BXP

Good day, and thank you for standing by. Welcome to BXP Q2 2026 earnings conference call. At this time, all participants are on 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 one one on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star one one again. We ask that you please limit your questions to no more than one, 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, Investor Relations. Please go ahead.

Good morning, welcome to BXP's second quarter 2026 earnings conference call. The press release and supplemental package were distributed last night, 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. 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&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, 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, 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 sq ft of leasing, 29% above our 10-year historical average for the second quarter.

Year-to-date, we've leased over 3 million sq ft, 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, Boston, 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 space 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 content 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 at 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 continue 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's core markets are set up for material rent increases, which has already commenced in many sub-markets.

Given these positive market forces, we are well on our way to accomplishing our 2 percentage point occupancy gain goal in 2026, reinforcing our confidence that our target of 4 percentage points of total occupancy improvement over 2026 and 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 Day, 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 Day.

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 Seven 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 transaction 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 District of Boston, is under agreement to sell for approximately $435 million, which represents pricing of nearly $900 a foot and an initial cap rate in the low 7% range. The asset comprises 495,000 sq ft, is 99% leased with above-market rents, and is being sold by an advisor to the operating arm of a non-U.S. pension plan.

Further, Tower One at West Main, located in downtown Bellevue, Washington, is under agreement to sell for approximately $340 million, representing pricing of around $930 a sq ft and a 6.75% initial cap rate. The 365,000 sq ft building is fully leased to Amazon on a long-term basis and was sold by a local developer to an advisor. 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 sq ft 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 established 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 sq ft 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.

We are in lease negotiations with a two-floor client in the podium, which, if completed, would bring us to 56% leased. 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. We have received single floor inquiries for the 7 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 cost on budget. Leasing economics have been at or above forecast, 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 cost. We expect the equity investment to close this quarter, 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 World Gate multifamily project, comprising 359 wood frame residential units located in Herndon, Virginia. The project's budgeted cost is $132 million, we have secured a financial partner to supply 80% of the equity as well as the construction financing.

BXP originally bought into the World Gate 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 home builder, the apartment development will entail demolishing the office building and utilizing the structured parking. BXP will earn a profit from the total monetization of our investment in World Gate, 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 sq ft long-term lease with Boston Dynamics, which will create a state-of-the-art robotics and AI center at Reservoir Place, a 360,000 sq ft office building BXP had taken out of service in Waltham. We will invest $87 million to retrofit the building, expect 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 next year. BXP's current development pipeline, comprising seven office and residential projects underway totaling 3.5 million sq ft and $3.2 billion of BXP investment, will 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. Good 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's 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 believed that our leasing progress was ahead of schedule relative to our anticipated occupancy pickup. We ended 2025 at 86.7% occupied. We finished the first quarter at 87.4%, and as of 6/30/2026, we're 88.4% occupied. We've gained 170 of 200 basis points that we originally expected for 2026. We had guided to an average occupancy during the year of 88.2%, and we're 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 sq ft, and we executed leases on 700,000 sq ft of vacant space. In the second quarter, we completed 1.76 million sq ft and covered an additional 380,000 sq ft of vacant space and renewed or backfilled 600,000 sq ft of 2026 and 2027 expirations. 190,000 sq ft of our activity this quarter was at 343 Madison, and as Owen mentioned, 322,000 sq ft 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 sq ft with 1.1 million expected to commence in 2026. The remaining calendar year 2026 known expirations are down to 300,000 sq ft.

This means we're going to pick up 800,000 sq ft of occupancy or another 170 basis points and close the year closer to 90% than 89%. Our 2027 expirations currently stand at 1.77 million sq ft. We have known vacates of about 1 million and have good clarity on about 550,000 sq ft of either renewals or replacement tenants for those expirations. We also have 250,000 sq ft 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 sq ft of that involving vacant space. In addition, our active discussions is approaching 1.7 million sq ft, and that could impact another 450,000 sq ft of current vacancy.

