.

During 29 of the last 39 quarters, -- we executed leases in excess of 1 million square feet with this quarter's 1.5 million square foot performance added. We will surpass our goal of 4 million square feet for 2025. [indiscernible] says to say confidently. As I described in my remarks in September, leasing vacant space improves occupancy and delivers the highest contribution to revenue growth.

During the first half of '25, we leased 810,000 square feet of vacant space. And this quarter, we leased an additional 490,000 square feet of vacancies, making this the seventh consecutive quarter of between 400,000 and 500,000 square feet of vacancy leasing. Post [ 10 25, ] so at the beginning of the fourth quarter, we had 1.8 million square feet of leases in negotiation, which is where we began the beginning of the second quarter. So we have continued to replenish the pipeline.

The space under lease negotiations includes 650,000 square feet of currently vacant space, 71,000 square feet of known 25 explorations and 450,000 square feet of [ 26 27 ] expirations. In addition, we have active dialogue on other space that's not yet in lease negotiation totaling about 1.1 million square feet, and that includes more than 125,000 square feet on buildings that we delivered into the portfolio this quarter, aka 360 Park Avenue South.

Last quarter, on our call, we called out the delivery of the 3 development properties in our portfolio that would occur this quarter and result in an estimated 70 basis point reduction in our occupancy from the portfolio additions. I'm happy to report that the in-service occupancy as of [ 9 30 25 ] decreased by only 40 basis points to 86%. BXP's totaled sequential same-store portfolio occupancy, excluding the portfolio additions. So looking back to where we were at the end of the second quarter, actually increased by 20 basis points in end of the year [indiscernible] the quarter at 86.6%.

The largest lease starts and expirations this quarter all came in the urban edge portfolio of Boston. We had 160,000 square feet exploration at 1000 Winter Street, which, by the way, is a building that we are considering for a potential conversion to residential. We executed and delivered 104,000 square feet at 153 Second Avenue in the full building lease at [ 1050 ] Winter Street for 162,000 square feet commenced this quarter.

We placed 350 Park Avenue South Reston Town Phase 2 into service and we added 130,000 square feet of occupied space and 405,000 square feet of vacant space, of which 120,000 is leased but not yet occupied. BXP's total portfolio percentage leased for the quarter was 88.8%, a decline of 30 basis points. Excluding the impact of placing the 3 development properties in service. So again, going back to 630, the lease percentage increased by 10 basis points to 89.2%. The difference between the leased and occupied square footage has grown again this quarter and now sits at 1.4 million square feet. 300,000 square feet is expected to become occupied in '25, about 1 million square feet that's going to commence in the back half of '26 and another 100,000 square feet in '27.

Owen described the magnitude of the operating assets being actively marketed for sale. As we dispose of assets, we will disclose the incremental impact of occupancy from the changes in the portfolio. Looking forward, we project that the current in-service portfolio, which includes the recent development deliveries to end '25 at approximately 86.2% occupied and '26 at 88.3% occupied, a 210 basis point increase with most of the improvement in the second half of '26.

We are reaffirming our guidance from the Investor Day, adjusted for the 70 basis points of impact from the Q3 new deliveries, which we also disclosed at that time. The overall mark-to-market on leases signed this quarter on a cash basis was up almost 7% with a 12% increase in Boston a 7% increase in New York, flat results in D.C. and a 4% decrease on the West Coast. This quarter, we executed a number of larger leases, including 5 that were each over 75,000 square feet. 60% of the square footage involved renewables or extensions and 40% was either new clients or expansions from existing clients.

Existing client expansions encompass 84,000 square feet of the activity. The second-generation rents in the leasing statistics this quarter represent about 523,000 square feet and are down on a gross basis about 4%. The LA statistic had a whopping 1,300 square foot lease and San Francisco included 117,000 square feet with 74,000 square feet to about 2/3 coming from our Mountain View properties.

I want to pivot my remarks now to the market conditions and the activity we're capturing. Our leasing this quarter came from 79 transactions, 398,000 square feet in Boston; 795,000 square feet in New York; 191,000 square feet on the West Coast; and 140,000 square feet in D.C. In the BXP portfolio, Midtown New York City, the Back Bay of Boston and Reston Virginia continue to have the tightest supply and, therefore, the most landlord favorable conditions. What this means is that net effective rents are increasing due to either higher rental rates or flat or decrease in concessions or both.

The bigger [indiscernible] in Boston this quarter took place in our Urban Edge portfolio, where we completed over 200,000 square feet of leasing to life science clients. This included 104,000 square foot lease with a drug development and medical device research services company and 5 -- counted 5 additional pure office leases with life science organizations. Our remaining first-generation life science availability in the Urban Edge is now limited to 70,000 square feet at 180 CityPoint and 112,000 square feet at 103 CityPoint. So that's a total of 180,000 square feet. That's our life science first-generation exposure.

Demand for wet lab space continues to be tepid. There are a [indiscernible] lab users actively touring but the requirements from very early stage clients continues to be limited. In the Boston CBD, we continue to complete renewals in the Back Bay portfolio. This quarter, we completed about 140,000 square feet. And as you can see from our property occupancy tables, availability is very limited, net effective rents are improving.

In New York, our executed leasing activity was focused on the Midtown East portfolio. The underpinning of this demand is the growth of clients in a variety of asset management strategies. I described a series of client-initiated early extensions under negotiation last quarter, while 500,000 square feet were executed this quarter, with the largest being at 399 Park Avenue. There have been many unconfirmed press reports about our lead 10 for 343 Madison. If that client were to come from one of our Midtown assets, there would be strong demand for the space at either 601 Lexington Avenue, 599 Lexington or 399 Park Avenue. The average in-place fully escalated rent is under $110 a square foot, which is significantly below market.

This quarter, while our executed leases were primarily in Midtown, the new client inquiry story was focused on 360 Park Avenue South, where we have our largest availability in Manhattan. Activity at the building has grown substantially, and we executed 2 leases during the quarter. There are a few AI companies in the mix, but much of the activity is being driven by financial service and asset management organizations, the heart of New York City.

We have 56,000 square feet of leases in negotiation and letters of intent discussions on more than 125,000 square feet. All of these leases would commence in '26. With the tightening of availability in the Park Avenue and now the 6th Avenue submarket, we're also seeing stronger activity at Times Square Tower where we are in lease negotiations with over 100,000 square feet of new client demand. And down in Princeton, we completed over 160,000 square feet of leasing with 8 clients totaling -- including [ 834,000 ] square feet renewal with a life science client, again with no lab infrastructure.

In San Francisco, the demand from organizations that describe themselves as AI business continues to accelerate. The bulk of this demand is concentrated south of Mission Street. The majority of these requirements are looking for inexpensive, fully built and furnished space with short-term commitments. To date, these criteria have been available in either sublease situations or with landlords that have direct space that was vacated by tech companies over the past 3 years. These opportunities in medium-sized [ block ], 25,000 to 100,000 square feet are quickly shrinking. The result has been a dramatic pickup of activity at our 680 Folsom, 50 Hawthorne assets, which are south of mission between Foundry Square and Mission Bay.

We have had multiple tours every week and are exchanging proposals with tenants ranging from a single floor to over 200,000 square feet. During the first 6 months of the year, we had 11 unique tours at the property. In the month of July, we had 7, in August 9, in September 10 and so far in October 14. That AI demand has not translated into a commensurate pickup in ancillary professional services growth in the high-rise assets in San Francisco.

While San Francisco is unequivocally the financial capital of the West. The organizations that are growing assets under management in San Francisco are not expanding at the same levels we are experiencing in our New York and Boston portfolios. There's clearly been a pickup in activity, and the premier buildings are gaining market share, but it's just nothing like the client growth from the AI companies south of Mission where CBR reports that there are 36 AI active tenants with aggregate growth of 1.5 million square feet in the market right now.

In our towers, we completed about 100,000 square feet of transactions this quarter. The rest of the West Coast activity came from Mountain View, where we signed 30,000 square feet in Seattle where we completed the 54,000 square feet of vacant space leasing. Activity in D.C. continues to be concentrated in Reston Town Center. This quarter, we executed a 51,000 square foot lease on space that was vacated by Meta in June of this year as well as a handful of smaller office and retail leases. The government shutdown has had minimal impact on government contract or leasing activities. The private sector clients that have space needs are all still active in the market.

Before I conclude my remarks, I want to update our construction activities, particularly because we are in the process of establishing our GMP for 343 Madison. Subcontractors are actively bidding the job after taking into consideration the tariffs associated with nondomestic suppliers and the most recent country agreements. We expect to purchase our steel from U.S. manufacturers, and we are within our expected budgets with all include anticipated savings relative to our last GC estimate. Given the overall slowdown in construction activity in our markets, there is enough subcontractor interest to provide savings in spite of all the tariff increases. Remember, construction is a composition of labor cost, material cost and profit.

And let me hand the call over to Mike.

Great. Thanks, Doug. Good morning. Today, I'm going to cover some of our activity in the capital markets as well as our third quarter earnings results, an update to our full year guidance and some updates on our expectations for 2026 since our Investor Day in early September.

The debt markets have been steadily improving throughout 2025, and this quarter, we opportunistically and successfully accessed both the secured and unsecured markets. In late September, we closed on $1 billion of 5-year unsecured exchangeable notes at a 2% coupon. If you include closing costs, the interest costs we will record for GAAP is 2.5%. This will refinance a $1 billion bond issue that expires in February of next year and carries a GAAP yield of 3.77%. The notes include a conversion premium at a stock price of $92.44 per share. So if our stock trades above the conversion premium during the term, our diluted share count will increase. We also acquired a capped call to increase the conversion premium to 40% or $105.64 per share, to reduce the dilution from the increase in our share price. The [indiscernible] has no impact on our P&L or our diluted share count during the term. It settled at maturity.

The market demand for our deal was exceptionally strong, and we were 5x oversubscribed. That allowed us to price the security in the low end of our expected pricing range and upsized the deal from the $600 million initially offered to $1 billion. We also closed a $465 million mortgage refinancing on our Hub on Causeway office and retail complex that we own in a joint venture where our share is 50%. This loan was executed as a single asset securitization in the CMBS market, and it priced at a 5.73% fixed rate for a 5.5-year term. This is approximately 50 basis points lower than the floating rate on the prior loan.

The pricing equated to about a 200 basis point credit spread for a premier quality secured mortgage with a 55% loan-to-value ratio. There have been about a dozen single asset securitizations completed on office buildings in the past 6 months, and that demonstrates the CMBS market is supportive of financing high-quality, large office assets on competitive terms and credit spreads have been consistently improving. We expect this will help lead to a healthier sales market, as Owen described.

Overall, we continue to have very strong access to all the capital markets to finance our business. This includes the debt markets as well as the asset sales environment where we expect to be increasingly active.

Now I would like to turn to our earnings for the quarter. Last night, we reported funds from operations for the third quarter of $1.74 per share, which is $0.04 per share above the midpoint of the FFO guidance range we provided in July. All of the outperformance came from better-than-projected same-property portfolio NOI due to a combination of the straight-line rent impact of completing early renewals at higher rents and lower net operating expenses in the portfolio.

Our occupancy came right in line with our expectations. As Doug described, occupancy in the same property pool increased by 20 basis points from last quarter. We grew occupancy sequentially in Boston, New York City, Reston and Princeton. The improvement showed up in our top line lease revenues that increased $4 million this quarter. In our leasing activity this quarter, we executed 4 early renewals totaling 500,000 square feet at 399 Park and 200 Clarendon Street with future starting rents nearly 15% higher than our in-place rents. We are locking in future rental rate increases and a portion is straight line into the current period and improving 2025 revenues.

Our portfolio revenues exceeded our guidance for the quarter by approximately $0.02 per share. On the expense side, we experienced lower-than-anticipated repair and maintenance expenses this quarter, and that contributed $0.02 per share to our outperformance. I anticipate that we will give some of this performance back in the fourth quarter as our teams complete R&M projects that were budgeted for Q3, but not completed in the quarter.

We also recorded $212 million of impairments this quarter related to assets that are part of our strategic sales program we announced on our Investor Day. The accounting guidance requires that we recognize impairments to fair value when we shorten our whole period and prior to an asset sale actually closing. On the flip side, gains on sale are not recorded until the sale closes. So if you look at our sales program as a whole, we anticipate that the aggregate gains less impairments will total nearly $300 million. We expect gains will be recorded in future quarters as we execute our sales strategy.

Looking at the rest of 2025, we've increased our guidance range by $0.03 per share at the midpoint, and we expect full year 2025 FFO of $6.89 to $6.92 per share. Our increased guidance includes a $0.07 increase in the low end of our range, reflecting outperformance from the third quarter, some of which was incorporated into our guidance range we provided last quarter.

Sequentially, we expect Q4 funds from operations to be higher than our Q3 actual FFO from higher portfolio NOI and lower net interest expense. With respect to changes in our guidance, the outperformance in our same-property portfolio is expected to add an incremental $4 million to our full year NOI assumption. That equates to about $0.02 per share of improvement. We've reduced our net interest expense projections for the full year 2025 by approximately $6 million or $0.03 per share. The improvement is from our new $1 billion exchangeable notes offering, where we're recording interest expense at 2.5% and we're actually earning over 4% on the proceeds until we repay our expiring bonds on February 1 next year.

And we also improved the interest rate with our Hub on Causeway refinancing and we're projecting several asset sales to occur in the fourth quarter that will reduce our debt. These increases to our FFO are anticipated to be partially offset from the reduction of about $0.02 per share of NOI from asset sales that we expect will close in the fourth quarter. If you include the associated changes in interest expense, our fourth quarter asset sales are projected to be dilutive by $0.01 per share.

So to summarize, we've increased our guidance range for 2025 FFO by $0.03 per share at the midpoint, $0.02 of higher same-property NOI, $0.03 of lower net interest expense offset by $0.02 of lower NOI from asset sales. At our investor conference last month, we provided some insights into our expectations for FFO growth in 2026. Doug described our active leasing pipeline that we expect will lead to higher occupancy primarily in the back half of next year.

We are off to a strong start on our refinancing plan with our exchangeable notes deal pricing with a GAAP yield that is 75 basis points better than we anticipated. The impact is about $0.04 per share of lower interest expense in 2026 than we described at our Investor Day. We still have $1 billion bond issue expiring October 1 next year that has a 3.5% yield. We currently project that we will refinance it with a 10-year unsecured bond where we could issue today at approximately 5.5%.

The other factor that is fluid and will have an impact on our 2026 results is the timing of our asset sales. As we stated at our Investor Day, we expect the program to be slightly dilutive in 2026. We are seeing good response to date, which could accelerate some of our sales. We will continue to update you every quarter on the success of the program as it evolves. That completes our formal remarks. Operator, can you open the lines for questions?

[Operator Instructions] And I share our first question comes from the line of Steve Sakwa from Evercore ISI.

I guess I wanted to go back to maybe some of the comments you made about reallocating capital into the premier locations. And as you're looking at deals, how are you thinking about some of your smaller markets like a Seattle and L.A. where you haven't had the success in scaling those markets? And A, are you seeing the opportunities to buy high-quality assets in the submarkets that you want to be in? Are you finding development opportunities? And like, I guess, how do you think about those markets long term if you aren't able to scale?

So you're asking about L.A. and Seattle where they are smaller markets for us now. We have a toe hold a couple of assets in each. They're on the West Coast. So they -- those markets from a leasing standpoint are weaker in general than our East Coast markets. I don't think there are development opportunities in L.A. or Seattle at the moment. I don't think there are any in San Francisco either because those markets are weaker. The leasing is not as strong. The vacancy is higher. So I certainly don't see any near-term development opportunities. And if an acquisition opportunity presents itself in those markets, we would certainly look at it. But acknowledge that those markets are smaller at this juncture.

And I show our next question comes from the line of Anthony Paolone from JPMorgan.

On a call yesterday, one of the other office names talked about just having done enough leasing in '26 at this point that what's remaining just may have a lower retention rate. And so just wondering how you're thinking about what's left for you all in '26 given you've done so much this year and just any risk around or confidence level around a couple of hundred basis points of pickup in occupancy you've outlined?

Tony, this is Doug. We are working as quickly and as [ possibly ] as we can to renew as many of our clients that as we would have in the portfolio if we can accommodate their growth and if they're able to continue to want to be in business. I would tell you that our available set of tenants with expirations has dramatically decreased. So there's not a lot there in sort of the aggregate, right? I said 3.8 million square feet of space over 2 years and we're a 48 million to 49 million square foot portfolio. So that's about 7%. Do I expect we're going to renew 50% of that? Yes. Do I expect that we're going to renew 60% of that? No.

We are leasing about 1 million square feet per quarter if we're able to maintain that velocity, which I don't see any reason why we shouldn't. We will be able to meet or exceed the expectations that we outlined when I sat in front of you all in September, which is about a 200-plus basis point increase in occupancy by the end of 2026 and another 200 basis points of increase in occupancy at the end of 2027. Those are our projections. We're confident in them today, and that's what we're sort of sticking with.

And I show our next question comes from the line of John Kim from BMO Capital Markets.

I wanted to ask about the recovery in San Francisco. It sounds like, Doug, from your commentary that your high-rise product is not where AI demand is currently, and I'm wondering if that's something you plan to address? And also I wanted to see if you had any early thoughts on Salesforce [indiscernible] $15 billion commitment into the City and what that could mean for job growth and office demand?

Sure. So let me start, and then I'll ask [indiscernible] to make some comments. The AI demand is not a tower business right now. Although companies like Salesforce, I guess, are calling themselves to a company now, so maybe that's slightly different. But the AI growth relative to infrastructure companies or VC-backed companies is really a low-rise south of Mission Street demand pool, obviously, with AI and anthropic sort of headquartered in either Mission Bay or in Foundry Square, right? That's kind of the world where I'd say the nucleus of that is. And it's unlikely to -- what you're going to see an AI company taking a 25,000 square foot piece of space at one of the buildings in Embarcadero Center or at 535 Mission Street or at Salesforce Tower if there was availability, as opposed to going into, as I described, what they would like to go into today, which is shorter-term, cheaper, less expensive furnished space, right, which is really in what I refer to some of the buildings that were occupied by technology companies from [ 20, call it, 15 to 2019 ] during that sort of booming period of time. I don't think there's much we can do to position our properties differently the demand for Embarcadero Center in particular, is really professional services and administrative services. That's not to say that there aren't a couple of small start-ups that have a couple of thousand square feet and a sweet here or there, but it's hard for us to imagine a large growth component there, very different at 680 Folsom Street. 680 Folsom Street is a mid-rise building with 35,000 square foot floors, with 16-foot clear glass, with availability today and more availability coming in as the macys.com lease expires, it's a perfect setup for an AI company from a growth perspective. And Rod, maybe you can comment on the sales force initiative relative to their contributions into the city.

Yes. Thanks, Doug. On Salesforce, I mean it was great to hear that news. And that was a fantastic bit right in front of their Dreamforce event, which happened last week, and it was very well attended, which is great for the city. So we haven't heard more specific about what exactly that investment is going to look like. But I think being the largest private employer in San Francisco, making [indiscernible] like that is pretty meaningful. And -- so we're eager to see where it leads. And as Doug said, I mean, the other activity in the buildings that's kind of driven by this AI push, we're seeing it as a 680 Folsom. We're very encouraged by that activity. And just the overall just optimism that a lot of that brings to our city. So it's positive.

Yes, I just want to make one other comment on that, which is there have been a lot of articles and news reports about the reduction in jobs, white collar jobs over the past, call it, 3 or 4 days in particular. And San Francisco is sort of the opposite of that, right? We are seeing growth from these companies in terms of the amount of space they are looking to lease and obviously, the number of people they are hiring, and you sort of see these tongue-and-cheek articles as well about the intensity of which people are working and the fact that they are working in premises all of the time, mean that is sort of what we are experiencing from the technology companies in San Francisco as we sit here today in 2025.

And I show our next question in the queue comes from the line of Richard Anderson from Cantor Fitzgerald.

Can you talk about the percentage of the portfolio of -- let me say it this way, that leases that were signed pre-pandemic that have yet to have been addressed at this point? And just how, with the passage of time, your experience has been with tenants in terms of their willingness to take more or less space, space per worker, square feet per worker, how are those dynamics changed? And sort of what's left pre-pandemic that is still sort of -- has to be addressed by you guys?

So Rich, it's a really, really hard question to answer in a specific way. So let me try and answer it in a more general fashion. BXP traditionally has been leasing space on a long-term basis with an average lease length today of about 8 years, but all of our new leases that we generally do are between 15 and 20 years. So there's a lot of "prepandemic leasing" in our portfolio, right? It's just matter of how we compose the portfolio. The fundamental important fact, however, is that if you look at who our clients are and we go through all kinds of disclosure in terms of who our top clients are, all of the growth that we are seeing is coming from clients who were prepandemic occupants taking additional space as the world has changed post-pandemic and quite frankly, because so much of our clients are in the financial services, professional services, administrative services business what is going on relative to those industries is much more important relative to the sort of composition of our portfolio and the growth than what is going on with companies that may or may not have taken additional space during the dot-com growth in 2000 or in the post-GFC or in the years leading up to the pandemic because that's just not what our portfolio is comprised of because we're -- again, we are -- that's not who we are. And as Owen has said, and you'll see it as we move forward over the next couple of years, we're reducing our exposure to what I would refer to as less of those types of buildings and those types of customers and clients in terms of the kinds of things that we are going to be disposing of. So I don't think it's an issue of any significance relative to how much "growth" there was during the pandemic relative to the Amazons of the world that was described in a couple of those articles in the last few days relative to sort of their pickup in the number of people that they had hired because we didn't experience that within our portfolio.

Doug, the other thing I would add is just -- and we've mentioned it, we just don't have a lot of rollover and the rollover we have is very granular, right? There's no really large tenants. I mean there's no tenant over 150,000 square feet that expires in the next 2.5 years. So we just aren't exposed to some big vacancy coming. And the other thing I would note that Doug described in his comments is -- and this has been the case for the last few quarters, more of our tenants are expanding than contracting when they renew. So this quarter, Doug mentioned, we had 85,000 square feet of net expansion by clients that we did deals with where they stayed in our portfolio.

And I show our next question comes from the line of Nicholas Yulico from Scotiabank.

So I know, Doug, you gave a lot of detail on leases in the third quarter and even some leasing in the works to address vacancy. But as we think about that occupancy build that you had at the Investor Day and the component there that is leases that address vacancy given that the build-out could take some time, is it right to think that like by next quarter, you guys should be in a position to sort of maybe declare victory on the vacant space piece of that equation that gets the occupancy benefit by year-end next year?

I guess I don't think about this on a quarter-by-quarter basis. Our projections were done on an annual basis. We -- again, we have 1 million square feet of current leases that are signed that are going to be starting in 2026. And so clearly, that will -- that's the driver of a lot of our confidence relative to 2026. I also said that the activity that our team and I'll let Hillary describe it at 350 Park Avenue is above our expectations. Again, I think that -- all that activity will lead to leasing in '26 and occupancy in 2026. So 200 basis points is a pretty meaningful increase, right? And another 200 basis points is another meaningful increase. So we're comfortable and confident that we will be able to achieve those numbers based upon the conditions that we're seeing now in the economy and in our marketplaces. And Hillary, maybe you can sort of describe what's going on at 360?

Sure. So at the moment, we have 6 floors leased and in discussions with proposals out, we have covered every other floor except one. So to the extent that we were able to secure all of the tenants that we're currently in negotiations with, we would have 1 floor available at 360 Park Avenue South. So the tour activity has increased really dramatically. And as Doug noted earlier, the clients that are coming to see the building and asking us for these lease proposals are not just tech and media, but also more traditional asset managers and financial services firms that are just looking for great space and due to the tightness in the market. are seeking out Midtown South, perhaps from Midtown or seeking to upgrade their space from existing locations in Midtown South.

One quick note for Boston in terms of the speed of delivery of recent leases, there is a portion, and Doug and Mike could probably respond to this afterwards, but a portion of the activity that Doug mentioned in the Urban Edge is in existing products, and they are spaces that don't need as much build-out. So we would anticipate at least 150,000, 200,000 square feet that could be delivered in that zone next year.

And I show our next question in the queue comes from the line of [indiscernible] from Citi.

I think kind of at the Investor Day, you had outlined $0.09 to $0.04 of kind of dilution from asset sales. It sounds like pricing and the [indiscernible] market is coming a little bit and ahead of your expectations. How should we think about kind of that impact? And I think you also mentioned potentially bringing some more assets to market? So just kind of what are the puts and takes there?

I think, as I mentioned in my notes, I think this one is harder to judge because it's based upon the timing. So we estimated timing for the transactions that we have under our asset plan at our Investor Day. And now we have started to execute on that timing, right? So we now have more assets under contract than we had at that time. And we have more assets in the market than we had at that time. And we do feel like we're getting pretty good demand from people, pretty good response from people on this. So I think we're going to be successful in that. And so the timing of when these things sell will impact the range that we provided. And if it was significantly earlier than that, could it be slightly more diluted? Yes, it could be slightly more dilutive. But it's hard to provide a better answer than that at this moment in time. I think as we go through the next quarter or 2, we will have more and more information, and we'll provide it to you.

And I show our next question comes from the line of Alexander Goldfarb from Piper Sandler.

Just a question on, as you guys have tightened up the strategy since the Investor Day. I just want to understand better on the investment side, how much of that -- when you guys think about the investment pool or more likely when the regional people come to you to submit proposals, how much the criteria have tightened up? Meaning have yields been raised that, hey, all deals now need to be 100 basis points higher or some degree higher. Just trying to understand how it's gotten -- how you guys have tightened up again, just thinking about some of the legacy deals like a [ platform 16, ] et cetera, obviously, I don't want to repeat, but you have the 343. So just trying to understand how the investment criteria has tightened up. And how many deals got kicked out of discussion because of the new higher thresholds?

We've talked about this on prior calls. Our threshold deal that we're looking at for developments as we've repeated over and over again, has been about 8% or higher. And really before interest rates went up and of course, some of the diminution in demand that we saw from COVID we were developing, depending on the market and the asset between 6% and 7%. So the yield requirement for office development has gone up 100 to 200 basis points. You combine that with the elevation in construction costs, it takes significantly higher rents to support development. And as we said on Investor Day, what does that mean? That means we're going to be a more selective office developer. But we are developing. We've launched 2.5, a little bit under that, $1 billion of new development projects in office just in the last 6 months. So that's the increase that you saw. And then as I just said in my remarks, we are looking at acquisitions. There hasn't really been much to look at up until the last 3 to 6 months. There's a little bit more today. And the issue has been, we feel like we can get higher yields developing, albeit and we'll have a new building, and it will have lower CapEx and longer wall and all those things, but it takes several years to deliver the development, that's the trade-off. So again, we're going to continue to look at acquisitions. And as I said in my remarks, we're going to continue to be disciplined and I think cap rates are probably 150 to 200 basis points right now in the market below our development yield threshold.

And I just add one thing just to sort of give you a reference point. The development at 343 is, call it, $2 billion development. The development at 725, 12th Street there's a $300 million development. Knock on wood, [indiscernible], are working really hard at lining up a client who desperately needs a new building with a potential purchase of a piece of ground or an existing building to build another building let's assume that's another, call it, $300-plus million. So we're talking about having $2.6 billion of developments that the company is going to be executing on. That's a pretty significant amount of external growth. And so I would say that the appetite for buying a building at a 6% NOI yield where the cash flow yield is probably 150 basis points lower than that, and there is rollover in 3 to 4 years. It's just not as enticing as those other opportunities are today. And so that's, I'd say, the frame of reference that we're sort of looking at as we think about "acquiring" new assets. Now if a fabulous building at an 8% cash return came up "off-market" and we thought it had great upside, of course, we would be really thinking about doing something like that. But but these broker-initiated investments for "core asset" and CBD locations are -- they're interesting, and we're going to study them, but it's going to be hard for us to rationalize utilizing our dry powder for that.

And I show our next question comes from the line of Michael Goldsmith from UBS.

In the press release, you called out 89% of BXP's rents come from the CBD portfolio. given the outlined dispositions are focused in the suburban markets, what percentage does that take CBD in the near term? And in long term, is the goal to just to be 100% or completely CBD?

I can't give you an exact percentage. I would agree that we want it to grow. There are certain suburban markets that I think we will maintain exposure to where we feel like we have a good sense of place where we can build an amenity-filled environment and where we think that it's a mature and dense demand profile. So there are suburban markets that I believe we will stay in. I do believe though it's not going to go to 100%, but it's definitely going to grow because our -- both our Asset sales focus, which is suburban, but also our new investment focus is more urban. So we're going to be adding assets that are CBD and detracting assets that are suburban.

And I show our next question comes from the line of Jana Galan from Bank of America Securities.

Congrats on the progress you've already made on the priorities laid out at the Investor Day. On the dispositions, can you talk to the pricing you're seeing on land, residential and office relative to kind of initial expectations?

I'd say that we're achieving pricing that is in line, if not a little bit better than our expectations. I mean it's very hard to say pricing for land because it depends on what the new user is doing. I think the real opportunity that we've had with land is that we have -- our regional teams have done a great job very successfully re-entitling many of these land parcels that were previously set up for office into residential. And as we all know, there's a housing shortage in this nation and many communities that were against housing in the past are for it today and that has allowed us to create a lot of value. The 17 Hartwell investment that I described last quarter is a great example of that. So it's a little bit hard to talk about pricing for land. I think on the residential assets, we are seeing cap rates below 5%, which we think is very attractive. And on the office, it all depends on the location and the quality.

I show our next question comes from the line of Floris Van Dijkum from Ladenburg Thalmann.

Clearly, it looks like your office markets -- your core office markets are inflecting office underlying growth was positive. It was down though in the hotel and residential. I think -- maybe remind us there was a big occupancy decline apparently in DC and the residential side. Could you maybe talk about that?

I'm going to -- Mike is going to quickly look through the supplemental. The only thing I can imagine is that we brought 100% of signature is in service, and then we brought Skymark into service, and Skymark is probably not 98% leased yet, although my guess is that we're going to be stabilized, which I think is, call it, in the 93% to 94% this quarter, which is extraordinary given the amount of units that we had delivered there. So I'm guessing that's sort of what happened. But I wouldn't I would not take that as anything other than a change in portfolio composition not activity in our actual assets.

Yes, that's what it is because this is a year-over-year concept. It's not a sequential concept. So in September of '24, the Skymark building was under development, right? And now it's leasing up, and it's actually leasing up quite well. It's, I think, around 90% and it's leased up better than we expected. The occupancy in the stabilized portfolio that has been in service for a while has been very strong and stable and rents have continued to go up. Again, our residential portfolio is located in pretty tight markets. And so places like the urban Boston market and Reston, we've seen good fundamentals with our residential.

And it's going to get smaller in 2026 before it gets bigger again.

And [indiscernible] next question comes from the line of Ronald Kamdem from Morgan Stanley.

Just on same-store NOI. I think you talked about sort of the occupancy inflection point, obviously improving '26, '27. Just can you tie that back to what the expectations are as you think about same-store NOI? Should we expect sort of similar 100, 200 basis point sort of acceleration? And what are the puts and takes there?

So we're not going to provide guidance for 2026 or 2027 today. I think that most of our growth is going to come from occupancy, and we've talked about that. I think the mark-to-market in the portfolio is improving because we're seeing rents go up in many of our marketplaces. So I think that situation will -- is improving and will continue to improve. And I think we will see positive same-store NOI growth as the occupancy climb. So yes, we will -- it will follow. It makes sense to follow and should.

And I show our next question comes from the line of [indiscernible] from KeyBanc Capital Markets.

Could you provide some color on the current state of what you're seeing in terms of demand for life science leasing and supply across your markets, given some softer commentary from another one of your peers. You mentioned a few things related to Boston and Urban Edge, but maybe you can broaden that out a little bit and maybe what your outlook is for that industry?

So our life science exposure at BXP is comprised of 2 places. It's the Urban Edge of Boston, which I described. And again, we have 180,000 square feet of first-generation space available. And then it's our joint venture with another publicly ARE in South San Francisco, where we have a large building that was developed a few years ago that is available for lease where, again, I think I described the demand for [indiscernible] space is being pretty tepid, not much has changed on a relative basis there. We are seeing some "inquir" but we're not -- what I would describe as close to any major transactions at that building at this time.

I show our next question comes from the line of Dylan Burzinski from Green Street.

Owen, I think you mentioned seeking or going out to market and seeking a capital partner for 343 Madison sometime in 2026. But I guess just given the tight availability that you're seeing in New York, especially in the submarket, the 343 Madison is in and likely continued net effective rent growth. Why not sort of put the brakes on reaching out and getting the capital partner given that sort of backdrop?

Yes, it's a good question. I think as I tried to describe in my remarks, we're just being patient. We've had some inbound inquiry. We know of some investors that are interested in the project. We're having preliminary conversations. As I mentioned in my remarks, we're not in hurry. This asset is appreciating. We're having leasing success. Markets are improving, as you suggested. And I think this will happen sometime in 2026. We do want to match to some degree, commitment of capital to raising the capital. And so far, the development draws and spend on the project have been reasonably modest, but they do start to accelerate next year. So I do think 2026 will be an appropriate time.

And Dylan, just remember, as Owen said at the outset, we have 3 objectives, right? Our objectives that we outlined at our Investor Day where we want to grow our earnings, and that's mostly through occupancy and deliveries of developments that are currently underway. We want to fund 343 Madison and we want to reduce our leverage. And so I think that our objectives in finding a partner sort of meet all of those requirements.

And I show our last question in the queue comes from the line of Blaine Heck from Wells Fargo.

I wondered, Doug, I was hoping to get your latest thoughts on the New York mayoral race and any sort of impact you've seen? Any commentary you've heard from tenants and just your general thoughts on whether it could or will have a notable impact on the New York office market.

I would suggest that the significant negative rhetoric that's in the press and the media about the impact of the administration of Zohran Mamdani, I think it's just overblown. I'm not suggesting that there are impacts that we need to be conscious of and aware of. as we've described before, there are controls and guardrails that exist for the mayor in New York. The state has a lot of approval powers over things like public transit and increasing taxes. And the state has indicated so far, there's not a lot of appetite for increasing taxes in New York. So that's something that we are concerned about. And again, our success as a company in any city is capped at the city's success. And so we want to do what we can to work cooperatively with the city and ensure that there are -- that it's constructive environment for business, there is the safety and security for the citizens. And those are the kinds of things that we're very focused on. the potential Mayor Mamdani has indicated that he wants to hire [ Jessica Tisch ], who's the current head of the New York City Police Department. I don't know that she's agreed to do that yet, but we all think that's a great step because I think she received high accolades for her performance and success to date. So again, something that we're monitoring. But we are, I think, a little bit more constructive than what the media has been outlaying on this change.

And additional, we have 1 question in the queue from Brendan Lynch from Barclays.

I'm just interested in your view on the new office tower above South Station in Boston and how that might impact leasing dynamics in the market?

