On Wednesday, BXP (NYSE:BXP) discussed first-quarter financial results during its earnings call. The full transcript is provided below.
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Summary
BXP reported a successful Q1 2026, with FFO per share exceeding estimates by $0.02 and guidance for 2026 raised by $0.01.
The company achieved strong leasing activity with over 1.1 million square feet leased and a significant increase in occupancy rates.
BXP is benefiting from AI-driven demand, particularly in San Francisco, New York, and Seattle, contributing to leasing successes.
Capital raising and portfolio optimization continue, with $360 million raised in Q1 and plans for further asset sales.
Development projects are progressing, with a focus on multifamily and select office projects, aiming for high returns.
Management remains optimistic about achieving occupancy and FFO growth targets over the next two years.
Full Transcript
OPERATOR
Good day and thank you for standing by. Welcome to Q1 2026 BXP 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 11 on your telephone. You will then hear an automated message advising your hand is raised to withdraw your question. Please press star 11 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, VP of Investor Relations. Please go ahead.
Helen Hahn (VP of Investor Relations)
Good morning and welcome to BXP's First Quarter 2026 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 Investors section of our [email protected] 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 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 Linde, president and Mike LaBelle, chief financial officer. During the Q and 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 and 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.
Owen Thomas (Chairman and Chief Executive Officer)
Thank you Helen and good morning to all of you. BXP had a successful first quarter. Our FFO per share result exceeded our own estimate by $0.02. Our FFO per share guidance for 2026 was raised by $0.01 and we made continued strong progress on our business plan articulated at last year's investor conference by completing significant leasing, closing additional asset sales and progressing our development pipeline. Last week we also released our annual Sustainability and Impact Report outlining the positive outcomes achieved for shareholders and other important constituents from our industry leading sustainability efforts. Our first business plan priority is to Lease space and improve Portfolio Occupancy There is no question that AI has been and continues to be enormously beneficial to BXP's leasing activity. Despite the market anxiety regarding the impact of AI on job creation and resultant leasing demand, we are experiencing direct benefits by leasing space to AI companies in San Francisco, New York and Seattle as well as indirect benefits from both leasing space to companies displaced by growing AI firms and to our core financial, legal and business services clients serving the rapidly growing AI industry. The near and medium term negative impacts of AI on jobs are more likely in support functions which are less present in premier workplaces and in gateway markets. We had a strong first quarter completing over 1.1 million square feet of leasing. Our in service portfolio occupancy rose 70 basis points to 87.4% and the spread between our leased and occupied square footage widened 80 basis points to 3.5%, a precursor to more occupancy gains ahead. The environment for leasing Premier Workplaces remains healthy and very active. Our current and prospective clients are generally experiencing increasing earnings due to the growing economy in the US we are seeing more client growth and contraction in our leasing activity. In many cases our clients are also upgrading their space and or location to more readily implement their tightening in person work policies. All of these client factors, growth, more use of space and upgrading have led to the consistent strength and outperformance of the Premier workplace segment of the office market where BXP is a clear market leader. 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 8.5% versus 13.8% for the broader office market. While asking rents for Premier Workplaces continue to command a premium of more than 60% over the non premier buildings. Over the last three years, net absorption for Premier workplaces has been a positive 11.9 million square feet versus only 420,000 square feet for the balance of the market. For the non premier workplace segment, all markets had negative absorption except New York City. Given these positive market and client trends and BXP's strong leasing over the last year, we have started to realize our forecasted occupancy gains the last two quarters, reinforcing our confidence that our target of 4 percentage points of total occupancy improvement over 2026 and 2027 remains achievable. Our second business plan goal is to raise capital and optimize our portfolio through asset sales. During our investor conference we communicated an objective to sell land, residential and non strategic office assets for approximately $1.9 billion in net aggregate sale proceeds by 2028. We continue to make great progress in the first quarter. We have raised 360 million in total net sale proceeds so far this year and $1.2 billion since our investor conference, including land sales for $250 million, apartment sales for $460 million and office lab retail sales for $500 million. Further, we have under contract the sale of three assets with total net proceeds of approximately $40 million and are in various stages of marketing several additional assets as of now. Future net proceeds from dispositions projected in 2026 could aggregate up to an additional $400 million and we are consistently exploring more asset sales. We have been able to achieve attractively valued land sales by creatively positioning our office land for more valuable uses, particularly residential, across multiple jurisdictions. We have received or are pursuing entitlements for over 3,500 residential units on land intended for office use, which is creating significant value for shareholders and will be the backbone of both our apartment development and land sales activity going forward. We have now sold three high quality stabilized apartment buildings which we built all at a mid 4% cap rate. A notable office transaction we completed in the first quarter was the sale to our partner of our 50% interest in the Marriott headquarters building in Bethesda, Maryland which we developed in 2021. The 