BXP, Inc. (BXP) Q2 2026 Earnings Report, Transcript and Summary

Good day, and thank you for standing by. Welcome to BXP's Q2 2026 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star 11 on your telephone keypad. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. We ask that you please limit your questions to no more than one but feel free to go back into the queue. And if time permits, we will be happy to take your follow-up questions at that time. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker, Helen Han, Vice President of Investor Relations. Please go ahead.

Good morning, and welcome to BXP's Second Quarter 2026 Earnings Conference Call. The press release and supplemental package distributed last night and furnished on Form 8-K. 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 Investors section of our website at investors.bxp.com. The 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 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 are 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 would 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, 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 delivered a very strong second quarter, both operationally and financially. FFO per share exceeded both our guidance and consensus estimates by $0.08 and we raised the midpoint of our 2026 FFO per share guidance by $0.05. We also made meaningful progress against the business plan we articulated at last year's investor conference, Leasing results were strong, in-service portfolio occupancy increased significantly, Additional asset sales progressed, and our development pipeline was active with project deliveries, launches, leasing, and capital raising. Our first business plan priority is to lease space and improve portfolio occupancy. We had a great quarter completing nearly 1.8 million square feet of leasing 29% above our 10-year historical average for the second quarter. Year-to-date, we have leased over 3 million square feet and our in-service portfolio occupancy also rose materially and for the third quarter in a row. This outcome reflects strong execution by our leasing teams as well as a very healthy environment for leasing premier workplaces. AI continues to be enormously beneficial to BXP's leasing activity. Our current and prospective clients are generally experiencing increasing earnings in an AI-powered U.S. economy are more often expanding than contracting their space requirements and in many cases, are also upgrading their space. We are leasing space to AI companies in San Francisco, New York, and Seattle, to companies displaced by growing AI firms and to our core financial, legal, and business services clients that support the AI industry. While AI's long-term impacts remain difficult to predict, research shows that technology advances historically increase the share of office-based jobs Additionally, AI will likely exert a greater impact on less adaptive back-office workers, and these roles make up a smaller share of employment in knowledge center gateway markets and in premier workplaces. Further, it is reasonable to believe non-office-using remote jobs, which generally have more process and analytical than interpersonal requirements, will be more disrupted by AI. Lastly, companies winning in an AI-enabled economy will be more profitable and face more intense competition for talent leading to less price-sensitive demand for easily commutable and desirable workplaces for their employees. For all these reasons, we believe premier workplaces located in gateway market knowledge centers are positioned best to benefit from and at worst to be the most immune from AI impacts on the labor force. As proof, the premier workplace segment of the office market where BXP is a clear leader continues to materially outperform the broader office market. Premier workplaces represent roughly the top 14% of space and 8% of buildings in the four CBD markets where BXP has a major presence. Direct vacancy for premier workplaces in these four markets is 8% versus 13.5% for the broader office market, while asking rents for premier workplaces continued to command a premium of more than 60% over the non-premier buildings. With an 8% vacancy rate, positive net absorption and limited new construction on the horizon, Premier Workplaces and BXP core markets are set up for material rent increases which has already commenced in many submarkets. Given these positive market forces, we are well on our way to accomplishing our two percentage point occupancy gain goal in 2026, reinforcing our confidence that our target of four percentage points of total occupancy improvement over 2026-2027 remains very much on track. Our second business plan goal is to raise capital and optimize our portfolio through asset sales. At our investor conference, we communicated an objective to generate in aggregate $1.9 billion in net sale proceeds by 2028 from the sale of land, residential, and non-strategic office assets. We continue to make progress in the second quarter and are well ahead of schedule. We have raised $370 million in total net sale proceeds so far this year and more than $1.2 billion since our investor conference. In addition, we have six assets under contract for sale with total net proceeds of approximately $240 million, $180 million of which is scheduled to close in 2026. Two of the assets currently under contract for sale are office buildings in Washington, D.C., which are scheduled to close this quarter. We are also in various stages of marketing several additional assets, including 7 Times Square in New York City. As of now, future net proceeds from dispositions possible in 2026 could aggregate up to an additional $500 million bringing our total net proceeds from asset sales to $1.7 billion by year-end, and we continue to explore additional capital raising opportunities. Supporting our disposition efforts, office volume in the private markets remains reasonably healthy with financing available at scale, particularly in the CMBS market. In the second quarter, significant office sales were $12.6 billion, down 13% from the first quarter and essentially flat from the second quarter of 2025. Though there continue to be very few premier workplace assets trading, there were a couple of transactions in the quarter with relevance to BXP's portfolio. One Marina Park Drive located in the Seaport of Boston is under agreement to sell for approximately $435 million which represents pricing of nearly $900 per square foot and an initial cap rate in the low-7% range. The asset comprises 495,000 square feet, is 99% leased with above-market rents, and is being sold by an adviser to the operating arm of a non-U.S. pension plan. Further, Tower 1 at West Main located in Bellevue, Washington is under agreement to sell for approximately $340 million, representing pricing of around $930 per square foot and a 6.75% initial cap rate. The 365,000-square-foot building is fully leased to Amazon on a long-term basis and was sold by a local developer to an adviser. BXP's third business plan goal is to grow FFO through new developments selectively with office given market conditions and more actively for multifamily with an equity partner. For office, we have and expect to allocate more capital to developments than acquisitions due to the materially higher yields available. This quarter, we delivered into service 290 Binney Street, a 570,000-square-foot lab building fully leased to AstraZeneca located in the life science nexus of East Cambridge. The project is a great example of BXP's development skills. Creating value for shareholders, where we establish development rights through executing a complex infrastructure, enhancement. We fully leased the asset before commencement. We sold a 45% stake in the property at a profit to a financial partner. And we delivered the project $20 million below budget and two months ahead of schedule. BXP's $488 million investment for its share of the project is yielding an 8.9% unleveraged cash return and a 10.3% GAAP return. BXP's largest development underway is 343 Madison Avenue, our premier workplace tower in New York City with direct access to Grand Central Terminal. This past quarter, we signed a 148,000-square-foot lease with McDermott Will & Emery. At the bottom of the high-rise bank of the building. and Starr expanded by two floors in the mid-rise, bringing us to 50% leased. Further, we are in lease negotiations with a two-floor client in the podium, which if completed, would bring us to 56% leased. Lastly, we are exchanging proposals with another client requiring five floors at the base of the podium, which would bring the project to nearly 70% leased. Though we have received single floor inquiries for the seven floors remaining at the top of the building, We expect continued rent appreciation and will likely lease these floors closer to delivery given their ability to command market-leading rents. We have procured 94% of the construction costs on budget, Leasing economics have been at or above forecast and our projections remain on track for a stabilized unleveraged cash return of 7.5%-8% upon delivery in 2029. Yesterday, we closed a 60% loan-to-cost $1.2 billion construction loan for the project on attractive terms and have a letter of intent with an equity partner for an $80 million investment representing a 10% interest in the project, with a basis above our costs. We expect the equity investment to close this quarter and our marketing efforts continue with the goal of ultimately monetizing a total of 30%-50% of the project over time. The value of the development continues to rise as we lease space and get closer to delivery. This past quarter, we launched the development of our Worldgate multi-family project comprising 359 wood-frame residential units located in Herndon, Virginia. The project's budgeted cost is $132 million, and we have secured a financial partner to supply 80% of the equity as well as the construction financing. BXP originally bought into the Worldgate property, which comprised an empty office building and parking garage on 10 acres in 2023. The project was rezoned for residential. The for-sale component is under contract for sale to a homebuilder. And the apartment development will entail demolishing the office building and utilizing structured parking. BXP will earn a profit from the total monetization of our investment in Worldgate, and has reinvested our share of the proceeds from the contribution of the apartment land back into the development joint venture for a 20% interest. We have additional residential projects in Weston, Massachusetts and Santa Monica, California, that we are intending to launch next year. This past quarter, we also signed a 320,000-square-foot long-term lease with Boston Dynamics, which will create a state-of-the-art robotics and AI center at Reservoir Place. A 360,000-square-foot office building BXP had taken out of service in Waltham. BXP will invest $87 million in the building and expects to earn an initial cash return of over 10% including an inferred value for the existing improvements. The project is expected to be delivered into service in the second quarter of next year. BXP's current development pipeline comprising seven office and residential projects underway totaling 3.5 million square feet and $3.2 billion of BXP investment continue to deliver external growth over the longer term. In conclusion, BXP is set up well for success. New construction for office has virtually halted, already leading to higher occupancy and rent growth in most submarkets where BXP operates. Debt capital is readily available for premier workplaces at attractive credit spreads. BXP continues to capture market share driven by our stability, reliable client service, and lighter competitive landscape across many markets. BXP remains comfortably on track with our business plan, which, if successful, will lead to increasing portfolio occupancy and FFO per share deleveraging external growth from development, and a more AI-enabled gateway CBD premier workplace concentrated portfolio in the years ahead. Over to Doug.

