Boston Properties Inc (BXP) — Q4 2025 Earnings Call Transcript

Good morning, and welcome to BXP's Fourth Quarter and Full Year 2025 Earnings Conference Call. The press release and supplemental package were distributed last night and furnished on Form 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 change. 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, Ray Ritchey, Senior Executive Vice President, and our regional management teams will be available to address any questions. We ask that those of you participating in the Q&A portion of the call please limit yourself to one question. If you have an additional query or follow-up, please feel free to rejoin the queue. I would now like to turn the call over to Owen Thomas for his formal remarks.

Thank you, Helen, and good morning to all of you. BXP had a very strong year of performance in 2025 in all areas critical to our business, namely leasing, asset sales, development starts and deliveries, financing and client service, notwithstanding our below reforecast FFO per share outcome for the fourth quarter. We remain on track, if not ahead, in executing the detailed business plan we outlined for shareholders at our investor conference last September. This morning, I'll review our progress toward achieving the critical components of this plan, which are leasing and growing occupancy, asset sales and deleveraging, external growth primarily through new development, capital raising for 343 Madison Avenue and increasing focus on urban premier workplace concentration. Though Doug will provide details on BXP's leasing activity, in summary, we had a strong fourth quarter and full year of leasing and our forecast occupancy gains have commenced. We completed over 1.8 million square feet of leasing for the fourth quarter and over 5.5 million square feet for the full year 2025, well above our goals for the year. As we've explained on prior calls, leasing activity is tied to both our clients' growth and use of their space. We have every reason to be confident that the positive environment we are experiencing for leasing will continue into 2026 as earnings for companies in both the S&P 500 and Russell 2000 indices, a proxy for our client base, are expected to grow at double-digit rates, an acceleration above 2025 growth levels. Return to office mandates from corporate users continue to grow and take effect. Placer.ai's office utilization data indicates December 2025 was the busiest December in office visits since the pandemic and showed a 10% increase in office visits nationwide from December 2024. Concerns and speculation about the impact of AI on job growth and by extension leasing activity are not supported by the actions of our clients, many of which are growing their footprints, upgrading their space, and/or executing long-term leases. In fact, we're experiencing accelerating demand from AI companies, particularly in the Bay Area and in New York City. The near-term negative impacts of AI on jobs are more likely in support functions, which are generally not occupying premier workplaces. Providing further support for our leasing activity is the consistent strength and outperformance of the premier workplace segment of the office market where BXP is a market leader. Premier workplaces represent roughly the top 14% of space and 7% of buildings in the five CBD markets where BXP competes. Direct vacancy for premier workplaces in these five markets is 11.6%, 560 basis points lower than the broader market, while asking rents for premier workplaces continue to command a premium of more than 50% over the broader market. Over the last three years, net absorption for Premier Workplaces has been a positive 11.4 million square feet versus a negative 8 million square feet for the balance of the market, which is nearly a 20 million square foot difference. Given these positive supply and demand market trends and our strong leasing in 2025, we believe our target of a 4% occupancy gain over the next two years remains achievable and more likely than when we made the forecast last September. Our second goal is to raise capital and optimize our portfolio through asset sales. During our Investor Day, we communicated an objective to sell 27 land, residential and nonstrategic office assets for approximately $1.9 billion in net aggregate sale proceeds by 2028. We are off to a strong start. So far, we've closed the sale of 12 assets for total net proceeds of over $1 billion, $850 million in 2025 and $180 million this month. In addition, we have under contract or agreed to terms the sale of eight assets with estimated total net proceeds of approximately $230 million in 2026. In total, we have 21 transactions closed or well underway with estimated net proceeds of roughly $1.25 billion. As of now, dispositions estimated for 2026 aggregate over $400 million, and we will be exploring additional sales. For the $1 billion in dispositions that have been closed, there are seven land sales for $220 million, two apartment sales for $400 million and three office lab sales for $400 million. We have been able to achieve attractively valued land sales by creatively positioning our office land for other uses. To date, we have sold or are in the process of selling land to a corporate user, a municipal user, a light manufacturing developer, a utility and most importantly, developers for residential use, both apartments and for-sale townhomes. Across Lexington, Waltham and Weston, Massachusetts, Montgomery County, Maryland, Fairfax County, Virginia, Santa Monica, California and West Windsor Township, New Jersey, we have received or are pursuing entitlements for over 3,500 residential units which is creating significant value for shareholders and will be the backbone of both our apartment development and land sales activity going forward. We sold two high-quality apartment buildings, which we built in Reston Town Center in Cambridge, Massachusetts for approximately 4.6% cap rates; both were profitable developments for BXP. Lastly, on office sales, we elected not to participate in a debt restructuring at Market Square North and sold our interest to our partner for our share of the existing debt balance. We sold 140 Kendrick Street, our only asset located south of the I-90 interchange on Route 128 in suburban Boston at a relatively high cap rate of 9.5%. However, we maximized its income potential, having leased the building to 96%, and the local market is not strategic to BXP given our lack of scale. Lastly, we sold our 50% interest in Gateway Commons to a strategic buyer that has significant scale in South San Francisco for a 6.2% cap rate and the property is 63% leased. Though we think South San Francisco is an attractive life science market longer term, given high vacancy rates and low net absorption, it will take some time to capture the upside and we received a reasonable price from a logical buyer. With this deal, we have exited the Life Science business on the West Coast, but remain committed to the sector through our substantial life science holdings in the Boston region. Supporting our disposition efforts, office transaction volume in the private market continues to improve as more equity investors become constructive on the sector, and financing is available at scale, particularly in the CMBS market, with tightening credit spreads. In the fourth quarter, significant office sales were $17.3 billion, which is up 43% from the third quarter of 2025 and up 21% from the fourth quarter of the prior year. The transaction most relevant to BXP's portfolio that occurred in the fourth quarter was the sale of a 47.5% interest in 101 California Street in San Francisco, for a 5.25% cap rate and $775 a square foot. The building is a market leader in San Francisco, comprising 1.25 million square feet and is 88% leased with attractive property level financing through 2029. The third goal is to grow FFO through new development selectively with office given market conditions and more actively for multifamily with an equity partner. For office, we continue to allocate more capital to developments than acquisitions because we're finding very high-quality development opportunities with pre-leasing that we believe will generate over 8% cash yield upon delivery, which is roughly 150 to 250 basis points higher than cap rates for debatably equivalent quality asset acquisitions. Additional advantage as new buildings generally have longer weighted average lease term and limited near- and medium-term CapEx requirements. The trade-off is timing as developments obviously take several years to deliver. This past quarter, we created a second preleased premier workplace development in the Washington, D.C. CBD market. Following our success at 725 12th Street, we were approached by Sidley Austin to find them a new Washington, D.C. headquarters. We identified 2100 M Street as an attractive site with frontage on New Hampshire Avenue and 21st Street. We simultaneously negotiated a purchase of this site for $55 million or $170 a square foot and executed a 15-year lease for 75% of the to-be-built, not-yet-designed 320,000 square foot premier workplace. The total development budget is estimated to be approximately $380 million, and the forecast unleveraged cash yield upon delivery is in excess of 8%. Though we have closed on the site, construction will not commence until 2028 and building delivery is expected in 2031. For multifamily, we have three projects with over 1,400 units under construction and are in various stages of entitlement and/or design for 11 projects totaling over 5,000 units, one of which will commence in 2026. We expect to continue to capitalize new development starts with financial partners owning the majority of the equity. We continue to advance our development pipeline with eight office, life science, residential and retail projects underway, comprising 3.5 million square feet and $3.7 billion of BXP investment. We expect these projects will deliver strong external growth both in the near term with the delivery of 290 Binney Street midway through the year and over the longer term. Our final goal is to introduce a financial partner into 343 Madison Avenue, our leading premier workplace development in New York City, given its location with direct access to Grand Central Terminal and state-of-the-art design and amenities. We finalized a lease commitment with Starr for 29% of the space in the middle bank of the tower and are negotiating a letter of intent for another 16% of the building located just above Starr. We have committed to nearly 50% of the construction costs and our projections remain on track for a stabilized unleveraged cash return of 7.5% to 8% upon delivery in 2029. We are in discussions with several potential equity partners for a 30% to 50% leveraged interest in the property and also have had constructive discussions with several construction lenders for financing at attractive terms. Our leasing, construction and capital markets execution continues to de-risk the 343 Madison investment, and we intend to complete this recapitalization in 2026. We are making strong progress with our strategy for BXP to reallocate capital to premier workplace assets in CBD locations. We recently launched new developments at 343 Madison Avenue in New York City and 725 12th Street in Washington, D.C. We plan to launch construction of 2100 M Street in 2028 and the majority of the office and land assets we are selling are in suburban locations. We continue to evaluate additional premier workplace development and acquisition opportunities but remain disciplined about quality, pricing, and the resulting leverage and earnings impacts. In conclusion, our clients are, in general, growing, healthy and more intensively using their space, creating increasingly positive leasing market conditions concentrated in the premier workplace segment of the market. New construction for office has virtually halted leading to higher occupancy and rent growth in many submarkets where BXP operates. Debt and equity investors are becoming constructive on the office sector, resulting in more availability of capital at better pricing. BXP is very much on track executing our business plan as outlined last September, which we believe will deliver both FFO growth and deleveraging in the years ahead. And I'll turn it over to Doug.