743,000 square foot building is fully leased to Marriott and sold for a gross price of $430 million or $589 a square foot and a 6.8% initial cap rate. The Bethesda market is not strategic for bxp. We were able to achieve attractive exit pricing and the development was very profitable for shareholders, generating a $35 million gain on a $47 million investment supporting our disposition efforts. Office transaction volume in the private markets remains healthy with financing available at scale, particularly in the CMBS market. In the first quarter, significant office sales were $14.1 billion, down from the seasonally elevated fourth quarter, but notably up 72% from the first quarter of 2025. In addition to the Marriott headquarters sale, there were a couple of other transactions with relevance to BXP's portfolio in New York City, 575 Fifth Avenue sold for 383 million or $734 a square foot and a 5.1% cap rate for the office portion of the building. The asset comprises 525,000 square feet and is 90% leased. In San Francisco, the Transamerica Pyramid sold for an allocated price of $600 million or $1,113 a square foot. The 525,000 square foot building is only 60% leased so the in place cap rate was 2.9% but expected to be in the high 7% range in several years once the asset is leased and stabilized. The third business plan 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 have and expect to allocate more capital to developments than acquisitions because we continue to find premier work place development opportunities with pre leasing that we believe will generate cash yields upon delivery roughly 150 to 250 basis points higher than cap rates for lower quality asset acquisitions with ongoing capex requirements. The trade off is timing as developments obviously take several years to deliver. For Multifamily we have three projects with over 1400 units under construction, are in various stages of entitlement and or design for nearly 5,000 units and have one project in Herndon, Virginia which we plan to commence in 2026. We expect to continue to capitalize. New development starts with financial partners owning the majority of the equity. BXP's largest development underway is 343 Madison Avenue, our market leading premier workplace tower in New York City with direct access to Grand Central Terminal. As previously reported, we have a lease commitment for 29% of the building located in the mid rise. We are also negotiating leases with tenants for another 27% of the building which will bring us to 56% committed with available space at both the podium and high rise of the tower. Given strong market conditions and the lack of available competitive product, we are making multiple client presentations every week for the remaining space we have procured. 83% of the construction costs have realized anticipated savings from our original budget 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 an agreed letter of intent with a consortium of banks for construction financing at attractive terms. We intend to complete the recapitalization in 2026. BXP's current development pipeline, comprising six office, life, science and residential projects underway, totaling 3.4 million square feet and $3.6 billion of BXP investment, will deliver external growth over the longer term. So in conclusion we continue to successfully lease space and improve occupancy, creatively reposition and monetize non core assets and de risk our development pipeline through leasing, construction and capital raising successes. New construction for office has virtually halted leading to higher occupancy and rent growth. In many sub markets where BXP operate, debt and equity capital is available. For premier workplaces, BXP is building market share given our stability and consistent service to our clients and in many markets less competition. 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 highly concentrated CBD and premier workplace in service portfolio in the years ahead. And let me turn over our report to Doug.
Doug Linde (President)
Thanks Owen Good morning everybody. I'm going to speak towards demand this morning. For the bulk of my comments, we can debate whether technology companies today are overstaffed, whether remote work strategies have had a demonstrable impact on premier property demand, whether the massive capital investment from data center infrastructure has led to a different perspective on human capital from the large tech companies, and whether new AI models and AI agents will lead to changes in the makeup of the workforce. There are no answers, just conjectures. What we do know is that the US Economy has gone through many technology cycles since the invention of the personal computer 45 years ago, and in this cycle today there is dramatic incremental office demand growth from new organizations that are developing AI. This new technology demand is focused in San Francisco and more recently in New York City. OpenAI and Anthropic are clearly the most recognizable expansions, but there are many meaningful space occupiers expanding across our markets. Databricks, Perplexity, Decagon AI, Harvey, AI Sierra AI, Snowflake, to name a few. With Decagon AI and Snowflake being new tenants in the BXP roster, it's clear that the clients that are growing are not the tech titans that expanded during the last decade, but there is meaningful office using growth in our markets. CBRE reports that there has been 3 million square feet of positive office absorption in San Francisco over the last seven quarters, including an extraordinary 1.4 million square feet in the first quarter of 2026. This backdrop is important because it is increasingly translating into tangible leasing activity. In the first quarter, BXP's total leasing volume was 1.14 million square feet. As I discussed during our Investor day in Service vacant space leasing and covering near term lease expirations will drive our occupancy improvements and same store revenue growth. During the first quarter we executed leases on 700,000 square feet of vacant space and renewed or backfilled 235,000 square feet of 26 and 27 expirations post March 31st. Our current pipeline of leases in negotiation consists of 1.7 million square feet and covers 500,000 square feet of existing vacancies and 500,000 square feet of 26and 27 expirations. We start the second quarter with 1.44 million square feet of executed leases on vacant space that we expect to commence in 2026. In the next three quarters, the remaining calendar year of 26 expirations are down to 770,000 square feet. So if nothing else were to