On Wednesday, BXP (NYSE:BXP) discussed first-quarter financial results during its earnings call. The full transcript is provided below.
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Summary
BXP reported a successful Q1 2026, with FFO per share exceeding estimates by $0.02 and guidance for 2026 raised by $0.01.
The company achieved strong leasing activity with over 1.1 million square feet leased and a significant increase in occupancy rates.
BXP is benefiting from AI-driven demand, particularly in San Francisco, New York, and Seattle, contributing to leasing successes.
Capital raising and portfolio optimization continue, with $360 million raised in Q1 and plans for further asset sales.
Development projects are progressing, with a focus on multifamily and select office projects, aiming for high returns.
Management remains optimistic about achieving occupancy and FFO growth targets over the next two years.
Full Transcript
OPERATOR
Good day and thank you for standing by. Welcome to Q1 2026 BXP earnings conference call. At this time all participants are in a listen only mode. After the speaker’s presentation, there will be a question and answer session. To ask a question during the session you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised to withdraw your question. Please press star 11 again. In the interest of time, please limit yourselves to one question. Please be advised that today’s conference is being recorded. I would now like to hand the conference over to your first speaker, Helen Hahn, VP of Investor Relations. Please go ahead.
Helen Hahn (VP of Investor Relations)
Good morning and welcome to BXP’s First Quarter 2026 Earnings Conference Call. The press release and supplemental package were distributed last night and furnished on Form 8K. In the supplemental package, BXP has reconciled all non GAAP financial measures to the most directly comparable GAAP measure in accordance with Reg G. If you did not receive a copy, these documents are available in the Investors section of our website@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 and A portion of our call, our regional management teams will be available to address any questions. We ask that those of you participating in the Q and A portion of the call to please limit yourself to one and only one question. If you have an additional query or follow up, please feel free to rejoin the queue. I would now like to turn the call over to Owen Thomas for his formal remarks.
Owen Thomas (Chairman and Chief Executive Officer)
Thank you Helen and good morning to all of you. BXP had a successful first quarter. Our FFO per share result exceeded our own estimate by $0.02. Our FFO per share guidance for 2026 was raised by $0.01 and we made continued strong progress on our business plan articulated at last year’s investor conference by completing significant leasing, closing additional asset sales and progressing our development pipeline. Last week we also released our annual Sustainability and Impact Report outlining the positive outcomes achieved for shareholders and other important constituents from our industry leading sustainability efforts. Our first business plan priority is to Lease space and improve Portfolio Occupancy There is no question that AI has been and continues to be enormously beneficial to BXP’s leasing activity. Despite the market anxiety regarding the impact of AI on job creation and resultant leasing demand, we are experiencing direct benefits by leasing space to AI companies in San Francisco, New York and Seattle as well as indirect benefits from both leasing space to companies displaced by growing AI firms and to our core financial, legal and business services clients serving the rapidly growing AI industry. The near and medium term negative impacts of AI on jobs are more likely in support functions which are less present in premier workplaces and in gateway markets. We had a strong first quarter completing over 1.1 million square feet of leasing. Our in service portfolio occupancy rose 70 basis points to 87.4% and the spread between our leased and occupied square footage widened 80 basis points to 3.5%, a precursor to more occupancy gains ahead. The environment for leasing Premier Workplaces remains healthy and very active. Our current and prospective clients are generally experiencing increasing earnings due to the growing economy in the US we are seeing more client growth and contraction in our leasing activity. In many cases our clients are also upgrading their space and or location to more readily implement their tightening in person work policies. All of these client factors, growth, more use of space and upgrading have led to the consistent strength and outperformance of the Premier workplace segment of the office market where BXP is a clear market leader. Premier Workplaces represent roughly the top 14% of space and 8% of buildings in the four CBD markets where BXP has a major presence. Direct vacancy for Premier workplaces in these four markets is 8.5% versus 13.8% for the broader office market. While asking rents for Premier Workplaces continue to command a premium of more than 60% over the non premier buildings. Over the last three years, net absorption for Premier workplaces has been a positive 11.9 million square feet versus only 420,000 square feet for the balance of the market. For the non premier workplace segment, all markets had negative absorption except New York City. Given these positive market and client trends and BXP’s strong leasing over the last year, we have started to realize our forecasted occupancy gains the last two quarters, reinforcing our confidence that our target of 4 percentage points of total occupancy improvement over 2026 and 2027 remains achievable. Our second business plan goal is to raise capital and optimize our portfolio through asset sales. During our investor conference we communicated an objective to sell land, residential and