Thanks, Owen. Good morning, everybody. So filling in some details on our leasing progress. When we made our presentations at our Investor Day, we had all of our regional executives on the dais and they described a very constructive and an improving environment for our portfolio across each of our markets. Our remarks last quarter reinforced that outlook. Our leasing results this quarter continue to affirm the sentiment. As you read last night, the fourth quarter total leasing volumes were strong and exceeded our expectations, and our occupancy jumped about 70 basis points, with about 35% of that gain stemming from improvements in the portfolio leasing and the other parts from reductions to the portfolio size, also known as the asset sales. We are excited to announce our new development leasing and those investments are going to drive net operating income growth from 29% to 32% but we are in the here and the now. It's our in-service vacant space leasing and covering near-term lease expirations that will drive our occupancy improvement and same-store revenue growth in '26 and '27. In the fourth quarter, we completed about 500,000 square feet of vacant space leasing, which included about 70,000 square feet of leases that were expiring in the fourth quarter, and we executed leases on 550,000 square feet of '26 and '27 expiring space. In the full year '25, we executed leases totaling over 1.7 million square feet of vacant space and we start 2026 with 1.243 million square feet of executed leases on vacant space that have yet to commence. Calendar year '26 expirations have been reduced down to 1.225 million square feet. The bottom line is that if we were to do no additional leasing in '26, our occupancy would remain flat for the year. The good news is that we have lots of activity, and we are doing lots of leasing and we have begun to execute leases. We expect to complete 4 million square feet of leasing in 2026, which is consistent with what we suggested during our Investor Day presentations. We have 1.1 million square feet in negotiations today, including more than 750,000 square feet of currently vacant space and 125,000 square feet associated with 2026 expirations. On top of that, our discussion pipeline currently sits at about 1.3 million square feet and includes more than 700,000 square feet of vacant space. This is about 10% larger than the pipeline from the third quarter call. We've made significant progress on residential entitlement work, as Owen described, across a number of our assets, and some of this work is going to allow us to take out of service and demolish suburban office buildings and then redevelop those parcels into higher-value residential uses consistent with our portfolio optimization strategy. In Waltham, our rezoning efforts have reached a point where we have removed 1000 Winter Street, a 275,000 square foot office building from the in-service portfolio this quarter. Next quarter, as leases expire, we will be removing 2800 28th Street, a 115,000 square foot office building and 2850 28th Street, a 146,000 square foot office building, both in the Santa Monica Business Park from the in-service portfolio. We've submitted our project application in mid-December for 385 units on the site of our 2800 28th Street office building, which is about 50% leased today. We will be relocating many of these existing tenants and hope to be under construction in early '27 on the first residential project in Santa Monica. We've also reached an agreement with an institutional partner to commence development at Worldgate in Herndon, Virginia, where we purchased 300,000 square feet of office space with plans to re-entitle and demolish it. These buildings were never in service. The entitlements are nearing completion, and we anticipate starting during the second quarter. As Owen said, we also received our zoning approvals to build 100 townhomes, which we are actively marketing and 200 apartments in Weston Mass on unentitled land and are moving forward with site plan approval. As Owen discussed, we sold a number of assets at the end of '25 and in January, we completed two more transactions. On a combined basis, these sales reduced our portfolio by 2 million square feet and the assets were 78% leased. The in-service portfolio as we sit here today is 46.6 million square feet. Owen mentioned our expected property sales for '26. Based on the transactions in documentation today and the removal of the two buildings at Santa Monica Business Park, the portfolio is expected to be reduced by another 1 million square feet by the end of the first quarter. We ended the year with in-service occupancy of 86.7%. I said we are negotiating leases on 750,000 square feet of vacant space. We expect 600,000 of that to be in occupancy by the fourth quarter of '26. Again, we're also negotiating leases on 125,000 square feet of '26 expirations. This 725,000 square feet of leasing on a portfolio of 45.6 million square feet will add 160 basis points of occupancy by the end of '26. We will sign additional leases on vacant space and/or renew '26 expirations and thereby achieve 200 basis points of occupancy improvement by the end of the year, ending the year at about 89%, just as we stated in September. The overall mark-to-market on leases signed this quarter was flat on a cash basis, though the regional variations were pretty meaningful. We had a 10% increase in Boston, New York and D.C. were essentially flat, and the West Coast was actually down 10%. Boston was led by strong markups in the Back Bay portfolio. New York was very space sensitive. In other words, we had one lease at the General Motors Building that was up 9%, along with another lease in the same building, same elevator bank that was down 13%. In our West Coast portfolio, in particular in Embarcadero Center, the structure of the leases made a big difference. For example, we had two leases in Embarcadero Center Four in close proximity that had a $20 per square foot difference due to one lease having