change we should pick up 670,000 square feet or 150 basis points of occupancy and end the year at 89%. The majority of our remaining 26 expirations are known, so near term upside will stem from leasing currently vacant space with immediate revenue commencement. We ended 25 with in service occupancy of 86.7. Our occupancy at the end of the first quarter is 87.4, an increase of 70 basis points, with about 57% of that gain stemming from improvements in the portfolio leasing and the balance due to changes in the portfolio including the sales described in the press release and the suburban office buildings I highlighted last quarter that we removed from service and expected demolish and then redevelop the higher value residential uses. Consistent with our portfolio optimization strategy, curvets are progressing quickly in Santa Monica and Waltham, Mass. Separately, we are finalizing documentation with an institutional partner to commence development at Worldgate in Hernet, Virginia where we purchased 300,000 square feet of office buildings and re entitled this as residential townhomes and apartments. We anticipate closing the venture during the second quarter and immediately commencing construction. We are in active conversations with new and renewing clients across all of our markets. Our total discussion pipeline, in addition to the 1.7 million square feet in negotiation is another 1.4 million square feet and we continue to anticipate a minimum of 4 million square feet of leasing in 2026. Consistent with what we put forth in our 2026 guidance post March 31, we've executed 300,000 square feet of leases so the total for the year stands at 1.5 million square feet as of today. We made a change to the way we were reporting our second generation leasing statistics this quarter. Instead of providing statistics on leases based on the economic impact date of the lease commencement, which is backward looking, we are showing the change in the rents for all the leases in executed in the current quarter where the comparative lease expired during the prior 24 months from the date of the new lease. Since all that data is in our supplemental, I'm not going to repeat it. I do have a few comments on the transactions behind the aggregate numbers. In Boston the data includes 100,000 square foot lease in the Urban Edge space that was previously leased to biogen. In New York, the bulk of the executed leases this quarter we're at Times Square Tower where we backfilled a law firm that was coming off a 20 year term with large bumps. In San Francisco, the largest portion on the leasing was at 680 Folsom and in D.C. we extended a law firm for almost six years through 2038 in exchange for minimum tis and a current rent reset. This quarter we executed several large leases, 17 leases over 20,000 square feet with the largest just over 100, a second with an expanding client that took 92,000 square feet. 34% of our square footage involved renewals, extensions or expansions and 66% was with the new clients. Existing client expansions encompassed 150,000 square feet of activity and we had about 50,000 square feet of contractions. I want to make a few comments on our individual markets which speak both to the sources of demand and the success we are having Leasing Vacancy across the portfolio 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 this quarter. The most significant acceleration in activity was in the south of Mission Market in San Francisco, Santa Monica and the CBD of Washington D.C. in the Back Bay portfolio where we're 98.8% leased. Much of our current activity was is filling in small pockets of availability, but we have begun discussions with larger tenants that have expirations between 2028 and 2032 since there are no premier blocks of availability in the market. In our Urban Edge portfolio we completed 100,000 square foot lease with a National Restaurant operator at the Quarry in Weston and a 43,000 square foot lease with a life science company relocating into 15,000 square feet of lab space and 28,000 square feet of office space at 180 City Point. Our current urban edge activity includes expanding hard tech companies and additional life science companies that are looking exclusively for office space. In New York, the most significant change in our activity has been in Midtown South. At 360 Park Avenue south we completed another six floors or in 138,000 square feet of leasing, which brings the building to 90% leased. Last week we came to an agreement with an existing AI client to expand to an additional floor which will bring the building to 95% leased. And across Madison park we leased an additional 32,000 square feet at 200 Fifth Avenue, leaving us with only 33,000 square feet of availability where we had 350,000 square feet vacate in 2025 at Times Square Tower. We executed over 100,000 square feet this quarter, including 85,000 square feet of currently vacant space in San Francisco. The most significant change in our portfolio continues to be at 680 Folsom and 50 Hawthorne. During the quarter we executed leases for 103,000 square feet and in early April executed another 63,000 square foot lease. Since the beginning of 2024, AI and tech leasing has steadily increased from 50% of the total leasing demand in the market to 57% to almost 80% of in the first quarter of this year and as I stated earlier, there have been over 3 million square feet of positive absorption over the last seven quarters. In Santa Monica we've seen a pickup in interest from clients with near term lease expirations and the need for new and expanding space. This is a meaningful change from the last few years. Activity in D.C. this quarter was concentrated in two transactions. We did an early 153,000 square foot extension with the anchor tenant at 1330 Connecticut and we gave up our regional headquarters at 22 Penn as part of a 58,000 square foot lease with the Washington Commanders. Currently, activity in the region is still concentrated at Reston Town center where we are 97.3% leased. This quarter we completed seven small leases with defense contractors and professional service firms and we are in negotiation on over 150,000 square feet of transactions and including 100,000 square feet of 27 expiring leases where in aggregate the tenants will renew and expand. Jake and Pete continue to field inbound requests from law firms that want us to identify sites and develop new projects similar to what we have achieved at 7, 25, 12 and 2100m. We have some visibility on the third of these projects today. That wraps up my comments. Turn it over to Mike.