Thanks, Owen. Morning, everybody. Owen did a really great job of articulating our theory on why AI is so critically important to the demand picture. Equally important, perhaps, as a public company, the rhetoric and the conjecture around the impact of new AI technology on the future of office-using jobs has gotten much more balanced and constructive. What a change from where we were in February of this year. In each of our markets, our portfolio has seen a pickup in demand. In our best markets, that demand is coming from clients that are expanding across a wide spectrum of industries. Though varying by market, technology, AI, defense and cybersecurity, asset management, financial services, and professional services. In our other markets, the demand is due to decisions around upgrading space or changes in geographic preference as our clients look to maximize the desirability of their space for their associates. it is all encouraging for the premier office product. BXP had great top-line revenue results this quarter, and I want to focus my time on the improvements in our occupancy, which drove much of that outperformance. In June, when we were with you at NAREIT, we told you that we believe that our leasing progress was ahead of schedule relative to our anticipated occupancy pickup. We ended 2025 at 86.7% occupied. We finished the second the first quarter at 87.4%. And as of June 30, 2026, we are 88.4% occupied. So we have gained 170 of the 200 basis points that we originally expected for 2026. We had guided to an average occupancy during the year of 88.2% and we are ahead of plan. While the individual transactions may be very granular, the simple explanation is that we leased space more quickly than we expected. Most importantly, we continue to lease vacant and near-term expiring space. In the first quarter, BXP's total leasing volume was 1.14 million square feet, and we executed leases on 700,000 square feet of vacant space. In the second quarter, we completed 1.76 million square feet and covered an additional 380,000 square feet of vacant space and renewed or backfilled 600,000 square feet of 2026 and 2027 expirations. 190,000 square feet of our activity this quarter was at 343 Madison. And as Owen mentioned, 322,000 square feet was with Boston Dynamics at Reservoir Place. All vacant space, but those are not in-service properties. We start the third quarter with a signed but not occupied portfolio of about 1.3 million square feet with 1.1 million expected to commence in 2026. The remaining calendar year 2026 known expirations are down to 300,000 square feet. So this means we are going to pick up 800,000 square feet of occupancy or another 170 basis points and closed the year closer to 90% than 89%. Our 2027 expirations currently stand at 1.77 million square feet. We have known vacates of about 1 million and have good clarity on about 550,000 square feet of either renewals or replacement tenants for those expirations. We also have 250,000 square feet of signed leases that we expect to commence in 2027. Our pipeline of leases either executed or in negotiation after the second quarter stands at 1.3 million with about 350,000 square feet of that involving vacant space. In addition, our active discussions are approaching 1.7 million square feet, and that could impact another 450,000 square feet of current vacancy. Midtown Manhattan properties were up 14%. In San Francisco, 40% of the square footage in the statistics this quarter was in Mountain View, where the new leases reset at rents of about $45 triple-net. And in Seattle, 70% of the square footage came from a low-cost expansion. With a technology company at Madison Center, i.e., very little in the way of TIs. This quarter, we executed 21 leases over 20,000 square feet in the in-service portfolio, 48% of the square footage was renewals, extensions, expansions, and 52% was with new clients. Existing client expansions encompass 275,000 square feet of that activity. And we had about 50,000 square feet of current clients contract. In the BXP portfolio, Midtown Manhattan, the Back Bay of Boston, and Reston, Virginia continue to have the tightest supply and, therefore, the most landlord-favorable market conditions. While San Francisco and Manhattan are dominating the landscape when it comes to technology aka AI demand, it does not mean we are not seeing it elsewhere. We completed about 170,000 square feet of leasing in our Back Bay portfolio. We are also starting to see our first wave of renewals at 888 Boylston Street. The first of those deals happened this quarter. The highlights of this quarter in the Boston region was this 322,000-square-foot lease with Boston Dynamics. Which illustrates our point on and around AI leading to increased demand. This facility will house Boston Dynamics' advanced robotics and AI center. Along with the lease, they announced the expected hiring of over 1,000 new employees. In our urban edge portfolio, we continue to see lackluster demand around the lab space market. While the life science capital markets are very active with a series of Boston area IPOs, and several big pharma acquisitions of Boston-bred biotechs capital raising around the startup sector continues to be slow. it is the Series B, C, D companies that eventually move out of incubators into proprietary space that is still missing in the market. We continue to make progress at our Quarry asset, our largest availability in the Urban Edge, where we are in lease with a 50,000-square-foot client, another life science company, that is building 100% office space in our facility. In New York, at 360 Park Avenue South, we are in lease for the last floor, again, from an expanding AI tech company. Which will bring the building to 100% occupied. This quarter, we completed an extension and expansion with Rogo, a client that develops AI tools specifically for financial institutions that also announced job expansions. Across Madison Park at 200 Fifth, we are in lease for the remaining available space, and when complete, we will be 100% leased there as well. These two assets had almost 750,000 square feet of available space at the end of the first quarter of 2025. Our activity north of 42nd Street in Midtown this quarter also included expansions from financial advisers, asset management firms, law firms, that totaled 100,000 square feet. We also did 10 transactions in Princeton totaling over 100,000 square feet. In San Francisco, the most significant momentum in our portfolio continues to be at 680 Folsom and 50 Hawthorne. During the quarter, we executed a 63,000-square-foot lease, and we are in discussions now with an applied AI company for a 35,000-square-foot floor and we are talking with an existing AI client about expanding into the final available floor at 680 Folsom. We have also had success with smaller technology companies expanding at 535 Mission and at Embarcadero Center. We recently completed two transactions, are in discussions with three more. We are approaching our first significant initial lease up expirations at Salesforce Tower in 2027. As we believe current market rents are 30%-40% higher than the expire rents in the building and still would be a significant discount to new construction economics. it is really hard to find holes in the San Francisco demand picture when you have had 3 million square feet of positive absorption over the last two quarters. However, the one soft spot continues to be incremental demand growth. From traditional financial services, professional services, and legal firms. that is sort of where the action is least exciting. In Mountain View, we have completed 190,000 square feet of leases. Vacant space made up 50% of this activity, and we are in discussions with new clients for another 70,000 square feet of vacancy in the park. And in Seattle, we completed over 100,000 square feet of leasing on vacant space this quarter. This included a 44,000-square-foot expansion by Stripe, Following on our demand theme, another floor with an AI company that expects to grow its headcount 4x in 2026. And finally, activity in D.C. this quarter was concentrated in Reston where we leased over 125,000 square feet of 2027 expiring leases to defense contractors cybersecurity firms, and a financial firm. In the district, we are in negotiations to lease 100% of the space that McDermott will be vacating at 500 North Capitol in late 2028 when we deliver 32. With the expected sale of two office assets, we are shrinking our district portfolio prior to adding our newly leased developments. In the interim, the D.C. team continues to field inbound requests from law firms that want us to identify sites and develop new projects like what we have achieved at 725 12th and 2100 M Street. In fact, we are working with an institutional owner to organize a JV on a third of these projects, and hope to have a lease commitment before the end of 2026. In summary, our assets are seeing strong demand growth. We are leasing space more quickly, and as Michael described, it is impacting our bottom line. Great.

