Q4 2024 BXP Inc Earnings Call

After the speaker's presentation, there will be a question and answer session.

Speaker Change: I ask a question during the session you will need to press star one one on your telephone you have been here an automated message advising your hand is raised to withdraw your question. Please press star one again.

Please be advised that today's conference is being recorded I would now.

Speaker Change: I'd like to hand, the conference over to your first Speaker, Helen Hahn Vice President Investor Relations. Please go ahead.

Speaker Change: Good morning, and welcome to Dxp's fourth quarter 2024 earnings Conference call. The press release and supplemental package were distributed last night and furnished on form 8-K in the supplemental package DXP has reconciled all non-GAAP financial measures to the most directly comparable GAAP measure in accordance with Reg G. If you did not receive a copy these.

Speaker Change: Documents are available in the investors section of our website at investors Dot DXP Dot com a webcast of this call will be available for 12 months.

Speaker Change: 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 DXP believes the expectations reflected in any forward looking statements are based on reasonable assumptions.

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 Dxp's filings with the SEC.

<unk> does not undertake a duty to update.

Speaker Change: Any forward looking statements.

Speaker Change: I'd like to welcome Owen Thomas Chairman, and Chief Executive Officer, Doug Linde, President and Mike Labelle, Chief Financial Officer during the Q&A portion of our call Ray Ritchey Senior Executive Vice President and our regional management teams will be available to address any questions. We ask that those of you participating in the Q&A portion of the call.

Please limit yourself to one and only one question. If you had an additional query or follow up please feel free to rejoin the queue I would now like to turn the call over to Owen Thomas for his formal remarks.

Speaker Change: Alright, Thank you Helen and good morning, and happy lunar new year to all of you our results for the fourth quarter demonstrated strong performance, given our execution and the property and capital market recovery that is underway.

Speaker Change: Our <unk> per share was in line with our forecast and market consensus for the fourth quarter.

Speaker Change: We completed over two 3 million square feet of leasing in the quarter, which was the most quarterly leasing we have experienced since the second quarter of 2019. It was 130% of our long term average leasing for the fourth quarter, and our fifth largest quarter of leasing ever.

Speaker Change: Over the last few months, we have made several significant leasing announcements with important clients such as Bain capital ropes, <unk> Gray Mcdermott will and Emery and net wells.

Speaker Change: We leased over five 6 million square feet for all of 2024, which was 35% greater than 2023 and the average term for over 291 leases completed in 2024 was just under 10 years.

Speaker Change: Though the fourth quarter is usually our most productive leasing quarter due to year end seasonality effects momentum is clearly building in the market and our leasing results.

Over the last few months, we have made several significant leasing announcements with important clients such as Bain capital ropes, <unk> Gray Mcdermott will and Emery and net wells.

Speaker Change: As I discussed at some length last quarter, the most important market forces impacting DXP.

Speaker Change: But earnings growth returned to office behavior and outperformance of Premier workplaces continues to work in our favor serving as a tailwind for <unk> performance.

We leased over five 6 million square feet for all of 2024, which was 35% greater than 2023 and the average term for over 291 leases completed in 2024 was just under 10 years.

Speaker Change: But one critical factor with a more uncertain trajectory as interest rates inflation measured at CPI has risen in the last three months the two 9% stubbornly above the fed's, 2% target and the December employment release indicated new job creation was well in excess of market expectations.

Though the fourth quarter is usually our most productive leasing quarter due to year end seasonality effects momentum is clearly building in the market and our leasing results.

As I discussed at some length last quarter, the most important market forces impacting DXP.

Speaker Change: As a result, the fed has become more cautious lowering its forecast of fed fund rate cuts in 2025 and in the fixed income markets long term interest rates were up nearly 100 basis points since the fed's first rate cut in September last year. Notwithstanding these uncertainty short term interest rates should remain lower in 2025 and 2012.

But earnings growth returned to office behavior and outperformance of Premier workplaces continues to work in our favor serving as a tailwind for <unk> performance.

But one critical factor with a more uncertain trajectory as interest rates inflation measured at CPI has risen in the last three months the two 9% stubbornly above the fed's, 2% target and the December employment release indicated new job creation was well in excess of market expectations.

Speaker Change: Four which would be a positive for our and our clients' cost of capital.

Speaker Change: One question, we frequently receive is to project the impact of the new federal administrations policies on <unk> activities.

Speaker Change: So we are in the early stages of the New administration executing its plan. We do believe many of the articulated policies are business friendly, particularly lower taxes, and less regulation, which will be positive for our clients building their confidence and as a result stimulating leasing activity.

As a result, the fed has become more cautious lowering its forecast of fed fund rate cuts in 2025 and in the fixed income markets long term interest rates were up nearly 100 basis points since the fed's first rate cut in September last year. Notwithstanding these uncertainty short term interest rates should remain lower in 2025 and 2020.

Speaker Change: Regarding efficiency initiatives, even if the federal workforce has rationalized in the GSA reduces space requirements, having federal workers returning to their offices should be a significant positive for DXP business in the Washington DC region.

Four which would be a positive for our and our clients' cost of capital.

One question, we frequently receive is to project the impact of the new federal administrations policies on Dxp's activities.

Speaker Change: DXP is limited limited exposure to GSA leases and therefore, not directly impacted by a reduction in GSA space requirements.

So we are in the early stages of the New administration executing its plan. We do believe many of the articulated policies are business friendly, particularly lower taxes, and less regulation, which will be positive for our clients building their confidence and as a result stimulating leasing activity.

Speaker Change: <unk> Street life would be a positive for the urban environment and local retailers in Washington D C.

Speaker Change: And many of our users are government contractors, who would be more likely to return to their offices in line with our government clients.

Regarding efficiency initiatives, even if the federal workforce has rationalized in the GSA reduces space requirements, having federal workers returning to their offices should be a significant positive for DXP business in the Washington DC region.

Speaker Change: An area of concern with the new administrations policies the potential impact to interest rates given that new tariffs if implemented could be inflationary and larger fiscal deficits, resulting from tax cuts could lead to higher long term treasury yields in the debt markets.

DXP is limited limited exposure to GSA leases and therefore, not directly impacted by a reduction in GSA space requirements.

Speaker Change: We are shocked by the devastation of the recent fires in la and empathetic to all those impacted it is too early to fully understand the future impact of this tragedy on the La office market.

More street life would be a positive for the urban environment and local retailers in Washington D C.

And many of our users are government contractors, who would be more likely to return to their offices in line with our government clients.

Speaker Change: But we are aware of a significant office sale process that is progressing with no apparent pricing impact post the fire incident.

An area of concern with the new administrations policies the potential impact to interest rates given that new tariffs if implemented could be inflationary and larger fiscal deficits, resulting from tax cuts could lead to higher long term treasury yields in the debt markets.

Speaker Change: As discussed repeatedly in the past DXP competes primarily in the Premier workplace segment of the office sector, which continues to materially outperform the broader office market Premier workplaces are defined in Cbre's research as the highest quality 7% of buildings representing <unk>.

We are shocked by the devastation of the recent fires in L. A and empathetic to all those impacted it is too early to fully understand the future impact of this tragedy on the La office market.

Speaker Change: Percent of total space and our five CBD markets direct vacancy for Premier Workplaces is currently 13, 2% versus 18, 8% for the broader market.

But we are aware of a significant office sale process that is progressing with no apparent pricing impact post the fire incident.

Likewise net absorption for Premier workplaces has been a positive $8 8 million square feet over the last three years versus a negative $15 6 million square feet for the broader market asking rents for premier workplaces are more than 50% higher than the broader market up from approximately a 40% prime.

As discussed repeatedly in the past DXP competes primarily in the Premier workplace segment of the office sector, which continues to materially outperform the broader office market Premier workplaces are defined in Cbre's research as the highest quality, 7% of buildings representing 13.

Speaker Change: <unk> three years ago.

Speaker Change: Regarding the real estate private equity capital markets office sales volume in the fourth quarter demonstrated our continued acceleration of deal activity specifically.

Percent of total space and our five CBD markets direct vacancy for Premier Workplaces is currently 13, 2% versus 18, 8% for the broader market.

Speaker Change: Specifically significant U S office sales volume was $15 3 billion, 80% greater than the third quarter of 24, and 59% above the fourth quarter a year ago.

Likewise net absorption for Premier workplaces has been a positive $8 8 million square feet over the last three years versus a negative $15 6 million square feet for the broader market.

Speaker Change: Lower short term interest rates increased leasing activity for certain assets and locations and better access to debt financing continue to be the drivers.

Asking rents for Premier workplaces are more than 50% higher than the broader market up from approximately a 40% premium three years ago.

Speaker Change: So there were limited premier workplace sale transactions this past quarter in our core markets. Notable deals include nor just purchased the 50% interest that did not already own in a portfolio of eight assets located in Boston, Washington, D C and San Francisco from Nuveen.

Regarding the real estate private equity capital markets office sales volume in the fourth quarter demonstrated our continued acceleration of deal activity spin.

Specifically significant U S office sales volume was $15 3 billion, 80% greater than the third quarter of 24, and 59% above the fourth quarter a year ago.

Speaker Change: Reising was on average approximately $500 a square foot for our portfolio that is 88, 5% leased.

Speaker Change: A non U S investor purchased a 11% minority interest in one Vanderbilt next to Grand Central in New York City for $2700, a square foot and a four 3% reported cap rate.

Lower short term interest rates increased leasing activity for certain assets and locations and better access to debt financing continue to be the drivers.

So there were limited premier workplace sale transactions this past quarter in our core markets. Notable deals include Norges purchased a 50% interest that did not already own in a portfolio of eight assets located in Boston, Washington, D C and San Francisco from Nuveen.

Speaker Change: Moving to <unk> capital allocation activities and new investments, we commenced an exciting new office development in Washington D C.

Speaker Change: Specifically, we acquired $725 12 Street, a vacant office building from its lender for $34 million or $112 a square foot. The site is very well located immediately adjacent to Metro Center, Washington, Dc's busiest transit stop where four train lines converge.

Reising was on average approximately $500 a square foot for our portfolio that is 88, 5% leased.

A non U S investor purchased a 11% minority interest in one Vanderbilt next to Grand Central in New York City for $2700, a square foot and a four 3% reported cap rate.

Speaker Change: Concurrent with the acquisition, we secured a long term pre lease commitment from Mcdermott will <unk> Emery for 152000 square feet to anchor our new Premier workplace development on the site further we have a letter of intent with another anchor clients at least substantially all of the remaining space. Our development plan is to demolish the existing build.

Moving to <unk> capital allocation activities and new investments, we commenced an exciting new office development in Washington D C.

Specifically, we acquired $725 12 Street, a vacant office building from its lender for $34 million or $112 a square foot. The site is very well located immediately adjacent to Metro Center, Washington, Dcs busiest transit stop where four train lines converge.

Speaker Change: <unk> reuse the below grade parking structure and rebuild a new 320000 square foot premier workplace with market, leading amenities and unique entry meeting and outdoor spaces for our two anchor clients.

Speaker Change: We expect the full development budget, including land acquisition and capital costs will be approximately $350 million and our projected initial cash development yield for the project is over 8%.

Concurrent with the acquisition, we secured a long term pre lease commitment from Mcdermott will <unk> Emery for 152000 square feet to anchor our new Premier workplace development on the site further we have a letter of intent with another anchor clients at least substantially all of the remaining space. Our development plan is to demolish the existing build.

Speaker Change: The development has commenced with our acquisition in December and we expect to deliver the building in late 2028.

Speaker Change: $725 12 Street is a great example of how DXP is uniquely able to create an accretive investment opportunity in the current market environment.

<unk> reuse the below grade parking structure and rebuild a new 320000 square foot premier workplace with market, leading amenities and unique entry meeting and outdoor spaces for our two anchor clients.

The existing building was empty and its loan in default, creating a discounted acquisition opportunity industry, leading clients want and will pay for new premier workplace space fulfillment notwithstanding high levels of vacancy in existing buildings.

We expect the full development budget, including land acquisition and capital costs will be approximately $350 million and our.

<unk> initial cash development yield for the project is over 8%.

Speaker Change: And DXP has the unique ability to execute given our relationships with lenders and owners trusted reputation and experience with industry, leading clients both in Washington D C and around the U S.

The development has commenced with our acquisition in December and we expect to deliver the building in late 2028.

$725 12 Street is a great example of how DXP is uniquely able to create an accretive investment opportunity in the current market environment.

Speaker Change: Access to the capital markets needed to fund the development and a market leading execution team to design and construct the new building well done team DXP D C.