Mike LaBelle (Chief Financial Officer)
Great. Thanks, Doug. Morning everybody. So today I'm going to cover our results for first quarter earnings and update our full year 26 earnings guidance. So for the first quarter we reported FFO of $1.59 per share and that's $0.02 above the midpoint of our guidance range and a penny ahead of consensus estimates. The performance of our portfolio exceeded our expectations by $0.03 per share and was partially offset by a penny of higher net interest expense. Outperformance in our Portfolio was comprised of $0.02 of better rental revenues and $0.01 of higher termination income. The rental revenue beat was from commencing leases more quickly in both 535 mission and 680 Folsom, as well as from some leases in the Urban Edge Properties in Boston. And we also generated more service revenue from our clients, particularly in New York City and in San Francisco, reflecting increased utilization. Termination income for the quarter totaled $12.8 million and it primarily related to two clients. In the first case, we proactively took back 25,000 square feet from a client in Washington D.C. that allowed us to lease 58,000 square feet to the commanders at 2200 Penn. This is a great trade for us, creating incremental occupancy and extending lease maturity. The second case relates to a client that defaulted on its lease in the fourth quarter last year when we took a charge totaling $3.6 million to write off their accrued rent balance. This quarter we received a termination payment totaling $6.25 million, which covers both the write off from last quarter as well as nearly 12 months of potential downtime in rent. Our net interest expense for the quarter came in higher by a penny per share from lower than anticipated interest income and higher commercial paper rates related to the market volatility. In the fixed income markets, CP rates widened by 25 to 30 basis points during the first quarter. The rates have improved in the past few weeks, but they're still not quite back to where they were in the fourth quarter. Now I'd like to turn to our updated guidance for full year 2026. Big picture we've increased the midpoint of our FFO guidance by a penny per share at the midpoint. By bringing up the bottom end to $6.90 per share and maintaining the top end at $7 cents per share, we have increased our assumption for termination income in 2026 by $8 million. It relates to several credit issues. We're working through that impact about 200,000 square feet of space that we expect we will get back in 2026. More than half of this space is held in a joint venture, so the financial impact to us is less. The termination income we expect to receive is in lieu of approximately $5 million of lower rental income in 2026 from these clients. These spaces are readily leasable in the current market and we expect we will be successful in backfilling them quickly. Strong leasing performance across our same property 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 from over 2025 by 15 basis points to between 1.4 and 2.4%. Keep in mind we exclude termination income from our same property NOI assumptions, so if not for the lease terminations, we would have increased our assumption for our share of same property NOI growth by an additional 25 basis points. The increase is driven by the robust leasing activity that Doug outlined, which continues to exceed our expectations and supports a stronger occupancy recovery. Reflecting this momentum, we've increased our occupancy outlook for 2026 by 25 basis points to an average for the year of 88.25%. On a cash basis, we have reduced our assumption for year over year growth in our share of Same property NOI by 25 basis points and that accounts for the lease termination activity as well as a couple of early renewals with free rent periods in 2026 in our development portfolio, we expect to deliver 290 Penny street more than a month early as we're just about complete with the tenant improvements. AstraZeneca already commenced cash rent payments as of April 1, and we expect to deliver the project by June 1 at the latest. We have two factors impacting our interest expense assumption for the year. First, the early delivery of 290Benny requires that we cease capitalized interest early. Second, the likelihood for Fed rate cuts later this year has diminished and we are now assuming that SOFR rates are flat for the remainder of 2026. Including our first quarter result, we have increased our 2026 assumption for net interest expense by approximately $10 million. So overall we're raising our guidance for 2026 FFO by a penny per share at the midpoint and our new range is $6.90 to $7.04 per share. The changes come from increases in our assumption for growth in our share of same property NOI of $0.02, increases in termination income of $0.04, and an increase of a penny from our development activity These are partially offset by higher interest expense of 6 cents as Owen described. We continue to execute on our plan. We have closed on asset sales, generating $1.2 billion in net proceeds, including 360 million so far in 2026. In line with our guidance, we're making Great progress at 343 Madison with additional leases under negotiation and and active discussions for both private equity capital and construction financing. And importantly, our leasing activity has been consistent and above expectations. Signed leases that have yet to take occupancy for currently vacant space has grown to 1.6 million square feet. Our current pipeline of 3 million square feet of leases either under negotiation or in active discussions is higher than where it stood last quarter. And we remain highly confident in our ability to grow our occupancy meaningfully, driving higher portfolio performance and value. That completes our formal remarks. Operator, can you open up the lines for questions?
OPERATOR
Thank you, sir. As a reminder to ask a question, you will need to press Star 11 on your telephone. To withdraw your question, please press Star 11 again, we ask that you please limit your question 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 and A roster. I sure. Our first question comes from the line of Steve Sackhor from Evercore isi. Please go ahead.
Steve Sackhor (Equity Analyst)
Yeah, thanks. Good morning. You know, it sounds like all of you have had very positive comments around the leasing environment. Things have certainly gotten better and the tide seems to be turning in a number of markets like New York, certainly San Francisco and parts of Boston. I guess the question is to what extent are you able to kind of shorten the time from the time you start the discussions to getting lease assigned and then the implications that might have for kind of the TI and CapEx that you might need to be spending on these deals. I guess can you get tenants in the space faster and might we see capex start to come down? Steve, this is Doug.
Doug Linde (President)
So what I would say is that the duration of the lease is really dependent upon the aggressiveness of the a legal counsel for our tenant. And in some cases we have counsel that are very thoughtful from our perspective and we can get leases banged out in a couple of days and in other cases it can take six months. And so, and I don't think that the market conditions have really impacted that. I would say our ability to say yes to requests from our tenants in terms of what their councils are saying is clearly stiffened. And so maybe that's why it's taking longer to get leases done in some cases. I don't know. From a capital expense perspective, there's no question that in the Back Bay of Boston and in midtown Manhattan and in Northern Virginia in Reston, we are being more conservative relative to the kinds of concessions that we're offering, meaning they're lower and they're lower in the form of the amount of pre rent that we're giving and they're lower in the amount of ti's that we're offering. I would say the west coast still has a pretty significant concession package largely because there's still a significant amount of space available and even though the demand has accelerated materially. So I'd sort of say, you know, there are places where it's better and there are places where it's still, you know, relatively speaking, consistent with what it's been over the last three or four quarters.