a very small TI allowance and no free rent and the other having a full build in the year. This quarter, we executed a number of large leases. Excluding the two development property assets, we signed 17 leases over 20,000 square feet, with the largest at about 115,000 square feet. Forty-four percent were involving renewals, extensions or expansions and 56% were with new clients. Existing client expansions encompassed about 162,000 square feet of the activity. We also had about 100,000 square feet of clients that renewed but contracted. The second generation rents in the leasing statistics this quarter represent about 900,000 square feet and the gross rents were down about 3%. The D.C. number reflects the reality of 10 years of 2.25% to 3% annual escalation on top of operating expense increases. As I've said in prior calls, almost every D.C. area lease has a cash roll down upon expiration. In San Francisco, the statistics include only 57,000 square feet and just 23,000 square feet of that was CBD office. The change in the office portfolio rent was a decline of about 9%. Before I pass the call to Mike, I want to make a few comments on our individual markets. In the BXP portfolio, Midtown New York, the Back Bay of Boston and Western Virginia continue to have the tightest supply and therefore, the most landlord favorable market conditions. And this quarter, the most significant improvements we've seen were in the Park Avenue South submarket in Midtown and the South of Market in San Francisco. In the Boston CBD, where we are 97.5% occupied we completed another early renewal and extension in the Back Bay portfolio. We executed a 115,000 square foot lease, which included an 18,000 square foot expansion that involved BXP freeing up space from other clients in the building. When you're 97.5% occupied, it's hard to lease vacant space. We completed a second large transaction in the Back Bay that was a 57,000 square foot renewal of a 95,000 square foot block. The client had sublet the remaining space in '24, and we're negotiating a lease with a current subtenant to go direct for 10 years when the prime lease expires in 2027. Again, an indication of the tightness in the market. In our Urban Edge portfolio, we signed another life science client at 180 CityPoint, actually done yesterday, which brings that building to 92% leased. Our remaining first-generation life science availability from the Urban Edge is now limited to 27,000 square feet at 180 and 113,000 square feet at 103, totaling 140,000 square feet. In our view, the macro issues around life science bottomed at the beginning of '25. Nonetheless, demand for wet lab space has not recovered. There are a few users actively touring but the requirements from early-stage clients continue to be limited. Construction at 290 Binney Street in Cambridge is nearing an end. Rent is going to commence in April and we expect to deliver the building into occupancy in June. In New York, the most significant change in our activity has been in the Midtown South portfolio. On January 1, '25, we had signed leases of just over 100,000 square feet at our 450,000 square foot 360 Park Avenue South development. We executed leases on four floors in the fourth quarter, which brought the total leasing in the building to 262,000 square feet or 59%. We are negotiating leases on an additional six floors that should bring the building to 90% leased during the first quarter. We will have two floors available in the building. And across Madison Square Park, we leased an additional 32,000 square feet at 200 Fifth in early January, leaving us with a total of 33,000 square feet of availability where we had 350,000 square feet vacated in 2025. Starr is currently a tenant in 240,000 square feet at 399 Park. We expect their relocation to 343 Madison will occur in the third quarter of 2029. We have already received inquiries about their space. At each of our properties, at the 53rd Street campus, the average in-place fully escalated rent is less than $110 a square foot, which is significantly below the current market. As a case in point, we signed a lease of 599 Lexington Avenue in the fourth quarter of 2024. We are documenting a lease on an adjacent floor in the building today with a starting rent that is 25% higher. In San Francisco, the most significant change in the portfolio is at 680 Folsom and 50 Hawthorne. You will recall that in late October, about 90 days ago, I described the strong interest we were seeing at the building, where we had 208,000 square feet of vacancy and 63,000 square feet of expirations in June 2026, but no leases in negotiation. Today, we have executed two leases totaling 69,000 square feet and are negotiating leases for an additional 132,000 square feet. All of these leases agreed to terms during the last 60 days of 2025. While the AI demand has not translated into commensurate growth in ancillary professional service tenants in high-rise assets in the markets, overall, non-AI client activity is also improving. This quarter, we completed almost 200,000 square feet of leases at Embarcadero Center and 535 Mission, which is almost double what we did in the third quarter. Many of our asset sales were on the Peninsula of San Francisco. Our remaining in-service assets are in Mountain View. Client tours continue to accelerate in this market as well, and we have signed an LOI for a 52,000 square foot building at Mountain View Research. Finally, D.C. activity in D.C. continues to be concentrated in Reston Town Center. This quarter, we were able to manufacture 43,000 square feet of expansion space for a growing defense contractor by doing an early termination with a client that was acquired and not using their space and had a 2032 expiration. We also completed 195,000 square feet of additional transactions with 15 clients. Any leasing pause associated with the government shutdown from the fall is fully recovered. That wraps up my comments, and we'll turn it over to Mike to talk about guidance for 2026.