So I'll give you a couple of comments, and I'll let Brian give you his perspective. So the building that is currently open and has been available for the last number of months. is a gleaming tower, and it's, I'm sure, going to be successful from an occupancy perspective at some point. There is a conversation, as I understand it going on with a large financial institution to relocate there, not necessarily grow, but relocate there. The building hit the market at the absolute wrong time and there's a bunch of availability in the financial district that it had to compete with. And so the economics of the investment are different than what I would tell you, the success will be from an occupancy perspective because of just the nature of what's going on. I think it's unlikely that another building in the financial district will be started for quite some time. So if the market is able to continue to sort of absorb space, I think the Peninsula market downtown will continue to recover. We have an opportunity to build a building at 171 [indiscernible] Street, which is in the Back Bay and there are obviously significant opportunities from a tenancy perspective because we have very, very, very tight supply in the back base. So I think there's a higher -- much higher probability of something going on there. we would obviously not start that building unless we had a major commitment from a lead anchor tenant, as Owen sort of described earlier in terms of [indiscernible] what our development yields were. So I think that's sort of, I would say, my general views are on that development, Bryan?

Yes. So I'd comment on what's the impact to portfolio. And as Doug mentioned, as you look at the Back Bay as the submarket, there's very little transfer of tenants that lead this market, and it's highly desirable. We look at our competitive set of the billings we compete against daily and it's a 3% vacancy. So it's extremely tight, as Doug mentioned. And in fact, we're actively asking tenants if they'd like to get back space because we've got growth in those sectors that Doug mentioned earlier. And then when you look at the downtown market, our buildings are leased up and tucked away for quite a few years now with limited limited space at 100 Federal and the same is true at Atlantic Wharf and also Hub on Causeway.

That concludes the Q&A session. At this time, I would like to turn the call back to Owen Thomas, Chairman and Chief Executive Officer for closing remarks.

No further remarks from us. Thank you all for your interest and your time and your interest in BXP.

Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.

Good morning, everyone, and welcome to BXP's 2025 Investor Conference. I'm Helen Han, Vice President of Investor Relations, and I want to thank you for joining us, whether in person or via the live stream. We're excited to spend the day together, and those of you who have joined our team bright and early for the 5-mile fun run this morning, thank you for bringing that extra energy into the room today.

We have a terrific program lined up for you all today. In addition to hearing from Owen Thomas, Doug Linde and Mike LaBelle, you'll also meet members of BXP's senior leadership team from across the company, who will share insights into our strategic priorities, long-term growth objectives and funding plans. Before we get started, just a few housekeeping items. I wanted to call your attention to the above statements regarding forward-looking statements made during the conference. Today's sessions are being recorded and streamed.

A replay, along with the presentation materials, will be available both on our Investor Relations website and the Investor Day Microsite. Following each session, we'll have 5 minutes for Q&A. And then at the end of the day, Owen, Doug and Mike will return for a final Q&A and closing remarks. Lunch will be served at around 12:05, and there's also an afternoon break at around 2:40. I know that everyone has been asking about charging stations. And because there are so many of you, we are unable to accommodate them in this room, but there are overflow rooms outside where you can charge and the event is being streamed as well. So you don't miss anything.

Finally, we hope you'll join us at the cocktail reception tonight at Coco's at Colette, located on the 37th floor of the GM building, beginning at 5:30. Please keep your name badges for access. It's a fantastic venue and a great example of BXP's premier workplace portfolio. And because no event for BXP is okay without some swag, behind your name tag, there's a little ticket, which you will redeem for your piece of latest [ BXPire ], which is first debuted today. Once again, thank you for being here and your continued interest and support of BXP.

With that, it's my pleasure to introduce Owen Thomas, Chairman and Chief Executive Officer.

Okay. Helen, thank you very much. Great to see all of you. Thank you all so much for being here. Also, thank you to all the fund runners that came out this morning. We had perfect weather after a pretty tough rainy weekend. I'd also -- while we're doing the welcoming, I'd like to welcome Joel Klein, who's sitting over here by the column. Joel is our Lead Independent Director, and he'll be here all day. So if you want to ask him any tough questions or give him any good feedback, he would welcome that, I am sure.

We only do this investor conference every 3 years. So it's a very important event to us, for us and hopefully for you. And the purpose is obviously to explain our strategy, explain our detailed plans. But I think even equally importantly, if not more importantly, is to showcase the depth of our talent. So we have all of our regional heads here in attendance. You'll hear from all of them and a number of other BXP executives are also here. Most of them are lined up here on the side. And again, you'll have lots of opportunities to interface with them informally during the day.

Okay. So let's jump into the first presentation. I'm going to start the day with the big picture. I'm going to introduce as well several of the deep dive presentations that you're going to hear later during the day that my colleagues will address. But specifically, this morning, what I'm going to address is what's our strategy. Number two, what are the key trends that are impacting BXP today and for the foreseeable future. And as a result of those 2 things, what is our strategic focus and what is our specific action plan?

So let's talk a little bit about our strategy. So the most important thing about our strategy is if you were here at our last investor conference, it hadn't changed. So this is a reminder. Our BXP strategy remains consistent. And I think it actually goes back to what I used to hear Mort Zuckerman say all the time when I joined the company 13 or 14 years ago, which is, oh, our strategy, that's simple. We're going to own the best buildings in the best markets. And that is a very quick, clear, concise articulation of what we try to do. Now clearly, we flesh that out a little bit, and I'm going to take you through that.

And there are environmental factors that come up from time to time that make us focus on certain elements of our strategy and make modest adjustments. So the strategy basically has 4 components: assets, where do we own assets? How do we operate the business and how do we -- what's our investment philosophy?

So on the assets, we're very focused on premier workplaces. So this is the high end of the office business. We also have a life science business, and we also build residential. You're going to hear a lot about residential today. Most importantly on the assets, quality. We want to be in the premier workplace segment of the office industry. We want to only own buildings that are considered in the top 10%, 15% of their local market. These buildings we lease at premium rents to industry-leading clients.

Our positioning, which we embrace and are going to continue to attack as the luxury brand in office real estate. The other thing we prefer on assets is to own clusters of buildings. Think about Prudential Center, Reston Town Center, Embarcadero Center. Why? We serve our clients better with clusters. If they get bigger, we can move them to another building. If they get smaller, we can accommodate them. Also, any capital we spend on amenitization, we can spread over a larger base of assets. So we love clusters that we always try to build on our clusters.

Okay. Locations. We're a gateway market company. Why? We want to be in cities that have the most extensive talent pool of highly educated workers that will attract industry-leading creditworthy firms. We also want a diversified talent base by industry. And importantly, we own buildings and we basically build and develop and hold. So we want rents to go up over time, albeit we understand they'll go up cyclically. So we need barriers to entry.

And then we are much more focused today on the CBD than the suburbs, which I'm going to get into. How do we operate the business? I would like to say that I always say that, well, BXP is a -- it's a set -- a portfolio of regionally managed property companies that are centrally funded. So what do I mean by that? Well, in every one of our regions, we have vertical integration. We've got in-house leasing, development, construction, property management, legal and marketing. These are not national practices.

Each of those individuals that run those areas report to our regional management. Why do we do this? We're a big company, but in all of our local markets, we're competing with generally smaller companies, local entrepreneurs. We need to be nimble. We don't want to tie down our regional leadership with having too much national structure. That all being said, we do make investment decisions centrally. We're centrally funded. So Doug, Mike, myself, often the Board will approve major investments. We obviously fund the company centrally, which we're going to talk a lot about today and then, of course, our corporate services.

And then lastly, investment and capitalization. So our core goal at BXP is to grow our FFO per share using moderate leverage, which we would describe as investment-grade leverage. We are -- we love to acquire things, and we will if we can find something that fits with the strategy that I described. But generally, we're a developer. I think we have a greater competitive advantage in our development business. And as a result of that, by the way, we -- over 40% of the buildings that we currently own in the company are ones that we developed.

We also have a long-term hold versus a merchant approach, except for residential, which we'll talk about. And then we do use private equity joint venture partners from time to time on acquisitions on existing assets and sometimes on development. And this allows us to extend our capital and also create a greater yield for shareholders in the investments that we make. So that is our strategy. In the back, the slides are not syncing here.

So next thing I want to talk about are market trends. What are the key trends that we are focused on today that are having the biggest impact on BXP's business, that's going to inform the action plan that I'm going to talk about in a minute? Well, the 4 that we think are most important today are remote work, higher costs, what's going on with AI and also a change in our shareholder base and therefore, shareholder preferences.

So let's start with remote work. This is something we've obviously talked about altogether since the pandemic. And the good news is this is moving in the right direction. I talked about this on the last earnings call. In the Fortune 100 companies, JLL did a survey. 2 years ago, those companies only 5% said they were fully in the office. Today, which this survey was done in the second quarter, it's 54%. That's a tenfold increase. That's huge.

And the other good news is this is definitely going in the right direction. It hasn't stopped. And the other thing that I would conjecture is we've had some weak job reports over the last few months, and this is also going to drive more in-person work because the job market is tough, employees that are thinking about whether they're going to come to the office or not are probably more likely to come to the office. So I think this is going to get better.

Work from home or working in the office is strongest in New York City. There's no question about it. It's also stronger on the East Coast generally and the West Coast is still lagging. I think it's getting better, but it's definitely lagging. That all being said, I do think work habits have changed post-pandemic. We're not going back to a pre-pandemic world in this area. Hybrid work, even though it was 78% 2 years ago, is still 41%.

So office demand per person that's working in an office is less today than it was before, and it probably will stay that way. But that demand is -- that lack of demand is expressing itself much more greatly in lesser quality buildings. Premier assets like the ones that BXP owns are outperforming. So why is that? Well, what's happening is employers want their employees back in the office. And the way they're doing -- and these -- the clients that we have generally in our building have a very highly educated, talented workforce, and they respond much better to incentives than rules.

And so employers are trying to coach their employees back to the office. And one of the ways they're doing that is to lease great space in easily commutable locations. If every one of your workers every day is deciding, is the commute worth it? Make the commute easier and it's more likely to be worth it. So I do think the most important amenity today is access to transit.

But these other things listed on this slide are also important in terms of modern systems, efficient floor plates, sustainability and other amenities. So we have been talking about the premier workplace segment of the office industry for over 3 years, and we've provided you all this data that CBRE has put together for us. And it's -- I hope you follow this because I think it's very important, and it shows one of the reasons why we're outperforming as a company relative to the overall office market.

The markets -- these are the 5 CBDs that we operate in. The square footage that's considered premier is 14%. It's only about 7.5% of the buildings. The vacancy rate is only 12.5% for the premier, it's 20% for everything else. This gap is widening. And then the net absorption is very high for the premier buildings and it's negative for everything else.

And if you look at this over time, here's the direct vacancies on the left and the asking rents are on the right. The asking rents have been consistently 50%, 5-0 percent higher for premier workplaces than the rest of the market for the last several years. And more recently, the vacancy rate for Premier is coming down and the vacancy rate for the rest of the market is going up.

So I often hear, I'll hear from some of you, well, OT, this has happened before and the price gets so high on the premier buildings, ultimately, the clients aren't going to pay it, and they're going to go into the B and C and if the gap is going to narrow. Well, that could happen, but it has not happened yet. And this is the biggest gap I've ever experienced in my career working in the office industry.

The other impact that we're going to spend some time talking about on remote work is the impact of it is much greater on our suburban portfolio than our urban portfolio. Our occupancy is down, as you know. We're working on building that back up, and you're going to hear a lot about that today. But the occupancy in the CBD portfolio is only 5% lower than pre-pandemic. It's 15% lower in the suburbs. So clearly, the suburbs are underperforming given the new world of work that we're dealing with. And as a result, that's informing how we want to operate our company and our strategy going forward.

So the next slide I want to talk about is higher costs. As financial investors, I don't need to explain to any of you the slide on the left. The Fed funds rate is higher, the tenure is higher. We're all hopeful we're going to get some relief on Fed funds this year and next. I'd be a little less sanguine about getting any relief on the 10-year over the next couple of years, but you shouldn't listen to me on that topic.

We're being prepared for whatever outcome we get. But financial costs are higher, needless to say. And then the cost of construction for office materials is up 45% because of all the inflation from pre-pandemic. This has an impact on how we operate our business. Clearly, our financing costs are higher, as you can see on this chart. Our average debt costs have risen 88 basis points so far. Mike LaBelle, James Magaldi, our finance team have done a magnificent job with creativity trying to mitigate these additional costs like CP programs and converts and bank loans and so forth.

And you're going to hear all about that later today, but the costs are higher. The second thing that this has had an impact is office development. This is an incredible chart if you look at it. Look at where office development is in 2025, it's pretty close to 0. And it's incredible in my mind for a couple of things. One, we've got 2 major projects that we've launched while this has been going on. So it tells me a lot about our competitive advantages as an office developer.

But the second thing is, maybe more importantly, is as frustrating as this graph can be to my colleagues here who are in the development side of BXP's business, we own 48 million square feet of space, and we are at a sub-historical level of occupancy. And the fact that we've got no new competition, no new deliveries happening is going to help us fill that space, and it's going to also push rents higher.

And we're already seeing that in our tightest markets. Rents are growing at a clip that's greater than inflation. So this is going to be a positive for BXP's footprint going forward. The other impact from high cost is what's going on with housing. So if you look at this chart, what this shows you is a couple of things. One, housing is less affordable in our core markets, which I think we know because of where we are.

But as a result of that, guess what's happening? We're all building less housing. Why? Because it's more expensive. It's harder to make the numbers pencil and some government incentives, particularly here in New York, have been diluted. So what does this mean for BXP? Well, what it means is we're going to be a more active developer of housing because we can find more projects that pencil.

And second, we're taking land that we own in the suburbs that was previously directed towards potential office development, and we're scrapping those plans because those aren't going to be office buildings. And we're having a lot of success dealing with local townships and having them reentitle these assets to residential, and then we're either building the housing or if it's for-sale housing, we're selling. So this is really helping us monetize a lot of our nonproducing assets because of the need for housing in the country.

Okay. Next is AI. As you can see from -- I don't think I need to talk a lot about what's going on with AI. I think this is an incredibly important trend. And I'll bet you anybody in this room that we're going to be talking a lot more in the next 3 years about AI that we're going to be talking about work from home when we talk about office demand. So what's happening? Well, one thing, when you look at the venture funding that's going into AI, almost all of it is going into BXP core markets, which is a huge plus. And by the way, 70% of that is going into the Bay Area.

And we're already seeing positives. You're going to hear from Rod and Christine later today about this. But over the last 3 years, somewhere between 20% and 27% of all office leasing in San Francisco has been to AI companies. And today, there's a total in-place square footage of 6 million square feet of AI companies. And this is all growth. These companies aren't -- their leases aren't coming up and they're moving.

This is -- virtually all of this is new growth, which is a huge plus. And then lastly, the bigger question is, well, what does this AI mean in terms of jobs? And what does it mean in terms of office demand? And I don't think any of us really know. I thought this chart from McKinsey was kind of an interesting place to start. But our theory on this is AI is going to create jobs and it's going to disrupt jobs.

And it's going to create jobs in companies that are creating AI infrastructure, AI products, AI services as well as the support network that goes with that, all the investment dollars that go in and the legal services and the business services. And that's going to happen where the AI venture funding is going, and those are BXP's core markets.

And San Francisco is already proving my point because of the 6 million square feet of growth that's already been put in place in San Francisco. So jobs are clearly being created. But then on the other side, AI is going to disrupt jobs. It's going to be more in the back office, in the repetitive, and the processing jobs. And I would conjecture that there are fewer percentage of those jobs that are in gateway markets, and I know there's a lower percentage of those jobs that are in premier buildings.

So I do think our positioning as a gateway premier workplace company, we could benefit from AI at a maximum and at a minimum, I think we're more insulated from any negative impacts from AI because of our competitive positioning. Green Street published this chart, which came from Oxford Economics, and this is about AI susceptibility risk and the left are those cities for the reasons that I just outlined, they believe are less susceptible to AI risk. And on the right are the ones that are more. And if you look at this, I think it's because there's more back office and processing jobs in the cities on the right than the cities on the left.

And by the way, these vacancy rates are total for the city, not just premier workplaces. So for the premier, I would say they should be a little bit lower. But again, this gets us excited about the footprint that we already have as a company. So let's move to shareholder preferences for a moment. So this is a chart that shows our top 30 shareholders 10 years ago and what they are today. And a couple of things I'd point out.

One, index has gone from 43 to 50. But most importantly, if you look at the bottom of this, this is the active shareholders, the price makers. 10 years ago, that was 37% generalists, 63% REIT dedicated. Today, it's 86% generalists. That's a major change. So what does that change mean for our company? One, clearly growing -- I mean, this is maybe obvious to all of you, but growing FFO per share has never been more important. This is a chart of that of FFO per share growth versus stock price.

And before the pandemic or 2019, that correlation was a little less clear, but today, it's very clear. So a couple of other things that we focus on in terms of shareholder preference, leverage. I don't think this is about generalists. I think this is about all of you, but less leverage generally improves trading multiple. And you're going to hear a lot today from us about BXP reducing its leverage and getting a multiple advantage as a result.

The other thing that's interesting to talk about is, do you want to be a local sharpshooter or do you want to be multi-market? And we believe being multi-market will generate long-term outperformance. This chart is a good one to look at. The light blue or the white line at the top are the 3 CBD West Coast companies, which are Douglas Emmett, HPP and Kilroy. And the light blue line are the CBD New York companies. So that would be ESRT, PGRE, SLG and Vornado. And then, of course, we're BXP Blue in the middle.

So this was the period from 2015 to 2020. Don't forget, tech companies were growing. It was all about tech. And not surprisingly, the West Coast won from a performance standpoint. We were just below them, but we were in the middle. So let's go to the next 5 years, pandemic to today, the reverse happened. West Coast came out of COVID much more slowly. The New York has recovered more quickly. So now the light blue, all the New York names are at the top, the West Coast names are at the bottom.

For the last 5 years, BXP is in the middle. So what happens over 10 years, BXP outperforms because we have less cyclicality than those companies that are regionally focused. Our outperformance is about 13% versus the West Coast companies and it's 16% versus the New York-based. It doesn't mean it's going to happen every quarter or every year or maybe even over a 2- or 3-year period of time. But we're in your multi-market, the cyclicality balances itself out.

Also, lastly, scale is rewarded. All REIT sectors, as you know, have an industry champion, thinking Simon in malls, Prologis in industrial, the office sector is more fragmented than most of the other sectors. We are the largest player in the segment. There are huge advantages for being the segment leader, 2 to 2.5x multiple turn advantage, 9% to 11% premium to NAV and borrowing costs that are 100 to 130 basis points lower. So we appreciate we have to grow, but we also appreciate having scale is very valuable.

Okay. So with all that, what are we going to focus on? If those are the trends, and that's our strategy, what do we need to be focused on? Well, we want to -- we're already the highest quality office REIT. We want to elevate that further. We want to focus more on the CBD than the suburbs. We want to maintain our current footprint. We want to keep developing, although we know we're going to have to be more selective in office, and we'll probably do more in housing. And those are the operational goals. And then financially, we want to grow our FFO per share. We want to increase our scale, and we want to deleverage.

So how are we going to go about doing that? So here's our fundamental action plan. And by the way, all of these or most of these will lead to various modules of discussion that you're going to hear about later today. We need to lease space and improve our occupancy by leveraging our premier portfolio, and Doug's got a -- he's coming up next, and he's going to tell you all about how that's going to work.

We're going to stick with our existing footprint. So I'm just going to announce it now. We're not going to the Southeast or the Southwest. So you can ask us about this at future meetings, but we're not going to do that. We're going to continue to be a developer. We're going to sell a lot more assets, and I'm going to spend a few minutes on that. And as you know from our announcement this morning, we did reset our dividend.

So leasing space. Good news is we're the luxury brand in a quality-focused market. We own some of the most notable assets in our core cities. You're familiar with all these. So I won't go through them in detail. I think very importantly, another thing to be aware of and that to the extent you're not, we have largely amenitized our portfolio. We've spent the capital, and we've refreshed these assets.

So if you haven't seen some of these amenities, Savoy Club at GM, 200 Club at 200 Clarendon, Mosaic at Embarcadero Center. And by the way, these investments have paid. These buildings are better leased. Some of them are completely full, and all of them are better leased because of these investments that we've made. And they've been made. They don't have to be made in the future.

The other good thing that's going on is the leasing market has momentum. If you look at our last 12 months of leasing versus the prior 12 months, it's up 18%. And if you look at a snapshot at the end of the first half of this year, if you look at the leases signed plus the leases under negotiation, that number is 22% higher than it was on June 30, 2024. So we've got lots of good things going on in the leasing market, and it's showing up in our statistics in terms of what we're doing and our pipeline.

And then again, Doug is going to spend a lot of time on this, so I'm not, but we've got a record low level of lease rollovers coming at us in the next 2.5 years. So in the next 2.5 years, we have about 4.7 million square feet, only 4.7 million square feet of roll, and we're leasing space right now at over 1 million square feet per quarter. So -- and we got 10 quarters. So again, Doug will explain the details, but those are very positive facts.

Stick with our existing footprint. I think this is self-explanatory. But the one thing I do want to point out is we are the biggest landlord already on office in Boston and in San Francisco, and we're obviously significant in New York and in Washington, D.C. But the office business is fragmented. So it's not like there's nothing we can't do already in these cities. Even in Boston, we're only 14% of the office space in the city. And we can try to buy other premier workplaces, but probably more likely, we're going to build them and add to the existing stock of premier workplaces in our selected gateway cities.

Okay. So we are going to be selective as a developer. These 2 projects on the left are underway, 725, 12th in D.C. and 343 Madison in New York. And as we look at our whole portfolio of land and buildings out of service and options, we think 3 Hudson Boulevard and 171 Dartmouth are probably next phase. I don't know if it's a year from now, 2 years from now, 3 years from now, but these are the ones that are most likely.

We've taken a very sharp knife or pencil or whatever you want to say, to our land holdings, and we have been very discerning about what we think can be developed as office, what can be developed as residential, and we are going to be selling a lot of those assets and monetizing them on behalf of shareholders because the world has changed. Particularly, office development in the suburbs is going to be very, very difficult to do, in our opinion, for the foreseeable future.

The other thing that's going to go on in the future is we're going to be doing a lot more housing development. Rich Ellis is here from our Washington office, who runs our residential business, and he's going to talk a lot about this, so I'm not. But we've got 3 big projects underway right now, which are probably about 1,400 units. And then if you add that to what we're looking at, that's in various stages of entitlement and raising capital and all that type of thing, we're at about 6,600 units.

So one thing just to be aware of, on office development, we're going to own those, maybe we bring in partners. But on housing, we're going to bring in a partner. And the deal we just did at 17 Hartwell, we brought in an 80% partner, which was a financial institution. And we're also -- unlike in the office world, we're going to be much more merchant. So once these buildings are up and leased and full, we don't manage them. It's less strategic to our company, and so we're going to sell them. And we can sell them accretively because of their cap rates.

Okay. Next thing I want to talk about part of the plan is asset sales. So since the GFC, we've sold $4.5 billion of assets, and that's about $340 million a year with having sold nothing in '23 and '24. One of the reasons why BXP has such a high-quality portfolio today is because we did this. We sold a lot of the noncore, nonstrategic stuff, which left us with a better portfolio. And today, we want to get back after that.

So we are in the middle of a more aggressive asset sale program. And we -- I would describe this as being in 3 fundamental buckets. One is land and nonproducing assets. There's about 12 deals, and it's about $400 million of proceeds. This will be accretive to the company because if you think about it, we're paying real estate taxes on this stuff now, and we're not getting any revenue. And then once we get the $400 million, Mike is going to take it and pay down our debt at whatever, 5-plus percent. So that's going to accrete earnings.

Residential, we're going to sell our in-service residential portfolio or at least 4 of the assets. And that's going to generate, we think, over $500 million in proceeds. And by the way, these are low-cap-rate assets. So these will be accretive sales for BXP. We've been holding these assets as a bank, if you will, for lower cap rates, and we're at that point. And given the 343 development, we're more in need of capital, and so this is the right time to sell them and we're going to do it.

And then lastly, we need to continue to recycle our portfolio, and we're going to sell some nonstrategic office. There'll be some in the cities, but most of it will be in the suburbs. And this will be dilutive because my guess is the cap rates, not for all, but for many of these sales, will be above BXP's look-through cap rate.

So in total, this is a little bit under 30 deals. It's about $1.9 billion of capital. And when you do the accretion dilution, we think it's going to be roughly neutral, which is a very important point, right, because we're selling assets, and we're going to, we think, be neutral to FFO because the first 2 categories are accretive. And by the way, we might sell more. We're going to try other sales. And if we can get great prices, we might sell more.

The other important point on this is -- we're not starting this today. We're -- this is in process. So today, we have either closed under contract or are marketing over $1 billion of that $1.9 billion pipeline. And as you can see here, $400 million plus is closed or under contract, and it could be over $700 million of proceeds even in 2025. The other point I'd like to make when we're talking about selling assets is bringing a partner in on 343 Madison. We've talked a lot about this. Just big picture numbers, this is a $2 billion asset.

So that's our funding requirement right now. If we brought in a partner, we'd probably go out and get a $1 billion construction loan. We've talked to lenders. This is available to us. We -- this partner would probably buy 30% to 50% of the equity, which would be $300 million to $500 million, and would reduce our funding requirement to $500 million to $700 million.

We're not in a huge hurry to do this because we are derisking this asset. We have a letter of intent with an anchor client. We need to sign that lease. We're in discussions with additional clients to lease more space. We're talking to construction trades about the construction cost. Some of that is very good news. Hilary and Rich are going to talk a lot about this during -- at a later presentation.

But we think if we derisk -- we continue to derisk this asset, we'll be able to raise capital against it on more favorable terms. And then lastly, as you know from our announcement this morning, we've decided to reset our dividend, which we did talk about on the last earnings call. Why? Retained earnings is our cheapest source of capital. And the new level of dividend is in line with our net income, which is where our dividend should be from an efficiency standpoint.

By doing this, we're raising $50 million a quarter in capital. So when you launch something like 343, our needs for capital are greater and $50 million a quarter is very significant. If you do the math, this will accrete earnings. So dividend is lower, but we're paying down debt. We're borrowing less money. It will accrete earnings. It will allow us to have capital for things like 343 Madison. And then when we look at the adjusted dividend at about 3.9%, this was a few days old, it's in line with REIT averages overall.

And then now we've got the dividend set to our net income. You're going to hear a lot today about occupancy increases, which will lead to FFO, and we can become a dividend grower. So the next time we are engaged in the conversation about what we're doing with our dividend, it will be about when we're going to raise it as opposed to if we're going to cut it.

So let me just finish by -- with the following. What are our current strengths? BXP is the office REIT with the highest quality assets in a quality-focused market. We're the leader in the most important gateway markets, which are less prone in our opinion, to impact from AI. We have growth opportunities from lease-up and from delivering pre-leased developments. We're already the office REIT with the highest credit rating, but we definitely have a capacity to improve.

So what's our action plan? Double down on quality, lease space to grow occupancy, be a merchant builder for housing and be selective as an office developer, sell assets and deleverage, introduce a capital partner for 343 Madison and reset our dividend. Management is incredibly excited about and confident in this plan. We, for the first time in a very long time, have tailwinds in terms of trends that are going on in the business that are helping us, and we couldn't be more excited about the future prospects for growth and creating value at BXP. And I have 3 minutes left to answer any questions that you have.

Yes, sir. Yes, John.

So why not sell more assets that might include earnings [Technical Difficulty] would go down. If you're not selling more suburban assets [Technical Difficulty].

No, I think -- John, I mean, we might end up selling more. I think the $1.9 billion that I showed in this deck, which was a little under $1 billion for suburban assets. And there's some urban in there. It's -- we might sell more. We could. I think it's going to be just very dependent on can we get a reasonable cap rate.

One good thing that's going on in the business today is on the private equity side, there's a lot of capital coming into the office sector. And look, those investors know about premier workplaces, and those are the assets that are most desired. But if we see capital spilling out into the suburbs and some of our assets that we would consider nonstrategic and we can sell more, we absolutely will do it. Alex?

One, noticed that L.A. wasn't included in any of the footnotes on the markets. And then two, as far as reassessing your portfolio, how has the benchmark, the threshold for projects, changed? Like obviously, cost of capital is up, cost of construction is up. But before was there a tendency just to let projects sit longer and hope they would work out. And now you're like, hey, if this thing doesn't work in the near term, it's out. Just curious how the thinking on asset holdings has changed.

So on Seattle and L.A., those are micro markets for us. We basically own 2 assets in each of those markets, and they're each 1% to 2% of the company's NOI. And we reorganized the company to have those regions all under Rod. And so just to make this presentation more simple, let's just focus on the big cities.

So don't read anything into us not talking a lot about those. They're just small. They don't have a huge impact on the company. And then in terms of your question about how we underwrite new developments, well, first of all, our yield requirements have gone up. So a project like 343 Madison before the pandemic, we would have been fortunate to get a 6% yield on that. And now we think it's over 8%.

So I think the development yields have gone up a couple of hundred basis points from where they were prior to the pandemic because it's office, but also because capital costs have gone up. And then to your question about these land sales that we're doing and how do we underwrite a project, I think we're just seeing land out in -- particularly out in the suburbs that we either had buildings on.

So it was kind of a covered land play or it was a site that we owned. We just don't see -- I mean, it's not about does it pencil or not. We just don't see that project getting leased -- at any time in the near future. And then as we look at where we are today, where we need capital for 343 Madison, and we want to be -- this is a great time to invest in office.

And we want to be more active investing in office. So we want to take those assets that we don't think have as bright a future in terms of how -- what we were going to do with them, and we want to turn them into cash so we can recycle that capital into something that is more fitting to the office market of the future. And with that, I am out of time. Thank you very much.

Please welcome Doug Linde, President.

I'll let everyone settle down. So thank you all for being here. I don't quite understand why you are all here. We are in the office business. And at least from an analyst recommendation perspective, office has been sort of the least favored sector of REITs for a long time. So -- and you haven't gotten the swag yet.

Maybe it's the swag that is keeping you here. And I'm assuming that we had nobody in Missouri or Texas this weekend, so we had no Powerball winners, although I know -- there are a couple of you I know who are buying some tickets out there. Just looking at a few faces. I'm going to try and be very concentrated on my remarks this morning and talk about one thing, which is the ramp-up in our occupancy and how that translates into incremental earnings, FFO, cash flow, et cetera.

Mike is going to put it all together and sort of show you how it impacts our going forward financial strategy, but I'm going to get into the sort of specifics of why this is an unusually opportune time for BXP relative to what we have in front of us and how we are doing. I'm also going to just sort of level set and remind you that everything that I am talking about this morning is based upon change from 6/30/2025, so the end of the second quarter.

And the next 30 months, so the next 10 quarters are really the focus period of time that I'm going to be talking about. All of these properties are in the in-service portfolio. And so everything that we are going to do because of the fixed costs associated with operating our assets is going to fall to the bottom line. There may be a slight amount of margin, some cleaning, a little -- maybe a little bit of energy, but basically, 100% of the revenue that we can create is going to fall directly to the bottom line.

And I think at the end of this sort of period of ramp-up, I hope you agree with me that this is a unique time to be a BXP shareholder. So this is our portfolio as it sits, 6/30/2025. And this 48.2 million square feet is what we should be focusing on. I'm going to give you some other information so that when the analysts write their reports about our occupancy declines during 2025 and '26 because we're adding properties to the portfolio or if we sell an asset and it impacts the occupancy, because we're changing the numerator and denominator, all that stuff is just noise, okay? This is what matters.

It's what's going on with the portfolio that's 48.2 million square feet. And as you can see, we're 33% Boston, 26% New York, 23% West Coast with 16% of that in San Francisco and then 18% in D.C. and more than half of that, 10% of the entire company is in Northern Virginia. And again, Northern Virginia from our perspective, that is a CBD portfolio. That is not a suburban portfolio. That's a sort of dirty word as Owen was describing it. And we view Northern Virginia as an urban core.

We're going to put 3 properties into service during the third quarter. If they stay as they are leased today, our numbers are going to show a 70 basis point reduction in occupancy, doesn't matter from an NOI perspective, doesn't matter at all. And I would hope that we will start to see additional leasing in this portfolio. So as we move forward, everything we do is going to be incremental to what I'm about to talk about.

We'll be at 48.9 million square feet. 2026. We're going to add 2 more properties to the portfolio. 651 Gateway, which, by the way, we have already ceased capitalization on. So anything incrementally is positive. And then 290 Binney Street, which is 100% leased, and Mike is going to describe the FFO and the AFFO and the cash flow impacts of how that is going to be additive to the portfolio in 2026 when that building is "in service".

So at the end of 2027, theoretically, we're at a 49.8 million square foot portfolio, if we don't sell anything, but as Owen said, we're going to be selling some assets. So this number is going to change. Again, this is why I want to focus on 48.2 million square feet. If you look at that development portfolio, there's 556,000 square feet of additional opportunity to grow our FFO, our income, our AFFO if we are able to lease that space. None of that. None of that is part of what I am going to be talking about. So 100% of what we do on that portfolio is incremental to what could happen from an occupancy ramp-up in the in-service portfolio.

So let's explore the company's portfolio. We have a pretty unique strategy, which is we go long and deep on every lease we possibly can. And so as you can see, we have an average lease length of over 7.6% and our clients invest significant capital on top of what we do when we provide in tenant inducements. And for those of you who don't know, you're sitting in a BXP building, 599 Lexington Avenue is one of our development assets.

This asset and you're sitting in A&O Sherman space and this conference center, right, was part of what they redid when they renewed their lease 2 years ago. And obviously, we gave them a tenant improvement allowance and then they invested their own capital into revitalizing their space and signed a 20-year extension.

Again, those are the kinds of leases that we focus on when we are doing our urban developments in particular, but as much as we possibly can. And as you can see, we have a pretty staggered rollover maturity in our portfolio. It actually kind of feels a lot like how Mike runs our balance sheet, right? It's very, very sort of stratified, it's not lumpy. It's long and it's strong.

Historically, what I've looked -- what I'm doing here is I'm showing you how much space was going to roll over in the 6-month period post the end of the second quarter. So in 2025, at the end of the second quarter, we had 0.85 million square feet, 850,000 square feet of space rolling over. And how does that compare to the last decade? And as you can see, it's a pretty low number on a relative basis. But it's sort of what I would refer to as sort of in line. And as we get close to the end of the year, this is sort of what we typically see.

But if we fast forward to what it's going to look like in the next "18 months" starts to look a little bit different. So we are at 60% of the rollover as we enter the next 18 months than we have looked at over the last decade. And if we look at the next 30 months, we are still 60% of the rollover in our portfolio compared to the last 10 years. And those are -- that is, from my perspective, a very, very unique place for the BXP portfolio to be as we enter this next period of leasing.

And again, as Owen said, we have some tailwinds, right, behind us relative to the amount of leasing that we are doing. So this is the setup that we are staring at as we enter the end of 2025, 2026 and 2027. So in the last, call it, 30 days, we have leased another 300,000 square feet. Actually, we've leased another 100,000 square feet that happened on Friday after these slides were published, but who's counting? So the number is actually lower than what I just showed you.