OPERATOR
Thank you. And I'm sure our next question comes from the line of Anthony Peraloni from JPMorgan. Please go ahead.
Anthony Peraloni (Equity Analyst)
Thanks. Good morning. I wanted to follow up on your comment about 80% of demand, I think out in San Francisco coming from AI tenants and so wondering how to think about that as to whether it's really incremental demand above and beyond what would be normal or if it kind of goes to this idea that only 20% of the demand is coming from stuff outside of AI. Just trying to think about where that goes and what a what that tells us, if anything, about the rest of the tenants in the market. So I'll start and I'll let Rod comment. My sort of inference on what's going on is that there is a clear acceleration of technology defined as these new AI oriented companies that are absorbing the majority of the incremental space absorption in the market. What has changed, and it's changed dramatically is that if you went back to 2010 to 2019, virtually all of the absorption was coming from the tech titans, Google, LinkedIn, Microsoft, Meta, the larger companies that has clearly shut down. None of those companies are expanding in any material way in the city of San Francisco. And in fact some of them have given back space. I would say that the amount of space that is being absorbed is accelerating or has accelerated. I can't tell you if that's going to hold for a consistent basis for the next three or four or five quarters. But these companies are, relatively speaking, aggressively hiring people and they've made a decision that in place work is critically important to their business strategies. And so those are all Great indicators. From our perspective, the professional services and the business services firms have not expanded the way they are expanding in midtown Manhattan. And we're hopeful that as these companies become public and they change their capital flows and that improves the overall wealth creation in the west coast, that there may be some more material improvements in financial services and professional services, business and administration services. Rod, I don't know if you have any other comments, Doug.
Doug Linde (President)
I think you covered most of it, Doug, but I would just add that, you know, on the topic of the non tech companies, the traditional tenants, and we have many of them, particularly at Embarcadero center, what we're not seeing is downsizing. I mean, they've gone through that already. And so we've executed a handful of different renewals with those types of tenants and some new tenants coming in. And so I'd say they're stable. And that's kind of. And then, you know, when you look to the flip side of that and you think about where the demand is growing and where it's coming from, it's what you would expect from the Bay Area, which is it's a tech driven market. And these are tech companies that are driving the market. Right now.
Rod
There are 20 requirements that are over 100,000 square feet. That's about 3.3 million square feet. This is in San Francisco specifically. And a year ago that number was about 12 requirements. So it's definitely increased and it's great. And as Doug said, these are with companies that we hadn't heard of before. So it's. It's new emerging, growing company. So it's very positive.
OPERATOR
Thank you. And I sure. Our next question comes from the line of John Kim from BMO Capital Markets. Please go ahead. Mr. Kim, your line is open if you have your phone on mute.
John Kim (Equity Analyst)
Sorry about that. Okay. 343 Madison. You talked about these negotiations for another 27% of space. There's been some media speculation who that is, but I'm wondering if you could just discuss whether or not you believe that space represents consolidation of space expansion or musical chairs. So this is Doug. So it's tenants. Like it's not a tenant, it's tenants. And I think it's yes to all of those things. It's some consolidation and it's some growth.
OPERATOR
Thank you. And I share. Our next question comes from the line of Nicholas Ulico from Scotiabank. Please go ahead.
Nicholas Ulico (Equity Analyst)
Thanks, Mike. I wanted to ask about leasing Capex. It was, you know, it's higher this quarter. 178 million hitting the fad calculation I think last call you said for the year it could be like 220 to 250. So maybe you could just talk about kind of what drove that and how to think about leasing capex for the rest of the year.
Mike LaBelle (Chief Financial Officer)
So what drove the leasing cost this quarter was really a very significant amount of lease commencements, basically two times what we normally see. And it was driven by several early renewals that we did a couple of years ago that hit this quarter. There was over a million square feet of that. And so that, you know, if you looked at leasing costs per square foot, they were $10 per square foot per lease year, which is pretty reasonable. That's well within kind of the range we would expect. But it was just these early renewals that hit that caused that fad to be higher. So I would not expect that to continue at those levels for the next few quarters. But I do expect that for the year our lease transaction costs will be higher given the start that we have at 175 million for the quarter. So I would anticipate that, you know, our leasing costs will be, you know, closer to in excess of $400 million based upon the occupancy growth that we anticipate and the, you know, there's a couple of other early renewals that are going to be coming in in the second and fourth quarter.
OPERATOR
Thank you. And I show. Our next question comes from the line of Blaine Heck from Wells Fargo. Please go ahead.
Blaine Heck
Great, thanks. Good morning. I was hoping you could talk about the trends you're seeing in the life Science segment of the portfolio. You know, you disposed of your west coast exposure and you've had some success in leasing out the Greater Boston portfolio. Is that potentially a source of funds if the transaction market is supportive or do you still kind of see the overall Boston Life Science portfolio as a longer term hold for bxp?