non strategic office assets for approximately $1.9 billion in net aggregate sale proceeds by 2028. We continue to make great progress in the first quarter. We have raised 360 million in total net sale proceeds so far this year and $1.2 billion since our investor conference, including land sales for $250 million, apartment sales for $460 million and office lab retail sales for $500 million. Further, we have under contract the sale of three assets with total net proceeds of approximately $40 million and are in various stages of marketing several additional assets as of now. Future net proceeds from dispositions projected in 2026 could aggregate up to an additional $400 million and we are consistently exploring more asset sales. We have been able to achieve attractively valued land sales by creatively positioning our office land for more valuable uses, particularly residential, across multiple jurisdictions. We have received or are pursuing entitlements for over 3,500 residential units on land intended for office use, which is creating significant value for shareholders and will be the backbone of both our apartment development and land sales activity going forward. We have now sold three high quality stabilized apartment buildings which we built all at a mid 4% cap rate. A notable office transaction we completed in the first quarter was the sale to our partner of our 50% interest in the Marriott headquarters building in Bethesda, Maryland which we developed in 2021. The 743,000 square foot building is fully leased to Marriott and sold for a gross price of $430 million or $589 a square foot and a 6.8% initial cap rate. The Bethesda market is not strategic for bxp. We were able to achieve attractive exit pricing and the development was very profitable for shareholders, generating a $35 million gain on a $47 million investment supporting our disposition efforts. Office transaction volume in the private markets remains healthy with financing available at scale, particularly in the CMBS market. In the first quarter, significant office sales were $14.1 billion, down from the seasonally elevated fourth quarter, but notably up 72% from the first quarter of 2025. In addition to the Marriott headquarters sale, there were a couple of other transactions with relevance to BXP’s portfolio in New York City, 575 Fifth Avenue sold for 383 million or $734 a square foot and a 5.1% cap rate for the office portion of the building. The asset comprises 525,000 square feet and is 90% leased. In San Francisco, the Transamerica Pyramid sold for an allocated price of $600 million or $1,113 a square foot. The 525,000 square foot building is only 60% leased so the in place cap rate was 2.9% but expected to be in the high 7% range in several years once the asset is leased and stabilized. The third business plan goal is to grow FFO through new development selectively with office given market conditions and more actively for multifamily with an equity partner for office. We have and expect to allocate more capital to developments than acquisitions because we continue to find premier work place development opportunities with pre leasing that we believe will generate cash yields upon delivery roughly 150 to 250 basis points higher than cap rates for lower quality asset acquisitions with ongoing capex requirements. The trade off is timing as developments obviously take several years to deliver. For Multifamily we have three projects with over 1400 units under construction, are in various stages of entitlement and or design for nearly 5,000 units and have one project in Herndon, Virginia which we plan to commence in 2026. We expect to continue to capitalize. New development starts with financial partners owning the majority of the equity. BXP’s largest development underway is 343 Madison Avenue, our market leading premier workplace tower in New York City with direct access to Grand Central Terminal. As previously reported, we have a lease commitment for 29% of the building located in the mid rise. We are also negotiating leases with tenants for another 27% of the building which will bring us to 56% committed with available space at both the podium and high rise of the tower. Given strong market conditions and the lack of available competitive product, we are making multiple client presentations every week for the remaining space we have procured. 83% of the construction costs have realized anticipated savings from our original budget and our projections remain on track for a stabilized unleveraged cash return of 7.5 to 8% upon delivery in 2029. We are in discussions with several potential equity partners for a 30 to 50% leveraged interest in the property and also have an agreed letter of intent with a consortium of banks for construction financing at attractive terms. We intend to complete the recapitalization in 2026. BXP’s current development pipeline, comprising six office, life, science and residential projects underway, totaling 3.4 million square feet and $3.6 billion of BXP investment, will deliver external growth over the longer term. So in conclusion we continue to successfully lease space and improve occupancy, creatively reposition and monetize non core assets and de risk our development pipeline through leasing, construction and capital raising successes. New construction for office has virtually halted leading to higher occupancy and rent growth. In many sub markets where BXP operate, debt and equity capital is available. For premier workplaces, BXP is building market share given our stability and consistent service to our clients and in many markets less competition. BXP remains comfortably on track with our business plan which if successful will lead to increasing portfolio occupancy and FFO per share, deleveraging external growth from development and a more highly concentrated CBD and premier workplace in service portfolio in the years ahead. And let me turn over our report to Doug.