So I showed you 5 million square feet. The number is actually 4.6 million square feet as we sit here today. So again, we are doing our work, doing lease extensions and leasing vacant space on a day-to-day basis. So let's look at sort of how we, as a company, have been leasing space. What's the -- that's sort of what's the negative, that's the tailwind, the expirations and what's the headwind? How much space are we leasing on a sort of quarterly, quarterly, annual, annual basis?

So this is the last 38 quarters of leasing, 9.5 years. And we have done over 1 million square feet in 26 of those quarters, 68% of the time, 15 of those quarters is over 1.5 million square feet and only 4 quarters was less than 750,000 square feet. Important number, 1 million square feet. And if you look at it on an annual basis, this year, we're going to do over 4 million square feet. So I'm sort of "cheating" here a little bit. But 7 out of the last 10 years, we have done over 4 million square feet of leasing at 70% of the time.

So just to sort of level set in terms of how we're going to think about what this all means on a going-forward basis. And if you look at the granularity of our portfolio over the next 3 years, this includes the next 2 quarters of 2025. It's a pretty granular portfolio. In other words, there is no 300,000 or 400,000 square foot lease that's going to expire that's going to sort of change the attitude and the portfolio makeup, right?

In 2024, we had 2 leases over 200,000 square feet, actually between 200,000 and 300,000 square feet. And this year, we had 2 leases over 350,000 square feet expiring. So we had a pretty heavy lease expiration schedule earlier in this year. And as you look forward into the next 2.5 years, it's a pretty granular, manageable piece of work in front of us. How much space are we leasing that's vacant? This is really sort of where the heart is. And this is where Ray, Rich and I have a running disagreement.

Ray loves all leasing. Ray applauds any lease we can possibly do. My view is that early renewals are great. They're foundational, but what's supercharges the BXP earnings is leasing vacant space, vacant space leasing. And after over the last 6 or 7 quarters, we've been doing 400,000 to 500,000 square feet per quarter of vacant space leasing. And this quarter, we've done just over 300,000 square feet.

Bryan, I think is another 100,000 square feet is going to get done today, right? Yes. So we'll be close to 400,000 square feet by the end of the day. It's in our Urban Edge portfolio, i.e., suburban. So it's actually a really good leasing. But this is the pattern that I think we're going to continue to see as we move forward into this period of time.

So what does this all mean? Let's all put this together from an arithmetic perspective. So let's use that 1 million square feet as sort of our average volume per quarter. That's our run rate. And if we multiply that by 10, we get 10 million square feet over the next 10 quarters. And my leasing friends over on the left-hand side of the room are probably gulping right now, 10 million square feet.

We're going to lease 10 million square feet, but actually, that's what we do. That's what this company does. And as what I said earlier, what's going to drive occupancy is leasing vacant space, and we're doing that 400,000 to 500,000 square feet. And so the question for me is, and how do we think about this is how much space is logically reasonable to think we're going to lease that's both vacant space and taking care of our expiring space.

So I'm going to make the assumption that 65% of the leasing that we do overall is on that portfolio, which means 35% of the space we're doing are these early renewals, these foundational pieces of leasing. So I'm not suggesting that we are going to lease 1 million square feet of vacant or rolling over space in the next 10 quarters per quarter. I'm just going to sort of haircut that and use 65% of that.

So we have 4.7 million square feet of expiring space over the next 10 quarters. Actually, 4.6 million, but who's counting, which means we're going to pick up 180 basis points of leasing. This is leasing, not occupancy. Remember that word, leasing. That's 3.7% additional leased square footage over the next 10 quarters.

At the end of the second quarter, we reported that our leased square footage was 89.1%. So if we add 3.7%, we're at 92.8%. Again, this is not occupancy, this is leased. So how do you get to occupancy? Well, we've been showing you our occupancy and our lease percentages every quarter for the last 7 or 8 quarters. And there's about a 200 on average basis point historical difference, 210 basis points. So if I pull 210 basis points off of that, and we were at 86.4% at the end of the second quarter.

And what we've said to the market is based upon that 48.2 million square foot portfolio, we're going to be at about 87% at the end of '25. That means between the end of '25 and the end of '27, we're going to pick up just over 200 basis points of 400 basis points of occupancy and get to 91%. So if we can lease 1 million square feet a quarter and 65% of that square footage is on vacant space in our expirations over the next 2.5 years, we should be at approximately 91% occupancy at the end of '27.

How about '26? So we'll sort of pull back a little bit. So we have I think I'm one slide off. So we have right now in action, 2.1 million square feet of leases either under negotiation or that have been signed since the end of Q2. 1 million of it's done, 1.1 million to go. And if you look at that, almost 1.7 million square feet is on either vacant or expiring space, right?

So if we start with our 41.7 million square feet of occupancy at the end of the second quarter, we've also told you that we have 1.3 million square feet of leases that are going to start revenue, so be in occupancy by the end of 2026. It's back-loaded, but by the end of '26, we're going to have virtually all of the square footage that has been leased to date start revenue recognition.

And if we assume that we're going to -- all those leases that I just showed you on the vacant and the expiring space are going to also be in occupancy by the end of 2026. So that's 0.65 million square feet of expirations and another 750,000 square feet of work that we're doing on vacant space. That means we need to do about 1.4 million square feet of additional leasing in occupancy to get to 43 million square feet at the end of 2026, which would be about 89%.

So what we're telling you today is that we think at the end of '26, we will be at around 89% at the end of '26. So that doesn't mean that we're going to be there at the beginning of '26, right? So we're going to start at about 87% at the end of '25, and we're going to ramp up to 89% by the end of 2026.

To give you a perspective on sort of where a lot of the current vacancy in the portfolio is, it's sort of scattered, but it's -- actually, there's a reasonable amount in Manhattan in New York City. And then there's a heck of a lot in San Francisco. And so listening to what Rod and Christine have to say is going to be pretty important because that's where a lot of the ramp-up is going to come from as we move into '26 into 2027.

And then there's a reasonable amount of availability in our Urban Edge portfolio in Greater Waltham, and Pat and Bryan are going to talk about that, and they're going to give you sort of the granularity on where the leasing activity is today, and it's surprisingly robust compared to where it was 12 months ago. So that sort of gives you a perspective on where we're going to be from a "granular leasing" need as we move into 2026 and 2027.

Okay. So what does this all mean? How do you sort of translate this? So this is math. This is the way we are sort of looking at our portfolio today. So the average rent on the vacant and the expiring space, and we've sort of broken it into 3 portfolios. We have our East Coast portfolio, we have our West Coast portfolio, and then we have our suburban portfolio. That average is about $71 a square foot on a weighted basis.

So we're going to use $71 as the number as we think about what the occupancy ramp-up means. And we have 5.7 million square feet of vacant space, and we have 4.5 million square feet of expiring space. And you'll not -- look at that footnote, Alex, I've excluded the Santa Monica Business Park, Colorado Center and Safeco Plaza. Why? Because I don't think we're going to do a lot of leasing in those 3 assets over the next 2.5 years. And if we do, it's certainly not going to hit occupancy because it's going to be out, and that's because those are just our weaker properties in our weaker markets.

So I'm excluding that stuff from what we have to get done. So we have 48.2 million square feet of space, 100 basis points of occupancy is 482,000 square feet, 482,000 square feet at $71 on a gross basis, and I'm using a margin of 95%. I'm giving myself some sort of leeway in terms of the operating expenses associated with cleaning and electricity, et cetera. That's $32.5 million or $0.18 per share per 100 basis points of occupancy.

So that means at the end of 2026 on a run rate basis, we're talking about $65 million. And by the end of '27 on a run rate basis, $130 million of incremental bottom line NOI, FFO, AFFO cash flow. And where is it going to come from? It's going to come from, as Owen sort of described, this office amenitization that we have been doing. And we are at a point where we are always looking at what we can do to maintain and enhance the assets, but the big, large-scale $25-plus million redo amenitization, amenity centers, conferencing, "gathering spaces" have basically been done in virtually every one of our CBD portfolio buildings as well as our large suburban assets.

So I'm sure you're going to hear from Pat that one of our strategies in the Urban Edge of Waltham has been to up our game from an amenitization perspective. And where we have done that, we have had very strong success leasing space. And so that concept has sort of been part of our DNA over the last, call it, 6 or 7 years. And we're -- there will be a couple of projects here and there that may need to get done. But by and large, the CapEx associated with these types of projects is really in the rearview mirror.

So simply put, in conclusion, the next 30 months, if you remember those 3 slides I showed you, 60% of where we would typically be on an average year over the last 10 years is what's the headwind against us. And as Owen described, and you're going to hear later this afternoon, the tailwinds in terms of the leasing momentum we're seeing in our markets is getting stronger. I'm sort of pulling back and saying, let's just assume we're going to do 1 million square feet a year. Let's assume we're only going to do 65% of that in terms of sort of utilizing our expiration schedules in our vacant space.

Suddenly, you get 400 basis points of incremental occupancy by the end of '27, and we have $130 million of incremental revenue. That's kind of the bottom line in terms of the in-service portfolio and the growth that we are going to see at BXP from basic blocking and tackling and doing the work from a regional basis that we do each and every day.

And I will stop there and answer any questions if you have some. Tony?

Doug, do you think office leasing will behave differently if the economy slows this time versus previous downturns?

So I think that overall, the flight to quality in a downturn becomes more accentuated because what typically happens in a down economy and what we're not seeing other than -- right now in our greater portfolio in San Francisco is a lot of incremental growth. We're seeing a lot of musical chairs. We're buying or basically eating a lot of additional market share, but the market actually isn't growing.

And so my perspective is that we are sort of in a point in time when the overall leasing activity will remain relatively constant because all of the headwinds that Owen described are still part of what we are facing. And I think they have sort of pulled away a lot of the incremental demand. And our sense is that companies still need space, and they are looking to bring their people back to work.

So I don't think we're going to -- we would see a dramatic shift in overall leasing activity if we see another sort of negative economic environment. I'm not suggesting if we have a deep recession, that's a different question. But if we sort of have a soft landing and a slowdown, I would expect that the leasing activity that we're seeing is a consistency associated with what we've seen over the last couple of years. In the back. David?

Could you talk about what you're seeing in terms of TI trends at the moment? And what would be your working assumption over the next couple of years in terms of those trends? That's a macro overlay as well, but you ultimately have -- must have an in-house working assumption as to what your cash flow numbers are going to be looking like.

Yes. So Mike will show you later on that we are more than breaking even and creating cash flow on an operating portfolio basis year in and year out. Overall, tenant improvement dollars in the Greater Boston market, in the greater New York market, in the Northern Virginia market and the Washington, D.C. market are all on the down slope.

In other words, they are coming down, both in terms of what we are required to provide as an inducement in both TI and in free rent. I'd say the one area where that's still a drag is in the greater San Francisco marketplace, where TIs have been continuing to go up. So on average, across the portfolio, it's going in the right direction, but that one particular market is where sort of the numbers are going in the other direction.

And I'm going to -- I'll wait until my regional teammates are up here talking about their individual markets, so I don't sort of steal their thunder in terms of what they're seeing relative to what those numbers actually are.

And your working assumptions in-house for the trends over the next couple of years? Are we close to the bottom here?

Yes. I would say, as I said, we're going in the right direction everywhere other than the West Coast. So we -- I'd say that's what our working assumption is.

So I know the focus here was on occupancy, but can you talk about rent growth and how you're feeling about spreads throughout all of this leasing?

Sure. We're not counting on rent growth. We are seeing rent growth in Midtown Manhattan. We are seeing rent growth in the Back Bay of Boston. We are not really seeing rent growth in Northern Virginia or in San Francisco. Those markets are, I would say, static at best and to some degree, slightly on the downtrend still, meaning the West Coast rents are still sort of, I would say, mark-to-markets are negative as opposed to positive.

But the other markets on the East Coast, we are clearly seeing meaningful rental rate growth. And again, I'm going to hold off answering the question until our -- my folks on the regional side are up here because I don't want to again steal their thunder, but you'll see evidence of that. Ron?

Just can you talk a little bit more about the life sciences? It hasn't really come up today. I remember a few years or quarters ago, it was talked a lot about just from a leasing perspective, what are you seeing and how those assumptions are factoring in?

Yes. So BXP, again, from a life science perspective, has 2 primary areas where we have exposure. The first is the Urban Edge of Boston. And I'm going to let -- I'll let Pat and Bryan when they come up here, talk about that. But what I would tell you is we have surprisingly leased close to 400,000 square feet of space to life science companies, one of which has a pseudo lab facility, but the rest have been pure office deals, meaning life science companies that want to be in life science buildings, but they do not need any benches.

On the West Coast, and again, I'll let Rod and Christine get there, I would say it's been much less robust, and there has been more supply that has been an issue there. And so for us, 651 Gateway, which is the development property that we are no longer capitalizing interest on. So it's already in the numbers. It's going to be a while before that building is "stabilized" from a leasing perspective.

It's a small tenant building. And that's -- we have 100,000 square foot building in suburban Boston that will be available, hopefully, that's the only one at the end of this next quarter. And that's the literal amount of exposure we have. Again, our Cambridge portfolio is 100% leased, and we have no exposure until 2028. Steve?

I know this is mostly a revenue discussion, but anything on expenses, OpEx, real estate taxes that we should be thinking about over the next couple of years?

So what I would say is energy costs are going up. They're going up more materially in certain CBD markets than others. We have locked in, in 2 out of the 4 markets where we can fixed-rate contracts. So nothing that you're going to see in '26 or '27. Real estate taxes on the West Coast are going down. There -- it's either through appeals or through reassessments.

On the East Coast, they are much stickier. There's an acknowledgment that abatements are happening. But in a market like New York, those abatements get pushed through over a 5-year period of time. So it takes a while for them to sort of show up. So I don't think you're going to see enormous increases in taxes, but you're not going to see sort of what a -- the revaluation should show you the tax rates are going to be.

And in Boston, I'd say there's sort of a flatness associated with assessments and the question will be whether the legislature will allow the administration in Boston to increase the burden on commercial. They were defeated in doing that in 2025, and I'm sure they will try again in 2026. But net-net, nothing significant. And then our sort of controllable and our tertiary vendors, security, cleaning, R&M, we are working like hell to maintain a deceleration of those increases.

And so we've been able to sort of see the sort of 2% to 4% on average increase. Many of our -- as you know, our leases are gross, and therefore, we pass along the escalations. Many of our leases are net where we pass on 100% of the expense. So I would say that the margin changes associated with operating expense increases is not going to be something that you're going to see in a discernible way over the next couple of years. Any others?

Have you been experimenting at all with any AI tools to get a better feel for what demand could look like in your markets, in your buildings? Is there any sort of companies out there focusing on that? And have you had any interactions? And what are your thoughts on it?

So if you're talking about the utilization of our buildings, we are working on a couple of experiments right now where we are putting some building management system overlays in some of our buildings to sort of see what that will show us relative to occupancy sensors and therefore, how we are going to be operating our buildings.

And when Ben Myers gets up here as part of our sustainability, that's one of the sort of things he has been spearheading for the company. So I would say the answer is slowly, yes, but the technology is still working its way out.

Where that return to office kind of pie chart would look like 2 years from here?

Yes. So I think that what it's going to show us is that we don't have to operate our buildings nearly as long as we are currently operating them because the density of use on those buildings for certain parts of the day and certain days of the week is less concentrated.

I would say that we will continue to -- and my expectation is that we will see a ramp-up in the overall utilization during peak periods of time because it feels like that's what's going on with our customers and that they are asking their people to come in more densely during different parts of the week, and they're being less concerned with "overall utilization" on a 5-day week basis. No further questions, we'll move on. Thanks.

Next up, please welcome Mike LaBelle, CFO.

All right. I am going to stand over here. Good morning, everybody. It's Wow, this room is full. It's great to see. We really appreciate all the interest they have in us and all the support, certainly, that you've provided for us.

What I'm going to cover today is a few topics. I want to talk about development. Development has been our DNA historically. As most of you know we do have development funding that we have over the next few years, and I want to describe that, and so you can understand the scale of that. And then I'm going to describe our funding strategy for it. How are we going to fund it? What is the impact going to be on our balance sheet going forward? And then the last thing I'm going to cover is some insights for 2026. So we're not going to give guidance today, that's not the goal of today. But I do want to give you some sense of some of the key components and the direction they're going, so you can have some help as you kind of go into the third quarter, we're not going to provide guidance until the fourth quarter but you can have some help of where our earnings trajectory is going to be going in 2026.

Before I kind of start with that, I just want to reset a little bit, and I want to build on Owen's comments that he made. We are the sector leader in premier workplace. Our portfolio is highly diversified, our portfolio is the highest quality, we believe, and we're the largest company in our sector. We have $3.3 billion of annualized revenue, and we have annualized EBITDA that is nearly $2 billion. And by the way, and I'm not sure everybody realizes this, our revenue and our EBITDA has consistently grown over the past 5 years, even though we had to deal with COVID, we had to deal with remote work, and we've had to deal with a lot of economic uncertainty related to a lot of these things, we have continued to grow our revenue base. Our income trajectory, which has been pretty flat, maybe a little bit negative in a couple of years has really been more impacted by interest rates and interest expense versus our kind of top line revenues.

Our balance sheet is really strong. It has always been strong. It continues to be strong. We have an investment-grade rating. We have the highest rating among our sector. And if you look at our unsecured bonds and you follow how they trade and you follow the activity that we have, our credit spreads reflect credit strength that the company has.

So development. As Owen mentioned, development has been the principal strategy of BXP. I mean when the company started 50 years ago, it started as a development company. It remains a very important strategy for the company. If you think about how our regional teams are structured, our regional teams are structured to manage the risk of large-scale development. We achieved higher investment returns on development than we would by buying assets. And the other thing that we get is we consistently are improving our portfolio because we're bringing brand-new assets into the portfolio and they don't have any capital expenses or leasing costs for many, many years after they become delivered. And that's a key advantage of development.

If you look at the last 10 years, we've delivered $9.2 billion of developments, maybe it's the last 12 years. The approximate return on cost for that development pipeline that has been delivered is about 7%. The developments that we deliver, they have long-term leases. They have contractual rental increases. So the GAAP return is even higher than the 7%. And how did we fund this $9.2 billion? Well, we had asset sales, Owen mentioned, I think it was $4.5 billion of asset sales that we have had over the last decade. We have excess operating cash flow. Somebody talked about our AFFO and FAD. We consistently had positive operating cash flow every single year that has helped fund that. And then we used incremental debt. So our debt has increased, and James Magaldi is going to talk about our debt portfolio this afternoon but it's increased pretty significantly over the last decade as we funded a portion of this pipeline.

The other thing that it's done for us is it's -- we've grown right? So over the past 10 years, we've grown our FFO from $5.36 to our midpoint of our guidance for 2025 at $6.88. And if you look at cash flow or AFFO, it's grown even more. So in the last 10 years, our AFFO has gone from $3.48. And if you look at our AFFO for full year 2024, it was over $5. So that's more than a 50% increase or nearly a 50% increase in our AFFO, a lot of it came from development.

And if you think about the assets that we've built, I mean, these are some of the best assets, the most premier assets, the most sought-after buildings in the market. And as Owen described, our portfolio is full of buildings that we have built. Nearly 50% of our current portfolio are buildings that we've built and we've sold a lot of buildings as well that we had developed over time. So again, this portfolio has been curated with buildings that are new, that have been built by us and that are modern and really sought after by our client base.

So looking forward, this is what we have to deal with going forward. We continue to find opportunities to put capital to work and find new interesting developments with yields that are accretive and that are desirable to our clients. So just this year, we started 343 Madison. We have a 30% letter of intent commitment from a client to lease that building. We started 725 12th Street in Washington, D.C. It's 87% pre-leased to 2 prestigious law firms. If you look at just those 2 projects, the total investment is $2.3 billion, and we expect to generate a cash-on-cash return of 7.5% to in excess of 8% on those 2 properties. So this is the projected remaining development spend, not only for those 2 developments but for the entire current development pipeline that we have. So that's $2.6 billion. And as you can see, the majority of it is really getting spent over the next 3.5 years.

So how are we going to fund this? I want to spend a few minutes talking about this $2.6 billion and how we anticipate funding it because it's going to be a little different than how we funded the last 12 years. So these are our funding options. We have a lot of funding options to think about many of them. And over the last couple of quarters when we've been talking about this, almost everyone has been asking me, so how do you prioritize these? Like what's the list? How do you prioritize it? What do you think is best for the company? So this is the list and how do we think about it? Well, we think about the key metrics and the key metrics that we think about include the impact of each option on future earnings per share on our leverage ratio. And we think about how we can best create shareholder value over time, that's what we think about.

And so if you look at the top 4 options here, those all meet the criteria that we're talking about, and we expect to use a combination of these 4 options to fund our external growth. So I'll talk a little bit about asset sales. Owen covered this a little bit, certainly but it's comprised of land parcels, residential and nonstrategic office sales. So on the land, our goal is to sell a portion of our land holdings. That portion that we don't think we're going to be able to develop in the near term. The sales are clearly accretive to us because right now, we're paying carrying costs on the land. So there's insurance, there's real estate taxes, there's some maintenance associated with them. So every dollar we can get out of that is accretive to us because we're using the money, right, to fund our business instead of using cash or borrowing money.

The next goal is to harvest the value and the residential projects that we have developed. So the market for high-quality multifamily projects in the markets that we are in, right, is a very, very good market. It's strong, and we expect we're going to be able to get cap rates on these asset sales that are below our borrowing costs, below our cost of capital. So that will be accretive to us.

And then the last thing we're going to do is look at nonstrategic office assets that we don't think are going to grow as fast as other assets that we have. As Owen said, some of these will be dilutive but it's good for us to continue, as we have always done, to pare the portfolio and continue to improve the overall quality of the portfolio.

So in total, we're projecting about $1.9 billion of asset sales at a minimum over the next few years. We already have $400 million under contract, and we have about $700 million that's either actively in the market or it's going to be in the market in the next couple of months. And we believe, overall, as Owen said, the program is going to be neutral to earnings when it's completed. But importantly, in some earnings periods, it's going to be dilutive and some earnings period, it's going to be accretive. So it's going to be different kind of over time. And I'll talk a little bit about that when we get to 2026.

So the dividend. As we -- as you saw in our press release today, we've decided to rightsize the dividend. We rightsized it to $0.70 per share. It is more aligned with our taxable income. We appreciate that nobody wants a dividend reset but there are real benefits to the company to using this inexpensive capital to fund our external growth needs. We're going to be able to retain about $500 million over the next 10 quarters. I mean that's a lot of capital for us to use. It improves our leverage. It's accretive to our earnings.

So as you can see from this chart on the right-hand side of the slide, utilizing this excess capital in lieu of incremental debt continues to improve our earnings over time. So that if you can push that out further, it will just continue to be more and more accretive over time. And as Owen also described, the dividend yield on our reset dividend is still in the high 3s. And so we still think that's an attractive dividend yield to shareholders. And it's in line with both the office REIT peer set and kind of the overall REIT peer set. So we think it's an appropriate dividend to have.

And then importantly, resetting the dividend provides us the opportunity to return to being a dividend growth company. Over the past 5 years, we've been really reticent to raise the dividend because it was so much higher than our taxable income, just didn't make sense to us. And now we're much more closely aligned to taxable income. So as we grow our income, through adding developments, through growing our portfolio occupancy, our income is going to go up, and we're going to be a lot more likely to raise our dividend in the future. So our view overall with our dividend is there's a negative perception to cut -- to resetting the dividend. There's no doubt about that. We think it will be short-lived, and we think investors should focus on the fact that we are using this money accretively to create growth for the company and to add shareholder value. That's why we're doing it.

I want to talk a little bit about private equity. James Magaldi is going to cover more of this a little bit later but it's also a funding source for us. We have many, many years of experience in dealing with private equity. It's provided incremental funding to the company, it increases our investment returns because we get operating leverage and we get fees, development fees, property management fees, asset management fees. So it's accretive in that manner. We have nearly 15 million square feet of assets today that are funded in part by private equity. And if you look at who our partners are, they're some of the largest and most sophisticated investors in the world. It's a great group of partners we have, and we really appreciate what they provide to us.

Owen kind of described this, one of our goals is to raise private equity 343 Madison. And we think that given the quality and the scale and the location of that asset, it's going to be very, very attractive for us to try to find capital and prospective investors for that asset. We've already spoke to many companies about that, many investors about that. Our strategy is to raise between 30% and 50% of the development costs, as we described before, we're not necessarily going to start right away. Owen talked about how we're derisking the property by doing leasing and getting our construction costs lined up and getting our contracts signed. So all of that is going to improve what we have to provide as a -- to a prospective investor. So we're going to wait until those things are done before we start.

Why do we plan to keep 50% of it? Because we think it's a great investment. So we're just going to raise up to 50% of the capital because this is a long-term hold for the company. This is going to be a great asset with great long-term growth.

So just to summarize these 3 funding strategies. So using these 3, we think we have the ability to grow to fund and increase funding of over $3 billion with these 3 things. So that's more than the $2.6 billion that we need. So it provides additional liquidity to also do other things.

I want to talk a little bit about operating cash flow growth. Doug kind of spoke about this as well. We believe we're going to have good operating cash flow in the next few years. That doesn't raise capital directly but what it does is it increases our free cash flow and it creates additional balance sheet capacity that we can utilize and it's meaningful.

Starting with our developments. So this is 290 Binney Street. 290 Binney Street is our largest near-term development. It's a life science project. It's located in Cambridge and Kendall Square. It's 100% leased to AstraZeneca on a 15-year lease. They're going to commence paying cash rent in the second quarter of 2026. We are building the tenant improvements for them right now. We believe that they will be in occupancy of the space either at the very end of the second quarter or early in the third quarter. So our expectation is it's likely to start revenue recognition in the third quarter of 2026. Even though we're going to start getting cash rent a quarter earlier than that, we just can't recognize that cash rent until the client takes occupancy and completes their work. 290 Binney is a consolidated joint venture. Norges is our partner so we own 55% of it.

For 2026, we expect our share of cash NOI from the property to be $31.4 million and that's going to grow to $43.3 million in 2027. So it's meaningful to the company. The 2027 cash NOI, that represents an 8.5% return on our cost. And if you look at the GAAP NOI because there's a 3% annual increase in this lease, the GAAP NOI is $54 million a year. So the GAAP return on cost is over 10%. So this is a phenomenal investment for the company and going to provide a lot of growth for us over time.

We also have a handful of other developments that have either already delivered in '25 or will be delivered in the next couple of quarters. There's still some leasing to do. But on stabilization, we anticipate that these developments are going to add about $44 million of aggregate incremental NOI as they stabilize over the next couple of years. And Doug talked a little bit about this but our view is the majority of the incremental income from these assets is not going to hit our numbers until 2027.

1050 Winter Street, which is on the right-hand side, that's the only one that is going to be fully stabilized and revenue recognizing for all of '26. We will be done with that project in the third quarter of '25. It's 100% leased. That client is going to be going into occupancy in the third quarter of '25. So we'll have full revenue recognition on that project in the third quarter of '25. Reston Next, which is the one on the left-hand side, that's also basically fully leased. But the client doesn't need to be into the space until 2027. So we have already delivered that building. And so we will be ceasing capitalized interest in '26 and -- or in '25, and the tenant is not going to go until '27.

And then the other 2 projects, which is 360 Park and 651 Gateway, we still have some leasing to do on these properties. And the space has to be built out before we can start recognizing revenue, so it's going to be a little while. At 360 Park, we recently signed 2 leases. So those will be going into service sometime in -- some time in mid '26 so that's good. But for the remaining space that we think about in these buildings, it's going to be a 12-month build-out. We don't have signed leases today. So as you think about it, I mean, it's really going to be the very end of '26 or into '27 before we have revenue recognition. As Doug mentioned, 651 Gateway, we haven't had a lot of demand on that. So that could be even more extended than that.

And then there's the existing portfolio that Doug described. I mean, he went through this in a lot of detail. We expect that we're going to be able to grow occupancy, we believe every 100 basis points of occupancy should result in about $33 million of incremental NOI. So if we increase the portfolio to 91%, we think the annual run rate in the portfolio NOI should be close to $150 million. Doug our math is a little different. I got a little -- I got $20 million more than you, Doug but we'll see somewhere between $130 million and $150 million. Again, that's on a run rate basis. starting kind of at the end of '27 because that's when we would expect to kind of have that occupancy. So it's obviously not a straight line.

I want to talk a little bit about the debt markets because that's another source of funding for us. I don't think it's going to be as critical for us going forward but we do have some refinancing to do as well. I would say that it's always been an incredibly reliable source of funding for us. I would also say that 2025 has been a really, really good year for the debt market. It's trending positively, coming off at '23 and '24, which is great. We primarily use the unsecured bond market to fund ourselves, but we're active in all the markets. So the bank market, the secured debt market and more recently the CP market, and we're going to also talk about the convertible debt market because we're involved in that as well.

If you look at the bond markets, 2025 is a record year. In terms of issuance, in terms of performance, in terms of money going into fixed income products because rates are higher. So that's been a really, really good market for us. Our outstanding 10-year bonds are trading at spreads somewhere between 130 and 140. So pricing for a 10-year bond on this slide says 5.75%, there's been some rallying in the 10-year over the last few days. So it's actually probably closer to 5.5% as of this morning because there's been a big rally in the 10-year. But it's a very attractive and active borrowing source for us, And again, it's the biggest market that we rely upon.

Exchangeable debt or convertible debt, whatever you want to call it. This is a market that we also are looking at. We haven't used it in over a decade. We had some convertible notes outstanding in 2006 through kind of 2013. That was the last time we used this market. The convert market is a 5- to 7-year security. It has a coupon that's a lower coupon than an unsecured bond but you're offering the holder a conversion premium so that if your stock goes above a certain set premium, they get paid additional interest. And so that's why they're willing to offer you a lower coupon. So the current pricing for us for a 5-year convert with a conversion premium up 40% on our stock price is about 4%. And so that's a security that we've been looking at.

Mortgage market, a little more spicy than the unsecured bond market, I would say, pricing has a wide range. It's really dependent on leverage, asset quality and weighted average lease term. We're seeing pricing at somewhere -- anywhere between the high 5s and 8%. CMBS market, which is an important piece of the secured debt market is improving. We've seen a lot of large office single-asset securitizations go off. And during '25, you've seen the credit spreads come in and the trends improving in that market. And you also have a conduit market, so if you have a loan that's probably $200 million, $250 million or less, you can really hit that conduit market, and that's an active market as well. We have a loan on the Hub on Causeway in Boston that we need to refinance. So we're actively doing that now, and we expect to refinance that kind of in the lower end of this coupon range.

Then we have the bank market. So the bank market is really our line of credit and we have term loans outstanding in the bank market. So we have about $1 billion outstanding in the market today. We price at 100 basis points over SOFR. So that's roughly 5.25%. And then commercial paper is another market that we're in, and we have $750 million outstanding in the commercial paper market. We've had this outstanding for probably 1.5 years. It's been a very, very attractive place for us. You can see that the coupon is somewhere between 4.5% and 4.6% today. The maturities are usually within 30 days, it's priced over SOFR as well. It's our cheapest source of debt capital that we have.

So we do expect -- so the bank market and the commercial paper market are floating. So we have roughly $2 billion of floating rate debt. So depending on what the Fed does and the direction of SOFR, we do expect that we will have some earnings benefit if SOFR goes down at the Fed cuts. So every 25 basis point decline in the SOFR rate will reduce our interest expense annually by about $5 million. So that's about $0.025 a share.

The other benefit or the other goal for our funding strategy is to enhance balance sheet strength, reduce our leverage. So we have a goal to improve leverage over time. As Owen described, we think that's going to help our multiple because companies that have lower leverage have higher multiples. If you look at the second quarter of 2025, we reported net debt-to-EBITDA of 8.2x. The investment in our development pipeline, the $2.6 billion and the portion of that goes out before the end of '27 increases our leverage, right? We're putting out capital and we don't have any income associated with that capital until those properties deliver.

Asset sales, reduce our leverage by 60 basis points. The dividend reset improves our leverage by 25 basis points. Bringing in a partner on 343 Madison reduces our leverage by 25 basis points. So these 3 funding strategies that we've spelled out to you will fully mitigate the impact of funding that development over the next 2.5 years. And then if you think about the growth in our EBITDA, that's also going to help delever us. So we've got development deliveries and we've got occupancy growth in the in-service portfolio. So we think that can improve our leverage by another 100 basis points over time.

And so by the end of 2027, we believe that we can be at roughly 7x net debt to EBITDA. And then when you think about 343 Madison and you think about 725 12th and those coming into service and adding EBITDA in the future, that's going to delever us even further. So all of this is design, right, to enhance our balance sheet capacity. So we continue to do new investment.

So just to summarize the funding strategy, I think that we've come up with a creative funding strategy that fully funds our development pipeline, and it also achieved several other very important corporate goals. It improves our leverage, it's accretive to our earnings. It creates capacity for new investment and it positions us for future dividend growth. So all are important to us.

So now I want to turn to another section of my presentation, which is to talk about 2026. For 2026, Doug described an occupancy growth trajectory. So we provided a lot of detail on the leasing plan and how well positioned we are to gain occupancy over the next 2.5 years. The gain is expected to result in positive same-property NOI growth that will be a contributor to earnings growth. However, the occupancy is not going to grow in a straight line, right? You have to think about the timing of our lease expirations during the next 6 quarters and the timing of the revenue recognition that we have from leases we've already signed as well as leases we plan to sign or new leasing that we're going to have.

So we described in our last call that we expect to reach about 87% occupied by the end of 2025. And so if you look at our expirations that occur right at the end of '25 and then you look at the first quarter '26 expirations, we actually anticipate that occupancy is going to decline slightly in the first quarter of '26. But then our expirations really fall off and a lot of the signed leases that we have are going to start taking occupancy. So we have visibility that we think we're going to be able to increase our occupancy on the back 3 quarters of 2026 to get to the point that Doug talked about, which is about 89% occupied at the end of '26. So that means that the average occupancy that we expect next year is between 87.25% and 88%, that's about 70 basis points higher than '25.

Near-term development deliveries. So we expect to have NOI growth from our developments though it will be muted by the burn-off of capitalized interest. As I mentioned earlier, 1050 Winter and 290 Binney Street will contribute to our growth next year. The other developments on this page, given the timing of the build-outs and the timing of occupancy, we think we'll have -- will not have a meaningful impact on 2026. But we're going to be losing capitalized interest on all of these properties. So that's important to think about. So the impact of the burn-off of capitalized interest from year-to-year will increase our interest expense by $0.07 per share in '26.

As the developments on this page lease up in the future and later in '26, in '27, as Doug mentioned, that's going to all fall to the bottom line because we've already ceased to capitalize interest on all of that. 290 Binney Street needs a little bit of explanation, and I apologize that I'm going to have to talk about accounting. But the accounting for this -- for the capitalized interest for this project is really unique. And I want to make sure that you all understand the impact that it will have on our FFO growth next year.

