BXP, Inc.

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. In the interest of time, please limit yourselves to one question. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker, Helen Hahn, Vice President, Investor Relations. Please go ahead.

Good morning and welcome to BXP's fourth quarter and full year 2025 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.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 BXB 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 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 and 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 to all of you. BXP had a very strong year of performance in 2025 in all areas critical to our business, namely leasing, asset sales, development starts and deliveries, financing, and client service, notwithstanding our below-reforecast FFO per share outcome for the fourth quarter. We remain on track, if not ahead, in executing the detailed business plan we outlined for shareholders at our investor conference last September. This morning I'll review our progress toward achieving the critical components of this plan, which are leasing and growing occupancy, asset sales and deleveraging, external growth primarily through new development, capital raising for 343 Madison Avenue, and increasing focus on urban premier workplace concentration. Though Doug will provide details on BXP's leasing activity, in summary, we had a strong fourth quarter and full year of leasing, and our forecast occupancy gains have commenced. We completed over 1.8 million square feet of leasing for the fourth quarter and over 5.5 million square feet for the full year 2025, well above our goals for the year. As we've explained on prior calls, leasing activity is tied to both our clients' growth and use of their space. We have every reason to be confident that the positive environment we're experiencing for leasing will continue into 2026 as earnings for companies in both the S&P 500 and Russell 2000 indices, a proxy for our client base, are expected to grow at double-digit rates. and acceleration above 2025 growth levels. Return to office mandates from corporate users continue to grow and take effect. Placer AI's office utilization data indicates December 2025 was the busiest in-office December since the pandemic and showed a 10% increase in office visits nationwide from December 2024. Concerns and speculation about the impact of AI on job growth and by extension leasing activity are not supported by the actions of our clients, many of which are growing their footprints, upgrading their space, and or executing long-term leases. In fact, we're experiencing accelerating demand from AI companies, particularly in the Bay Area and New York City. The near-term negative impacts of AI on jobs are more likely in support functions which are generally not occupying premier workplaces. Providing further support for our leasing activity is the consistent strength and outperformance of the premier workplace segment of the office market where BXP is a market leader. Premier workplaces represent roughly the top 14% of space and 7% of buildings in the five CBD markets where BXP competes. Direct vacancy for premier workplaces in these five markets is 11.6%, 560 basis points lower than the broader market, while asking rents for premier workplaces continue to command a premium of more than 50% over the broader market. Over the last three years, net absorption for premier workplaces has been a positive 11.4 million square feet. versus a negative 8 million square feet for the balance of the market, which is nearly a 20 million square foot difference. Given these positive supply and demand market trends and our strong leasing in 2025, we believe our target of 4% occupancy gain over the next two years remains achievable and more likely than when we made the forecast last September. Our second goal is to raise capital and optimize our portfolio through asset sales. During our investor day, we communicated objectives to sell 27 land, residential, and non-strategic office assets for approximately $1.9 billion in net aggregate sale proceeds by 2028. We are off to a strong start. So far, we've closed the sale of 12 assets for total net proceeds of over $1 billion, $850 million in 2025, and $180 million this month. In addition, we have under contract or agreed to terms the sale of eight assets with estimated total net proceeds of approximately 230 million in 2026. In total, we have 21 transactions closed or well underway with estimated net proceeds of roughly $1.25 billion. As of now, dispositions estimated for 2026 aggregate over $400 million, and we will be exploring additional sales. For the $1 billion in dispositions that have been closed, there are seven land sales for $220 million, two apartment sales for $400 million, and three office lab sales for $400 million. We have been able to achieve attractively valued land sales by creatively positioning our office land for other uses. To date, we have sold or are in the process of selling land to a corporate user, a municipal user, a light manufacturing developer, a utility, and most importantly, developers for residential use, both apartments and for sale townhomes. Across Lexington, Waltham, and Weston, Massachusetts, Montgomery County, Maryland, Fairfax County, Virginia, Santa Monica, California, and West Windsor Township, New Jersey, we have received or are pursuing entitlements for over 3,500 residential units which is creating significant value for shareholders and will be the backbone of both our apartment development and land sales activity going forward. We sold two high quality apartment buildings, which we built in Reston Town Center and Cambridge, Massachusetts for approximately a 4.6% cap rate. Both were profitable developments for BXP. Lastly, on office sales, we elected not to participate in a debt restructuring at Market Square North and sold our interest to our partner for our share of the existing debt balance. We sold 140 Kendrick Street, our only asset located south of the I-90 interchange on Route 128 in suburban Boston, at a relatively high