Doug Linde (President)
So the BXP Life Science portfolio is in two sub markets. It's in Kendall Square in Cambridge where we are building our new building for AstraZeneca. And we have buildings with Biogen and we have buildings with the Broad. And then it's our Life Science buildings in Waltham, Massachusetts at 180 City Point and at 880 and at 200 West street and then, you know, at 1:03 when we get that building leased, I don't think that we are looking at exiting any of those markets or any of those buildings. We are clearly seeing a change relative to the demand that's currently in the market towards more office and less lab intensitivity and so quite frankly, we're taking advantage of that in our traditional office buildings with life science companies. In fact, as part of the 1.7 million square feet of leases under negotiation, we signed the letter of intent last night for a 49,000 square foot life science company that's going to take 49,000 square feet of office space at one of our buildings. So I think that's going to, we're going to see continuation of that. I would tell you that there's no question that the life science market has already bottomed out and things on the margin are getting better in the greater Boston ecosystem. I think you will find if you look at the companies that are incubator like, there's more activity and more interest in those incubators and hopefully that will over time roll its way into larger companies. And there's clearly consolidation in terms of big pharma purchasing life science companies that are, you know, that were born and bred in the Boston ecosystem again, which I think is a good thing for the ecosystem here. So I would say on the margin things are better. We're strategically, you know, going to continue to maintain our portfolio and we believe in the long term viability of the life science business in Greater Boston.
OPERATOR
Thank you. And I share. Our next question comes from the line of Janet Gallen from Bank of America securities. Please go ahead.
Janet Gallen (Equity Analyst)
Thank you. Good morning and congrats on the great leasing. Given the focus on occupancy and speed to occupancy, can you talk about any initiatives like spec suites to kind of attract tech and AI tenants quicker? And do AI tenants have different power or architectural requirements than kind of the more traditional tenant groups?
Doug Linde (President)
So I'm going to let our regional management team sort of answer that question. I'd like to let Brian talk about sort of turnkey builds where we're doing a significant amount of what I refer to as we're going to do sort of the design and the build out for medium sized companies. And then Jake could talk about our pre built suite program in Northern Virginia and Rod, you can talk about what we did and how we were successful at leasing 680Folsom. So Brian, why don't you get going first? Yeah.
Brian
So urban edge is the area we're seeing this type of activity because our portfolio is effectively leased in Boston and Cambridge. But on the urban edge we are seeing this turnkey ability with these new emerging companies and several of them in life science. Like Doug said, we're encouraged and we feel it's bottomed out. But the activity I wouldn't say is like overwhelmingly significant, but it is definitely ticked up. And the companies that we're talking to. One of the things that I think is really interesting about these companies, along with doing the turnkeys, relates to Steve's earlier question, about time to effectively put a lease together. One of the things that we haven't seen in a long time is that these clients are doing their best to gather what their growth will be. And that's been a little bit of a stall in that we'll be working on a 30,000 foot deal and all of a sudden they'll say, mm, we got good news. It could be 40. That's new. But the turnkeys are really working out really well.
Jake
We haven't done any call it. We've only done very small spec builds in that area.
Rod
But turnkey fast and quick occupancy. Sure. In Reston Town center we've delivered over 50 spec suites in. There's a two buildings in Reston that are. We sort of have coined our incubator buildings. These are buildings that, you know, these groups that are 4 to 5 to 6,000 square feet want to be adjacent to the likes of a lot of the corporate headquarters that exist in Reston Town Center. And so we've been very successful with those pre built suites. Oftentimes when we've gone forward to build five to six of them prior to having lines done on paper and drawings and permits in hand, we've already leased those suites. So there's been an insatiable demand for that space. In terms of, you know, I think your question was about power requirements and anything different. Nothing really different relative to those spec suites. Oftentimes we're doing those on a short form lease. We're oftentimes seeing term greater than five years and, and very, very, very competitive rental rates.
Alexander Goldfarb (Equity Analyst)
Yeah. So at 680 Folsom, it was a key part of our strategy in leasing that building up was doing the spec suites. We did a full floor. In fact, we did a 34,000 foot full floor spec suite and we did that last year and it was extremely well received. We were able to show prospective clients what it would look like. And so once we had that built, our activity spooled up quickly. And so the activity that we reported is largely based on that strategy. So this is nothing new for us, by the way. We've been doing this for many years and we continue to do it across all of our properties here in the Bay Area. And it's a great Strategy. I mean most tech companies, it's, you know, they need the space quickly and so when it's built and ready to go, we can deliver it quickly. And I'll just comment quickly on the, the power question that you asked. It's not happening in anything in San Francisco. So the office using AI companies that we're dealing with are not necessarily looking for more power. But we are seeing that in some of our R and D portfolio properties down in Mountain View in particular. And those might be different type of robotics companies or different technology companies. But power is definitely something that they will seek out.
Owen Thomas (Chairman and Chief Executive Officer)
Thank you. And I share. Our next question comes from the line of Alexander Goldfarb from Piper Sandler. Please go ahead.