In total, this in-process activity is about the same level it was last quarter, and it reinforces our confidence in our year-end 2027 occupancy expectation of 91%. Our leasing spreads this quarter were up significantly in Boston and New York and down in D.C. and on the West Coast. A couple of insights on the data. In Boston this quarter, all of the activity emanated from our CBD portfolio. In New York, about 25% of the square footage was in Princeton. Our 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. 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 sq ft in the in-service portfolio. 48% of the square footage was renewals, extensions, or expansions, and 52% was with new clients. Existing client expansions encompassed 275,000 sq ft of that activity, and we had about 50,000 sq ft 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 doesn't mean we're not seeing it elsewhere. We completed about 170,000 sq ft of leasing in our Back Bay portfolio. We're also starting to see our first wave of renewals at 888 Boylston Street, where the embedded market rent growth is somewhere between 20%-25%. First of those deals happened this quarter.

The highlights of this quarter in the Boston region was this 322,000 sq ft lease with Boston Dynamics, which illustrates our point on and around AI leading to increased demand. This facility will house Boston Dynamics' Advanced Robotic and AI Center. Along with the lease, they announced 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's the series B, C, D companies that eventually move out of incubators into proprietary space that's 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 sq ft client, another life science company, that's building 100% office space in our facility. In New York, at 360 Park Avenue South, we are at 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 Square Park at 200 Fifth Avenue, we're in lease for the remaining available space, and when complete, will be 100% leased there as well. These two assets had almost 750,000 sq ft 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 advisors, asset management firms, law firms that totaled 100,000 sq ft. We also did 10 transactions in Princeton totaling over 100,000 sq ft. 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 sq ft lease, and we are in discussions now with an applied AI company for a 35,000 sq ft floor, and we're talking with an existing AI client about expanding into the final available floor at 680 Folsom. We've also had success with smaller technology companies expanding at 535 and at Embarcadero Center. We recently completed two transactions and are in discussions with three more. We are approaching our first significant initial lease-up expirations at Salesforce Tower in 2027.

Here we believe current market rents are 30%-40% higher than the expired rents in the building and still would be a significant discount to new construction economics. It's really hard to find holes in the San Francisco demand picture when you've had 3 million sq ft 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's sort of where the action is least exciting. In Mountain View, we've completed 190,000 sq ft of leases. Vacant space made up 50% of this activity, and we're in discussions with new clients for another 70,000 sq ft of vacancy in the park. In Seattle, we completed over 100,000 sq ft of leasing on vacant space this quarter. This included a 44,000 sq ft expansion by Stripe.

Following on our demand theme, another floor with an AI company that expects to grow its headcount four times in 2026. Finally, activity in D.C. this quarter was concentrated in Reston, where we leased over 125,000 sq ft of 27 expiring leases to defense contractors, cyber security firms, and a financial firm. In the district, we're in negotiations to lease 100% of the space that McDermott will be vacating at 500 North Capitol Street in late 2028, when we deliver 72512. With the expected sale of two office assets, we are shrinking our district portfolio prior to adding our newly leased developments. In an 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've achieved at 72512 and 2100 M.

We're working with an institutional owner to organize a JV 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 will describe, it's impacting our bottom line.

Great. Thanks, Doug. Good morning, everybody. Today, I'm going to 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 a $1.2 billion five-year construction loan to fund approximately 60% of the development cost of our 343 Madison project. The loan was competitively bid. 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. 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.

The interest expense will be capitalized into the project cost, it will not be included in our interest expense until completion in 2029. This is an important milestone for 343 Madison. It provides us with an additional capital source and 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% and expires this October. 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 100s. 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. 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 incomes.

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've 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 taxes 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-$6.99 per share and the top end of our range by $0.01-$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% and 2.6%. The increase mirrors the accelerated occupancy growth that Doug detailed. 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 sq ft in the quarter, and we're 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've 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. To summarize, we've increased our guidance for 2026 FFO by $0.05 per share at the midpoint to our new range of $6.99-$7.05 per share. The changes come from increases in our assumption for growth in our share of 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 three consecutive quarters, and we're 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 star one one on your telephone. To withdraw your question, please press star one one 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'll be happy to take your follow-up questions at that time. Please stand by while we compile the Q&A roster. I show our first question comes from the line of Nicholas Yulico from Scotiabank. Please go ahead.