cap rate of 9.5%. However, we maximized its income potential, having leased the building to 96%, and the local market is not strategic to BXP given our lack of scale. Lastly, we sold our 50% interest in Gateway Commons to a strategic buyer that has significant scale in South San Francisco for a 6.2% cap rate and the property is 63% leased. Though we think South San Francisco is an attractive life science market longer term, given high vacancy rates and low net absorption, it will take some time to capture the upside and we received a reasonable price from a logical buyer. With this deal, we have exited the life science business on the West Coast, but remain committed to the sector through our substantial life science holdings in the Boston region. Supporting our disposition efforts, office transaction volume in the private market continues to improve as more equity investors become constructive on the sector and financing is available at scale, particularly in the CMBS market, with tightening credit spreads. In the fourth quarter, significant office sales were $17.3 billion, which is up 43% from the third quarter of 2025 and up 21% from the fourth quarter of the prior year. The transaction most relevant to BXP's portfolio that occurred in the fourth quarter was the sale of a 47.5% interest in 101 California Street in San Francisco for a five and a quarter percent cap rate and $775 a square foot. The building is a market leader in San Francisco comprising one and a quarter million square feet and is 88% leased with attractive property level financing through 2029. The third goal is to grow FFO through new development, selectively with office given market conditions and more actively for multifamily with an equity partner. For office, we continue to allocate more capital to developments than acquisitions because we're finding very high quality development opportunities with pre-leasing that we believe will generate over 8% cash yields upon delivery, which is roughly 150 to 250 basis points higher than cap rates for debatably equivalent quality asset acquisitions. An additional advantage is new buildings generally have longer weighted average lease term and limited near and medium term CapEx requirements. The trade-off is timing as developments obviously take several years to deliver. This past quarter, we created a second pre-leased premier workplace development in the Washington DC CBD market. Following our success at 725 12th Street, we were approached by Sidley Austin to find them a new Washington, D.C. headquarters. We identified 2100 M Street as an attractive site with frontage on New Hampshire Avenue and 21st Street. We simultaneously negotiated a purchase of this site for $55 million or $170 a square foot and executed a 15-year lease for 75% of the to-be-built, not yet designed, 320,000 square foot Premier Workplace. The total development budget is estimated to be approximately $380 million, and the forecast unleveraged cash yield upon delivery is in excess of 8%. Though we have closed on the site, construction will not commence until 2028, and building delivery is expected in 2031. For multifamily, we have three projects with over 1,400 units under construction and are in various stages of entitlement and or design for 11 projects totaling over 5,000 units. one of which will commence in 2026. we expect to continue to capitalize new development starts with financial partners owning the majority of the equity we continue to advance our development pipeline with eight office life science residential and retail projects underway comprising three and a half million square feet and 3.7 billion dollars of bxp investment we expect these projects will deliver strong external growth both in the near term with the delivery of 290 Benny Street midway through the year and over the longer term. Our final goal is to introduce a financial partner into 343 Madison Avenue, our leading premier workplace development in New York City, given its location with direct access to Grand Central Terminal and state-of-the-art design and amenities. We finalized a lease commitment with STAR for 29% of the space in the middle bank of the tower and are negotiating a letter of intent for another 16% of the building located just above star. We have committed to nearly 50% of the construction costs and our projections remain on track for a stabilized, unleveraged cash return of 7.5% to 8% upon delivery in 2029. We are in discussions with several potential equity partners for a 30% to 50% leveraged interest in the property. and also have had constructive discussions with several construction lenders for financing at attractive terms. Our leasing, construction, and capital markets execution continues to de-risk the 343 Madison investment, and we intend to complete this recapitalization in 2026. We are making strong progress with our strategy for BXP to reallocate capital to premier workplace assets and CBD locations. We recently launched new developments at 343 Madison Avenue in New York City and 725 12th Street in Washington, D.C. We plan to launch construction of 2100 M Street in 2028, and the majority of the office and land assets we are selling are in suburban locations. We continue to evaluate additional premier workplace development and acquisition opportunities, but remain disciplined about quality, pricing, and the resultant leverage and earnings impacts. In conclusion, our clients are, in general, growing healthy and more intensively using their space, creating increasingly positive leasing market conditions concentrated in the premier workplace segment of the market. New construction for office has virtually halted, leading to higher occupancy and rent growth in many submarkets where BXP operates. Debt and equity investors are becoming constructive on the office sector, resulting in more availability of capital at better pricing. BXP is very much on track executing our business plan as outlined last September, which we believe will deliver both FFO growth and deleveraging in the years ahead. And I'll turn it over to Doug. Thanks, Owen. Good morning, everybody.