Thanks, Doug. Good morning, everybody. Today, I am gonna cover our financing activities. As well as our strong results for the second quarter earnings. And an update of our full year 2026 earnings guidance. As Owen mentioned, we closed the $1.2 billion five-year construction loan to fund approximately 60% the development cost of our 343 Madison project. The loan was competitively bid, and we experienced strong demand from our largest banking partners. The demand allowed us to achieve very attractive pricing and terms relative to recent deals in the office construction loan market and it demonstrates the engagement of institutional lenders to finance premier quality office projects with our strong sponsorship. The pricing is floating at SOFR plus 250 basis points, with a reduction to 225 basis points upon the achievement of project milestones. And the interest expense will be capitalized into the project cost and will not be included in our interest expense until completion in 2029. This is an important milestone for 343 Madison and it provides us with an additional capital source financial flexibility. We are also focused on the upcoming refinancing of a billion dollar unsecured bond that carries a GAAP interest rate of 3.5 percent and expires this October. While rates markets have been volatile, the bond market has been very active with credit spreads near all time tights. Our 10 year credit spreads are trading in the low 1 hundreds, if we were to issue a new bond today, it would likely price around 6% based on the current 10 year treasury rate. With the success of our asset sales program and the financing of 343 Madison, we may elect to use available cash to reduce the size of this financing by up to $300 million to minimize dilution. We also continue to evaluate all the refinancing alternatives available as we seek to optimize our debt capital structure and mitigate the impact of the elevated interest rate environment. Now I would like to turn to our second quarter earnings results, We had a very strong quarter and reported FFO of $1.78 per share, that exceeded the midpoint of our guidance and consensus by $0.08 per share. Importantly, nearly all of our outperformance came from better results in portfolio NOI. Our revenues exceeded our expectations by $0.04 per share comprised of $0.03 per share of higher rental revenues, and $0.01 per share of higher service income. Robust leasing activity drove higher rental revenue and occupancy this quarter. The leasing demand is broad based across the portfolio and very granular in nature. The revenue lift reflects earlier than anticipated occupancy and I do not expect it to compound into future projections. As Doug described, our leasing activity has beaten our expectations, with occupancy climbing by 100 basis points to 88.4% this quarter. We have increased our expectations for average occupancy for the year by 65 basis points to 88.9%, and we now expect to end 2026 at closer to 90% occupied. All very positive results from the healthy leasing activity and client demand we are seeing in our markets. We also generated $0.04 per share of outperformance from lower operating expenses in the portfolio. About half of this is from lower repairs and maintenance expense, that I anticipate will be deferred to later in 2026 and is embedded in our expense guidance for the back half of the year. The rest came from lower utilities expense related to lighter energy consumption in the Northeast, where we are working hard to fine-tune our buildings to lower consumption and cost every day. We also had lower real estate tax from the receipt of real estate tax abatements this quarter. We continue to aggressively appeal our real estate tax assessments throughout our portfolio and are seeing positive results in certain locations. Looking at the full year 2026, we are raising our guidance for FFO by $0.05 per share at the midpoint, by bringing up the bottom end by $0.09 to $6.99 per share and the top end of our range by $0.01 to $7.05 per share. Strong leasing performance across our portfolio is giving us increased confidence in our growth outlook. In our same property portfolio, we are increasing our assumption for our share of NOI growth over 2025 by 30 basis points. To between 1.8% to 2.6%. The increase mirrors the accelerated occupancy growth that Doug detailed. And in our development portfolio, we are increasing our assumptions for NOI by $0.03 per share based on faster lease up and lower expenses. At 360 Park, as Doug mentioned, we signed 50,000 square feet in the quarter, and we are now in negotiations to lease the last available floor. On the expense side, we started capitalizing expenses at Reservoir Place. Where we commenced redevelopment this quarter with the signing of our lease with Boston Dynamics. We have been extremely successful in executing our asset sales program, which is raising capital to fund our developments and reduce debt. As Owen described, we are ahead of the expectations we laid out last year at our Investor Day. Not in the total volume of asset sales, but in our timing. The accelerated sales timing has a slightly more dilutive impact than the prior guidance that we provided. Including the impact of lower net interest expense from deploying the sales proceeds to reduce debt We expect the foregone NOI from our sales to reduce FFO by approximately $0.02 per share when compared to our prior assumptions. Lastly, we raised our assumption for fee income revenue by $0.01 per share from higher construction management fee income and leasing commissions earned from our joint venture portfolio. So to summarize, we have increased our guidance for 2026 FFO by $0.05 per share at the midpoint to our new range of $6.99 to $7.05 per share. The changes come from increases in our assumption for growth in our share portfolio NOI by $0.06 lower net interest expense of $0.03, and higher fee income of $0.01. These are partially offset by a reduction of NOI from asset sales of $0.05. Overall, we had a great quarter, and all phases of our business strategy are clicking. We raised both our FFO and occupancy guidance driven by consistently strong leasing volumes and excellent progress on leasing our vacant and near-term expiring space. Our occupancy has now increased for 3 consecutive quarters. And we are executing on our planned asset sales program to both reduce leverage and redeploy capital into higher yielding new developments. Operator, that completes our formal remarks. Can you open the lines up for questions?