The existing building was empty and its loan in default, creating a discounted acquisition opportunity industry, leading clients want and will pay for new premier workplace space fulfillment notwithstanding high levels of vacancy in existing buildings.

Speaker Change: Continuing with new developments I described last quarter, our 940000 square foot $3 43, Madison project in Midtown with direct lobby escalator access to Grand Central Madison Concourse and located two blocks south of JP Morgan's New headquarters building, we are in active conversations with <unk>.

And DXP has the unique ability to execute given our relationships with lenders and owners trusted reputation and experience with industry, leading clients, both in Washington, DC and around the U S.

Speaker Change: Several potential anchor clients ranging from 150000 to 400000 square feet three.

Access to the capital markets needed to fund the development and a market leading execution team to design and construct the new building well done team DXP DC.

Speaker Change: 343, Madison is the only immediately actionable office development site in close proximity to Grand Central terminal widely viewed as the most in demand office Submarket in the U S. We expect to launch this $2 billion project in 2025, where as a reminder, the XP owns a 55% interest.

Continuing with new developments I described last quarter, our 940000 square foot $3 43, Madison project in Midtown with direct lobby escalator access to Grand Central Madison Concourse and located two blocks south of J P. Morgan's New headquarters building, we are in active conversations with <unk>.

Speaker Change: We also expect to launch two new resident residential developments in 2025, or BSP will serve as a developer and a minority owner of the project.

Several potential anchor clients ranging from 150000 to 400000 square feet.

Speaker Change: One of these projects is in suburban Boston at 17, Hartwell Avenue in Lexington on our site, we already own that is being re entitled.

243, Madison is the only immediately actionable office development site in close proximity to Grand Central terminal widely viewed as the most in demand after sub market in the U S. We expect to launch this $2 billion project in 2025, where as a reminder, DXP owns a 55% interest.

Speaker Change: And the other project is in the New York region more details will be forthcoming when we launch. These projects later this year.

Speaker Change: DXP along with three partners was also awarded by the State of New York, a project known as site K.

Speaker Change: Located at 11th Avenue between 35, and 36th Street directly across from the Javits Convention Center and adjacent to our three Hudson Boulevard commercial site in New York City. The plan is to build approximately 350 residential units with an affordable component and a 450 room hotel in <unk>.

We also expect to launch two new resident residential developments in 2025, or BSP will serve as a developer and a minority owner of the project one.

One of these projects is in suburban Boston at 17, Hartwell Avenue in Lexington on our site, we already own that is being re entitled.

Speaker Change: Two separate towers over a five story podium.

And the other project is in the New York region more details will be forthcoming when we launch. These projects later this year.

Speaker Change: We are very pleased and honored to have been selected by New York State in this highly competitive RFP process the.

DXP along with three partners was also awarded by the State of New York, a project known as site K.

Speaker Change: The project is several years away from construction commencement given the entitlement pre development and design work that needs to be completed.

Located at 11th Avenue between 35, and 36th Street directly across from the Javits Convention Center and adjacent to our three Hudson Boulevard commercial site in New York City. The plan is to build approximately 30 550 residential units with an affordable component and a 450 room hotel in.

Speaker Change: DXP also delivered into service two projects. This past quarter ahead of schedule in October we completed 300 Binney Street, a 240000 square foot office to lab conversion project fully leased to the broad Institute on a long term basis, where we were able to achieve a first year cash development yield.

Two separate towers over a five story podium.

Speaker Change: On incremental capital of 14, 5%.

We are very pleased and honored to have been selected by New York State in this highly competitive RFP process the.

Speaker Change: We also fully delivered into service Sky March a 508 unit luxury residential high rise development located in Reston Town Center.

The project is several years away from construction commencement given the entitlement pre development and design work that needs to be completed.

Speaker Change: The lease up of this project is well ahead of schedule, having leased over 50% of the units at above pro forma rents only six months after opening.

DXP also delivered into service two projects. This past quarter ahead of schedule in October we completed 300 Binney Street, a 240000 square foot office to lab conversion project fully leased to the broad Institute on a long term basis, where we were able to achieve our first year cash development yields are.

Speaker Change: We are in active negotiations for the disposition of three land sites and are preparing to put into the market and operating property in the aggregate. These sales if successful will generate approximately $200 million of net proceeds although it is possible one of the land sale closings gets pushed to 2026.

On incremental capital of 14, 5%.

We also fully delivered into service Sky March a 508 unit luxury residential high rise development located in Reston Town Center.

Speaker Change: We remain active evaluating our non producing assets both sites and buildings taken out of service to generate more monetization activity.

The lease up of this project is well ahead of schedule, having leased over 50% of the units at above pro forma rents only six months after opening.

Speaker Change: Notwithstanding the development deliveries, we completed in the second half of 2020 for DXP continues to execute a significant development pipeline with seven office lab retail and residential projects underway as of the end of the fourth quarter, the largest of which is $2 90, binnie in Cambridge fully leased to Astrazeneca astrazeneca.

We are in active negotiations for the disposition of three land sites and are preparing to put into the market and operating property in the aggregate. These sales if successful will generate approximately $200 million of net proceeds.

Speaker Change: And expect it to deliver in the second quarter of 2026.

Although it is possible one of the land sale closings gets pushed to 2026.

Speaker Change: These projects aggregate approximately $2 3 million square feet and $2 $1 billion of DXP investment with $1 2 billion remaining to be funded.

We remain active evaluating our non producing assets both sites and buildings taken out of service to generate more monetization activity.

So in conclusion DXP is clearly gaining momentum in both leasing and new investment activity due to more favorable market conditions and our strategy of commitment to both our clients and the premier workplace segment of the office industry, our access to public and private debt and equity capital markets and a leading mark.

Notwithstanding the development deliveries, we completed in the second half of 2020 for DXP continues to execute a significant development pipeline with seven office lab retail and residential projects underway as of the end of the fourth quarter, the largest of which is $2 90, binnie in Cambridge fully leased to Astrazeneca astrazeneca.

Speaker Change: Presence in our core cities.

And expected to deliver in the second quarter of 2026.

Speaker Change: We will build on this momentum in the constructive environment for our business to lay the foundation for additional growth in the years ahead.

These projects aggregate approximately two 3 million square feet and $2 $1 billion of DXP investment with $1 2 billion remaining to be funded.

Speaker Change: Let me turn over our report to Doug. Thanks, Owen Good morning, everybody.

Doug Linde: So as Owen said Dxp's reasonable leasing teams had an outstanding fourth quarter, and we greatly exceeded our 2024 baseline leasing expectation.

So in conclusion DXP is clearly gaining momentum in both leasing and new investment activity due to more favorable market conditions and our strategy of commitment to both our clients and the premier workplace segment of the office industry, our access to public and private debt and equity capital markets and a leading mark.

Speaker Change: $3 5 million square feet.

Speaker Change: We did a significant amount of future year exploration leasing during the fourth quarter, which followed a pattern that we set over the last 12 months.

<unk> presence in our core cities.

Speaker Change: This has had the effect of dramatically, reducing our 2026 and 2027 explorations.

We will build on this momentum in the constructive environment for our business to lay the foundation for additional growth in the years ahead.

Doug: Let me turn over our report to Doug. Thanks, Owen Good morning, everybody.

Speaker Change: During the last 15 months or 2026 explorations were cut by more than one 5 million square feet.

Doug: So as Owen said Dxp's reasonable leasing teams had an outstanding fourth quarter, and we greatly exceeded our 2024 baseline leasing expectation.

Speaker Change: So as of 12, 31, 24, 2026 exploration sit at 1.86 million square feet three 8% of our portfolio in 2027 sits at $2 2 million square feet for 4% of the portfolio and the largest exploration we have in 2012.

Doug: $3 5 billion square feet.

Doug: We did a significant amount of future year exploration leasing during the fourth quarter, which followed a pattern that we set over the last 12 months.

Doug: This has had the effect of dramatically, reducing our 2026 and 2027 explorations.

Speaker Change: Six is 134000 square feet and the largest exploration we have in 2027, it was 143000 square feet.

Doug: During the last 15 months or 2026 explorations were cut by more than one 5 million square feet.

Speaker Change: We are today in renewal or replacement client discussions on more than 500000 square feet of the 2026 exploration 26, and 27% will be exceptionally low rollover years for BSP why am I emphasizing this because.

Doug: So as of 12 $31 20 for 2026 explorations.

Doug: 1.86 million square feet, three 8% of our portfolio in 2027 sits at $2 2 million square feet for 4% of the portfolio and the largest exploration. We have in 2026 is 134000 square feet and the largest exploration we have in two.

Speaker Change: If we continue the least two to 3 million square feet of vacancy and expiring space in 'twenty six 'twenty seven there will be a material improvement in our occupancy.

Speaker Change: 490000 square feet is 100 basis points.

Doug: 27, it was 143000 square feet.

Doug: We are today in a renewal or replacement client discussions on more than 500000 square feet of the 2026 exploration 20.

Speaker Change: <unk> actually just stop right, there today, but I'm going to keep going.

Speaker Change: Our in service properties finished the year at 87, 5% occupancy a 50 basis point increase from last quarter and slightly ahead of the estimate we provided on our last call remember our occupancy reflects the square footage of space, where we are recognizing GAAP revenue.

Doug: <unk> 26, and 27% will be exceptionally low rollover years for DXP why am I emphasizing this.

Doug: Because if we continue to lease two to 3 million square feet of vacancy and expiring space in 'twenty six 'twenty seven there will be a material improvement in our occupancy.

Speaker Change: Our leased square footage includes the addition of any spaces that have been the least but have yet to commence GAAP revenue at the end of the fourth quarter, we were 89, 4% leased.

Doug: 490000 square feet is 100 basis points.

Speaker Change: Our focus is on lease square footage since it captures all of our future revenue and eliminates the variability of the timing of completion of tenant improvements, which governs GAAP revenue recognition and occupancy.

Mike: Mike thought actually to stop right, there today, but I'm going to keep going.

Mike: Our in service properties finished the year at 87, 5% occupancy a 50 basis point increase from last quarter and slightly ahead of the estimate we provided on our last call.

Speaker Change: We start 25 with our lease square footage as I said at $89 four.

Speaker Change: We've just completed our bottom up leasing projections, which emanate from the regions a little help from me as well and the goal for our in service in 2025 development deliveries is just over 4 million square feet. So thats our goal for 24 excuse me 25 in.

Mike: Remember our occupancy reflects the square footage of space, where we are recognizing GAAP revenue.

Mike: Our leased square footage includes the addition of any spaces that have been the least but have yet to commence GAAP revenue at the end of the fourth quarter, we were 89, 4% leased.

Speaker Change: In 24, we completed leasing on about $1 5 million square feet of vacant space at.

Mike: Our focus is on lease square footage since it captures all of our future revenue and eliminates the variability of the timing of completion of tenant improvements, which governs GAAP revenue recognition and occupancy.

Speaker Change: 25 estimate includes the execution of about 2 million square feet of currently vacant space and one 3 million square feet of leasing unknown twenty-five move outs in 2025 exploration, where we believe we will be successfully renewing our clients.

Mike: We start 25 with our lease square footage as I said at $89 four.

Mike: We've just completed our bottom up leasing projections, which emanate from the regions Little help for me as well and the goal for our in service in 2025 development deliveries is just over 4 million square feet. So thats our goal for 24 excuse me 25 in.

Speaker Change: The remainder of the leasing will be on future Alere year explorations, the 500000 square feet I talked about earlier.

Our current pool of leases in negotiation is about 1 million square feet.

Speaker Change: It covers 280000 square feet of currently vacant space 325000 square feet of 25 expirations 75000 square feet of 25 renewals with the remaining transactions involving spaces with expirations after 25 and as Owen said, our second lease at 725 12 Street.

Mike: In 24, we completed leasing on about one 5 million square feet of vacant space.

Mike: Our 25 estimate includes the execution of about 2 million square feet of currently vacant space and one 3 million square feet of leasing our known 25 move outs and two.

Speaker Change: There's another one 6 million square feet of active pipeline transactions, which include 550000 square feet of vacant space. These are deals that are not in LOI stage, but where we have good clarity.

25 exploration, where we believe we will be successfully renewing our clients there.

Mike: The remainder of the leasing will be on future Alere year explorations, the 500000 square feet I talked about earlier.

Mike: Our current pool of leases in negotiation is about 1 million square feet.

Speaker Change: Off to a good start in 'twenty five.