So as I mentioned before, we own this property in a consolidated joint venture. We are funding this project entirely with equity. So that means the venture has no construction debt at the venture level, right? All of the capital had been raised at the corporate level. In this circumstance, the accounting guidance requires that we capitalize interest at 100% of the consolidated cost, even though we only own 55%, we're capitalizing at 100% on our books today. When the project delivers next year, we're going to recognize 55% of the GAAP NOI but we're going to lose 100% of the capitalized interest on the cost. So there's a mismatch. And so the mismatch occurs, and that means that the GAAP FFO growth from this asset is not going to be as great as you would otherwise think it would be.

So the incremental FFO that we're going to generate from '25 to '26 is only $6.5 million for this property. So that includes both the GAAP NOI offset by the capitalized interest while our share of the cash NOI is $31.4 million. So this seems really nonsensical but unfortunately, we have to deal with GAAP and the vagaries of the GAAP. But I just want to make sure all of you understand it because it's important for your models given the scale of this development to the company.

I mentioned sales -- asset sales earlier, and I said they're going to be accretive in some periods and they're going to be dilutive in some periods. So in 2026, we expect the asset sales based upon our projection of the timing of all the sales will be dilutive to us by $0.04 to $0.09 per share next year. Bond maturities, so this is another thing to think about. So we have 2 bond expirations in 2026, they both have below market interest rates. We've been benefiting from these low rates for the last 10 years. They include a $1 billion bond that expires in February at 3.77%, and another $1 billion bond that expires in October at 3.5%. So we need to refinance these bonds and our plan right now is to use a combination of 10-year unsecured bonds, which was about 5.75%, and convertible debt at about 4%.

So depending on which one you use, the incremental interest expense is different. So if we use all converts, right, it's only dilutive by $0.02 per share. If we use all bonds, it's diluted by $0.14 per share. So despite the fact that the convert sounds really great because the dilution is less, it's not very likely that we're going to do $2 billion of convert, okay? Because we want to ladder out our maturity much further than that. So I expect that we're going to use some combination of these 2 securities to refinance this debt. So I kind of look at the midpoint and say, you should be thinking that we're going to have higher interest expense by about $0.08 a share from refinancing activities in 2026. And that's kind of the best kind of assumption that we have right now.

So to summarize all of the bread crumbs to 2026. Our leasing plan is going to lead to what we believe to be projected average occupancy of 87.25% to 88%. So that's up 70 basis points from 2025. We anticipate that we're going to get some NOI growth from our development delivery, primarily 1050 Winter and 290 Binney. Our dividend reset is adding $0.04 a share. We will have $0.07 a share of capitalized interest burning off that's going to increase our interest expense, so that's dilutive. Our refinancing activity will be dilutive. So we expect interest expense to be higher from refinancing by about $0.08, $0.02 to $0.14, somewhere in there. Sales activity $0.04 to $0.09 dilutive in '26. And then depending on what your view of Fed rate cuts is, we should get some benefit on our floating rate debt portfolio.

So that's all I was going to cover. Hopefully, it's been helpful. Happy -- I've got a few minutes for questions, if anybody has any.

Mike, can you just talk about the decision a little bit more to cut the dividend instead of pursuing more asset sales, higher quality assets, lower cap rates or even using, let's say, some ATM issuance over the next several years to fund development?

So we didn't talk about equity. Obviously, it's a source for us, but it's a more expensive one in our view at the current share price. Our view is that the dividend we were overpaying it and given the investment pipeline that we have, we would like to use that capital more accretively to invest in properties. And we really felt like it was appropriate that we should not be overpaying the dividend when we have this external growth going on. The asset sales, we'll see how they go and whether we increase them more in the future or not. I mean that is a little bit more speculative because you don't know exactly what you're going to get as we think about kind of the next $500 million or $1 billion that we could potentially sell, whereas resetting the dividend today is unknown, right?

So we know that we're going to get that money, and we're going to be able to use that money accretively to put it in. So those are the kinds of things that we thought about when we made that decision. And we tried to be very kind of transparent and clear with all of you because we've been talking about it for the last 3 or 4 months to make sure that nobody was surprised.

Alex?

Just going through the [indiscernible] range you provided a lot of negatives. And there was a lot of talk of '27 so it sounds like '26 is going to be a flat year at best or down from this year unless you some positives that are offsetting the known negatives.

I mean I don't think that's necessarily the case, Alex. There was a lot of positives in there, too.

I know but you didn't articulate [indiscernible] . And given the annual lengths that we all have with the annual outlook, just trying to get a sense of where -- how we should use this -- the information you provided as we go back to our models to think; about?

Sure. I mean if you think about 70 basis points of average occupancy growth, right, Doug said 100 basis points of average occupancy growth was $33 million. So 70 basis points about $25 million. So that's positive on 177 million shares. So I don't know, $0.14, something like that potentially. And then if you think about the development, I mean, 290 Binney has the offset of the capitalized interest but that's in the $0.07 of dilution. So on the other side is the GAAP NOI growth that's coming from that asset and the NOI growth from 1050 Winter. So I provided those in the presentation, that's meaningful growth.

And then the dividend reset is accretive. So I think there was 3 accretive things and 3 dilutive things, and then there's the floating rate debt. So I know you can kind of use that to kind of create your own range. I mean I don't want to give guidance today. That's not our goal here. I'm really just trying to give some insights to what can happen, but I don't think I'm trying to tell you that it's going to be a down year.

Have you thought about providing a core flow number? Some of your peers do it maybe in other sectors but even with an office because it seems like you are conservative with the way you capitalize interest, you provide a NAREIT FFO basically. So when you have refinancing, that's another headwind but it seems like there's always some kind of offset to what should be organic growth. So I'm wondering if internally, you've discussed providing a different figure.

We have discussed that over many, many years, and we are very pure in how we report and we've always taken the road that there's a NAREIT definition to FFO, and we should be using it. And by the way, we've got a lot of generalists that are in our share base, and we don't want to confuse them by providing multiple metrics. So we're trying to be transparent as pure as possible. I don't anticipate that we're going to start adding additional metrics to what I think would complicate the story, personally. Going back to the room, John.

Two quick questions, if I may. Do you anticipate providing '26 guidance with the third quarter earnings? Sorry, yes, fourth quarter -- third quarter earnings or we wait until January?

We will provide it in January, which in January, we've been doing the last few years.

Right. And the second question is, would you anticipate many of the sales would generate special dividends? Or are you going to be able to protect from that?

Our objective is to not have any special dividends. So we've kind of -- we've designed this because some of them will have gains and some of them will have losses, and we've kind of timed out the whole program to not have special dividends.

I think that's all the time I have. We can do a couple more. Fantastic. Okay. So we're not getting lunch. We're just going to have questions. Any other questions? Yes.

I think you initially outlined the $1.9 billion that was going to be kind of neutral to earnings, but then the $1.7 billion is the $0.04 to $0.09 dilutive. So would that -- should we be thinking about that $200 million balance being accretive to 2027? Or how should we be thinking about that?

Yes. In 2027, we have 2 pretty large land sales, one of which is already under contract. There's just some entitlement risk associated with it. And those 2 land sales are because of their size, they're very accretive to us. So they're going to offset that '26 dilution. Good question.

Okay. Time for lunch. Thanks, everybody.

So lunch will be served right outside the store right here. There's a buffet, and we will be getting out the squad shortly. You're welcome to sit in any of the rooms. There's -- you can sit back in your seat here, and there's conference rooms available as well.

[Break]

Next up, we have Ben Myers, our SVP of Sustainability.

Hello. All right. This is loud. Welcome back, everybody. I'll take it as a good sign that you're here back from lunch ready to hear a very concise overview of our sustainability program, some of the areas of focus and how we're adding value through our sustainability initiatives.

So I'll start by going through some conditions. And I want to say that one of the reasons BXP is a globally recognized leader in sustainability is because we have a long-term ownership model. We have leadership and a view from the top that this matters. We also have a commitment to quality and premier workplace that is correlated with highly sustainable operations and development, and we're vertically integrated. So this is a picture from our engineering leadership summit earlier this year. And many of these engineers, all of them, I work with closely on the energy initiatives I'm going to talk about today.

One of the conditions that we're facing is load growth, capacity constraints and energy cost escalation. So the load growth story driven by generative AI, driven by electrification, advanced manufacturing in EVs is real, and it's causing energy prices to escalate. In our regions, we spend about 60% more than the median across the U.S. for commercial rates -- power rates. So very important that we control that $140 million energy expense, and that's part of my job.

Next, regulation. We have building performance standards in New York, Cambridge, Boston, Washington, D.C. and Seattle. And so existing buildings are now subject to these regulations and need to implement changes operationally, implement CapEx to comply with these regulations. I'll talk a little bit about how we're doing. We have client demand. So we have commitments from our clients that have their own public targets. And so a lot of our engagement and transactions is informed by the commitments of our clients, and they're asking us questions about how the building performs, whether it's LEED certified, Energy Star certified. And we also have climate risk.

So the intensifying physical risks associated with climate change. So these are the conditions. We're very much focused on what we can control, and we seek wisdom from the stoics, right? The obstacle is the way, put simply. And I'm going to highlight this obstacle is the way theme with an example. Do you -- does anybody remember Frogger? All right. So I grew up during the '80s, James, thank you. And in Frogger, you advance -- the player advances this amphibious protagonist across a series of death traps, right, advancing across these different obstacles.

And energy infrastructure development in 2025 has become Frogger on hard mode. So here we have our energy infrastructure project developer, and you might be thinking solar and wind, but this is really all kinds of energy infrastructure from solar and wind to batteries to transmission to natural gas generators. All of this has gotten more complicated. A project developer is navigating permits and utility interconnection queues, which may span 4 years and local approvals that have gotten harder to secure. There's uncertainty around policy, regulation, tax code and tariffs. And all of this is resulting in the alligators, capital markets and project finance, which is getting harder to secure. It's taking longer to close on project finance and the cost of capital is getting harder for many infrastructure projects, largely in reaction to the first 2 death traps here.

So it's very hard to become a successful project developer in 2025. And this is contributing to our view of what the priorities are for our program, controlling energy cost escalation, which is inevitable in this Frogger environment of project development. So our team, a small, but mighty team of 3 in Boston is focused on the following priorities, and I'll unpack them a little bit for you today in the small amount of time I have with you. Cost control, energy efficiency, load flexibility, so flexing our power down during times of peak demand to control cost and clean energy procurement where it's cost effective.

Compliance and differentiation. We have a tremendous amount of internal expertise on green building and sustainability that we want to use during transactions and are using. We want to use it to inform operations for more cost control and then development execution, and we're going to hear more today about 343 Madison. That's a project where we're putting a lot of these skills into practice from our sustainability team down through our construction and development teams in the field.

And finally, risk avoidance. There are climate-related physical risks. And as I said, these risks are intensifying. There are ways of assessing those risks, proactively identifying risks and adapting our portfolio and our developments to become more future-proofed. We are, as a company about less talk, more action. And this is reflected by our performance since looking back to the 2008 base. So here, we have 2 metrics. One is energy intensity measured in kBTU per square foot. So think total energy use divided by square foot of our actively managed office portfolio.

And then Scope 1 and 2 carbon emissions, so the carbon intensity of those operations. Both have declined dramatically since 2008. Energy use is down 39% across our portfolio, and we've reduced our Scope 1 and 2 emissions to 0 as of the end of 2024. An example of how we're reducing energy use so dramatically is exemplified by the GM building here in New York up the street.

When we acquired this building, it had the highest energy use intensity in our portfolio, about 140 kBTU per square foot. We've essentially cut that in half, down to the mid-70s. We did this through a central plant modernization. So it's a $13 million investment in the Chiller plant, the deployment of Nantum, which is a solution that allows us to more dynamically control the building, set back temperatures, set back fan speeds to achieve more operational savings. And we estimate that in 2026, as a result of these investments, we'll save about $3 million for the calendar year on energy-related expenses at the GM building.

We also avoid Local Law 97 penalties through 2034 and perhaps beyond, but we're looking out to 2034 now. And we achieved the Energy Star certification for the first time in February. This is a graph that shows that dramatic reduction in steam. So this is through the cooling season. Before the Chiller plant modernization, this building used steam for cooling. So it had an old steam turbine chiller that would provide most of the cooling for the building. Now it's -- since the modern electric drivelines were installed, we've cut our steam use 60% through that season, reflected here by the dark red line versus the dotted red line, which is 2022 pre-modernization. Of our energy initiatives, there's 3 I would highlight here for you today. I'll cover very briefly.

Retro commissioning. So this is going through point by point through our portfolio, through the equipment and making sure the systems are operating as intended. We've retro commissioned 15 million square feet over the last 2 years, and that has resulted in $1.6 million of energy cost savings. So that's a sub-2-year payback on our retro commissioning program. It's a very successful program. We intend to do more.

Demand response. When I mentioned load flexibility and flexing load, at the ISO level, so the regional service providers, transmission operators like New York ISO, ISO New England, they have programs that essentially pay us for reducing our consumption during peak congestion periods as do the local utilities like Eversource in Massachusetts and Con Ed here in New York. We are participating actively in those programs. We have over 50 properties enrolled in Boston, New York and Washington, D.C. and have extended that program to San Francisco and continue to participate in demand response.

Third, energy efficiency. This is the largest cost savings across our portfolio. We can point to hundreds of projects where we've reduced energy consumption cost effectively. This results in about $49.5 million of avoided annual energy expenses when you look at that 39% intensity reduction. We also set new 2030 targets this year for energy and a science-based target for carbon. There was a question earlier about AI and where the AI opportunities are.

I definitely think in this space, retro commissioning and energy auditing, there are large opportunities to use data from energy submeters and occupancy to turn down spaces given new occupancy patterns. For example, where we see occupant densities dropping on Fridays, in particular, turning down those spaces and saving energy when we can on Fridays and more accurately tracking occupancy throughout the building so we can do space level, zone level turndowns of equipment, fans and conditioning to save more power.

We're also piloting an AI energy audit at 200 Fifth Avenue. It's the first time we're doing that. And one of the challenges in this space is that it's been so expensive to develop these customized energy and decarbonization plans at the asset level, AI is going to make that much more efficient. So the cost to get a really high-quality energy audit is going to come way down, meaning we can do a lot more audits.

There's only so many parameters you need to enter for buildings. Yes, everyone is a Snowflake, but say you have 150, 200 parameters that you can identify for a building, you could quickly do audits rather than paying a consultant over a 6-, 12-month process to come up with good recommendations for asset level efficiency measures.

Our energy mix is rapidly shifting from brown to green. So today, about -- of our total energy use across our entire actively managed office portfolio, 10% of it is natural gas. So we use that high-efficiency boilers, I think 98% efficient condensing boilers. 10% of our total use is natural gas. The balance is steam, which is 16% and the rest is clean energy from different sources. One of the new sources that's coming online in 2026 in September that I'm particularly excited about is this project called Nutes Solar, a 20-megawatt AC ground-mounted utility scale solar project in Farmington, New Hampshire. It's being delivered to BXP under a direct PPA, meaning the electrons will flow to power our operations in Massachusetts.

We've done and participated in a variety of on-site solar projects over the years. Our first project was at Weston Corporate Center, now the quarry in Weston. It was a 110-kilowatt ground-mount system in 2010. At the time, that was the largest privately held solar array in the state of Massachusetts, it's hard to believe. Since then, we've developed a total of 14 projects for 11.5 megawatts on site. And we've added these 2 projects, one is called Estonian and the other Nutes I was just talking about that add another 40 megawatts -- 41 megawatts of new solar capacity, bringing our total solar capacity under contract to north of 50 megawatts.

One project I'll highlight that delivered in March of this year is Reston Town Center Garage Canopy. The community loves this project. It's a 1.3-megawatt solar array that we delivered in partnership with Microsoft. Microsoft had an interest in the attributes. So they wanted to take the carbon credit for this project. They can see it outside their window down the street at 2 Freedom. So they asked us, hey, could we work on this with you?

And we were happy to. So we brought in a developer, partnered over a long-term PPA. And through Microsoft's agreement to buy the attributes and our agreement to buy the power at a cost below what we were paying the utility, we were able to make this work, and we get the benefit of covered parking. So very excited about these urban infill garage canopies. We've done several of these and then think there is a real opportunity to do more. If you look at the entirety of our clean power procurement, the 50 megawatts of new solar capacity under contract, 32.5 megawatts of which has been delivered from the 14 projects we have in service, we save about $400,000 a year on the utility expenses.

Every project we've done, we've done and it has delivered utility cost savings. So we're not doing this at a cost premium. We're not doing it because it feels good. We're doing it because it saves us and our clients dollars on their energy expense. In 2027, I should add that Estonian, this is a project in Delta County, Texas, which COD in January of this year, and Nutes will add considerable value. So our value from solar really jumps up in 2027 due to the combined value created by the power itself, cheaper power, but also RPS compliance. So these are state-level requirements where you have to buy a certain amount of your power being green.

We can sell the RECs. We can sell the attributes into the market, monetize those. We also get benefits from building performance standard compliance where our compliance pathway may be green power. So we've strategically pursued projects that produce the value, whether it's BPS compliance, utility cost savings or the attributes themselves, which have value due to RPS requirements at the state level.

On building performance standards, as I mentioned, we've gotten a lot of questions, how are you prepared to handle Local Law 97, Boston's BERDO, Cambridge's BEUDO. These 3 charts from left to right, New York, Boston and Cambridge show with the dash line what the caps are, the caps are specific to our portfolio based on our office asset class and the carbon emissions factors that are defined in the regulation.

So regulation essentially tells you how to convert power to carbon, and they do that with a carbon emissions factor. So the dash line moves over time based on the local regulation and how that definition is made in the regulation. So in all cases, through 2034, we are compliant with building performance standards. And we will continue to plan for the future and see how these building performance standards are enforced, how they change, and we do expect that enforcement and change will be dynamic over time.

Net zero commitments. There has been a lot of noise this year around the disbanding of the Net Zero Banking Alliance, the walking back of targets. I just want to emphasize that we still see strong commitments from our key clients. So clients like Salesforce, Google, Akamai, their commitments to energy and carbon remain strong. And we -- I mentioned the engagement with Microsoft.

We have a lot of clients that this still matters to them. They want to be in buildings that are LEED certified at the highest level. They want an Energy Star label. And to the extent it's possible, they'd like to avoid on-site fossil fuel combustion. One such client is AstraZeneca. So we're going to hear more about the BXP Life Science Center in Cambridge, Massachusetts. It's come up today earlier. This is a 570,000 square foot laboratory facility with no on-site fossil fuel combustion.

It's the first time we've done this. It's one of the rare cases in the U.S. where you have laboratory that's fully electrified. What makes that challenging is that you have so many air changes. The amount of air volume you have to condition at single pass, you're not -- you don't reuse air in a lab, and you're doing 6 to 12 air changes per hour. So you need a lot of capacity, heating and cooling capacity on site. Doing that with a fully electrified system requires new modern technology, new air source heat pumps that are more efficient at delivering heating and cooling that allow us to electrify.

So these are -- this is an air source heat pump building. We do have standby backup steam. So it is a belt and suspenders approach where we have for resilience, a connection with steam at the street in the event we need it. So that helps me sleep better at night, and I think it helps AstraZeneca sleep better at night, too.

This whole project is really a story about electrification because it also includes a substation and public park. Substation will add about 360 megawatts of new power capacity as part of Eversource's grid modernization efforts, and we're delivering the shell for that substation as part of this development project, along with a 420,000 square foot multifamily residential building, 121 Broadway, which is also fully electrified and is targeting LEED Gold certification.

So this whole development is really an electrification story unfolding in 2025 that is quite exciting for the sustainability nerds like myself. 343 Madison, there's a lot to say about this building. V4 -- LEED V4, it's an early adopter of V4, maybe a late adopter of V4. But I think it's the right adopter of V4 because it's fully electric, LEED platinum. It has an all -- it has air source heat pumps at the crown. You can see them here in yellow. It is transit-oriented. It has -- it's energy efficient. So it's a 43 kBTU per square foot building, benchmarks very well against everything like it in the city of New York.

It's a tower that not only provides efficiency, but it also provides tremendous daylight and views. And that's always a tension. How much glass can you have in a building while also remaining efficient, how much fresh air can you deliver to occupants. And here, 30 CFM per square foot is well above the recommended ASHRAE level. So it's going to have very fresh air, MERV 13 filtration. It is the epitome of advanced green building today in the United States.

And finally, climate resilience disclosure and applied analytics. We have partnered with a company called First Street to do risk assessments across our portfolio, looking at flood risk, looking at wildfire risk, sea-level rise. And we've aligned our disclosures with the TCFD. So we'll continue to disclose transparent information around how we view climate risk in BXP's portfolio to our investor community.

And we're proactively addressing risks at developments like 290 Coles Street. Here, we've elevated the first floor. Critical equipment is mezzanine level and above. We have 750 kW of backup generation, and we have the aquafence at low-lying areas on site that we can deploy in the event of a superstorm Sandy weather -- extreme weather event.

Some performance highlights I'll leave you with. The 39% energy use intensity reduction, 49% water consumption reduction results in $53 million of avoided annual utility expenses. We've won a number of awards. We filled the trophy case. I won't go into the awards, but you can read more about them in our 2024 sustainability and impact report, which includes an awful lot more detail. We released it on Earth Day. I want to thank you all for your engagement and support of BXP's sustainability efforts. Thank you.

Unfortunately, we have no time for questions, but then we'll be available at the cocktail reception.

Thank you.

Next up is Rich Ellis, SVP of Residential.

Great. Thank you. For those I've not met, I'm Rich Ellis. I've been with the company 18 years now and the last 6 years focused on our residential business. So as many of you know, the residential business, while still a small part of the company is growing. And my goal today is to provide an update on what we've been up to. And as Owen and Doug and Mike have mentioned, it is a focus as we think about not only our land pipeline, but kind of how we grow given kind of the overall macro environment.

So I thought I'd start with why residential for BXP. We are clearly a premier workplace company. Why is this something that senior management has had us focus on over the last 5 or 6 years. First, as we've mentioned earlier this morning, this is now the highest and best use for many of our suburban assets. And I'll walk you through a couple of examples of suburban office assets that have been quite accretive to the company for many years, but times have changed. And today, residential is the highest and best use. We own the land. What's the best way to kind of create value.

Number two, it clearly adds -- it's a use that adds vibrancy to our mixed-use environment. So if you look at Kendall Square or Reston Town Center or the Hublong Causeway, residential is a key use within that environment to help drive our premier workplace. And we've kind of developed now an expertise to do that use ourselves, and we'll walk you through some examples there.

As I just mentioned, we have built more of this now. We've built about 3,000 units, but we have team members in pretty much every one of our regions that's done residential outside of BXP. So we think this has now become a bit of a core competency for the company. Everything we've done in the last couple of years and will do, as Owen mentioned, will be kind of on a JV basis.

So development in this product type is a bit different on the office side where it's capital light. We don't have an operating platform. We're always engaging a third-party property manager. And we're earning fees and hopefully driving value on given sites. It's a highly liquid asset, and we've done this a couple of times through the years, and I'll go through those, and we're actively in the market right now on a couple of assets.

So it's a product type that is more easy to transact on, especially in some tough times. And another reason why we like to kind of keep this within the portfolio. And most importantly, we have a track record of creating value. As Owen always says, we're doing this to make money, and we've demonstrated that throughout history, and we'll show you some examples of that.

A quick time line, if you will, for our residential business. So really, our first project of scale occurred back in 2011. Some of you know our Square 54 project, where our 2200 Pennsylvania Avenue office building is. We got into that project when our residential partner at the time decided not to proceed with the deal, ended up being a great thing for the company, for me personally, but a huge success. We delivered in a market with really no new supply.

So that was our first project. From 2011 to 2015, we delivered 3 projects, about 780 units in total. And these were all high-rise projects, highly integrated into office environments where the reason we were doing the overall mixed-use project was for the office use. And then from 2018 to today, we've delivered an additional 5 projects, and some of you have toured some of these, mainly in, again, environments where we're building and owning office. Skyline in Oakland was kind of a one-off example.

And our most recent delivery, I'll highlight in a second, is Skymark in Reston Town Center that we delivered about a year ago. So in total, we've delivered about 2,900 units. We actually have 3 projects under construction right now, I'll quickly update you on, which is another kind of 1,200 units. So this is growing fairly quickly within the overall company.

As I think about the framework of our residential business, again, within the framework of the overall whole company, there's these different buckets, and I'll provide a quick update on each. The first is our current operating portfolio, which is about 2,200 units. This portfolio has performed quite well, growing anywhere from 3% to 6% year-over-year. 2 to 3 of these projects, as Owen mentioned and Mike mentioned, we will be in the market with, if not already, and hope to close on by the end of the year or Q1 of next year.

We have 3 projects under construction that I'll walk you through. We have what I would call our nearer-term pipeline, Worldgate, Kingstowne and Weston I'll walk through. These are projects that we hope to start in the next year or 2 or 3, we'll see. Some are more imminent than others, if you will. And then we have a whole host of land pipeline that Owen walked through, and I'll walk through quickly that we're working on that we're in a cost-effective manner, advancing entitlements on, and we'll kind of see where the timing of those lead.

And then we're always looking for new opportunities. If you look at our 290 Coles project, if you look at our Worldgate project, those are residential opportunities where we're creating value. And those were not assets we owned previously for office uses. Those were sourced by the local teams, which is another differentiator we think we have. So real quick, I won't get into this much detail. Our current in-service portfolio, like I mentioned, 2,200 units, pretty much every one of these buildings is the top building or 2 in its given comp set from a kind of occupancy rent perspective. And as we've mentioned a couple of times, we think now is the time to seek to dispose of a couple of these assets, given the current operating status, those and the overall kind of cap rate environment.

The 3 projects under construction, a total of about $1.2 billion in project costs. But most importantly, we are about $720 million of that. That's primarily our 121 Broadway project, which is a key component of the overall Kendall Square development. So these projects are all under construction now. 17 Hartwell and 290 Coles Street are good examples of kind of an 80-20 like JV structure and both of those started this year.

And then if you look at our land pipeline, this slide was shown earlier, but this is land that the company controls completely. We have teams in each of these markets with amazing relationships on the entitlement front. And I would say that Northern Virginia, suburban Boston are some of the, as you guys know, most desirable multifamily markets, and that's where this is, Santa Monica Business Park. So these -- and many of these projects could yield additional units over time.

And so our goal right now is to, again, in a cost-effective manner, advance entitlements and design so that we can take advantage of the residential opportunity. And that might be selling the land as entitled residential. It could be finding an 80% partner and proceeding. It will just depend, but we think that we've gone through and called the portfolio and said, hey, residential is the highest and best use in these sites. How do we best advance those plans going forward.

So I thought I'd walk through a couple of examples. Like I said, we are in the residential business to create value. And I think we have a couple of good examples of that. And each strategy was a bit different. So 17 Hartwell Avenue is something you might have heard about, the Boston team started back in July. So this is a legacy office building that was -- I think one of the assets that seeded the company, built in 1966, very successful 30,000 square foot office building for many, many years. It just kind of kept rolling and rolling.

In the fall of 2023, Bryan Koop's team got Impact Mobile Hill, got noticed that the tenant was not going to renew their lease. So we made a decision to seek to rezone to residential. The town of Lexington is not an easy jurisdiction to kind of get rezonings done in. The tenant left in the spring of 2024, and we started construction in June of '25. So an amazing execution by the local team.

This will be a 312-unit project. We sought an 80% partner here. And so we formed the JV back in June. And essentially, that joint venture gave a value to the land of $22 million. So if you apply that to the 30,000 square foot office building, it's a pretty $700 plus or minus a square foot deal. 80-20 joint venture. We have no incremental investment going forward.

There's a promoted infrastructure, and we feel like our partner, great about this project as there's such limited supply in Lexington. So just an example of taking an accretive office asset for many, many years for the company, pivoting to residential given the change in the environment, using the local team to get the entitlement done, to get the deal started, and we're excited that's under construction.

Our first project, the Avenue is another example. This is -- again, we stepped into a potential partner shoes to satisfy the overall mixed-use environment. Ray had done a major office lease on the office component and our partner didn't want to close on the resi. So we took it over, ended up being an amazing project at 7-plus percent return. We decided it was a short 60-year ground lease. So we decided for a couple of different reasons to sell back in 2015 and created $73 million value.

And then finally, the Avant in Reston Town Center. So we've built now 3 projects in Reston Town Center. The Avant was our first, and we decided to sell this in 2022 because we were, at the time, acquiring an asset in Seattle. And so the decision was made to have a reverse 1031 exchange, and it was a difficult interest rate environment and overall market environment. But again, residential is a more liquid asset class. And so the decision was made to sell this.

We were told get this done in, I think, 90 days, which we were able to do. So I think the example here is the ability to have residential assets on our -- within our portfolio creates optionality in terms of raising capital as we move forward.

Quickly, the 3 near-term projects that we're most focused on. So first of all, Worldgate is a project in Herndon, right near Reston Town Center that we bought into in January of 2023 with a 50-50 partner. We've taken that through a rezoning. Half the site will be for sale townhomes that we are now under contract for and hope to close on in 2 different tranches starting in January of next year. And then we have designed a 359-unit apartment building.

And the beauty of this deal is that the existing parking deck that serve the office building will remain. So we think we have a very attractive basis at, call it, $350,000 a unit. Similar to 17 Hartwell, we are now going to launch in the next couple of weeks, a process to find a -- hopefully an 80% partner and hope to start that in Q1 or Q2 of next year. Kingstowne real quick is -- we have not done a true office to resi conversion, though we've looked at many and we continue to look at many. But this is an example of one we think could have some legs, if you will.

We own 2 office buildings, as you might know, in Kingstowne, Springfield, Virginia. We have decided to take one of those buildings and take it -- rezone it to residential. And the idea here is to convert the existing plus or minus 150,000 square foot office building and then actually add 5 levels of wood frame units on top of the existing parking deck. And we think this could have some legs because there's no new parking that needs to be added, but you're adding kind of efficient wood frame units to get to a total unit count of 280 that could work.

So anyway, that's a little bit further out, but we're in the process of getting that rezoned. The county seems receptive. And then Bryan Koop's team is working on Weston quarry, which again, Weston is an amazing residential submarket if you can get entitlements. And so we are hopeful there and his team is making good progress.

Just quickly, as Owen mentioned and I mentioned earlier, everything we're doing on the residential front now is with private capital partners. We spent a lot of time over the last 3 or 4 years meeting with groups ahead of any given project just to educate them on our residential capabilities because some might say, you're a premier workplace developer, why are you the right sponsor?

And I would say that we've gained lots of traction there. We've now done 4 joint ventures, almost 2,000 units. And I think what partners see in us on the residential side is that we have these local teams that are deeply, deeply embedded in places like Lexington and Waltham, et cetera. For us, it's important because it allows us to increase our development yields, earn some fees, both on the asset management side, in some cases, definitely development fees.

And then we think that the existing relationships we've developed through the process, whether it's with PGIM or with Weston, et cetera, will hopefully be helpful as we seek to do some repeat business, as they say. Skymark is a good example of that. This is our most recent development I mentioned earlier. This delivered almost 14 months ago, 508 units with PGIM. And the key thing here was this was a hard project for us to get to pencil at the time, $214 million project, but we thought it was a critical last component of the first phase of RTC Next for those of you who have toured it. The office building, 70,000 square feet that Owen mentioned earlier that's now leased as part of this project, if you will.

The ability to bring in an 80% partner allowed us to really reduce incremental spending here, earn fees and most importantly, finish out the project. So now the place feels complete. And it's been a huge home run. We opened this, like I mentioned, July of last year and hope to be stabilized this year. So pretty incredible given the size of the project, and our rents are 10% plus above pro forma.

So as we look forward, again, this is a business that's small within the scale of the company, but one that's growing and we think is important as we move forward. We now have dedicated resources besides just myself focused on residential, both the asset management, how do we advance the land pipeline and also looking for new opportunities. We think our in-service portfolio is as good as it gets. And as Owen mentioned, we think the time is now to dispose a couple of these that have done quite well over time, and we are in the process of doing that.

We hope to capitalize the near-term project I mentioned. Worldgate is we are hopeful, will be our next project, similar to 17 Hartwell will start, call it, early to mid next year. And then we're going to be focusing efforts on how do we keep advancing this nonproducing assets pipeline. Decisions have been made that residential is the highest and best use, how do we kind of advance those projects going forward.

And as I mentioned, private capital and those relationships will be key to funding anything we do. So with that, I would be happy to answer any questions. If any -- right on schedule.

Next up, we have James Magaldi, SVP of Finance and Capital Markets.

You can get the memo. It's a blue collar outfit for the afternoon. No one. How we are all doing? As Helen said, I'm James Magaldi. I'm Senior Vice President, Finance, Capital Markets. My primary responsibilities for our business are raising capital, public and private, debt and equity. You may be wondering why I'm dressed like this. I'm going to get to that, I promise. But I wanted to start by thanking someone specifically. Steve Binder, raise your hand. Number one, Steve -- sees with adage and wanted to say thank you for being a shareholder, number one. Number two, Steve calls Helen every quarter and sets up a call with me to talk about BXP, talk about capital markets, talk about deals.

And I've developed a relationship with him while I'll ask him for his opinion. So I said, Steve, nobody at an equity conference wants to hear anything about the debt capital markets or the capital markets in general. And he said to me, "You know what, James, I actually really do. I want to hear about how are you going to be raising money for 343. And I may actually be more interested in hearing what you have to say than what Doug, Owen and Mike have to say regarding things like dividends or earnings growth or leverage.

All those things are very important. So the checks in the mail, Steve, appreciate keep the calls coming. Thank you. So the middle of the afternoon, you've all had lunch, your sides, because you're going to get another 30-page slide presentation. My job to keep you awake. So hopefully, you appreciate that at the start.

Big picture, anybody remember the GMC Trucks ad slogan from a while back where they talk about we are professional grade, anyone, Beuler, okay? We are a professional office company, and we are investment grade. We are Baa2 with Moody's and BBB flat with S&P. We have great relationships with the rating agencies. We are in ongoing dialogue with them about things like leverage and capital raising.

So keep in mind, we're in regular contact with them. And we've had both of them go to committee in 2025, S&P most recently about a month ago, and they affirmed our ratings as they currently stand. As far as liquidity, we have $1.8 billion at the end of the second quarter. It's a pretty big number, comprised of $1.5 billion in availability under our credit facility and $0.5 billion in cash.

So just to point out, this -- early in the second quarter, we recast our line of credit, increasing it by $250 million and providing capacity to do an additional $250 million in commercial paper, which I will get to why we did that. We are, however, and will continue to be a long-term fixed rate borrower.

So of our $16 billion debt complex today, $10 billion of that is long-term fixed rate bonds. We do have some mortgage debt. It's primarily associated with our JVs and the largest of which is a $2.3 billion SASB financing on the GM building. So as far as our fixed versus float, we clearly believe that long-term fixed rates are best aligned with our 7.5-year [ vault ]. So why is that the case? It's the most economically resilient way for us to finance the company. So it's resilient to economic cycles, and that's why we do it. We do, however, have more floating rate debt today, as Mike had mentioned. You credit folks in the room don't get nervous. It's still only 13% of our overall debt structure.