Thank you, sir. As a reminder, to ask a question, you will need to press 11 on your telephone. Withdraw your question, please press 11 again. We ask that you please limit your questions to no more than one, but feel free to go back into the queue. And if time permits, we will be happy to take your follow-up questions at that time. Please stand by while we compile the Q&A roster. And I show our first question comes from the line of Nicholas Yulico from Scotiabank. Please go ahead.

So first question, clearly, have the occupancy benefit picking up in the portfolio, which will help for 2027. Earnings impact. Can you just talk a little bit more, maybe, Mike, about how the asset sales are going to work in terms of, the impact on 2027, you know, versus debt repayments. Since I know some of the income producing asset sales are more back half weighted, like 7 Times Square or potentially even next year? Is there, like, dilution we should be thinking about for, 2027? And then also, in terms of the capital, just an update on, whether there might be excess sale proceeds to use for stock buybacks? Thanks.

So look on the asset sales side, as I mentioned, we are ahead of plan, and Owen mentioned that as well. So the dilution in 2026 is a little bit higher than we had originally stated when at our investor day. The beginning of the year, I think we said the dilution would be $0.06 to $0.09 And now if we get everything done that we expect, it will be closer to $0.11. And, you know, a good chunk, the majority of our asset sales will be completed know, we will evaluate, you know, going forward incremental sales as well. Our goal remains to bring down our leverage, into the low-7x range, which gives us optionality for future investment activities. And those future investment activities could include new developments, could include stock buybacks, and we will evaluate all of those things. With respect to 2027, I mean, we are really not giving guidance on 2027 right now. You know, the total asset sales that we project are still $1.9 billion by 2028. And as Owen described, we will have $1.7 billion done potentially by the end of this year, which means that next year will be lighter. Thank you.

And I show our next question comes from the line of Steve Sakwa from Evercore ISI.

Yes. Thanks. Good morning. Given the leasing success that you are having and, I guess, the faster ramp that you are seeing in occupancy, how are you sort of thinking about the ultimate stabilized occupancy rate of the portfolio? Has that sort of changed in your mind? And has the timing of that stabilization kind of been pulled forward given what you are seeing in the leasing market today?

So, Steve, this is Doug. What I would say is right now, we are sort of sticking to our 91 at the end of 2027. If things were to continue, though, you know, in the same sort of same trajectory, I think we would we would be more aggressive than that, but we are not ready to do that. And as I look out at our sort of lease expirations and then the available space that we have in the portfolio, sort of that is left there is a concentration of vacancy in 2 main areas. The first is at Embarcadero Center, in San Francisco. And that is the place where I think we have the most short term opportunity to exceed our projections, which would probably occur in late 2027 or early 2028. And then the second place would be our sort of what I refer to as our portfolio availables space in our tertiary markets in both the urban edge of Boston, aka the suburbs, and our Colorado, center portfolio in Santa Monica. Those are sort of the other 2 areas. And so, you know, I think that the value of that space is obviously less than a CBD property in Midtown Manhattan, the Back Bay Of Boston or San Francisco. My guess is that we sort of map out at somewhere between 94%-95%. Right? that is as good as it is gonna get. And so I think that by the end of 2027, we are at 91% or maybe a little bit better. But we are not ready to say that yet. And then in 2028, that is sort of when we get closer to, you know, that other number I just described. And so that is kind of where we max out as a portfolio. We will always have some marginal availability given the, you know, the fact that we do 10 year leases, and we have some, what I refer to as larger clients And if they choose to relocate or we cannot accommodate their growth, then we will have some downtime. So I do not think we get much above 94%-95%.

Thank you.

And I show our next question from the line of Jana Galan from Bank of America Securities. Congrats on a great quarter. In the prepared remarks, you touched on some price discovery but can you walk us through what your kind of seeing in the transaction market with fundamentals clearly improving? But maybe higher interest rates impacting pricing on land, residential and office?

Yes. I think as I mentioned in my remarks, transaction volumes for office are certainly off the bottom. And they have grown significantly over the last year or so. But they are still well below what they were, prior to COVID. So we are kind of in recovery mode. Second, I would say most of the you know, a big percentage of the buying is more, I would say, family office and opportunistic capital that is seeking, you know, discounts to replacement cost you know, kind of transactions. that is not a 100% true, but that is the majority of the transactions and that is logical. When you have a asset class in the capital markets that is recovering, generally, opportunistic capital starts it, and they are successful, and then other capital, follows. So I think that is where we are. The deals that I mentioned this quarter, I think, do kind of mirror where the deals were last quarter. They are kind of at 7 ish type cap rates. With the possibility of stabilizing at a slightly higher number. And I do not think these mean, I picked out the best ones that we are selling, and I still do not think they are quote, true premier workplaces. Thank you.

And I show our next question comes from the line of John Kim from BMO Capital Markets.

Thank you. Owen, I think you mentioned at Reservoir Place, you are expecting a cash return of over 10%. And I was wondering if that was on the incremental CapEx Or does that include your historical cost of the asset? And then going forward, what is your hurdle rate on development I guess, on, like, the build-to-suit development similar to 725 12th Street.

Yeah. So the 10% that I mentioned includes a, inferred value for the building that was taken out of service. So the cash yield on the incremental capital would be, materially higher. So and then on what is our target yield, it depends a little bit on the market, the preleasing and the risk and all those things as you would expect. But in general, we are getting 8%-plus yields on our development. You know, I mentioned our activity at 343 Madison. We remain very much on track, I think, to accomplish that 7.5% to 8% and our deals in Washington pencil over 8%. So that is what we are seeking to achieve. And that is accretive to where the stock's trading vis a vis cap rates. Thank you.

And I show our next question comes from the line of Anthony Paolone from JPMorgan. Please go ahead.

Thanks. You mentioned, Doug, I think the opportunity you saw at Embarcadero Center. In the near-term. But if you think out over the next couple of years and if the momentum in Northern California generally just persists, Like what do you think BXP's biggest opportunities are there? What do you what do you think you likely do with that portfolio?