Speaker Change: So we have 1.3 dollars 1 million square feet of contractual exploration explorations in 25, if we achieve our budget of $2 3 million square feet of leasing a vacant and twenty-five expiring space.

Owen: It covers 280000 square feet of currently vacant space 325000 square feet of twenty-five explorations 75000 square feet of 25 renewals with the remaining transactions involving spaces with explorations after 25 and as Owen said, our second lease at 720 <unk> Street.

Speaker Change: Footage are net lease pickup would be about 40 basis points.

Speaker Change: The one adjustment to this number will be the impacts from changes to the portfolio, which will cause some quarter to quarter fluctuations. So even out by the end of 2025.

Owen: There's another one 6 million square feet of active pipeline transactions, which include 550000 square feet of vacant space. These are deals that are not in LOI stage, but where we have good clarity.

Speaker Change: Right now we expect to take about 825000 square feet of space out of service, which is currently 62% leased and we're adding our three developments 651 Gateway Reston block B and 360 Park Avenue, South which will all be in the in service portfolio by the end of the year and they are currently 23% lease guarantee that there'll be a lot higher before we get to the end of the year.

Owen: Off to a good start in 'twenty five.

Owen: So we have one degree $3 1 million square feet of contractual exploration explorations in 'twenty, if we achieve our budget of $2 3 million square feet of leasing of Bacon and twenty-five expiring space.

Speaker Change: Though.

Speaker Change: In 25, we're taking a few suburban office assets out of service. This follows the path. We took in 'twenty four we're taking action, where we have higher and better use for our assets.

Owen: Footage are net lease pickup would be about 40 basis points.

Owen: The one adjustment to this number will be the impact from changes to the portfolio, which will cause some quarter to quarter fluctuations. So it will even out by the end of 2025.

Speaker Change: There is pent up demand for residential development and acknowledgement by local governments that affordable housing is critical component to a successful economy and development economics that can actually work for six frame construction today.

Owen: Right now we expect to take about 825000 square feet of space out of service, which is currently 62% leased and we're adding our three developments 651 Gateway Reston block B and 360 Park Avenue, South which will all be in the in service portfolio by the end of the year and they are currently 23% lease guarantee there'll be a lot higher before we get to the end of the year.

Speaker Change: This is leading to a change in attitude towards the permitting of additional housing in some of our communities.

Speaker Change: We've been working in many of our markets for more than 25 years and have established constructive relationships in these towns and counties.

Owen: Though.

Owen: And 25 were taking a few suburban office assets out of service. This follows the path. We took in 'twenty four we're taking action, where we have higher and better use for our assets.

Speaker Change: We're working with the local communities to rezone commercial office to for rent and or for sale housing.

Speaker Change: 17, Hartwell Avenue as Owen said is the first example of this this is a building in Lexington that we took out of service in 'twenty, four and where we have received the entitlements for 312 unit project in late December we expect to be underdevelopment in early 'twenty. Five we are also entitled to site in Shady Grove, Maryland for townhouses and have.

Owen: There is pent up demand for residential development and acknowledgement by local governments that affordable housing is critical component to a successful economy and development economics that can actually work for stick frame construction today.

Owen: This is leading to a change in attitude towards the permitting of additional housing in some of our communities.

Speaker Change: Executed an agreement to sell the first space to a townhome developer we've done the same thing in Herndon, Virginia, where we have rezoned landholding to existing office buildings for a 359 unit rental projects and a townhouse development and we have already executed an agreement to sell the townhouse development sites. This is what we expect to.

Owen: We have been working in many of our markets for more than 25 years and have established constructive relationships in these towns and counties. We are working with the local communities to rezone commercial office to for rent and or for sale housing.

Owen: <unk> 17, Hartwell Avenue as Owen said is the first example of this this is a building in Lexington that we took out of service in 'twenty, four and where we have received the entitlements for 312 unit project in late December we expect to be underdevelopment in early 'twenty. Five we are also entitled to site in Shady Grove, Maryland for townhouses and have.

Speaker Change: With the buildings that we are taking out of service and 25.

Speaker Change: Our office markets have either stabilized or are improving sublet additions have tailed off leasing activity has picked up in every market and the negative absorption speak it appears to have stopped in Boston, San Francisco, Northern Virginia, and the district of Columbia. Following what we have already seen in Midtown Manhattan over the last year.

Owen: Executed an agreement to sell the first space to a townhome developer we've done the same thing in Herndon, Virginia, where we have rezoned landholding to existing office buildings for.

Speaker Change: Our two largest property concentration the back Bay of Boston in Midtown Manhattan continues to be the strongest markets in our portfolio.

Owen: 359 unit rental project and a townhouse development and we have already executed an agreement to sell the townhouse development sites. This is what we expect to accomplish with the buildings that we are taking out of service and 25%.

Speaker Change: Availability is sparse rents are increasing and concessions remain constant.

Speaker Change: While theres no meaningful job growth and office using jobs across the U S economy, the pace of job reductions has slowed there.

Owen: Our office markets have either stabilized or are improving sublet additions have tailed off leasing activity has picked up in every market and the negative absorption speak it appears to have stopped in Boston, San Francisco, Northern Virginia, and the district of Columbia. Following what we have already seen in Midtown Manhattan over the last year.

There are still technology companies that are reducing head count, but there are others that are short of space and increasing their footprints.

Speaker Change: We're witnessing space utilization growth in pockets of industries, though they vary by market take the legal industry as a case in point.

Speaker Change: There are law firms in New York, and Boston that are expanding while at the same time law firms in Washington, D C and San Francisco continued to reduced but upgrade their footprints.

Owen: Our two largest property concentration the back Bay of Boston in Midtown Manhattan continues to be the strongest markets in our portfolio availability is sparse rents are increasing and concessions remain constant while theres no meaningful job growth and office using jobs across the U S economy, the pace of job reductions has slowed.

Speaker Change: The improvement in business sentiment, the anticipation of them deal activity and a more robust capital raising environment or improving the confidence of our existing and potential customers. When our clients are confident they are more constructive on making long term real estate commitments. While we don't think that 25 is going to be characterized as a drug with a by a dramatic pickup in market lease.

Owen: There are still technology companies that are reducing head count, but there are others that are sort of space and increasing their footprints. We are witnessing space utilization growth in pockets of industries, though they vary by market take the legal industry as a case in point.

Speaker Change: The absorption we are certainly on the right track.

Speaker Change: And our data on Premier space illustrates the activity continues to migrate to migrate to the best assets.

Owen: There are law firms in New York, and Boston that are expanding while at the same time law firms in Washington, D C and San Francisco continued to reduced but upgrade their footprints.

Speaker Change: Owen said Theres no better example of this than the transaction that he described at $725 12, when we began our pursuit of this opportunity we identified eight buildings defined as class a premier by the brokerage community in D C, including one new development under construction that could accommodate 150000 square foot client, where they trophy do they have <unk>.

Owen: Improvement in business sentiment, we anticipated them deal activity and a more robust capital raising environment or improving the confidence of our existing and potential customers. When our clients are confident they are more constructive on making long term real estate commitments.

Speaker Change: At the top of the building, where the amenity rich well none of these buildings were deemed to be acceptable by our client.

Owen: While we don't think that 25% is going to be characterized as a drug with a by a dramatic pickup in market leasing absorption. We are certainly on the right track.

Speaker Change: And in order to bridge the delivery of the new development. The client also executed a short term extension and 500, North Capitol, a JV asset owned by DXP, rather than relocate when their existing lease expired for the existing inventory in the market. The bifurcation is real.

Owen: And our data on Premier space illustrates the activity continues to the micro to migrate to the best assets.

Owen: Owen said Theres no better example of this than the transaction that he described at 725 12, when we began our pursuit of this opportunity we identified eight buildings defined as class a premier by the brokerage community in D C, including one new development under construction that could accommodate a 150000 square foot client, where they trophy do they have <unk>.

Speaker Change: <unk> activity for the fourth quarter was not dominated by any region. We completed 680000 square feet in Boston 577 in New York 571 on the West Coast and 494000 square feet in D C.

It'd be at the top of the building, where the amenity rich well none of these buildings were deemed to be acceptable by our client.

Speaker Change: 320000 square feet was on currently vacant space.

Speaker Change: 626000 involved 24, and 25 exploration and $1 2 million involved lease extensions for the space that we were scheduled to expire post 2020, 652000 square feet whats for the new development at 725 12.

Owen: And in order to bridge the delivery of the new development. The client also executed a short term extension at 500, North Capitol, a JV asset owned by DXP, rather than relocate when their existing lease expired for the existing inventory in the market. The bifurcation is real.

Speaker Change: The activity includes about 312000 square feet of leasing on existing vacant space.

Speaker Change: <unk> activity for the fourth quarter was not dominated by any region. We completed 680000 square feet in Boston 577 in New York 571 on the West Coast and 494000 square feet in DC.

Speaker Change: Across the portfolio. The deals were executed this quarter had a mark down excuse me of about 5% with a 3% increase in Boston, a 5% decrease in New York, a 10% decrease in D C and a 14% decrease on the west coast pretty consistent with what you saw in our supplemental for the leases that hit revenue this quarter.

Owen: 320000 square feet was on currently vacant space.

Owen: 626000 involve 'twenty four 'twenty five exploration and $1 2 million involve lease extensions for the space that we were scheduled to expire post 2026, 152000 square feet with for the new development at 795 drop.

Speaker Change: The bifurcation of client demand between the east coast and the West Coast continues to exist and there are actions of our clients in these respective markets that are also different there was little large block availability in the back Bay of Boston or in the Park Avenue Submarket in New York.

Owen: The activity includes about 312000 square feet of leasing on existing vacant space.

Speaker Change: Lease extensions, we completed with ropes <unk> gray at the Prudential Center. This quarter begins in 2031, you may recall that we didnt early extension with being capital earlier this year and another with MFS 111, Huntington Avenue in 'twenty three at the moment the rents necessary to justify new construction in Boston are considerably higher than the rents embed.

Owen: Ross the portfolio. The deals were executed this quarter had a mark down excuse me of about 5% with a 3% increase in Boston, a 5% decrease in New York, a 10% decrease in D C and a 14% decrease on the west coast pretty consistent with what you saw in our supplemental for the leases that hit revenue this quarter the.

Owen: The bifurcation of client demand between the east coast and the West Coast continues to exist and there are actions of the clients in these respective markets that are also different there was little large block availability in the back Bay of Boston or in the Park Avenue Submarket in New York.

Speaker Change: And extensions are large clients recognize that they want to remain in the back Bay long term there are a few alternatives to remaining in place.

Speaker Change: This quarter, we did two other larger renewals in Boston, one or 200, Clarendon and the other at Atlantic Wharf. These clients had the option to go to vacant space and the greater CBD market, but that would have meant significant changes in quality and location.

Owen: <unk> extensions, we completed with ropes <unk> gray at the Prudential Center. This quarter begins in 2031, you may recall that we didnt early extension with being capital earlier this year and another with MFS 111, Huntington Avenue in 'twenty three at the moment the rents necessary to justify new construction in Boston are considerably higher than the rents embed.

Speaker Change: Our Boston CBD portfolio availability is as tight as it has ever been we do have some work to do however in our urban edge portfolio, which is where we have our largest concentration of vacant space large known explorations and life science availability.

Owen: And extensions are large clients recognize that they want to remain in the back Bay long term there are few alternatives to remaining in place.

Speaker Change: These markets are focused on traditional technology and life science clients life science tenant clients and that demand growth continues to be weak traditional life science demand is weaker than office demand. We are in discussions with a few life science companies that are looking exclusively for office space as they focus their capital on it.

Owen: This quarter, we did two other larger renewals in Boston, one at 200, Clarendon and the other at Atlantic Wharf. These clients have the options to go to a vacant space in the greater CBD market, but that would have made significant changes in quality and location.

Speaker Change: Acquiring derisked with products that are in trials, rather than pure drug discovery, and therefore don't need lab infrastructure there.

Owen: Our Boston CBD portfolio availability is as tight as it has ever been we do have some work to do however in our urban edge portfolio, which is where we have our largest concentration of vacant space large known explorations and life science availability.

Speaker Change: There is considerable labs sublease space available and the economics of these offerings make it very difficult for new developments with shell lab to compete even if we provide a significant tenant improvement allowance.

Owen: And these markets are focused on traditional technology and life science clients Lifesciences tenant clients and that demand growth continues to be weak traditional life science demand is weaker than office demand.

Speaker Change: Our availability in Midtown Manhattan.

