BXP, Inc.

Good morning and welcome to Boston Properties' first quarter 2021 earnings call. This call is being recorded. All audience lines are currently in a listen-only mode. Our speakers will address your questions at the end of the presentation during the question and answer session. At this time, I'd like to turn the conference over to Ms. Sarah Buda, VP of Investor Relations for Boston Properties. Please go ahead.

Thank you. Good morning, and welcome to Boston Properties' first quarter 2021 earnings conference call. The press release and supplemental package were distributed last night and furnished on Form 8K. In the supplemental package, the company has reconciled on 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 investor relations section of our website at investors.bxp.com. A webcast of this call will be available for 12 months. At this time, we'd 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 Boston Properties 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 the company's filings with the SEC. The company does not undertake a duty to update any forward-looking statements. I'd like to welcome Owen Thomas, Chief Executive Officer, Doug Linde, President, and Mike LaBelle, Chief Financial Officer. During the Q&A portion of the call, Ray Ritchie, Senior Executive Vice President, and our regional management teams will be available to address any questions. And now I'd like to turn the call over to Owen Thomas for his formal remarks.

Thank you, Sarah, and good morning, everyone. The BXP team is joining you today from our offices all over the country, where we're beginning to see renewed signs of life as our cities reopen with increasing activity on the street, in shops and restaurants, on public transportation, And yes, even in office buildings where building census is picking up and tour activity is accelerating. U.S. GDP is growing at 4.3%. Over 1.6 million jobs were created in the first quarter. Weekly jobless claims are in decline and unemployment has dropped to 6%, only 2.5 percentage points above pre-pandemic levels of February last year. Professional service employment has remained healthy, which is important given our tenancy. U.S. retail sales surged 9.8% in March, and air travel, as measured by TSA checkpoints, is up 10 times over a year ago, though still only 50% of pre-pandemic levels. The U.S. and global economic recoveries continue to follow the course of the virus and vaccination rollout. While new COVID-19 cases have remained sticky at around 60,000 per day since late February, all data, including 3 million daily vaccinations, 43% of Americans having received at least one shot, and the J&J vaccine reinstatement suggests the trajectory for a highly vaccinated population and fewer new COVID infections remains positive. The U.S. economy will likely continue to surge given the financial health of most industry sectors, the significant federal fiscal stimulus provided to individuals and small business, accommodative monetary policy, and pent-up consumption sparked by the pandemic reopening. This recovery is starting to bring positive momentum to the office markets and BXP's results. For the buildings we can track, our census last week was, depending on the city, at or above the post-pandemic peak established last October. In the first quarter, we completed 592,000 square feet of leasing, 84% of the leasing volume we achieved in the first quarter of last year, and 46% of our longer term first quarter averages. These leases had a weighted average term of 7.6 years. Our leases that commenced this quarter demonstrated a 15% roll-up of net rent for second generation space. We exceeded our FFO per share forecast for the first quarter and the tenant charges we experienced in 2020 largely disappeared. More broadly, tenant requirements in our target markets in March based on data provided by VTS, we're up 33% versus the prior month and 51% versus the prior year. Though we're only down, though are still down 40% from pre-pandemic levels. Office markets are lagging other asset classes because very few employers are currently mandating in-person work. That is now changing rapidly as many large employers such as Google, Goldman Sachs, JP Morgan, Ernst & Young, Facebook, Amazon, Apple, and others have announced return to work plans for this summer. We continue to see Labor Day as a key tipping point for employees returning to the office, with forecast low COVID infection rates, high vaccination levels, the end of summer, and schools reopening. We hear repeatedly from our clients, as well as in interviews we have completed with large occupiers, that the key to future success and competitiveness is to successfully reintroduce in-person work. Unlike most recessions, most of our clients are thriving and have not reduced headcount. In our leasing activity and renewal conversations with clients, we have not seen material reductions in space requirements. Now, moving to private equity market conditions, there were $15 billion of significant office assets sold in the first quarter, though volumes were down 37% from the first quarter of last year. Assets with limited lease rollover and anything life science related currently receive the best pricing, often better than before the pandemic. There were, again, several deals of note completed in our markets, including in San Francisco, the Exchange on 16th, located in the Mission Bay District, sold for $1.1 billion, or $14.40 per square foot, a record price, per square foot in San Francisco and it represented a 4.9% cap rate. This 750,000 square foot recently developed building is 100% leased to a tenant trying to sublease the entire building. The asset was sold to a fund manager which may attempt a life science conversion. In Seattle, 300 Pine, the Macy's building, sold for $600 million or $779 per square foot at a 4.4% cap rate. The majority of this 770,000 square foot asset was recently converted to office space, which is 100% leased by Amazon, and the remainder is undergoing further renovation. The building was purchased by a joint venture between a fund manager and a real estate operator. And in the Washington, D.C. CBD, a 49% interest in Midtown Center was sold to