Yeah. So I am gonna I am gonna let Rodney answer that question because he has a couple of pretty interesting opportunities, 1 of which is physically ours and others that we are working on that he can talk about.

Yeah. Thanks, Doug. I mean, the market, as you have heard, is very strong in Northern California. We are taking advantage of this increased demand with the AI sector, for sure. I mean, you are looking at the pipeline of tenants in the market right now are pushing 9 million square feet, which is just unheard of. We have not seen that number. So going forward, absolutely. I mean, it is a market where people are starting to talk about building new buildings. I know that seems strange with still some vacancy, but the reason is that there is just a limit on the premier workplaces. If you are looking for if you are a tenant in the market right now and you are looking for 50,000 to 100,000 square feet, of top tier space, you are not gonna have many choices. You might have you can certainly count them on one hand, maybe not even all the hands. So it is it is prompting people to talk about building new buildings, and what Doug just mentioned, we have actually we are very pleased to announce that we have been awarded through a competitive assignment a development consultant role on a site downtown that we have familiarity with from the past cycle. And we are gonna we are gonna have a role in that. And, you know, I think it is it is a great site, and we will have an opportunity to invest in it in the future if we feel that the market supports it and demand supports it. So it is it is positive, and we are we are obviously looking at all other opportunities.

And then, Rodney, just mention 4th And Harrison and sort of what we have going on there too.

Yeah. So at 4th and Harrison, I mean, that is that is a, you know, plus or minus 800,000-square-foot potentially phased projects that we were ready to start right when COVID hit. And this is a this is a great asset that sits, you know, approximate to where a lot of the AI companies in Mission Bay are located. And, you know, we are we are you know, teaming up, you know, potentially getting ready if we if the, again, demand holds up to be able to do something there. And we would not build it spec, but absolutely, you know, talking to users and we will see if something comes to that.

So I think, Tony, sort of the to sort of summarize, we are involved in a couple of really interesting opportunities in the CBD Of San Francisco, not the Peninsula. Where if market rents get to the point where new construction makes economic sense, we actually have places where we can create new premier product for clients. Thank you.

And I show our next question comes from the line of Michael Goldsmith from UBS. Please go ahead.

Good morning. Thanks a lot for taking my question. To this point, the recovery story has been occupancy led, but the message this quarter felt a little bit more rent growth oriented. So is that correct? And maybe can you just talk about the pricing power you are seeing Is it increasing? And is that for all markets or just those strongest ones?

Sure. So for us, the occupancy story is more than the improvement in the overall sort of what I refer to as mark to market. Largely because it is you get 100 cents on the dollar on the occupancy, and you only get a marginal amount on the increase, you know, when you are doing a mark to market. But why do not I let Hilary talk about sort of the view her views on pricing power in Manhattan and Bryan talk about our perspective on sort of where pricing is in the back bay submarket of Boston, which is where the majority of our rate increases will come from over the next few years. Laurie?

Thanks, Doug. The pricing power in Manhattan remains quite favorable to landlords, and it is expanding geographically. So while it is been very, very strong in the best submarkets of Midtown, it continues to expand outward. To other submarkets in Midtown and to Midtown South. As Doug and Owen mentioned, we are and Mike, we have now spoken for every single floor at, 360 Park Avenue South. And we are seeing landlords across the Midtown South submarket, post? You know, ever higher rents as they are leasing up remaining vacancy. In Midtown proper, we are getting inbound interest at our highest quality building and at 343 at rents that are consistently sort of 10% to 15% above where they were last year. And, you know, at our buildings, you know, and in the lower stack of our buildings where rents are slightly more slightly more affordable, we are still seeing 20% increases year over year, and that is fundamentally because there is a lack of available space in the market. So great strength from the landlord perspective in New York City.

Yeah. From Boston, it is the story that Doug and Owen have outlined. Is if you look at our rent roll snapshot, Boston, we are 97%-98% leased. Cambridge, 98% leased. Cambridge Lab, 100% leased. And then you combine that with, call it, competitive set. The people that we really or the buildings that we really compete against and there is a wide difference between, let's say, general vacancy of Class A and then our competitive set and it can be as much as 9 points, 11% versus 2% in the Back Bay as an example. And for us, it price detection is gonna be really in the renewal process versus we do not have any lease vacant space to go to market with per se. So we are in the process of really doing our absolute best at educating the marketplace the brokerage communities, and our clients about what is taking place and really focus on factual comps, etcetera. But we do anticipate that there is pricing power there. Thank you.

And Ayesha, our next question comes from the line of Seth Bergey from Citi. Please go ahead.

Thanks. it is Nick Joseph here with Seth Bergey. Maybe continuing on the mark to market conversation, what do you it for your West Coast portfolio? Obviously, we have seen recovery in leasing there, but how do you think about where the portfolio sits today versus where market rents are?

So what I would say is that it is kind of a building specific answer and I will just sort of give you a perspective in our I will I will use San Francisco as sort of the poster child because it is the majority of our West Coast exposure. So starting with the least good, and then getting to the best. So down in Mountain View where this quarter, you know, we had a pretty significant mark down largely because we were getting somewhere in the neighborhood of you know, $6 per square foot per month and now we are getting somewhere closer to $4-$5 per square foot per month, which are still very high rents. But they are not the same place they were. And the reason we were getting those other rents was that we had know, gotten significant increases over a 4- or 5-year period, and then obviously, the market sort of had a had a big change. So that is where the largest sort of decline is. At Embarcadero Center, it is sort of a neutral place. So in buildings like Embarcadero Center 4 or anything that is sort of above, call it, the 15th to 20th floor of EC 1, 2, or 3, there is an embedded market opportunity for growth. At the lower portions of 1, 2, and 3 where we have leases rolling over, where I would say we have to be more competitive because of the availability and the and the modest amount of incremental demand there is from what I refer to as traditional office tenants, and so there is probably a slight markdown. At 680 Folsom, at 535 Mission, and then at Salesforce Tower, we are gonna start to see material increases in our markups. Most of the leasing that we have done in those buildings has been at relatively lower rents and we go forward, those rents have gotten higher. We are now at a point, for example, at 680 Folsom where our asking rents are higher than the rents that will expire when the Macy's.com lease expires in 2028 and 2029. As I said, Salesforce Tower on average, my guess is our embedded growth is 30%-40%. And we are gonna have, you know, somewhere in the neighborhood of, call it, 200,000 to 250,000 square feet of expirations in that building in 2027 and 2028. And so there is a real opportunity for embedded growth. The other 2 West Coast markets, are for us are Seattle and West LA. I would say we are modestly lower in Seattle and then the West LA continues to struggle from a recovery perspective. it is the least of our markets from a demand growth perspective. And so there, you know, net, we are seeing still, you know, an embedded loss. In that market. But, again, for us, that is 1% or 2% of our portfolio as is Seattle. So it is not it is not material in terms of what happens in the next couple of years. Thank you.