And why are we doing that? Why do we have a little bit more floating rate debt today? Well, in the short end of the curve with anticipated cuts by the Fed, each 25 basis point cut in interest rates based on our debt complex, a floating rate debt complex results in a benefit from an earnings perspective of about $0.03 per share, $0.025 to $0.03.

Debt maturities. We've had a busy year so far. We basically handled everything that we have coming due this year. We do have mortgages on the Hub on Causeway in Boston, the office tower and the Podium Building. We are currently in process of refinancing those in the CMBS market with a 7-year SASB fixed rate financing that hopefully will close by the end of the month. Now Mike mentioned our bonds that are coming due in 2026. We've got $2 billion, the first of which are in February, and we plan on addressing the February and potentially the following maturity in either the convert market, and we'll get into that. Mike had already touched on that or in the vanilla bond market, depending on which one we decide is the most attractive at the time.

Okay. I like this slide, and I want to show it to level set on interest rates. There's a lot of young people in this room that probably were not doing these jobs 10 years ago. So we've been in an interest rate environment of 0% floating rates for a decade and 10-year treasury of 1% to 3%. This tells you, on average, over the past 20 years, the 10-year treasury has been almost 3%. And since the 1960s, the 10-year treasury has actually averaged closer to 6%. But again, we've had muscle memory about this very low interest rate environment. And you know what, all corporates, not just REITs, they're adjusting to this new environment, which is an old environment and, quite frankly, closer to the historical averages.

So as we, like every other corporate who issues bonds in the unsecured market, we've seen an increase over time, well, we actually benefited first and foremost, over the past 10 years, refinancing all of our bonds, right, at interest rates between 2.5% and call it 4%. So now with the 10-year treasury, it's right about 4% right now. You're seeing a creep in terms of our overall cost of debt capital and we expect that to continue, but we're exercising strategies to moderate that into 2026. But keep in mind, this level of -- this cost of debt at 4.37%, this is in line with historical averages.

So we've been busy in terms of raising capital. The last really 4 years if you include 2025, $2.7 billion, $2.2 billion, $2.8 billion, $3.8 billion year-to-date in 2025. And that doesn't include refinancing the hub and it doesn't include some sort of liability management strategy as it relates to our February bonds. So 2025 is going to be a $5-plus billion a year of capital raising. I'm going to throw out a word and you can tell me what that means for James. B-O-N-U-S.

Okay. So I've got a number of nick names at BXP, some nice, some not so nice. So why am I in dress like this? Because I'm a free spirit? Because I don't care about job security? Maybe, but it's my job to walk you through the capital markets, excuse me. And the team, Doug, Owen, Mike, we all refer to the capital markets as tools in the toolbox. So I'm going to -- I'm a car guy, if you don't know me. And I'm not just -- I don't just buy cars. I do work on them. So this is actually kind of legit. So I'm going to add the mechanic to my nick names at BXP, hence, the goofy outfit. So I'm going to walk you through the tools in our toolbox, bonds, converts, the bank market, mortgage market, CP and private equity. I would suggest to you that all of these markets are really running strong, and we have access to all of them at pretty attractive levels.

So we have the bonds. Does anybody remember the movie, Tom Cruise movie, Days of Thunder? Come on, show some hands, liven up a little bit. Thank you. And do we remember the scene when Tom Cruise said, I'm dropping the hammer, Harry. No one? Mike knows. Anyways, the bond market is humming. My whole point is it's really crushing it right now. The chart on the left is credit spreads. The chart on the right is new issue concessions. Credit spreads, it might be tough to read the actual numbers. So I'm just showing you the trends. They are at historic lows for the investment-grade market.

As far as new issue concessions, which is basically a little premium that you have to pay for doing a new deal in some cases, negative, in some cases, 0 but not more than a couple of basis points, which again suggests that these deals are just performing very well.

How are REITs doing? This is -- keep in mind, these stats that I'm going to be showing you do not really incorporate last week. And last week was meaningful because there were some significant improvements in the markets. So we had $24 billion in issuance in the REIT space year-to-date. The sector is on pace to surpass 2024. Interesting data point, which my fixed income buddies in the back, I can see a few of them. The investment-grade bond market on September 2 this year, 26 deals, $43 billion. Now we think we're really special in the REIT space, $24 billion year-to-date relative to $43 billion in the investment-grade space without 1 REIT in 1 day. It's pretty impressive.

We love the bond market. It's going to continue to be a critical component of our capital structure. It's one of the primary reasons we went public, got our investment-grade ratings, access to capital. The BXP name is amongst the most liquid in the REIT space. And our investors are of extremely high quality and they are what I would call repeat offenders because they buy into all of our deals, which we sincerely appreciate. And this market is open and continues to be open for all of our funding needs.

Another interesting point about the REIT issuance this year. We've seen a steepening in the yield curve between the 5-year and the 10-year. So what does that mean? REITs actually can do deals cheaper, call it, 70 basis points or thereabouts in the 5-year tenor versus the 10. And I would say the majority of deals, 60-plus percent this year have been 5- and 7-year deals for REITs. Historically, REITs are always 10-year issuers, and you can see on the chart on the left that it's over 60%.

So what does this mean for us? We love the 10-year end of the curve and where does our secondary trading imply where we would price somewhere around 140 over the 10-year and for a 5-year would be about 100 to 110 over. So in absolute numbers in coupons, that's a 5% 5-year and a 5.75% 10 year. I would suggest that all of those numbers are probably 10 basis points better today than they were when this information was produced just because of the rally in treasuries in the past week.

And just because I'm dressed probably unusually for an equity conference, I'm just showing you these stats that I just didn't make that stuff up. This is a secondary trading, 140 and 98 implying for the 10-year at 141 in the 5-year at 98 basis points.

Exchangeable notes or converts. $64 billion in year-to-date issuance, averages could -- it could probably exceed 2024 volume. There's been a, call it, 50-50 split between vanilla converts and convertible securities with some sort of call protection which basically buys up that premium -- excuse me, that exchange price that Mike had talked about earlier.

So where do we price? Well, inclusive of a 40 -- up 40% to up 60% call spread, we would probably price a deal today in the area of 4% to 4.25%. Why does this matter? Well, relative to the vanilla bond pricing that I just walked you through and relative to a February 2026 maturity that has a coupon of 3% and 3.75%, doing a deal to refinance those bonds in the convert market limits the dilution. So the vanilla bond market is 100 to 150 basis points higher across the curve.

The bank market. So this is corporate bank market. So revolving credit facilities, term loans, I only show you this statistic because I thought it was impressive. The banks are really busy in the corporate space. Second quarter alone had $500 billion of bank paper corporate closed. REITs have strong continued support in the bank market, $41 billion in closings through the second quarter. What does this mean for us? As I mentioned, we did a closing and upsizing of our credit facility. We extended it for 5 years. We extended our $700 million term loan for 4 years with an embedded extension option, so effectively 5 years. We lost 3 banks and we did not lose those banks because they don't like the BXP name, we lost them because they were not getting their fair share of wallet. And that's okay because now we have more wallet to go around for those that are remaining.

So covenants, as far as that is concerned, some REITs you may have talked to, they've experienced some softening in their credit covenants, ours are unchanged. Our pricing is unchanged.

Commercial paper. Okay, here's a quiz. If somebody out there can tell me -- you're going to have to raise your hand because I'll just sit up here until somebody answers, can tell me what that tool is? You get a prize. You don't -- I'm not going to tell you what it is yet. You get the prize. Did anybody else know that? Nice job. I'm impressed.

Okay. Commercial paper, $1.4 trillion in outstanding CP. That's a record. The corporate CP market is up 19% since 2015, up 17% year-over-year, despite the tariff volatility from April even though we still experience some tariff volatility today, the CP market has been stable. The stronger supply is driven by higher interest rates and more working capital. And CP, as you've seen in Mike's deck and as you'll see again in mine, is a cost-effective capital raising tool relative to really all of the other options. So how have we done it? We've got more floating rate debt today, as you know, 13%. And the cost savings in comparison to our credit facility pricing is 75 basis points. So if you were just running some creative math not that complicated, $750 million in CP versus $750 million in revolver. It's in that 75 basis point interest expense savings on an annualized basis is $0.03 a share, something to think about.

Mortgage market. This is -- if you ever talk to Robin Lidington, who handles our debt capital markets activity, this is probably how she feels every day getting hit in the head with a wrench.

Anyway. So we're going to start off with life insurance companies and banks. It's kind of soothing, admit it. Okay. We'll move on from that. So it's not really fair to say that about the banks because I would tell you, and Owen mentioned this specifically in his comments, we have been in active discussions with the bank market regarding construction financings for things like 3HB and 343 Madison. And I would tell you that we actually get reverse inquiries from banks, domestic as well as foreign as to when are you going to start these things because we want to provide construction financing for you. So that market is open and it's available. It's available on a recourse basis at modest leverage with some level of pre-leasing, but it is there.

As far as the CMBS market is concerned, and I was actually a little struck by these figures because in 2025, so far, the CMBS issuance has surpassed from a pace perspective all of the year since 2012. And we're on pace to actually exceed 2024 volume. That's pretty good. And that's despite what happened in April when we had Liberation Day, and I would tell you that CMBS market actually choked and stopped for a period of time. We're getting back closer to those 2025 tights in terms of spreads, AAAs are inside 80 basis points.

And so for well-leased trophy office, and I would say, between 50% and 60% leverage pricing is in the area of, call it, 200 to 300 over. But every deal is different. They're all nuanced. What has BXP done in the CMBS market? Well, we did a 10-year fixed rate conduit financing on the Marriott headquarters in Bethesda, Maryland, we were able to execute on that deal at 124 basis points over the 10-year. It was about 50% to 55% leverage, that's pretty good financing from a -- in the mortgage market. And as I mentioned earlier and Mike had also said, you get a lot of that mini me, mini Mike, anyways. We're in the market with the refinancings of the hub, 7-year fixed rate, and I'm not going to tell you what the rate is, but it's going to be decent.

So in summary, the 5 tools that are here in the debt market, bonds, exchangeable notes, converts, bank market, commercial paper and the mortgage market. And you can see the range, and this is very similar to a slide that Mike showed you, so I won't go through that again. Private equity, sometimes dealing with partners is you need players like pulling teeth. But we love private equity. Private capital, it's a big universe. So if you don't agree with any of these numbers called NAREIT, don't bother me because that's where I got them. So commercial real estate broadly, 90% privately owned. And then if you go to office, which is even more impressive in terms of the outsizing, 95% of office commercial real estate is privately owned.

Mike had this stat, NOI for us is 21% from our JV assets. Our JV strategy is unchanged. We basically have 2 types of joint ventures, one is with strategic land partners or as Owen refers to them, deal access partners, and then we have institutional and financial. So I would say deal access, if you know who Delaware North is, they own the Boston Bruins, they had a development site that was occupied by the former Boston Garden. That site was raised, and we brought our development expertise, leasing expertise, access to capital, property management, construction, all of the above and we built a 1.3 million square foot mixed-use complex that is the front door to North Station and the TD Garden today.

As far as our institutional partners, Norges is the largest, but we've got a pretty impressive list of global investors who are all active today. Regardless of the partnership, I think it's critical for us to continue to use the tenant that -- we want to partner with people that are like-minded. So we have a long-term view in terms of strategy and investment. A residential approach, and Rich, I'm not sure if you got into this at all, I'm not sure where Rich is, he's over in the corner. But it's a little different.

Owen talked about the capital, it's 80%, somebody else's money if we can do that. And a couple of examples would be the Skymark in Reston and then most recently, 17 Hartwell, where we partnered with Northwestern and they -- we contributed the land and Northwestern Mutual provided the equity and the construction financing. That's a real picture from London and it's the only -- if anyone's seen my photo album from our world travels over the past 24 months, you're welcome to do so. It's pretty good. International Love by Pitbull, anybody know that song, anyone? I'm not going to play it.

So over the past 24 months, we have traveled around the world, Middle East, Europe, Asia looking for a little of that international love, not that kind, you strange people. But we've been looking for public and private equity love. And we've been pretty successful in doing 2 things: one, relationship management, meeting with existing partners, talking about BXP, talking about their appetite and then, two, trying to cultivate new relationships, and we're gearing up for another round of that. The exact timing of it is yet to be determined, but 343 Madison is certainly going to be a focus, as you've heard about. And I would tell you that we've had a bunch of discussions with a number of institutional capital sources that are very excited about the Midtown Madison Avenue submarket in New York City. So we're feeling pretty good about the appetite and the interest in 343 Madison.

Office is certainly back in terms of private capital. I mean I'm not going to bore you with the details from all of the media headlines of transactions that have happened, but there's a lot. They're in San Francisco, they're in Boston, they're in New York. And I would tell you that a lot of them are with B+ type properties where the acquirer is able to either buy a piece of debt or buy an asset at a discount, a significant discount, and they're willing to invest the capital necessary to lease and stabilize those properties. It's a little different than what we're willing to do today because our fundamental requirement is that we have to believe that it's going to be a premier workplace. So we're not going to be playing in the area of kind of B+, A-, commodity Class A office.

And then what type of returns are private capital investors looking for, I would say, somewhere between the mid and high teens on an IRR basis. So again, this market is open. We're super excited about making new relationships and managing the ones that we already have. And with that, we're ready to go off to the race. Anybody F1 fans, by the way? Doug and Owen, if you're not raising your hand, I mean you've got to participate, anyways, congratulations to Max Verstappen, who won the Italian Grand Prix to Owen's Dutch heritage.

Any questions, I've got 38, 39 something seconds. Yes.

[indiscernible] some means have kind of done that at discount.

Ask Jake Stroman and Pete Otteni. They'll get up here and talk about it. The short answer is yes. So we've actually done it, where we've had relationships, particularly in Washington, D.C. where we've been able to find opportunities to acquire loans at a discount. And 725 12, I'm sure it's part of your material, so I apologize if I'm -- you're going to -- if I'll end up stealing some of that is a situation where we bought a note at a discount.

The team in D.C. brought their relationships and leasing expertise to the table. And we are building a 300,000 square-foot building that was effectively pre-leased. So yes, we are looking at that and seeing those opportunities. But again, getting back to what I said about how we viewed our joint venture relationships, it has to be an asset just because we can buy a loan at a discount doesn't mean we're going to do it. It has to be an asset that we think can be premier.

Yes, sir.

Question about international capital. Just over the decades -- a question about international capital. Over the decades, it always seems like each region steps up into the deli line, it's Asia's turn, then it's Europe's turn, Middle East turn and sort of rotates around the world. Now we have heightened tariffs, FX volatility and immigration stuff that adds to the spice mix, if you will. Do you see any change in the normal cadence of rotation of capital around the world that's looking at the U.S., like has the current dynamic changed any of that? Or it's the normal cycle where each region sort of takes its turn at the deli line?

Since -- the way I would answer the question is since 2020, it's been largely crickets, right, in the private equity space. And that tone has clearly changed. And we were in Asia last fall -- excuse me, this spring and then in Europe and the Middle East, almost 2 years ago. we were getting traction with investors regarding their appetite for additional office investment. So I think that the precursor is it has to be premier, it has to be a live golf type execution if you understand my analogy where it has to be a headline, it has to be something sexy for the office market, and it has to be core. So yes, I think that the Asian investors are very active, and I think we're seeing plenty of -- I mean, look at Norges, Norges is buying in every single 1 of our markets. But again, it's B+, A- commodity-type Class A product where they're repositioning.

And that's it, James. Thank you. Next up, we have Hilary Spann, Executive Vice President for the New York region; and Rich Monopoli, the SVP for Development.

Hi, everybody. We are going to take a break from the numbers for a minute to present the exciting stuff. 343 Madison, we believe, is unprecedented in New York City and in the United States more broadly. We're going to start with a film that highlights some of the reasons why. Where is my phone?

[Presentation]

All right. So 343 Madison Avenue is the only premier workplace building currently under construction in the Park Avenue submarket in Midtown Manhattan. We have an LOI signed and a lease out with an investment-grade client that represents 30% of the rentable square footage of the building. And why is that? Why is somebody willing to commit to this building 4 years ahead of its completion. It's because of its location, it's because of its quality, it's because of its hospitality experience, and it's because of its network effects where it's located within the business community. Here are the 4 pillars around which we organize ourselves when it comes to new developments, location, hospitality, workplace and sustainability. I'm going to let Rich talk about location.

We strongly believe it's extraordinary, and it speaks for itself. If you go to the next slide, 3 basic reasons. First, access to transit and talent. Before the completion of the LIRR east side access project, there were 500,000 riders that came through Grand Central every day between the subway and Metro North. Now with the opening of the LIRR, we have incremental 75,000 riders from Long Island. So that gives you access to talent in Westchester, Connecticut, Manhattan the boroughs and now Long Island. So it's a fantastic location from that perspective.

Secondly, we always like to say, it's a company you keep, and you are in great company in that Park Avenue submarket between insurance, legal, financial, you have the greatest aggregation of users that will pay premium rents for premier workplace, right? Not comparable to anything in the country, so it's very special from that perspective.

And then lastly, and this is kind of a micro market comment, the west side of Grand Central from 42 to 48, probably has investment clearly above $10 billion between One Vandy the repositioning of 22 Vandy, 343 and then 270 Park opening just less than a month ago, JPMorgan is bringing people into that space now and then JPMorgan is moving to redevelop 383. So that corridor on the west side is enhanced, it's beautiful. It's getting better and better and better. So we are ideally located on the west side of Grand Central and we can participate in those benefits.

How are we getting access to all this great transit? Well, in part of our ground lease obligates us to create an entrance down to the new Grand Central Madison Concourse. This is the Northwest corner of our development site and image of the transit access down to those tracks. 3 escalators, a stair and an elevator right down to the Concourse. And from there, this is a section looking north through our building on the left, 383 on the last, Grand Central on the right. And if you just go down from Grand Central, access to the Metro North, upper and lower tracks, access to the very, very deep Long Island railroad tracks that just opened, talked about for 40 years, 20 years under construction and those opened in January 23. And then we have direct and covered access to all that. And on top of that, once you're in the Madison Concourse, you have direct covered access to Grand Central itself to hit all the subway connections in that prime north, southeast, west subway intersection at Grand Central itself.

Let's talk about workplace really quickly and then the product. So we focus heavily on all we've learned as office and workplace developers for many, many years to create efficient product for our clients, and this manifests itself in a couple of different ways. Basically, here's the building on the right-hand side, it is effectively 3 modules, 1/3, 1/3, 1/3, podium, mid- and high-rise with plates ranging from 27,000 square feet at the base, about 22,000 square feet at the top. 46 floors constructed, 40 leasable and 16-foot slab-to-slab in the podium, 14-foot slab-to-slab and the rest of the building with a number of specialty floors throughout that have extra high spaces in outdoor space as well. And then we'll get into sustainability a bit. Ben Myers has already touched on it. This will be a lead platinum building. It will be one of the most sustainable buildings we've built to date, including all the lessons we've learned through the years.

Quickly on a floor plate, why does this matter? Why does workplace efficiency matter? We take great care to lay out our plates, column-free, column-free corners, Great Florida floor heights, and this happens to be a side core building. So we have the added benefit of pushing all the services to the top of the page, which is east, keeping a very clean, planable plate throughout, which attends value for efficiency. This is a view from the high-rise floors looking south west. You can see a bit of Hudson Yards, you can see Empire State.

The thing to point out here is we have 10-foot finished ceilings, with a very low sill, 10-inch sills. So over 9 feet of vision glass, which is very appealing. This is 1 of the 6 outdoor spaces in the building. So we've scattered these throughout the elevator banks to drive bulk leasing. People would take a floor like this, use it as their town hall and reception area and then take more traditional floors above or below it. This is the 16th floor, great outdoor space, 6 of them are built into the design, 5 can be privatized. We're keeping 1 for our common amenity at the top. And Hilary is going to talk about. You want to talk about hospitality?

Yes, please. Thank you. Okay. So as Rich mentioned, we have taken all of our learnings from the developments that we've done over the last 20 years and the redevelopments that we've done of our existing assets and embedded it into the design of 343 Madison Avenue, in particular, with regards to the hospitality spaces in the building. One of the most unprecedented things that we've done is to put those amenities at the top of the building. So the top 2 floors of the building will be amenities that are available exclusively to the clients of the building. There are also some additional amenity spaces on the ground floor, and we'll touch on those as well.

This is the lobby. You see here that we've incorporated biophelia and the lobby as you come in. That is a nod to what you will see throughout the rest of the building. There on the right-hand side in the distance, you can see that there is a cafe in the lobby of the building integrated so that clients of the building can grab a coffee or a small breakfast as they go into the building in the morning. The 45th and 46th floors comprised the main hospitality experience, and they are slightly different from each other. The 45th floor has a large and gracious auditorium that houses about 150 people for a conference. There is a lounge, a cafe, a bar and a landscape lounge and terrace that folks can use as pre and post function areas.

And the 46th floor is a little bit more private. It includes salons for working, a boardroom setup, which can be set up for dining and/or meeting and then a collaboration loft. This is an image looking north on the 45th floor towards that auditorium where you can do conferencing. And here is basically standing in the same spot looking south toward the cafe, towards the pre-function area and towards the landscape terrace. This is a bird's eye view that shows how the 2 spaces interact with each other with 45 being the more public of the spaces and the 46th floor being meant more for meeting and breakouts. This is the collaboration loft on the 46th floor. And here, we have the terrace that serves the hospitality space.

From a sustainability perspective, this is indeed unprecedented for the market and for BXP, incorporating all of our learnings back from 2007 when we first deployed our efforts in the first lead USGBC, gold rated suburban, speculative office building in Waltham. We've come a long way since then, including thoughts about wellness and occupant health in the teams. And now we're incorporating decarbonization into what we do as well. So the 3 metrics here are leading us to lead platinum. It's an all-electric building. And I was talking about that earlier. We're working really hard on decarbonization, both during operations and embodied carbon in the initial construction and being really careful and thoughtful about reducing our embodied carbon and then clients space and comfort. This is a DOAS building, which has many, many benefits in terms of occupant wellness.

But also embodied carbon, we can deliver a 14-foot floor-to-floor slab and still get 10-foot finished ceilings. We're using less concrete, less steel, less aluminum to get the same finished floor height that the market demands. Really important number in the bottom right-hand corner, we talked about energy use. This is energy use intensity as modeled at about 43. Without context, that's not particularly meaningful. If you look at all the average buildings in Midtown, and we took a big bulk average, average building and EUI use is about 90. So we are less than half of the average building in midtown in terms of energy use, which is a huge benefit to our clients.

Let's talk about the basics of the development costs here. It's a 930,000 square foot rentable building, about a 30 FAR, plus or minus, 48-month construction schedule. We've already commenced in the field, we'll just show you in a second. A 28-month lease-up underwriting should be fully leased as of kind of mid-2030 and then fully cash flowing as of fourth quarter of 2031, excuse me. And then total budget is about $2,124 a foot, half of which, effectively half, about $1,000 a foot is hard costs. And layer on to that, our soft costs, overhead legal, A&E, True soft costs, like A&E and then tenant inducements TI, lease commissions is what -- how you get back to that $2,124 a foot, including an equity carry charge for our cost of capital. So roughly $2,100 a foot.

You want to talk about leasing?

Sure. So all of the things that we've just described to you, the hospitality, sustainability, the way we've designed the floor plates and the location of the building have led us to an initial pre-lease from an investment-grade tenant of 30% of the building they elected to take the mid-rise portion of the building. We have presentations out to 27 different clients in the last 18 months. And we are currently in discussions with about 4 clients, including our anchor, those 4 clients exceed the square footage of the building, so we will not be able to accommodate all of them. But there is very, very strong interest, and we believe that we have the opportunity to land a second client in the building, which could comprise an additional meaningful commitment. So we're very excited about the progress we've made on leasing, and we are currently moving forward with the development.

Here's the time line for the development. We expect to sign our anchor lease in the fourth quarter of this year. That will allow us to turn space over to the client in the second or third quarter of 2028, so that they can begin their build-out and move into the building in the third quarter of 2029 with us receiving our core and shell substantial completion just before that in the second quarter of 2029. And we thought that we would show you a live photo or as live as possible. It's only a couple of hours old of what's happening on the site. I'm going to advance it, I'm going to let Rich describe what's going on, on site.

Yes. This is a picture from this morning from our OxBlue camera across the street. We made a lot of progress relative to our obligation under the ground lease to deliver an entrance on what we call Phase 1. So that box that you see, steel and concrete box in the north corner is that transit entrance that I showed going down to the Grand Central Madison Concourse. That is -- we're probably about 10 or 11 months into a 16 months or 18-month schedule on that basis. Now we're moving through the buy process for Phase II, which is the full vertical. We are finding that this is a good time to make larger construction buys. We have a handshake deal with a provider for the curtain wall, and that has come in anywhere from 8% to 10% below budget.

And we are just receiving numbers for steel, which is the second of the 5 big packages, received numbers last Friday, sifting through those as well. So we're finding that this is indeed a good time to make buys where these folks have less of a backlog than they did previously, and we're working through the process on that and seeing some really nice savings relative to our budget.

So that summarizes our presentation on 343. You've heard a lot from other folks in the company about various aspects of it over the course of the day, but we'd be happy to answer any questions that you have.

Whether it's financial. And I was just hoping you could give a little bit more color on the interest in 343 to the extent that you can, whether it's financial, tech, other tenant bases? And is it the podium? Is it the highrise? Is it the top floors? Just any would be great.

Sure. We -- I would say that generally speaking, the interest in 343 is very heavily dominated by financial services asset managers, hedge funds, wealth management, et cetera. We have had some, I would call it, tech adjacent companies show interest. The pre-lease client that we described is in the mid-rise section of the tower. And so the folks that we're talking to about the balance of the space, we're working around that mid-rise section, which is spoken for. We have one prospect that is interested in the base underneath the one that is the section that's spoken for. We have one that's interested in the base plus some floors above. So it's a bit of a mixed bag in terms of who's interested in what space, but there's strong interest in all of them, I'd say.

One of your close competitors just bought a couple of buildings across the street. Any views you can share on the timing or competitiveness of that space as you guys go through the lease-up of 343?

I believe that they are not finished with their site aggregation there. And so I have no information to verify that. This is just sort of my belief based on what I would do. I would try to buy the building immediately north of what they just bought so that they have the entire end cap between 44th Street and 45th Street because that allows them to control the entire environment that their clients use to access the building. If I'm right about that, it will take them some time to secure that building, figure out how to aggregate it all and demolish it.

Rich, will they have to go through ULURP if they do that because of the skyPlane? I would think so.

If they want to achieve certain plate sizes, they would have to make ULURP process -- ULURP application.

They can build based on what they have already acquired. I just think to build a really premier building, which is what I expect them to do, they will want to own the building north of them as well. And they have an existing relationship with that owner. So I just think it's not an immediate demo and build because I think there's a little more work to be done there. But it's really a question better asked to them, I guess. There was a hand over here in the back.

Has the forthcoming mayor election in New York caused any of the would-be discussions with tenants? Any reason to pause?

Let me put it this way. The clients that are interested in paying over $200 a square foot in rent to secure space in the most premier development in Midtown, for the most part, are larger -- have larger balance sheets, right? And that tends to mean that they plan further out. They're better established companies. And I think they have the tendency to look beyond a mayoral cycle or a gubernatorial cycle or even a presidential cycle. In fact, our letter of intent with our prospect, which is 30% of the building, 275,000 square feet, plus or minus, happened after Liberation Day.

So here you have an investment-grade client who made a decision to do that sort of in the face of some of the national geopolitical upheaval and we moved to lease notwithstanding the outcome of the Mayoral primary. I'll talk a little bit more about New York City and New York State politics in the regional overview. I have a slide on it. There was another hand.

I just had a general question of NAV values of Premier New York office. If this -- I think you said at $1,700 per square foot. I'm sorry...

$2,100.

$2,100. Okay. Is that -- how do you think about non-new buildings then in terms of the NAV and kind of the range there, if this is $2,100?

Rich, I mean, you can start, and I'll chip in on that one.

There is a recent mark -- very difficult to achieve kind of sustainability goals, but a good location, right? That just traded for $1,100 a foot, plus or minus. So we are achieving rents obviously double that they can achieve. And are there buyers and can you achieve valuations near or above the $2,100? I absolutely believe you can. And in fact, when the One Vanderbilt refinancing came into play, there was a mark on that basis, did that approach $3,000 a foot. Am I speaking out of turn?

What was the cap rate on that? It would have been in the range of -- yes. There are only a handful of existing assets that trade at numbers that approach new development in New York City. And I would say, for the most part, rest of the assets are not truly considered premier and therefore, trade at somewhat of a discount, up to half.

We have 8 minutes. I don't know what we're going to do with ourselves within 8 in break.

Can you talk about just how you all thought about selling a stake in this project while you're still in the process of creating all the value versus maybe looking elsewhere in the portfolio?

That's really a question for O.T. or Doug or Mike in the most broadest -- in the broadest sense. What I can say about the capitalization of 343 is that we have a lot of latitude as to when we think about doing it. The big dollars in the project are not going out in 2025 or 2026. So I think there remains the opportunity to engage with the leasing market, secure the lease with the anchor tenant, perhaps the second tenant, derisk the building. And as Rich alluded to, we've been getting some really, really great construction buys. So we are in the process of derisking it. And I think Doug and Owen and Mike will look for that sort of what's the efficient horizon around risk mitigation and capital raising to execute on that.

Yes, not speaking for you all, but with an executed lease for the LOI that we already have, moving through the buys, we should have an executed GMP with our construction manager, Turner, by the second quarter next year. And that puts us in good stead in terms of putting risk to bed and approaching the market.

Yes. I would just add, as has been described, the more we do what Hilary and Rich are talking about, the more the valuation of this building should depart from its cost. So our goal, particularly as time evolves is to bring in a partner that would not be at cost. I don't think it will be at a value that the building will be worth when it's completed because there will still be some development risk has to be constructed. It has to be partially leased. But we don't anticipate bringing in a partner at cost.

And then if you look elsewhere in the portfolio, number one, yes, could we JV some of our New York assets at reasonable cap rates? Yes, we could. However, I think today, the more we're in New York, the better it will be for all of us as shareholders because New York is such a strong market. We're about 25% New York today. I'm not sure we want to reduce from that level.

The other thing to think about is many of our New York buildings have a very low tax basis. So if we sell a whole or partial interest in them, most of the capital has to be sent to shareholders as a special dividend. So we don't keep it. That's great. The shareholders will receive capital, but the company doesn't keep the capital to deleverage. So that's also an obstacle for doing JVs.

One last thing, while I got the mic, I just want to also talk about a little bit on building valuation and NAV. I think office buildings trade more on yield than on per foot because you can look at deals, and I talk about them every quarter on the earnings call, the cap rates are fairly unified within 100 basis points or so of each other. But the per foots are all over the place because it's based on the income. So we look at 343 and we say, well, wait a minute, we're going to deliver this at a 7.5%, maybe 8%, maybe a little bit above an 8% yield. And there's comps in the neighborhood in the 4s, maybe 5%. So that's tremendous value creation. And you can back into what the per foot is, but I think the way to look at it is on development yield versus what's the market value of the building when complete.

Great. It's time for a small break, and [ Loy ] will begin back with the Boston region at 2:50 p.m.

[Break]

All right. Next up, we have the regional presentation. First is the Boston region with Bryan Koop, EVP of Boston; and Pat Mulvihill, our Senior Vice President of Leasing.

Thank you, Helen. Well, this is going to be a fun update because we've got a lot of good things going on for sure in our region. Yes, here we go. So what Pat and I want to do is briefly go through what's happening in the region. And maybe on our slides because you're going to get copies of all these things, really hit the headlines and really what's we see as important in terms of our market in general on these things. Give another one. Not moving ahead here, guys.

Okay. Here's our agenda. Let's get right to it with our key objectives, let's bring those up. Okay. Occupancy, lease lease, lease. Of course, we're doing this all the time. This is how -- it's like breathing. But I would tell you, never in my career have I had such a mantra from our leadership, Doug and Owen. It is the mantra whenever we see them. How is leasing, where are we at, where are we at in occupancy. And I think the relevant point here is a story that we had with a deal that we were able to obtain with Welch's. Welch's headquarters was located in Concord, Mass. Maybe for 150 years, something like that, the Concord Grape. And there isn't, in the beginning of the year, much deal flow going on. And we heard about them looking in a market that we weren't in, a submarket we weren't in, and we just absolutely decided we're going to swarm the deal and get all over it. And because of a peculiar part of their use, which is a laboratory for their foods, we were able to just really take the deal over and drag it into our market, our submarket and give them a phenomenal deal.

But I would tell you that the key on this that we've learned with occupancy. Occupancy is this. We are using the entire stack of disciplines within our organization like we never had before, and we're getting greater access to clients than we ever have before. I've never seen anything like it. And it's because of several different things. One, there is a concern in the market with brokers that there's no TI when they go to certain buildings and they underwrite it real heavily, they know that we do.

The second is they know that most of these buildings, because it's absentee occupancy or ownership, they don't have the skill set to put together these peculiar deals. And in the urban edge market, we're seeing a lot of that, and that's where we have to get our occupancy. So some big wins there, but I would say the big differentiation is Pat and his team is using every department to swarm deals. On Kendall Square, we have good news, as many of you know and I have visited this project, huge project for us and 290 Binney, 572,000 square feet. The rent is $128 triple net.

And I thought when Mike went over the numbers on this, at $75 million a year, I'd hear my gosh out there, but nothing from you guys. It is a huge NOI coming our way, and we're really excited about it. We're excited about the client as well. We're on time, we're under budget, and we hope to have that really maintain our course. We've got our best team in Boston's history on it, [ Jeff Lenberg ], John Randall, Mark Denman building this, very sophisticated, over $1 billion in development construction cost. And this will be coming online. And the other key part of this is we've got 3% bumps on this NOI each year. So this thing keeps going up. And I think in year 5 or 6, it starts approaching 8%. So that is awesome for us. That project is going really well.

The reposition, we would add when I talked to Rich Ellis, reposition or sell with many of our assets that are in the urban edge. And that's where they mainly are. But we had some huge success on repositioning 860, 890 Winter Street and then also 1050 was mentioned today. This was a deal that never saw the market, and it really gets back to what Pat's doing, which is swarming these deals. The reposition part also we would include some of the rezoning we're doing that was mentioned. And what's happening in the state of Massachusetts is big focus, state level from the governor, big focus from these towns and communities we're in.

And we think we're going to be able to pick up some residential on several of these repositioning assets for some extra value creation. And then last, our opportunities and acquisitions. In our market, it's not a huge market. We have 10 buildings that we know we want. We're not waiting for them to hit the books with an investment sales team. We're cold calling. We are spending time with owners that are stable and the assets that we like that aren't stable, we're going right to the lenders. So it's a real proactive approach. There hasn't been much movement yet. We anticipate the next 6 months that there could be a couple that move that we want to pounce on.