Speaker Change: It is almost none, but we have a concentration in Midtown South we have 350000 square feet of availability of 205th Avenue, where we are in lease negotiations with a non technology client for 244000 square feet.

Owen: We are in discussions with a few life science companies that are looking exclusively for office space as they focus their capital on acquiring derisked with products that are in trials, rather than pure drug discovery, and therefore don't need lab infrastructure there.

Speaker Change: At $3 60 Park Avenue, South demand is picking up and there has been some improvement in small tech tenant inquiry, but overall tech demand in 25 is still less than 40% of it what it was pre COVID-19. We are in lease with another single floor tenants at 360 Park Avenue South.

Owen: There is considerable lab sublease space available and the economics of these offerings make it very difficult for new development with shell lab to compete even if we provide a significant tenant improvement allowance.

Speaker Change: During the quarter, we leased about 200000 square feet to financial firms.

Owen: Our availability in Midtown Manhattan.

Owen: Is almost none, but we have a concentration in Midtown South we have 350000 square feet of availability at 205th Avenue, where we are in lease negotiations with a non technology client for 244000 square feet.

Speaker Change: In the Park Avenue Submarket at the General Motors building 599, Lex and at 510 Madison Avenue.

Speaker Change: These clients experienced growth in their footprint. There is no question that the activity. We have seen at 599 Lax is a direct result of the lack of availability on Park Avenue.

Owen: At 360 Park Avenue, South demand is picking up and there has been some improvement in small tech tenant inquiry, but overall tech demand in 25 is still less than 40% of it what it was pre COVID-19. We are in lease with another single floor tenants at 360 Park Avenue South.

Speaker Change: Our largest midtown opportunity in 'twenty five is that 510, Madison, we're finishing it up and amenity upgrade and have about 100000 square feet of availability on 11000 square 500000 square foot floors.

Speaker Change: The Big news is that the small floor leasing market. This quarter was made by CBRE.

Owen: During the quarter, we leased about 200000 square feet to financial firms.

Speaker Change: Who took multiple small floors that lever house.

Owen: In the Park Avenue Submarket at the General Motors building side 99, Lex and at 510 Madison Avenue.

Speaker Change: Our house earlier this month at rents that position our offering at 510 Madison is a great value in the market.

Owen: These clients experienced growth in their footprint. There is no question that the activity. We have seen at $5 99 Lax is a direct result of the lack of availability on Park Avenue.

Speaker Change: There was a sparse selection of large blocks of space availability in the Park Avenue area, which portends well for our ability as Owen said to get a commitment at $3 43, Madison, where the rents necessary to support new construction are only a slight premium to current market rents and where leasing at rents that it'll be starting in two.

Owen: Our largest midtown opportunity in 'twenty five is at 510 Madison, we are finishing it up in a memory upgrade and have about 100000 square feet of availability on a 11000 square 500000 square foot floors.

Speaker Change: 29 and 2030.

Owen: The Big news is that the small floor leasing market. This quarter was made by CBRE.

Speaker Change: The leasing excitement on the West Coast and 24 continues to be growth from AI organizations in the city of San Francisco at this point, we're not sure of what defines an AI company since it seems that even established technology companies are describing their proprietary large language models computing power and storage of data and there are a number of organizations that are working on industry.

Owen: We took multiple small floors that lever house.

Owen: Our house earlier this month at rents that position our offering at 510 Madison is a great value in the market.

Speaker Change: There was a sparse selection of large blocks of space availability in the Park Avenue area, which portends well for our ability as Owen said to get our commitment at $3 43, Madison, where the rents necessary to support new construction are only a slight premium to current market rents and where leasing at rents that are will be starting in 2000.

Speaker Change: Specific solutions that rely on new training models. The critical point is that the technology ecosystem and the city of San Francisco and the Peninsula is where the bulk of these businesses are operating and growing.

Speaker Change: In addition, the cost of office real estate is significantly cheaper the cost of housing is cheaper and there's more available talent and there has been in the last decade in the Bay area.

Owen: <unk> 29 in 2013.

Owen: The leasing excitement on the West coast in 24 continues to be growth from AI organizations in the city of San Francisco at this point, we're not sure of what defines an AI company since it seems that even established technology companies are describing their proprietary large language model computing power and storage of data and there are a number of organizations that are working on industry.

Speaker Change: Our largest availability in our CBD portfolio wide is in San Francisco many of our traditional office users have continued to rationalize their space in the city, which has led to little if any growth in the traditional San Francisco CBD market.

Owen: Specific solutions that rely on new training models. The critical point is that the technology ecosystem and the city of San Francisco and the Peninsula is where the bulk of these businesses are operating and growing.

Speaker Change: <unk> is just weeks into his new job and one of his priorities as bringing workers and shoppers and visitors back to the CBD.

Speaker Change: <unk> spaces in short supply, but space in the lower sections of buildings as widely available and very competitive.

Owen: In addition, the cost of office real estate is significantly cheaper the cost of housing is cheaper and there is more available talent than there had been in the last decade in the Bay area.

Speaker Change: We completed a new amenity center and Embarcadero Center in December and are now focused on increasing occupancy there and at 680 Folsom Street, where we also have.

Our largest availability in our CBD portfolio wide is in San Francisco many of our traditional office users have continued to rationalize their space in the city, which has led to a little if any growth in the traditional San Francisco CBD market.

Speaker Change: A large block and are finishing up our new amenity offering as well.

Speaker Change: Before I hand, the call over to Mike to discuss twenty-five earning guidance I want to reiterate my comments at the top of my remarks, we accomplished a lot of leasing and a lot of early in the rules in 'twenty. Four we expect 25 will be a year of modest lease square footage increases as we focus on leasing vacant space and known explorations when we get to 'twenty six 'twenty.

Owen: <unk> is just weeks into his new job and one of his priorities as bringing workers and shoppers and visitors back to the CBD.

Speaker Change: <unk> spaces in short supply, but spacing in the lower sections of buildings as widely available and very competitive.

Speaker Change: Seven there is going to be very little exploration headwinds, if we lease it up anything like 'twenty four and what we hope to accomplish in 'twenty five we will see our lease percentage to accelerate.

Speaker Change: We completed a new amenity center at Embarcadero Center in December and are now focused on increasing occupancy there and at 680 Folsom Street, where we also have.

Speaker Change: The time to talk about the quarter and guidance for 25 <unk>.

Speaker Change: A large block and are finishing up our new amenity offering as well.

Speaker Change: Excellent.

Speaker Change: Thanks, Doug.

Speaker Change: Before I hand, the call over to Mike to discuss twenty-five earning guidance I want to reiterate my comments at the top of my remarks, we accomplished a lot of leasing and a lot of early in the rules in 'twenty. Four we expect 25 will be a year of modest lease square footage increases as we focus on leasing vacant space and known expirations when we get to 'twenty six 'twenty.

Speaker Change: Good morning, everybody.

Speaker Change: So this morning I plan to cover the details of our fourth quarter and full year 'twenty for performance.

Speaker Change: And I'm going to spend most of my time, describing our 25 initial earnings guidance that was included in our press release with additional details in our supplemental financial package.

Speaker Change: For 2024, we reported total consolidated revenues of $3 4 billion in full year <unk> of $1 two 5 billion.

Speaker Change: Seven there is going to be very little exploration headwinds, if we lease at a pace anything like 'twenty four and what we hope to accomplish in 'twenty five we will see our lease percentage accelerate Mike tried to talk about the quarter and guidance for 25.

Speaker Change: Or $7 <unk> per share.

Speaker Change: We continue to grow our portfolio and saw revenue increase by 4% in 2024, primarily from bringing new developments into service.

Speaker Change: Excellent.

Mike: Thanks, Doug.

Speaker Change: Good morning, everybody.

Speaker Change: So this morning I plan to cover the details of our fourth quarter and full year 2000 poor performance.

Speaker Change: Our fourth quarter <unk> of $1 79 per share was in line with the midpoint of the guidance, we provided last quarter and our portfolio performed consistent with our expectations.

Speaker Change: And I'm going to spend most of my time, describing our 25 initial earnings guidance that was included in our press release with additional details in our supplemental financial package.

Speaker Change: As Doug mentioned, our occupancy climbed this quarter by 50 basis points to 87, 5%.

Speaker Change: For 2024, we reported total consolidated revenues of $3 4 billion in full year <unk> of $1 two 5 billion.

Speaker Change: Our premier workplace CBD buildings that contribute nearly 90% of the company's revenues continue to outperform and our 99% occupied and 92, 8% leased.

Speaker Change: Or $7 <unk> per share we continue to grow our portfolio and saw revenue increase by 4% in 2024, primarily from bringing new developments into service.

Speaker Change: Our CBD occupancy improved by 80 basis points in the fourth quarter with positive absorption in Boston, New York City and Seattle.

Speaker Change: Our fourth quarter <unk> of $1 79 per share was in line with the midpoint of the guidance, we provided last quarter and our portfolio performed consistent with our expectations.

Speaker Change: We also reported in 2020 for full year <unk>, which.

Speaker Change: Which we refer to as <unk> in our supplemental of $894 million, which exceeds our dividend payout by over $200 million.

Speaker Change: As Doug mentioned, our occupancy climbed this quarter by 50 basis points to 87, 5%.

Speaker Change: While not impacting our SSO, we recorded non cash impairment charges totaling $341 million this quarter related to three of our unconsolidated joint ventures. The charges all relate to assets located on the West Coast and include our interest in Colorado Center Gateway Commons.

Doug: Our premier workplace CBD buildings that contribute nearly 90% of the Companys revenues continue to outperform and our 99% occupied and 92, 8% leased.

Doug: Our CBD occupancy improved by 80 basis points in the fourth quarter with positive absorption in Boston, New York City and Seattle.

Speaker Change: And Safeco Plaza.

Speaker Change: With that I will turn to our 2025 guidance.

Doug: We also reported in 2020 for full year <unk>.

Speaker Change: On a high level, our 2020 guidance can be summarized as follows.

Doug: Which we refer to as in our supplemental of $894 million, which exceeds our dividend payout by over $200 million.

Speaker Change: Growth from a full year contribution of development deliveries.

Speaker Change: Higher fee income and relatively flat 2025 same property portfolio NOI compared to 2024.

Doug: While not impacting our SSO, we recorded non cash impairment charges totaling $341 million this quarter related to three of our unconsolidated joint ventures. The charges all relate to assets located on the West Coast and include our interest in Colorado Center Gateway Commons.

Speaker Change: These items will be offset by lower termination income.

Speaker Change: Interest income from utilizing our cash balances to pay off debt and fund our developments and.

Speaker Change: And a loss of NOI from taking buildings out of service for future development.

Doug: And Safeco Plaza.

Speaker Change: I'll start with the growth from our development activities.

Doug: With that I will turn to our 2025 guidance.

Speaker Change: In 2024, we delivered two fully leased properties 300, Binney Street in Cambridge, and Dick's House of support at the Prudential Center in Boston.

Doug: On a high level, our 2025 guidance can be summarized as follows.

Doug: Growth from a full year contribution of development deliveries.

Speaker Change: We also delivered Sky Mark our multifamily project in Reston that is currently in lease up and 54% leased today.

Doug: Higher fee income and relatively flat 2025 same property portfolio NOI compared to 2024.

Speaker Change: As Owen mentioned, it's exceeding our expectations on both absorption pace and rental rates.

Doug: These items will be offset by lower termination income.

Speaker Change: Our life science deliveries of 651 Gateway in South San Francisco, and one three and 180 city point in Waltham continue to be in lease up with minimal projected contribution to our earnings in 2025.

Doug: Lower interest income from utilizing our cash balances to pay off debt and fund our developments and.

Doug: And a loss of NOI from taking buildings out of service for future development.

Doug: I'll start with the growth from our development activities.

Speaker Change: 681 gateway will be delivered into service and we will cease interest capitalization in the first quarter of 2025.

Doug: In 2024, we delivered two fully leased properties 300, Binney Street in Cambridge, and Dick's houses sport at the Prudential Center in Boston.

Speaker Change: And lastly, our 360 Park Avenue, South development and Midtown South opened in late 2024, we have four floors occupied and are seeing a meaningful pickup in leasing activity.

Doug: We also delivered Sky Mark our multifamily project in Reston that is currently in lease up and 54% leased today.

Doug: As Owen mentioned, it's exceeding our expectations on both absorption pace and rental rates.

Speaker Change: We will complete incremental leasing in 2025, but the revenue commencement will likely be either late in the year or in 2026, we expect the NOI for 360 Park will have significant growth in 2026, as we gain occupancy from new leasing.