Mike LaBelle (Chief Financial Officer)
Hey, good morning. Good morning down there. So question on the development program. I think you guys talked about a new pipeline of deals and just curious, two parts. One, the split between residential, where you're monetizing land or buildings to ultimately sell versus office. And then as you contemplate office, just given again where the stock is trading in implied 8, how you weigh starting a potential office deal future versus where the stock is trading right now.
Doug Linde (President)
Morning, Alex. So on the pipeline, as I mentioned, it's $3.5 billion or so. It's about to shrink because we're going to deliver 290.
Seth Berge (Equity Analyst)
We do have a portfolio of new developments coming. We talked about a couple that we're doing in Washington D.C. so I think that will build back up. I think on residential you may have a situation where we have more projects but it will be lower Capital. The 17 Hartwell deal we did, we were 20% of the equity. Skymark, we were 20% of the Equity. Those are the kind of models that you're going to see going forward. So I think in the future the amount of capital invested will be greater in office than it will be in residential. And then on your last question as it relates to the development yield versus you know, the capital allocation decision of starting a new office development at an 8 yield versus repurchasing shares. We think an 8 yield is higher than the underlying yield in the stock. You know, the look through cap rates are probably somewhere in the sevens for the stock. And at 8, we think it's an accretive activity for shareholders and it's certainly more attractive than some of the acquisitions
Doug Linde (President)
that I described in my remarks.
OPERATOR
The only other thing I would add, Owen, on the residential is we're going to generate more fee income because we're only a minority interest in those and we're going to generate development fees and other fees like that as we do that. So as those start to ramp up, we should see it in our fee income.
Caitlin Burrs (Equity Analyst)
The only last thing I would say on development, Alex, is, you know, the company over a long period of time has generally had somewhere between 3 to 4, maybe somewhere in the 4 billions of dollars of development underway. And I think in the future that could continue. But I think there'll be less projects because simply stated, you know, the cost of these projects is much higher. So I think it'll be concentrated in fewer individual projects.
Owen Thomas (Chairman and Chief Executive Officer)
Thank you. And I sure. Our next question comes from the line of Seth Berge from Citi. Please go ahead.
OPERATOR
Hi, good morning. Thanks for taking my question. You know, you mentioned the 400 million of kind of dispositions. What's kind of the target mix between non strategic office, residential, jv, interest, land. And just given some of the interest rate movements that you kind of drove the change in that guidance piece, how have pricing and conversations with potential buyers changed around that pool of assets?
Brendan Lynch (Equity Analyst)
Yeah, I think.
Doug Linde (President)
I'm not sure that pricing has really changed all that much. I do think slowly more and more capital is coming back into the office sector. I provided the sales data to you earlier and in the first quarter of this year, you know, office sales were up 72% seasonally over the first quarter of last year. So I think that's kind of a marker that, you know, more deals, more capital is coming into the market. So on your question about mix for the rest of the year, you know, the residential is not fully complete, but largely complete. So I think you're going to see for the rest of the year more non strategic office and some land.
Hilary
Thank you. And I show. Our next question comes from the line of Caitlin Burrs from Goldman Sachs. Please go ahead.
OPERATOR
Hi, good morning. I was just wondering Maybe back to 3:43 Madison JV, if you could give any incremental color on the conversation you've been having recently, timing, expectations for an announcement and if you're pursuing just to have one partner with you in the project.
upal Reyna
Well, as I said in my remarks, timing is this year. So our goal is to complete this recapitalization in 2026. And in terms of how the partnership will be structured, that is to be determined. But our guess at this point or our forecast at this point is that we will probably have multiple partners instead of one.
Owen Thomas (Chairman and Chief Executive Officer)
Thank you. And I share. Our next question comes from the line of Brendan lynch from Barclays. Please go ahead.
OPERATOR
Great. Good morning. Thanks for taking my question, Doug. I Wanted to follow up on your commentary about the US Economy growing through a lot of tech cycles. Certainly appreciate the commentary there. And it's important to put the current moment in context. I guess the pushback would be historically office hasn't necessarily necessarily grown in conjunction with tech or even in conjunction with the broader economic growth in the country. Certainly there's been a lot of lumps over the past couple of years with GFC and then excess supply in the teens and then Covid. So I guess high level question, how can we get confidence that this cycle in the next five to 10 years are going to be better than the last 20 or so? I can't give you confidence that the next five years will be better than the last 20 years. What I can tell you is that much of the discourse and pontificating about the impacts of this very rapid utilization of artificial intelligence kinds of tools is not equivalent to what is actually going on in our markets. In our markets we are seeing additional absorption of office space growth from our clients in premier buildings and particularly in markets like San Francisco and Midtown south. We're seeing significant growth of new organizations, many of whom's names and ideas didn't exist five years ago that are likely to be the next vehicles of growth from technology compared to what was a tech Titan explosion between 2010 and 2019. And I think it's very clear that we did in fact see significant office demand growth during that period of time. Then we had this Covid thing happen which dramatically changed the economics of our business because of the amount of supply that suddenly was brought back onto the market through subleases and tenant defaults. So I think that this time is not that different than other cycles that we have been through, but the source of the demand is a very different source. And Owen started his remarks by saying there may be and there likely will be some kinds of job disruptions from these types of technologies, but certainly doesn't feel like and we have not seen any evidence that it's occurring in premier office assets in our markets across the United States.