Thanks. First question. Clearly, you 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 versus debt repayments, since I know some of the income producing asset sales are more back half weighted, like Seven Times Square, potentially even next year. Is there dilution we should be thinking about for 2027? Also, in terms of the capital, just an update on whether there might be excess sale proceeds to use for stock buybacks. Thanks.

Look, on the asset sales side, as I mentioned, we're ahead of plan, and Owen mentioned that as well. The dilution in 2026 is a little bit higher than we had originally stated at our Investor Day. In the beginning of the year, I think we said the dilution would be $0.06-$0.09. Now if we get everything done that we expect, it'll be closer to $0.11. A good chunk, the majority of our asset sales will be completed. We will evaluate going forward incremental sales as well. Our goal remains to bring down our leverage into the lower 7x range, which gives us capacity for future investment activities. Those future investment activities could include new developments, could include stock buybacks, and we will evaluate all of those things.

With respect to 2027, we're really not giving guidance on 2027 right now. The total asset sales that we project are still $1.9 billion by 2028. As Owen described, we'll have $1.7 billion done potentially by the end of this year, which means that next year will be lighter.

Thank you. I show our next question comes from the line of Steve Sakwa from Evercore ISI. Please go ahead.

Yeah, thanks. Good morning. Given the leasing success that you're having and the faster ramp that you're 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're seeing in the leasing market today?

Steve, this is Doug. What I would say is right now, we're sort of sticking to our 91 at the end of 2027. If things were to continue in the sort of same trajectory, I think we would be more aggressive than that, but we're not ready to do that. As I look out at our sort of lease expirations and then the available space that we have in the portfolio sort of that's left

There's a concentration of vacancy in two main areas. The first is at Embarcadero Center in San Francisco. That's the place where I think we have the most short-term opportunity to exceed our projections, which would probably occur in late 2027, early 2028. The second place would be our sort of what I refer to as our portfolio available 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 two areas. 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 max out at somewhere between 94%-95%, right? That's as good as it's going to get.

I think that by the end of 2027, we're at 91% or maybe a little bit better. But we're not ready to say that yet. In 2028, that's sort of when we get closer to that other number I just described. That's kind of where we max out as a portfolio. We will always have some marginal availability given the fact that we do 10-year leases and we have some, what I would refer to as larger clients, and if they choose to relocate or we can't accommodate their growth, then we'll have some downtime. I don't think we get much above 94%-95%.

Thank you. Our next question comes from the line of Jana Galan from Bank of America Securities. Please go ahead.

Thank you. Good morning. Congrats on a great quarter. In the prepared remarks, you touched on some price discovery. Can you walk us through what you're kind of seeing in the transaction market with fundamentals clearly improving, maybe higher interest rates impacting pricing on land, residential, and office?

I think as I mentioned in my remarks, transaction volumes for office are certainly off the bottom. They've grown significantly over the last year or so. They're still well below what they were prior to COVID. We're kind of in recovery mode. Second, I would say a big percentage of the buying is more, I would say, family office and opportunistic capital that is seeking discounts to replacement cost kind of transactions. That's not 100% true. That's the majority of the transactions. That's logical. When you have an asset class in the capital markets that's recovering, generally the opportunistic capital starts it. They are successful. Other capital follows. I think that's where we are. The deals that I mentioned this quarter, I think do kind of mirror where the deals were last quarter.

They're kind of at seven-ish type cap rates with the possibility of stabilizing at a slightly higher number. I picked out the best ones that we're selling. I still don't think they're, quote, true premier workplaces.

Thank you. Our next question comes from the line of John Kim from BMO Capital Markets. Please go ahead.

Thank you. Owen, I think you mentioned at Reservoir Place you're 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? Going forward, what is your hurdle rates on developments, I guess on, like, the build-to-suit developments, similar to 725 12th Street NW?