Great. Thanks, Doug. Good morning, everybody. So this morning, I plan to cover the details of our fourth quarter and our full year 2025 performance. I'm going to spend most of my time, though, on our 2026 initial earnings guidance that we included in our press release, with additional details in the supplemental financial package. For 2025, we reported total consolidated revenues of $3.5 billion and full year FFO of $1.2 billion or $6.85 per share. Our fourth quarter FFO was $1.76 per share, and it came in short of the midpoint of our guidance by $0.05 per share due primarily to higher-than-anticipated G&A expense and noncash reserves for accrued rental income. Our G&A expense for the quarter was $3.5 million or $0.02 higher than our projection. $0.01 per share of this was from higher compensation expense and $0.01 was from higher legal expenses that were related to the elevated leasing activity that we saw in the quarter. We also recorded approximately $6 million or $0.03 per share of credit reserves for the accrued rent balances for two clients in the portfolio. One is a 60,000 square foot firm that provides educational services to federal employees in Washington, D.C. and the other is a 10,000 square foot restaurant in New York City. Both clients remain in occupancy today, and we fully reserved their accrued rent balances due to our concerns of future rent collection. In aggregate, the rental obligation at our share is relatively small at $4 million annually. The balance of the portfolio performed in line with our expectations with revenues modestly above budget and higher expenses, largely driven by elevated utility costs in the Northeast due to colder-than-normal weather. We also reported gains on sale in the quarter of $208 million on $890 million of asset sales. Gains on sale are not part of our FFO, but they are part of net income and EPS. We received net proceeds from the sales activity of $800 million that has increased our liquidity and will be used to reduce debt. We currently have $1.5 billion in cash and cash equivalents, a portion of which will be utilized in February to redeem our $1 billion bond that expires this quarter. With that, I will turn to our 2026 guidance. We are introducing 2026 FFO guidance with a range of $6.88 to $7.04 per share, which is within consensus estimates. The midpoint of our guidance for FFO was $6.96 per share, and it represents an increase of $0.11 per share from 2025. At a high level, our 2026 guidance can be summarized as follows: internal growth in NOI from higher occupancy in our same-property portfolio, external growth in NOI generated by our development deliveries, lower interest expense from utilizing the proceeds of asset sales to reduce debt. These are partially offset by a reduction in NOI from executing asset sales in 2025 and 2026 that is consistent with our strategic asset sales plan that we described at our Investor Day, noncash amortization of our new stock-based outperformance plan, which is designed to align management incentives with long-term shareholder value creation, and a reduction in NOI from taking buildings out of service for future residential development, positioning them for higher value creation. To get into details, I will start with the expected growth in our same-property portfolio. Doug did a great job describing the ramp-up in occupancy from both signed leases that have not yet started and our active leasing pipeline. As he described, we expect occupancy to climb from 86.7% at year-end 2025 to approximately 89% by the end of 2026, which is a meaningful increase. We expect first quarter occupancy in the same property pool to be relatively flat, followed by improvement with average occupancy during the year of between 87.5% to 88.5%. As a result, we expect our same-property NOI growth to build throughout the year. Our assumptions for 2026 same-property NOI growth are between 1.25% and 2.25% from 2025. Based upon our same-property NOI of $1.88 billion, this equates to approximately $33 million or $0.19 per share of incremental NOI at the midpoint. On a cash basis, our results will be impacted by several terminations that we have proactively manufactured to accommodate either growing existing clients or new clients, like the one Doug described. In each of these cases, we will have new clients taking occupancy with free rent periods during 2026, so we are effectively trading cash rent for GAAP rent in the near term to accommodate growing clients, and we're getting valuable additional lease term. One of these occurred in the fourth quarter, resulting in $8 million of cash termination income in 2025. Our 2026 guidance assumes termination income of $11 million to $15 million. A portion of this is from three additional terminations that we're negotiating. The incremental increase in termination income in 2026 is approximately $2 million or $0.01 per share at the midpoint of our guidance. Even though termination income is cash income, we do exclude it from our same property guidance, and the impact is muting our cash same-property growth in 2026. Our assumption for 2026 cash same-property NOI growth is 0% to 0.5% from 2025. Our assumption for termination income at the midpoint would equate to an additional 70 basis points of same-property cash NOI growth. As Doug described, we're taking three buildings out of service for redevelopment into future residential sites and are in varying stages of entitlement. We are not doing any new leases in these buildings and expect to relocate existing clients to other buildings. The reduction in NOI from these buildings in 2026 is $13 million or $0.07 per share. Turning to our development portfolio. In 2025, we delivered three new properties totaling 700,000 square feet and $518 million of total investment. These properties include 1050 Winter Street in Waltham and Reston Next Phase II, which are 100% and 92% leased, respectively. We also delivered 360 Park Avenue South, where we're 59% leased today. And as Doug described, we have leases under negotiation to bring it to around 90%. We expect to have occupancy of all of this space by the year-end 2026, and we will have a full year of revenue in 2027. The most meaningful development that will impact 2026 is our 573,000 square foot 290 Binney Street life science project in Cambridge that is 100% leased to AstraZeneca. We own 55% of this project, and it will deliver at the end of June with a total investment of our share of approximately $500 million. In aggregate, we project that the contribution from our developments will add an incremental 2026 NOI of $44 million to $52 million. And at the midpoint, the developments are projected to add $0.27 per share of incremental NOI to 2026. As we described at our Investor Day, we have embarked on a disposition program that will fund our development activities and optimize our portfolio of premier workplaces. To date, we have closed $1.1 billion in 12 transactions and generated net proceeds of $1 billion. Our guidance assumes an additional $360 million of sales in 2026 that are either under contract or in negotiation, which we expect will generate net proceeds of approximately $230 million. The financial impact of our sales activity is expected to result in a reduction of portfolio NOI from 2025 to 2026 of $70 million to $74 million. Investing the sales proceeds to reduce debt results in lower net interest expense in 2026. We expect the net impact of sales on our 2026 FFO will be dilution of $0.06 to $0.08 per share, which is in line with the guidance that we provided at our Investor Day in September. Overall, we expect our net interest expense will be $38 million to $48 million lower in 2026 versus 2025. A portion of this is in our unconsolidated joint venture portfolio where we anticipate lower interest expense at our share of $11 million to $14 million that is primarily from the repayment of secured mortgages. Our guidance assumes our share of joint venture interest expense of $60 million to $63 million in 2026. We expect a reduction in our 2026 consolidated interest expense net of interest income of $25 million to $37 million from 2025. And that results in a 2026 range for consolidated net interest expense of $581 million to $593 million. Our guidance includes refinancing our $1 billion bond issue that has a GAAP interest rate of 3.5% and expires on October 1 of this year. We currently expect to refinance it at maturity with a new 10-year unsecured bond. Our current credit spreads for 10 years are in the 130 to 140 basis point area. So a new 10-year bond issuance today would price between 5.5% and 5.75%. We have not incorporated into our guidance the likely changing capital structure of our 343 Madison development. As Owen mentioned, we're having active discussions with prospective private equity capital partners for 30% to 50% of the project, which would reduce our funding needs. We've also started the process of construction financing for approximately 50% of the cost or about $1 billion, the response to date has been excellent, and the banks we are working with are active lending to high-quality sponsors and projects and are excited to participate. The closing will likely occur late in the year, and I expect the financial impact on our 2026 earnings will be modest. Turning to our G&A. We project total G&A expense in 2026 of $176 million to $183 million. That is an increase from 2025 of $13 million to $20 million or $0.09 per share at the midpoint. $0.07 per share of the increase is noncash and is comprised of amortization of the imputed value of our recently announced outperformance compensation plan. While there is an annual noncash expense related to the plan, it is completely aligned with growing shareholder value and only results in a payout through additional share issuance if our dividend adjusted stock price rose at between 35% and 80% from our current price over the next four years. Lastly, we anticipate that our development and management services fee income will be $30 million to $34 million in 2026, which is a decrease of $3 million to $7 million from 2025. The decline year-over-year is from a reduction of development fee income from completing several joint venture developments, like 360 Park and 290 Binney, and lower property management fees from selling joint venture properties as part of our asset sales program. So to sum all this up, our initial guidance range for 2026 FFO is $6.88 to $7.04 per share representing an increase of $0.11 per share from 2025. At the midpoint, the increase is comprised of higher same-property portfolio NOI of $0.19, incremental contribution from our development pipeline of $0.27, lower net interest expense of $0.24 and higher termination income of $0.01. The increases are partially offset by a reduction of NOI from asset sales of $0.41, the removal of properties from service of $0.07, increased G&A expense of $0.09 and lower fee income of $0.03. 2026 represents a return to FFO growth for BXP. We expect our quarterly FFO run rate to consistently improve through 2026, leading us to a strong base for 2027 and our portfolio is well positioned for additional occupancy growth in 2027 as we see improving trends in our leasing markets, combined with very low rollover exposure. That completes our remarks. Operator, can you open the lines up for questions?

