Q4 2021 Boston Properties Inc Earnings Call

January 26, 2022

[music].

Yeah.

And thank you for standing by and welcome to the Boston properties fourth quarter and 21.

Earnings call.

At this time all participants are in a listen only mode.

After the Speakers' presentation there.

Will be a question and answer session.

I asked the question.

<unk> session.

You will need to press star one on your telephone.

Be advised that today's conference is being recorded.

If you require any further assistance please press star zero.

I'd now like to hand, the conference over to MS. Helen Hahn, Vice President Investor Relations Ma'am. Please go ahead.

Thank you good morning, and welcome to Boston properties fourth quarter and full year 2021 earnings Conference call. The press release and supplemental package were distributed last night and furnished on form 8-K in the supplemental package. The company 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 of a copy. These documents are available in the Investor Relations section of our website at investors <unk> DXP Dot 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 Boston properties 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 the Companys filings with the SEC. The company does not undertake a duty to update any forward looking.

Statements.

I'd like to welcome Owen Thomas Chief Executive Officer, Doug Linde, President and Mike Labelle, Chief Financial Officer during our Q&A portion of our call Ray Ritchey Senior Executive Vice President and our regional management teams will be available to address any questions I would now like to turn the call over to Owen Thomas for his formal remarks.

Thank you Helen and good morning, everyone I'd like to start by introducing Helen Hahn Who's our new head of Investor Relations. Helen was formerly head of marketing for our Western region has been with DXP for over 15 years and has a deep wealth of knowledge about our company and people welcome Helen Great to have you here.

So today I'm going to cover Dxp's operating momentum the economic conditions that serve as a backdrop for dxp's operations as we enter 2022.

The current private equity capital capital market conditions for office real estate as.

As well as Dxp's capital allocation activities and growth potential.

Dxp's financial results for the fourth quarter reflect the impact of the recovering U S economy, and increasing needs for our clients for securing high quality office space.

Our <unk> per share this quarter was above market consensus and the midpoint of our guidance, we completed $1 8 million square feet of leasing our third consecutive quarter of significantly higher leasing activity.

It was 55% above the fourth quarter of 2020 and in line with our pre pandemic leasing levels.

With an average term of eight six years on the leases signed this past quarter at lease commitments by our clients continue to be long term in nature.

This success can be attributed to not only our execution, but also the enhanced velocity and economics achieved in the current marketplace for premium quality assets with.

With great amenities and transit access, which are the hallmark of DXP strategy and portfolio.

Now turning to 2022, we believe the market and economic factors, which impact DXP are on balance very favorable.

The omicron variant has been a setback in the course of the pandemic has proven hard to forecast most experts believe conditions will improve in 2022.

Resulting in more workers returning to the office and further improved space demand.

The economic recovery in the U S continues with consensus GDP growth predicted to be 4% in 2022 and.

And innovations in technology and life science remain promising and well funded a key driver for office and lab space demand.

Capital flows into the real estate sector will also likely grow further as investors one rebalanced their portfolios away from equities due to strong performance from the lows of the pandemic and to have a reluctance to allocate these funds to fixed income due to rising interest rates.

New office supply has also slowed down given the demand uncertainties created by the pandemic. Another long term positive for the office business.

Moving to the challenges interest rates are rising, which will likely continue due to the fed's current focus on inflation and signaling it will raise the fed funds rate multiple times in 2022.

DXP had significant and well timed refinancing activity in 2021, and therefore faces limited debt financing needs in the coming year.

Inflation is a greater challenge and has several dimensions rising construction costs will require higher rental rates to make development feasible. However, overtime higher replacement costs should increase the value of our existing portfolio of buildings.

The labor market is also very tight which contributes to our client's hesitancy in bringing their employees back to an in person work environment.

We have stated repeatedly we believe this phenomenon will change overtime, given widespread corporate dissatisfaction with the decaying of efficiency retention and culture associated with remote work.

So challenges persist, we see 2022 market conditions is a favorable backdrop for DXP to continue to perform.

So moving to the real estate capital markets, an all time record of commercial real estate sales volume was achieved in the fourth quarter and private capital market activity for office assets with similarly robust.

39 billion a significant office assets were sold in the fourth quarter up.

Up 35% from the previous quarter and up 90% from the fourth quarter a year ago.

Rates are stable or declining for assets with limited lease rollover and anything life science related and activity is increasing for assets facing near term lease expirations.

The Boston market was particularly active with two major life science recapitalization deals in Cambridge, selling for around $2200, a square foot and sub 4% cap rates.

Three significant deals in the seaport district, selling for approximately $500 a foot on a fee simple basis with cap rates at or below 4%.

Two CBD sales at 700 to $950 a square foot with cap rates in the low 4% range.

Notably in New York City, two major assets in the Hudson yards area sold in full or part for an average of approximately <unk> hundred dollars, a square foot and cap rates of four 5% to 5% on a stabilized basis.

In the district of Columbia for transactions completed aggregating $750 million with pricing, averaging approximately $5 50 to $600 a square foot on a fee simple basis and cap rates in the low 5% range.

And pricing in Seattle continues to escalate with deals closed or announced in South Lake Union priced above $200, a square foot of new local record and a sub 4% cap rate and Fremont at over $1000, a foot and a low 4% cap rate and in the CBD at around $750, a square foot and <unk>.

Mid 4% cap rate.

Regarding dxp's capital market activity and starting with acquisitions.

We closed on the previously described 360 Park Avenue South acquisition in New York City in December and placed the project into our active development pipeline two of our strategic capital program partners will co invest in the deal as capital is drawn for redevelopment, bringing our interest to 42% on a stay.

Obelized basis.

We continue to have elevating dialogues with potential private equity partners are pursuing an active pipeline of both on and off market deals in many of our markets and anticipate additional acquisition activity or value add assets with capital partners in 2022.

In 2021, we also completed non core.

Asset sales of $225 million and anticipate higher disposition volumes in 2022.

We completed a very active quarter with our development pipeline, we delivered fully into service 100 Causeway Street in Boston, The Marriott headquarters at 7750, Wisconsin Avenue in Bethesda, and the lab conversion project at 200 West Street in Waltham in the aggregate.

DXP share of these projects represents a million and half square feet of development and $460 million of investment.

Three assets are 98% leased being delivered below budget and ahead of schedule at a projected stabilized cash yield in excess of 8% and are projected to add $41 million to our NOI on a stabilized basis.

Given the market cap rates I previously described for high quality office of 4% to 5%. We expect these projects in the aggregate will create approximately $380 million of value above our $460 million in cost for DXP shareholders.

Also we partially placed into service Reston next and rest of it.

And we are continuously refreshing our development pipeline by adding just this past quarter 360 Park Avenue, South and 103 City point I speculative ground up lab development aggregating 113000 square feet in our city point development in Waltham, we have a very active pipeline of office and lab.

<unk> and redevelopment ready to announce when they commence expected later in 2022 and Doug will describe the strong leasing success, we are achieving with our lab development.

After all of these movements our current development pipeline aggregates, three 4 million square feet and $2 5 billion of investment is already 59% leased and projected to add approximately $190 million to our NOI over the next three years.

So in summary, we had another active and successful quarter with strong leasing and financial returns and are excited for our prospects for continued growth in 2022.

We expect significant growth in our <unk> per share this year, driven by improving economic conditions and leasing activity continued recovery of variable revenue streams delivery of a well leased development pipeline.

<unk> of four new acquisitions in 2021, a strong balance sheet.

Combined with capital allocated from large scale private equity partners to pursue additional new investment opportunities as the pandemic recede.

A rapidly expanding life science portfolio in the nation's hottest life science markets.

And well timed refinancing activity in 2021, and lower capital costs, So with that I'll turn it over to Doug. Thanks, Joe and good morning, everybody I Hope you all had a good new year.

I'm going to focus my remarks, this morning on our leasing activity.

As was evident in the <unk>.

Second press release, we sent out last night, our leasing activity press release, we had a pretty strong fourth quarter with activity spread around Boston, New York, San Francisco in the Metropolitan Washington D. C region. We ended the year with an occupancy pickup of about 40 basis points.

As we sit here today.

At the end of January we have signed leases for our in service portfolio that have yet to commence so they're not in our occupancy figures of more than 925000 square feet.

That 925000 square feet represents an additional 180 basis points of potential occupancy increase and.

And includes about 115000 square feet of 2023 commencement. So the majority of it is 2022.

We begin 2022 with over one 4 million square feet of leases in negotiation on space and the in service portfolio.

More than 425000 covers currently vacant space and about 450000 covers 2022 expirations.

During 'twenty two we have about two 8 million square feet of expirations in the in service portfolio.

Over the last decade.

Total leasing for this company has a range between $3 7 million square feet in 2020. So that's in the midst of the early pandemic and the economic shutdown and over $7 7 million square feet in those years, where we've signed some pretty large build to suit leases.

It's true some of the leasing we do each year encompasses early renewals and we'll talk about some of that today in leases or new developments, but a significant portion.

Of this leasing we do each year is our near term renewals in available space in the portfolio.

No.

With $2 8 million square feet of exposure nine.

925000 square feet of signed leases one $4 million in January .

Deals in the works so over 235 million square feet.

And with an annual expected leasing probably somewhere between three 7% and seven 7 million. We believe our occupancy is on an upward trajectory as we enter 2002.

The second generation statistics this quarter Merit, a little granular explanation.

San Francisco was flat due to a 50000 square foot lease down at our North first project, where we're doing short term deals with kick outs to allow us the flexibility to commence construction on the station project.

The EC leases.

So our CBD portfolio had a roll up of 13% if you take out that 50000 square foot lease.

In New York City, we terminated a lease with Citibank and went direct with the Subtenant, which is operating and conference center. The new rent for that floor is discounted but city made up hole throughout our cash termination payment.

Excluding that New York City had a 5% roll up.

Now Theres no question that army crop and the wave that hit us in November slowed some return to office states. However.

None of the leases that we have in negotiation have been delayed or impacted by a change in our customers' need for space.

With the month, while the month of December and the first two weeks of January were slow our leasing teams have had a very busy few weeks with more signed LOI and more active discussions I.

I would note that the vast majority of those conversations and our CBD locations have continued to be from the financial services and professional services sectors and that very well may be due to the function of the space that we actually have available in our portfolio.

The only area of our business, where we've seen a slight omicron blip is on parking revenue.

Transient collections are down modestly from our forecast for the month of January and we Havent quite achieved the same anticipated pickup that we thought we would in monthly permits, but we believe that this will be short lived and we'll start to see our projections turn in February .

I want to provide a few observations about our regional activities and let's start with suburban Boston Life Sciences.

We broke ground on our AAV Winter Street 243000 square foot lab conversion in July of 2021, seven months ago, We have signed leases for 165000 square feet and we are in negotiation for all of the remaining lab space.

The first tenant is expect to occupy during the back half of 2022 net rents are up 20% from our initial underwriting in March of 2021.

At 180 City point, we're negotiating a lease for about 50% of the new 329000 square foot building steel erection Hasnt started yet and it's hoped we're expecting it's going to start next month and we're hopeful to deliver the space in the fourth quarter of 'twenty three but the leasing since that demonstrates what's going on in the market.

We're eagerly awaiting the November expiration of our leases in the second Avenue buildings, we purchased last June where we can offer a 140000 square feet of lab space and expect a significant roll up in rents with.

With demand continuing to outpace supply we will commence construction as Owen said on another 113000 square feet at city point, which is in our supplemental we're calling it one O three city point very clever construction drawings are complete and we expect to break ground this quarter with a late 2024 delivery there.

Our traditional route 128 office leasing is also extremely busy there is office demand out there this quarter, we agreed to recapture and re lease.

$12 65 main Street 120000 square foot office building at city point in Waltham, We completed a 10 year lease as is with a 21% increase in the net rate.

At 140, Kendrick Street in Needham, We've announced Wellington commitment to lease 105000 square feet and we found a way to reposition the building as a net zero installation, which was extremely important to both DXP in Wellington. In addition, we have commitments for two other tenants for the remaining 80000 square feet of this project, which is currently.

Under lease and expires in November of 'twenty, two and finally, we are working on another 73000 square foot early recapture and backfill at our city point complex. This totaled 378000 square feet of traditional suburban office leases. These transactions will have rent roll ups between $7 40.

Percent on a cash basis.

Our CBD Boston activity. This quarter was primarily small transactions. We completed 12 deals for 80000 square feet. The average markup was 17% on a cash basis.

At the moment there are a few large office requirements in the Boston CBD and there is going to be new construction deliveries in 2023, our largest block of Cbd's basics and exposure is at 100 Federal Street will be getting back a 150000 square feet in early 'twenty three.

In New York City during the quarter, we had activity across the portfolio, we executed a full floor lease at dock 72, we completed a 108000 square foot lease at times Square tower, we completed more than 180000 square feet of leases at 601, Lex 42000 square feet at $2 $50 50, 589000 at the General Motors building.

Over 120000 square feet in Princeton the.