Yeah. The 10% that I mentioned includes an inferred value for the building that was taken out of service. The cash yield on the incremental capital would be materially higher. On what is our target yield, it depends a little bit on the market and the pre-leasing and the risk and all those things as you would expect. In general, we're getting 8%+ yields on our developments. I mentioned our activity at 343 Madison. We remain very much on track, I think, to accomplish that 7.5%-8%, and our deals in Washington, D.C. pencil over 8%. That's what we're seeking to achieve. That is accretive to where the stock's trading vis-à-vis cap rate.

Thank you. 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. If you think out over the next couple of years and if the momentum in Northern California generally just persists, what do you think BXP's biggest opportunities are there? What do you think you likely do with that portfolio?

Yeah. I'm going to let Rod answer that question because he has a couple of pretty interesting opportunities, one of which is physically ours and others that we're working on that he can talk about.

Yeah, thanks, Doug. The market, as you've heard, is very strong in Northern California. We're taking advantage of this increased demand with the AI sector for sure. You're looking at the pipeline of tenants in the market right now are pushing 9 million sq ft, which is just unheard of. We haven't seen that number. Going forward, absolutely. It's a market where people are starting to talk about building new buildings. I know that seems strange with still some vacancy, the reason is that there is just a limit on the premier workplaces. If you're a tenant in the market right now and you're looking for 50,000 sq ft-100,000 sq ft of top tier space, you're not going to have many choices. You can certainly count them on one hand, maybe not even all the hands. It's prompting people to talk about building new buildings.

What Doug just mentioned, we're very pleased to announce that we've been awarded, through a competitive assignment, a development consultant role on a site in downtown that we have familiarity with from the past cycle. We're going to have a role in that. I think it's a great site, and we'll have an opportunity to invest in it in the future if we feel that the market supports it and demand supports it. It's positive, and we're obviously looking at all other opportunities.

Rod, just mention Fourth and Harrison and sort of what we have going on there, too.

Yeah. At Fourth and Harrison, that's a ±800,000 sq ft potentially phased project that we were ready to start right when COVID hit. This is a great asset that sits proximate to where a lot of the AI companies in Mission Bay are located. We're teeing up, potentially getting ready if the, again, demand holds up to be able to do something there. We wouldn't build at spec, but we're absolutely talking to users, and we'll see if something comes of that.

I think, Tony, 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 our clients.

Thank you. 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. Is that correct? Maybe can you just talk about the pricing power you're seeing? Is it increasing, and is that for all markets or just the strongest ones? Thanks.

For us, the occupancy story is more meaningful than the improvement in the overall sort of what I'd refer to as mark-to-market. Largely because you get $1.00 on the dollar on the occupancy, and you only get a marginal amount on the increase when you're doing a mark-to-market. Why don't I let Hilary Spann talk about sort of her views on pricing power in Manhattan and Brian Kelly talk about our perspective on sort of where pricing is in the Back Bay submarket of Boston, which is where the majority of our rental rate increases will come from over the next few years. Hilary Spann?

Thanks, Doug. The pricing power in Manhattan remains quite favorable to landlords, and it is expanding geographically. While it's been 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're seeing landlords across the Midtown South submarket post ever higher rents as they're leasing up remaining vacancy. In Midtown proper, we are getting inbound interest at our highest quality buildings and at 343 at rents that are consistently sort of 10%-15% above where they were last year. At our buildings, and in the lower stack of our buildings where rents are slightly more affordable, we're still seeing 20% increases year-over-year.

That is fundamentally because there's a lack of available space in the market. Great strength from the landlord perspective in New York City.

Right.

From Boston, it's the story that Doug and Owen have outlined, which is if you look at our rent roll snapshot, Boston, we're at 98% leased, Cambridge, 98% leased, Cambridge Lab, 100% leased. Then you combine that with, call it competitive set, the people that we really, or the buildings that we really compete against. There's 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. For us, price detection is going to be really in the renewal process versus we don't have any lease vacant space to go to market with, per se.

We're in the process of really doing our absolute best at educating the marketplace, the brokerage communities, and our clients about what's taking place and really focus on factual comps, et cetera. We do anticipate that there is pricing power there.