Owen: Our life science deliveries at $6 51 Gateway in South San Francisco, and one three and 180 city point in Waltham continue to be in lease up with minimal projected contribution to our earnings in 2025.

Speaker Change: 360 Park will be delivered into service and we will cease interest capitalization in the third quarter of 2025.

Owen: 651 gateway will be delivered into service and we will cease interest capitalization in the first quarter of 2025.

Speaker Change: Overall, the incremental contribution to our NOI from our developments in 2025 is expected to be 19% to $22 million.

Owen: And lastly, our 360 Park Avenue South development in Midtown South opened in late 2024, we have four floors occupied and are seeing a meaningful pickup in leasing activity.

Speaker Change: Our same property portfolio was the largest contributor contributor to our earnings and generated approximately $1 $9 billion of NOI in 2024, including our share of joint ventures Doug.

Owen: We will complete incremental leasing in 2025, but the revenue commencement will likely be either late in the year or in 2026, we expect the NOI for 360 part will have significant growth in 2026, as we gain occupancy from new leasing.

Speaker Change: Doug described in detail our lease expirations over the next 12 months and the expectation that we will grow our leased percentage as we execute our leasing plan for 2025.

Owen: 360 Park will be delivered into service and we will cease interest capitalization in the third quarter of 2025.

Speaker Change: As you know there is a lag between signing a lease achieving occupancy in generating GAAP revenue.

Owen: Overall, the incremental contribution to our NOI from our developments in 2025 is expected to be 19% to $22 million.

Speaker Change: In the first half of 2025, we have several larger explorations that will impact our occupancy these.

Doug Linde: These include 350000 square feet at 205, whereas Doug described we're negotiating a replacement lease for occupancy in 2026.

Owen: Our same property portfolio was the largest contributor contributor to our earnings and generated approximately $1 9 billion.

Owen: In 2024, including our share of joint ventures.

Doug Linde: We also have 480000 square feet in two uncovered explorations in suburban Boston.

Doug described in detail our lease explorations over the next 12 months and the expectation that we will grow our leased percentage as we execute our leasing plan for 2025.

Doug Linde: This totals one 6% of the portfolio and is expected to result in our occupancy declining slightly in the first six months of 2025.

Owen: As you know there is a lag between signing a lease achieving occupancy in generating GAAP revenue.

Doug Linde: We do have signed leases totaling 860000 square feet that will take occupancy spread relatively evenly across 2025.

Owen: In the first half of 2025, we have several larger explorations that will impact our occupancy.

Doug Linde: Our leasing plan results in our occupancy remaining relatively stable and averaging 86, 5% to 88% during the year. Our same property NOI is also anticipated to be stable and we project 25 same property NOI growth of negative 1% to positive <unk>, 5% from 2012.

Owen: These include 350000 square feet at 205, whereas Doug described we're negotiating a replacement lease for occupancy in 2026.

Owen: We also have 480000 square feet in two uncovered expirations in suburban Boston.

Owen: This totals one 6% of the portfolio and is expected to result in our occupancy declining slightly in the first six months of 2025.

Doug Linde: Four.

Doug Linde: Our 2025 same property NOI on a cash basis will actually increase by up to one 5% from 2024 as we have free rent burning off that will increase our cash flow from the portfolio.

Owen: We do have signed leases totaling 860000 square feet that will take occupancy spread relatively evenly across 2025.

Doug Linde: Turning to our fee income, which we expect to be higher in 2025 from earning leasing commissions on our joint venture properties.

Owen: Our leasing plan results in our occupancy remaining relatively stable and averaging 86, 5% to 88% during the year. Our same property NOI is also anticipated to be stable and we project 25 same property NOI growth of negative 1% to positive <unk>, 5% from 2012.

Doug Linde: This was primarily at 200 bps and 360 Park Avenue, South in New York City.

Doug Linde: And we will also generate incremental construction management fees as we construct the tenant improvements for Astrazeneca to 90 Binney Street in Cambridge.

Doug Linde: Our projection for fee income in 2025 is $32 million to $38 million, an increase of $7 million at the midpoint from 2024.

Owen: Four.

Owen: Our 2025 same property NOI on a cash basis, we will actually increase by up to one 5% from 2024 as we have free rent burning off that will increase our cash flow from the portfolio.

Doug Linde: Our termination income was higher than typical in 2024 and totaled $16 million or <unk> <unk> per share in 2025, we are projecting a more normalized $4 million to $8 million of termination income. So this results in a $10 million projected revenue decline in 2025 at the midpoint of our guidance.

Owen: Turning to our fee income, which we expect to be higher in 2025 from earning leasing commissions on our joint venture properties.

Owen: This is primarily a 200 bps and 360 Park Avenue, South in New York City.

Owen: And we will also generate incremental construction management fees as we construct the tenant improvements for Astrazeneca at $2 90, Binney Street in Cambridge.

Doug Linde: As we described on our call last quarter, we project our net interest expense will be higher in 2025, as we will be carrying lower cash balances, resulting in lower interest income at.

Owen: Our projection for fee income in $2025 $32 million to $38 million, an increase of $7 million at the midpoint from 2024.

Doug Linde: At year end, we reported cash balances of $1 3 billion.

Our termination income was higher than typical in 2024 and totaled $16 million or <unk> <unk> per share in 2025, we are projecting a more normalized $4 million to $8 million of termination income. So this results in a $10 million projected revenue decline in 2025 at the midpoint of our guidance.

Doug Linde: At the beginning of January we utilized $850 million of available cash to pay off and expiring senior unsecured note.

Doug Linde: We are also forecasting approximately $700 million of development spend in 2025.

Doug Linde: Overall, we project our average cash balance will be $800 million lower on average in 2025, reducing our interest income by approximately $35 million year over year.

Owen: As we described on our call last quarter, we project our net interest expense will be higher in 2025, as we will be carrying lower cash balances, resulting in lower interest income at.

Doug Linde: Our consolidated interest expense is expected to be relatively flat in 2025 versus 24, assuming no fed rate cuts and with 12% of our debt portfolio floating we will benefit if the fed cuts rates. This year and that is reflected in the low end of our interest expense guidance.

Owen: At year end, we reported cash balances of $1 3 billion.

Owen: At the beginning of January we utilized $850 million of available cash to pay off and expiring senior unsecured note.

Doug Linde: Overall, we project net interest expense of $610 million to $625 million in 2025, an increase of $33 million from 2024 at the midpoint.

Owen: We are also forecasting approximately $700 million of development spend in 2025.

Owen: Overall, we project our average cash balance will be $800 million lower on average in 2025, reducing our interest income by approximately $35 million year over year.

Doug Linde: Lastly, and as I described last quarter, we've taken Reston corporate center buildings at Reston Corporate center out of service upon the exploration of the full building lease on 12 31 'twenty for.

Owen: Our consolidated interest expense is expected to be relatively flat in 2025 versus 24, assuming no fed rate cuts and with 12% of our debt portfolio floating we will benefit if the fed cuts rates. This year and that is reflected in the low end of our interest expense guidance.

Doug Linde: This is the location for the next phase of our highly successful Reston Town Center development that we anticipate will encompass two 3 million square feet of new mixed use development, including both multifamily and commercial space.

Owen: Overall, we project net interest expense of $610 million to $625 million in 2025, an increase of $33 million from 2024 at the midpoint.

Doug Linde: The ability to increase the density by nearly 10 times on this site will create significant future value and earnings over time.

Doug Linde: The building's generated $11 million or <unk> <unk> per share of NOI in 2024 that we will lose in 2025.

Owen: Lastly, and as I described last quarter, we've taken Reston corporate center buildings at Reston Corporate center out of service upon the exploration of the full building lease on 12 31 'twenty for.

Doug Linde: So to sum all this up our initial guidance range for 2025, <unk> is $6 77 to $6 95 per share representing a decline of 2% at the high end from 2024 at.

Owen: This is the location for the next phase of our highly successful Reston Town Center development that we anticipate will encompass two 3 million square feet of new mixed use development, including both multifamily and commercial space.

Doug Linde: At the midpoint the decline is comprised of higher net interest expense of 20.

Doug Linde: Lower same property NOI of three lower termination income of six.

Owen: The ability to increase the density by nearly 10 times on this site will create significant future value and earnings over time.

Doug Linde: Higher G&A of <unk> and the loss of <unk> <unk> from pulling Reston corporate center out of service.

Doug Linde: These are projected to be partially offset by higher NOI from our developments of <unk>.

Owen: Buildings generated $11 million or <unk> <unk> per share of NOI in 2020 forward that we will lose in 2025.

Doug Linde: In higher fee income of <unk>.

Doug Linde: Again, the modest decline in 2025, <unk> is primarily due to lower interest income from lower cash balances as we fund our development pipeline that will generate future growth.

Owen: So to sum all this up our initial guidance range for 2025, <unk> is $6 77 to $6 95 per share representing a decline of 2% at the high end from 2024.

Doug Linde: <unk> buildings out of service for future development as well as decline in noncore termination income.

Owen: At the midpoint the decline is comprised of higher net interest expense of 20.

Doug Linde: We have not included any incremental acquisition activity in our guidance, but we are actively looking for opportunities.

Owen: Lower same property NOI of three lower termination income of <unk> <unk>.

Doug Linde: Looking forward to 2026, we see an opportunity to demonstrate meaningful growth in our portfolio.

Higher G&A of <unk> and the loss of <unk> <unk> from pulling Reston corporate center out of service.

Doug Linde: We have very limited lease expirations and project positive absorption and the in service portfolio and we have embedded growth opportunity in the development pipeline through the delivery of a fully leased to 90 Binney Street in mid 2026, and the lease up of the available space in our 2024 and 2025 development deliveries.

Owen: These are projected to be partially offset by higher NOI from our developments of 11.

Owen: In higher fee income of <unk>.

Owen: Again, the modest decline in 2025, <unk> is primarily due to lower interest income from lower cash balances as we fund our development pipeline that will generate future growth.

Owen: <unk> buildings out of service for future development as well as decline in noncore termination income.

Doug Linde: You can hear about all of this and more at our Triennial Investor Conference. We will hold this fall on September nine in New York City.

Owen: We have not included any incremental acquisition activity in our guidance that we are actively looking for opportunities.

Doug Linde: The conference will be a deep dive into our portfolio and our future outlook and will include presentations from our regional teams offering an opportunity for investors to see the depth of our company.

Owen: Looking forward to 2026, we see an opportunity to demonstrate meaningful growth in our portfolio.

Owen: We have very limited lease expirations and project positive absorption in the in service portfolio and we have embedded growth opportunity in the development pipeline through the delivery of a fully leased to 90 Binney Street in mid 2026, and the lease up of the available space in our 2024 and 2025 development deliveries.

Doug Linde: We will send out save the dates soon and we look forward to hosting all of you.

Doug Linde: That completes our formal remarks.

Speaker Change: Operator can you open the lines for questions.

Speaker Change: Thank you Sir.

Speaker Change: As a reminder to ask a question you will need to press star one one on your telephone.

Owen: You can hear about all of this and more at our Triennial Investor Conference. We will hold this fall on September nine in New York City the.

Speaker Change: To withdraw your question. Please press star one again.

Speaker Change: We ask that you keep your questions to no more than one but please feel free to go back into the queue and if time permits we'll be more than happy to take your follow up questions at that time.

Owen: The conference will be a deep dive into our portfolio and our future outlook and will include presentations from our regional teams offering an opportunity for investors to see the depth of our company.

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

Speaker Change: I show. Our first question comes from the line of Steve <unk> from Evercore ISI. Please go ahead.

Owen: We will send out save the dates soon and we look forward to hosting all of you.

That completes our formal remarks.

Steve: Yes. Thanks. Good morning, Doug you you provided a litany of information I'm not sure that I was able to transcribe it all 100% accurately but high level.

Owen: Later can you open the lines for questions.

Thank you Sir.

Owen: As a reminder to ask a question you will need to press star one on your telephone.

Steve: When you sort of look at the rollover. This year just help me think through kind of your retention ratio.

Owen: To withdraw your question. Please press star one again.

Owen: We ask that you keep your questions to no more than one but please feel free to go back into the queue and if time permits we'll be more than happy to take your follow up questions at that time.

Steve: And.

Steve: Given the known move outs like what do you expect to retain of the expiring space. This year and then I guess what is your broad expectation for.

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

Steve: For I'll call, new leasing activity on vacant space.

Speaker Change: I show. Our first question comes from the line of Steve <unk> from Evercore ISI. Please go ahead.

