BXP, Inc.

Good day and thank you for standing by. Welcome to the BXP's fourth quarter and full year 2022 earnings conference call. At this time, all participants are on the listen-only mode. After the speaker presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1-1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1-1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, to Helen Han, Vice President, Investor Relations. Please go ahead.

Good morning and welcome to BXP's fourth quarter and full year 2022 earnings conference call. The press release and supplemental package were distributed last night and furnished on form 8K. 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 investor 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 BXT believes the expectations reflected in any forward-looking statements 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 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. We ask that those of you participating in the Q&A portion of the call to please limit yourself to one question. If you have any 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, everyone. Today, I will cover BXP's continued strong operating performance as demonstrated in our fourth quarter and full year 2022 results. I'll discuss key economic and market trends impacting BXP and finish with BXP's capital allocation decisions and activities. Despite increasing economic headwinds, BXP continued to perform in the fourth quarter and had strong overall operating results throughout 2022. Our FFO per share this quarter was above both market consensus and the midpoint of our guidance. Our FFO per share grew 15% in 2022 due to development deliveries and strong leasing activity. We completed 1.1 million square feet of leasing in the fourth quarter and 5.7 million square feet of leasing for all of 2022 which is 95% of our average annual leasing over the last 10 years. The weighted average term for leases signed in 2022 was 9.2 years. This success can again be attributed to not only BXP's strong client relationships and our team's execution, but also the increased share of tenant demand captured by premier workplaces, which are the hallmark of BXP's strategy and portfolio. BXP raised $1.2 billion in additional liquidity through a $750 million unsecured green bond offering and the extension and upsizing of a bank term loan, ensuring funding for our sizable and substantially leased development pipeline in a challenging capital markets environment. And lastly, on 2022, BXP continues to be a decorated industry leader in sustainability, having most recently won Nareit's Leader in the Light Award named the highest-ranking real estate company and 29th overall on Newsweek's list of most responsible companies and one of only eight property companies named to the Dow Jones Sustainability Index. Notwithstanding the running debate on whether the U.S. economy will experience a hard or soft landing, commercial real estate markets are currently in a recession. Many of our clients are experiencing a slowdown in growth or reductions in top-line revenue and, as a result, are focused on cost control, including moderating headcount and space use. We all read the daily headlines of layoffs, which have been most significant in the technology industry, but are migrating into other sectors. Many companies, particularly in the technology sector, are halting new requirements and or giving back space to the markets. The key culprit for the current economic slowdown is inflation, which sparked unprecedented Federal Reserve tightening measures last year, including rapidly increasing interest rates, quantitative tightening measures, and more regulatory scrutiny of banks. The better news is inflation is starting to come down. The Federal Reserve is expected to moderate further interest rate increases, with the Fed funds rate possibly peaking around 5%, and the capital markets, With a 10-year U.S. Treasury at 3.5% and rallying equity markets are much less hawkish on inflation than the Federal Reserve. We are not able to predict the depth or length of the current economic slowdown, but its trajectory is coming into clearer focus. Our goal is to position BXP for success regardless of the economy's trajectory by carefully managing leverage and liquidity. Though leasing activity is declining due to corporate earnings pressure, the premier workplace segment of the office market continues to materially outperform. Users are increasingly interested in upgrading their buildings and workspaces to attract their workforce back to the office, resulting in an accelerating flight to quality in the office industry. As described previously, CBRE is tracking the performance of premier workplaces in the U.S., and for the five CBDs, where BXP operates, premier workplaces represent approximately 17% of the 700 million square feet of space and less than 13% of the total buildings. As of year end 2022, direct vacancy for premier workplaces was 9.6% versus 14.7% for the rest of the market. Also, for all of 2021 and 2022, net absorption for premier workplaces was a positive 7.1 million square feet versus a negative 25.4 million square feet for the balance of the market. Rents and rent growth are higher for premier workplaces, and we believe the segment captures well over half of all leasing activity. Including two buildings undergoing renovation, 94% of BXP's CBD space is in buildings rated as premier workplaces, which has been and will be critical for our leasing success. Moving to real estate capital markets for office assets, U.S. transaction volume slowed materially to $12 billion in the fourth quarter, down 40% from the third quarter. Transaction volume across all real estate classes was down 36% over the same period. Mortgage financing is very challenging to arrange and available for only the highest quality leased assets and sponsors. First mortgage financing costs have risen materially over the past year