Thank you. Our next question comes from the line of Seth Bergey from Citi. Please go ahead.

Thanks. It's Nick Joseph here with Seth. Continuing on the mark-to-market conversation, what do you estimate it for your West Coast portfolio? Obviously, we've seen a recovery in leasing there. How do you think about where the portfolio sits today versus where market rents are?

What I would say is that it's kind of a building specific answer. I'll just sort of give you a perspective in our-- I'll use San Francisco as sort of the poster child because it's the majority of our West Coast exposure. Starting with the least good and then getting to the best. Down in Mountain View, where this quarter we had a pretty significant markdown, largely because we were getting somewhere in the neighborhood of $6 per square foot per month, and now we're getting somewhere closer to $4-$5 a square foot per month, which are still very high rents, but they're not the same place they were. The reason we were getting those other rents was that we had gotten significant increases over a four- or five-year period, and then obviously the market sort of had a big change.

That's where the largest sort of decline is. At Embarcadero Center, it's sort of a neutral place. In buildings like Embarcadero Center 4 or anything that's sort of above, call it the 15th-20th floor of EC one, two, or three, there's an embedded market opportunity for growth. At the lower portions of one, two, and three, where we have leases rolling over, that's where I would say we have to be more competitive because of the availability and the modest amount of incremental demand there is from what I would refer to as traditional office tenants. There's probably a slight markdown. At 680 Folsom, at 535 Mission, and then at Salesforce Tower, we are going to start to see material increases in our markups.

Most of the leasing that we've done in those buildings has been at relatively lower rents, as 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 macys.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're going to have somewhere in the neighborhood of, call it 200,000-250,000 sq ft of expirations in that building in 2027 and 2028. There's a real opportunity for embedded growth. The other two West Coast markets, which for us are Seattle and West L.A., I would say we're modestly lower in Seattle, and then West L.A. continues to struggle from a recovery perspective.

It's the least of our markets from a domain growth perspective. There, net net, we're seeing still an embedded loss in that market. Again, for us, that's 1% or 2% of our portfolio, as is Seattle. It's not material in terms of what happens in the next couple of years.

Thank you. 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've 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. 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. We continue to talk to additional investors about selling additional interest in the property, bringing us up to around that 30%-50% level. We're selling down interest in this property, which we consider to be one of the best office developments in the U.S. We're seeking our terms, both in terms of pricing and the way the governance works. In thinking about pricing, our yield, as the original developer of the property is, just to use high level, simple numbers, is around 8%. When we deliver this property, we think its value will probably be in the 5.5%-6% range.

As we monetize interests along the way, we'll be moving gradually from that 8% yield down to that 5.5%-6% yield. That's the way we're thinking about it and talking about it with prospective investors.

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

Hi, good morning. Earlier in the prepared remarks, you guys mentioned that 48% of leasing in 2Q was renewals, extensions, and expansions. I was wondering if you could talk more about the renewal activity, maybe what retention has been over the past, say, three years, and if it's fair to expect that it increases going forward.

Caitlin, this is sort of, I guess, more of an artistic answer than you probably would like, but hopefully it's directionally correct. There's a timing issue associated with this as well. As we get closer to a lease expiration, our retention rate comes down, largely because we've already done a lot of the larger transactions earlier. As an example, Hilary's team right now is working on four transactions that are 2028 expirations or later. My guess is all of those deals will likely get done.

When we talk about our "renewals" the next quarter or two, there may be some very lumpy numbers that sort of say, "that our retention is higher than it typically is." When we think about our sort of nearer term expiration, call it the next 24 to 18 months, then because it goes down, generally the study that we've done has said generally we're somewhere between 45% and 50%. That's sort of what happens. Largely that's because in many cases, we're not able to accommodate growth because we're so fully leased. We unfortunately have some tenants that are leaving. Right now, as I look forward into our 2027 expirations, we don't 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.

As an example, as I said, we have 1.77 million of 2027 expirations. Right now, we're pretty actively involved in about 550,000 sq ft. I wouldn't be surprised if we get above that 50% level for this portfolio. On a general basis, we're somewhere between 45% and 50% as we get closer to the actual year of expiration.