I guess maybe it's a combination for the three of you, but it sounds like you've had good success on the disposition front and maybe even accelerated the timing. I'm just curious, Owen, if you've kind of taken a harder or a sharper pencil to the portfolio and thought about maybe more dispositions to really tighten up the portfolio. And to the extent that you have, I guess, how do you balance that in terms of Mike's comment about FFO growth? And I guess, are you willing to sell more to kind of sharpen the portfolio even if it has kind of negative FFO consequences in the short term?

Steve, our original goal that we outlined in September last year was $1.9 billion of sales over the three years from September and I think at this point, I'd say we're sticking with that forecast. That all being said, we have a list of assets that we'd like to sell. And if we get a price that we find attractive, we will execute on it. We are paying attention to the dilutive impacts to earnings. One thing that we have repeated over and over, and I think it's important for everyone to understand: one thing that's helping us with this is a lot of the sales that we're doing are land, and those are completely accretive because they're not generating any income. We are using the proceeds to reduce debt. So we're going to continue to sell land assets. I described 3,500 residential units that we're currently getting entitled on land that were former office development sites or buildings out of service. And when we go to sell that land, that will be accretive sales. But it will be balanced out with some additional office. I gave an example: the 140 Kendrick was an example this quarter, which was a little bit of a higher cap rate, which is an offset. So net-net, the answer to your question is we're sticking with our forecast, we might sell more. We're paying attention to the dilutive impacts, but we're also paying attention to optimizing our portfolio and deleveraging and creating capital for our development program.

I would just add one thing. I mean, of the $1.9 billion that Owen just discussed, we're off to a great start.

Yes.

And I would say the pace of the first $1.1 billion that we've got closed is slightly ahead of where we anticipated. So when you look at the $0.06 to $0.08 of dilution I just described, it is within the range that we gave at the Investor Day. The range of the Investor Day was $0.04 to $0.09. It's a little bit at the higher end. And the reason for that is that a couple of the office sales occurred more quickly than we anticipated, which is great.

My only additional comment, Steve, is that so Owen described all this residential activity we had. I'm just sort of putting an order of magnitude on it: there's probably somewhere between $200 million and $300 million of land value there. And assuming a portion of it is just going to be sold as townhome sites that we will not have an equity interest in, and we'll just sell away. But assume a majority of it is going to be residential where we retain an interest. I'm assuming we're 20% of that. And then our 20% is going to be added to our development pipeline, right? So we're going to take cash off the table and make incremental investment in development as we do that on a going forward basis. So there's a little bit of dilution on a relative basis, but there's actually accretion because we're going to be making what we believe to be highly accretive investments relative to what the residential yields will be.

Doug, I think you said you had 1.1 million square feet in negotiations and 1.3 million square feet in discussions. What conversion rate are you underwriting for this pool? How is that maybe compared to the last couple of years? And the historical conversion rate during prior improvement cycles?

Yes. So Michael, on the 1.1 million, it's actually now at 1.2 million as of late last night of deals that are in lease negotiation. I think our conversion rate is like 95%. We rarely see something drop off there. And then on our sort of pipeline of things, I'd say the conversion rate there is somewhere in the 0.5 million square feet, plus or minus, but it keeps growing, right? So as I said to you before, we're going to lease 4 million square feet of space. And so we've identified as of today about 2.3 million square feet or 2.4 million square feet of space. We will probably have identified 5 million square feet of space to get to that 4 million square feet at the end of the year.

You mentioned in your commentary that you didn't feel that AI was cannibalizing any space needs in the portfolio. So can you maybe talk in a little bit more detail about how you're tracking that, if you think that, perhaps, it's cannibalizing other types of space that's not in your portfolio? Or just any more color on that would be helpful, I think.

Tony, I'll kick it off, and Doug and Mike may also have comments on this. This is an incredibly hard thing to forecast. I think all of you on this call realize that. The points that we can only make to you right now is what we're experiencing, which is accelerating leasing activity. Doug described it, I described it: our clients are growing more than they're shrinking. They're taking better space, they're signing longer leases. In fact, I would say AI so far for BXP's footprint has been a net positive, not a negative because we've had very significant AI leasing not only at BXP but maybe more importantly in the Bay Area, which is an important market. It's been a very important driver of net absorption there. So that's what we're seeing today. Our instinct on this is as we think about AI, and we use it in our own work, it is much more likely in the near term to dislocate more repetitive tasks and support jobs. And those kinds of positions generally are not resident in premier workplaces, which is substantially our portfolio. But again, this is hard to forecast. This is what we're seeing right now.

