BXP, Inc. (BXP) Earnings

Management highlights

### Core Leasing and Occupancy Progress - Completed 1.76 million square feet of leasing in Q2 2026, bringing year-to-date volume to over 3 million square feet; Q2 leasing was 29% above BXP's 10-year historical Q2 average. - Occupancy has increased for three consecutive quarters, and the firm is well ahead of its 2026 target of a 200 basis point occupancy gain, with management now expecting to end 2026 closer to 90% occupancy (vs. the prior 88.2% average guidance). - 48% of Q2 in-service leasing volume was renewals, extensions, or expansions, and 52% was with new clients; long-term historical retention rates average 45-50%, with 2026 retention tracking higher at 60-65% due to strong early renewals of upcoming expirations. - Strongest demand and pricing power is concentrated in premier submarkets: Midtown Manhattan, Back Bay Boston, and Reston Virginia, with AI-driven demand concentrated in San Francisco, New York, Boston, and Seattle. ### AI as a Demand Driver - AI-driven economic growth is broadly benefiting BXP: AI companies are expanding space, companies displaced by growing AI firms need new space, and BXP's core professional/financial services clients serving the AI sector are also growing. - Premier gateway CBD workplaces are the most resilient to AI labor impacts: AI is more likely to displace remote/back-office roles that are underrepresented in BXP's core portfolio, and winning AI-era firms prioritize high-quality, accessible office space to attract talent, leading to less price-sensitive demand. - Unlike the prior overbuilt life science cycle, AI demand is for standard office space, and there is no speculative new office construction in BXP's core markets, limiting supply glut risk. ### Portfolio Optimization via Asset Sales - BXP is well ahead of schedule on its target of $1.9 billion in total net sale proceeds by 2028 from non-core assets (land, residential, non-strategic office). - Year-to-date 2026 net proceeds are $370 million, with over $1.2 billion raised since the 2025 investor conference; six assets are under contract for $240 million in additional net proceeds, with $180 million expected to close in 2026. - Total 2026 net sale proceeds could reach $1.7 billion by year-end, with additional non-core assets expected to be monetized gradually after 2026 as residential entitlements are secured and non-stabilized assets complete lease-up. - Transaction volumes for office are recovering from post-COVID lows but remain below pre-COVID levels, with most buying from opportunistic/family office capital; recent high-quality premier-adjacent transactions have traded at cap rates in the high 6% to low 7% range. ### Financing Update - Secured a competitively bid $1.2 billion 60% loan-to-cost construction loan for 343 Madison Avenue, priced at SOFR + 250 bps (reducing to 225 bps upon project milestones), with interest capitalized until 2029 delivery. - Preparing to refinance a $1 billion 3.5% unsecured bond maturing in October 2026; strong credit market conditions mean new 10-year debt would price near 6% at current Treasury rates, and BXP may use up to $300 million in existing cash to reduce the refinancing size and minimize dilution.

Guidance

- Q2 2026 FFO per share came in at $1.78, exceeding consensus and guidance midpoint by $0.08, driven by higher-than-expected portfolio NOI and lower operating expenses. - Full year 2026 FFO per share guidance was raised to a range of $6.99 to $7.05, a $0.05 increase at the midpoint: the lower bound was raised $0.09 and the upper bound increased $0.01. The upward revision reflects 6 cents of higher expected portfolio NOI growth, 3 cents of lower net interest expense, and 1 cent of higher fee income, partially offset by 5 cents of foregone NOI from accelerated asset sales. - Average 2026 portfolio occupancy guidance was increased 65 basis points to 88.9%, with year-end 2026 occupancy now expected to be closer to 90% (vs. prior expectations of ~88.2%). - Full year 2026 same-property NOI growth guidance was increased 30 basis points to 1.8% to 2.6%, aligned with accelerated occupancy gains. - 2027 year-end occupancy is projected to reach 91%, with long-term maximum stabilized portfolio occupancy expected between 94% and 95%. - 2027 guidance is not being provided at this time.