But I'd say that, that portion has been slow. 171 Dartmouth, the story on 171 Dartmouth is we have high hopes that what we can achieve is what Washington, D.C. has achieved with their build-to-suits. And then also, it's very, very similar to what you saw Rich Monopoli and Hilary talk about with 343. 171 is a site right across the street from 200 Clarendon, Hancock building in the past, right on top of the Back Bay train station. We could deliver this building for $1,500 a foot. So it's a lower cost, maybe $1,600. We are seeing some construction costs come down, and this thing could yield some big numbers even at, let's say, $120 triple net. We have some clients we're focused on.

So we think this phenomena that you're seeing in New York and D.C. will play out for us in the Back Bay. And when Pat goes through the occupancy and leasing in the Back Bay, you'll see even a greater reason why we're so optimistic about that.

All right. Pat, take it away.

Thanks, Koop. Good afternoon, everybody. Good to see some familiar faces. So what I'm going to do today is cover 3 things. I'll try to go through them quickly. We've got a fair amount of slides. The first is just go through some market fundamentals, what we're seeing on the ground in Boston, mostly in the CBD of Boston. Then we're going to get into sort of what our short-term and medium-term exposure is across all 3 of our submarkets.

Owen and Doug foreshadowed some of this in previous conversations. And then we'll also get into some more granular data in terms of what's going on in the ground in terms of actual leasing, where you can expect to see growth in the short term with our occupancy numbers. So with that, what I'll start with was really just some high-level trends. And again, all of the data in the slides that you see here moving forward is based only on the CBD of Boston, which are the traditional submarkets, the Back Bay, the Seaport, Financial District, et cetera.

This is a common theme, obviously. We wanted to just point out really clearly the difference in what's taking place in the premier market and the overall CBD. And this is obviously a very simplified way of doing it. In the premier workplace market, supply is going down, demand is up and rents are up. In the overall CBD, it's just not the case. We'll get into more data on that as I go through some slides. And then, again, really high level, the Back Bay and the Seaport markets continue to outperform. We're very fortunate. We're by far the largest owner in the Back Bay. That's the market that has by far the lowest availability rate for a variety of reasons. Premier Back Bay rents are as high as they've ever been in my career. And it's due to extreme limited availability.

We're fortunate to own 5 million or 6 million square feet of the best buildings in the Back Bay, very, very tight. And we're at the point where we have people competing for space, which is one of those immediate signs where there's upward pressure on rents. And then leasing momentum accelerates in new construction. So one of the dynamics that's happened in Boston post-COVID was speculative office construction. So there were actually towers that were kicked off post 2020 that have delivered in the past 2 or 3 years. That's had an impact on what the availability has been across the CBD.

So I'll touch on that as well. So I'm going to go through a few of these slides. There's lots of data on it. I'm going to -- on these slides, I'm going to do my best to just sort of give you some anecdotes and talk about what the takeaway might be from these. These 3 charts here is really just outlining what the tenants in the market demand is as of the second quarter of 2025. It's about 4 million square feet of demand, which is approaching where we were in pre-COVID times, which is around 5 million square feet.

The one thing that I think is the best takeaway from this slide is really the composition of the demand. So again, this has been repeated over and over. 55% of the demand in the CBD of Boston is coming from finance firms and legal firms. Fortunately, for us, most of the Back Bay of Boston and the financial district is where we're able to take advantage of that demand. So that's the takeaway there. Great momentum getting back to pre-COVID numbers. Again, this is just the CBD office leasing activity by year. So the previous slide was looking ahead.

This is actually looking back. The 15-year average for the amount of space leased every year in Boston is about 2.27 million square feet. In 2024, we were over 2 million square feet. In 2025, I expect it to be right around those numbers. So we're crawling back to where we were, obviously, with tech demand not seeing the growth that we were seeing prior to COVID.

I'll spend a little bit of time on this slide. So this is just availability, right? And it jumps off the page, 24% direct availability. That's a big number. I just want to talk a little bit about that. So in 2020 and Q2 of 2020, obviously, a pivotal time, you see that big jump from, call it, 15% of availability up to 20% and then 25%. Obviously, some of that was due to customer behavior, market fundamentals, et cetera. But as I mentioned before, this also is a supply dynamic. There were 3 or 4 buildings delivered in that time frame. And depending on what you're counting, that's upwards of 3 million, 3.5 million square feet.

Unfortunately, those buildings, they were leased, which is the great news, but there was a game of musical chairs within Boston. So one winner created another loser. So we did have a little bit of negative absorption, which has resulted in that availability. It's not completely a demand dynamic. There's also a new construction dynamic that added to that as well. The sublease availability, I believe I read this morning, we're now in the seventh quarter of continued decrease in sublease availability in Boston. So that's a great trend. A lot of that is from tech users that are either taking sublease space off the market or in sublease space that's being absorbed. So a good trend that we're continuing to watch. And again, this is -- we wanted to really point this out. This wasn't in our original slides, but 24% direct availability, I'll get into this in more detail.

Our CBD portfolio currently is 1% available as compared to 24% for the overall CBD, premier and non-premier. This is a slide that many of you, I'm sure, see quite a bit just showing absorption, leasing activity and vacancy. And again, the only thing I would point out here are those dips in 2022, 2023 and 2025. Those were deliveries of new buildings that took place in the CBD of Boston. Most of those are happening in the financial district, which I'll get into a little bit later.

This is just showing availability rates by geographic submarket. So the Back Bay, downtown the Seaport are the primary submarkets in the CBD of Boston. The Back Bay at 18% is the overall Back Bay market, which is around 15 million square feet. I can tell you the premier workplace market in the Back Bay is probably 8 million square feet and the availability rates in that are probably less than 5%, maybe less than 4% or 3% in that very premier market.

Yes, Pat, I would highlight that you've got a competitive set of 11 buildings that you focus on that you compete with in the Back Bay. That vacancy in his competitive set, which we really believe is going to be a real thing in the future because how much of the stuff that we used to compete with is now just obsolete and our clients aren't going to be going to it for sure. Could somebody upgrade a property? Yes, but we'll see it coming. It's only 3% in our competitive set. That's just amazing to me.

So this slide is just going along the theme that Owen talked about Premier versus non-Premier and just the vacancy in each of those. And if you notice on this slide, somewhere around Q2 of 2023, the vacancy rate for non-Premier increased consistently up till today and the vacancy rate for Premier is decreasing consistently up until today. So we've been talking about this for years now. It's now showing up consistently in the data in Boston.

This slide is just showing that same point in another way. And I would argue that white line, which is the absorption for Premier space would be higher if there were more premier space in Boston to absorb. There's just a limited amount of it, specifically in the Back Bay where we spend most of our time. So I went through that quickly, but that's sort of the very high-level sort of market slides that we're -- or the market information that we're tracking.

I'm not going to get into sort of our portfolio, what's going on in our portfolio, what's our exposure and then just kind of get into some really granular building by building, submarket by submarket. There's no need for us to spend a ton of time on this. This is just showing the occupancy and leased percentage of our CBD portfolio, which is about 8.4 million square feet. We're the largest owner of office space in the city of Boston.

Headline here, we're 99% leased and 97% occupied. So we can get into a lot of detail on this, but it's a good headline to be sharing. So the next 3 slides, we're just going to walk through just our short-term exposure. I think we went through it on a macro level across the company. This is just for Boston. So the scaling on this graph may sort of make you think otherwise. But the vacancy for us in Boston right now is around 260,000 square feet, which is 3% of the overall portfolio. That's really just transitional vacancy, which is normal across our portfolio.

At the rest of 2025, virtually no more exposure and then 3% and 2% in '26 and '27. So very, very manageable for us. And in our CBD portfolio, what we're spending more time on is we use the term manufacturing runs, right? We don't have a lot of space to increase earnings or get pops in rent. We are doing creative things taking space back from tenant A to grow tenant B. And in most cases, the mark-to-mark given the growth in rents, we're able to show a significant pop in earnings based on these deals.

Yes. Pat, one of the, call it, little weapons we've been using is something that Doug's worked on with IT, which is we now have really, really good analytics on each of our clients, especially in these urban buildings that we have clusters in. And we've been able to be tipped off by these analytics about who is really using their space highly efficiently and maybe more efficiently than they need to and then who's not using it. And Pat is using that to just get in there with our clients, talk to them, what are your needs? Did you know that you're at less than 2.5 average days for your workers? Well, that's really low compared to our average probably at the [ PU ] of close to 4. So they have no idea about these things, and they're using it to go talk to their leadership. And we've had several clients that are like, well, thank you. Could you lease a couple of floors? We think we can. It's been a really nice competitive advantage.

So Cambridge, we haven't spoken a ton about Cambridge, mostly because there's really 2 things going on. There's our Cambridge, the execution of a massive development project that our team in Boston is working on right now. We talked a little bit about 290 Binney Street in that particular development. Other than that, in Cambridge, we literally have 75,000 square feet of vacancy, which is a couple of spaces in one particular multi-tenant office building and then some retail space and virtually no rollover in the rest of '25, '26 and '27. So things are great there.

We continue to stay in touch with our close clients there. The biggest one being Google. So not a ton to talk about in Cambridge. The Urban Edge, so I'm going to spend some time on this in a future slide because this is where the growth is going to come from in the Boston region in terms of occupancy.

The one takeaway from this slide in 2025, '26 and '27, very manageable sort of transitional vacancy with the exposure in those years. But the thing that we will focus on is the 1.2 million square feet of current vacant space that me and my team have been actively working on this year. So getting into that, I'm going to fly through these slides because I want to make sure we leave time for questions.

These are just going to be summary slides of some of our larger buildings in the Boston region portfolio. 100 Federal Street, this is a 97% leased building, large clients in this building, Bank of America, Franklin Templeton, TH Lee. We've done a lot of repositioning work on this building, but is in excellent shape right now. 101 Huntington, I won't spend time on it, literally 100% leased. This is the smaller building at the Prudential Center, 500,000 square feet. Blue Cross Blue Shield, the major tenant there. 111 Huntington Ave., this is a building that we developed in 2001. This is 100% leased right now. We are active with the exposure in 2027. That's one law firm that we're actively in discussion with at the moment. 200 Clarendon Street, this is a building that has been incredibly active for us over the last 3 years with large renewal expansion transactions with large financial institutions.

So I won't get this number right, but probably 600,000 or 700,000 square feet of leasing taking place in that building over the last 2 or 3 years. In addition to that, one thing that we spent a lot of time on is the amenitization of this building. It's been talked about a couple of times in various presentations, but we've built what we call the 200 club, which has been incredibly well received. This is by far the highest end amenity in any office building in Boston. We'd love to host you if you come to Boston, and we can give you a tour. 800 Boylston Street, is the Prudential Tower, 98% leased, just sort of transitional vacancy there.

The large thing that we worked on last year in that building was a major renewal with Ropes & Gray for just over 400,000 square feet in that building. They had a lease that expired in 2030. They wanted to stay, and we worked out a great deal for them to stay for another 10 years. 888 Boylston Street, this is a building that we built hard to imagine almost 10 years ago. So we're getting ready to start working on the 10-year lease roll. This has become one of the highest end buildings in the Back Bay, more of a boutique building, only about 400,000 square feet.

Atlantic Wharf, another building that we developed in 2011. This is the headquarters of Wellington Management. I believe it was 2022. We did a major renewal and consolidation of Wellington at this building. So they're over 530,000 square feet now. This building is 100% leased with very limited exposure moving forward. And the Hub on Causeway. So we spent a lot of time on this in various presentations, but massive project that we developed over a course of years. This was a labor love for many people in the Boston region, but it is 98% leased. There's just a few units of office space in the lower part of the building that are just sort of transitional vacancy and really no exposure through 2027, nothing hits until 2029. So a very fun project.

And then I'm going to pause for a second here and take a step back because I do want us all to focus on this slide because this is probably the most important slide as it relates to occupancy. So the Urban Edge, right? So we have 26 buildings. Urban Edge is what we call -- what we previously called the suburbs in Boston, primarily Waltham along the 95 128 corridor. It's about 4.4 million square feet for us, 72% occupied, just under 73% leased. So this is, by far, the most important goal for my team this year is to lease vacant space in the suburban Boston portfolio.

So a couple of things. All of these numbers, I think Doug mentioned before, were as of June 30, 2025. So in the 2 months since then, we've leased an additional 50,000 square feet. So that percentage lease number is now 74%. And as we sit here today, we're actively negotiating leases for about 250,000 square feet of space. So when those are done, that percentage lease number will go from 74% to 80%. So over the next couple of months, I think it's a safe assumption to see meaningful increases to the percentage leased, not necessarily the percentage occupied of our suburban portfolio.

And taking that a step further, so that will bring that 1.2 million square feet down to 900,000 square feet. 600,000 square feet of that exposure is in 3 buildings: the Westin Quarry, 103 CityPoint and 180 CityPoint. So I'll hit on all 3 of those. The Westin Quarry is a 400,000 square foot building that we developed that's been talked about in various presentations. I think Ben Myers talked about it from a sustainability perspective. We are in the very end of the repositioning of that building. It was leased through June 1 of this past year to Biogen. We're in the process of amenitizing that building, taking it from basically a corporate build-to-suit for a single user and turning it into a multi-tenanted, fully amenized suburban campus.

So as we sit here today, we've got about 400,000 square feet of outstanding proposals on that building. It's by far the highest quality premier workplace in the suburbs of Boston. As it gets completed over the next couple of months, we fully expect that we'll be transacting on that building. The other 2, 180 CityPoint, that's probably where we spent the most time over the last couple of years in terms of leasing. We're actively working on a couple of leasing that building. We'll have 70,000 square feet or so left to go. This is a purpose-built R&D building that we've decided to lease to life sciences companies that don't necessarily need lab space. So they're using it as an office space, and we're more than happy to lease it to them on that basis.

The final building, which mentioned previously, 103 CityPoint, which is a 115,000 square foot lab building, a little bit of a smaller boutique building that as soon as 180 CityPoint is leased, that will be the next one to go. So that 600,000 square feet is sort of the next thing on our list of things to tackle. We fully expect over the coming quarters that, that's where we're going to start to make some progress.

Yes. Pat, the footnote on the Quarry is that it's almost an identical opportunity to 140 Kendrick. Many of you have toured that with us. That was a repositioned asset once PTC, the original primary tenant of the whole complex left. We've re-leased it, and we actually have that in the market now with an investment sales team, Newmark. And the thing that's been really great has been the response on just the teaser going out. We've got 29 confidentiality agreements and tours lined up. So Pat's going to be busy out there. The response has been just outstanding. And what we did at 140 Kendrick is almost identical to what we're doing at the Quarry, same type of amenity base.

So the last thing that we have, Koop, I'll just kick it to you, is the political and legislative environment in Boston. We'll let you take that one.

There's only really one -- hit the slide there, do you have it? There we go. There's only really one big trend here to really focus on that you could see some results from us on, and that is this housing issue. There is an extraordinary amount of pressure from the State of Massachusetts to produce housing in the communities that we're in, which you know are very hard to get housing done. So we think we're going to be able to hopefully pull off some things where we can get some residential units out of these suburban projects that have, by nature, a lot of land because of the way zoning used to work that could be not only enhancing to the assets, but a great play for us on sales.

And I'd just say, in summary, a couple of other things. We have less competitors than we've ever had before. Pat doesn't compete anymore against any particular owner that has a leasing team. Think of that. That just hasn't been the way for the last 20 years. Everything is outsourced. As Owen and Doug and probably Mike mentioned, clusters, so powerful in Boston. It is really working, i.e., the Peru. And then also capital. We're winning because we have capital and our competitors don't, and the brokers have really found out the hard way what that's like once you have a deal done and nobody posts for the TI or the commission.

So I know we went over time, but I think we are...

So we're going to bring up the next presenters. And then if anyone has any follow-up questions, please feel free to approach Koop and Pat at the cocktail reception.

Super.

Next up, we have the West Coast. Representing the West Coast, we have Rod Diehl, Executive Vice President for the West Coast regions; and Christine Yuen, our Senior Vice President of Leasing.

Okay. Hello, everybody. Thanks to all of you for hanging out here. It's been a long day. We're really happy to see so many of your friendly faces here. We've got a lot to cover. So Christine and I are going to move through these slides quickly, and we're going to try to leave some time here at the end for some questions. So just jumping right into it.

The key objectives. Look, you heard it from Koop. You've heard it from everybody else today. By far, the most important mantra and thing we've been focusing on this year and every year, but especially right now on the West Coast is the leasing. And Christine will walk through more of the specifics on each of these buildings. But in total, in San Francisco, so far this year, we've done about 480,000 square feet of leasing. We've got another 400,000 that's in LOIs or in leases, and that's consisting of about 18 deals. So we're seeing some momentum picking up, which is great, and we hope to continue that.

So on the retail front, this is maybe not a big square footage number, but it's a super important piece of particularly what's happening at Embarcadero Center. Any of you who have been there knows that the front door to these buildings is the retail. And on top of that, it's an amenity and it's a differentiator for our property against some of the others. And so we've had a great program that we've been working on for the last couple of years where we've gone out. It's kind of a homegrown marketing program, frankly, where we've gone out into the market and we've asked our own employees in the building in our company, you know the best operators in your local areas.

Why don't you go knock on their door, hand them a business card, go hit them up on a direct message or whatever and see if you can get them interested in coming down to Embarcadero Center. Well, it paid off, and we've done 8 deals so far this year, and our tenants love it. We're adding new restaurants, new retail amenities for other things. If you're curious more about it, NAREIT did a great article on this, and it's available online or you can give one of us an e-mail and ask for it. So the next one here on this list is this renovation of Embarcadero Plaza. And you may have heard us talk about this on other calls and things.

But for any of you who haven't been out there and don't know what we're talking about, this is -- there's a public park that sits directly east of 4 Embarcadero Center, and it's between 4 Embarcadero and the Ferry Building. And it's 5 acres, and it's underutilized right now. In fact, ULI came into town during the pandemic, and it was a key spot that they identified as being a real catalyst that could turn around and help revitalize the downtown.

Well, we took the next step. Our Head of Development on the West Coast, Aaron Fenton, kind of took the lead on this and got HOK to put together some conceptual plans on what this park could look like. And without getting into all the details, we've progressed this over the last 1.5 years. We now have a signed public-private partnership agreement with the city of San Francisco to build this wonderful park.

The vision of it is something along the lines, if we execute it correctly, like you have here at Bryant Park or maybe Millennium Park in Chicago. And so it's an excellent opportunity for us to increase our front door. And so we're moving forward with that. I'm very excited about it.

And then lastly, in terms of key objectives on the disposition front, as you've heard already, it's a company-wide initiative here to go make the best use out of some of the development sites, in particular, that may not be ripe for development anytime soon. So we've identified a few of those on the West Coast, and we've got 4 of those that are in play right now and perhaps a couple of them might close before the end of the year.

Okay. So next slide here, just talking about more of a top level, just leasing trends and kind of what's going on in the market. By far, it's still a very segmented market. I mean you can hear it in different terms. Sometimes we refer to it as flight to quality, but it's just an absolute night and day between the premier buildings and the non-premier buildings in San Francisco. Fortunately, the buildings that we have compete generally up in that higher end of the category.

The concessions, I would say they've stabilized. Christine can talk some more about this as she gets into the details. But it's -- TIs are still high. They're high at maybe over $200 a foot. That's basically $20 a square foot per year, but they're not going up as much. In fact, not at all. I mean, in fact, we've seen both free rent and TIs sort of stabilize in terms of what the asks have been, which is really great.

So the market is trending properly in the right direction. There's a lot of deals getting done, and it's showing up in the statistics. We've gotten 3 positive net absorption quarters in the books already, and we're expecting to see more going forward.

And then lastly, I think this is true across all the markets, there's no new supply. So I mean, as we continue to fill up our space and there's going to be continued demand, there's nothing else getting built. So that's very, very important.

Real quickly on the return to work. It's definitely a different scene in San Francisco right now when you walk the streets. I think most companies have concluded that the fully remote or even partially remote is just not good for their business. And so we're seeing that trend shift, and it's taken a little bit longer. These are -- a lot of technology companies were really, really late to kind of make this shift back. And some of them really still haven't completely, but it's changed a lot in the city. It's showing up in different forms, but there was a recent report on that Placer AI data, which is the cellphone tracking, that the actual foot traffic around San Francisco was up, I think, 24% year-over-year, which was the most of any metropolitan area in the country. So that's very, very good news.

Okay. AI demand. You guys are hearing all about it. You heard about it from Owen. You're going to keep hearing about it. And look, it's -- I can tell you there's some skepticism, right? Some people look at this and they go, it's just another -- it's just the next trend, it's this, it's that. So you might be skeptical, but I can tell you from being on the ground in San Francisco, we're living it every day, and it's real. It's happening right now, and it's super exciting because these companies are coming from different places, and we're hearing about new ones all the time. So I would say that the 6 million square feet that is already leased in San Francisco, we're going to see some more of it. This wave has started, and it's going to continue.

And then lastly, I think the residential rents are increasing. And this is just another data point that is underscoring that the resurgence in the business activity in San Francisco has definitely picked up.

I'll hand it over to Christine.

Good afternoon, everybody. I'm going to go through some market slides very quickly. Pat block at Boston, 24% available at [ high wealth ]. San Francisco's overall availability currently sits at 37%. 30% of that is direct availability and about 7% is sublease space. And sublease space is still very relevant in our market as there are still a lot of high-quality plug-and-play space that compete with direct space.

But leasing activity is increasing. And although we have not yet reached our 15-year average of 10.5 million square feet, the first 2 quarters of 2025 has outpaced the first half of the last 5 years. And if you look on this chart, it's on pace with 2011 levels. And looking at that full year, we beat out our 15-year average. So we're looking forward to seeing those numbers at the end of the year.

And most importantly, as Rod mentioned earlier, we have seen 3 consecutive quarters of positive net absorption. The majority of that space is being absorbed by the tech sector. Tenant demand is tracking at 5.9 million square feet. And if you look over the last 10 years, our peak in 2018 and 2019 was over 7 million square feet. In 2024, we almost reached that peak. 51% of this tenant demand is in the technology sector. San Francisco is a center of innovation, has a very entrepreneurial spirit. And in the 2000s, we saw the dot-com wave. In 2010, we saw the mobile app era. And right now, we really believe that we're in the beginning of up cycle, the AI era.

So continuing with the AI story. Again, as I mentioned a second ago, 6 million square feet has already been leased. And these are leases spread around all the submarkets throughout San Francisco. The financial districts garnered probably the largest proportion of it along with Mission Bay. But as you can see from this map, they're spread out across the whole city. And it's a large number of them. I mean there's been over 267 companies throughout this area here that have taken this down. So it's pretty impressive.

And some of them have not been companies prior to 2020.

Yes. No, exactly. You saw this slide when Owen was up there, and I would just like to comment on it again. The fact that San Francisco has taken the majority of the venture capital around this new funding is not news to the Bay Area. It's happened every cycle up until now, and it's happened again here, and it's clearly the fuel that drives a lot of the growth.

Many of these VC companies, as you know, are based in San Francisco, and they're there for lots of different reasons, obviously, to spawn some of these new companies. But the collaboration with the great universities, Cal, Stanford and others, it's just -- it's the lifeblood that makes it happen. And so this is a very positive sign that you're going to see more growth from that.

And this slide, I think, is just another one that sort of underscores the difference between the premier and the non-premier. In San Francisco, I mean, the premier assets, including all of the BXP assets, are just outperforming. I mean, this chart shows it very well, as does the one on net absorption. For most of the previous quarters, the net absorption in the premier has outpaced the non-premier.

Okay. So switching over to our portfolio. This slide is basically just kind of showing each of the major regions, including Seattle and L.A. in terms of what is leased and what is occupied. And unlike some of the other slides that you've seen and are going to see, there's not as big a difference here. We haven't done as many leases with future commencements. So the spread between what is leased and not leased is not as big.

Across all these markets, we're about 84% leased, which is better than the market average and pretty much all of those, but it's definitely below where we have historically been. So again, underscoring the need for leasing. And -- but most importantly, too, it's our opportunity. This is where you're going to see us be able to make the most immediate impact on earnings by getting some of the deals done in these markets.

All right. So I'll get into the specific properties. Salesforce Tower is our jewel in San Francisco. It's near 100% leased, and we don't have rollover in the next 2 years. And on a daily basis, we see about 5,000 visitors and employees coming through the building. And pre-pandemic, we were 5,500 to 6,000 visitors every day, and it's really busy at the building. And it's just another example of San Francisco being back at work.

Embarcadero Center, this is our 3 million square feet 4-building project north of market. It is the project that brought BXP to the West Coast in 1998. It continues to be a real important piece of real estate for us in San Francisco. We just completed major capital improvements in the last 5 years to an aging complex. We remodeled and expanded all 4 building lobbies. We've added amenity offerings. Owen mentioned it before, including an ultra-high-end 11,000 square feet amenity center called the Mosaic. Some of you have been in meetings in that facility. It's been very well received. And we're reinvesting in the retail, like Rod said. It's a front door to our office space. We got to make sure it's vibrant and relevant and make that place for our clients to go to.

And Embarcadero Center traditionally attracts traditional type users like law firms, financial companies and professional services firms. And those companies are looking for quality trophy space. 4 Embarcadero Center, which is the most highly desired of the 4 buildings just because of its proximity to the water, can command rents over $100 a foot on any floor. So it really showcases the flight to quality trend at Embarcadero Center.

The majority of our availability is in that low-rise bank. That low-rise space has been challenging, but we're exercising different strategies to get those floors leased up, including designing and building full floor spec suites. We even put our own regional office on a lower floor to showcase how quality a low floor can be at Embarcadero. And we have examples of successfully convincing clients to consider a low floor by just touring through our office.

I'll just have to jump in here. Right before we got on stage, Christine showed me a text that we just got an offer on one of our better spaces at 4 EC. And this is a space that we actually have had multiple offers on. We haven't had that. We haven't had to manage that in a while, and it just came through, which is great.

535 Mission, this is our 300,000 square feet building, just half a block away from Salesforce Tower. We built it -- we opened it in 2014, and our anchor tenant was Trulia, now Zillow. In 2023, Zillow decided that they're going to downsize from 100,000 square feet to just over 25,000 square feet. So we were left with a large block of tech space. We realized really quickly that it was going to be very hard to compete in the market with all the sublease space available that many other blocks of great tech space available. So we decided that we needed to break up the block, even breaking up the floors to get it leased up. And that program has been very successful for us, and we have diversified the tenant base of this building, adding VC companies, private equity companies, small AI companies. We even got a government user. And we only have a couple of floors left available there, and we're going to continue leaning in on that strategy.

680 Folsom. This is our 3-building 550,000 square feet project on the corner of 3rd and Folsom in the SoMa District. We just completed a major repositioning project at this building, including modernizing our lobby. You can see a photo of that here, just giving it a more hospitality feel. We also converted retail space into amenity lounge space. That has been very well received. And we also negotiated with 5 of our clients to get back the rights to our roof. And we just completed major renovations to the roof just last week, adding a bar, seating, landscaping, sunshade, and we're opening that to our clients next week.

We have a 200,000 square feet block of availability there. And this summer, we have seen more touring activity for this block than we had in the previous 12 months. And the reason for that, we think, is because we think 680 Folsom is situated in this AI corridor. Rod showed you a map of all the AI companies, OpenAI, the largest AI company, is in Mission Bay. Mission Bay is full. This building is very close to Mission Bay, and we're starting to see these AI companies sign up leases in the SoMa area. And we're actively pursuing that AI user for this block right now.

In the South Bay, this is Mountain View. We have 2 projects there. We have 2440 West El Camino. That's our 145,000 square feet office building on El Camino Real. And then we have a 16-building office and R&D project in Southern Mountain View called Mountain View Research Park.

Over the last 2 years, it's been very challenging in this submarket. There was very few leases being done. It was very quiet. But this year, in 2025, there has been an uptick of activity. I'm negotiating close to 200,000 square feet of LOIs at both projects, and we think we're going to land a few of these users. The majority of these tenants are tech and in particular, in Mountain View Research Park, we get a lot of automotive technology, and we house companies like Toyota and Honda doing their innovation at that project.

Gateway Center. This is our 7 building, 1.3 million square feet project in South San Francisco, very close to the airport. We have a 50% ownership in this project. And as you all know, the life science market has been tough. We have an oversupply in the market and demand is low. But however, we think Gateway Center is the best location in South San Francisco with easy access to the freeway. And we also have brand-new plug-and-play spec lab space that is ready for that next lab user. So the goal here really is to just stay competitive with our -- with the market. And when that demand comes back, we're ready to make those next deals.

Okay. Moving to Los Angeles. I'll just say that Los Angeles has probably been one of the slower markets from a demand side for us. We have 2 great assets down there at Santa Monica Business Park and Colorado Center. And our occupancy is still holding up pretty well relative to the market. We've got some great tenants down in there in that building, some clients. We have Snap. We've got Hulu. We've got Kite Pharmaceuticals, to name just a few. So it just hasn't picked up quite yet. So we're hoping that it will hit pretty soon. And we're actively working on a few deals, but it has definitely lagged in terms of demand.

Up in Seattle, I think the story is a little different. I mean it's -- Seattle hasn't quite kicked in on all cylinders yet like San Francisco has started. But historically, Seattle, the demand profile, first of all, in Seattle is very similar to what we have in San Francisco with a lot of the tech companies. And historically, it's lagged maybe 12 to 18 months when the demand picks up in the Bay Area, you see it follow up in Seattle. And I think that's starting. I mean we've already done up there 15 leases this year. 12 of those are with new clients into the building. These are not big leases, but they're meaningful leases and they're good leases for the buildings, both at Madison Centre and at Safeco Plaza. So we're encouraged by that momentum, and we think we're going to see it going forward.

Okay. So we're going to wrap up here with just a comment quickly on the political and legislative climate. And I'll just speak primarily to San Francisco. This is a really good story for San Francisco. We've absolutely turned the corner in terms of just, I would say, the attitude. We've got great leadership now with Mayor Lurie. He's brought on some very, very business-savvy people around him to help as they're fellow named Ned Segal, you may know that name. He was the CFO at Twitter. There's many others that are in the group now that are doing quite well, getting everybody motivated. And I think he's got a big job ahead of him, for sure, the mayor does, but he's engaged with the business community, and the business community is engaged back, which is something you didn't see before.

In fact, right before Mayor Lurie took office, there was an ad hoc group of real estate companies, BXP included, that put together a priority list that was presented to the mayor, and he reviewed it and sat down. We had a meeting with them, all of us did. And some of the stuff is getting executed. So this is a really, really good story, and we're very happy about it.

I would just say on the housing front, this is more of a statewide comment and similar to maybe what Koop said about Massachusetts. Housing, we need more of it. And in the Bay Area and in Southern California and in California in general, there's been some good changes that have tried to break down some of the barriers having to do with just regulatory issues and the process that's been so cumbersome. And there's a lot of narrative around this now. A lot of people are focused on it. We got -- it's a project to get done, but it's going in the right direction.

So I'm going to wrap up here just with one last comment, and we'd like to take some questions. But in conclusion, I can tell you, in San Francisco, this recovery has started. There are companies being formed one after another, and it's just so exciting to see them. They're all trying to vie for their piece of this new pie that's part of this AI, new wave of technology. I've been doing this in the Bay Area now for a long time. I've been through each of the last cycles of the tech going all the way past the dot-com period. And every single time, people questioned, was it real? Is it going to happen? And a lot of people were skeptical, and they were wrong because it happened every single time. It's happening again, okay? It's happening again right now. And the smart investors, they see this wave coming and they are paddling hard to catch it.

So with that, we'll stop and take some questions.

No questions? Here we go.

I was just wondering if you think about sort of the previous cycles and sort of the big companies that are driving it in their space usage, just what have you guys sort of seen in terms of these AI companies and their space usage based on employees and so forth? Anything different that jumps out?

Yes. Actually, that's a great question. Please, Christine jump in. But the AI companies have an absolute preference to being in the office. And I've heard it for different reasons. I think the obvious one is that they feel that there's more collaboration, they get people working together. I've heard there's some security issues. They prefer to be all together as well. They don't want to have to worry about firewalls and things like that from people working remote. But it's -- so far, they are using the space. And if you were walking around in Mission Bay or in downtown San Francisco and you felt the vibe of more people, a lot of that's being driven by these folks being here.

I have a friend that works at OpenAI. He works 8 days a week.

Yes. Any other questions? We got one back here.

You mentioned before when you look at the lease percentage, I think this was San Francisco specific, the lease percentage versus occupied was quite tight unlike some other markets. I was wondering if you could describe why you think that happens? Is it the type of user, size or something else?

I think particularly, we don't have a lot of -- I don't have any new development. We have one project that we're trying to lease up in South San Francisco, which is 651 Gateway. I think you might see more of that spread when you've got future leasing that hasn't commenced yet like that. That's the best I can see. I don't know if you want to...

Yes. Another reason is so dominated by tech, the tech companies can't see that far ahead. They're thinking about the next 12 months or 18 months. They can't look a few years out. So you're always going to see that really tight spread.

Just-in-time real estate, right? Yes.

Any other questions? Right there.

Can you maybe just talk about -- you mentioned TIs, but just the rental rate side of it?

Yes. Why don't you take that, Christine?

Yes. So I think if you have very high-end trophy space, you can command the rents. At Embarcadero Center, we're getting rents up in the $120, $125 range. But there are other buildings in the market that can get $160, $175 as well. And then on the lower end of the market at -- in our portfolio, we're kind of in the upper 70s to low 80s rent, but there are other landlords that can get into the 40s or 50s.

Here, Alex.

I guess, a 2-parter. One, we always hear these stories about the big tech companies sort of going back and forth. They dump a huge amount of space on the market and then they take a bunch. So what's going on with the big tech?

And then second, San Francisco, we always, again, hear the stories of the view space is like that's the ultimate that stuff leases and then there's all the generic stuff. So can you just sort of -- of that 37% availability, how much of that is like view space versus how much of that is just generic?

Yes. Okay. We'll take the tech one first. So on the -- I would say that the big tech companies that I think you're referring to, the ones that had taken a lot of space in the last couple of cycles, I'd say they're still kind of retrenching. I mean they're not taking as much new space. But I don't think that's really the story. The story is what I spoke to earlier, which is there are new companies being formed that are taking the space. There's definitely still activity among those top bigger users. But I think particularly in the Bay Area, I mean, groups like Google had -- they had a lot of space, and they have space on the sublease market still. So that's maybe not true in every one of the other markets that they operate in. But in this location where their headquarters are, they definitely are probably long space. How about the second part?

So our market is, what, 90 million square feet. I would say 25 million square feet is considered trophy space. And there -- that segment is about 18% available versus the 37.

That's it for questions.

That's it.

Thanks so much. Next up, we have the Washington, D.C. region with Pete Otteni and Jake Stroman, the co-heads of Washington, D.C.

Good afternoon, everyone. As Helen mentioned, I'm Pete Otteni. This is Jake Stroman. We co-head the D.C. region. Thanks for your patience. We'll try to give back some time here if we can, if at all possible.

Agenda will look familiar. I'm going to skip through that. In terms of our key objectives, I will not belabor the first point. It's the same. It's lease, lease, lease, and it's with particular focus on our vacant and pending expirations.