I guess I'm going to ask Rod and Hilary to make some comments on their markets because I think they're emblematic of what is going on. Rod will, I assume, talk about the growth in technology jobs in the form of AI companies and the AI vertical and horizontal business structures that are coming. Hilary is going to describe what's going on with not only technology but with financial services and professional services sectors that are so important to New York. So Rod, why don't you start?

Yes. Thanks, Doug. So I think if we're talking about the cannibalization, I don't know that I can speak to that specifically. But with respect to the demand that we're seeing in San Francisco and the Bay Area in general from AI, it's just been tremendous. We've been talking about it on calls in the past, and that definitely now is showing up in the statistics. The overall tenant demand in San Francisco right now sits just around 8 million square feet and 36% of that is from AI or AI-related technology companies. So that's a lot. And every time we turn around, there's another deal that's being talked about or getting signed. So there are the big ones, the OpenAI and the Anthropics of the world, and then there's a lot of small ones too that keep getting formed. So it's definitely a wave of demand that we're taking advantage of. We spoke about 680 Folsom and the tenant demand down there. And it's happening. So that's all positive as far as we're concerned for our portfolio.

Hilary?

Thanks. We are seeing real strength in the financial services sector. We continue to see companies having a difficult time securing space that they need for expansion or simply if they're trying to locate in Manhattan for the first time. I heard a statistic the other day that there is only one space that is direct with a landlord above 100,000 square feet in the premier buildings in Midtown. And I think that's a pretty telling statistic. So we've continued to see demand from our existing clients wanting to expand. We have seen stronger interest from tech and media in Midtown South, which is reflected in the statistics that Doug mentioned regarding our lease-up at 360 Park Avenue South, which is approaching 90% when we complete the leasing that's underway now. Many of those tenants are either AI-powered or have an AI component to their business. And then we still are leasing to more traditional financial services businesses, and those have come down from Midtown to Midtown South as they're seeking premier workplaces. The other thing I would mention, and Rod referred to Anthropic: there was an article out last week that Anthropic is seeking between 250,000 and 450,000 square feet in New York City. So there's definitely an expansion of AI businesses in New York. And I think that is driving some of the demand pickup in Midtown South and the Flatiron District. For Midtown proper in the Park Avenue submarket and the Plaza District, premier workplace is very heavily dominated by financial services industries who continue to expand.

So just to sort of come to a conclusion, I think both things can be true. You can have job displacement from artificial intelligence products, but you can also have growth in certain submarkets and certain cities in the country. As Owen said, we happen to be in those places where we're seeing the growth. So is there going to be less overall job growth because of AI over the next decade? Maybe, but we're not seeing it impacting our portfolio.

I wanted to go to Mike's comments in his prepared remarks about quarterly FFO consistently growing throughout the year as occupancy improves, which sets up for a strong 2027. Should we interpret that as the fourth quarter of 2026 being the quarterly baseline run rate for next year?

You mean for 2027, John?

I think that's a good start. I think that we provide guidance for the first quarter of 2026, which is always seasonally our lowest quarter because of the vesting for G&A. We also expect that our in-service occupancy from the same-property portfolio will be flat in the first quarter, and then the occupancy will build after that. We'll see consistent growth, but there's more in the back half than the first half, and that will lead to 2027 growth as we get a full year of some of this occupancy growth in 2026. Given the low rollover we have, we anticipate that we're going to have higher occupancy in 2027. I can't give you 2027 guidance right now, but we're feeling really optimistic about where we stand.

So John, my comment would be, I gave you a lot of numbers in my remarks, which you can go back and read if you have the time. But big picture: our lease expirations in 2026 have been covered by the leases that we've already signed that have yet to commence, and we are going to lease more vacant space. We are also going to lease more space that's rolling over in 2027. It would not be a surprise for me to be talking to you in January of 2027 and saying, 'Oh, by the way, we've already covered the vast majority of our exposure for 2027.' So any occupancy increases that we get are going to be driving to the bottom line. What we're seeing in 2026 is going to happen in 2027. And obviously, we're getting in 2025 to 2026 the improvements from our development portfolios, which Mike described; in 2027, we'll have full year occupancy from 290 Binney Street, and we'll have all of this occupancy that is going to be in the portfolio in 2026 driving 2027. So that's why we were pretty bullish about both the growth in our earnings from our same-store and our growth in our development assets coming online as when we talked to you in September in Manhattan when we did our Investor Day. We're just as bullish today as we were then.

Sort of building on Steve and John's question, Owen, I appreciate the focus on minimizing dilution for earnings and Mike, your comment on FFO acceleration on a quarterly basis. As you guys think about leasing, is there a way to reimagine leasing? I'm not talking about development, but when you have existing space, can you shorten the downtime, meaning is there a better way to do the build-out, the demolition or how leases are structured? One of the frustrating things in REITs is the amount of time between a tenant moving out and a new one moving in. I didn't know if there's a way to shorten that. From an earnings perspective, all the good stuff that you're doing would take effect sooner versus waiting the two years or so we often see for office.

Alex, you're sort of asking is there an accounting solution to the fact that you have turnover. I think the answer is not really. The condition of our space is what matters. What I would say is that the one thing we've done, which doesn't help in the short term but decreases the amount of downtime, is that we've been doing more turnkey builds and when we're doing turnkey builds, we're controlling the date when the space will get completed and reducing the free rent component of the deal. Wherever possible, we are trying to deliver space in its current condition. If we're able to deliver space in its current condition, we can start recognizing revenue when the space is accepted by our next client. Our focus is on trying to reduce downtime and we look at lots of different levers to do that, but I don't think we're going to be able to eliminate it in a material way.

Alex, we provide tools to our leasing teams on things they can do to structure leases so that we can recognize revenue more quickly regarding how the build-out is completed and who's doing the build-out. Ultimately, it's a negotiation with the client because the client has an opinion as well on how they want that completed. Ultimately, getting the transaction completed is the most important thing.