The individual mark to market in New York very greatly Youll recall, the single floor I called out last quarter, which really retarded, our statistics, where the rent went down by 50% well, we signed that 15 year lease extension for that floor and the rent is now up 71% on a cash basis.

The leases, we completed that the general Motors building were flat, while the leases at 250 West 55th Street range from up 2% to down 19% on a cash basis.

Our current activity in New York continues to be strong we have multi floor lease negotiations underway at GM 601, Lex and 510 Madison along with a number of smaller transactions in those buildings.

<unk> activity is in excess of 525000 square feet.

As Owen discussed we completed the purchase of $3 60 Park Avenue, South we are working to complete our base building system modification plans as well as our <unk> program and even though we havent formally begun to market. The asset we have been responding to inquiries and tours physical construction work will commence during the month of February so in a couple of weeks.

In the San Francisco CBD large tech demand has largely been absent from the market other than companies upgrading their space through opportunities opportunistic sublet space that buildings like our 680 Folsom, the macys and the Riverbend sublease sub leases in at 350 mission Salesforce sublet.

The bulk of the activity on a direct basis has been in the financial district, and it has been confined to the better buildings with professional services and financial firms.

We went out on a limb this quarter and we ask John <unk> and his team from CBRE, who does work for us to segment the premier buildings in the city.

People can debate, whether it's the perfect list or not but it totaled 20 million square feet or about 23% of the market and includes our entire CBD portfolio. The current vacancy in this portfolio of 20 million square feet is five 3% and if you add sublet space. It grows to about 8% now I've made the point before but you can't.

Simply look at the overall market availability statistics, and make assumptions about where rents and concessions might be in this market. We completed 112000 square feet of CBD deals this quarter and our cash rents increased by 7% with an average starting rent of $103 a square foot.

Similar to our labs success in Boston, our venture with <unk> successfully executed a full building lab lease at 751 gateway in South San Francisco.

The venture intends to commence the conversion of $6 51 gateway to a life science building over the next few months. The advantage for this project is time to delivery relative to a new building, where we can see six months off versus ground up construction.

Last quarter I described our efforts to gauge pricing as we consider the restart of platform 16 in San Jose.

Our total base building construction cost increased just over 13% relative to the pricing we had 24 months ago.

We continue to see meaningful cost increases and material availability issues across all trades in all of our markets. As an example, the lead time on base building mechanical systems. Once you have a proved drawings has doubled from 20 weeks to 40 weeks, which means you have to make decisions much earlier in our construction schedule.

Or risk delays, we're doing that.

The class a silicon valley leasing markets had a particularly strong 2021 with a very healthy net absorption and just last week, we got wind of another 500000 square foot office tenant expansion not one of what we refer to as the Tech Titans in the Northern Peninsula and platform 16, if we start won't deliver until.

Early 2025.

I'm going to finish my remarks, this morning on greater Washington.

During the fourth quarter, we completed 11 office leases in Reston totaling over 140000 square feet. Every deal was on previously vacant space rents have held firm in the low $50 with two 5% annual bumps that low sixty's with similar bumps for our new project at RTC next the.

The first phase of RTC next has been delivered to Fannie Mae as Owen described and we completed our first non anchor lease during the quarter. This project is 85% leased it as transformative to the reps in skyline and it's a five minute walk to the heart of the town Center retail, where we completed over 60000 square feet of retail leasing again with new tenants on.

Currently vacant space in the district, we continued to chip away at our current availability with our JV assets with about 100000 square feet of leasing we've delivered 2100% of our anchor tenant for their tenant improvements and we're working on filling the remainder of that building.

In Boston, and New York and in the Metropolitan DC area, we have seen a swift reduction in Covid related cases are daily tenant activity is starting to rise again.

Employers continue to search for new employees to circle back to Owen's comments about quality employers are going to want to use their physical space to encourage their teams to be together. Our mantra has been to create great places and great spaces to allow our customers to use <unk> as a way to attract and retain their talent. If you believe that.

<unk> may be spending less time in their office, it's even more important to have the right space and place when they are here with that I will turn the call over to Mike.

Great. Thank you Doug good morning, everybody.

Each exceeded the midpoint of our guidance range by <unk> <unk> per share and was <unk> <unk> per share above consensus estimates.

The performance of our portfolio drove <unk> <unk> of the improvement and higher than projected management and development fees added ascent.

I would place the portfolio outperformance in four buckets first income from earlier than anticipated leasing, particularly in San Francisco in Reston in San Francisco, We executed 210 year renewals aggregating 65000 square feet at a significant pickup in rent and several smaller new leases with immediate delivery and <unk>.

<unk>, we signed a 90000 square foot new lease with a technology company with space delivery on lease signing.

We also collected payments from several tenants on receivables that we had written off in 2020.

Second we achieved higher service income due to an increase in utilization from better physical occupancy in New York City during the quarter just prior to the impact of the <unk>, Our New York City portfolio census was running close to 70%, which represented a big pick up from the third quarter.

Third we experienced stronger parking revenue and hotel performance.

Parking revenue totaled $23 million for the quarter up 8% from the third quarter, It's now running at 82% of its pre pandemic right.

So that means there is an incremental $20 million or <unk> 11 per share on an annual basis, we should be able to recapture to reach prior levels.

Our hotel operated at 50% occupancy during the quarter for the full year 2021, and operated just above breakeven only contributing $600000 to our <unk>.

This compares to its contribution in 2019 of $15 million a difference of <unk> <unk> per share that we should recover in the next couple of years.

And fourth we recognize income from the delivery of the 733000 square foot Marriott World headquarters development, a month earlier than we anticipated in.

In addition to delivering early our costs came in well below budget. So it's investment return profile is exceeding our expectations as well.

The last item I would like to mentioned about the quarter as a reminder, that as we guided last quarter, we incurred a loss on extinguishment of debt of 25 per share for the redemption of our $1 billion of 385% senior notes that were due to expire in early 2023, we funded the redemption with an 800.

$50 million to 45% senior notes issuance in the third quarter. This was an opportunistic trade due to our views that interest rates were likely climbing we feel good about our decision as rates have increased by about 50 basis points since we locked in at a one 3% 10 year treasury rate.

We made a similar decision with our billion dollars mortgage refinancing on 601 Lexington Avenue that we closed this quarter at a 279% coupon for 10 years. The underlying loan carried an interest rate of 475% and was not expiring until April of 2022, but we had the opportunity to pay it.

With no penalty starting in December of 'twenty one.

We closed it on the first day available and priced off of 148% 10 year Treasury rate again significantly lower than current rates, despite increasing the mortgage by approximately $400 million.

We will see lower interest expense due to the 200 basis point reduction in the overall coupon.

And as Owen mentioned, we now have limited debt expirations over the next couple of years.

Now I'd like to turn to 2022.

Doug described the leasing activity, we are seeing heading into the year, which adds to the confidence we have in our growth profile.

As a result, we are increasing our <unk> guidance range to $7 30 to $7 45 per share for 2022.

Our new midpoint is $7 38 per share and it's <unk> higher than last quarter. The.

The increase is coming from higher projected contribution from the in service portfolio as well as higher anticipated development fee income.

You will notice that we brought down our same property NOI growth by 25 basis points, this quarter, which might appear inconsistent with an increase in our guidance. The reduction is primarily due to the stronger performance we experienced in the fourth quarter of 2021, which increased our starting point.

This includes the earlier than projected leasing in Q4 that is reflected in a higher occupancy onetime cash receipts from our collections and higher than expected service income, where our future projections are more conservative.

In addition, Doug described two lease recaptures in our suburban Boston portfolio, where we have new tenants coming in at higher rents, but we will have some downtime between leases the rent during the downtime has been covered by the exiting tenants, but thats recognized as termination income which is excluded from our same property income all of these are paused.

<unk> results.

We only brought down the top end of the range. So in effect. The bottom end is actually hire our new assumption for 2022 same property NOI growth is 2% to 3% from 2021.

We also reduced our assumption for 2022 cash same property NOI growth and our new range is 5% to 6%, which represents strong growth year over year.

The only other meaningful change to our guidance is an increase in our assumption for development fee revenue to 24% to $30 million, an increase of $2 million the improvement relates to additions to our development pipeline at 651 Gateway and 360 Park Avenue South.

Overall, we continue to project strong <unk> growth of more than 12% in 2022 from 2021 at the midpoint of our range.

We expect our near term growth to come primarily from delivering new office and life Science developments and our 2021 acquisition program. These are expected to add an incremental 43 per share or six 5% to our 2022 <unk> at the midpoint our guidance does not assume any new acquisitions in 2022.

<unk>.

We also projected benefit from our well timed refinancing activity last year, resulting in 35 per share of lower interest expense and debt extinguishment costs in 2022 at the midpoint of our range.

For the first quarter of 2022, we're providing guidance for funds from operations of $1 72 to $1 74 per share as a reminder, our first quarter results are always lower due to the timing associated with stock vesting and payroll taxes, plus the seasonality of our hotel.

In summary, we remain confident in the growth trajectory of our business, we're seeing strong leasing activity in our portfolio that we expect to result in occupancy and income gains in 2022, and 2023 and <unk> and in addition to the $2 5 billion of existing development. We have underway that we will deliver over the next two years.

We have numerous sites under ownership, where we're working towards new starts in the coming months.

That completes our formal remarks.

Operator can you open up the lines to questions.

Thank you Sir at this time to ask a question you will need to press star one on your telephone keypad.

So we got your question right.

Please standby, while we compile the Q&A roster.

And Sir we have our first question from Manny.

Korchman from Citi you.

You May ask your question.

Great, It's Michael Bilerman here with Manny.

I was wondering if I can get your opinion.

Boston properties has always been focused on the highest quality office space the highest quality buildings in the pop market, which is.

It's been very good for the company over.

The history.

And as we think about going.

<unk> pandemic.

Talked about the desire of.

Companies to have great space to encourage and provide a reason for their employees to come back how do you think despite fabrication in the marketplace is going to play out in terms of the type of stations that you own today.

Plus arena, and then everything else and because that class a plus.

The minority of the entire office stock how do you think all of that class B and C office space will trend is it just going to be a ramp in <unk>.

<unk>, which which made the past rents overall or is it just going to need a substantial amount of capital to redevelop those assets either into more modern office space or into other property types and how do you think all of that's going to ultimately affect the broader office market.

Yes.

A lot there to unpack, Michael but I'll do my best.

So agree with what you said at the outset DXP strategy back to our founders is to have great buildings in great locations, we say it today more great place in space, It's always been a hallmark of the company strategy. It's always worked and it's actually even more important.

Because of the pandemic.

Doug and INR remarks kind of articulated what you said, which is we.

Do think companies are going to return to the office. We do think hybrid is here to stay and we do think it's going to be very important for Ceos and company leadership to have great offices that their employees want to work in so having buildings that have great amenities that are located near transit.

All of those things are going to be increasingly important to entice workers to come back to the office. So I think the bifurcation between the top of the market and the rest of the market. It's growing right now and it's going to grow further Doug gave you the very interesting stat on San Francisco the Agri.

<unk> availability stats on San Francisco, or 27% and he gave you the data on the top 20% of the market, which is actually 5% vacant that's incredible.

Think about it.

So so the bifurcation is increasing so now coming to your question whats going to happen with the.

The more modest quality buildings.

I think it's very case by case building by building city by city and neighborhood by neighborhood I do think the office markets will recover the economy will grow.

Some of those buildings will get leased his office I do think it's going to be very competitive and probably harder to push rents.

Land in places like Manhattan is incredibly valuable so there could be a reuse of a lot of these properties I mean office.

Any offices that are.

Were created for large corporate users have large floor plates and they don't theyre not very well suited for conversion to residential because of the bay depth, but there are exceptions to that and I'm sure. We'll see creative developers change some of these buildings to residential some may get torn down and made into something else.

Some may be made into <unk> been buildings in New York that have been renovated were setbacks, we're put into an older building and floor is added to the top so there'll be a lot of creativity that goes into it and I think slowly over time youll.

Youll see some conversion of this stock in between the economy growing and some stock being taken offline I think the markets will ultimately firm up but but this bifurcation between quality and commodity is going to continue and widen.

Yes.

Hey, guys its Manny here.

Mike I have a question for you if I think about your guidance in totality.

I think everything you mentioned.

Call today was a positive lift to guidance.

Notwithstanding the ranges given a better 2021.

Hmm.

Now what are the negatives offsetting some of that because if I add together all of the positives I'm getting more lift than sort of the lift to your midpoint. So are there negatives we need to think about is it.

Something else within the range, that's keeping you from raising more or is it just conservatism like how do we think about that thanks.

Look I mean sure there's conservatism in this environment and we were delighted to see the increase in leasing activity.

And that leasing activity that Doug is talking about.

We will result in signed leases, but the question for US is when those leases go into occupancy and so how much of that goes into 'twenty, two and how much of it is a little bit later because in many cases, we have to wait until the tenant build out the space to start recognizing revenue on these spaces. So we have to judge how long that is.

To take.