Doug Linde (President)
Thanks Owen Good morning everybody. I’m going to speak towards demand this morning. For the bulk of my comments, we can debate whether technology companies today are overstaffed, whether remote work strategies have had a demonstrable impact on premier property demand, whether the massive capital investment from data center infrastructure has led to a different perspective on human capital from the large tech companies, and whether new AI models and AI agents will lead to changes in the makeup of the workforce. There are no answers, just conjectures. What we do know is that the US Economy has gone through many technology cycles since the invention of the personal computer 45 years ago, and in this cycle today there is dramatic incremental office demand growth from new organizations that are developing AI. This new technology demand is focused in San Francisco and more recently in New York City. OpenAI and Anthropic are clearly the most recognizable expansions, but there are many meaningful space occupiers expanding across our markets. Databricks, Perplexity, Decagon AI, Harvey, AI Sierra AI, Snowflake, to name a few. With Decagon AI and Snowflake being new tenants in the BXP roster, it’s clear that the clients that are growing are not the tech titans that expanded during the last decade, but there is meaningful office using growth in our markets. CBRE reports that there has been 3 million square feet of positive office absorption in San Francisco over the last seven quarters, including an extraordinary 1.4 million square feet in the first quarter of 2026. This backdrop is important because it is increasingly translating into tangible leasing activity. In the first quarter, BXP’s total leasing volume was 1.14 million square feet. As I discussed during our Investor day in Service vacant space leasing and covering near term lease expirations will drive our occupancy improvements and same store revenue growth. During the first quarter we executed leases on 700,000 square feet of vacant space and renewed or backfilled 235,000 square feet of 26 and 27 expirations post March 31st. Our current pipeline of leases in negotiation consists of 1.7 million square feet and covers 500,000 square feet of existing vacancies and 500,000 square feet of 26and 27 expirations. We start the second quarter with 1.44 million square feet of executed leases on vacant space that we expect to commence in 2026. In the next three quarters, the remaining calendar year of 26 expirations are down to 770,000 square feet. So if nothing else were to change we should pick up 670,000 square feet or 150 basis points of occupancy and end the year at 89%. The majority of our remaining 26 expirations are known, so near term upside will stem from leasing currently vacant space with immediate revenue commencement. We ended 25 with in service occupancy of 86.7. Our occupancy at the end of the first quarter is 87.4, an increase of 70 basis points, with about 57% of that gain stemming from improvements in the portfolio leasing and the balance due to changes in the portfolio including the sales described in the press release and the suburban office buildings I highlighted last quarter that we removed from service and expected demolish and then redevelop the higher value residential uses. Consistent with our portfolio optimization strategy, curvets are progressing quickly in Santa Monica and Waltham, Mass. Separately, we are finalizing documentation with an institutional partner to commence development at Worldgate in Hernet, Virginia where we purchased 300,000 square feet of office buildings and re entitled this as residential townhomes and apartments. We anticipate closing the venture during the second quarter and immediately commencing construction. We are in active conversations with new and renewing clients across all of our markets. Our total discussion pipeline, in addition to the 1.7 million square feet in negotiation is another 1.4 million square feet and we continue to anticipate a minimum of 4 million square feet of leasing in 2026. Consistent with what we put forth in our 2026 guidance post March 31, we’ve executed 300,000 square feet of leases so the total for the year stands at 1.5 million square feet as of today. We made a change to the way we were reporting our second generation leasing statistics this quarter. Instead of providing statistics on leases based on the economic impact date of the lease commencement, which is backward looking, we are showing the change in the rents for all the leases in executed in the current quarter where the comparative lease expired during the prior 24 months from the date of the new lease. Since all that data is in our supplemental, I’m not going to repeat it. I do have a few comments on the transactions behind the aggregate numbers. In Boston the data includes 100,000 square foot lease in the Urban Edge space that was previously leased to biogen. In New York, the bulk of the executed leases this quarter we’re at Times Square Tower where we backfilled a …
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