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

Thank you. I show our next question comes from the line of Floris van Dijkum from Ladenburg Thalmann. Please go ahead.

Hey, thanks, guys. Kudos for putting your SNO pipeline out there, giving some more insight into the future growth. Obviously, not all office space is created equal. I don't know if you can quantify what that SNO growth would be in terms of NOI because clearly, New York Sign Not Open is different than L.A. or D.C. If you can give us a little bit more insight into that, I think that would be helpful. Thanks.

I wish I had my list in front of me. I don't. I will tell you that the majority of it in 2026 is in Manhattan. Largely coming from 360 Park Avenue and 200 Fifth Avenue. That's where the most leased but not yet occupied will commence.

Thank you. I show our next question comes from the line of Upal Rana from KeyBanc Capital Markets. Please go ahead.

Great. Thank you. Appreciate all the color on the opportunity set in broader San Francisco over the next couple of years that you've mentioned. Doug, you talked about Embarcadero Center that 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? Thanks.

Sure. I'll make a brief comment, then I'll let Rod be more sort of verbose about it. Big picture, it's a granular market for financial services, professional services kinds of users, which means we're doing a lot more transactions, but they're smaller. Obviously, it takes a longer period of time to fill available space. Rod, you can sort of describe the tenor and the granularity of what we have going in Embarcadero Center.

Yeah, absolutely. One of the key strategies that we've done in the past and we're continuing to do a little bit more on an expanded scale now is building pre-built space. We have two floors, for example, at One Embarcadero Center that are under construction now. One 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. I think that's how we're going to find success. I think the space that is sitting in an old second generation or in shell condition is going to be the hardest. We're being very proactive in investing ahead of that and getting the spaces ready for occupancy, because that's where we found the most success. These, as Doug said, it's going to be granular.

It's probably not going to be one big deal that's going to occupy the bottom of one of these buildings. We're certainly open for that discussion and chasing those deals when available, but I think it's going to happen more floor to time, partial floor, and we're going to have to go at it that way. I would add, though, that Embarcadero Center is going to get some nice continued positive interest. The Embarcadero Plaza, which is the park adjacent to Four Embarcadero Center, is fully underway now. That's a private-public partnership with the City of San Francisco to build this world-class park, and that is going to absolutely enhance the environment around Embarcadero Center, which we will benefit from for sure.

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

Hi, guys. Thanks for taking the question. Just maybe pivoting back to sort of the disposition 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? I guess if you think about the portfolio, once you guys are done with that, in your guys' mind, does that get you guys to a point where the portfolio is largely there in terms of most of the assets being what you guys deem as trophy and Class A, or would there still be some, call it five to 10% of the portfolio that is non-core in your guys' mind?

We'll keep going on sales. As Mike said, it'll be slower, and there's several reasons for that. One is, let's go through the three categories. On land, in many regions, we continue to get additional residential entitlements on land. Those take time, and it takes time to monetize those assets. As these entitlements come through, this will be beyond 2026.

We will continue to monetize the land the way we have, both selling for sale pads to home builders as well as starting multifamily development. That's one category. Second, we still have a couple of built and close to stabilized apartment buildings that we have not yet sold. I think those are potential future disposition candidates. Third, we do still have a handful of office assets that we would like to sell, some of those are not stabilized. They're in various stages of lease up. As those properties get leased up where we think we can maximize the value and the disposition, we'll do it. I do think the cadence of dispositions. They will continue, but the cadence will slow down a little bit.

Yeah. Dylan, I'd say the first bucket that Owen described, which is 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 in those marketplaces is going to lag the opportunity set associated with creating residential entitlements. 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. There's over 1 million sq ft of suburban stuff that will eventually disappear from our portfolio that we will ultimately, we hope, sell somewhere between 75%-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 using that money elsewhere.

I don't think people sort of really focus on the size of that and what the magnitude of that is. It's hundreds of millions of dollars over time. It's not $10 million a year, $15 million a year. It's hundreds of millions of dollars over time.