I think our trends are very positive.

But the sales cycle and the build out cycle is not immediate.

In all cases, so we have to judge that into our guidance. So I think thats that's part of it.

We brought up the low end of our guidance pretty significantly the.

The reason that we're doing that is that some of the activity that we're seeing in getting leads us to the computation that we.

We don't believe it's possible to be at that low end that we had before.

We've gotten some of the stuff.

We haven't gotten enough at this point to feel like we should be increasing the high end. So we've kept the high end, where it is and so thats, how we kind of build our guidance ranges there really hasnt been.

Any kind of meaningful negative occurrences.

That are in our guidance.

We talked a little bit about the same store, which is mostly due to positive things that happened.

So theres really no negative occurrences that we put in any of the items that we put in our guidance.

Not at all meaningful.

Alright, thanks very much.

And Sir we have our next question from Nick <unk> of Scotiabank you May ask your question.

Thanks, I just had.

First a question on maybe you could give us a feel for what the rent spreads were on new signings.

Just the commenced.

<unk> that you gave for the fourth quarter.

Okay, I thought I did that.

All the way along.

If you just sort of go back and look at my remarks, I basically said that the leases.

The leases that we signed this quarter, where I think I said.

Between 7% and 14% in the greater suburban Boston market.

<unk>.

5% plus or minus.

And certainly the assets in New York City, and flatten other assets in New York City, 7% in Embarcadero Center, Washington D. C. The issue is that all of the space that we lease was vacant. So there is you cant have a markup on a vacant space, obviously, because it's infinite so in general they were trending positive call it 2%.

At 250, West 55th Street, and some leases and negative 17% on a couple of other leases too positive.

Positive 71% on the lease that we signed at 601 Lexington Avenue with the tenant that had short term space.

Got a good deal on for them.

So it was really variable, but net net it was all positive.

Okay. Thanks, Doug second question is just going back to San Francisco and you kind of had this interesting dynamic going on there where your rents are up at Embarcadero Center.

It looks like they are up average rents in the buildings versus the end of 2019 at this point yet the occupancy is down.

It is down.

It looks like its down like over 700 basis points on average for those buildings, so sort of worse than the overall portfolio also it looks like the vacancy there is.

Around 11% for those buildings, which I'm trying to square away with when you talked about 5% vacancy for some of the premier buildings in San Francisco and so just trying to understand like what's going on with those buildings.

Versus the market out there.

Yes, so the so just to sort of refresh what I said, so the top call. It 20 million square feet of space includes the vacancy at Embarcadero Center. So that's in that statistic of 5% overall for that quote unquote portfolio of Premier building.

The vast majority of our availability at Embarcadero Center is at the low rise of EC one in the lower <unk>.

Unfortunately, we don't have very much in the way of blocks of space. So it's a floor here and a floor. There we have activity on some of that space. Some of that space is needs to be fully demolished because it's got in some cases, that's just from the original user of the space 25 years ago and where they are.

Tenant moved out and some of it is.

As the space or is it just an installation and it doesn't make sense anymore, we will make hay on some of that space during 2022.

We don't have rosy projections for getting to 5% availability in those buildings and during the year, but we're pretty confident that the space is going to lease at healthy rent, obviously low rise Embarcadero center, one is different than the top of <unk> four right. So there's the rent differential between those two.

Two kinds of space.

Okay very helpful. Thank you.

And Sir our next question from Craig Melman.

Keybanc capital markets you May ask your question.

Thanks, Mike maybe just to follow up how much of that four cents kind of upside in the quarter was from the <unk>.

Collecting the payments and how big is that bucket as we head into 2022.

I would say it was close to a penny.

For the quarter and.

I don't think I can tell you right now exactly how big that is and we're not assuming that we're going to be really collecting anything more.

So I'm not looking at anything that I don't that I think is significant that will be coming.

In 2022.

On collections.

We're projecting zero effectively for that number.

I do I wouldn't say that the one thing that could happen in 2022.

Is the return to accrual of some of the tenants that are in non accrual.

And we are not projecting any of that either but we are watching these tenants some of the retail tenants and other tenants that we have.

But we're not accruing rent for right now.

They continue to kind of be successful and pay rent and generate sales.

There is the ability for us to bring those tenants back to accrual.

Which will in certain cases have an impact on our earnings although it will be a noncash impact on earnings. It's just bringing back kind of a former straight line.

That's another impact the outcome of some of the things that happened in the last few years.

Okay. So you don't necessarily need to do a blend and extend you just have to feel better about their ability to pay for it to flip back to accrual yes.

We may do an analysis and make judgments every quarter and all of the tenants that we wrote up their accrued rent balances in 2020.

And try to figure out when the right time, when it's justified for us to bring them back.

I think Craig that Mike talked about in the past that there are sort of the.

Three primary buckets of tenants that are in those areas co working as one it's the largest.

Then.

I guess you would refer to as entertainment retail. So we have a number of cinema operators and all of our markets that were on non accrual with and then we have a number of local.

Operators, mostly in the food and beverage that still are struggling relative to where they were in 2019 from a revenue perspective because of the.

Lack of foot traffic in certain parts of the country.

Okay.

Helpful and then.

Just separately it seems like you guys got approvals at the MTA site or it continues to move along can you just kind of give us some thoughts on how to think about maybe that site or in general. How you guys are thinking about the developments here as construction costs are rising rents on new space are holding steady.

Yeah.

Kind of just your thoughts on what required returns of the Davita to think about starting that.

Sure.

And then more near and medium term yeah. So let me let me give you a general comment and then I'll ask Hillary who is officially here as our new regional leader in New York to comment on.

343 Madison Avenue.

It is quite clear that construction costs have been going up at call. It very high single digits on an annual basis.

And if you don't have rents that are appreciating.

Commensurate rate via returns, they're going to be challenged right unless you have great land basis.

We happen to have that in our portfolio across our.

Life Science development platform, because we have lots of embedded opportunities in the portfolio. So we have a long runway to go.

I describe what's what's going on with platform 16, and our calculus. There as that market continues to have some real strength to it and we probably will see outsized rental rate growth over the next couple of years because of the lack of class a inventory and therefore, we will likely with our partners.

Decision in the next couple of months as to whether or not we want to move forward with accident is not going to deliver until 2025.

Those are the kinds of.

Conversations, we're having I'll, let Hilary described sort of a timing associated with $3 43, Madison because that's a decision that's really not in front of us tomorrow.

And there is some work to do with regards to getting the site quote unquote enabled to truly commenced construction Hillary.

Thanks.

I would first of all Echo what Owen said about high quality, new construction office assets commanding premiums in rents relative to more commodity <unk>. So thats something that obviously weighs in favor of the potential at <unk> 43, Madison, but in terms of our ability to launch construction of the project. We do have some leg work ahead of us.

In terms of demolition and in terms of some work that we have to do with the MTA to be ready to proceed. So it's a decision that we'll be making it al.

Sort of I'd say near to medium future, but it's not an immediate decision ahead of us.

Okay.

Thanks.

And Sir we have our next question from Steve Zach.

Evercore ICI.

ICI you May ask your question.

Thanks, Good morning, maybe.

Maybe just first question just broadly on San Francisco, it's been the biggest kind of urban city, that's really struggled to bring people back in.

Crime and homelessness have really kind of deteriorated living conditions in the city. So I'm, just curious sort of Owen or Doug what your sort of conversations are with EMEA or other business leaders in the city that kind of right. The ship in San Francisco and what do you think the timeline looks like for that.

Good morning, Steve.

Look I think I would acknowledge what you are saying and I've said it on previous earnings call San Francisco The city of San Francisco not the Silicon Valley has been hit the hardest of all of our markets because of the pandemic and I think it's.

Related to one technology companies being.

Frankly behind the other clients that we have in terms of returning people to office and also I would say very restrictive COVID-19 regulation very conservative Cove.

Regulation in San Francisco.

Occupancy requirements mask wearing all that kind of thing.

So look I and Bob May want to comment on this I think there is an increasing.

Increasingly increasing voice in San Francisco that is concerned about the issues that you raise around homelessness and crime and getting the city open and it is our hope over time that those voices will be heard in San Francisco will be able to recover again, we look at the whole Bay.

Area as the leading computer science knowledge cluster in the World and we do think that bodes very well for the city of San Francisco, but acknowledge that these factors that you mentioned do you need to be addressed Bob is there anything you want to add.

Yes. The mayor has publicly stated that things have to change in cheese.

Working on a plan right now to get more policing and more comps out on the street. So I think you will see a change John and I were on a call with other business leaders in San Francisco yesterday.

And there is clearly an outcry from the business community that things have changed so.

<unk> given some time you will see a change and hopefully the DEA gets recalled and we get somebody in there that will start enforcing the laws.

I also thank Steve I would just also add too I think there is a.

Circular logic around the crime homelessness situation and return to office I mean, obviously, the street's need to be safe for people to return, but the more people that you have on the streets go into the office I would allow that I think that creates safety because policing is obviously important but also protection.

Each other is also a key to security and city. So so both of these things need to happen in tandem.

Yes.

Okay. Thanks second question, maybe Doug you talked about the large pipeline of deals that you've got and.

No it's hard to.

Maybe.

Just collectively talk about deals or it put averages, but when you think about the space needs and how people are planning and whether theyre downsizing. Our upsizing just whats sort of the general discussion that youre seeing kind of with the deals that are sort of in progress today and and.

What are the changes do you sort of expect from a design perspective and kind of space utilization.

Yes.

I would say categorically that.

80% of the tenants that we are having conversations with today are growing not shrinking.

And I would say that most of those customers are in the finance.

Asset management.

See private equity.

World in both New York, San Francisco and Boston.

And then some tangential professional services companies and I would say that professional services companies are probably the 20% that is probably not growing and would consider some modest reduction in their space.

The the architectural decisions associated with planning for 2022 and beyond belief.

Believe it or not are very very consistent with what they were in 2019.

The ways people are planning space are for the most part the same on the margin. There is no question that that that architects are talking to their clients about trying to create better and more interesting quote unquote common areas or community areas or gathering areas. Our conference rooms. However, you want to define it.

It.

From a client perspective, but the physical space that is being utilized by these companies that are in our portfolio growing right now.

I don't think you would be able to distinguish much about what is being built in 2022 versus what was built in 2019 and to some degree it's a little bit of a surprise.

If you go back to work to listen to my comments in calls calls over the last call it six to eight quarters.

Think that we're still not in a position where anybody who is in what I would refer to as a technology or a corporate business understands what the cadence of their team is going to be as they come back to the office and it's very hard I think.

Monumental changes until you really understand what the impacts of that cadence is and whether or not it works I mean people truly don't know I believe how productive and how accepting a quote unquote hybrid or a partial workday in person is going to work through lots of industries until they start to incur.

And get their folks back and we're just we're not where unfortunately, we have been delayed and delayed and delayed in getting there. So so I wouldn't be surprised that there'll be changes in the next cycle, but it's not there yet.

Great. Thanks, that's it for me.

And speakers our next question from John Kim from BMO Capital markets you May ask your question.

Thank you good morning.

You mentioned in your prepared remarks the widespread.

Corporate dissatisfaction with reduced efficiency and employee retention I was wondering if you could elaborate on that statement.

Is this purely anecdotal.

And does that include tech companies, who have been really pressing this news button on returning to work.

Yes, well I think by definition, it's anecdotal although there is surveys that have been done by.

Various <unk>.

Service providers in architecture and in real estate, but it.

Is from a <unk>.

Have 53 million square feet filled with some of the leading companies around the country and we speak to our clients and we speak to potential clients as well and I think we have a good handle on this.

Would just summarize it by saying that I have not spoken yet to a business leader, who thinks working fully remote is good for their companies and they want to make change.

What's been making the change more difficult to happen are really two things. One these new variants that keep coming up so we had delta at Labor day, and we've had omicron over the most recent holiday and Thats.

That's delayed their return to work and I think the other thing Thats out there is the tight labor market.

The.

You've watched all the NFL playoff games over the last couple of weekends I don't see a lot of empty seats theaters in New York, Our full restaurant reservations are hard to get.

People are certainly comfortable doing a lot of things in person yet, they're not coming back to the office. So I do think the tight labor market is impacting business leaders willingness to.

Be.

Be more aggressive about having their employees come back to work, but I do hear from them concerns about the retention that they've had the difficulty in training new employees.

Turnover rates for employees that have been hired post pandemic versus turnover rates that were of employees that were with the company before the pandemic.

All of these metrics.

When Ceos look at them.

Have concern.

And yes by the way on the technology side.

We have spoken with many many corporate leaders at major technology firms and I would describe that as slightly differently in that they had a remote enabled workforce before the pandemic.

Their technology companies and look at the kinds of spaces that they all created with all of the.

Collaboration space the amenities, they provide foodservice and all of those things.

That was all going on even before the pandemic. So I think what the pandemic is driving as those kinds of strategies by companies.

In other industries, it's migrating across the industrial across the industry landscape.

