BXP, Inc.

Today, and thank you for standing by. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you'll need to press star 1 on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star 0. I would now like to hand the conference over to Laura Sassotti. Please go ahead.

Good morning and welcome to Boston Properties' third 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 all non-GAAP financial measures to the most directly comparable GAAP measure in accordance with REN-G. If you did not receive a copy, these documents are available in the investor relations section of our website at investors.bxt.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 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 Lindy, 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. I would now like to turn the call over to Owen Thomas for his formal remarks.

Thank you, Laura, and good morning, everyone. This morning, I will cover the economic recovery that's underway in the U.S., BXP's momentum in terms of financial results and leasing, private equity, capital market conditions for office real estate, and BXP's capital allocation activities and growth potential. The U.S. economy continues to exhibit strong growth as we emerge from the COVID pandemic. U.S. GDP grew 6.7% in the second quarter, but is expected to slow in the third quarter due to the surge in infections caused by the Delta variant. However, daily COVID infection levels have dropped over 50% from highs in September, which bodes well for strong economic growth in future quarters. The relatively low unemployment rate at 4.8% is being driven by both new job creation, which recently has been tepid, and workers withdrawing from the workforce. There are over 10 million job openings across the U.S. and virtually every employer, including BXP, is experiencing a highly competitive labor market. Annual inflation remains high at 5.4% in September, driven largely by energy prices, which are up 25% versus one year ago. Supply chain challenges are a primary topic this earnings season for many companies, and Doug will cover BXP's experiences in his remarks. Lastly, the 10-year U.S. Treasury rate has increased approximately 40 basis points to 1.6% since our last earnings call. Given the prospect of further interest rate increases, we've been very active refinancing our corporate and specific asset-level debts. Interest rates remain extremely low relative to office cap rates and the yields we are achieving on our developments. creating the potential for lower cap rates and higher value creation in the quarters ahead. BXP's financial results for the third quarter continue to reflect the impact of this recovery and an increasingly favorable economic environment. Our FFO per share this quarter was three cents above market consensus and four cents above the midpoint of our guidance, which Mike will detail shortly. We completed over 1.4 million square feet of leasing. significantly more than double the volume achieved in the first quarter, well above the leasing achieved in the second quarter, and just under our long-term third quarter average. Our clients continue to make even longer-term commitments as the lease assigned in the third quarter had a weighted average term of 9.3 years versus 7.5 years in the second quarter. Year-to-date, we've completed 3.3 million square feet of leasing with an average lease term of 8.3 years. This success can be attributed to not only our execution, but also the enhanced velocity and economics achieved in the current marketplace for premium quality, well-amenitized assets, which are the hallmark of BXP's strategy and portfolio. In addition to our leasing activity, which included a 524,000 square foot long-term renewal with Wellington at Atlantic Wharf, Google purchased a 1.3 million square foot building in New York for its use. In the Silicon Valley alone, Apple completed a 720,000 square foot new requirement. Facebook is looking for 700,000 additional square feet. And ByteDance is searching for approximately 250,000 to 300,000 square feet. In the Seattle region, Facebook is pursuing a half a million square foot requirement in South Lake Union. And Amazon has executed on enormous growth in Bellevue. I could go on. These examples support our repeatedly stated position that tenants are committed to the office as their location of choice to collaborate, innovate, and train, all critical for their long-term success. Measurable census in our portfolio also continues to improve. Our leading region is New York City, which hit 52% occupied last week. Our lagging region is San Francisco, which is increasing but currently at 18%, and the remaining regions are in between. From watching on television stadiums packed with unmasked people to trying to park at busy shopping centers to experiencing difficulties in making restaurant reservations in our core markets, it appears to us people are undoubtedly more comfortable with in-person activities. Liquidity-fueled strong business performance and a tight labor market