And I show our next question comes from the line of Blaine Heck from Wells Fargo. Please go ahead.

Great. Thanks. With respect to 343 Madison, can you just elaborate on the appetite you have seen from potential equity partners, the timing we should expect on those sales of interest and any color you can provide on how you and those potential partners are thinking of value versus expected cost on the entirety of the 30%-50% interest you guys plan on monetizing?

Yeah. So as I mentioned in my remarks, we have a letter of intent with an investor to purchase a 10% interest in the project. And we expect that to close this quarter. And we continue to talk to additional investors about selling additional interest in the property, bringing us up to around that 30%-50% level. You know, we are selling down interest in the property, which we consider to be 1 of the great 1 of the best office developments in The United States, we are seeking our terms, both in terms of pricing and the way the governance works. So in thinking about pricing, our yield as the original developer of the property is just to use high level simple numbers is around 8%. And when we deliver this property, we think its value will probably be in the 5.5% to 6% range. So as we monetize interests along the way, we will be moving gradually from that 8% yield down to that 5.5% to 6% yield. And that is the way we are thinking about it and talking about it with prospective investors. Thank you.

And I show next question comes from the line of Caitlin Burrows from Goldman Sachs. Please go ahead.

Earlier in the prepared remarks, you guys mentioned that 48% of leasing in Q2 was renewals extensions and expansions. I was wondering if you could talk more about the renewal maybe what retention has been over the past few, say, 3 years, and if it is fair to expect that it increases going forward?

So, Caitlin, this is this is sort of a, I guess, more of an artistic answer than you probably would like, but I but I hopefully, it is directionally correct. So it is a there is a timing issue associated with this as well. So as we get closer to a lease expiration, our retention rate comes down. Largely because we have we have already done a lot of the larger transactions earlier. So as an example, Hilary's team right now is working on 4 transactions that are 2028 expirations or later. And my guess is if the all of those deals will likely get done. And so, you know, when I when we talk about our quote unquote renewals, know, the next quarter or 2, there may be some very lumpy numbers that sort of say, quote, unquote, that are retention is higher than it typically is. So when we think about our sort of near-term expiration, so call it the next 24 to 8 you know, 18 months and then because it goes down. Generally, the study that we have done has said, generally, we are somewhere between 45%-50%. that is sort of what happens, and largely that is because in many cases, we are not we are not able to accommodate growth because we are so fully leased. And so we, you know, unfortunately, have some tenant sentence that are leaving. Right now, as I look forward into our 2027 expirations, we do not have much in the way of large users leaving. So I feel better about sort of that number for what we have in front of us So as an example, I as I said, we have 1.77 million of 2027 expirations. Right now, we are pretty actively involved in about 550,000 square feet. So I would not be surprised if we get above that 50% level for this portfolio. But on a general we are somewhere between 45%-50%, you know, as we get closer to the actual year of expiration.

But just to add on to that, Doug, I mean, the last couple of quarters, we have had a number of these larger lease renewals that we signed, you know, a year or 2 ago coming in. So if you look at the details in our leasing activity page on the leases commence, last two quarters, we have been closer to 60%-65%. Again, because some of those leases you were just talking about that we did before that have come in, you know, which is positive. If you look long-term, you know, it is around 50%. But this year is better, and it is reflected in the occupancy growth we are seeing. Thank you.

And I show our next question comes from the line of Floris Van Dijkum from Ladenburg Thalmann. Please go ahead.

Hey. Thanks, guys. So kudos for putting your s and o pipeline out there. And giving some more insight into the future growth. Obviously, not all office space is created equal. I know if you can quantify what that S and O growth would be in terms of NOI Because, clearly, New York sign not open is different than LA or DC. If you can give us a little bit more insight into that, that will I think that would be helpful. Thanks.

I wish I had my list in front of me. I do not. But I will tell you that the majority of it in 2026 is in Manhattan. Largely coming from 360 Park Avenue and 200 Fifth Avenue. So that is that is where the most of so most leased but not yet occupied will commence. Thank you.

And I show our next question comes from the line of Upal Raina from KeyBanc Capital Markets.

Appreciate all the color on the opportunity set in broader San Francisco over the next couple of years that you have mentioned. But, Doug, you talked about at Embarcadero Center could give you the most short term uplift in occupancy. Could you give us an update on the pipeline there for those buildings? And maybe any timing you could share would be helpful.

Sure. So I will make a brief a comment, and then I will let Rodney be more sort of verbose about it. Big picture, it is a granular market for financial services, professional services kinds of users, which means doing a lot more transactions They are dip but they are smaller and so it yeah. Obviously, it takes a longer period of time to fill available space. But, Raj, you can sort of describe the tenor and the granularity of what we have going in Embarcadero Center.

Yeah. Absolutely. So, 1 of the key strategies that we have we have done in the past and we are continuing to do a little bit more on expanded scale now is building, prebuilt space. So we have two floors, for example, at 1 Embarcadero Center that are under construction now. 1 more to cater towards the tech build out, a little more open plan. Another towards more of a law firm professional services plan. We already have interest on both of them. And I think that is how we are gonna find success. I think the stuff the space that is sitting in old second generation in shell condition is gonna be the hardest. So we are being very proactive in investing ahead of ahead of that and getting the spaces ready for occupancy because that is where we found the most success. So these and as Doug said, it is gonna be granular. it is probably not gonna be 1 big deal that it is gonna occupy the bottom of 1 of these buildings. We are certainly, you know, open for that discussion and chasing those deals when available. But think it is gonna happen more Florida time, partial floor, and we are gonna have to go out at that way. I would add, though, that Embarcadero Center is gonna get some nice continued positive interest. The Embarcadero Plaza, which is the park adjacent to former Embarcadero Center, is fully underway now, and this is a it is a private public partnership with the City Of San Francisco to build this world class park. And that is gonna absolutely enhance, you know, the environment around Embarcadero. Center, which we will benefit from for sure.

And I show our next question in the queue comes from the line of Dylan from Green Street. Please go ahead.

Hi, guys. Thanks for taking the question. Just maybe pivoting back to sort of the program. Obviously, you mentioned you guys are well ahead of schedule. I guess, any possibility that the ultimate goal ends up being much higher than that $1.9 billion? Then I guess as you think about the portfolio once you guys are done with that, in your guys' mind, does that get you guys to know, a point of the where the portfolio is largely there in terms of most of the being what you guys deem as trophy and Class A, or would there still be some, you know, call it, 5 to 10% of the portfolio that is noncore in your guys' mind?