A couple of the Arsenal Bryan Koop, Bryan Koop from Boston.

Trend that we're definitely seeing and it started probably 90 days ago, but it has accelerated over the last 30 years every time our team comes back from a tour.

There is a noticeable change in who is on a tour tremendous amount of C. Suite players. Many leaderships of all departments et cetera, we've done tours with as many as 10 to 15 people highly unusual in the past where the leaders would definitely come in later theyre coming in much earlier and they are.

Far more proactive about the design of this space what the goals are and what their intentions are and there is a real realization. We think by these leaders that going to work is no longer an obligation going to work as a destination and they want to make sure. There is many things at that destination as humanly possible.

Possible for them and it's been really refreshing to see this pro activity of the leaders and our team has been really having a lot of fun coming back on you wouldn't believe who is on this first tour.

Great. Thank you. My second question is a follow up on the others' commentary you've had versus your guidance.

Doug you mentioned 180 basis points embedded occupancy uplift from signed leases not commenced I think that number increased a little bit from the prior quarter.

But you kept your occupancy guidance.

Basically flat from current levels at the midpoint.

Is this purely just due to timing of leases that you plan to sign or do you also expect termination.

Leases terminated to increase as well.

It's actually it's at 100% John based upon the timing of when the actual rent commencement is going to be I mean, I'll just sort of give you a.

The kind of example that we're working on and how it sort of manifest right. So so we have we have some we have lease expiring at 601 Lexington Avenue in the latter half of 2022, we are already in discussions least lease negotiations like paper is moving back and forth with the tenant.

On 150 out of 200000 square feet of space that is expiring.

I don't know how that is going to shake out as to whether or not we're going to end up demoing demoing. The space and then delivering to them where theyre going to take it as is the difference between those two things is 18 months potentially of term in terms of when we are able to recognize the revenue. So we have so many of those kinds of corky trans.

Actions, if you will going on that Youre going to hear me talking about I suspect as we move into the year larger and larger amount of space that we have leases that were.

Sign that's not yet in occupancy that number is going to grow which I think is a great thing and because that revenue is shortly coming in and it's very contractual and it's very long term, but in the short term, it's hard for us to sort of gauge how it is going to impact our occupancy numbers.

Great. Thank you.

Speakers, our next question from Jamie Feldman.

From Bank of America, you May ask your question.

Great. Thank you and good morning.

All this talk about Capex and improving asset how are you thinking about just the cost to run your business and the Capex load for your business versus history is it going to cost a lot more to stay competitive in this new environment or.

It kind of similar to what it's always been.

I think it's it's it's.

For our portfolio, it's probably similar to what it has been because we've done so much already right.

Yes.

I don't mind doing this because I think it's important.

When you look at our major CBD assets, which is where the bulk of the costs will be.

The new project because occurred right. So if you go for example to Embarcadero Center. We just we spent a lot of money and a lot of time were rebuilding all of the lobbies.

123 and four.

If you go to a 100 Federal Street, you see that we rebuilt and created this really unusual place at the base of the building.

If you go to.

New York City, and you look at what we did at 601 Lexington Avenue with the hue and the redo of the lobby that was done at 399 with the facade and the changes that were made to $5 99.

We've been doing this work on a consistent basis, so I don't think youre going to see.

A major change in the way we are continuing to want to do that to all of our buildings on a consistent basis and so I don't think youre going to see a quote unquote big Spike in Capex, but I do think it's going to be consistent and.

And we think of that way you have to be refreshing your buildings and thinking about how you can maintain and upgrade your mechanical systems Youre destination, which is your elevator systems Youre lobby entrance is the amenities in the building we've talked earlier I think.

In past calls about what we're doing at the General Motors building, where.

We've got a major amenity center that we've been working on for three years, and it's going to hopefully be opening up at the end of this year and it's going to be from our perspective, a real change for what those tenants have.

Literally in their building for for both health and fitness in conferencing as well as food and beverage. So we're just we're just doing that all the time everywhere and I don't think you should anticipate that it's going to stop but I don't think I don't think you should anticipate that is going to somehow increase.

Okay and in terms of your comment about people wanting more common space.

You think that affects just the ti load or not necessarily.

I can tell you.

There are two reasons tis are going up across the board. The first is.

It's a more competitive market right. There is more available space and therefore, our economics are more competitive and to it's a lot more expensive to build out space today.

The increases that we're seeing in the escalation on the Ti side for any kind of installation are very significant and so our contribution to that is not even making up for what the tenant is ultimately going to be putting in their space. So it's all sort of part of the same challenge which is.

The issues associated with the supply chain and the amount of people who are working across all kinds of industries in all kinds of trades and labor.

Okay.

Then.

I appreciate your comments it sounds like you're generally think theres more at least flat or maybe even expansion leasing you're seeing.

What are clients what are tenants, saying about the hotel decision do you think that that decision has been made for a lot of people already or do you think that's something that.

They're going to figure out as time goes on just in terms of the people sign up for space is needed or do they have dedicated space.

So I think that there are companies who are predicting that they will have space that is not necessarily available to every person every day, meaning theres going to be have to be some sharing of space.

Think that it's on the margin, but I think it's absolutely happening and it's going to be.

Not for the entire organization is going to be for certain components of it. So let me give you an example.

We have a customer who is in the asset management business and I think there are portfolio managers theyre going 100% have dedicated offices I think if they have a group of people who are in the technology side of their business.

We don't necessarily have to be in the mother ship anymore.

The location they may take some suburban space and those people may not have a physical permanent home has a seat, but they'll have a place where they can go when they want to go to work.

Youre going to see those types of.

Decisions that are being made.

We've seen very little decision by large companies that are saying, okay. No longer are we allowing people to have their physical space dedicated to them on a day to day basis, and theyre going to have to sign up on a daily basis that you are not seeing that with the googles the facebooks or the the large tech companies. We're seeing those people continue to want their groups together and want their people.

Again, as Bryan said earlier be encouraged to come to work and if you are being encouraged to come to work you want to have a physical place where you know you're going to be going with you there.

Okay, great. Thank you.

And our next question from Alexander Goldfarb.

Sir you May ask your question.

Oh, great good morning, and thank you.

Two questions Big picture, one Owen and Mike the guidance question.

Oh I understand the need for companies to get people back to the office culture perpetuation of of of the company training and all that stuff, but we're now going on the third year of this sort of new normal and absent a weaker economy that suddenly weakened the labor market and gives man.

<unk> more leverage at what point do you do that.

Tennant suddenly say this new normal is the new normal and maybe we do need to adjust how we lease space or use space.

That part I'm sort of curious because we're now on as I say year three of this sort of new normal.

Yes.

Alex Yes look I think a lot of our clients are predicting a new normal and thats from full time in person work to more hybrid work, but.

As we've talked about over and over again, we don't see our clients, saying, we don't need an office anymore again, we keep talking about this leasing statistics for the fourth quarter of $1 8 million square feet.

Pre pandemic levels for us if people were going to use their offices why are they making these lease commitment so.

We see it.

Employers, bringing their employees back to the office.

And again as I mentioned I think there is and by the way I think with many workers today Theres pandemic fatigue I think.

I don't think this is true across the board, it's very anecdotal, but you hear that more and more of employees wanting to come back.

The camaraderie for the learning the training that goes on in the office. So I do think this will change I look we need this omicron variant to cool off.

We need some of these health security issues too.

Ill get back into a position closer to where they were last fall. When we started to see some very serious increases in our census, and we think that will be going on.

The winter and spring progress in 2022.

Well, I mean, theres definitely mask and Covid fatigue, that's for sure Mike on the guidance front.

<unk> partners so to channel.

John <unk> on a three parter.

So first is what degree of dispositions are in the guidance and if you guys do the elevated dispositions would that impact guidance. The next is you.

You mentioned $11 million of missing parking is that quarterly or annual and then finally on the third quarter call you mentioned $52 million to go on the Covid recovery. So just curious how much of that is in your 2022 guidance.

So theres no dispositions in the guidance.

We never.

Guide to dispositions, because we don't know when theyre going to happen.

Not necessarily similar to acquisitions.

We just we just don't put it in our press release, we indicate that that is the case.

With respect to the parking.

There's $20 million 11.

So we're still short.

And we've been kind of seeing an improvement of couple of million dollars a quarter.

I'd say between two and $3 million a quarter.

I think in the first quarter, we may take a little bit of a step back.

Because in January and there has been a little bit of a step back and Doug talked about that.

But.

Our expectation is that later in the first quarter.

We're going to see.

That.

That start to improve again.

So I think that we will get some out of that certainly not the entire $20 million will get.

And what about the $52 million of total of Covid recovery that you mentioned on the third quarter call.

I think we're about at $45 million right now.

We've got again.

Parking is 20 <unk>.

Hotel is.

If you look at the fourth quarter Hotel, we earned about $1 million.

So that's $4 million annually it should be <unk>, So thats 11.

And then the retail.

The rest of that.

$14 million and I think from the retail.

Theres that much in 2002 I.

I think we've got some big retail that we're working on where we're signing leases where the income is going to come in in 'twenty three.

So I would expect that we won't get much of that in our guidance in 'twenty, two but it'll come in 'twenty three.

Okay.

Okay. So basically you are at 45 billion to go now.

Great Awesome. Thank you.

Yes.

Thank you Sir.

<unk> from Rich Anderson from SMB, you May ask your question. Thanks. Good morning, everyone. So a lot of talk about what's the future for office when we don't know hybrid so on let's say.

You get some clarity about where office is going at some point in the future can.

Can you see Boston properties, making some strategic shifts and how you go about things in other words, maybe you enter Seattle, maybe you think about our sunbelt market like some of your multifamily brother and have been doing or perhaps if you believe in hybrid long term that you do more in a way of close in residential.

<unk> to sort of capture that angle of the business just any comments on that would be helpful. Thanks.

Yes, we have a <unk>.

Well thought through perimeter of our business, which is the gateway markets of the country and we did enter Seattle, because we felt it was in that category.

And our strategy, we have businesses that we think have strong growth potential Seattle's one la is another life sciences. Another we also have a multifamily business.

That has been growing slowly primarily off sites that we have under our control. So we would certainly be interested in additional multifamily, but we're going to be devoting our investment capital to building out and the perimeter that we currently have and we have a wealth of opportunities of sites.

Our core markets and in some of these growth areas that I described.

Okay Fair enough and then just a quick one when you look at the entirety of the portfolio.

What do you estimate the mark to market to be today, and perhaps a comment on market rent growth.

Kind of aggregating up all the observations that were made today.

I'll, let my my financial folks tell me what they think the current mark to market is I mean, it's just a mathematical exercise that we do every quarter I don't know what the result of that.

Somewhere around 5%.

The overall market.

But we're not projecting growth in rents across any of our markets other than in our life science business in calendar year 2022.

We think that that there is enough supply on the market that theres going to be continued pressure.

That doesn't mean rents are going down and concessions, probably arent going up much more than they currently have gone up.

We've talked about this before I mean, there is.

Let's use New York City is the poster Child example, I think everybody knows where you can cut a 10 or 15.

Year deal relative to concessions in a high quality building in Midtown Manhattan, and Thats, where the deals are getting cut.

And the rents are what the rents are as well.

<unk>.

We've talked about before when the overall vacancy gets to a point, where there feels like there's a tightness in the market then rents will start to raise rise that we're not there yet so I think we're being honest about our expectations again for our portfolio.

The bulk of our availability is in the suburban Boston market, where we're transferring what were office building rents into lab rents and getting tremendous embedded growth, obviously, we're putting capital into those buildings.

And we continue to have lots of embedded growth in California.

In our CBD portfolio, there as well and we're seeing it also in our portfolio and in the <unk>.

Downtown Boston market buildings, like the Prudential Center, and 111, Huntington Avenue and 200 Clarendon Street. So we're feeling good about the short term prospects for continued relatively speaking mark to market upside, but we're not anticipating a.

A strong recovery.

And overall market rents in the next year to sort of drive that any further okay.

Okay. Good enough thanks very much.

And our next question from Keith <unk> from Goldman Sachs. You May ask your question.

Hi, good morning.

Question on value add development wondering how big of a value add opportunity this flight to quality and.

They create in the lower quality end of the broader office market.

For DXP operating.

<unk> like to.

Park Avenue, South and then how do you balance that opportunity with the risk that comes with having to re tenant the building, making it maybe more like a tech development project.

Yes, Caitlin I think the answer to that is case by case, we haven't all of our regions are tasked with trying to find opportunities like $3 60 Park Avenue, South and we pursue most of the deals that we think are.

That are at the end of the day that we can we can create one of those top 20% buildings that Doug described earlier and sometimes.

Sometimes those deals we're disciplined about how we invest our capital and our return requirements and sometimes all the stars align and we get deals done like 360, and sometimes they don't so we're going to continue to chase them and as I said in my remarks I have every anticipation that we will do some more deals. This year I do think some of the <unk>.