based on both higher rates and credit spreads. Given the dearth of transaction activity, office asset pricing is difficult to determine, but it is clear cap rates have risen. There were a handful of BXP comparable transactions of note in the quarter. In the Route 128 quarter of Boston, two separate lab sales were completed for a total of $375 million, one sold to a REIT and another to an institutional investor. Though one of the transactions is a redevelopment, pricing parameters indicate a stabilized yield of at least 6% and pricing per square foot in the mid-900s. In Sunnyvale, California, two separate and fully leased office complexes sold for $415 million, one to a private real estate company and the other to an international fund. Initial cap rates ranged from 4.8% to 6.2%, and prices per square foot from $1,140 to $1,230. Regarding BXP's capital market activity in the fourth quarter, we closed both the previously described acquisition of a 27% interest in 205th Avenue in New York City and the sale of the Avant, a luxury residential building in Reston. For all of 2022, we acquired $1.6 billion of lab and office assets and completed over $860 million of dispositions of office and residential assets. Though we have additional asset sales in our targeted pipeline, completion of the dispositions will require more liquid capital market conditions. New acquisitions will be opportunistic and solely focused on premier workplaces, life science, and residential development. BXP's volumes for acquisitions and dispositions are very difficult to predict for 2023 given current market conditions. Our development pipeline continues to be active, delivering growth to our current and future financial results. This past quarter, we fully placed into service the 1.1 million square foot Reston Next Premier Workplace, which is 90% leased on a long-term basis to Fannie Mae and VW of America. This project was delivered below budget on costs and is projected to yield 7.7% upon stabilization. We also placed into service 880 Winter Street, a 244,000 square foot, very successful office-to-lab conversion project located in Waltham that is 97% leased. We purchased the office building in 2019 for $270 a square foot, spent approximately $500 a square foot on the conversion, and delivered the project at an initial cash yield of 10%. We also commenced the conversion of 105 Carnegie Center, a 70,000 square foot suburban office building in our Carnegie Center asset in Princeton, to lab use. This is our first attempt at life science at Carnegie Center, and we have life science clients reviewing the opportunity. There are two projects 290 and 300 Binney Street in Cambridge that do not appear on our fourth quarter construction and progress schedule that we are commencing in the first quarter and have an impact on our current 2023 financial projection, which Mike will discuss in greater detail. As described on our last call, Biogen is in the process of vacating the 300 Binney Street office building, and we will commence the conversion of the asset to lab use for the Broad Institute, which has agreed to lease the building for 15 years. We have also completed the necessary pre-development hurdles to commence the development of 290 Binney Street, a 570,000 square foot, 16-story lab building leased to AstraZeneca for 15 years. We estimate that the project will cost approximately $1.2 billion and expect it to be delivered in 2026 at an initial cash yield in the mid-6% range. Given the annual escalations in the AstraZeneca lease, the initial FFO yield is materially higher. 290 Binney Street is a complicated development entailing the demolition of an 1136 stall parking garage, the temporary relocation of parking capacity from this garage, the construction of a subterranean vault which will house an electrical substation currently being permitted by Eversource, and other facilitating agreements. Commencing 290 Binney Street also creates an obligation for BXP to build 121 Broadway, which is a 37-story, 440-unit residential tower, which will likely commence in 2024. In addition to these two buildings, BXP also has remaining rights for an additional 580,000 square foot life science building in our Kendall Center development, which is due to upfront infrastructure costs carried by the first two projects has the potential to be developed at significantly higher yields than 290 Binney Street. These projects demonstrate the skill of BXP's development team in identifying an opportunity to creatively solve a community problem of locating a new electrical substation and having the expertise to bring the project to reality by solving problems for multiple interested stakeholders thus creating a highly accretive development opportunity for BXP. After all of these movements, and including the 290 and 300 Binney Street projects, our current development pipeline of 13 office, lab, and residential projects, as well as View Boston, the observation deck at the Prudential Center, aggregates approximately 4 million square feet and $3.3 billion of BXP investment that we project based on delivery date and lease-up assumptions to add more than $240 million to our NOI over the next five years at a 7.3% average cash yield on cost when stabilized. The commercial component of our development pipeline is 51% pre-lease. So in summary, despite adverse market conditions, BXP had another very successful quarter and year with financial performance above expectations strong FFO growth, significant leasing success, and robust investment and capital reallocation activity. EXP is well-positioned to weather the current economic slowdown, given our premier workplace market position, our strong and increasingly liquid balance sheet, our significant and well-leased development portfolio in progress, and our potential to identify additional investment opportunities in the current market dislocations. Let me turn the discussion over to Doug. Thanks, Owen.