an offshore buyer. The building comprises 870,000 square feet and is substantially leased to Fannie Mae as its headquarters. The gross sale price was $980,011,129 a square foot and a 4.7% cap rate. Moving to BXP investment activities, let's start with our growing life science business. BXP currently has over 3 million square feet leased to life science clients, approximately 2 million square feet of current and future office-to-lab conversion projects, and sites for approximately 4 million square feet of life science ground-up development, primarily located in among the strongest life science markets in the U.S., namely Cambridge, Waltham, and South San Francisco. We recently received 1 million square feet of new entitlements at Kendall Center in Cambridge, and our joint venture at Gateway Commons is in discussions with local authorities in San Francisco to increase entitlements by 1.5 million square feet. We had a very active first quarter launching three new lab developments and redevelopment projects. 180 City Point, a 330,000 square foot ground up development and part of our larger City Point campus in Waltham with strong visibility from I-95. Second, 880 Winter Street is a 224,000 square foot Class A office asset we acquired in 2019 for $270 a square foot and will redevelop into a lab building. And 751 Gateway, a 229,000 square foot ground-up lab development as part of our Gateway Commons joint venture in which we own a 49% interest. Though all three projects are being commenced speculatively, we are seeing many new life science requirements in both the Waltham and South San Francisco markets and have made multiple lease proposals to potential tenants. A large portion of our active development pipeline is now lab and currently comprises 920,000 square feet and $560 million of projected investment for our share with projected cash yields at stabilization of approximately 8%. BXP has a rich history of success serving the life science industry. We have the land and building inventory in the strongest life science clusters in the U.S. as well as the execution skill and client relationships to make life sciences an even more meaningful component of our overall business. Moving to the balance of our development pipeline, we delivered into service this quarter 159 East 53rd Street with 195,000 square feet of office fully leased to NYU, as well as The Hue, which will open after Labor Day and serve as a unique culinary amenity for our three-building 53rd and Lexington campus. We remain on track to deliver our 100 causeway development in Boston later this year, which is pre-leased to Verizon, and we have four additional and significant projects slated to deliver in 2022. This pipeline is 86% pre-leased with aggregate projected cash yield stabilization projected to be approximately 7%. To maintain our external growth, in addition to adding the three life science projects, we also are investing approximately $182 million into an observatory redevelopment project on the top of the Prudential Tower in Boston. When complete, the observatory will have three levels comprised 59,000 square feet and will be a world-class attraction featuring both indoor and outdoor 360-degree viewing decks as well as exhibit and amenity spaces. The project will be the only observatory in Boston, and we expect it will generate strong returns to BXP after delivery in the spring of 2023. Net of all these movements, our active development pipeline currently stands at 10 development and redevelopment projects comprising 4.3 million aggregate square feet and $2.7 billion in total investment for our share. We expect these projects along with the lease-up of two residential buildings delivered in 2020, as well as 159 East 53rd Street to contribute 3.5% of annual and external growth to our NOI over the next three years. We continue to actively pursue value-added acquisitions in our core markets and Seattle. Despite the impacts of the pandemic, office investment opportunities in our core markets remain highly competitive. To enhance our financial resources, execution speed, and returns, we have reached an agreement with two large-scale sovereign investors to pursue select acquisitions together. The partners, including BXP, will commit up to a billion dollars and will have the opportunity to invest one-third of the equity in each identified deal at their discretion. BXP will provide all real estate services and has agreed to commit its acquisition deal flow to the partnership subject to specific carve-out. We believe this venture, with approximately $2 billion of investment capacity, provides us the financial resources and return enhancements to be an even more nimble and competitive participant in the acquisitions market. We will announce the completion of the partnership, including the participants, once documentation is complete, likely in the next month. Moving to dispositions, we recently completed the sale of our 50% interest in Annapolis Junction buildings 6 and 7, our last two remaining properties in the Fort Meade, Maryland market. The buildings totaled approximately 247,000 square feet and sold for a gross price of $66 million, which is $267 a square foot. We have under contract three buildings in our VA 95 business park in Springfield, Virginia for a gross sale price of $70 million. And we also have under letter of intent the sale of several stabilized suburban buildings for another approximately $190 million. Additional asset sales are being evaluated and we believe our gross disposition volume in 2021 will exceed $500 million. To conclude, BXP is emerging from the COVID-19 pandemic with strength and momentum. Leasing volumes and requirements are rising. Office collections exceed 99%. Our clients are healthy, if not thriving. Tenant credit charges have largely disappeared. Our $30 million per quarter of lost variable revenue is poised to return with offices reopening. We've launched new life science development. Our active development pipeline is expected to deliver strong external growth, and we've raised a war chest for new acquisitions to add even further growth. I remain confident in both our near-term and long-term growth prospects. Turn it over to Doug.