<unk> are not necessarily going to be empty buildings 360 was unique from that perspective, and it creates a great opportunity for us to have a blank slate to rebuild this thing right, but typical plaza was another one that is value add and it's 90% leased and the opportunity there is really to improve the asset and roll the rents overtime. So.

We are very very interesting opportunities that we underwrite and look at and try to figure out a way that we can invest capital and generate again as Owen said the disciplined return that we're looking for.

Got it and then maybe just one on same store occupancy following up on some of the question I know you and peers continue to get encouraging details on all the leasing progress so far.

Our same property occupancy.

As Dan suggested.

I think so far that moved that.

So just wondering if you could give some further detail on the same store what has driven that.

Offset leasing progress.

Do you expect it changed.

So my view on this is <unk>.

During two during 2020, we're in the middle of a pandemic and leasing velocity and activity slowed down.

So we did have leases that were expiring during that time, and we had tenants in that portfolio that had already made a decision that they're going to move somewhere else.

So those tenants moved out and the velocity during 2020 was not there to replace those tenants at that time, so you're starting to see our same store occupancy slip a little bit right and what.

What we're seeing now is an acceleration of leasing velocity and what Doug went through was a description that based upon what we have expiring over the next couple of years. The velocity, we're seeing is going to be higher than what is expiring. So our expectation is that we're going to start to increase the same store occupancy as we complete those leases.

So it's really about the leasing velocity and the fact that our kind of cycle from signing a lease to getting occupancy could be six to 18 months right.

So the stuff the slower velocity in 2020 shows up in our occupancy in 2021 and the acceleration that we're seeing in 2021 is going to show up in our occupancy in 'twenty two 'twenty three in my view.

Thank you.

And our next question from Vikram Malhotra from Mizuho, you May ask your question.

So Mike just maybe two bigger picture questions a lot of my other questions have been answer.

In the past you've commented that.

San Francisco is more cyclical on the upswing in downswing.

<unk> to still recover faster than say, New York is that still the case, given sort of what youre hearing and seeing in both markets.

I think the distinction I would make is San Francisco has clearly has the potential to increase much more rapidly.

I mean, just to sort of ground, everybody 40, plus percent of the embedded occupancy in CBD San Francisco are technology companies.

If you.

If someone were to put a chart up that showed utilization of space and the NASDAQ composite is a pretty there had been historically a pretty strong correlation it got decoupled in 2000.

'twenty with the pandemic and so as I said, the the technology companies have largely been absent from the leasing markets and greater San Francisco for the past two years and.

I can't tell you what the potential demand is from that those sectors, but it typically can be very significant and it can be dramatic in very short periods of time. So I would tell you that I think San Francisco's volatility clearly could have dramatic pause.

<unk> going forward in 2023 2024, whatever you think the right timeframe is.

New York City has a growing technology base, but it's primarily still a financial services professional services.

Led demand base and so it's going to have a more granular recovery relative to.

San Francisco, So that's sort of how we think about both of those markets.

Thanks, and then.

Where does flex by <unk> XP go from here is it going to be a much bigger piece of the equation are you putting more capital.

Would you look to maybe have partnerships with other flex providers down there or just in this new environment.

And then.

Most of that it's still going back to signing long term leases that you've signed but maybe there is some need for more flex can you give us your.

Thoughts on how flex changes from here on.

Yes so.

Vikram as we've said before we believe and flexible workspace, we think Thats a.

<unk> market.

<unk> was created pre pandemic and it's here to stay for small companies and also the larger users I think it's going to be something like a single digit percentage of the market, but an important product what needs to happen is that the flex space Thats out there needs to refill.

Both our own flex space as well as the flexible space that's been provided by the other operators.

Given the pandemic occupancy of.

Many flexible office offerings went down because tenants.

Are less likely to pay rent if they don't have to.

So that occurred I think what's going to happen is going to refill right now we're not investing additional capital in flex by DXP, but that's our decision today, we're going to see how this market shakes out and revisit that decision in future quarters as the <unk>.

Flexible office space market recovers.

To make one last comment which is.

Most of the flexible space operators have I would say transitioned their philosophy from we're going to take a lease and we're going to put money in and then we're going to lease that space to someone else to hey, Mr. Landlord are misled Mrs landlord, we'd like you to put all the capital and we'd love to become.

Your management partner.

<unk>.

The hotel chains, right and so I find it hard to think that are going to be a lot of landlords, who are probably going to be prepared to enter into a new arrangement. Now there are obviously a lot of orphaned flexible space spaces in all of our markets that have been.

Basically let go by the.

Original land are the real original tenant and are now in the hands of landlords and so in many cases, where that has occurred those landlords may say well I'd rather not operate this myself, so I'm going to let you know.

Company X Y and Z become my my manager for this and I think youre going to see that happen before youre going to see new installations being.

Can attributed to the market with landlords, we are prepared to basically do management deals.

Great. Thanks, so much just to clarify Mike the comment you made the 5% is that a is that a cash mark to market.

That's the Mark to market. If you took the whole portfolio and with the rents we are getting today.

We think the market rent today for every single one of these buildings is.

What we have today plus approximately 5%.

What that is and it excludes all of the vacant space. It's only space is currently leased.

Okay. Thanks, so much.

And our next question from.

Kevin Zhang from Morgan Stanley You May ask your question.

Great just two quick ones for me just.

Going back to D. C. I think last quarter, you talked about some of the concession trends there.

Any update any color what youre seeing in the market and how that's trending.

Well I'd like to tell you theres been a total recovery and concessions are back to 2013 levels, but Jake I think this one's for you I don't think thats the right answer it.

Yes, that's correct.

I would say that the concessions continue to remain escalated.

What we are seeing now is that the the actual lease terms are extending so.

We rode the wave.

North of $300, a foot and concessions, but a lot of times those lease terms are in excess of 15 years.

And just just just to put some clarity jacobs, referring to both the tenant improvement in the free rent. So there is a lot of that concession is noncash and downtime.

Time associated with when the rent commencement.

Would be beginning for our new leases.

Great.

Just second question just one on clarifying for sort of the <unk> guidance I think you.

You had mentioned that.

There is a seasonal drop.

So if I think about the if you back out the sort of.

For <unk> 'twenty, one you had one 181, if you're if you back out sort of the debt extinguishment. So from the 181 to $1 73 was there anything else that's baked in there other than sort of the G&A and the hotel that you called out or was that was that all of it just want to make sure I got that right.

I think that the G&A and the hotel will be between eight and 10 sensitive and then theres some growth in the portfolio.

That would offset it.

Got it.

The negatives on the negatives on the G&A and the hotel or greater rate.

Then the difference between.

The $1 80 and $1 73.

At the midpoint. So there are some positive things from the portfolio interest expense is a little bit lower too.

Yeah makes sense. Thanks, Thats all my questions.

And our next question is from Derek Johnston from Deutsche Bank, You May ask your question.

Hi, everyone. Thank you. So hey, so we're intrigued by the 360 Park Avenue South acquisition, then JV could.

Could you discuss the strategic thoughts to expand in this New York City Submarket.

And really secondly, how the repositioning of the asset.

The designer amenities has evolved versus maybe the more legacy or pre pandemic projects.

So I'm going to I'm going to allow hill.

Hilary to talk about our plans for 360 Park Avenue, South, but do you want to just make a comment on our interest in expanding in that marketplace in New York.

We all talk about New York as a market well, it's three times bigger than all the other cities that we operate in it's got 300 million square feet and it's a number of markets in and of itself.

So I've said on prior calls going into.

Going into Midtown South is like entering a new market for Boston properties based on its scale relative.

New York scale relative to all the other cities.

Midtown South has been a.

Very attractive market to technology and to a lesser extent life science companies.

The primary growth in the office business since the GSE has been in those two sectors and we think Thats an important district of New York important Submarket of New York to participate in and we were delighted to be able to complete the 360 deal in December .

Larry do you want to talk about some of our plans for the building.

Sure. So we will be undertaking a complete repositioning of the asset both in terms of the building systems and in terms of the common areas and the tenant spaces and.

That will be designed as Owen said to attract that that tech tenancy and media tenancy that prefers to be located in Midtown South we're already seeing interest from tenants in the marketplace for the space.

And so the building when we're finished with that will be.

For all intents and purposes, a new building in terms of the systems and the finishes and so I think from that perspective, it's entirely consistent with what Boston properties owned and the rest of New York and across the country.

So the distinction here is just the submarket and the types of tenants that prefer to the office in that sub market.

Okay. Okay. Thank you and the second question.

What will it take to get office utilization back to 60%, 70% and do you see that happening in 2022, and there really are slim pickings guys. So please bear with me. So if hybrid is here to stay and I do agree with you if I'm allowed to work from home two days, a week and I show up to the office three days a week.

As my office utilization, 60% or is it a 100% based on that agreement with management. Thank you.

Okay. So I think the answer to your question is more people coming to work will be the thing that drives the utilization up I'm being somewhat tongue in cheek, but honestly the answer that the way people.

Define utilization depends upon.

Their technology and and the way they think about utilization of space. So the way we think about it is how many seats are there in a particular building and how many people use those seats on a daily basis. It may very well be that there are more people.

With card access to use those seats than there are seats. So for example, if you have a floor with a 100 seats on it but you gave a 125 cards out you may have a 100% utilization of that space, but you are only going to be using.

80% of your employees on a daily basis. So I think the math is going to is going to be somewhat.

Hard hard to get a feel for until we really understand how individual companies are choosing to use their space, but we could certainly see situations.

Where you have utilization that 60% because every single person has an assigned seat and only the days that they are there are those cards being used on the other hand, we may see installations, where they have over allocated the number of seats.

Our the number of access cards for the number of seats. They have so they may be full more times than not.

And Youll have a higher number so what's going to be very difficult to judge what's going on until these companies decide what their own philosophy is with the prospect to how theyre going to user space, So and I would just add an important point to what Doug said is what we're seeing so far with clients that are utilizing hybrid work is they're saying look we like you to.

Come in 234 days, a week, but you have to be there on a certain day like a tuesday or Wednesday, because why do you want people to come in the office you want them to be with each other and collaborate and so you want at least a day or two or more for everyone to be in the office and I think that's so if you look at our census trends that Doug talked about it.

Lower on Monday, and Friday than it is in the middle of the week because of these.

I think because of.

Human preference, but also because of.

The policies that companies and our clients are taking as it relates to hybrid work.

Yes.

Thanks, guys. Thank you.

And our next question from Michael Lewis.

I'll go through with Securities you May ask your question.

Okay. Thank you I will sell data and a question at this point. So I appreciate your time for thoughtfully.

The question.

I, just I'm going to ask one.

You touched on a little earlier, but.

Any time I see a headline that.

<unk> is pushing back the return to work I think the implication is that.

Supposed to be concerning.

At this point when return to office gets pushed back.

Is that simply a timing issue or do you think there is a risk that it is still causing more tenants to kind of figure things out and potentially or leave their office space. So for example, if if if.

<unk> returned at Labor day versus today with the demand has been stronger longer term.

Gets pushed back from today for the summer.

With demand have been stronger if they came back.

Are we losing demand as the duration wears on longer or do you think at this point.

Less relevant.

So I would tell you that I think it's it's less relevant in terms of how employees. How employers are thinking about their space I think it becomes more challenging depending upon the labor movements that are going on with particular company so as companies.

Or having a more and more challenging time dealing with where they are there labor is coming from I think that has a more pressing implication on their utilization of space and where they want their space to be in the short term.

And then what the data is per se because people need to fill jobs and we're.

We are aware of organizations that are saying, okay. We can't fill the jobs in this particular market and we have to fill them with a work from home or remote location will fill them in that way right. So those are the kinds of things that I think are on the margin.

Impact the the amount of space someone takes into short term, but but not the planning because of the delay in itself is impacting what their business model.

That makes sense. Thank you.

And our next question from Anthony Powell from Barclays. You May ask your question.

Alright. Thank you you talked a lot about how there is increasing demand for prime office buildings and most of your markets. Do you think this could lead to another cycle of new construction of office buildings of that type.

Or is that may be limited given some of the rent dynamics and if so when does that start to come online.

I think I think that as I mentioned in my remarks, given the pandemic given the and.

Certainties about office demand that we've discussed on this call I do think it slowed down the development pipeline in general.

But that being said I do think there will be demand for new office space in the future, particularly as technology and life science companies grow and new at least today is.

Very attractive to those customers and I do think there will be development, we're going to do and some of it ourselves.

But I don't see I don't see it as a.

Quote driving a whole wave of new development.

Hi, Thanks, So maybe just one more on pricing I think you mentioned that.

That gets rents when we go up meaningfully this year given the bankruptcies that said, we spreads have been positive and given the uncertainty somewhat argue that there should be even more pressure on it.

So when you negotiate new leases with tenants.

Tenants trying to take discounts or do people kind of except the market rents.

I'll go from there I'm just curious about the pricing psychology, given all the uncertainty around the office right now.

We're so good at what we do that once we've put a number on the table, but as you say yes.

Yes.

Okay.

Every deal is different.

Most most of our clients.

In the perspective that if they feel like they're getting a market transaction.

