BXP, Inc.

Good day and thank you for standing by. Welcome to the Boston Properties fourth quarter in 2021 earnings call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will 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 zero. I would now like to hand the conference over to Ms. Helen Han, Vice President, Investor Relations. Ma'am, please go ahead.

Thank you. Good morning and welcome to Boston Properties' fourth quarter and full year 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 Reg G. If you do 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 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 Linde, President, and Mike LaBelle, Chief Financial Officer. During our 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, Helen, and good morning, everyone. I'd like to start by introducing Helen Hahn, who's our new head of investor relations. Helen was formerly head of marketing for our western region, has been with BXP for over 15 years, and has a deep wealth of knowledge about our company and people. Welcome, Helen. Great to have you here. So today I'm going to cover BXP's operating momentum, the economic conditions that serve as a backdrop for BXP's operations as we enter 2022, the current private equity capital market conditions for office real estate, as well as BXP's capital allocation activities and growth potential. BXP's financial results for the fourth quarter reflect the impact of the recovering U.S. economy and increasing needs for our clients for securing high quality office space. Our FFO per share this quarter was above market consensus and the midpoint of our guidance. We completed 1.8 million square feet of leasing, our third consecutive quarter of significantly higher leasing activity. It was 55% above the fourth quarter of 2020 and in line with our pre-pandemic leasing levels. With an average term of 8.6 years on the leases signed this past quarter, lease commitments by our clients continue to be long-term in nature. 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 assets with great amenities and transit access, which are the hallmark of BXP's strategy and portfolio. Now turning to 2022, we believe the market and economic factors which impact BXP are on balance very favorable. Though the Omicron variant has been a setback and the course of the pandemic has proven hard to forecast, most experts believe conditions will improve in 2022, resulting in more workers returning to the office and further improved space demand. The economic recovery in the US continues with consensus GDP growth predicted to be 4% in 2022, and innovations in technology and life science remain promising and well-funded, a key driver for office and lab space demand. Capital flows into the real estate sector will also likely grow further as investors, one, rebalance their portfolios away from equities due to strong performance from the lows of the pandemic, and two, have a reluctance to allocate these funds to fixed income due to rising interest rates. New office supply has also slowed down given the demand uncertainties created by the pandemic, another long-term positive for the office business. Moving to the challenges, interest rates are rising, which will likely continue due to the Fed's current focus on inflation and signaling it will raise the Fed funds rate multiple times in 2022. BXP had significant and well-timed refinancing activity in 2021 and therefore faces limited debt financing needs in the coming year. Inflation is a greater challenge and has several dimensions. Rising construction costs will require higher rental rates to make development feasible. However, over time, higher replacement costs should increase the value of our existing portfolio of buildings. The labor market is also very tight, which contributes to our clients' hesitancy in bringing their employees back to an in-person work environment. As we have stated repeatedly, we believe this phenomenon will change over time given widespread corporate dissatisfaction with the decaying of efficiency, retention, and culture associated with remote work. Though challenges persist, we see 2022 market conditions as a favorable backdrop for BXP to continue to perform. So moving to the real estate capital markets, an all-time record of commercial real estate sales volume was achieved in the fourth quarter, and private capital market activity for office assets was similarly robust. 39 billion of significant office assets were sold in the fourth quarter, up 35% from the previous quarter and up 90% from the fourth quarter a year ago. Cap rates are stable or declining for assets with limited lease rollover and anything life science related, and activity is increasing for assets facing nearer-term lease expiration. The Boston market was particularly active with two major life science recapitalization deals in Cambridge selling for around $2,200 a square foot and sub-4% cap rates. Three significant deals in the Seaport District selling for approximately $1,500 a foot on a fee-simple basis with cap rates at or below 4%. and two CBD sales at $700 to $950 a square foot with cap rates in the low 4% range. Notably, in New York City, two major assets in the Hudson Yards area sold in full or part for an average of approximately $1,400 a square foot and cap rates of 4.5% to 5% on a stabilized basis. In the District of Columbia, four transactions completed aggregating $750 million, with pricing averaging approximately $550 to $600 a square foot on a fee-simple basis and cap rates in the low 5% range. And pricing in Seattle continues to escalate, with deals closed or announced in South Lake Union priced above $1,200 a square foot, a new local record, and a sub-4% cap rate, in Fremont at over $1,000 a foot and a low 4% cap rate, and in the CBD at around $750 a square foot and a mid-4 percent cap rate. Regarding BXP's capital market activity and starting with acquisitions, we closed on the previously described 360 Park Avenue South acquisition in New York City in December and placed the project into our active development pipeline. Two of our strategic capital program partners will co-invest in the deal if capital is drawn for redevelopment, bringing our interest to 42 percent on a stabilized basis. We continue to have elevating dialogues with potential private equity partners, are pursuing an active pipeline of both on and off-market deals in many of our markets, and anticipate additional acquisition activity of value-add assets with capital partners in 2022. In 2021, we also completed non-core asset sales of $225 million and anticipate higher disposition volumes in 2022. We completed a very active quarter with our development pipeline. We delivered fully into service 100 Causeway Street in Boston, the Marriott headquarters at 7750 Wisconsin Avenue in Bethesda, and the lab conversion project at 200 West Street in Waltham. In the aggregate, BXP's share of these projects represents a million and a half square feet of development and $460 million of investment. The three assets are 98% leased, being delivered below budget and ahead of schedule at a projected stabilized cash yield in excess of 8%, and are projected to add $41 million to our NOI on a stabilized basis. Given the market cap rates I previously described for high-quality office of 4% to 5%, We expect these projects in the aggregate will create approximately $380 million of value above our $460 million in cost for BXB shareholders. Also, we partially placed into service Reston Next in Reston. And we are continuously refreshing our development pipeline by adding, just this past quarter, 360 Park Avenue South and 103 City Point, a speculative ground-up lab development aggregating 113,000 square feet in our City Point development in Waltham. We have a very active pipeline of office and lab developments and redevelopments ready to announce when they commence, expected later in 2022, and Doug will describe the strong leasing success we are achieving with our lab developments. After all these movements, our current development pipeline aggregates 3.4 million square feet and $2.5 billion of investment is already 59% leased and projected to add approximately 190 million to our NOI over the next three years. So in summary, we had another active and successful quarter with strong leasing and financial returns and are excited for our prospects for continued growth in 2022. We expect significant growth in our FFO per share this year, driven by improving economic conditions and leasing activity, continued recovery of variable revenue streams, delivery of a well-leased development pipeline, completion of four new acquisitions in 2021, 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 well-timed refinancing activity in 2021 and lower capital costs. So with that, I'll turn it over to Doug.