are clearly factoring into remote work decisions by businesses. However, as time progresses and the shortcomings of remote work become more apparent, we increasingly hear concerns from business leaders about the decaying cultures of their companies, inadequate training, and difficulties in onboarding new professionals, as well as the potential for deterioration in innovation and competitiveness. We believe it only a matter of time before employers more strongly encourage their teams to return to in-person work. Record levels of commercial real estate sold in the third quarter, and private capital market activity for office assets is also recovering rapidly. $26 billion of significant office assets were sold in the third quarter, up 38% from last quarter and up 165% from the third quarter a year ago. Cap rates are arguably declining for assets with limited lease rollover and anything life science related, given low interest rates. And activity is increasing for assets facing near-term lease expirations. Of note this past quarter in all of our markets, One canal park, an empty 112,000-square-foot office building in Cambridge, sold to a REIT for $131 million, or $1,170 a square foot. As mentioned, Google exercised its option to purchase St. John's Terminal in New York City, which is a 1.3-square-foot office building that fully occupies, and the price was $2.1 billion, or $1,620 a foot. Coleman Highline, which is a 660,000 square foot office complex under construction in North San Jose and fully leased to Verizon, sold for $775 million, which is $1,180 a square foot and a 4.2% initial cap rate to a non-U.S. buyer. 153 Townsend Street, which is a 179,000 square foot office building in San Francisco, sold for $231 million or $1290 a square foot to a local operator and fund manager. This asset is fully leased to a single user, which has put the entire building on the sublease market. West 8th is a 540,000 square foot office building in the Denny Triangle, Seattle, sold for $490 million or $910 a square foot to REIT. The building is fully leased but faces significant rollover through 2023. 49% interest in 655 New York Avenue in Washington, D.C. sold for a gross price of $805 million, or $1060 a square foot, and a 4.7% cap rate. The building comprises over 760,000 square feet, is 93% leased and sold to a non-U.S. investor with a domestic advisor. And lastly, the Post, which is a 100,000 square foot fully leased office building in Beverly Hills, sold for $153 million, which is $1,530 a square foot, and a 4.8% initial cap rate to a domestic fund manager. Now, moving to BXP's capital market activity, we closed on the acquisition of Safeco Plaza and entered the Seattle market. BXP will own a one-third interest in the asset, along with two partners in our strategic capital program. We also closed the Shady Grove Biotech Campus acquisition and entered the Montgomery County, Maryland Life Science Market. We're also on track to close the 360 Park Avenue South acquisition with Strategic Capital Program partners on December 1st, thereby entering the Midtown South Market in New York City. I described the economics for all these acquisitions last quarter. Regarding dispositions, we completed the sale of our Spring Street Office Park in Lexington, Mass. this week, bringing our share of gross sale proceeds from dispositions year-to-date to $225 million. We're also marketing for sale two additional buildings, which, if completed, are projected to yield approximately $200 million in gross proceeds. On development activities, this quarter we delivered half a million square feet of Verizon and other tenant space at 100 Causeway. and 285,000 square feet of Fannie Mae space at Reston Next. In the aggregate, we have 4.3 million square feet of development underway that is 72% pre-leased. These future deliveries plus the stabilization of recently delivered projects are projected to add approximately $190 million to our NOI and 3.8% to our annual NOI growth over the next few years. So in summary, we had another active and successful quarter with strong leasing and financial results and entered several new geographic markets. We believe BXP is about to experience a strong growth ramp, which we project to be approximately 13% in FFO per share in 2022, driven by improving economic conditions and leasing activity, recovery of variable revenue streams, Delivery of a well-leased development pipeline, completion of four new acquisitions, a strong balance sheet combined with capital allocated from large-scale private equity partners to pursue additional new investment opportunities as the pandemic recedes, a rapidly expanding life science portfolio in the nation's hottest life science markets, and low interest rates and decreasing capital costs. Finally, I'd like to welcome Hilary Spann, who is joining this call this morning, to BXP's executive team. Hilary joined BXP right after Labor Day and will become our regional head in New York when John Powers retires in January. Let me turn our remarks over to Doug.