We are, I think, probably among the leaders in terms of the selected land and building dispositions. We've got several things in the market right now, some of which we anticipate will close in 2025 and a couple that will likely trickle into 2026. So we are heavily focused on those assets. We've got, in some cases, the unique data center market to the west of us that's helping us.

901 New York Avenue is a great example of what we've been talking about, where we're in the process of completing a $25 million renovation. And think of that as a partnership between BXP and our major client in the building, Finnegan. Finnegan is essentially reinvesting the dollars that they would have gotten in the form of free rent in a new deal and investing that into the building so that we're redoing the lobby and adding an amenity space in the building that they and other clients will get the benefit of. And Jake will talk about the leasing success at that building, but we've seen already some momentum when the market sees that we are not only investing in that building, but have TIs to do new deals.

We've talked a lot about 725 12th, and there's a slide on this, but we are actively under development there and really heavily focused on getting to the point where we can turn over the spaces to our clients.

And then the later 2 slides are really sort of the moments, but obviously, focusing on efficient management. And we are looking, I would say, similarly a short list in D.C., but when we see acquisition opportunities for buildings that we'd like to own, either that are on the market or that we can go find off market, we are certainly seeking those selectively.

The next thing is just 3 things I wanted to hit on quickly to try to be a little bit different than you might have heard from some of the other markets. Our Reston office, Jake is going to talk about this, but Reston continues to be a bright spot. It's our CBD, urban edge, suburban, urban, whatever you want to call it, portfolio. Jake and the team have done an amazing job of leasing up whatever availability was in the Reston market, and it continues to be an amazing bright spot in the D.C. portfolio.

Not too different, but I think perhaps as pronounced as anywhere in our portfolio is the D.C. bifurcation between haves and have-nots. There is a major demand for new product. There is rent growth that is driving rent growth in the high-end A and trophy space. And on the other end of that spectrum, there are zombie buildings, which likely will never get leased again as office. Some of those are going to get converted to residential. Some of them are not, but there's really no different. There are buildings that are not being investigated by clients who are seeking space.

And then similar to what Bryan Koop was mentioning, when you look at the new development market in D.C., you look at JBG Smith, which is essentially a residential developer. You look at Tishman Speyer and Brookfield, who have essentially pulled out of the market. And many of our historical competitors on the new development side are no longer our competitors in the D.C. market, which we think is a favorable market for BXP.

725 12th, we've talked about on a couple of earnings calls, but I'll just hit quickly. We were fortunate enough to do a great deal with the -- essentially the lender who was in possession of this building. We got it at what we think is a really attractive basis. We're going to be at about a little over $1,000 a square foot at the end of the day here. And the rents that we've achieved with our 87% pre-leasing to 2 major law firms gets us to just about an 8% return. We think that's a very attractive basis in the building. And obviously, we're very happy. We're essentially not leasing any additional space at this point in time. What's left is the sixth floor, which the clients have expansion opportunities on to in the next couple of months here. And then we have the retail space. Otherwise, there's essentially no space left to lease in the building.

We have begun what I would call soft demolition in the building today, and we'll be under active demolition where you'll actually be able to see the building coming down here in the next few weeks. We will turn over spaces to our clients early in 2028, and they'll be occupying the building late '28 and early 2029.

And then finally, on the development side, RTC Next. You see on the left-hand side of the screen, blocks A, B, C and D, which are all now complete, the Volkswagen headquarters, the Fannie Mae headquarters, the AC Hotel developed by our partners, the Donohoe Company on a ground lease; and Skymark, our 39-story 508 residential unit complex, which Rich talked about, which is also that Phase 2 75,000 square foot office building.

On the right-hand side of the screen, you see our future development in Reston. Those future development blocks comprise about 900,000 square feet of premier workplace and over 1,000 residential units. You can also see a major organizing feature of the development, that Central Park. While the economics don't support new development today at RTC Next, we think that as the markets move and as new development is supportable in Northern Virginia more generally, Reston, as usual, we think will be the first beneficiary of that. So stay tuned for potential future announcements on the RTC Next side as well.

This is CBRE data, and I'm going to go really quickly through this, just to give you some kind of overall flavors. On the left-hand side of the screen, you'll see almost 6 million square feet of tenants in the market. That's D.C. proper. On the right-hand side of the screen, CBRE tracks the tenants in the marketplace on the D.C. metro. So that's D.C., Maryland and Virginia.

You'll see that same right-hand slide on the next screen, which is Virginia. And you'll -- if you do some math, you can quickly note that 5.7 and 5.0 on the next slide add up to more than 7.7, which is because if a tenant is looking at and open to both markets, they're in both numbers. So on the right-hand side of the screen, the point being we have not yet gotten back to where we were post pandemic, but at 7.7 million square feet in the marketplace, the market feels like there is some momentum there. The 5.7 million square feet of demand in D.C. is heavily driven by, not surprisingly, law firms, not-for-profits and the government. In Virginia, a similar number, very different demand base here. That's going to be heavily technology and defense subcontractors.

On the leasing activity, 10-year average, 9.3 million square feet. We haven't gotten there post pandemic. Hard to say we will in 2025, if you look at the numbers there. Similar in Virginia, 10.6 million square feet average. We have not gotten back to the pre-pandemic number, which is almost 14 million square feet. And availability rates in the D.C. market, you see here are similarly challenging, 28% and 26%.

Finally, on the premier workplace side, I think the takeaway here on the non-premier side, you'll see that number, the vacancy number is in excess of 18%. On the premier side, it's about 8%. So significant difference there, almost 10% or a little over 10%. And then finally, these absorption numbers are a little wacky, frankly, but we can tell you that the premier workplace buildings are absolutely outperforming whatever this slide may indicate. And obviously, there are some vagaries to that number. A stat we like to throw out also from CBRE is that 25% of the buildings in D.C. allocate 25% of the vacancy. So those are buildings that people are just not looking at, and you can really essentially ignore them.

So with that, I'm going to turn it over to Jake.

Thanks, Pete. I'm going to spend some time specifically speaking to our portfolio in downtown Washington, D.C. And I know there's a lot of familiar faces in the room. Oftentimes, when the analyst community comes to visit Washington, D.C., we take out to Reston. Reston accounts for about 65% of our square footage in the region and about 65% of our NOI. It's 98% leased. It has very limited rollover in the next 3 years. So I'm not going to spend a whole lot of time talking about Reston today, but instead, I will be talking about Washington, D.C.

So specific to our D.C. portfolio, it is 8 buildings totaling 2.7 million square feet, and it's nearly 90% leased as of June 30 of '25. As you can see from this slide, it stands in stark contrast to some of the market information that Pete was presenting earlier. It's just a furtherance of the argument that preeminent workspaces are successful in today's environment as is evidenced by what you see here on the slide.

Okay. So this graphic is similar to the one that was just presented, but it's a forward forecast. It effectively shows what our downtown portfolio will look like by the end of 2025, which will be 7 buildings, 2.3 million square feet and 92.3% leased. And looking at this slide, I would just point out that the largest vacancy that we have in our portfolio is at 901 New York Avenue, where we have 99,000 square feet of space left to lease. This is the largest whole on our portfolio downtown, and I'll speak to that asset in just a few minutes.

So in terms of our exposure and occupancy, this graph shows our current exposure, which incorporates, again, all 8 buildings in our portfolio and our known rollover from 2025 to 2027. And as you can see, the D.C. CBD portfolio is 88.3% leased as of today with limited rollover but for 2026.

Fast forward, as of the end of this year, this graphic details the D.C. portfolio, which will be 7 buildings and our known rollover in 2025 through 2027, which is really de minimis.

So what is the difference between those 2 slides? It's our intent by the end of the year to sell our interest in our partnership at Market Square North upon the maturity of an existing loan that we have, which matures in early November.

No presentation from D.C. would be complete without at least a quick overview of Reston Town Center and the successes that we've enjoyed there. This is just a bird's eye view and an attempt to capture the 18-building, 5 million square foot environment that we created in Reston. Reston Town Center continues to be one of the most successful submarkets in the country. We house 36 corporate headquarters, many of them are household names, multiple full building tenants, and we have a weighted average lease term of just over 9 years. And as you can see, current vacancy and near-term rollover is very limited until 2027. And note that in 2027, we are already in discussions with a lot of the existing clients and/or new clients on most of the space that is projected to be in play.

So now let's do a quick deep dive into our downtown Washington, D.C. assets, starting with 500 North Capitol. So 500 North Cap is a 230,000 square foot premier asset. It's located between Union Station and the U.S. Capitol with incredible views at Capitol Hill. It's a joint venture project. Our joint venture partner is the [ Massiveo Corporation ]. They own 70% of the asset. BXP owns 30% of the asset. McDermott Will & Emery is the anchor client, and their lease runs until the end of 2028. We are both working on a loan extension with the existing lender and a repositioning plan to put this building in a position to be leased when McDermott vacates to our 725 12th Street project in late 2028.

901 New York Avenue. As I noted, 901 New York Avenue is the asset with the largest vacancy in our portfolio. We are about 50% complete with a major building repositioning effort that Pete just referenced whereby we're spending $25 million, and we're reenvisioning the lobby, the entrances, the public spaces and the amenities for this asset. Of the 99,000 square feet of vacancy, we are at lease on roughly 22,000 square feet of that space right now. And we have really, really good lease activity and tour velocity on that remaining space.

1330 Connecticut Avenue is a 250,000 square foot asset in Dupont Circle. It's primarily leased to Steptoe, whose lease runs through 2032 for roughly 75% of the building. This is a sale candidate, as we've talked about earlier today, given the fact that we've completed a very significant building renovation years ago, and Steptoe has about 7 years of lease remaining on their term.

2100 Pennsylvania Avenue has been a total success for us. This building is 476,000 square feet. It sits 6 blocks west of the White House on Pennsylvania Avenue. The anchor client is WilmerHale, who occupies about 56% of the asset. We delivered this building in 2022 to rave reviews, and the remaining vacancy is encumbered, but still seeing great activity.

2200 Pennsylvania Avenue, this building is 97.5% leased and located one block away from 2100 Penn. An interesting fact about this building, we delivered this asset in 2011, and we have subsequently renewed all of the original clients in the building, including Hunton Andrews Kurth, Vinson & Elkins and Danaher Corporation. And as part of the renewal process with Hunton Andrews Kurth, we are getting some space back, but we have great activity on that space already.

Capital Gallery. This is our asset in Southwest Washington, D.C. And if you recall, we sold over 70% of this building to the Smithsonian Institution in 2020 for a price of over $550 a square foot. Our remaining interest is about 30%, and it includes office space and the entirety of the parking garage. Note that we're currently building out roughly 21,000 square feet of additional space for the Smithsonian Institution. They're leasing from us. That lease commences in Q2 of 2026 and represents about 60% of the vacancy here that's listed. So better put, upon completion, we will be about 93% leased at Capital Gallery.

And then lastly, Sumner Square. So Sumner is a series of 3 separate buildings we completed, thanks to Mr. Ritchie in 1985. Fast forward to today, we just completed a major lobby and amenity repositioning at the asset, and we are 94% leased with limited to no rollover for the foreseeable future. We have activity on the remainder of the space.

This asset continues to perform really, really well in our market. We completed a renewal last year and an expansion for Kellogg, Hansen, which is leasing about 40% of the asset through 2036.

And then lastly, let's just touch on the political and legislative environment in Washington, D.C. As many of you have seen and read and heard about, we have the National Guard deployed on our streets. We have about 2,300 troops that are occupying D.C. streets right now. The orders for the National Guard have been extended through November 30. My guess is they'll be extended beyond that date.

There's a lot of debate and discussion about home rule and whether or not the surge in protection is really reducing crime and what it's doing to the unhoused population in the city. But suffice to say, what I would say is that the city didn't ever really feel unsafe. And today doesn't feel unsafe, particularly where our assets are located in town.

The other hot -- but I'll just touch on before we close and take questions is DOGE. Everybody asked what's the impact of DOGE to the region. And DOGE, by some estimates, there's been about 30,000 jobs lost in our region. Primarily, a lot of those jobs are in Montgomery County, where we don't have a huge presence. But from a foot traffic perspective, what I will say is given the proclivity for back to work with the federal government, the boots on the ground and the activity on the street has increased immensely in the last 3 to 4 months. In Downtown Washington, it feels like a different city. It feels very active and vibrant. We continue to be really excited about the change that's coming to Washington, and we feel like the portfolio is positioned for success and continues to be. And as Pete alluded to, we continue to turn over every stone, looking for new opportunities that exist in the market.

So with that, why don't we take some questions?

No questions.

Great. Well, thank you.

All right. Last but definitely not least is our host region, New York. We have Andy Levin, Heather Kahn, our SVPs of Leasing as well. We'll welcome you back, Hilary Spann, Executive Vice President of the New York region.

Thank you, Helen. Okay. You've seen the agenda. It's identical for the region, so I will not belabor it. I wanted to talk before I hand it over to Andy and Heather about some of the key objectives for the New York region for 2025. The largest of the objectives coming into 2025 was to secure an anchor tenant and commence development at 343 Madison Avenue. So we're very pleased that we've achieved that objective this year.

We also had an objective to close 290 Coles Street in Jersey City, which is our 670-unit market rate residential building and commenced development on that. I'm pleased to say that we are ahead of schedule and under budget on that project. So we've achieved that objective as well.

Like the rest of the regions, we have an objective to complete selected dispositions. We have a couple of land sites on the market, and we expect to put them under contract between now and the end of the year.

We continue to canvass the market for tenant prospects. As Andy and Heather will describe to you, north of 42nd Street in Midtown Manhattan, our existing owned portfolio is largely spoken for. So what do we really mean when we talk about canvassing the market for tenant prospects? We are talking about 360 Park Avenue South. The project has recently signed 2 full floor leases that are both sort of AI-associated-type tenants, and we are continuing to canvass that market to improve the lease percentage of that building and ultimately, the occupancy and the revenue coming into that building. Also, we are continuing to canvass the market for additional prospects at 343 Madison Avenue, which we've described to you.

Finally, one of the objectives that we had coming into the year was to complete the repositioning and the amenity upgrade of 510 Madison Avenue. Some of you have actually seen images of this if you were at the presentation we did at the GM Building a few months ago. It has been incredibly well received by the clients in the building. Every time you go over there, there are folks hanging out in the cafe, using the terrace, et cetera. And so we're very, very excited about the reaction that the clients have had to the repositioning, so much so that Heather can describe to you what the vacancy and availability in that building is, which is very, very little.

I'm going to hand it over to Andy and Heather to talk about the leasing trends. I'll come back at the end to talk about the political landscape in New York.

Thank you. We're going to start out with tenants in the market. So currently, there's almost 24 million square feet of tenants in the market. And that is just for tenants with requirements of 50,000 square feet and greater. So the total number of tenants in the market is even much higher than that. And consistent with what you saw in a lot of the other regions, it's those high-margin tenants that we see a lot of in our portfolio.

The leasing activity for the first 2 quarters of the year has already reached 15 million square feet. We're expecting a year for Manhattan overall to reach over 30 million square feet. If you look on the chart above the white line, those years where we've reached above 30 were those really good pre-COVID years. So this is a very strong year for all of Manhattan.

If you look at availability, similar to Pat's graph, it was sort of going along pretty steady in the teens. COVID hit and it jumped up pretty dramatically. It kept rising actually through 2024 thereabouts. Just in the last year, it's come down pretty dramatically. So 17.5% availability, that was June. It currently sits at 17% as of the end of August. It's down 240 basis points over just 1-year period.

Manhattan is comprised of a few different markets, Downtown, Midtown South and Midtown. So Downtown and Midtown South, performing a little bit worse than the average, where Midtown is obviously considerably better. Just that Midtown number, that 15.5% is now down to 15.1%. That Midtown is down 300 bps for just that 1-year period. So really, really big improvement. All the leasing activity has been for the better space.

The blue line, when it goes above the green dotted line, that's positive net absorption. So we've seen a lot of positive net absorption over this year. In fact, 3.8 million square feet of positive net absorption for Midtown alone, a lot of strong months of leasing activity.

Every market in Midtown has done better. These are the submarkets in Midtown. So the white dash is where that submarket was last year in terms of availability. Everyone is down, and Park Avenue continues to lead the way.

I would just comment briefly on Park Avenue that the reason the vacancy rate is up over last year is that JPMorgan Chase is reoccupying 270 Park, and they have a bunch of leased space around the submarket. And the statistics assume that all of that leased space is going to come back on the market and be available. But conversations that we've had with JPMorgan indicate that, in fact, they're going to need to retain some of that space because they're going to be redeveloping 383 Madison Avenue. They have to move everybody out of that building. So I think that vacancy statistic for Park Avenue is probably a little bit overstated.

Even still, it's still sub-10%. We're the closest market. Sixth/Rock is well above that.

Yes.

So drilling down even further into the best space, starting rent performance for premier products. So premier product in Manhattan, it's the top 11% of the square footage in the market is considered premier by CBRE. That's 6% of the buildings, but 11% of the square footage. So if you look at the starting rent performance, 2018, it was 106. And today, it stands at 140. It's a 33% improvement. Sadly, the blue line is just straight across. The rest of the market is basically sitting at the same spot.

So at the same time that rents have been improving, so has occupancy. The vacancy rate for the premier product in '18 -- 2018 was 23%. It's down 10 percentage points to 13% today, whereas the commodity product is just the opposite 10% up in terms of percentage points. Not surprising at the same time, we're seeing positive absorption for the premier and negative absorption for the rest of the market. And Heather is going to take you through our portfolio.

Great. Thank you, Andy. And I think with that, I'm very excited to be talking about leased percentages today because that's what we focus on as leasing people. We've got occupancy here as well. But again, looking at the lease percentage, I think the highlight for this slide in the New York portfolio is that 7 out of our 10 buildings are above the 90% mark when you're looking at it from a lease perspective. And we certainly expect that those leases, whether they've been executed since June 30 or we're working on them now, we'll have them executed by year-end. So that will take us from an 85% occupancy rate to a 90% -- 91% rate by year-end based on what we currently have in the pipeline, and that's not factoring maybe proposals or other activity that we're currently working on, which we'll hope to convert.

Breaking it down and looking at the vacancy, we've got a 15.4% vacancy rate, which ties back to that 85% or comprised of about 1.6 million square feet currently. And then you can see our forward-looking roll is very light in New York through 2027. This is the slide I prefer to look at, again, being a leasing person, where we've chipped away at about half of that current vacancy. So the top part of that first bar is space that has either been leased or is out to lease at the moment. The other thing I like about this slide from a leasing perspective is we've pretty much done away with our remaining 2025 exposure, and '26 and '27 continue to be very light. So when you look at '25 to '27, we have about a 3% exposure rate in New York City.

We'll drill down a little bit on the buildings and maybe explain where some of those differences are happening. We talked a little bit about GM earlier where we have quite a lot of activity. We're sitting at the 92% occupancy mark, but with our current leases out and leases signed since June 30, we're going to bring GM up to 100% by the end of the year. And Andy and team are really hitting some high watermarks on the rents. So this would be like the premier of the premier product.

399 Park, not a lot to talk about here, except for the fact that we're 100% leased, and we have an all-star tenant roster. Many of our tenants at 399 Park have expressed interest in growing. Right now, we can't accommodate that growth, but we'll see what the future brings.

601 Lex, not a lot going on near term with vacancy or 2025. So we started to chip away at 2026, where we've got a 47,000 square foot lease out, which will get signed by the end of the year and hitting a high watermark on the rents there as well.

599, we're starting to see some good activity at the building with the Park Avenue submarket really tightening up. We've got about 100,000 square feet in that leased or leased out category. So that will help us bring the current occupancy rate from the 90% up to 99% by the end of the year. And then, again, minimal roll in 2026 and 2027, but we'll keep chipping away at it.

Hilary mentioned 510. One of the goals for the year was to complete our amenity offering. We also did a little bit of a lobby refresh at the building. And subsequent to introducing both of those to the market and now having them complete, you can see that we've had great success leasing our existing vacancy at the building and chipping away at that 2025 rollover. So we'll take this building from the low mark of 81% all the way up to 100% by the end of the year.

250 West 55th Street, not a lot to talk about, very stabilized asset. As we look at Times Square Tower, so this is a really great building and a bit of a challenged submarket. We're starting to see things turn around here, again, with some of the surrounding submarkets tightening up. So we do have the green bar, which reflects some of the space that we have leases out on or have leased. So we're hoping, at a minimum by the end of the year, we'll get this building up to the 87% leased mark. But I do want to note, we've started to see an uptick in activity. We're trading paper with about 160,000 square feet worth of prospects at the moment, 3 deals. We're going to chase them really hard so that we can try and bring this building back up above the 90% mark.

Then 200 Fifth. We had great success in stabilizing this building this year. We brought in Goodwin Procter, bringing the building from 59% occupied up to 91% leased. So this will be a nice pop once we start to recognize the revenue.

And then that brings us to 360 Park Avenue South, where we're starting to see a nice uptick in activity, particularly from the AI tech sector. So we signed 2 leases. We've got 2 more deals out to lease. So those 2 totaling 46,000 square feet. And we've got a couple of active proposals in the pipeline. But you can see here what the distribution of tenancy is like, very, very, very heavy in the technology sector. So it's nice to see those guys coming off the sidelines here in New York.

And with that, I'll turn it back over to Hilary to talk about politics.

What can I say about New York politics? It is very fluid at the moment. So the New York City general election for mayor is in November of 2025. The candidate that won the Democratic primary, Mamdani, is generally expected to win the general election. However, even as recently as last week, you heard that the independent candidate dropped out, that maybe Eric Adams is going to take a position as the ambassador to Saudi Arabia. And so there's a lot of moving parts. I think for the moment, we should assume that Mamdani will be the next mayor of New York City.

The gubernatorial election is in November of 2026. And Kathy Hochul will be running for reelection. It's possible that she gets primaried from the left, but we think maybe not likely. She will be competing with Elise Stefanik in the general election. Kathy Hochul is very centrist, and we think that she has a pretty good chance of getting reelected, especially because the western part of New York State is much less liberal than New York City and downstate.

Why does this matter? It matters because going back to the 1970s when New York City was subject to a consent decree, the State of New York actually has a lot of control over what happens in New York City. For example, the State of New York controls the MTA. So security in the subways, whether the trains run on time, how much capital is invested, et cetera, is actually a state function, not a city function.

Likewise, some of the things that Mamdani has said that he would like to do, such as increasing corporate tax rates, has to go across the governor's desk and get approved in order to become enacted into legislation, and she has said directly to us that, that will not happen. So some of the things that he's saying that are sort of alarming we think will not come to pass.

So what can he do? He can certainly institute changes to the rent control guidelines Board. On the residential front, this is the Board that sets increases on rent stabilized in rent control apartments. The mayor appoint all 9 members of that Board. He said that he would like to put a cap on -- of 0 on rent increases in those units. I think if he wants to include an agenda of development, he's going to have to make some concessions to reality on whether or not that works. So a lot going on. We'll know a lot more in November of this year and then again in November of next year.

The other thing that I would say is that I sort of reiterate what I mentioned earlier. BXP, as a company, has been in business for 50 years. We don't plan our strategy for our regions or our business plan and its execution around one political cycle, whether it be a mayoral election or gubernatorial election. National politics tend to matter somewhat less for us. And so like our clients, we are looking to the horizon for what's in the future for the company, and we're very, very confident about the future of New York and about what we're planning to do here.

So with that, I would open it up to questions on the New York region.

I have a question on the 343 Madison development prospects. I think you guys mentioned there are 4 prospects right now. I think I remember you guys mentioned one or some of them are from existing tenant portfolio, which you guys also pointed to, there's other tenants want to grow within your buildings. So in a scenario one or multiple existing tenants move to 343, what is the plan for the space that's left behind? What's the mark-to-market like?

I'll take that. We did not say that. We did not say that the LOI that we signed is with an existing tenant. In general, however, the rents in the owned portfolio are approximately -- with the exception of the General Motors Building where rents are well over $200 a square foot, in most of the rest of the portfolio, the in-place rents are half of what they are at 343 Madison Avenue. And so should a client elect to go from a building in our owned portfolio to 343 Madison, we would be thrilled because we would have some really great value space available to lease in Midtown, which, as Heather pointed out, we currently don't have and can't accommodate expansions that we would really, really, really like to accommodate. So actually, we think it would be great. And we're not at all concerned about availability in Midtown north of 42nd Street.

If it were to happen, you're talking about 2029, 2030. So this is not tomorrow.

Other questions?

I think we're handing it back over to Owen and Doug for final comments, and Mike. Is that right? Okay. Thank you all.

Okay. You went the distance. So thank you. This was -- I know it's been a long day, and we just wanted to wrap things up and make ourselves available to answer any kind of final questions that you have.

But before we do that, putting on something like this takes a lot of work. And we have a fantastic team at BXP that led the charge on this that I want to recognize, led by Helen Han. So Helen, thank you. And where is John? John Shanahan. John, there you go. Grant Buchanan. Where is Grace? Is Grace still here? Okay. Well, we'll recognize her when she comes in. And then Manny Carvalho. Is Manny still here? Thank you, Manny.

Well, anyway, terrific. So thank you all for a great effort. And I hope today was informative and inspiring about BXP. Hopefully, we were able to communicate to you that we are very excited about and confident with our plan, and we're confident that we can execute this plan and that's going to create value for shareholders. And we're also confident we can execute this plan because of the fantastic team that we have deployed around the nation from BXP. And I'm delighted that you all were able to see many of those individuals in action today.

So with that, I'd like to just open it up, and whether it's preferably Doug or Mike, but I'm also happy to answer any questions that you have here to finish up the day. Yes, sir.

Thanks so much for the day. We really appreciate it. I think about these Investor Days, they happen every 3 years, and it's a good chance for us to sort of think about the business longer term with development. I think you talked a lot about sort of the '26 interest costs, so on and so forth. But I guess I was just more curious on the back of that, right, as you get into '27, as you get into '28. Just any early indications of what are some of the tailwinds that you may see on the back of all that, right? Maybe interest cost is less of a headwind, maybe it's more NOI. Just how do you think a little bit more about -- if we're thinking about 3 years as opposed to sort of the '26 picture?

Well, I think that the leasing, right, we talked about getting to 91% by the end of '27. It's going to be not a straight line. And when we get there, right, that's when that run rate is going to hit in. So that's going to be -- I mean that '28, right, is going to be better than '27 because it's going to have a full year of that.

We also have the development that we have consistently coming online over time. So I think we will continue to have positive growth from these developments, not only in '26, which we talked about from Binney Street and 1050. '27, I think 360 is going to start. '28, we've got 121 Broadway. And then we've got 725 12th, and then we've got 343 Madison. So the idea is for us every year to right have development hitting.

I do think on an interest expense side, we're going to continue to need to be creative in figuring out how to refinance debt without having too much of a mark-to-market up because, look, rates were low for a really long time, and we took advantage of it, right? And we borrowed a lot of money at 3%. So that is something that every year, we're going to have $1 billion coming due that is somewhere between 3% and 4%. And depending on where interest rates are, we're going to have to deal with that. And we may use more floating that will help. We may use convertible debt that will help. We'll continue to be creative around mitigating kind of the risk of that exposure that we have. But I think the real -- the growth in the portfolio occupancy and the development is going to well outstrip kind of that annual headwind that we have from the refinancing activity.

Yes. I would just sort of -- just to put some meat on the carcass. So 2026, we have a full year of almost nothing. In 2027, we have a full year of 290 Binney Street. In 2028, we will have -- be in the lease-up period for the residential that we're doing in Cambridge at 121 and, fingers crossed, New York team, we'll be 100% leased at 360 Park Avenue. Right now, there is 300-plus thousand square feet of available space, assume $100 a square foot, it all falls to the bottom line. We own 2/3 of it, that's $20 million of incremental revenue.

2029, Jake and Pete said, we're going to be bringing online the 725 12th Street. That's a $300-plus million investment. We're talking about an 8% return. That's $24 million of NOI.

2030, 2031, we have $2 billion at the moment of income -- of investment at an 8% return. That's $160 million from 343 Madison Avenue. So each year, this stuff is going to happen. Our folks in D.C. are working on another potential development that would be virtually fully leased. Bryan and Pat have the opportunity potentially to get 171 Dartmouth Street going, that got going in 2026 or '27. It would be online in 2030, '31.

So the embedded portfolio opportunities are there for dramatic amounts of incremental revenue regardless of having to do any other external acquisitions. And as Owen has sort of put on everyone's agenda, doing a deal is really important. It's got to be an accretive deal, it's got to be a premier deal, but doing something else is also important. And so we are actively looking for external events. All of this in the context of Mike is saying, we got to maintain the right leverage portfolio, right? So we have to figure out ways to do this in a way that reduces our leverage over time. And he obviously guided you to a 7x EBITDA. If we do some more things, we might not get there quite as quickly, but we are going to get there.

Yes. And just -- I mean, also, I would just add to what Mike and Doug are talking about, just bigger picture overlay. I mean we've participated in a sector that has been, shall we just say, very out of favor for the last 5 years. And one of the reasons we're so excited at the moment is for the first time in a very long time, we think the tailwinds that were going to benefit us certainly outweigh any headwinds that remain in front of us.

So what do I mean by that? Well, that slide I showed you about development, when have we ever had an environment where there's been virtually 0 office development? And again, given that 50 million square feet that we own, we're going to see rental growth. I mean we're already seeing it in a big way in our tight markets like Midtown Manhattan and the Back Bay, and I think that's just going to spread around. And because you're just -- there are going to be a handful of developments that we and others come up with, but you're not going to have wholesale development. So this is going to be a huge plus for our business.

Second, capital is coming back in. If you look at all of the private market data on office real estate, I mean the volumes of capital that are coming back into office is very strong. And we're seeing it also in the public world. We've had some nice share price movements of our peers. So clearly, some capital on the public side is also coming back into office real estate. And that's going to help us accomplish our goals because a lot of our goals are selling assets. And the better prices we get, the better we're going to do.

And then, look, I'm not very confident that the long-term rate is going to come down, but I think the short term -- the Fed funds rate is going to come down. It's either going to be short term or it's going to be related to a new Fed chair. And when the short rate comes down, we've got floating rate debt, that's a direct benefit.

The other thing we learned is many of our clients, maybe they don't have a lot of debt, they fund themselves short or shorter than we do. And so when rates are lower, that means corporate health is better. And when corporate health is better, that helps our leasing. So again, these are a lot of very positive factors I think that are going to help us, not only in the next couple of years, but over the longer term.

And I'd just make one other comment about -- the question was asked earlier today about the NAV. The one thing about 343 Madison that I think you need to appreciate is that we have an unusually low basis in our land. And we're buying the job in 2025, okay? The next building on Madison Avenue, the next building on Park Avenue, the next building on Lexington Avenue, the next building on Fifth Avenue, none of which have started yet, have a significantly higher land basis and they haven't started buying their buildings yet.

So whatever the rents are that we are going to be able to achieve to get to our return, unless interest rates go to 3% again and all of the capital says, oh, we're only looking for a 5% cash-on-cash return on development. If that doesn't happen, the rents that everyone else is going to have to achieve in order to get anything comparable to what we are achieving from a return basis is going to be meaningfully higher. I mean, meaningfully.

We've said the average rent in the building is in the mid-200s. That number is going to be significantly larger for everyone else. So the value creation associated with this investment is meaningful. And the NAV relative to other buildings, as Owen said, it's in a different stratosphere because the rents associated with the in-place income in a building in Manhattan are very different.

And the other really important characteristic of the cash flows in these new developments is that it's an NOI cash flow, and it's a cash, cash flow. It's not an NOI cash flow with a CapEx associated with it for every single year where you have to do re-leasing because if you look at them, the "cash flow" from a new investment at 590 Madison, which has a rollover, a consistent rollover year in and year out, and you reduce the cash flow by the cost of those CapEx, tenant inducements, free rents, brokerage commissions, it takes off hundreds of basis points of return. When this building is brought into line in 2030 and '31, you will not see any cash flow degradation for 10 to 15 to 20 years, right? It's just a different profile of cash flow, which changes the whole mentality associated with how you value it from an NAV basis.

John?

One of the items that seem incrementally new or different, correct me if I'm wrong, is taking more of a merchant builder approach to multifamily. But the benefits of multifamily is it's not as cash flow intensive. It does provide more consistent earnings growth, which is one of your objectives. So can you just discuss if that has been a change or a pivot in your strategy and the weighting the benefits of keeping versus selling multifamily?

John, it's a good observation. I don't think it's a change. So I'll give you some history. Rich went through a little bit of this. The first residential project we built was The Avenue, which is behind 2200 Penn. And after we delivered that, we built it, we actually sold it and made a handsome profit. I can't remember, $100 million plus, it was on Rich's slide.

So then we got to The Avant, which was the next one we built, and we actually sold that, too. And then what happened was interest rates shot up and the cap rates -- I mean these assets got sold with a -- Avenue was like a 4.5% and Avant was like a 5% or 5.1% cap. So then interest rates shot up and we built some more buildings, interest rates shot up. And so now cap rates were way into the 5s.

So we said, look, these assets are our bank. We are going to be merchant with them, but this isn't the right time to sell them for two reasons. One, cap rates were high. And second, the income streams from these assets were growing faster than our office portfolio. So we wanted to capture that. So fast forward to today, that growth is still pretty strong. So we hate to give that up. But the cap rates now are in the 4s, maybe as high as 5%. So they've definitely come back down.

And we're also at a point, given what we've all talked about today with the 343 funding need and the need to deleverage, we think now is the time to monetize those. So it's not a change. I do think one thing that is a change is that in the past, we actually would fund 100% of these developments and we're -- the change that we've made is we're now using partners on a more capital-light 80-20 or 50-50 kind of basis. Alex?

Just a question on development. Obviously, there's the Dock 72. There's like a complicated one like the Platform 16. I think you still have like Back Bay Station or one of the -- that's the project there. But there have been some complicated things that you guys have taken on that are like generational-type projects. In addition, then you have like the thing in Jersey or the Oakland deal.

So my question is, if we think about sort of a new BXP and development, trying to prune or focus development, are we going to see less of those and more -- not that you can find a 343 every day, but more 343 types and less of those other types? Or are you guys going to still tackle those sort of either longer infrastructure projects or like the Jersey apartment one that's sort of just a fee deal?

Yes. I think what you'll see from us on the development side is the primary focus will be hopefully more 343-like developments that would be premier workplace in the CBD in our core markets. That's what we want to do.

And then second, you will see a fair amount of housing development and probably a little bit of an acceleration of it. And that will be an acceleration in terms of the units under construction, but not necessarily our capital investment because we intend to do these capital light. And those may have a more geographic spread because one of the things that we're doing with our residential capabilities, we're monetizing our land.

Rich went through the 17 Hartwell example. That was a tremendous example of how we took a legacy BXP building and created a lot of value through residential. We've got this going on in suburban Virginia right now at Worldgate. So we are going to build an apartment complex there. We're going to find an 80% partner. So these won't necessarily be in CBD buildings, but they're going to be associated with land holdings that we have because we're trying to monetize that land.