Segment performance

BXP is an office and mixed-use real estate firm focused primarily on premier workplaces in gateway CBD markets, with supplementary development activity for multifamily and life science assets. All performance is reported on a consolidated portfolio level as individual product segments are not explicitly segmented in the call: - Core Office Portfolio: In-service portfolio occupancy reached 88.4% as of Q2 2026, up 100 basis points quarter-over-quarter and 170 basis points from year-end 2025. Same-property NOI growth for 2026 is guided between 1.8% and 2.6% (up 30 basis points from prior guidance). Premier workplaces (BXP's core focus) have an 8% direct vacancy rate in BXP's four major markets, compared to 13.5% for the broader office market, and command a 60% rent premium over non-premier assets. - Development Portfolio: BXP has 7 active projects totaling 3.5 million square feet and $3.2 billion of BXP investment. Completed 290 Binney Street (a 570,000 square foot fully leased life science lab) delivering $20 million under budget and two months ahead of schedule, with BXP's 55% stake generating an 8.9% unleveraged cash return. 343 Madison Avenue (BXP's flagship New York premier office development) is 50% leased, on track for 7.5-8% stabilized unleveraged return upon 2029 delivery. The Reservoir Place retrofit for Boston Dynamics is underway, with a projected initial unleveraged cash return of over 10% including the inferred value of the existing building. - Multifamily Development: Launched the 359-unit World Gate multifamily project in Herndon, Virginia, with BXP holding a 20% stake in the joint venture.

Risks & headwinds

- Slower demand recovery remains in non-core tertiary markets, suburban urban edge markets, and West LA, with soft rent growth and higher vacancy persisting in these segments. - Traditional financial, professional, and legal services demand remains soft in San Francisco, and the majority of vacancy at Embarcadero Center requires incremental small, granular leasing activity that will take time to absorb. - Interest rate volatility increases refinancing risk for upcoming maturities, though BXP notes current market conditions are favorable for high-quality credit like its own. - AI demand long-term impacts remain uncertain; a slowdown in AI sector growth would negatively impact broad leasing demand across BXP's core markets. - Life science startup capital raising remains slow, leading to weak demand for new lab space in urban edge Boston markets, delaying absorption of available lab zoned space. - Faster-than-expected occupancy gains will increase 2026 leasing CapEx, which is now tracking closer to $500 million (up from the prior $400 million estimate), reducing AFFO in 2026 before positive cash flow kicks in 2027.

Analyst Q&A

• Q: How does the accelerated pace of asset sales impact 2027 FFO dilution, and will excess proceeds be used for stock buybacks? /

  A: BXP is on track to hit its $1.9 billion total disposition target by 2028, with ~$1.7 billion of sales completed by the end of 2026, meaning 2027 disposition activity will be much lighter. 2026 FFO dilution from asset sales is now tracking closer to 11 cents (up from the original 6-9 cent estimate), but 2027 guidance is not being provided this quarter. The firm's core goal is to reduce leverage to the lower 7x range, and any excess capacity after deleveraging could be used for new developments or stock buybacks, which management will evaluate dynamically. (278 chars)

• Q: Has faster-than-expected leasing changed your view of long-term stabilized portfolio occupancy, and when will that be achieved? /

  A: Management reaffirms the 2027 year-end target of 91% occupancy, and will not update that target yet even though current performance is tracking ahead of plan. Most remaining vacancy is concentrated in Embarcadero Center (San Francisco) and tertiary suburban markets, so the fastest incremental gains will likely occur in late 2027/early 2028. Long-term, management expects maximum stabilized occupancy to land between 94% and 95%, as some baseline vacancy is inevitable with 10-year lease terms and large client relocation risk. (321 chars)

• Q: What lessons did you learn from the prior life science boom that you are applying to today's AI-driven leasing demand? /

  A: Management notes a key structural difference between the two cycles: the life science boom led to widespread speculative construction of highly bespoke, expensive lab buildings that created a large overhang of unoccupied specialized supply. In contrast, AI demand is for standard, flexible office space, and there is effectively no speculative new office construction underway in BXP's core gateway CBD markets. Additionally, most of BXP's AI-driven leasing benefit is indirect: broader market tightening from AI growth, rather than direct leasing to startup AI firms, and BXP limits exposure to unproven AI startup credit. (356 chars)

• Q: What is the pricing for equity interests in 343 Madison, and when will you monetize your 30-50% targeted stake? /

  A: BXP already has a signed letter of intent for a 10% equity stake sale to an investor, expected to close this quarter, and continues marketing for additional sales to reach the 30-50% target. BXP, as original developer, expects a stabilized ~8% unleveraged yield on its cost, while the fully leased completed project is expected to be valued at a 5.5-6% market cap rate, allowing BXP to realize development profit as it sells down incremental stakes on favorable terms. (269 chars)

• Q: How does mark-to-market rent growth look across your West Coast portfolio? /

  A: Mark-to-market varies widely by asset: Mountain View has seen modest rent markdowns from prior peak levels, lower floors of Embarcadero Center (San Francisco) are also slightly marked down, but higher floors of Embarcadero Center have embedded upside. Prime San Francisco assets (680 Folsom, 535 Mission, Salesforce Tower) have material embedded rent upside, with Salesforce Tower expiring leases expected to see 30-40% rent growth on renewal. Seattle is modestly down and West LA is still lagging, but both make up less than 2% of BXP's total portfolio, so the impact is immaterial. (310 chars)