We will keep going. On sales. As Mike said, it will be slower. And there are several reasons for that. One is, let's go through the three categories. On land, in many regions, we continue to get additional residential entitlement on land those take time, and it takes time to monetize those assets. So as these entitlements come through, and this will be at, you know, beyond 2026. It will continue to monetize the land the way we have, both selling, for-sale pads to homebuilders as well as starting multifamily development. So that is that is one category. Second, we still have a couple of built and close to stabilized apartment buildings that we have not yet sold. So I think those are those are potential future disposition candidates. And then third, we do still have a handful of office assets that we would like to sell and some of those are not stabilized. They are in various stages of lease up, And, as those properties get leased up where we think we can maximize the value and the disposition, we will do it. But I do think the, cadence of dispositions going they will continue, but the cadence will slow down a little bit. Yeah.

And, Dylan, I said the first bucket that Owen described, which is, you know, this quote, unquote land portfolio, These are what I would refer to as many of our older suburban office buildings where we have made a decision that the recovery those marketplaces is gonna lag the opportunity set associated with creating residential entitlements and we happen to be in an unusually, constructive time period relative to the jurisdictions that those buildings are operating in, where there is a need for housing. And so you know, there is there is over a million square feet of suburban stuff that will eventually disappear from our portfolio we will ultimately we hope to sell, you know, somewhere between you know, 75% to 80% interest in, which will be liquidating those assets and providing us with opportunities that we can either use for redeploying into those particular developments or know, using that money elsewhere. And I do not think people sort of really focus on the size of that and what the magnitude of that is, and it is it is hundreds of millions of dollars over time. So it is it is not, you $10 million here, $15 million here. it is hundreds of millions of dollars over time. Thank you.

And I show our next question comes from the line of Richard Anderson from Cantor Fitzgerald. Please go ahead.

Hey. Thanks. Good morning. So obviously, AI has come up a lot on this call, and it is a demand driver for you and many But it does have -- it does remind me of the life science boom of, you know, five, six, seven years ago, and, you know, that did not turn out great. I am curious, if there are any lessons learned from that experience of life science and the exuberance that came from it and how you are approaching AI demand today. And if there are any kind of lessons learned as you approach that opportunity know? TBD to see how long it stays intact.

Yeah. So the future of AI and its impact are very difficult to project and flip through any newspaper or any magazine any day of the week and you will get all kinds of different So it is it is very, very difficult. I think the primary benefits to BXP's leasing are not actually from the AI companies directly, although that is a benefit. We are seeing markets just generally tighten. Like, for example, San Francisco's had 8-plus million square feet of net absorption from AI companies. And a lot of other clients are getting displaced by that and then coming to us and other landlords and leasing space. And then lastly, our core set of financial services, legal service, and business service clients, many of them are investing in, providing services to the AI industry, and they are doing well with that. And as a result, are growing and leasing more space. So, yes, if AI comes off the boil as you suggest, that will be negative. But most of the leasing benefits we are getting are not directly with the AI companies. And then when we do lease to an AI company, we obviously focus as much as we can on the credit and get letters of credit in the leasing and we are also paying attention to know, the percentage of our total portfolio that is leased directly to startup AI companies.

And I would just add the following thing relative to sort of the difference between leasing to a company that is technology company that we happen to be calling AI and a life science company. So in or call it the last five or six years, longer than I we ever would have expected to have happened. People were building speculative laboratory buildings. And those laboratory buildings were being built with the infrastructure necessary to allow for a lab installation, which was a very expensive proposition, and they were there was a lot of it A lot of it that was done on a speculative basis. And so while we are actually very constructive about the long-term viability of life science, particularly in the greater Boston marketplace, there is just a ton of quote, unquote, bespoke lab-ready buildings that are sitting out in the marketplace that are gonna just have to wait their turn for a customer to show up that actually wants that particular location in order for them to, you know, achieve the value that is going on. And in some cases, those tenants or those building owners are making a decision that they are no longer gonna wait. As an example, there is a lab building right now in Boston that is, you know, bespoke and it is, you know, doing a transaction with a major health organization that is not gonna be doing lab work in there, but is gonna be doing some other kinds of clinical work in that building. So things like that will happen and over time the supply will be, you know, become absorbed. With what we would refer to as these artificial intelligence companies, this is office space, pure and simple office space. Better for better or worse, BXP is not a data center company. We do not have quote, unquote, data center infrastructures with billions of dollars of equipment and enormous amounts of power needs that are sitting in and around our building. So we are simply leasing our space to the next version of technology dot-com. mobility. Call it cloud computing, whatever it is. Now it is artificial intelligence, and that is just sort of the natural progression. And those organizations are simply looking for great locations great amenities, high-quality assets, premier management, and great places for them to grow their organizations which is what we are suited to do. So I think there is a distinction between what happened with life science and the overbuilding that was occurring and what is going on right now because I am not aware of anybody building a speculative office building in a CBD location that where we operate, and that was very different in 2022, 2023, and 2024 when there was a ton of speculative life science that was built in places like South San Francisco and in Watertown, Massachusetts, and in Lexington and Waltham, Massachusetts that were built on spec. And that is fundamentally the difference between what we are seeing now and what we what we saw over the last, you know, quote, unquote cycle. Thank you.

I show our next question comes from the line of Dylan Abramowitz from Deutsche Bank. Please go ahead.

Hi. Thank you for taking the question. I think on the last quarter's call, Mike, you talked about leasing CapEx of around or above $400 million for the year. I think it was $330 million or thereabouts in first half. So you are on pace to kind of go through that number. I understand certainly a lot of this is good news CapEx related to leasing. But could you just help us think about any updated thoughts on where you expect that number to shake out for 2027? And then the overall leasing CapEx trajectory and how it impacts FAD growth, in the second half and beyond?

Sure. And you are right. You know, we continue to do additional leasing We continue to you know, we are increasing our occupancy projections for 2026, and that is gonna roll into additional leasing transaction costs that are going to occur this year. And, you know, we are going to be increasing. I suspect it is gonna be closer to $500 million than it is to $400 million. Based upon what we are seeing right now. And that will end up having an impact on our AFFO in 2026. And as you said, it is good news because we are signing more leases and those leases will go into effect And there is gonna be some free-rent, obviously, in the beginning of those leases. So that also has some impact on our AFFO. But those leases will become cash rent paying in 2027. And will have a positive impact on AFFO. Of on a moving forward basis. So I look at 2026 as being a year where it is it is just gonna be higher in terms of transaction costs. And also higher in terms of straight-line rents. Thank you.

And I show our next question comes from the line of Alexander Goldfarb from Piper Sandler.

Hey, morning down there. Or up there. So Mike and Owen, just going to I know you are not talking about 2027, but certainly, the portfolio has benefited immensely from stronger fundamentals, occupancy being better, and you know, on the accelerated dispositions being able to use some of those proceeds to pay off debt. But as the company strategizes for 2027, and sort of the priority, is the priority more towards let's keep earnings growth accelerating as number one and then debt payoff as number two? Or is it the other way around? Just trying to understand because the company is in obviously a really good position. Stock's doing well today. And, you know, clearly, the fundamentals are providing office landlords with a wonderful tailwind. Alexander, we always understand and are trying to grow the FFO per share of our company.