They are going to transact at this point and they understand that depending upon what their choices are some of our space may be at a premium or some of it may be at a discount to something else. We're looking at and they are able to rationalize whatever that premium or discount is so.

We have enough transaction volume in our own portfolio, where we can point to look this is where we are doing deals. This is what the concession packages. This is what the rent is this is how much available downtime we might be able to give you. This is how much we are prepared to put into the deal for ancillary costs.

They are quickly is a meeting of the minds with somebody who is ready to transact and.

Again, because theres been enough transaction volume you sort of know where the market is at any one time.

I can't tell you, if that's going to get better or worse in 2022, but it's sort of how we are dealing with things today.

Alright, thank you.

And Sir our last.

Question from Danielle.

Sure.

Green Street, you May ask your question.

Great. Thank you maybe just go back to the quality team.

Much of tenant mobility increase for quality space within our market.

For example is it your sense that tenants are more likely today to move around the city or leave it sub market for better space.

I guess, so let's just let's just use San Francisco as the example, right now I think what Youre seeing is that the market has gotten smaller from a geographic perspective and some of the ancillary.

Areas that were considered to be up and coming in a little bit on the sort of transitional edgy side are less attractive than the very sort of core marketplace.

I think a lot of it has to be has to do with that.

The things that Owen described which were.

Access to transportation and access to amenities, obviously in San Francisco things are slow in terms of the amortization of the streets, but it will come back.

So and I think that Thats, probably a similar construct in a place like New York I would tell you that third Avenue is probably not nearly as interesting as park Avenue is and.

In a very hot market, where theres lots of activity third Avenue has a lot more interest, but again as the markets get softer theirs.

The city to sort of go to better buildings and better spaces and that generally means the core markets not the peripheral markets and I don't know if any of our leasing colleagues, we would like to comment on that.

Ray Bob Jake Hillary.

Well I think that clearly is the case and rest of them.

Doug we saw.

Our portfolio, they're materially outperformed both in terms of occupancy deal flow and especially rental rates.

We're attracting the the tenant that may be in a on.

<unk> suburban campus coming back to the urban core.

Restaurant Town center, so from our perspective in DC restaurant as really the poster child for that point.

Great. Thank you and then maybe just how does that impact capital deployment in the near term for it for DXP Linkedin.

Three Hudson increased to $3 43, Madison does that make you less concerned.

More and more interested in either one of those projects or perhaps to rule out any of the near term.

I think the answer to that question is it will depend on the facts at the time I mean, three Hudson as we've been saying.

Given the size of that project at 1 million square feet, we want to anchor tenant to go forward with that and we will evaluate the economics of that deal at the time.

I do think new is.

<unk> <unk>.

Increasing interest all over the country and in New York, So that'll help on the rent, but as Doug described cost are up and then $3 43 again, it's a brand new building. It's got direct access into transit. It's got everything that we've been talking about on this call of quality, but we're going to have to assess the economics at the time.

Hilary described we've got some demolition and additional approvals that we have to put in place there before we can consider going forward.

Yes.

Great. Thank you and welcome from me, Mike I believe you mentioned, 70% utilization in New York.

Just curious if that was.

If I heard you correctly and then maybe if you guys can give.

Our utilization rate for the total portfolio.

So in New York City in the in the fall before <unk>, we were in the high Sixty's.

October November timeframe.

I mean, it dropped precipitously.

We were struggling to get to 25% in any one of our markets and the set for a second and third week of January but it started to rebound it's going up it's gone up relatively slowly on.

On a sequential basis. The number of card swipes were seeing is up probably 10 or 15% each week, but it's not anywhere close to where it was.

In October and November .

Got it that makes sense. Thank you Bob.

There are no further questions at this time I will now turn the call over.

Back to Owen Douglas for closing comments.

I think we've said enough operator.

Notably no closing comments and I. Thank all of you for your questions and your interest in Boston properties. Thank you.

Thank you. This concludes Boston properties conference call. Thank you all for participating you may now disconnect.

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Good day, and thank you for standing by and welcome to the Boston properties fourth quarter and Glen be 'twenty, one earnings 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 Easter.

You will need to press star one on your telephone.

Be advised that today's conference is being recorded.

If you require any further assistance please press star zero.

I would now like to hand, the conference over it.

Ms Helen Hahn.

Vice President Investor Relations Ma'am. Please go ahead.

Measure in accordance with Reg G. If you did not receive a copy of a copy. These documents are available in the Investor Relations section of our website at investors Dot DXP Dot com.

<unk> of this call will be available for 12 months.

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 the company's filings with the SEC. The company does not undertake a duty to update any forward look.

These statements.

I would like to welcome Owen Thomas Chief Executive Officer, Doug Linde, President and Mike Labelle, Chief Financial Officer during our Q&A portion of our call Ray Ritchey Senior Executive Vice President and our regional management teams will be available to address any questions I would now like to turn the call over to Owen Thomas for his formal remarks.

Thank you Helen and good morning, everyone I'd like to start by introducing Helen Hahn Who's our new head of Investor Relations. Helen was formerly head of marketing for our Western region has been with BSP for over 15 years and has a deep wealth of knowledge about our company and people welcome Helen Great to have you here.

So today I'm going to cover Dxp's operating momentum the economic conditions that serve as a backdrop for <unk> operations as we enter 2022.

Current private equity capital capital market conditions for office real estate.

As well as <unk> capital allocation activities and growth potential.

Dxp's financial results for the fourth quarter reflect the impact of the recovering U S economy, and increasing needs of our clients for securing high quality office space.

<unk> per share this quarter was above market consensus and the midpoint of our guidance, we completed $1 8 million square feet of leasing our third consecutive quarter of significantly higher leasing activity.

It was 55% above the fourth quarter of 2020 and in line with our pre pandemic leasing levels.

With an average term of eight six years on the leases signed this past quarter at lease commitments by our clients continue to be long term in nature.

This success can be attributed to not only our execution, but also the enhanced velocity and economics achieved in the current marketplace for premium quality assets with great amenities and transit access which are the hallmark of DXP strategy and portfolio.

Now turning to 2022, we believe the market and economic factors, which impact DXP are on balance very favorable.

The omicron variant has been a setback in the course of the pandemic has proven hard to forecast most experts believe conditions will improve in 2022, resulting in more workers returning to the office and further improved space demand.

The economic recovery in the U S continues with consensus GDP growth predicted to be 4% in 2022 and innovations in technology and life science remain promising and well funded a key driver for office and lab space demand.

New office supply has also slowed down given the demand uncertainties created by the pandemic. Another long term positive for the office business.

Moving to the challenges interest rates are rising, which will likely continue due to the fed's current focus on inflation and signaling it will raise the fed funds rate multiple times in 2022.

DXP had significant and well timed refinancing activity in 2021, and therefore faces limited debt financing needs in the coming year.

The labor market is also very tight which contributes to our client's hesitancy in bringing their employees back to an in person work environment.

As we have stated repeatedly we believe this phenomenon will change over time, given widespread corporate dissatisfaction with a decaying of efficiency retention and culture associated with remote work.

Though challenges persist, we see 2022 market conditions is a favorable backdrop for DXP to continue to perform.

39 billion a significant office assets were sold in the fourth quarter up 35% from the previous quarter and up 90% from the fourth quarter, a year ago cap rates are stable or declining for assets with limited lease rollover and anything life science related and activity is increasing for assets facing nearer term.

Term lease explorations.

The Boston market was particularly active with two major life science recapitalization deals in Cambridge, selling for around $2200, a square foot and sub 4% cap rates.

Three significant deals in the seaport district, selling for approximately $500 a foot on a fee simple basis with cap rates at or below 4% and two CBD sales at 700 to $950 a square foot with cap rates in the low 4% range.

And pricing in Seattle continues to escalate with deals closed or announced in South Lake Union priced above $200, a square foot of new local record and a sub 4% cap rate.

Fremont at over $1000, a foot and a low 4% cap rate and in the CBD at around $750, a square foot and a mid 4% cap rate.

Regarding dxp's capital market activity and starting with acquisitions.

We closed on the previously described 360 Park Avenue South acquisition in New York City in December and placed the project into our active development pipeline.

Two of our strategic capital program partners will co invest in the deal if capital is drawn for redevelopment, bringing our interest to 42% on a stabilized basis.

We continue to have elevated dialogues with potential private equity partners are pursuing an active pipeline of both on and off market deals in many of our markets and anticipate additional acquisition activity or value add assets with capital partners in 2022.

In 2021, we also completed noncore.

Asset sales of $225 million and anticipate higher disposition volumes in 2022.

We.

You did a very active quarter with our development pipeline, we delivered fully into service 100 Causeway Street in Boston, The Marriott headquarters at 7750, Wisconsin Avenue in Bethesda, and the lab conversion project at 200 West Street in Waltham in the aggregate.

DXP share of these projects represents a million and a half square feet of development and $460 million of investment.

Also we partially placed into service rest of nex and rest of it.

And we are continuously refreshing our development pipeline by adding just this past quarter $3 60 Park Avenue, South and 103 City point speculative ground up lab development aggregating 113000 square feet in our city point development in Waltham, we have a very active pipeline of office and lab.

Developments and Redevelopments ready to announce when they commence expected later in 2022 and Doug will describe the strong leasing success, we are achieving with our lab development.

So in summary, we had another active and successful quarter with strong leasing and financial returns and are excited for our prospects for continued growth in 2022.

<unk> of four new acquisitions in 2021, a strong balance sheet.

Combined with capital allocated from large scale private equity partners to pursue additional new investment opportunities as the pandemic recede.

Our rapidly expanding life science portfolio in the nation's hottest life science markets.

And well timed refinancing activity in 2021, and lower capital costs, So with that I'll turn it over to Doug. Thanks, Joe and good morning, everybody I Hope you all had a good new year.

I'm going to focus my remarks, this morning on our leasing activity.

As was evident in the second press release, we sent out last night, our leasing activity press release, we had a pretty strong fourth quarter with activity spread around Boston, New York, San Francisco in the Metropolitan Washington D C region.

We ended the year with an occupancy pickup of about 40 basis points.

As we sit here today.

At the end of January we have signed leases for our in service portfolio that have yet to commence so they're not in our occupancy figures of more than 925000 square feet.

That 925000 square feet represents an additional 180 basis points of potential occupancy increase.

And includes about 115000 square feet of 2023 commencement. So the majority of it is 2022.

We begin 2022.

With over one 4 million square feet of leases in negotiation on space and the in service portfolio.

More than 425000 covers currently vacant space and about 450000 covers 2022 expirations.

During 'twenty two we have about two 8 million square feet of expirations in the in service portfolio.

Over the last decade.

Now it's true some of the leasing we do each year encompasses early renewals and we'll talk about some of that today and leases on new developments, but a significant portion of.

Of the leasing we do each year is our near term renewals and available space in the portfolio.

<unk>.

With $2 8 million square feet of exposure.

925000 square feet of signed leases one $4 million in January of deals in the works so over 235 million square feet.

And with an annual expected leasing probably somewhere between three 7% and seven 7 million. We believe our occupancy is on an upward trajectory as we enter 2002.

The second generation statistics this quarter Merit, a little granular explanation San Francisco was flat due to a 50000 square foot lease down at our North first project, where we're doing short term deals with kick outs to allow us the flexibility to commence construction on the station project the E.

C leases.

So our CBD portfolio had a roll up of 13% if you take out that 50000 square foot lease.

In New York City, we terminated a lease with Citibank and went direct with the Subtenant, which is operating and conference center. The new rent for that floor is discounted, but city made us whole throughout our cash termination payment.

Excluding that New York City had a 5% roll up.

Now Theres no question that army crop and the wave that hit us in November slowed some return to office dates however.

None of the leases that we have in negotiation have been delayed or impacted by a change in our customers' need for space.

With the month of December and the first two weeks of January were slow our leasing teams have had a very busy few weeks with more signed LOI and more active discussions I.

The only area of our business, where we've seen a slight omicron blip is on parking revenue.

I want to provide a few observations about our regional activities and let's start with suburban Boston Life Sciences.

We broke ground on our ADT Winter Street 243000 square foot lab conversion in July of 2021, seven months ago, We have signed leases for 165000 square feet and we are in negotiation for all of the remaining lab space.

The first tenant is expect to occupy during the back half of 2022 net rents are up 20% from our initial underwriting in March of 2021.

At 180 City point, we're negotiating a lease for about 50% of the new 329000 square foot building steel erection Hasnt started yet and let's hope we're expecting it is going to start next month and we're hopeful to deliver the space in the fourth quarter of 'twenty three but the leasing since that demonstrates what's going on in the market.

We're eagerly awaiting the November expiration of our leases in the second Avenue buildings, we purchased last June where we can offer 140000 square feet of lab space and expect a significant roll up in rents.

With demand continuing to outpace supply we will commence construction as Owen said on another 113000 square feet at city point, which is in our supplemental we are calling it one O three city point very clever construction drawings are complete and we expect to break ground this quarter with a late 2024 delivery there.