So a question in terms of the return to FFO growth. Clearly, leasing is a big aspect of that. But can you talk about a couple of the other ways to help that process, whether it's on the G&A side, are you able to find any better efficiencies through AI or other venues? And then also on the development side, how you're thinking about managing the size of the pipeline and bringing in equity stakes earlier to projects, like what you're talking about with 343 Madison as a way to manage dilution from development. I guess I'm also wondering on 121 Broadway, if you're considering any sort of partner there in relation to that.

You asked several questions and I'll try to answer a few quickly. Regarding how we're going to accelerate FFO growth: first, second and third is lease vacant space. That is by far the largest opportunity set, and we're doing that. Second, on the G&A side, we are spending as much time as any organization thinking about whether or not there are ways to reduce our overhead costs using tools from artificial intelligence. My view right now is that we're in AI 1.0, which is unquantifiable productivity enhancement tools as opposed to cost reduction tools for a business of BXP's size. So we're being thoughtful about how we deploy those things. Net-net, not much in the way of reductions in G&A right now. A significant portion of our G&A is embedded in our properties as part of operating expenses. On the capital side relative to development, I'll let Owen hit the last notes on partners and pipeline.

Nick, I would break the portfolio into two pieces: future residential and office developments. On future residential, we intend to bring a partner in for everything. If you look at the last deals we've done, Skymark and 17 Hartwell, we have 80% partners on those, and we're working on another one right now at Worldgate where we also expect an 80% partner. So you should expect that to continue. On the office side, this is core to the company and we think the developments we're putting together are very profitable. We think delivering these premier workplaces at over an 8% yield yields great returns for shareholders. So we're reluctant to share too much, but we are sharing because we're focused on our leverage. We're starting with 343 Madison; that's an important goal to recapitalize this year. For additional office developments, it's going to depend on our leverage profile and how many additional new developments we're able to identify and secure.

Can you talk about the cadence we should expect for FAD or AFFO over the next several quarters? And how should we think about the impact of higher concessions associated with the lease-up of the office portfolio? Should we expect FAD to be down year-over-year given those increased costs driven by leasing successes?

On AFFO, I actually expect it will be up slightly. We have less rollover to deal with and we are going to increase our occupancy, so we'll have additional leasing commence. Net-net, having less rollover exposure is going to help us. Our expectation on leasing costs is somewhere between $220 million and $250 million a year, depending on transaction mix, and CapEx is somewhere between $100 million and $125 million. If you look at the midpoint of our FFO, I think our AFFO will probably be somewhere in the $4.40 to $4.60 range, which is a little higher than this year. On cadence, it will follow FFO, although AFFO will lag a little because many leases have free rent in the beginning years. Our free rent guidance for next year is $130 million to $150 million, which is higher than it was last year. In 2027, that free rent will turn into cash rent and AFFO should increase.

A question on 343 Madison. Great to hear about the additional 16% in negotiations. Can you talk a little bit more about the demand and touring activity? And then as New York City market rents for trophy increase, how does that relationship work for potentially higher rents for an asset three years out?

I'll let Hilary give you the specifics. A couple of points: I'm pretty sure we're the only building that's going to be delivering new construction before 2029, which is a unique position relative to timing of demand. And we will be thoughtful about whether we want to lease the top portion of this building because it's some of the most valuable real estate in our portfolio. Getting closer to the ability to deliver that space to smaller tenants will be to our advantage. Hilary, can you discuss demand for 343, particularly from medium-sized companies?

We have very strong demand in financial services from tenants that are about 150,000 square feet. That is typically an asset or wealth management business or in some instances, more of a foreign bank type tenancy. They continue to come through at a pretty decent clip, looking at space in the podium of the building as the mid-rises and sort of upper mid-rises are now more or less spoken for. We feel very good about where rents are trending for the building, and we will meet the market for rents, whatever that is. We've had no trouble whatsoever meeting our pro forma on the terms we're negotiating with existing and prospective clients. Doug mentioned that rents are going up across Midtown, the Plaza District and Park Avenue; my observation is rents have gone up around 15% over the last 12 months. 343 Madison is at the top of the market in terms of rents. There are only a couple of other buildings in Midtown that are asking and receiving similar rents. That market is a little bit in its own stratosphere with regards to tenants and demand. But demand continues to accelerate, and that will continue to put pressure on pricing from the tenant side, which will benefit us as we go forward.

You mentioned rents in New York are up around 15%. In the opening comments, you kind of mentioned regional variation in the cash mark-to-market with Boston up 10%, New York and D.C. flat, West Coast down 10%. I understand different markets are on different recovery trajectories, but how do you balance some of the rent improvements with the decline of rents from pre-pandemic levels? What's the overall mark-to-market in the portfolio? And as you lap some of the pre-pandemic rent roll downs, when does that turn more into a headwind?

In the next couple of years.

That's a really hard question to answer with a simple number. We look at all the space currently occupied — ignoring vacant space because the mark-to-market on vacant space is 100% — and we go through building-by-building every quarter and estimate where market terms would be for that space. As of today, across the entire portfolio, it's somewhere in the high 4s to low 5% range. That's a meaningful jump from a year ago and a modest jump from a quarter ago. The biggest improvements have been in the Back Bay of Boston, in Manhattan at the tops of our buildings, and in some top floors on the West Coast. We're still seeing stability in a lot of the portfolio with no real movement in rental rates, and I'm ignoring concessions for a minute. Our Washington, D.C. portfolio in particular has the reality of structured escalations that create cash roll-downs upon expiration. That's part of the makeup of the portfolio. Overall, we'll see modest gains from roll-ups and mitigating roll-downs across the portfolio, but the much more meaningful impact will come from occupancy gains, which is why we focus on occupancy growth rather than mark-to-market in isolation, particularly for '26 and '27.

By design at BXP there's always a lot going on, good real estate decisions that can be disruptive in the short term to growth. You're getting more than 200 basis points of occupancy gains in 2026 per your guidance, and that results in flat same-store NOI growth for this year. Doug, you alluded to occupancy falling more to the bottom line in 2027 as work done in this year matures. Do you foresee a less noisy 2027 so the next occupancy gains translate more clearly to same-store NOI, something in the mid-single-digit type of number?

Yes. I think the answer is yes. I don't want to suggest we won't find interesting opportunities that might temporarily change the profile, but based upon the business in front of us today, we see the same-property growth improving and it should be better next year than this year because of the nature of the vacancy being pulled up and the fact so much of it is in the back end of the year.