Thank you. Our next question comes from the line of Richard Anderson from Cantor Fitzgerald. Please go ahead.

Hey, thanks. Good morning. Obviously, AI has come up a lot on this call, and it's a demand driver for you and many. It does remind me of the life science boom of five, six, seven years ago. That didn't turn out great. I'm curious if there were any lessons learned from that experience with life science and the exuberance that came from it, and how you're approaching AI demand today, and if there are any kind of lessons learned as you approach that opportunity, TBD, to see how long it stays intact.

Yeah. The future of AI and its impacts are very difficult to project. Flip through any newspaper or any magazine any day of the week, and you'll get all kinds of different views. It is 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're seeing markets just generally tighten. Like for example, San Francisco's had 8+ million sq ft 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. 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're doing well with that, and as a result, are growing and leasing more space.

Yes, if AI comes off the boil, as you suggest, that will be negative, but most of the leasing benefits we're getting are not directly with the AI companies. 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. We're also paying attention to the percentage of our total portfolio that's leased directly to startup AI companies.

I would just add the following thing relative to sort of the difference between leasing to a company that's a technology company that we happen to be calling AI and a life science company. In order to call it the last five or six years, longer than 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. There was a lot of it that was done on a speculative basis.

While we are actually very constructive about the long-term viability of life science, particularly in the greater Boston marketplace, there's just a ton of, quote, unquote, "bespoke lab ready buildings" that are sitting out in the marketplace that are going to just have to wait their turn for a customer to show up that actually wants that particular location in order for them to achieve the value that's going on. In some cases, those tenants or those building owners are making a decision that they're no longer going to wait. As an example, there's a lab building right now in Boston that is bespoke, and it's doing a transaction with a major health organization that is not going to be doing lab work in there, but is going to be doing some other kinds of clinical work in that building.

Things like that will happen, and over time, the supply will in fact become absorbed. With what we would refer to as these artificial intelligence companies, this is office space, pure and simple office space. 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 buildings. We are simply leasing our space to the next version of technology, call it dotcom, call it mobility, call it cloud computing, whatever it is. Now it's artificial intelligence, and that's just sort of the natural progression. 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.

I think there is a distinction between what happened with life science and the overbuilding that was occurring and what's going on right now. Because I'm not aware of anybody building a speculative office building in a CBD location where we operate. 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. That's fundamentally the difference between what we're seeing now and what we saw over the last "cycle.

Thank you. Our next question comes from the line of Peter Abramowitz from Deutsche Bank. Please go ahead.

Hi. Thank you for taking the question. I think on 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 the first half. You're on pace to kind of go through that number. I understand certainly a lot of this is good news CapEx related to leasing. Could you just help us think about any updated thoughts on where you expect that number to shake out for 2027? The overall leasing CapEx trajectory and how it impacts FAD growth in the second half and beyond.

Sure. You're right. We continue to do additional leasing. We're increasing our occupancy projections for 2026, and that's going to roll into additional leasing transaction costs that are going to occur this year. We are going to be increasing. I suspect it's going to be closer to $500 million than it is to $400 million based upon what we're seeing right now. That will end up having an impact on our AFFO in 2026. As you said, it's good news because we're signing more leases, and those leases will go into effect, and there's going to be some free rent, obviously, in the beginning of those leases. That also has some impact on our AFFO. Those leases will become cash rent paying in 2027 and will have a positive impact on AFFO, kind of on a moving forward basis.

I look at 2026 as being a year where it's just going to be higher in terms of transaction costs and also higher in terms of straight line rents.

Thank you. Our next question comes from the line of Alexander Goldfarb from Piper Sandler. Please go ahead.

Hey, morning down there or up there. Mike and Owen, I know you're not talking about 2027, certainly the portfolio's benefited immensely from stronger fundamentals, occupancy being better, and on the accelerated dispositions, being able to use some of those proceeds to pay off debt. 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, clearly the fundamentals are providing office landlords with a wonderful tailwind.