And I think we'll generate some fee income off of those residential opportunities that don't exist today. So you could see our fee income stream, which is not huge. It's about $40 million a year. But if we do a private equity deal on 343, and if we do some of these residential developments with partners, I think that we will continue to be able to recharge what's rolling off as we complete developments but also likely increase it a little bit.

Yes. Yes, In the back.

Can you talk about leasing spreads and how they'll impact the increase in cash flow going forward? I think in that $32 million quarterly estimate, did that include any benefit from leasing spread? Okay.

No, there was 0 there. So what we sort of said was, yes, on average, there is an incremental uptick in the sort of same-store from a cash basis, which means there's a larger one on a gross FFO basis because generally, we have bumps on an annualized basis in most of our leases. But we've got some negative downside on the West Coast right now. And so we sort of took a very conservative approach and said, we're going to ignore that, right? We're just going to -- we're going to assume that's not going to happen. So anything that happens from a same-store leasing spread basis that will be incrementally better. I don't think it's going to be meaningful in 2026 or 2027 on a "total portfolio" basis that you should sort of be modeling into your numbers.

Okay. Any other questions? All right. Well, I think that's a wrap.

Thank you all very much for going the distance with us. Now importantly, we're getting to the fun part of the day. We're going to all meet for cocktails at Coco's, which is on the 37th floor at the GM Building. And the event starts, it's a beautiful view and it's a beautiful night, so it's going to be spectacular. The event starts at 5:30. And bring your name badge because that's your access. Anyway, thank you again.

Thanks.

Yes.

Good day, and thank you for standing by. Welcome to Q2 2025 BXP Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker, Helen Han, Vice President of Investor Relations. Please go ahead.

Good morning, and welcome to BXP's Second Quarter 2025 Earnings Conference Call. The press release and supplemental package were distributed last night and furnished on Form 8-K. 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 12 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 a change. 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&A portion of our call, Ray Ritchey, 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&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.

I would now like to turn the call over to Owen Thomas for his formal remarks.

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 $0.05 above our forecast and $0.04 above market consensus for the second quarter primarily driven by improved operations. As a result, we're also raising the midpoint of our earnings guidance for the full year 2025 by $0.02. We completed over 1.1 million square feet of leasing in the quarter, bringing our total leasing in 2025 to 2.2 million square feet. Over the last 4 quarters, our leasing volume of 5.7 million square feet was 18% higher than the prior 4 quarters. We continue to increase the pre-leasing 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, our 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 U.S. tariff agreements with many important nations and the possibility of lower short-term interest rates. As a proxy for corporate health, 2025 S&P 500 earnings growth projections though revised lower since the beginning of the year remain healthy at 7% to 9%. Investors are confirming this view with U.S. equity market indices achieving new heights, and credit spreads on U.S. investment-grade bonds trading at or near 10-year lows.

Further, in-person work behaviors continue to improve. JLL recently completed a study of Fortune 100 firm's office attendance policies. Over the last 2 years, ended the second quarter of 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. And our 5 core CBD markets, direct vacancy for Premier Workplaces is 7.5 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 $14.2 billion, up 80% from the prior quarter and 125% from the second quarter of last year. Financing at scale is increasingly available at tightening spreads for higher quality office assets with VALT, 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, 590 Madisons under contract for sale for $1.1 billion or 1,060 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 $1.4 billion or around $740 a square foot. The cap rate, not particularly meaningful against stabilization is several years away, and the transaction was facilitated by $850 million 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 gross price of $212 million or $675 a square foot at a 7.4% cap rate. This building was constructed recently in 2021 is 75% leased and 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 buildings 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 in late 2029, 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 6 clients representing in total approximately 1.3 million 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 million 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 which better align with their current risk-adjusted return objectives. Given the trophy status of the asset and very promising pre-leasing 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, 343 Madison has a total development cost of just under $2 billion, including approximately $400 million of imputed capital cost carry and a projected stabilized cash yield on cost of approximately 7.5% 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 13 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-income producing assets, both land sites and largely empty buildings that we believe will generate if successful, net proceeds of nearly $300 million over the next 2 years. We're also exploring the sale of a handful of income-producing properties that could generate another $300 million in net proceeds more likely in '26 than '25. There is strong demand for housing in the communities where many of our sites and out of surface buildings are located, allowing us to create value through reentitlement. The process can in select cases take up to 2 years to complete. Other sites are being sold for industrial or other non-office 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 5-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 $180 million and is projected 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 million at closing for our land contribution. We own 20% of the project, which will require $10 million of funding from BXP over time, and we'll earn a development fee of more than $4 million. The inferred land value is $70,000 per residential unit or $22 million 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 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 the East Coast. As we think about the demand for premier office space across our markets, the pattern and the sources of demand that we've been describing for the last few quarters 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. We've had 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 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 2.3x 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 $100 billion in the first half of '25, which is 10x of what was raised by New York City start-ups, 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 2.2 million square feet of leasing in the first half.

During the first half of '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 1.56 million square feet. Our 2025 plan, call it for 4 million square feet of total leasing with about 3 million 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 12 to 18 months, when we experienced very modest expiration. We are on track. Post 7/1/25, the end of the second quarter, we have 1.8 million square feet of leases in negotiation compared to 1.1 million square feet at the beginning of the second quarter.

If you include our letter of intent at 343 Madison, the number jumps to almost 2.1 million 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 '26 and '27 expirations. Additionally, we are engaged in more than 550,000 square feet of client-initiated early lease renewals on leases that expire between '28 and '31. We have active dialogue on space that is not yet in lease negotiations, totaling about 1 million square feet. BXP's total portfolio occupancy for the second quarter ended at 86.4%, 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 re-let 45,000 square feet and have 310,000 square feet of space available. There were 2 other notable declines in our in-service property lessing -- listings this quarter. At South of Market 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 6/30. And at 599 Lexington Avenue, we early terminated 100,000 square feet of late '25 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 6/30/25, 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 190 basis points on 12/31/24. 500,000 square feet of this approximately 1.3 million 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 2026.

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 3 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 162,000 square feet and will be 100% occupied and leased when it's added and Reston Next Block D, which is 90,000 square feet, 4% occupied and 95% leased when it is added. If we were 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, 344 in New York, 185 in the West Coast and 356 in D.C. We had 20 clients expanding the portfolio by a total of 190,000 square feet and only 2 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 expansions.

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 in D.C. We only executed 3 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 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 5 renewals and expansions in the CBD both in the Back Bay and the Financial District.

Last quarter, I described life science client activity without the need for lab infrastructure. The first of these transactions was executed in the first quarter at 180 City Point and we are in lease negotiations with 2 additional clients for another 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 purposeful for lab and has the infrastructure are far superior to the lab transaction today given the elevated tenant improvements necessary to compete in the lab market.

We are in negotiations, however, with 1 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 6 floors at 510 Madison Avenue, where we have opened an enhanced amenity offering, including a new outdoor space. We also completed a renewal of 399 Park Avenue and 2 law firm 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 2 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 expansions. Interestingly, all the growth in Princeton is from office requirements for life science users. In San Francisco, at Embarcadero Center, we completed about 100,000 square feet of law firm transactions, including 165,000 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 if any growth in the San Francisco CBD traditional demand. So incremental leasing is going to be all about tenant relocations.

Our largest lack 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 6 months of the year, we have 11 tours at the property. In the month of July, we had 7 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 Folsom provided us a list of 37 AI-related tenants in the market with aggregate demand growth of almost 1.2 million square feet active in the market today.

Before I conclude my remarks, I do want to 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 are negotiating bids for 3 separate components of the job. And in each case, we are obtaining meaningful savings relative to our last general contractors estimate. Given the overall slowdown in construction activity in Manhattan, there is enough subcontractor interest to provide savings in spite of the tariffs. Remember, the construction is a composition of labor, materials and profits. And let me hand over the call to Mike to talk about our earnings piece.

Great. Thanks, Doug. Good morning. So today, I'm going to 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 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 $0.05 ahead of the midpoint of our guidance range and $0.04 of consensus estimates for the quarter. Our portfolio generated approximately $0.04 of the outperformance, $0.01 came from earlier-than-anticipated revenue recognition on leases, which was very granular and spread across the portfolio, we generated an additional $0.01 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 $0.02 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 $0.01 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&A expenses also came in lower than we expected, resulting in a $0.01 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 0.25% 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 $0.03 per share at the midpoint of our range. We continue to expect our in-service occupancy to start to improve in the second half of the year, excluding changes to the portfolio.

As Doug detailed, we will be adding several development 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 3 rate cuts starting in the third quarter, and we've now reduced this to a maximum of 2 cuts, both in the fourth quarter. The result is approximately $3 million of projected incremental interest expense for the year or $0.02 per share of higher expense. In our G&A, we recognized $0.01 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 $0.04 per share at the low end and $0.02 per share at the midpoint of our range. The increase at the midpoint is from $0.03 of better same-property NOI, $0.01 of lower G&A expense, partially offset by $0.02 of higher interest expense. Overall, we had a great quarter highlighted by strong leasing activity at 343 Madison catalyzing its development start, more than 1.1 million 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 10:00 a.m. to 5:00 p.m., at 599 Lexington Avenue with a cocktail event at 6:00 p.m. at our Coco's dining club on the 37th floor of the GM building. And for those of you who are really ambitious, you can join Owen and James for the 6:00 a.m. fun run through Central Park before the conference. We already have over 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?

[Operator Instructions] And I show our first question comes from the line of Steve Sakwa from Evercore ISI.

Yes. 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 a number of the clients you're talking to kind of existing BXP tenants.

Yes, Steve. So we think about this on a yield basis. And I quoted those numbers of 7.5% to 8%. That's an unlevered cash yield upon delivery. I think if you overlay that and looked at IRR, obviously, the exit cap 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 2 when you sold it, but you're probably in the mid- to high teens on a levered basis.

And I show a next question comes from the line of Jamie Feldman from Wells Fargo.

Filling in for Blaine here. I just wanted to get your -- you gave a lot of color on what tenants are thinking where they want space. AI, clearly, a big driver of demand in San Francisco. You have a view across many of the largest markets across the country and talk to a lot of tenants. So would love to get your thoughts on the impact of AI, where you think it's in that demand driver where you think it's actually going to shrink demand? What are companies saying about their space needs going forward and just what their labor force looks like going forward as it's implemented more and more?

Yes. So I'll take a first crack at that. 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 going to 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 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 we will experience growth in demand from those companies and some of which will be start-ups. I mean, Doug talked about the extensive AI demand that we're starting to see in San Francisco, and all of that are newly created jobs.

There is a lot of discussion that we're aware of out in the market right now from CEOs and lots of different sectors about all the efficiencies that we're getting -- that they're getting from AI. We haven't seen an impact yet from those companies. No one's come to us, and 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 jobs are going to be reduced are going to 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 going to allow companies to save money.

So our premise is, as a result, that we think that the top of the intellectual pyramid and where we see the most job creation are going to 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 going to occur more in markets 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 strategy is to be at the top of the pyramid from a quality standpoint. We want to 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 at a very high level way the way we see things going forward.

Yes. And Jamie, I would just add the following. So from an empirical perspective, so our average lease length this quarter was 9.4 years, and the lease that we're negotiating now at 343 Madison is a 20-year lease. And so the clients that are signing up for space now are not doing on a short-term basis, with an expectation that they're going to no longer need the space 8-K, they're going to be reducing their head count. So that's just sort of a fact pattern. 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 we think our job growth is going to either slow down or go in the wrong -- in a negative direction.

And we've seen layoffs from companies like Meta and Microsoft and Google 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 going to take up the gap associated with the reductions in the head count 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 the world look like for people looking for the kinds of skills needed for the AI companies that are now being formed.

And as I said, there are 37 of these companies in the market right now. I can't tell you if 1 or 2 or 10 are going to 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 "tech titans."

And I show our next question comes from the line of John Kim from BMO Capital Markets.

On 343 Madison, you disclosed $390 million 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 million 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?

That's 2 questions. We'll answer them both. So capitalized interest for this project, we always impute capitalized interest in all of our development budgets that are on our development pipeline based upon a blended cost of equity and debt that we anticipate and so for this property, we're assuming a blended rate of around 7.5% for the 4-year development and kind of 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. Again, depending on how we end up capitalizing it.

With regard to funding 343 and funding any growth that we have, right, we have a lot of different sources. The 343 project is a 4-year time horizon. And if you look at the ramp-up of the costs, most of the costs really don't start to ramp up until late in '26 kind of '27, '28. So we have time to address the funding needs for that project in specific. But as with any funding decision, and we've described this previously, we have multiple sources of capital to fund our growth. And we talked about pursuing asset sales. Owen mentioned that. We can certainly raise private equity or we can raise public equity. We can reset the dividend, and we can use either property-specific mortgage/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 as I said, we have time to kind of select which combination of these we will use.

And I show our next question comes from the line of Nicholas Yulico from Scotiabank.

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 just talk about like what drove that? And then from a real-time leasing standpoint, how the numbers could be different on the re-leasing spreads.

Yes. So Nick, like I said, so I gave you the number for the leases that we signed this quarter. And this quarter, the numbers were slightly up meaning, call it, small single digits in Boston and New York and they were slightly down in Washington, D.C. and on the West Coast. So that's like the today number in 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 it's not the entirety of the leasing that we 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 rent will be reflected in that.

In New York City, we had a couple of 15-year leases in the lower portions of the building expiring which we re-let 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 has obviously got some distress associated with it relative to life science demand. And leases that we did in Mountain View in our R&D spaces. And there, I can tell you that there -- in fact, there's been a reduction in rental rates. I mean, we were as much as, call it, $4.5 or $5 per square foot per month. And today, we're doing deals in the mid-3s. So there has been a reduction in rents there. Again, very little in the way of transaction costs. And then, again, in D.C., there were a number of very low TI deals that also impacted the numbers. So it's -- 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 dramatic negative in the stuff that was done in Los Angeles.

And I show our next question comes from the line of Jana Galan from Bank of America Securities.

One more on 343 Madison. Can you remind us of the terms of the MTA ground lease?

Hilary, do you want to take that one?

Sure. The terms of the MTA ground lease are basically a 99-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 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.

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 as Hilary said, there's increases that are basically known or related to the performance of the property, not the performance of the overall market values.

And I show our next question comes from the line of Michael Goldsmith from UBS.

A question 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? It 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.

Sure. Thanks, Michael. So yes, you're correct. We increased the bottom end. The way we build our guidance, right, is we have a base model, and then we have kind of a list of things that are kind of underway or could happen. So some of those could happen, things happen in the quarter, so we were 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 hasn'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 modest 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 $0.05 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 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.

And I show our next question comes from the line of Caitlin Burrows from Goldman Sachs.

You mentioned a number of funding sources for 343 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. I 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?

So 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 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 had external growth that has been going on and funding needs going on. We haven't made any decisions. You can see our reported return of capital for '24, which I think was about $0.41 a share. So that was our return of capital or our overfunding in 2024.

And we also were able to carry over our full fourth quarter dividend into '25, which is $0.98. So that will give you some sense as to the size. Obviously, we need some amount of carryforward, right? That's not going to go to 0. And with respect to timing, 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.

And I show our next question comes from the line of Vikram Malhotra from Mizuho.

I just want to clarify 2 things, 2 comments you made. I guess, just first on 343, you outlined 7.5% initial yield. Do you mind just giving us a sense of like what rents broadly are you talking, say, compared to One Vanderbilt, just $200 plus. Just maybe give us a broad sense of what you hope to achieve and how you get to that 7% yield, meaning if there are other fee streams 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?

So I'll answer 343, I 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 100s. And at the top of the building, we're in the mid- to upper 200s per square foot gross. And the average rent roughly throughout the property is in the low 200s. And the pre-lease that we have -- the 30% client where we 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 model, and you use the costs as we have outlined, including the carry, the yield on cost is roughly 7.5% unleveraged. And that's to the project. And I quoted a 7.5% to 8% range because if we bring in a capital partner into the project, our yields 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 343 economics work.

And on our occupancy, so the portfolio in service as it sits today, we believe we'll end the year around 87% occupied and obviously, significantly higher leased. We are going to add these 3 assets in the third quarter, and those assets will have an 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 again, 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 2 additionally but not incrementally more.

And then the Reston Next asset is going to be leased in late 2026, early 2027, occupied. It's already been leased. And similarly, I said we're at 1050. So it's kind of like that's going to be the net "new portfolio" as we exit the third quarter. And so I don't want people to be "surprised" by the 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.

And I show our next question comes from the line of Omotayo Okusanya from Deutsche Bank.

Yes. Just curious about your thoughts on the emerging Mayor race in New York City. If we do end up with Mamdani as Mayor, how do you think that kind of changes regulation as it impacts kind of CRE development in New York City? And how do you guys kind of think about preparing for that?

Yes. Why don't I take a first crack at this and Hilary, I'm going to -- please jump in on anything that you'd like to add. So look, I think we acknowledge that some of the policies articulated by candidate Mamdani 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 second thing, I think, that's important is, the system in New York due to the 70s financial crisis is that New York State headquartered in Albany, obviously, has significant control over the operations and governance of New York City. 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 be supported at the state level, 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 a lot of different topics. And my strong bet is that New York will continue to thrive regardless of the election outcome. Hilary, what did I miss?

Well, 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 20-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 2 for their future success. And so I think they're looking out much farther than the next 4 or 8 years.

And I show our next question in the queue comes from the line of Anthony Paolone from JPMorgan.

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 I know you have time before you have to spend some of this money. But I guess why wait and perhaps pull some of these levers if in fact, you want that leverage to be lower than the 8 plus times over time?

So we've talked many times about our leverage and how we think about current leverage and pro forma leverage, right? And we believe that our -- that company -- our target, I guess, for the company is somewhere in the mid-6s to the mid-7s, and that's been very consistent over a long period of time. I do expect our leverage is going to continue to move up for the next couple of quarters, but we are delivering 290 Benny Street in the middle of next year to 100% leased, and it delivers substantial EBITDA to the company, and this will act to counteract that and reduce leverage a little bit.

We also have the other developments that Doug talked about that we'll be leasing up over time and providing EBITDA. And then the last thing is occupancy improvement. And occupancy improvement over the next 18 to 24 months can be very powerful because it's going to 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. Owen described $600 million 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 we think is the best range for the company to operate at.

And I show our next question in the queue comes from Dylan Burzinski from Green Street.

I guess just touching on that last point on occupancy. It sounds 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 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 demand backdrop continues to remain strong. So in our view, it seems like there's a clear path here to BXP's in-service portfolio level occupancy as it sits today to get to, call it, 90% plus occupancy in short order. Does that seem fair? I mean, I guess, is there anything we might be missing as we sort of think about that trajectory here over the next 18 months?

It's entirely fair, and it's what our expectation is in terms -- again, we have to be careful about what the exact timing is, but you said over the next 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 forward currently in the pipeline is around are available in our near-term expirations aka '26 and '27. And then if you look at the exploration schedules that we have that are outlined, they're very, very low. And so if we're able to maintain a modest reduction in the amount of leasing that we're doing in 2025 into 2026 and to 2027, we're going to be having a meaningful increase in our occupancy.

And I show our next question comes from the line of Alexander Goldfarb from Piper Sandler.

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 million of sales, including $300 million 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 affects leverage. So just want to understand the income FFO impact of planned asset sales.

The $600 million that we're talking about, Alex, and I can -- I'm not going to give you an exact number for this because these things are still in process, being thought about and certainly not finalized. But 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.

And I show our next question comes from the line of Upal Rana from KeyBanc Capital Markets.

Can you give us an update on 360 Park Avenue leasing. Doug, you mentioned you got it leased on the last night so the project is now 33% leased. Maybe you can give us a sense of the current pipeline as it stands today?

Sure. I'll give you a numerical view and I'll let Hilary talk about what's going on from a market perspective. So we have 2 additional leases in progress. As I said, one of them got executed last night. So that 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 2025. So that will bring us up by another, call it, 8 or 5 to 6 basis points so it will be closer to 40% at the end of calendar year 2025, assuming no other leasing gets done. Hilary, you can talk about your pipeline?

Thanks, Doug. I would say that the pipeline for Midtown South has been thinner than Midtown proper north of 42nd 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 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.

And I show our next question in the queue comes from the line of Ronald Kamdem from Morgan Stanley.

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 lends to sort of a different type of tenant base as you're leasing up the portfolio. And my quick follow-up is just the pipeline -- development pipeline so 651 Gateway stabilization pushed out? Just any comments on that asset and just life science leasing in general.

So I'll answer the last 2 of your 3 questions, and I'll let Hilary answer the first. So 651 Gateway, again, we're going by Alexandria's accounting for when it comes into service, we would have already put into service based upon our accounting, 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 world is relatively quiet still. There are, I would say, more maker tenants looking at space that was "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 "office companies" that are looking for space down there as well. But I'd say that the lab market in itself for a we want to be in a pure wet lab, that's a pretty thin market still in sort of the Bay Area. The other question was...

343 plate...

Right, 343. So I'll let Hilary answer that one.

Sure. So the floor plates at 343 Madison range from about 27,000 square feet at the base to 22,000 at the top. I think there's a case to be made that, that lends itself to tenants that are in the 250,000 square foot range. But honestly, we have 1.5 million square feet of LOIs that we've issued. And 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, 300,000 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 343 is extremely well positioned to capture a range of client sizes. And I think as Owen noted in his initial comments, we continue to think that it makes sense to work on leasing the base of the building. And then I think 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 3, 4 lease profiles.

And before you go on, I just want to add one thing to sort of what Hilary was just describing. A bunch of people have called Mike or Helen or myself and said, who's the tenant for 343? And as we said, we're not going to announce who the tenants, we're going to let tenant announce their decision to their employees, and then they 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 601 or 599 or 399, about $100 a square foot.

And I think Hilary, you would love to get some space back in those buildings, if you could to lease in this market, which is obviously something that is not going to 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 was the case, it would be a great opportunity for us to re-lease space that is dramatically under leased. And as Owen said, the average rents at 343 are in the mid-200s, right? So we're talking about huge upside potential there.

And 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.

And I show our next question comes from Peter Abramowitz from Jefferies.

Yes. 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 asset in South of Mission. Does the South of Mission seem to be kind of picking up and participating in that recovery. Just curious how that's kind of unfolding.

So let me answer in the general, and I'll let Rod take the time to answer in the specifics. So the South of Mission market is clearly getting better, and there is clearly an AI-related resurgence from a demand perspective because of the growth. So that is unequivocal. Rod, you can talk about the demand that we're seeing in and around Embarcadero Center as well as the other parts of the market.

Yes. So definitely, demand around Embarcadero Center has been what it has traditionally been, which is mostly the financial services and traditional companies. I mean that's who we are leased to and that's who we see most of the demand from. 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 yes, the central downtown around Embarcadero Center has been thriving with the traditional companies, and we've been happy to do deals with some of these that have been in the market, and we're going to continue to do that.

We have an active program of doing spec suites, prebuilt spaces 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 downtown around Embarcadero Center, we just recently completed 8 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, a little small businesses, but we're bringing them into Embarcadero Center, and it's creating much more enjoyable place for our tenants, and it's getting great attention. So we're very pleased about that.

And our next question comes from the line of Brendan Lynch from Barclays.

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 is common for larger tenants, particularly in certain of our CBD markets to get out there 2 to 3 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 it's all part of the same phenomenon, which is we are in a very supply constraint market in certain of our submarkets.

So in Back Bay, Boston, where you saw us do a year ago a deal and last year a deal with 2 large financial institutions. And now you -- my guess is you'll see some of the same thing happening in our portfolio in Midtown Manhattan because it's really hard to find a 300,000 or 400,000 or 500,000 square feet piece of space or even 200,000 square feet piece of space and not be able to go into a new building given the challenges associated with lease encumbrances, et cetera. So tenants are, I'd say, thinking hard about what they need to do to protect their footprints over in a "improving market".

And I show our next question comes from the line of Nicholas Yulico from Scotiabank.

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, 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're going to lay out at the Investor Day? Or any sort of sense of timing on an update there would be helpful.

Look, Nick, 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 going to be focusing on this high level of focus over the next couple of quarters and cementing what we want to do. I think with respect to 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 packet for that. So I think that, that part of it could align with finishing up that work.

And I show our next question comes from the line of Caitlin Burrows from Goldman Sachs.

Sorry, 2 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 kind of square that with the reported leasing spreads from the quarter being down. Were those just specific spaces there 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 nuanced like gain some land sales or something included?

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-market in our Manhattan portfolio in the quarter that is in the supplemental, there were a bunch of smaller transactions at 767 at the lower portion of the building. where we aggregated space and did leasing and those rents were coming off relatively high rents for that space. And so that's where most of the negative mark-to-market came from.

If I were to look today at 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 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.

On the kind of ramp-up of our FFO into the fourth quarter, as I mentioned, 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 going to 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 going to 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 should occur later in 2025 and so that will kind of reduce -- we'll either earn more interest income or reduce interest expense a little bit on that. But it's going to be later in the year. So I don't think it has a super meaningful impact.

And again, Mike's numbers also include the occupancy ramp up as we move into the year. The square footage I said is likely is going to start and become online as we move into the third and fourth quarter.

And I show our next and last question in the queue comes from the line of Alexander Goldfarb from Piper Sandler.

Just quickly going back on the Norges on the 343 Madison that you guys are buying out their interest, are there others in the Norges JV, like should we think about others of the Norges JV assets being sold, are you guys buying out interest in others of the -- of your partnership with them in other assets?

Alex, we have never described our partner at 343 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.

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

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.

Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.

All right. Thank you so much for joining us today. My name is John Kim with BMO Capital Markets. It's my pleasure to be hosting this presentation with BXP, formerly known as Boston Properties. With us today, Owen Thomas, Chairman and CEO; Doug Linde, President and Director; and Mike LaBelle, Executive Vice President, CFO and Treasurer. I think at this time, I'll just pass it off to Owen for opening remarks and why people should be investing in BXP today.

Great. John, thank you for hosting this panel. Great to see all of you. Thank you for your interest in our company. The message that we've been giving in our meetings today about why you should own our stock is we believe we have a great opportunity to grow our FFO per share over the next couple of years. So why is that? First of all, we've seen strong and accelerating leasing activity. The leases that we report every quarter have been certainly in the first quarter versus the first quarter of '24, it was up something like 30%. If you look at the last 4 quarters versus the 4 quarters before that, it was up something like 30%. So we've had very strong leasing activity.

A lot of the dislocation and concerns that are out there about tariffs and bills and so forth. We've had a lot of questions about the impact of that on our leasing activity. And so far, the impact on our leasing activity has been not at all. The acceleration that I described is continuing. So if you take that leasing activity and then you overlay that with our rollover exposure in '26 and '27, both of those years, it's materially under 5%. We have an opportunity to grow the occupancy of our company. And right now, we're running at about 87% occupancy, plus or minus. And at our peak right before COVID, we were at 93%. And I'm not suggesting in a year that we're going to have a 6-point jump, but it shows you what the potential of the firm is. And every point in occupancy, Mike, is about $0.20 a share, plus or minus, of FFO. So that's a big opportunity for us, accelerating leasing, low rollovers.

The second thing is we are continuing to deliver a development pipeline. And most notably, in the first half of next year, we're going to be delivering a project that we've been working on for 5 years called 290 Binney Street, and it's a lab building. It's in East Cambridge. It's 100% leased to AstraZeneca, and it will add about $45 million to $50 million of cash flow to the income of the company, which is another plus for next year.

And then lastly, and we've been talking about this on our earnings call, we've been pretty aggressively selling nonproducing assets. So for example, right now, we have 4 land parcels that we have under contract in various stages of closing, and they will generate about $75 million in proceeds before the end of the year, and we have more behind that. And this is also accretive because these properties actually -- they're negative FFO because we're paying carry on them. And when we get that cash flow, we can repay debt, which costs us around 6%. So that also accretes earnings. And we hope to do more sales in the quarters ahead. So that's what we see as the opportunity, and we think growing FFO will increase our share price.

Since Liberation Day, office REITs have gotten hammered pretty hard, including BXP. But you mentioned on your first quarter call that there's been no real change in demand on the office leasing side. Is that still the case today? Has that carried on through May?

So we had our earnings call on April 29, I think. And at that time, what we sort of described was we did about 1.1 million square feet of leasing that was executed in the first quarter, and we had a pipeline of leases under negotiation of about 1.175 million square feet. And then we had about 1.7 million square feet of what I would refer to as our sort of pipeline of things that we're percolating. And call it, 34 days later, our leases under negotiation is at -- just under 1.5 million square feet, and that other activity is still about 1.7 million square feet.

So we've actually seen a modest acceleration in our leasing volumes and our leasing activities over, call it, the last 30 days. So I would say things are getting a little bit better, not a little bit worse. whether we have a recession or not or whether we have stagflation or not, it doesn't seem to be impacting capital decisions that are being made by our current and potential clients.

Just one other point that I just want to make because it's really important on occupancy. The leasing that we're doing now is leasing on either vacant or 25 expiring space. So of the $1.4 million to $1.5 million that we are currently working on, about $1 million of that will be additive to our occupancy as we move into 2026 because it's on currently vacant or known expirations. And that's really, really important in terms of growing our occupancy, our leased square footage is. So the amount of space that's actually leased by BXP that's "on our books" is about 250 basis points higher than what is "occupied". And all of that will be occupied by the end of 2026. So it sort of gives us the clarity of understanding where our opportunity is coming from relative to our existing portfolio.

So on that note, you have occupancy guidance for the year, 86.5% to 88%. Your leased rate is 89.4%. Where do you think that ends up by the year?

I would hope that we will be above 90% by the end of the year. And our -- I think where we're sort of geared towards in terms of our occupancy as we started 2025 at 87.5%, and I think we'll be around 87.5%, sort of in the midpoint of that as we end of the year, and we'll be probably somewhere between 250 and 300 basis points higher on our leased square footage.

Can you provide an update on your markets, which ones are the strongest versus the weakest in terms of leasing activity? Manhattan is obviously the strongest, but just love to hear your updated thoughts.

Yes. So I'm trying to do this as sinctly as possible. Manhattan is by far the strongest market in our portfolio by a factor of 3 or 4. There's just more relative supply challenges in this market, i.e., there is no availability, and that is providing us with heightened activity, quicker urgency associated with leasing decisions and better economics. I mean we are pushing rents, and our rents will probably be up a meaningful amount, double digits from a year ago to where they are quarter-to-quarter in 2025.

The other 2 markets where things are pretty good still are the Back Bay of Boston, which is where our dominant portfolio is in our Massachusetts portfolio and then in Northern Virginia and Reston, Virginia. Those 2 marketplaces for us, our portfolios are in the high 90s from a lease percentage, which means we have very little availability, again, which means we can push rents in those marketplaces, right? That's the sort of thing that impacts us.

And I would say nobody is talking about work from home or remote work on the East Coast. It's like not part of the conversation. When I jump to the West Coast, things are a little different. The first is the characteristics of where the demand is coming from are different than the East Coast. So on the East Coast, primarily, we're talking about financial services, asset management, people who are doing something with other people's money. On the West Coast, it's still a technology-oriented market. And we are still not at a point where we're seeing the kind of demand that we saw from 20 -- call it, '12 to 2019 with enormous blocks of space being absorbed by large technology companies.

There is clearly AI demand. There is clearly AI absorption. The Bay Area is clearly going to be the place where the AI ecosystem is at its strongest. But so far, we're not seeing 10 unicorns taking 0.5 million square feet of space. And it's that sort of difference between what's going on there versus what's going on, on the East Coast, where it's all financial services oriented, and there's a lot of incremental growth of a meaningful size by midsized firms that's the difference between the East Coast and the West Coast from a leasing perspective.

And when do you think San Francisco, which is the most controversial market, I guess, when does that become New York?

If I knew that, I wouldn't be in this room. I can tell you that right now. I think that it's going to be a longer period of time. It's not a 2025 or 2026 experience. Look, we have a whole host of what I would refer to as nascent companies that are working in and around artificial intelligence in lots of different ways. And we have a couple of what I would refer to as the large language model infrastructure companies, which are Anthropic and OpenAI. Those companies are big. Those other companies, however, are pretty small, and they average probably 10,000 to 50,000 square feet. So we need a lot of those companies to be growing in a meaningful way to really get San Francisco going.

And I just think it's going to be a matter of time before we start to get enough granular growth from enough of those companies to show a meaningful impact on the overall availability of space in San Francisco. That doesn't mean that there won't be submarkets and subpockets of really strong growth. If you're looking for space in a view building in north of market, you're paying up for it and there's a relatively modest amount of availability. If you're looking for low-rise space in a great building, there's a lot of availability and the economics are challenged.

And also, I would just add to Doug's comments on San Francisco, a couple of other things. Don't forget, it's a smaller market. New York's ZIP code 400 million square feet of office. San Francisco, depending on how you measure it, 60 million to 80 million square feet. So even though it's more available, you don't need as much leasing activity to have that market tighten up. And then look at the history of the city. I mean, if you look at where rents have been and where vacancy, the city has volatility. And volatility means it goes down as it has during COVID, but it also comes back and it also comes back quickly. But I agree with Doug, it's very hard to define the exact timing for that.

The DNA of BXP is a developer. But do you also look at acquisition opportunities? And would that be for existing assets or really just for land sites for future development?

Well, right now, we are always looking for new acquisitions. I mean that's true always. And I would say, particularly in this environment, we think acquisitions should be available at interesting prices. And recall, for those of you that watch our company, about 5 quarters ago, we bought interests in 3 buildings that we already own from our joint venture partners, we thought at that time at interesting prices, and we thought that might be the start of something.

But this cycle is actually quite different from what we've seen in the office world in the past. And the reason is even though the market has softened up and vacancy has increased, the clients have all migrated into the best buildings. So if you look at the difference between what we call premier workplaces, which are the top 10% of buildings and everything else, it's way different. The vacancy rates are -- overall levels are 5 percentage points or about 1/3 lower. Asking rents are 50% higher. There's net positive net absorption versus negative for everything else. So in that environment, it's much more difficult to find things to buy. Most of those -- most of the buildings that are what we would be interested in, which are the premier workplaces, they're not for sale. They're not distressed. And the owners, even though I think they could get a good -- a reasonable cap rate for their property, they may be holding out for what they perceive to be a better cap rate.

So what we have found is in this cycle, acquisitions have actually been quite difficult. And a little bit to our surprise, we've been finding some very interesting development opportunities. Our team in D.C. was able to concurrently buy a note on a building for a little bit over $100 a foot on a metro stop. The plan is to demolish the building and build a new one. Concurrent with that acquisition, they signed a lease with a tenant to take half the property, and they signed an LOI with another tenant to take more or less the other half of the property. And that tenant just signed their lease and the overall yield on the deal to our capital is over 8% unleveraged. And we can't go out and buy a premier workplace in any of our cities that's fully leased at an 8 cap. That's not available. And -- but yet we can create them through developments.

So again, a little bit to our surprise, this seems to be a better allocation -- a better decision for allocation of our capital on the new investment side.

So an asset like 590 Madison, which RXR ended up winning, is that something you looked at and we were interested in acquiring? And can you just talk about the overall market as far as investors in office?