BXP, Inc.

Good day and thank you for standing by. Welcome to BXP's second quarter 2024 earnings conference 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 1-1 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 call is being recorded. I would now like to hand the conference call over to your first speaker, Helen Hahn, Vice President of Investor Relations. Please go ahead.

Good morning and welcome to BXP's second quarter 2024 earnings conference call. The press release and supplemental packets 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 J's. If you did not receive a copy, these documents are available in the Investors section of our website at investors.cxp.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 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. We ask that those of you participating in the Q&A portion of the call to please limit yourself to 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, everyone. BXP's performance in the second quarter once again demonstrated the relative market strength of the premier workplace segment of the commercial office industry, as well as BXP's strength in execution. Our FFO per share was six cents above our forecast and five cents above market consensus for the second quarter. Further, we raised the midpoint of our FFO per share guidance for 2024 by eight cents. We completed over 1.3 million square feet of leasing, which is 41% greater than the second quarter of 2023. and close to our 10-year average leasing volume for the second quarter. As our leasing volume continues to escalate, exceeding current lease expirations, we expect our occupancy will increase over time. Weighted average lease term on leases signed this past quarter remained long at nine years. On sustainability this past quarter, we released our 2023 sustainability and impact report, hosted our third annual sustainability and impact investor update and were recognized by Time Magazine as one of the world's most sustainable companies, ranking number one in the U.S. among property owners. Delivering sustainable real estate solutions is increasingly important to our clients as well as the communities where we operate and decreases our cost of capital given the growing number of ESG investors interested in our debt and equity securities. Moving to macro market conditions, we continue to experience market tailwinds for the two most important external forces impacting BXP's performance, interest rates and corporate earnings growth. The U.S. inflation report released on July 11th reflected a 3% inflation rate for June, lower than expectations, sparking new forecasts of accelerated interest rate cuts by the Fed as well as lower market yields for the 10-year U.S. Treasury. Lower interest rates are obviously favorable for real estate and BXP's valuation and for broader corporate earnings growth, the second important external factor driving BXP's performance. After remaining flat for all of 2023, S&P 500 earnings growth was 6.6% in the first quarter of this year and is expected to be around 9% for the second quarter. As mentioned repeatedly, companies with earnings growth are much more likely to invest, to hire, and to lease additional space, as demonstrated in our growing leasing volumes this year. Premier workplaces, defined as the highest quality 6.5% of buildings, representing 13.1% of total space in our five CBD markets, continue to materially outperform the broader markets. Direct vacancy for premier workplaces is 13% versus 18.5% for the broader market. Likewise, net absorption for premier workplaces has been a positive 6.9 million square feet over the last three years versus a negative 22.8 million square feet for the broader market. Asking rents for premier workplaces are 51% higher than the broader market, a consistent gap from prior quarters. This outperformance is evident in BXP's portfolio, where just under 90% of our NOI comes from assets located in CBDs that are predominantly premier workplaces. These CBD assets are 90.4% occupied and 92.2% leased as of the end of the second quarter. We are also experiencing moderate but steady increases in workers returning to the office. based on the turnstile data we capture for roughly half of our 54 million square foot portfolio. Corporations continue to push for increased office attendance, including Salesforce, who recently announced their new policy shift from primarily flexible work to mandatory office attendance for most employees of three to five days per week, depending on job function. Regarding the real estate private equity capital markets, office sales volume in the second quarter continued to be muted at $6.9 billion and has ranged from $6.2 billion to $9.1 billion for the last six quarters, well below volumes achieved before the Fed started raising interest rates in 2022. Completed transaction activity for premier workplaces has been very limited, though increasingly owners are testing the market to understand pricing. Moving to BXP's capital allocation activities, we remain active in pursuing acquisitions from owners and lenders, but as mentioned, have seen limited opportunities in the premier workplace segment. We are in active negotiations for the disposition of four land positions, which, if successful, would generate approximately $150 million of proceeds, half of which could be realized this year. For our development pipeline, we delivered into service the 118,000 square foot Dick's House of Sport on Boylston Street at the Prudential Center in Boston, fully leased at a strong yield. On July 12th, we opened Skymark, our 508-unit luxury residential tower development at Reston Town Center. We've already leased 21% of the units ahead of schedule, and rents are also modestly above projections. We continue to push forward with several residential projects primarily on land we control that are being entitled and designed for which we intend to raise JV equity capital. VXP continues to execute a significant development pipeline with 10 office, lab, retail, and residential projects underway as of the end of the second quarter. These projects aggregate approximately 3.1 million square feet. and $2.3 billion of BXP investment with $1.2 billion remaining to be funded and will contribute to BXP's external FFO per share growth over time. Though market segment for the broad office asset class remains challenging, BXP continues to leverage its key strengths, which are our commitment to premier workplaces and our clients as many competitors disinvest in the office sector, A strong balance sheet with ready access to capital in the secure and unsecured debt and private equity markets. And one of the highest quality portfolios of premier workplaces in the U.S. assembled over several decades of intentional development acquisitions and dispositions. So in conclusion, BXP continues to display resilience with a growing leasing pipeline as well as stability and FFO per share and dividend level. and is well positioned to continue to gain market share in both assets and clients during this time of market dislocation for the office sector. Expectations for lower interest rates and stronger corporate earnings growth will also provide tailwinds for our renewed growth over time. So now, Doug, I'd like to wish you a happy birthday, and I'll turn the call over, and you can talk about our strong leasing activity.