Steve: Okay. So so I'm going to answer your question circuitous way.

Speaker Change: Yes. Thanks, Good morning, Doug you provided a litany of information I'm not sure that I was able to transcribe it all 100% accurately but high level. When you sort of look at the rollover. This year just help me think through kind of your retention ratio.

Steve: In a year when we have very large lease exploration. So we have a 350 or a 400000 square foot lease expiring highly unlikely that where we've retained that that organization. When we have a year. When we have the multitude of our leases expiring that are between 40000 square feet and 5000 square feet, we're probably we're attaining.

Speaker Change: And.

Speaker Change: Given the known move outs like what do you expect to retain of the expiring space. This year and then I guess what is your broad expectation for.

Steve: Our high percentage of those tenants so as I look forward into what we have remaining in 2020 for 'twenty.

Speaker Change: Sure I'll call, new leasing activity on vacant space.

Steve: <unk> 25 that are known explorations all of the large ones, we've already sort of quote unquote acknowledge are gonna be known vacancies and we are now leasing that space to other customers. So the obvious examples that we've talked about on the call was 205th Avenue, we have a 350000.

Speaker Change: Okay. So so I'm going to answer your question so curiously.

Speaker Change: In a year when we have very large lease exploration. So we have about 350 or a 400000 square foot lease expiring highly unlikely bit where we've retained that that organization. When we have a year. When we have the multitude of our leases expiring that are between 40000 square feet and 5000 square feet, we're probably we're attaining.

Steve: Expiring and we are in negotiation on a 244000 square foot replacement tenant on that right. So that's I think that's sort of the way that works.

Speaker Change: High percentage of those tenants so as I look forward into what we have remaining in 2024.

Steve: And a quote unquote non large lease exploration year generally we are quote unquote renewing somewhere between 45 and 50% of our existing tenants. Some of those are actually growing so we may actually be picking up additional square footage there, but that's sort of what are quote unquote known retention rate is if you if you.

Speaker Change: 25 that are known explorations all of the large ones, we've already sort of quote unquote acknowledge are going to be known vacancies.

Speaker Change: And we are now leasing that space to other customers. So the obvious example that we've talked about on the callaway's 205th Avenue, we have a 350000 square foot lease expiring and we are in negotiation on a 244000 square foot replacement tenant on that rate. So thats I think thats sort of the way that works in a in a quote unquote.

Steve: Look at 2025, what we are looking at this year is that we will cover somewhere in the neighborhood of three plus or minus million square feet of vacancy and known leasing explorations of tenants that are expiring plus the renewals of the smaller tenants that are sort of.

Speaker Change: Non large lease exploration year generally we are quote unquote renewing somewhere between 45 and 50% of our existing tenants. Some of those are actually growing so we may actually be picking up additional square footage there, but that's sort of what are quote unquote known retention rate is if you. If you look at 2025.

Steve: <unk> forward through the normal process. So we have a whole host of those so as I describe sort of what we're currently working on today.

Steve: In the year, we are recovering some vacant space, we have leases on known explorations and then I said, we have about 75000 square feet of leases in progress on just sort of normal as as sort of in the ordinary course of business explorations that are occurring on a day to day basis in the portfolio, So and I look as I look into 'twenty six 'twenty seven those numbers are.

Speaker Change: What we are looking at this year is that we will cover.

Speaker Change: Somewhere in the neighborhood of three plus or minus 1 million square feet of vacancy and known leasing explorations of tenants that are expiring plus the renewals of the smaller tenants that are sort of moving forward through the normal process. So we have a whole host of those so as I describe sort of what we're currently.

Steve: Exceedingly low and the bulky and this is also low rates so if.

Steve: If I start with one 8 million square feet today, which is the number in the supplemental on a on a 100% basis NII of 500000 square feet that are actively working on that I expect to get done in 2025 that means when we get to this point in 2026, my known expirations for 2006 are going to be under one point.

Speaker Change: Working on today.

Speaker Change: In the year, we are recovering some vacant space. We have leases are known explorations and then I said, we have about 75000 square feet of leases in progress on just sort of normal as sort of an ordinary course of business explorations that are occurring on a day to day basis in the portfolio, So and I look as I look into 'twenty six 'twenty seven those numbers or exceed.

Steve: 3 million square feet, if I lease on a sort of average year somewhere in the neighborhood of two to 3 million square feet of Bacon and renewals I'm picking up occupancy in a meaningful way and that that pattern will also move forward into 2027 that was my point of my sort of initial remarks.

Speaker Change: Singly low and the bulky and this is also low rates so.

Speaker Change: If I start with $1 8 million square feet today, which is the number in the supplemental on a on a 100% basis NII of 500000 square feet.

Steve: Thank you.

Speaker Change: And I show. Our next question comes from the line of Andrew Berger from Bank of America. Please go ahead.

Speaker Change: <unk> working on that I expect to get done in 2025 that means when we get to this point in 2026 main known explorations for 26 are going to be under one 3 million square feet. If I leased on a sort of average year somewhere in the neighborhood of two to 3 million square feet of Bacon and Ron.

Andrew Berger: Hey, Good morning. This is Andrew on for Jeff I. Appreciate all the detail. So Doug you mentioned that are backed by Boston and Midtown Manhattan are the strongest markets and obviously it sounds like Theres a lot of great activity. That's reflected by the volumes. You also mentioned, though that concessions are flat and I'm just curious with all this activity what does it.

Speaker Change: <unk> I am picking up occupancy in a meaningful way and that that pattern will also move forward into 2027 that was my point of my sort of initial remarks.

Speaker Change: To really become more aggressive and start to reduce concessions.

Andrew Berger: I'm going to give you.

Speaker Change: Cook answer and then I'll ask Hillary announced Bryan to comment on it so.

Speaker Change: Thank you.

Speaker Change: And I show. Our next question comes from the line of Andrew Berger from Bank of America. Please go ahead.

Speaker Change: My quick answer is inflation is real in terms of what happened over the last five years. So the cost of building anything probably went up somewhere between 45 and 55%. So just assume 50% so the cost for <unk> and one of our clients.

Speaker Change: Hi, Good morning. This is Andrew on for Jeff I appreciate all the detail.

Speaker Change: Doug you mentioned that backed by Boston and Midtown Manhattan are the strongest markets and obviously it sounds like Theres a lot of great activity. That's reflected by the volumes. You also mentioned, though that concessions are flat and I'm just curious with all this activity what does it take to really become more aggressive and start to reduce concessions.

Speaker Change: Clients to move into new space or rebuild their space is materially higher so the contribution that we are giving them on sort of a real basis as it makes up a smaller portion of what they actually have to spend but Hillary and Brian what are you sort of talk about the stickiness of concessions in your markets.

Speaker Change: So I'm going to give you.

Speaker Change: Quick quick answer and then I'll ask Hillary analysis Bryan to comment on it so.

Speaker Change: Sure Yeah, Hi, this is hilary.

Speaker Change: My quick answer is inflation is real in terms of what happened over the last five years. So the cost of building anything probably went up somewhere between 45%, 55%. So just assumed 50%. So the cost for a one of our clients to move into new space or rebuild their space is materially higher so the.

I'd say that in discrete instances and Midtown on the Park Avenue.

Speaker Change: There are some reductions in concessions, but that is.

Speaker Change: Dairy defined geographic area more broadly even on the margins of the Park Avenue Submarket, there is availability and buildings and folks have choices about where they want to go into the concessions are sticky because.

Speaker Change: Contribution that we are giving them on sort of a real basis as it makes up a smaller portion of what they actually have to spend but Hillary and Brian what are you sort of talk about the stickiness of concessions in your markets.

Speaker Change: Availability levels are elevated outside of the Park Avenue sub market and so that's part of the reason that I think you've seen the overall statistics reflect sirna that.

Hillary: Sure Yeah, Hi, this is hilary.

Speaker Change: Flattening, but not radical.

Hillary: I would say that in discrete instances and Midtown on Park Avenue.

Speaker Change: Decline in concessions given in New York.

Speaker Change: Brian.

Hillary: There are some reductions in concessions, but that is.

Speaker Change: Yes, I would say that Doug was spot on with the inflation comment and then also we are definitely feeling let's say some flattening on the concessions regarding ti in the back Bay. However, our downtown market is not in that position and it can be used in negotiations.

Hillary: And a very defined geographic area more broadly even on the margins of the Park Avenue Submarket, there is availability and buildings and folks have choices about where they want to go into the concessions are sticky because.

Hillary: Availability levels are elevated outside of the Park Avenue Submarket.

Speaker Change: But it's definitely firmed.

Hillary: Part of the reason that I think you've seen the overall statistics reflect sirna that.

Speaker Change: Very noticeable for back pay only though.

Hillary: Flattening, but not radical.

Speaker Change: Thank you.

Speaker Change: And I show. Our next question comes from the line of Alexander Goldfarb from Piper Sandler. Please go ahead.

Hillary: Decline in concessions given in New York.

Hillary: Brian.

Alexander Goldfarb: Hey, good morning, good morning down there.

Brian: Yes, I would say that Doug was spot on with the inflation comment and then also we are definitely feeling let's say some flattening on the concessions regarding ti in the back Bay. However, our downtown market is not in that position and it can be used in negotiations.

Speaker Change: So.

Speaker Change: Question for you guys, you've outlined a pretty solid outlook sort of tail end of this year into 'twenty six 'twenty seven as far as addressing a lot of leasing exposure.

Speaker Change: And it sounds like I know youre, not giving guidance for next two years, but it sounds like all else equal we should see a meaningful pickup in <unk>. What are the risks are offsets like for example, acquisitions that may be dilutive or taking buildings out of service for redevelopment like what would stop you guys from what was Scott <unk> from really acts.

Brian: But it's definitely firmed.

Brian: Very noticeable for back pay only though.

Brian: Thank you.

Speaker Change: And I show. Our next question comes from the line of Alexander Goldfarb from Piper Sandler. Please go ahead.

Speaker Change: <unk> tail end of this year into next.

Alexander Goldfarb: Hey, good morning, good morning down there.

Speaker Change: So let me let me, let me give you a I'm going to give.

Alexander Goldfarb: So question for you guys, you've outlined a pretty solid outlook sort of tail end of this year into 'twenty six 'twenty seven as far as addressing a lot of leasing exposure.

Speaker Change: If you have the answer and I'll, let Mike give you the other half of the answer so on might happen to answer I believe if you look at our NOI from our <unk>.

Speaker Change: Same property portfolio and our developments there will be meaningful increases in the contribution from those quote unquote assets as we move into 2026 and 2027.

Alexander Goldfarb: And it sounds like I know youre, not giving guidance for next two years, but it sounds like all else equal we should see a meaningful pickup in <unk>. What are the risks are offsets like for example, acquisitions that may be dilutive or taking buildings out of service for redevelopment like what would stop you guys from Scott <unk> from really access.

So I mean I think on the.

Speaker Change: The other side of things, there's where interest rates going.

Speaker Change: So we are a short term long term interest rates going or does that mean for our interest expense as we refinance.

Alexander Goldfarb: <unk> tail end of this year into next.

Speaker Change: So let me let me let me give you I'm going to give you have to answer and I'll, let Mike give you. The other half of the answer so on might have an answer I believe if you look at our NOI from our <unk>.

Speaker Change: Bonds that are expiring every year.

Speaker Change: And that is offset by.

Speaker Change: What is likely to be somewhat lower floating rates.

Speaker Change: Same property portfolio and our developments there will be meaningful increases in the contribution from those quote unquote assets as we move into 2026 and 2027.

Speaker Change: The 12% to 15% of our debt portfolio that is floating.

Speaker Change: Thank you.

Speaker Change: And I show. Our next question comes from the line of John Kim from BMO Capital markets. Please go ahead.

Speaker Change: So I mean I think on the.

Speaker Change: The other side of things, there's where interest rates go.

Speaker Change: Thank you Doug mentioned.

John Kim: Life Science tenants looking for office space exclusively and I'm wondering if you could provide any commentary on how widespread do you think that is either by geography or stage of the companies.

Speaker Change: So we are a short term long term interest rates going or does that mean for our interest expense base as we refinance.

Speaker Change: Bonds that are expiring every year.

Speaker Change: And if you believe this is a reflection of AI and its impact on on the biotech sector.

Speaker Change: And that is offset by.

Speaker Change: It is likely to be somewhat lower floating rates on the 12% to 15% of our debt portfolio that is floating.