And that is a clear priority. I do not know what there is you know, we are gonna continue to sell assets when we have them that when we have an asset, we do not think it is strategic to the company that we think we are getting fair value for. I do think the mix of asset sales that we have used has brought down the dilution because a lot of the sales that we are doing are land. And a lot of the sales that we are doing are apartments, which trade at a accretive cap rates to us. So it is not like we are selling you know, office buildings at high cap rates. But we recognize the importance of growing our earnings per share. And as you suggest, and as Doug described in great detail, you know, the leasing that we are doing, you know, we expect, you know, continued growth. Mike, I do not know if there is anything more you wanna add.

No. I think you have covered it. that is our goal.

Yeah. Thank you.

And I show our next question comes from the line of Brendan Lynch from Barclays. Please go ahead.

Good morning. Thanks for taking my question. Are there any other buildings in the portfolio like Reservoir Place that could capture demand for similar full building redevelopments and how do redevelopment yields compare to other competing uses of capital? Thank you.

So the answer to your question is there certainly are. You know, these are what I refer to as your work trying to mine for these organizations. They take a lot of time, a lot of effort, and an incredible amount of diligence from our local operating teams So the our Boston team has done it twice. First, we did it with Analog Devices at a building that was out of service called 105 Winter Street, and, obviously, we have just done it with Reservoir Place. We have some buildings, you know, in our Northern Virginia portfolio that potentially could have a similar outcome. These are highly, you know, speculative comments that I am making, so I am not suggesting there is anything imminent. But they are they physically exist. And, you know, after that, I would say, we are always looking to put a client and a building together to create an opportunity that may not necessarily be in our portfolio. And I guess I will ask Peter to sort of talk about what he and James are seeing down in D.C. because there is a lot of what I refer to as functionally obsolescent or capital structure broken places in D.C. that we have sort of, you know, from a thought perspective said, this could be another great place for a building. And just you guys should describe sort of the amount of inbound interest we are seeing for our franchise in D.C. Not on our bill. Not on our buildings. Yeah.

James, jump in here too, but good morning, everybody. Yeah. As Doug and Owen have alluded to, we are working on a what we hope would will be the third in the series here of opportunities in Downtown D.C. with inbound clients. And really, I think the key here has been matching client size with building size and with that, you know, making that opportunity, therefore, a highly leased development from the get go. There are lots of opportunities both sites and law firms out there who are interested in doing similar things. And not as much capital as you might expect to be chasing those kind of opportunities. So we are fielding conversations with clients directly with the brokerage community and with site owners and, you know, in some cases, lenders on those sites about thinking about those different opportunities. And they are definitively out there, and I think the group of, players like BXP that can execute on those kind of transactions is relatively small. So it is it is as it has been talked about a bit of the market writ large and the economics that you see on, you know, for instance, the vacancy rate on office generally versus the very, very top of the market, which is extremely tight and getting tighter. And that has had what you might expect which is the impact on new building rents, has gone significantly higher, but so has just the general market for trophy space. Yeah.

We would add in Boston it is kind of an additional twist to what Peter was talking about was that when you look at our suburban activity, where we think we have captured, like, 70% of all the leasing in the Waltham market over the last year and a half. it is a combination of the premier attributes of location in the case of Reservoir Place. I mean, it is a fabulous building, large at an incredible intersection Cloverleaf, very hard to get in our marketplace. And you combine that with our ability to help these clients with the bespoke design that they are looking at now because their uses are very different than conventional office. And to be able to articulate that and then provide a client with a timing on that, that is definitive has been a really big competitive advantage for us and similar to what Peter's seeing in D.C. Thank you.

And I show our next question comes from the line of Ronald Kamdem from Morgan Stanley.

Hey. Great. I just had a question on same-store NOI, which the cash number was reiterated at sort of flat for the year. I did see that I think the impact from buildings taken out of service went a little bit lower. I am not sure if that impacts that, but question is really just can you just remind us what some of the drags were for this year? And, obviously, we can appreciate that it takes time for leases to commence. And how we think about that potential ramp in same-store as you sort of flip the calendar with the occupancy tailwinds that you have? Thanks.

So, you know, the cash, same-store is gonna lag the GAAP same-store as we gain occupancy. And these leases that we are starting this year that are going right into our have free-rent periods at the beginning. So that is why, you know, when we increased our occupancy guidance to quarter, we increased our GAAP same-store guidance by 30 basis points. We did not move the cash because these leases are gonna be in free-rent periods. So those free-rent periods are you know, they generally range between 6 and 12 months. You should expect to see the cash come in on this leasing sometime in 2027. that is when you are gonna see, you know, the cash same-store start to catch up with the GAAP same-store. Thank you.

And I show our last question in the queue comes from the line of Vikram Malhotra from Mizuho. Please go ahead.

Morning. Thanks for squeezing me in. Just two clarifications. I guess, with how attractive the debt markets have been, would you consider taking any unencumbered assets, perhaps utilizing this moment where the debt markets are so attractive? And then similar to sort of that in capital allocation, just the you formed a JV a couple of years ago. To buy, I guess, a value-add, if I am not wrong, or a value-add office. I am wondering in San Francisco with the turn you are seeing and just overall the breadth in office, is that sort of a opportunity to deploy more capital now?

Look, on the debt markets, the secured markets and the unsecured markets are both very strong and attractive as are the bank markets. And I think, you know, a high-quality CMBS execution is gonna be somewhere in the, you know, low 100-basis-point spread range at a reasonable leverage rate and are on bonds are also pricing at that same level. So if we were gonna issue incremental debt, I think we have both opportunities, and we could weigh both opportunities. So if we think about we are really not thinking about issuing new debt. We are more viewing ourselves as thinking about refinancing debt as it comes due. And looking at the best opportunity to try to do the most attractive debt financing that we could in all of the markets that we have access to. And those markets again include, you know, the five-year bank unsecured term loan market, the 5- to 10-year CMBS market, the 5- to 10-year or even longer unsecured bond market, and then even you know, the convertible debt market like we did last year. Which is a lower coupon, but obviously, there is option value on the on the back end So all of those opportunities are available to us, and we weigh them as we as we look at what our needs are going forward.

And then on the second part of your question, we do look at all acquisitions.

The bar is high because whatever if we buy a older building, we have to believe that we can make it into a premier workplace, number one. And we are comparing it to the yield requirement. We are comparing it to the development capital that we are investing that we believe we are getting an 8% yield for. But if we could find things like that, we certainly will look. Thank you.

That concludes our Q&A session. At this time, I would like to turn the conference back over to Owen Thomas, Chairman and Chief Executive Officer, for closing remarks.

Well, it is been an hour and 22 minutes, so we have nothing else to report. And thank you all for your interest in BXP.

This concludes today's conference call. Thank you for participating. You may now disconnect. Good day.