Alex, we always understand and are trying to grow the FFO per share of our company. That is a clear priority. We are going to continue to sell assets when we have an asset we don't think is strategic to the company that we think we're 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're doing are land, and a lot of the sales that we're doing are apartments, which trade at accretive cap rates to us. It's not like we're selling office buildings at high cap rates. We recognize the importance of growing our earnings per share. As you suggest, and as Doug described in great detail, the leasing that we are doing, we expect continued growth.

Mike, I don't know if there's anything more you want to add.

No, I think you've covered it. That's our goal.

Yeah.

Thank you. 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? How do redevelopment yields compare to other competing uses of capital? Thank you.

The answer to your question is, there certainly are. These are what I refer to as we're 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. Our Boston team has done it twice. First, we did it with Anduril at a building that was out of service called 1050 Winter Street, and obviously, we've just done it with Reservoir Place. We have some buildings in our Northern Virginia portfolio that potentially could have a similar outcome. These are highly speculative comments that I'm making, so I'm not suggesting there's anything imminent, but they physically exist. 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.

I guess I'll ask Pete to sort of talk about what he and Jake 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, from a thought perspective, said, "This could be another great place for a building." Just you guys to describe sort of the amount of inbound interest we are seeing for our franchise in D.C.

Not on our buildings.

Not on our buildings.

Yeah.

Yes. Jake, jump in here, too. Good morning, everybody. As Doug and Owen have alluded to, we're working on what we hope will be the third in the series here of opportunities in downtown D.C. with inbound clients. Really, I think the key here has been matching client size with building size and with 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, not as much capital as you might expect to be chasing those kind of opportunities. We're fielding conversations with clients directly, with the brokerage community, and with site owners and, in some cases, lenders on those sites about thinking about those different opportunities.

They are definitively out there, I think the group of players like BXP that can execute on those kind of transactions is relatively small. It is, as it has been talked about, a bit of a large dichotomy between the market writ large and the economics that you see on, for instance, the vacancy rate on office generally in D.C. versus the very top of the market, which is extremely tight and getting tighter. 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.

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

Thank you. I show our next question comes from the line of Ronald Kamdem from Morgan Stanley. Please go ahead.

Great. I just had a question on same store and why, which the cash number was reiterated at sort of flat for the year. I did see that I think the impact from building taking out of service went a little bit lower. Not sure if that impacts that, the question is really just, can you just remind us what some of the drags were for this year? 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.

The cash same store is going to lag the GAAP same store as we gain occupancy. These leases that we're starting this year that are going right into our occupancy have free rent periods at the beginning. That's why when we increased our occupancy guidance this quarter, we increased our GAAP same store guidance by 30 basis points. We didn't move the cash because these leases are going to be in free rent periods. Those free rent periods generally range between six and 12 months. You should expect to see the cash come in on this leasing sometime in 2027. That's when you're going to see the cash same store start to catch up with the GAAP same store.

Thank you. 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 just 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? Similar to sort of that in capital allocation, you formed a JV a couple of years ago to buy, I guess, a value add if I'm not wrong, or a value add office. I'm wondering in San Francisco, with the turn you're seeing and just overall the breadth in office, is that sort of an 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. I think a high-quality CMBS execution is going to be somewhere in the low 100 basis point spread range at a reasonable leverage rate, and our unsecured bonds are also pricing at that same level. If we were going to issue incremental debt, I think we have both opportunities, and we could weigh both opportunities. We're really not thinking about issuing new debt. We're 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.

Those markets, again, include the five-year bank unsecured term loan market, the five to 10-year CMBS market, the five to 10-year or even longer unsecured bond market, and even the convertible debt market like we did last year, which is a lower coupon, but obviously there's option value on the back end. All of those opportunities are available to us, and we weigh them as we look at what our needs are going forward.

On the second part of your question, we do look at all acquisitions. The bar is high because if we buy an older building, we have to believe that we can make it into a premier workplace, number one. We're comparing it to the yield requirement. We're comparing it to the development capital that we're investing that we believe we're getting an 8% yield for. If we can find things like that, we certainly will look.

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

It's been an hour and 22 minutes, we have nothing else to report. Thank you all for your interest in BXP.

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

Okay. Yeah, certainly.