Now our traditional route 128 office leasing is also extremely busy there is office demand out there this quarter, we agreed to recapture and re lease 12.

<unk> hundred 65 main Street 120000 square foot office building at city point in Waltham, We completed a 10 year lease as is with a 21% increase in the net rate at.

At 140, Kendrick Street in Needham, We've announced Wellington commitment to lease 105000 square feet and we found a way to reposition the building as a net zero installation, which was extremely important to both DXP and Wellington. In addition, we have commitments for two other tenants for the remaining 80000 square feet of this project, which is currently <unk>.

Under lease and expires in November of 'twenty, two and finally, we're working on another 73000 square foot early recapture and backfill at our city point complex. This totaled 378000 square feet of traditional suburban office leases. These transactions will have rent roll ups between 740 <unk>.

Percent on a cash basis.

Our CBD Boston activity. This quarter was primarily small transactions. We completed 12 deals for 80000 square feet. The average markup was 17% on a cash basis.

At the moment there are a few large office requirements in the Boston CBD and there is going to be new construction deliveries in 2023, our largest block of Cbd's basics and exposure is at 100 Federal Street, where we'll be getting back a 150000 square feet in early 'twenty three.

Over 120000 square feet in Princeton, the individual mark to market in New York very greatly Youll recall, the single floor I called out last quarter, which really retarded, our statistics, where the rent went down by 50% well, we sign that 15 year lease extension for that floor and the rent is now up 71% on a cash basis.

The leases, we completed that the general Motors building were flat, while the leases at 250, West 50, <unk> Street range from up 2% to down 19% on a cash basis.

Our current activity in New York continues to be strong we have multi floor lease negotiations underway at GM 601, Lex and 510 Madison along with a number of smaller transactions in those buildings total activity is in excess of 525000 square feet.

The bulk of the activity on a direct basis has been in the financial district, and it has been confined to the better buildings with professional services and financial firms.

We went out on a limb. This this quarter and we ask John Zaccone and his team from CBRE, who does work for us to segment the premier buildings in the city.

People can debate, whether it's the perfect lift or not but it totaled 20 million square feet or about 23% of the market and includes our entire CBD portfolio. The current vacancy in this portfolio of 20 million square feet is five 3% and if you add sublet space. It grows to about 8% now I've made the point before but you can.

Simply look at the overall market availability statistics, and make assumptions about where rents and concessions might be in this market.

We completed a 112000 square feet of CBD deals this quarter and our cash rents increased by 7% with an average starting rent of $103 a square foot.

Similar to our lab success in Boston, our venture with <unk> successfully executed a full building lab lease at 751 gateway in South San Francisco the venture intends to commence the conversion of 651 gateway to a life science building over the next few months.

Vantage for this project is time to delivery relative to a new building, where we can see six months off versus ground up construction.

Last quarter I described our efforts to gauge pricing as we consider the restart of platform 16 in San Jose.

Our total base building construction cost increased just over 13% relative to the pricing we had 24 months ago.

We continue to see meaningful cost increases and material availability issues across all trades in all of our markets. As an example, the lead time on base building mechanical system. Once you have a proved drawings has doubled from 20 weeks to 40 weeks, which means you have to make decisions much earlier in a construction schedule.

Or risk delays, we're doing that.

The class a silicon valley leasing markets had a particularly strong 2021 with a very healthy net absorption and just last week, we got wind of another 500000 square foot office tenant expansion not one of them, what we refer to as the Tech Titans in the Northern Peninsula and platform 16, if we start won't deliver until.

Early 2025.

I'm going to finish my remarks, this morning on greater Washington.

During the fourth quarter, we completed 11 office leases in Reston totaling over 140000 square feet. Every deal was on previously vacant space rents have held firm in the low $50 with two 5% annual bump to the low <unk> with similar bumps for our new project at RTC next the.

The first phase of RTC next has been delivered to Fannie Mae as Owen described and we completed our first non anchor lease during the quarter. This project is 85% leased it as transformative to the rest in skyline and it's a five minute walk to the heart of the town Center retail, where we completed over 60000 square feet of retail leasing again with new tenants on.

In Boston, and New York and in the Metropolitan DC area, we have seen a swift reduction in Covid related cases are daily tenant activity is starting to rise again employers continue to search for new employees to circle back to Owen's comments about quality employers are going to want to use their physical space to encourage their teams.

To be together, our mantra has been to create great places and great spaces to allow our customers to use <unk> as a way to attract and retain their talent. If you believe that employees may be spending less time in their office, it's even more important to have the right space and place when they are here with that I'll turn the call over to Mike.

Great. Thank you Doug good morning, everybody.

So this morning I plan to cover the details of our fourth quarter performance and the changes to our 2022 earnings guidance for the fourth quarter, we announced funds from operations of $1 55 per share, which exceeded the midpoint of our guidance range by <unk> <unk> per share and was <unk> <unk> per share above consensus estimate.

<unk>.

The performance of our portfolio drove <unk> <unk> of the improvement and higher than projected management and development fees added ascent.

<unk>, we signed a 90000 square foot new lease with a technology company with space delivery on lease signing.

We also collected payments from several tenants on receivables that we had written off in 2020.

Second we achieved higher service income due to an increase in utilization from better physical occupancy in New York City during the quarter.

Just prior to the impact of the <unk> variant or New York City portfolio census was running close to 70%, which represented a big pick up from the third quarter.

Third we experienced stronger parking revenue and hotel performance.

Parking revenue totaled $23 million for the quarter up 8% from the third quarter, It's now running at 82% of its pre pandemic right.

So that means theres, an incremental $20 million or <unk> 11 per share on an annual basis, we should be able to recapture to reach prior levels.

Our hotel operated at 50% occupancy during the quarter for the full year 2021, and operated just above breakeven only contributing $600000 to <unk>. This compares to its contribution in 2019 of $15 million a difference of <unk> <unk> per share that we should recover in the next couple of.

Years.

And fourth we recognize income from the delivery of the 733000 square foot Marriott World headquarters development, a month earlier than we anticipated and.

In addition to delivering early our costs came in well below budget. So it's investment return profile is exceeding our expectations as well.

And $50 million to 45% senior notes issuance in the third quarter.

This was an opportunistic trade due to our views that interest rates were likely climbing we feel good about our decision as rates have increased by about 50 basis points since we locked in at a one 3% 10 year treasury rate.

It up with no penalty starting in December of 'twenty, one we closed it on the first day available and priced off of 148% 10 year Treasury rate again significantly lower than current rates, despite increasing the mortgage by approximately $400 million.

We will see lower interest expense due to the 200 basis point reduction in the overall coupon.

And as Owen mentioned, we now have limited debt expirations over the next couple of years.

Now I'd like to turn to 2022.

Doug described the leasing activity, we are seeing heading into the year, which adds to the confidence we have in our growth profile.

As a result, we are increasing our <unk> guidance range to $7 30 to $7 45 per share for 2022, our new midpoint is $7 38 per share and it's <unk> higher than last quarter. The.

The increase is coming from higher projected contribution from the in service portfolio as well as higher anticipated development fee income.

<unk> results.

We only brought down the top end of the range. So in effect. The bottom end is actually hire our new assumption for 2022 same property NOI growth is 2% to 3% from 2021.

We also reduced our assumption for 2022 cash same property NOI growth and our new range is 5% to 6%, which represents strong growth year over year.

Overall, we continue to project strong <unk> growth of more than 12% in 2022 from 2021 at the midpoint of our range.

We expect our near term growth to come primarily from delivering new office and life Science development and our 2021 acquisition program. These are expected to add an incremental 43 per share or six 5% to our 2022 <unk> at the midpoint.

Our guidance does not assume any new acquisitions in 2022.

We also projected benefit from our well timed refinancing activity last year, resulting in 35 per share of lower interest expense and debt extinguishment costs in 2022 at the midpoint of our range.

Gears, we have numerous sites under ownership, where we're working towards new starts in the coming months.

That completes our formal remarks upper.

Operator can you open up the lines to questions.

Thank you Sir at this time to ask a question you will need to press star one on your telephone keypad.

So we got your question right.

Please standby, while we compile the Q&A roster.

And Sir we have our first question from Manny.

Korchman from Citi you.

You May ask your question.

Great, It's Michael Bilerman here with Manny.

I was wondering if I can get your opinion.

Boston properties has always been focused on the highest quality office space the highest quality buildings in the top markets switches.

It's been very good for the company over.

The history.

And as we think about going.

Host pandemic, you talked about the desire.

Companies.

Companies to have great space to encourage and provide a reason for their employees to come back how do you think despite vacation in the marketplace is going to play out in terms of the type of spaces that you own today.

A plus arena.

Then everything else and because that class a plus.

A minority of the entire office stock how do you think all of that class B and C office space will trend is it just going to be a rent.

Inducement.

Which made the performance overall.

Or is there just going to need a substantial amount of capital to redevelop those assets either into more modern office space or into other property types and how do you think all of that is going to ultimately.

The broader office market.

Yes.

A lot there to unpack, Michael but I'll do my best.

Of the pandemic and.

And Doug and INR remarks kind of articulated what you said which is.

We do think companies are going to return to the office. We do think hybrid is here to stay and we do think it's going to be very important for Ceos and company leadership to have great offices that their employees want to work in so having buildings that have great amenities that are located near transit.

All those things are going to be increasingly important to entice workers to come back to the office. So I think the bifurcation between the top of the market and the rest of the market.

Growing right now and it's going to grow further Doug gave you the very interesting stat on San Francisco, the aggregate availability stats on San Francisco or 27%.

He gave you the data on the top 20% of the market, which is actually 5% vacant that's incredible if you think about it.

So so the bifurcation is increasing so now coming to your question whats going to happen with the.

The more modest quality buildings.

I think it's very case by case building by building city by city and neighborhood by neighborhood I do think the office markets will recover the economy will grow.

Some of those buildings will get leased his office I do think it's going to be very competitive and probably harder to push rents.

Land in places like Manhattan is incredibly valuable so there could be a reuse of a lot of these properties I mean office.

Any offices that are.

Were created for large corporate users have large floor plates and they don't theyre not very well suited for conversion to residential because of the bay depth, but there are exceptions to that and I'm sure. We will see creative developers change. Some of these buildings to residential some may get torn down and made into something else.

Hey, guys its Manny here.

Mike I have a question for you if I think about your guidance in totality.

I think everything you've mentioned on the call today was a positive lift to guidance.

Notwithstanding the ranges given a better 2021.

Something else within the range that is keeping you from raising more or is it just conservatism how do we think about that thanks.

Look I mean sure there's conservatism in this environment and we're delighted to see the increase in leasing activity.

And that leasing activity that Doug is talking about.

It will result in signed leases, but the question for US is when those leases go into occupancy and so how much of that goes into 'twenty, two and how much of it is a little bit later because in many cases, we have to wait until the tenant build out the space to start recognizing revenue on these spaces. So we have to judge how long that is.

Take.

I think our trends are very positive.

But the sales cycle and the build out cycle is not immediate.

In all cases, so we have to judge that into our guidance. So I think that that's part of it.

We brought up the low end of our guidance pretty significantly.

The reason that we're doing that is that some of the activity that we're seeing in getting leads us to the computation that we.

We don't believe it's possible to be at that low end that we had before.

We've gotten some of the stuff.

Any kind of meaningful negative occurrences.

That are in our guidance.

We talked a little bit about the same store, which is mostly due to positive things that happened.

So theres really no negative occurrences that we put in any of the items that we put in our guidance at.

At all meaningful.

Great. Thanks very much.

And Sir we have our next question from Nick <unk> of Scotiabank you May ask your question.

Thanks, I just had its first a question on maybe you can give us a feel for what the.

Rent spreads were on new signings.

The commenced statistics.

Statistics that you gave for the fourth quarter.

Okay, I thought I did that.

All the way along.

If you just sort of go back and look at my remarks, I basically said that the leases that we signed this quarter.

I think I said.

Between 7% and 14% in the greater suburban Boston market.

<unk>.

Up.

5% plus or minus.

And certainly the assets in New York City and flat in other assets in New York City, 7% in Embarcadero Center, Washington D. C. The issue is that all of the space that we lease with vacant. So there is you cant have a markup on a vacant space, obviously, because it's infinite so in general they were trending positive call it 2%.

At 250, West 55th Street, and some leases and negative 17% on a couple of other leases too positive.

Positive 71% on the lease that we signed at 601 Lexington Avenue with the tenant that had short term space.

Got a good deal on for them.

So it was really variable, but net net it was all positive.

Okay. Thanks, Doug second question is just going back to San Francisco and you kind of had this interesting dynamic going on there where your rents are up at Embarcadero Center.

It looks like they were up average rents in the buildings up versus the end of 2019 at this point yet the occupancy is down.

It is down.

It looks like its down like over 700 basis points on average for those buildings, so sort of worse than the overall portfolio also it looks like the vacancy there is around 11% for those buildings, which I'm trying to square away with when you talked about 5% vacancy for some of the premier buildings in San Francisco and so I'm just trying to.

