Boston Properties(BXP) - 2024 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Funds from operations (FFO) per share for Q3 2024 was $1.81, which is$ 0.01 above the forecast and in line with market consensus [10][83] - Leasing volume for the first three quarters of 2024 was 25% higher than the same period in 2023, totaling 3.3 million square feet signed [10][39] - The company narrowed its full-year 2024 FFO guidance to a range of $7.09 to$ 7.11 per share, adjusting for a $0.02 dilution from a recent bond deal [85] Business Line Data and Key Metrics Changes - The weighted average term for office leases signed in Q3 remained long at 7.2 years [10] - The company completed 74 transactions in Q3, with 32 lease renewals for 681,000 square feet and 42 new client leases encompassing 427,000 square feet [51] - The mark-to-market of leases that commenced in Q3 was down about 4.5%, while starting cash rents on new leases were up 9% compared to previous in-place rents [53][54] Market Data and Key Metrics Changes - Direct vacancy for premier workplaces was 13.2%, compared to 18.7% for the broader market, indicating a strong demand for high-quality office spaces [20] - Asking rents for premier workplaces are 50% higher than the broader market, with BXP's portfolio showing 90.1% occupancy and 92.1% leased as of the end of Q3 [21] - Office sales volume in Q3 was$ 8.2 billion, 15% greater than Q2 2024 and 32% above Q3 2023, driven by lower short-term interest rates and increased leasing activity [24] Company Strategy and Development Direction - BXP is focusing on premier workplaces and has a significant development pipeline with nine projects underway, expected to contribute to external FFO per share growth over time [36] - The company is actively pursuing acquisitions and has a growing pipeline of potential opportunities, including residential developments [29] - BXP aims to leverage its strengths in a constructive environment of lower interest rates and higher corporate earnings growth to gain market share [37] Management's Comments on Operating Environment and Future Outlook - Management noted that interest rates, corporate earnings, and return-to-office behaviors are currently favorable for BXP's performance [12] - The company does not foresee a looming recession affecting client decision-making, with S&P 500 earnings expected to grow by 9.9% in 2024 [15] - Management expressed optimism about leasing activity and the potential for further improvements in occupancy rates in 2025 [106] Other Important Information - The company has broken ground on the Grand Central Madison Concourse Access phase, a significant project in Midtown [34] - BXP's capital allocation activities include active negotiations for the disposition of non-income-producing sites, expected to generate over $70 million in proceeds [30] - The company is also exploring alternative uses for its suburban land portfolio, including multifamily developments [47] Q&A Session Summary Question: What needs to change for the leasing dynamics to improve in San Francisco and Boston suburbs? - Management indicated that a return of technology and life science demand is essential, along with a reduction in sublease availability in San Francisco [92][95] Question: How is the company thinking about pre-leasing and risks at 343 Madison? - Management highlighted the strong demand in Midtown, particularly from financial services, and noted that matching demand with the right product is crucial [100][102] Question: What is the occupancy trajectory going forward? - Management expressed optimism about signing over 2 million square feet of leases with revenue commencing in 2024 and 2025 to maintain flat occupancy [105][106] Question: Are there lessons learned from New York City regarding the return to office mandates? - Management acknowledged cultural differences between the West Coast and East Coast but emphasized that companies are increasingly recognizing the need for in-person work [110][112]