Speaker Change: Okay. So I'll try and try and give you a perspective on that and then I'll, let rod give you a perspective as well and Brian do you have anything else you wanted to add as well so.

Speaker Change: Thank you.

Speaker Change: What I believe is going on right now is that there is a.

Speaker Change: And I show. Our next question comes from the line of John Kim from BMO Capital markets. Please go ahead.

Speaker Change: A bunch of money that is being raised in the life science sector that are looking for opportunities to take advantage of trials that have already started and shown some efficacy.

Speaker Change: Thank you Doug mentioned lie.

John Kim: Life Science tenants looking for office space exclusively and I'm wondering if you could provide any commentary on how widespread do you think that is either by geography or stage of the companies.

Speaker Change: And they are instead of quote unquote, starting with a brand new idea looking sort of for that later stage quote unquote proven kind of a product to move forward and there are management teams that had been able to figure out how to raise capital to do those things and they are the companies that we are seeing right now certainly in suburban.

John Kim: And if you believe this is a reflection of AI and its impact on on the biotech sector.

Speaker Change: Okay. So I'll try trying to give you a perspective on that and then I'll, let Brian give you a perspective as well and Brian do you have anything else you wanted to add as well so.

Speaker Change: What I believe is going on right now is that there is a.

Speaker Change: Boston as the preponderance of the.

Speaker Change: A bunch of money that is being raised in the life science sector that are looking for.

Speaker Change: Quarter on quarter expansion and growth relative to life science.

Speaker Change: What we have not seen is significant numbers of incubator kinds of companies going to a point, where they are now ready to move into a more permanent.

Speaker Change: Opportunities to take advantage of trials that have already started and shown some efficacy.

Speaker Change: And they are instead of quote unquote, starting with a brand new idea looking sort of for that later stage quote unquote proven kind of a product to move forward and there are management teams that had been able to figure out how to raise capital to do those things and they are the companies that we are seeing right now certainly in suburban.

Speaker Change: A space because they have been given capital by their vcs in order to.

Speaker Change: Go to the next level in the same way that was happening in 18, 19, and 20 right, that's where all of the demand was coming from so I would say theres sort of that shift and Rod you may want to comment on what you're seeing in the south San Francisco market.

Speaker Change: Boston as the preponderance of the quote unquote expansion and growth relative to life science.

Rod: Thanks, Doug So I think it's important to keep in mind that.

Speaker Change: What we have not seen as significant numbers of.

Rod: Our office buildings in South San Francisco have always catered to the office component of the life science business that was around down there and thats still the case.

Speaker Change: In Q Bader kinds of companies going to a point, where they are now ready to move into a more permanent.

Rod: We actively are in negotiations now with a larger.

Speaker Change: Kind of a space because they have been given capital by their vcs in order to.

Rod: <unk> tenants, specifically looking for more office space. So that is that is definitely part of it.

Speaker Change: Go to the next level in the same way that was happening in 18, 19, and 20 right, that's where all of the demand was coming from so I'd say theres sort of that shift and Rod you may want to comment on what you are seeing in the south San Francisco market.

John Kim: I don't know if its attributable to the AI piece as your question came through John but.

John Kim: There is there's a mix of office users that are life science tenants, that's very typical in our market.

Brian: Brian and Boston I'd say.

Rod: Thanks, Doug So I think it's important to keep in mind that.

Brian: We've seen a little bit of evidence, let's say three to four situations that are indicative of what the and we've discussed here, but not enough to say that as a big trend and it's only in.

Rod: Office buildings in South San Francisco have always catered to the office component of the life science business that was around down there and thats still the case.

Rod: We actively are in negotiations now with a larger.

Brian: The urban edge.

Brian: Market.

Rod: Lab tenants, specifically looking for more office space. So that is that is definitely part of it.

Brian: Thank you.

Speaker Change: And I show. Our next question comes from the line of Nick <unk> from Scotiabank. Please go ahead.

Speaker Change: I don't know if its attributable to the AI piece as your question came through John but.

Good morning, Mike I had a question on the occupancy guidance. So the midpoint assumes you're roughly flat from where you ended Q4.

Speaker Change: There is a mix of office users that are life science tenants, that's very typical in our market.

Brian: And Brian and Boston I'd say.

Speaker Change: But that guidance doesn't include the developments being put into service. So I was hoping you can quantify how much the developments will drag occupancy this year.

Brian: Seems a little bit of evidence, let's say three to four situations that are indicative of what Doug.

Brian: We've discussed here, but not enough to say that as a big trend and it's only in the urban edge.

Speaker Change: The reason I'm asking is I think I think you'll be reporting an in service occupancy number through the year and that actually includes those developments being added in so it would be helpful to know that thanks.

Brian: Market.

Brian: Thank you.

Speaker Change: And I show. Our next question comes from the line of Nick <unk> from Scotiabank. Please go ahead.

Speaker Change: Sure I'm happy to answer that because I think in our supplemental we provide.

Speaker Change: Good morning, Mike I had a question on the occupancy guidance. So the midpoint assumes you're roughly flat from where you ended Q4.

Speaker Change: As with the in service occupancy is at the end of the year and then we guide to what we expect the occupancy to be in those buildings for 2025 as a way to help you kind of.

Speaker Change: But that guidance doesn't include the developments being put into service. So I was hoping you can quantify how much the developments will drag occupancy. This year. The reason I'm asking is I think I think you'll be reporting an in service occupancy number through the year and that actually includes those developments being added in so it would be helpful to know that.

Speaker Change: Determine where the same stores going.

Speaker Change: More of the portfolio NOI is going.

Speaker Change: Youre right in 2024, we had some negative impact because we brought 103 city point online in the fourth quarter and we brought 100 ADC playing on online in the third quarter and that was not part of our original guidance for the in service portfolio.

Speaker Change: Sure I'm happy to answer that I think in our supplemental we provide.

Speaker Change: <unk>.

Speaker Change: At the end of the year, we're at 87, 5% occupied.

Speaker Change: As with the in service occupancy is at the end of the year and then we guide to what we expect the occupancy to be in those buildings for 2025 as a way to help you kind of.

Speaker Change: We're going to remove Reston corporate center from service.

Speaker Change: Fully leased but is not a big impact it's only down about 10 basis points. So it will start at 87, 4%.

Speaker Change: Net of that if you look at the developments that are delivering as I mentioned on my notes 651 gateways coming in in Q1, and then 360 <unk> Park and block D will come in in Q3 right. Now there are 21% occupied if they don't achieve any more occupancy is going to have a negative impact of 70 basis points roughly on our occupancy.

Speaker Change: Determine where the same stores going.

Speaker Change: More of the portfolio NOI is going.

Speaker Change: Youre right in 2024, we had some negative impact because we brought $103 three point online in the fourth quarter and we brought 186 coming on online in the third quarter and that was not part of our original guidance for the in service portfolio.

Speaker Change: Now as Doug mentioned, we've got some activity there, especially at 360 parts. So we do think we're going to have a little bit more occupancy there, but they're certainly not going to be fully leased.

Speaker Change: <unk>.

Speaker Change: At the end of the year, we're at 87, 5% occupied.

Speaker Change: We're going to remove Reston corporate center from service.

Speaker Change: Fully leased but is not a big impact it's only down about 10 basis points. So it will start at 87, 4%.

Speaker Change: Doug also mentioned that we're going to remove some other buildings from service in the suburbs.

Speaker Change: So there's a couple of buildings in suburban Boston, we're thinking about in suburban and.

Speaker Change: Net of that if you look at the developments that are delivering as I mentioned on my notes 651 gateways coming in in Q1, and then 360 <unk> Park and block D will come in in Q3 right. Now there are 21% occupied if they don't achieve any more occupancy is going to have a negative impact of 70 basis points roughly on our occupancy.

Speaker Change: In Princeton that we're thinking about.

Speaker Change: And if we were to do that because we have a higher and best use for those assets to build residential <unk>.

Speaker Change: Developments that actually goes the other direction and could help us by close to 90 basis points. So as Doug mentioned kind of a net of these two things is not going to be that impactful.

Speaker Change: Now as Doug mentioned, we've got some activity there, especially at 360 parts. So we do think we're going to have a little bit more occupancy there, but they're certainly not going to be fully leased.

But at this point, we havent determined right to take those buildings out of service.

Speaker Change: Yes, let me just comment on our development pipeline and sort of what's going on in there and where I think youll start to see some progress in where you won't see some progress so the.

Speaker Change: Doug also mentioned that we're going to remove some other buildings from service in the suburbs.

Speaker Change: So theres a couple of buildings in suburban Boston, we're thinking about in suburban and.

Speaker Change: The building.

Speaker Change: That probably sees the most relevant progress during the year in terms of its lease square footage is probably 360 Park Avenue South knock on wood Hilary you can sort of talk about the activity were seeing there and then we're actually seeing some leasing activity at 180 City point again, it's a lab building, where we're talking to.

Speaker Change: In Princeton that we're thinking about.

Speaker Change: And if we were to do that because we have a higher and best use for those assets to build residential <unk>.

Speaker Change: Developments that actually goes the other direction.

Speaker Change: Help us by close to 90 basis points, So as Doug mentioned kind of a net of these two things is not.

Speaker Change: Not going to be that impactful.

Speaker Change: Tenants about office space, and therefore, we're going to likely be building our office space not lab space net net we're also not going to be building out a lab infrastructure in that space. So we're not going to be spending the same capital.

Speaker Change: But at this point, we havent determined right to take those buildings out of service.

Speaker Change: Let me just comment on our development pipeline and sort of what's going on in there and where I think youll start to see some progress in where you won't see some progress so.

Speaker Change: Jay you may want to comment on sort of what we're also doing and seeing at Reston block D. So in all three of those particular situations I believe you will see a meaningful increase in occupancy during 2000, sorry lease percentage in 2025, the occupancy won't hit until 2026.

Speaker Change: <unk>.

Speaker Change: The building.

Speaker Change: That probably sees the most relative progress during the year in terms of its lease square footage is probably 360 Park Avenue South knock on wood Hilary you can sort of talk about the activity were seeing there and then we're actually seeing some leasing activity at 180 City point again, it's a lab building, where we're talking to lab.

Speaker Change: We're going to have.

Speaker Change: Say, a more of a challenge or at $6 51, Gateway, which is the building we have with <unk>, where there's very little activity right now and then at 103 City point, which is the second lab building that we have.

Speaker Change: Tenants about office space, and therefore, we're going to likely be building our office space not lab space net net we're also not going to be building out a lab infrastructure on that space. So we're going to be spending the same capital and then Jay you may want to comment on sort of what we're also doing and seeing at Reston block D. So in all three of those particular situations I believe you will see.

Speaker Change: In the Waltham Submarket, but why don't we start with you and talk about block B and then Hilary can talk about 360 Park Avenue, South and Brian can talk about 182.

Speaker Change: Yes, sure. Thanks, Doug I will just say that we've seen a pretty meaningful uptick in activity across.

Speaker Change: A meaningful increase in occupancy during 2000, sorry lease percentage in 2025, the occupancy won't hit until 2026, where we're going to have I'd say, a more of a challenge or at $6 51 Gateway, which is the building we have with <unk>, where there's very little activity right now and then at 103 City point, which is the <unk>.

Speaker Change: The Reston town center market and in particular, the 75000 square foot block D development that.

Speaker Change: We just delivered and we have a few a few clients in proposals and prospects that were discussing taking the majority or all of the space with so very good activity and hope to have better news to deliver here in the coming quarter or two.

Speaker Change: Lab building that we have.

Speaker Change: <unk>.

Speaker Change: Welcome to sub market, but why don't we start with you and talk about block B and then Hilary can talk about 350 Park Avenue, South and Brian can talk about 182.

Speaker Change: Hillary.

Hillary: Thanks, Doug and 360 Park Avenue, South as Doug mentioned earlier, we have.

Brian: Yes, sure. Thanks, Doug I will just say that we've seen a pretty meaningful uptick in activity across.

Hillary: One lease out for a full floor at that building so that well.

Hillary: B the states, Florida, we've leased there and we have three or four other proposals that we're actively trading that are roughly the same size one floor to two floors, that's really where the demand sweet spot seems to be in that sub market as a reminder.

Brian: The Reston town center market and in particular, the 75000 square foot block D development that we just delivered and we have a few a few clients in the proposals and prospects that were discussing taking the majority or all of the space with so very good activity and hope to have better news to <unk>.

Hillary: Floor plates, there are about 23000 square feet, so call it $20 to 40000 square foot tenants.

Brian: Over here in the coming quarter or two.