Floris Van Dychkam (Equity Analyst)
If I could add a little data point to that. Doug, this is Hilary from New York. In Midtown south, the first quarter of 2026 captured as much AI demand in leasing as the first half of 2025 did. So the demand from AI users in Midtown south is actually accelerating in New York year over year.
Doug Linde (President)
Thank you. And I share. Our next question comes from the line of upal Reyna from KeyBanc Capital Markets. Please go ahead.
OPERATOR
Great, thank you.
Dillon Brzezinskiy
In terms of capital allocation, the stock has come down a bit this year. So I was wondering if share buybacks are potentially on the table or not or if that's something you're considering.
Owen Thomas (Chairman and Chief Executive Officer)
Well, we think our stock is a very attractive investment given that the look through cap rate is in the sevens and all the comp sales that I provide every quarter are in the fives and sixes. So we think the stock is a very attractive investment. That all being said, as we described on this call, we are allocating capital to new developments which are generating 8 plus percent yields to the company which are accretive and also one of our goals. Our leverage is about eight times net debt to ebitda and our goal is to lower that over time and that's why we're not repurchasing shares.
OPERATOR
Thank you. And I share. Our next question comes from the line of Floris Van Dychkam from Ledenburg Talman. Please go ahead.
Ronald Camden
Hey, morning guys. So you talked a little bit about the capex requirements. I'm just curious. You guys have. I don't think you quantify your sign not open pipeline. You have 350 basis points of
OPERATOR
between your leased and occupied space and not all space is created equal.
Owen Thomas (Chairman and Chief Executive Officer)
Obviously your urban edge portfolio is much lower rents.
OPERATOR
You know, the occupancy there is much less valuable than in your urban portfolio. Maybe if you could Quantify what the 350 million of incremental rents would be and what kind of impact that would have on your on your NOI and FFO potentially. So I'm just going to go back to what I said during our investor day and I because I can't answer your questions explicitly without having a whole bunch of computer screens open. But big picture, our average rent is about 75 bucks a square foot on our unoccupied vacant space. So if you take 75 bucks a square foot, it all drops to the bottom line other than maybe a little bit of cleaning expense. And so you multiply that by the 350,000 square feet and you sort of get what the overall contribution would be if that was all flowing through at one time.
D
Yeah, that rent is somewhere around $100 to $105.
A
Thank you. And I share our next Question comes from the line of Dillon Brzezinskiy firm, Green Street. Please go ahead.
D
Hi, good morning, guys. Thanks for taking the question. Just wanted to touch on 343 Madison. Obviously, leasing continues to be very strong in New York. You guys talked about having leases in
F
negotiation that would bring that project to
D
high 50% pre let seems like dispositions
F
are trending very well and you guys
D
continue to monetize that.
F
I guess just sort of curious, why
D
have this big desire to want to
F
recap the equity in 2026 when it
D
seems like you can wait some time, get that project closer to stabilization and get stronger pricing. So, so just curious, you know, the thought process there.
C
So we did delay raising this capital and doing this recapitalization for a year to accomplish all of the things that we have accomplished and to de risk the asset in all the ways that you described. You know, we've now or are about to lease more than 50% of it. We've bought most of the materials as savings. We are close to completing a construction loan, et cetera, et cetera. And we think the terms under which we will bring in capital into this transaction will be attractive to shareholders. It'll be accretive to BXP and it will allow us to free up capital to make additional investments and also to deleverage, which is one of the goals I described earlier.
A
Thank you. And I'm sure our last question in the queue comes from the line from Ronald Camden from Morgan Stanley. Please go ahead. Hey, great. Hey, just had a quick one on.
D
Just thinking about sort of the breadcrumbs as you're going through this year and into next year. Clearly this year I think you talked about sort of flat. There are some buildings taken out of
C
service, but can you just sort of walk through as you sort of roll
D
into sort of the next year, how we should be thinking about like the occupancy ramp. Any other buildings that could potentially come out of service or is it sort of pretty clear acceleration into 27 and beyond. So at the moment, the only thing that you can we can say definitively is that we are going to sell assets. And as we sell assets, they are going to impact our portfolio size, but they're going to be on the margin. And so we are highly confident that we will end the year at 89%, hopefully a little bit higher, and that we will end 2027 at 91%, hopefully a little bit higher. And the majority, if not all, of the occupancy that we are working on today will be in Place on 1231, 2026. So you'll have a hundred percent run rate on all the improvement in occupancy that we're achieving right now. And my guess is that we will get some more of that as we early on in 2027, as we continue to do leasing in this environment on both renewals and vacant space that will likely start during that year. So we are still pretty comfortable about the ramp up in our same store portfolio on a going forward basis.
A
Thank you. That concludes our Q and A session. At this time, I'd like to turn the call back over to Owen Thomas, Chairman and Chief Executive Officer, for closing remarks.
C
We have no further comments. Thank you all for your attention and interest in bxp.
A
Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.
Disclaimer: This transcript is provided for informational purposes only. While we strive for accuracy, there may be errors or omissions in this automated transcription. For official company statements and financial information, please refer to the company's SEC filings and official press releases. Corporate participants' and analysts' statements reflect their views as of the date of this call and are subject to change without notice.
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