Like what's going on with those buildings.

Versus the market out there.

Yes, so so the so just to refresh what I said, so the top call. It 20 million square feet of space includes the vacancy at Embarcadero Center.

And that statistic of 5% overall for that quote unquote portfolio of Premier buildings.

The vast majority of our availability at Embarcadero Center is at the low rise of the VC one in the lower <unk>.

Unfortunately, we don't have very much in the way of blocks of space. So it's a floor here and a floor. There we have activity on some of that space. Some of that space is needs to be fully demolished because it's got in some cases added from the original user of the space 25 years ago.

Tenant moved out and some of it is.

As a space, where there's just an installation that doesn't make sense anymore, we will make hay on some of that space during 2022.

Have rosy projections for getting to 5% availability in those buildings and during the year, but we're pretty confident that the space is going to lease at healthy rent, obviously low rise Embarcadero center, one is different than the top of EC four right. So the rent differential between those two kinds of space.

Okay very helpful. Thank you.

And Sir our next question from Craig Melman.

Keybanc capital markets you May ask your question.

Thanks, Mike maybe just to follow up how much of that four cents kind of upside in the quarter was from the <unk>.

Collection, the payment and how big is that bucket as we head into 2022.

I would say it was close to a penny.

For the quarter.

The.

I don't think I can tell you right now exactly how big that is we're not assuming that we're going to be really collecting anything more.

So I'm not looking at anything that I don't that I think is significant that will be coming.

In 2022.

On collections.

<unk>.

We're projecting zero effectively for that number.

I wouldn't say that the one thing that could happen in 2022.

Is the return to accrual of some of the tenants that are on nonaccrual.

And we are not projecting any of that either but we are watching these tenants some of the retail tenants and other tenants that we have.

But we're not accruing rent for right now.

They continue to kind of be successful and pay rent and generate sales.

The ability for us to bring those tenants back to accrual.

Which will in certain cases have an impact on our earnings although it will be a noncash impact on our earnings it's just bringing back kind of a former straight line.

So that's another impact the outcome of some of the things that happened in the last two years.

Okay. So you don't necessarily need to do a blend and extend you just have to feel better about their ability to pay for that to flip back to accrual.

I mean, we may do an analysis and make judgments every quarter on all of the tenants that we wrote up their accrued rent balances in 2020.

And try to figure out when the right time, when it's justified for us to bring them back.

I think Craig that Mike talked about in the past that there are sort of three primary buckets of tenants that are in those areas co working as one it's the largest.

Then.

I guess you would refer to as entertainment retail. So we have a number of cinema operators in all of our markets that were on nonaccrual with and then we have a number of local.

Operators, mostly in the food and beverage that still are struggling relative to where they were in 2019 from a revenue perspective because of the.

Lack of foot traffic in certain parts of the country.

Okay.

Helpful and then.

Just separately it seems like you guys got approvals at the MTA site or it continues to move along.

Just kind of give us some thoughts on how to think about maybe that site or in general. How you guys are thinking about developments here as construction costs are rising rents on new space are holding steady.

Yeah.

Kind of just your thoughts on what required returns of the Davita to think about starting that.

<unk>.

And then more near and medium term yeah. So let me let me give you a general comment and then I'll ask Hillary who is officially here as our new regional leader in New York to comment on.

343 Madison Avenue.

It is quite clear that construction costs have been going up at call. It very high single digits on an annual basis.

And if you don't have rents that are appreciating.

A commensurate rate your returns are going to be challenged right unless you have great land basis.

We happen to have that in our portfolio across our.

Life Science development platform, because we have lots of embedded opportunities in the portfolio. So we have a long runway to go.

I describe what's what's going on with platform <unk> and our calculus, there as that market continues to have some real strength to it and we probably will see outsized rental rate growth over the next couple of years because of the lack of class a inventory and therefore, we will likely with our partners.

Decision in the next couple of months as to whether or not we want to move forward with that because it's not going to deliver until 2025.

Those are the kinds of.

Conversations were having.

Hilary described sort of a timing associated with 343 Madison because that's a decision that's really not in front of us tomorrow.

And there is some work to do with regards to getting the site quote unquote enabled to truly commenced construction Hillary.

Thanks, Doug.

I would first of all Echo what Owen said about high quality, new construction office assets commanding premiums in rents relative to more commodity <unk>. So that's something that obviously weighs in favor of the potential at 343 Madison, but in terms of our ability to launch construction of the project. We do have some legwork ahead of us.

In terms of demolition and in terms of some work that we have to do with the MTA to be ready to proceed. So it's a decision that we'll be making.

Sort of I would say near to medium future, but it's not an immediate decision ahead of us.

Thanks.

And Sir we have our next question from Steve Zach.

Evercore ICI.

ICI you May ask your question.

Thanks, Good morning.

Maybe just first question just broadly on San Francisco, it's been the biggest kind of urban city, that's really struggled to bring people back in crime and homelessness have really kind of deteriorated living conditions in the city. So I'm, just curious sort of Owen or Doug what your sort of conversations are with EMEA or other business leaders in.

The city, the kind of right the ship in San Francisco, and what do you think the timeline looks like for that.

Good morning, Steve.

Look I think I would acknowledge what you are saying and I've said it on previous earnings call San Francisco, the city of San Francisco not the silicon.

Valley has been hit the hardest of all of our markets because of the pandemic and I think it's.

Related to one technology companies being.

Frankly behind the other clients that we have in terms of returning people to office and also I would say very restrictive COVID-19 regulation very conservative Cove regulation in San Francisco.

Occupancy requirements mask wearing all of that kind of thing.

So look I and Bob May want to comment on this I think there is an increasing.

Yes. The mayor has publicly stated that things have to change in cheese.

Working on a plan right now to get more policing and more comps out on the street. So I think you will see a chain Joan and I were on a call with other business leaders in San Francisco yesterday.

And there is clearly an outcry from the business community that things have changed so I think given some time you will see a change and hopefully the DEA gets recalled and we get somebody in there that will start enforcing the laws.

Yes, I also think Steve I would just also add too I think there is a <unk>.

Also key to security and city. So so both of these things need to happen in tandem.

Yes.

Okay. Thanks second question, maybe Doug you talked about the large pipeline of deals that you've got and.

No it's hard to.

Maybe.

Sure.

What are the changes do you sort of expect from a design perspective and kind of space utilization.

I would say categorically that.

80% of the tenants that we are having conversations with today are growing not shrinking.

And I would say that most of those customers are in the finance.

<unk> management.

See private equity.

World in both New York, San Francisco and Boston.

The architectural decisions associated with planning for 2022 and beyond belief.

Believe it or not are very very consistent with what they were in 2019.

It.

From a client perspective, but the physical space, that's being utilized by these companies that are in our portfolio growing right now.

I don't think you would be able to distinguish much about what is being built in 2022 versus what was built in 2019 and to some degree it's a little bit of a surprise.

If you go back to work to listen to my comments in calls calls over the last call it six to eight quarters.

Monumental changes until you really understand what the impacts of that cadence is and whether or not it works I mean people truly don't know I believe how productive and how accepting.

Quote unquote hybrid or a partial workday in person is going to work through lots of industries until they start to encourage and get their folks back and we're just we're not where unfortunately, we have been delayed and delayed and delayed in getting there. So so I wouldn't be surprised for there to be changes in the next cycle, but it's not there yet.

Great. Thanks, that's it for me.

And speakers our next question from John Kim from BMO Capital markets you May ask your question.

Thank you good morning.

You mentioned in your prepared remarks the widespread.

Corporate dissatisfaction with reduced efficiency and employee retention I was wondering if you could elaborate on that statement.

Is this purely anecdotal.

And does that include tech companies, who have been really precedent. This news button on returning to work.

Yes, well I think by definition, it's anecdotal although there is surveys that have been done by.

Various <unk>.

Service providers in architecture and in real estate, but.

It is from a we have 53 million square feet filled with some of the leading companies around the country and we speak to our clients and we speak to potential clients as well and I think we have a good handle on this and I would just summarize it by saying that I have not spoken yet to a business leader who thinks.

Looking fully remote is good for their companies and they want to make change I think what's been making the change more difficult to happen are really two things. One these new variants that keep coming up so we had delta at Labor day, and we've had omicron over the most recent holiday and Thats.

That's delayed the return to work and I think the other thing Thats out there is the tight labor market.

Yes.

You've watched all the NFL playoff games over the last couple of weekends I don't see a lot of empty seats theaters in New York, Our full restaurant reservations are hard to get.

People are certainly comfortable doing a lot of things in person yet, they're not coming back to the office. So I do think the tight labor market is impacting business leaders willingness to.

Sure.

Be more aggressive about having their employees come back to work, but I do hear from them concerns about the retention that they've had the difficulty in training new employees turnover rates for employees that have been hired post pandemic versus turnover rates that were of employees that were with the company.

Before the pandemic all of these metrics.

When Ceos look at them.

Have concern.

And yes by the way on the technology side.

We have spoken with many many corporate leaders at major technology firms and I would describe that as slightly differently in that they had a remote enabled workforce before the pandemic.

Because there are technology companies and look at the kinds of spaces that they all created with all of the <unk>.

Collaboration space the amenities, they provide foodservice and all of those things.

That was all going on even before the pandemic. So I think what the pandemic is driving as those kinds of strategies by companies.

In other industries, it's migrating across the industrial across the industry landscape.

A couple of yes, sure Bryan Koop, Bryan Koop from Boston.

None that we're definitely seeing and it started probably 90 days ago, but it has accelerated over the last third is every time our team comes back from a tour.

There is a noticeable change in who's on mature tremendous amount of C suite players. Many leaderships of all departments et cetera, we've done tours with as many as 10 to 15 people highly unusual in the past where the leaders would definitely come in later theyre coming in much earlier and they are.

Far more proactive about the design of this space what the goals are and what their intentions are and there's a real realization. We think by these leaders that going to work is no longer an obligation going to work as a destination and they want to make sure. There is many things at that destination as humanly possible.

<unk> for them and it's been really refreshing to see this pro activity of the leaders and our team has been really having a lot of fun coming back on you wouldn't believe who is on this first tour.

Great. Thank you.

Second question is a follow up on the commentary you've had versus your guidance.

Doug you mentioned, the 180 basis points embedded occupancy uplift from signed leases not commenced I think that number increased a little bit from the prior quarter.

But you kept your occupancy guidance.

Basically flat from current levels at the midpoint.

Is this purely just due to timing of leases that you plan to sign or do you also expect termination.

Leases terminated to increase as well.

It's actually it's at 100% John based upon the timing of when the actual rent commencement is going to be I mean I'll just.

You sort of give you a.

The kind of example that we're working on and how it sort of manifests right. So so we have we have some we have lease expiring at 601 Lexington Avenue in the latter half of 2022, we are already in discussions at least lease negotiations like paper is moving back and forth with a tenant on 150 out of 200000 square feet of space Thats expire.

Great.

Yes.

I don't know how that is going to shake out as to whether or not we're going to end up demo demo in the space and then delivering it to them or theyre going to take it as is the difference between those two things is 18 months potentially of term in terms of when we are able to recognize the revenue. So we have so many of those kinds of corky transactions, if you will going.

That youre going to hear me talking about I suspect as we move into the year larger and larger amount of space that we have leases that were signed that's not yet in occupancy that number is going to grow which I think is a great thing and because that revenue is shortly coming in and it's very contractual and it's very long term, but in the short term it's hard.

For us to sort of gauge, how it's going to impact our occupancy numbers.

Great. Thank you.

Speakers, our next question from Jamie Feldman.

From Bank of America, you May ask your question.

Great. Thank you and good morning.

It kind of similar to what it's always been.

I think it is.

For our portfolio is probably similar to what it has been because we've done so much already right.

Yes.

I don't mind doing this because I think it's important.

When you look at our major CBD assets, which is where the bulk of the costs will be.

The new project because occurred right. So if you go for example to market Air Center. We just we spent a lot of money and a lot of time were rebuilding all of the lobbies that EDC 123 and four.

If you go to a 100 Federal Street, you see that we rebuilt and created this really unusual place at the base of the building if you go to.

New York City, and you look at what we did at 601 Lexington Avenue with the hue and the redo of the lobby that was done at 399 with the facade and the changes that were made to $5 99.

We've been doing this work on a consistent basis, so I don't think youre going to see.

Major change in the way, we are continuing to want to do that to all of our buildings on a consistent basis and so I don't think youre going to see a quote unquote big Spike in Capex, but I do think it's going to be consistent.

And we think of it that way you have to be refreshing your buildings and thinking about how you can maintain and upgrade your mechanical systems. Your destination, which is your elevator systems Youre lobby entrance is the amenities in the building we've talked earlier I think.

In past calls about what we're doing at the General Motors building, where.

Literally in their building for for both health and fitness in conferencing as well as food and beverage. So it's like we're just reduced doing that all the time every week.

Q4 2021 Boston Properties Inc Earnings Call

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