That's an important point. We showed at our Investor Day the buildup in occupancy: the first and second quarter of 2026 will not have as meaningful increases as the back half of 2026 based upon when signed leases start and when we anticipate pipeline leases starting. That occupancy will build into 2027, giving a full-year benefit plus additional occupancy in 2027. So it should continue to build and improve.

A question on 290 Binney. You mentioned rents commence in April and you expect to deliver the building into occupancy in June. Can you clarify when GAAP NOI starts to be recognized and when capitalized interest comes off? Does that happen at the same time? Is it early April, late June or somewhere in between?

It does happen at the same time. The transaction was structured with a hard rent start date, but the tenant improvement design and costs have taken a little longer than original expectations due to design changes by the client. Those tenant improvements will not be complete until probably late June. Our revenue recognition rules require completion; we cannot start revenue recognition until it's done. So we have to wait until the end of June to start revenue, and then we will stop capitalizing interest also on that date. As a reminder, we're capitalizing interest at 100% of the cost because it's a consolidated joint venture even though we only own 55%. Cash rent will start in April and will be prepaid rent on the balance sheet. Then on June 30, all that cash rent will be recognized and straight-lined through the full lease term starting in June.

My question was philosophical on your outlook for tenant improvements. You mentioned earlier that some spreads were negative because you didn't provide TIs. What is happening with TI packages? Maybe discuss which markets are seeing improvements and whether New York TI packages are coming down in 2026?

On tenant improvement concession packages: our downtown portfolio TI concession is getting stronger, meaning becoming a lower number. Our Urban Edge portfolio concession package is pretty stable. In the greater Washington D.C. portfolio, concession packages in CBD assets are stable, and in Northern Virginia they are getting slightly lower. In Midtown, we're pulling back modestly on concessions. On the West Coast, concession packages are still elevated — not increasing the way they did in 2024 and 2025 — but still relatively high due to overall availability of space.

Congrats on the leasing momentum. We've seen Fortune 500 announcements about shrinking headcount. How should we think about that impacting your portfolio? They might need less space, but it could also drive more return to office for retained employees. Any thoughts on those dynamics?

That's a hard one to answer. When we see announcements for job losses, it's obviously not positive. But as we've described, we're not seeing weakness in our leasing activity from our clients. We track our client renewals and whether they're growing or shrinking; over the last several years our indicators show growth. Many of the reported layoffs reflect business unit closures; we're not seeing those translate into reduced leasing activity in premier workplaces. So far, our experience is that the announcements have not impacted our leasing.

Given the momentum you're talking about and building further into 2027, would you venture a view over three to five years: what do you think BXP's structural peak occupancies might be relative to pre-COVID? Can you link that to rent spreads or rent growth in your buildings, particularly expand upon San Francisco?

Getting above 93% on a portfolio with an average lease length of eight to nine years is probably attainable but hard to surpass. San Francisco has the most opportunity for improvement: it had the toughest time of all markets post-pandemic and now recovery is happening. We see positive mark-to-markets on the top 20% to 30% of each of our towers in San Francisco. When Salesforce Tower ultimately rolls, we'll have significant positive mark-to-market. In the short term, there's some modest roll-down risk in portions of Embarcadero Center.

Rental rates are directly linked to occupancy. We're seeing tightening and rent acceleration in Back Bay Boston and Midtown New York. As we get the portfolio better leased we can be choosier and charge more. We're also pursuing early-term transactions to accommodate client growth and capture more revenue.

Given pent-up demand driving leasing after several years of lease roll-downs, how much longer do you expect this return-to-office movement to continue driving leasing activity? Is this a 12-month phenomenon, 18 months? Where are we in that arc?

I think there's room to go. We track indices, including Placer.ai data, and see additional improvement potential. Historically leasing activity ties to corporate earnings growth: when companies make money they lease and hire. Forecasts show earnings growth accelerating in 2026 relative to 2025. The key questions are whether layoffs are office-using jobs and whether they affect premier workplaces. We need more granular data than press releases to determine that impact; for now, earnings and utilization trends look positive.

I'll juxtapose public job announcements with what we see. Some large announcements like 48,000 job cuts at a shipping company likely don't affect demand in Manhattan, Boston, Washington, D.C. or the West Coast tech markets relevant to our portfolio. Our demand is coming from financial services, asset managers, law firms and technology; many of these firms are expanding and hiring people who will occupy office space in our markets. It's not primarily about return-to-office mandates.

In Reston Town Center, defense and cybersecurity industries are driving demand: corporate campuses and tech roles, many with former military backgrounds. These employees live locally and Reston is often the first location for those groups. Demand is strong and localized to those dynamics.

Quick update: looking at data for L.A. and Seattle occupancy moves, those markets have been moving in the wrong direction. They're smaller markets for you, but can you provide a quick update on market conditions and strategy for the few assets you have there?

Starting with Seattle, our two CBD assets have had good demand from in-place tenants expressing growth needs. Seattle tends to lag San Francisco by about a year to 18 months, so we expect increasing demand there this year. In Los Angeles — specifically West L.A. and Santa Monica — the market is still recovering from COVID impacts and consolidation in entertainment, which affects demand. That market has been slower than the Bay Area, but we have seen good activity to start the year and we are pursuing proposals.

We're taking two Santa Monica Business Park buildings out of service totaling about 260,000 square feet to build high-value residential projects. We believe residential returns at that location exceed office today. Those are the strategic decisions we're making; over time we may pursue more such conversions where appropriate.

My question is about leasing capital. We saw $128 a square foot on TIs and LCs this quarter. It sounds like that's unique to the quarter and you're not seeing more pressure on leasing capital. How much leasing capital do you have committed but not spent yet? As you're leasing up, maybe that pool of capital is building more than normal. Any comments?

So I think you're asking how much of the TI dollars we've committed that tenants have yet to spend. Michael?

I don't have that exact number in front of me right now. We do disclose that number in our 10-Q and 10-K. It is a significant number because many clients take time to spend that money; it's in the hundreds of millions that will be spent over the next few years. I haven't seen it trend significantly higher. Our transaction costs typically range between $85 and a little over $100 per square foot per quarter. This quarter's $128 is an outlier. For AFFO projections, we're assuming closer to $100 per square foot on a going-forward basis.

Those leasing costs in the supplemental are based on leases having a revenue event this quarter and are backward-looking. There are leases signed in late 2023 and early 2024 that are just starting to move into revenue recognition now. Over time, we expect that number to trend down as the market improves.

Thank you all for your questions. I'm not sure there's much more we could possibly say. Have a good rest of the day. Thank you.