Release Date: July 31, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- BXP Inc (BXP, Financial) reported FFO per share of $1.77, exceeding the midpoint of their guidance by $0.06.
- The company raised the midpoint of its FFO per share guidance for 2024 by $0.08.
- BXP Inc (BXP) completed over 1.3 million square feet of leasing, a 41% increase from the second quarter of 2023.
- The company was recognized by Time Magazine as one of the world's most sustainable companies, ranking number one in the US among property owners.
- BXP Inc (BXP) has a strong balance sheet with ready access to capital in both secured and unsecured debt and private equity markets.
Negative Points
- The overall office sales volume in the second quarter remained muted at $6.9 billion, well below pre-2022 levels.
- BXP Inc (BXP) experienced a reduction in occupancy due to large known expirations and vacated non-revenue-producing spaces.
- The company reported a decline in same-property NOI growth, adjusting its guidance to a range of negative 1.5% to negative 3% for 2024.
- The life science lab demand in Greater Boston and South San Francisco remains lackluster, with tenants displaying little urgency around new requirements or relocations.
- BXP Inc (BXP) faces challenges in the broader office asset class, with limited opportunities in the premier workplace segment.
Q & A Highlights
Q: Can you provide clarity on the occupancy guidance and leasing activity? How might recent leasing pace translate into occupancy growth next year?
A: Our occupancy is expected to increase over time. While it's challenging to give a precise projection, we anticipate ending the year in the mid-87% range for occupancy. We could see occupancy in the 88% range in 2025, depending on lease commencements and tenant build-outs.
Q: What are the expected yields on new apartment developments, and how do you plan to fund these projects?
A: We aim for mid-6% yields or higher on new apartment developments, primarily on land we control. We intend to bring in JV partners, similar to our Skymark project in Reston, where we own 20% and have an 80% JV partner.
Q: How does the expectation for corporate earnings growth impact leasing demand, particularly from tech companies?
A: There's a clear correlation between S&P 500 earnings growth and BXP's leasing activity. While tech companies have been hesitant to lease space recently, the overall corporate health indicated by S&P 500 earnings growth positively impacts leasing demand.
Q: Can you elaborate on the stabilization dates for development projects and your capitalization interest policy?
A: Stabilization dates assume 85% occupancy. We stop capitalizing interest and expenses 12 months after the base building is completed. For example, 103 CityPoint and 180 CityPoint will stop capitalizing interest in the third and fourth quarters of 2024, respectively.
Q: What are your thoughts on potential changes in regulations or the economic environment due to the upcoming election?
A: Federal-level changes may have some impact, particularly on taxes, but state and local elections have a more significant effect on our business, influencing real estate taxes, entitlement processes, transit, and safety in our cities.
Q: Could you provide an update on CapEx assumptions given expectations for higher lease commencements?
A: Maintenance CapEx is expected to be between $80 million and $100 million this year. We also have significant repositioning CapEx, particularly at 200 Clarendon Street, which will enhance tenant retention and rental rates.
Q: Are you seeing a pickup in net effective rents for your premier portfolio?
A: Net effective rents in the Park Avenue submarket of Manhattan and the Back Bay submarket of Boston are higher today than six months or a year ago. However, markets with higher availability rates will take longer to see similar improvements.
Q: How should we think about the trajectory for leverage over the next 6 to 12 months?
A: Our leverage is temporarily higher due to funding our development pipeline. As these projects deliver and generate EBITDA, leverage will moderate. We expect to stay higher than our target range for the next several quarters.
Q: Can you provide more detail on the lease terminations and their impact?
A: We have three significant terminations, including one with AlloVir. These terminations are strategic, allowing us to bring in larger or expanding tenants. The impact is temporary, with new tenants expected to commence in 2025.
Q: What are the prospects for same-store NOI growth as we roll into next year?
A: Same-store NOI growth this year is modestly down due to lower occupancy, despite higher rents. We expect occupancy growth next year, which should positively impact same-store NOI.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