Hillary: The larger tenant demand has remained muted in Midtown south and so if we continue to see 20% to <unk>, we expect that we'll have very good.

Brian: Hillary.

Brian: Thanks, Doug.

Brian: 60 Park Avenue, South as Doug mentioned earlier, we have.

Hillary: Our leasing activity throughout the course of the year and that the building will continue to lease up pace, but there is still the outside chance that we will get a larger tenant in which case I think that it can sell up quite quickly. So we'll just have to see how it plays out with regards to the tenant size demand, but we are in active discussions with several tenants and out to lease with one in particular peripheral scoring.

Brian: One lease out for a full floor at that building so that well.

Brian: B the fifth floor that we at least there and we have three or four other proposals that we're actively trading that are roughly the same size one floor to Q floors, that's really where the demand sweet spot seems to be.

Brian: That's a market as a reminder, the floor plates. There are about 23000 square feet. So call it 20% to 40000 square foot tenants.

Brian: Brian 180 City point.

Brian: As noted probably the highest probability of getting some lease up there and we start to see some pickup in the fourth quarter and I would say that they were from clients that had been in the market for over a year and really gain confidence in the fourth quarter that we're seeing so that building is excellent it's a.

Brian: The larger tenant demand has remained muted in Midtown south and so if we continue to see 20% to 40 as we expect it will have very good.

Brian: Leasing activity throughout the course of the year and that the building will continue to lease up pace, but there is still the outside chance that we will get a larger tenant in which case I think that it can fill up quite quickly. So we'll just have to see how it plays out with regards to the tenant size demand, but we are in active discussions with several tenants and out to lease with one in particular for a false start.

Brian: It's the best product in the market for life science in.

Brian: The description that we have about a couple of deals looking at it for life Science, but office is.

Brian: Hopeful.

Brian: 103 little bit more challenging its GMP building in that.

Brian: Hey, Brian.

Speaker Change: City point.

Brian: That zone is a little bit more quiet, although we're still optimistic about that for a possible lease this year.

Speaker Change: As noted probably the highest probability of getting some lease up there and we start seeing some pickup in the fourth quarter and I'd say that there were from clients that had been in the market for over a year and really gain confidence in the fourth quarter that we're seeing so that building is excellent.

Speaker Change: Thank you.

Speaker Change: And I show. Our next question comes from the line of Michael Goldsmith from UBS. Please go ahead.

Speaker Change: Yes.

Michael Goldsmith: Good morning, Thanks, a lot, particularly my question Doug in the past you commented that 3 million square feet of leasing equates to flat occupancy you talked a lot about how you've done a nice job.

Speaker Change: It's the best product in the market for life Science.

Speaker Change: The description that we have about a couple of deals looking at it for life Science, but office is.

Michael Goldsmith: Cutting back on some of the future exploration. So is there a nice hard and fast rule.

Speaker Change: Hopeful.

Speaker Change: 103 little bit more challenging its GMP building in net debt.

Michael Goldsmith: How we should think about it going forward or is it still $3 million equates to final occupancy from here. Thanks.

Speaker Change: Zone is a little bit more quiet, although we're still optimistic about that for a possible lease this year.

Michael Goldsmith: In $2025 3 million as slight occupancy three millions in 2026 is a meaningful increase in occupancy again, where our portfolio was 49 million square feet. So 490000 square feet at 100 basis points. So we have you know under 2 million square feet expiring and we do 3 million square feet of leasing on Bacon.

Speaker Change: Thank you.

Speaker Change: And I show. Our next question comes from the line of Michael Goldsmith from UBS. Please go ahead.

Michael Goldsmith: Good morning, Thanks, a lot, particularly my question Doug in the past you commented that 3 million square feet of leasing equates to flat occupancy.

Michael Goldsmith: And explorations that would mean a pickup of a material amount I'm just I'm doing the math for you I'm not suggesting I'm, giving you a projection for 2007.

Speaker Change: You talked a lot about you've done a nice job.

Speaker Change: Cutting back on some of the future exploration. So is there a nice hard and fast rule.

Michael Goldsmith: Yeah.

Speaker Change: How we should think about it going forward or is it still $3 million equates to final occupancy from here. Thanks.

Speaker Change: Thank you.

Speaker Change: And I show. Our next question comes from the line of Floris Van which come from comparison point LLC. Please go ahead.

Speaker Change: In $2025 3 million as slight occupancy three millions in 2026 of the meaningful increase in occupancy again.

Speaker Change: Hey, Thanks, guys for taking my question.

Speaker Change: Question on capital allocation.

Speaker Change: Portfolio was 49 million square feet. So 490000 square feet is 100 basis points. So we have under 2 million square feet expiring and we do 3 million square feet of leasing on Bacon and explorations that would meet a pickup of a material amount.

Speaker Change: One as you think about.

Speaker Change: Where you're deploying your capital obviously, the the transaction in D C at $725 12.

Speaker Change: Very interesting.

Speaker Change: How do you think about how many other types of transactions like that are in the market what kind of what markets are you looking at or which markets. You think are going to be the most.

Speaker Change: I'm doing the math for you I'm, not suggesting I'm, giving you a projection for 'twenty.

Speaker Change: Thank you.

Speaker Change: Active for you.

Speaker Change: And I show. Our next question comes from the line of Floris Van <unk> from comparison point LLC. Please go ahead.

Speaker Change: 95% and maybe also touch on the the sellers or.

Speaker Change: Who you are getting this product from if you could yeah.

Speaker Change: Hey, Thanks, guys for taking my question.

Speaker Change: Okay for us so I would break it first between development and acquisitions so on development.

Speaker Change: Question on capital allocation.

Speaker Change: And as you think about.

Speaker Change: Where youre deploying your capital obviously the transaction in D C at $725 12.

Speaker Change: The only market where development is really supported by current market rents in Midtown New York and so we have as I mentioned in my remarks, and Youre aware of $3 43, Madison, which we have which we expect to launch. This year. We are speaking to several anchor clients for that and.

Speaker Change: Very interesting.

Speaker Change: How do you think about how many other types of transactions like that are in the market what kind of what markets are you looking at or which markets. You think are going to be the most.

Speaker Change: Active for you.

Speaker Change: Given the yields that we project, we think it's a very appropriate and strong allocation capital decision for the firm.

Speaker Change: <unk> five and maybe also touch on the the sellers or.

Speaker Change: Who you're getting this product from if you could.

Speaker Change: Also in D C. As I mentioned in my remarks, I think our team did a magnificent job of creating a very accretive new development opportunity given the dynamics in D C.

Speaker Change: Okay for us so.

Speaker Change: I would break it first between development and acquisitions so on development.

Speaker Change: Clients that want to be in Premier space number one number two they were able to identify a building that was where the loan was in default and by the loan at an interesting price. So we've got a good land basis and all the math worked and they were able to de risk the project from a leasing standpoint, given all of their relationships in the mall.

Speaker Change: The only market where development is really supported by current market rents in Midtown New York and so we have as I mentioned in my remarks, and Youre aware of $3 43, Madison, which we have which we expect to launch. This year. We are speaking to several anchor clients for that.

Speaker Change: Given the yields that we project, we think it's a very.

Speaker Change: <unk> and the interest by clients there in Premier workplaces.

Speaker Change: Strong allocation capital decision for the firm.

Speaker Change: We also have a great site in the back Bay of Boston.

Speaker Change: Also in D C. As I mentioned in my remarks, I think our team did a magnificent job of creating a very accretive new development opportunity given the dynamics in D C.

Doug Linde: Right now I don't think market rents support that development, but it's getting closer because again as Doug said backup.

Doug Linde: <unk> Bay of Boston in Midtown New York are the two strongest mark two strongest markets were in and my expectation is that's probably the next site that we control that will pencil from an office standpoint.

Speaker Change: Clients that want to be in Premier space number one number two they were able to identify a building that weren't alone was in default and by the loan at an interesting price. So we've got a good land basis and all of the math worked and they were able to de risk the project from a leasing standpoint, given all of their relationships in the market.

Doug Linde: And then just to finish the remarks on development. If other teams in other regions can replicate what our D. C team did with the clients and the building that they created we're going to want to do that.

Speaker Change: And the interest by clients, there and Premier workplaces.

Doug Linde: So thats the development answer and then on the acquisitions answer we continue to be in the market looking for buildings that are either currently premier workplaces are ones that we can make into premier workplaces.

We also have a great site in the back Bay of Boston.

Speaker Change: Right now I don't think market rents support that development, but it's getting closer because again as Doug said.

Speaker Change: Back Bay of Boston in Midtown New York are the two strongest Mark two strongest markets were in and my expectation is that's probably the next site that we control that will pencil from an office standpoint.

Doug Linde: And.

Doug Linde: Again.

Doug Linde: We have looked at a lot of different deals and we continue to be out in the market and as Mike said he didn't put anything in his projections for next year about new acquisitions, but we're hopeful that we're going through this cycle, we're going to be able to identify accretive acquisitions. That's certainly been our history anytime there is a down tick in.

Speaker Change: And then just to finish the remarks on development.

Speaker Change: Other teams in other regions can replicate what our DC team did with the clients and the building that they created we're going to want to do that.

Doug Linde: Real estate and specifically office real estate DXP has been able to add great properties at accretive yields so its portfolio and I fully expect that to happen again this cycle, but there's nothing right now that's specific that we could point to that I think we will get done in the near term, but that doesn't mean later in the year.

Speaker Change: So thats the development answer and then on the acquisitions answer we continue to be in the market looking for buildings that are either currently premier workplaces are ones that we can make into premier workplaces.

Speaker Change: And <unk>.

Speaker Change: Again.

Speaker Change: We have looked at a lot of different deals and we continue to be out in the market and as Mike said he didn't put anything in his projections for next year about new acquisitions, but we're hopeful that we're going to have this cycle, we're going to be to.

Doug Linde: Something something that's of interest won't present itself.

Speaker Change: Thank you.

And our next question comes from the line of Michael Griffin from Citi. Please go ahead.

Speaker Change: Be able to identify accretive acquisitions, that's certainly been our history anytime there is a down tick in real estate and specifically office real estate DXP has been able to add great properties at accretive yields to its portfolio and I fully expect that to happen again this cycle, but there's nothing right now.

Speaker Change: Great. Thanks, Doug.

Michael Griffin: Maybe going back to your assumptions around vacancy leasing for the year as I look in the portfolio kind of stands out from a vacancy perspective is still San Francisco. So I mean suffice it to say do you really need to see demand accelerate in that market for vacant space I'm thinking about you know 680 Folsom $5 35.

Speaker Change: Now that's specific that we could point to that I think we will get done in the near term, but that doesn't mean later in the year something something thats of interest won't present itself.

Michael Griffin: As two examples of high quality properties, there that could see some leasing or do you have enough demand from your portfolio is in New York.

Speaker Change: Thank you.

Speaker Change: And I'm sure. Our next question comes from the line of Michael Griffin from Citi. Please go ahead.

Michael Griffin: D C to be able to hit that vacancy leasing goal. Thanks.

Speaker Change: Great.

Michael Griffin: Sure So I'm going to let rod talk about what's going on in San Francisco and sort of what our expectations are there, but we need all of our markets to perform from a an increase in available space being leased to new clients right that is that's a mandate across the entire portfolio and everybody else for all the reasons have to pull their part.

Michael Griffin: Maybe going back to your assumptions around vacancy leasing for the year as I look in the portfolio kind of stands out from a vacancy perspective is still San Francisco. So suffice it to say do you really need to see demand accelerate in that market for vacant space I'm thinking about 680, Folsom $5 35.

Michael Griffin: Obviously, we have a we have lower expectations and higher expectations, but depending upon the particular property as well as the that particular sort of environment of what the demand might be for that in San Francisco, we've done a really good job actually of leasing available space at 535 mission because of interestingly the sort of demand that that it is <unk>.

Michael Griffin: As two examples of high quality properties, there, but could see some leasing or do you have enough demand from your portfolio is in New York City.

Michael Griffin: D C to be able to hit that vacancy leasing goal. Thanks.

Speaker Change: Sure So I'm going to let rod talk about what's going on in San Francisco and sort of what our expectations are there, but we need all of our markets to perform from a an increase in available space being leased to new clients right that is that's a mandate across the entire portfolio and everybody else, but all of the reasons have to pull their part.

Michael Griffin: To capture and the success of that building has had a grabbing that demand and when we need to do more of that we also need to do more leasing at Embarcadero Center, and we need to do more leasing at 680, fulsome and Rob can talk about some of the things that we are doing to accelerate our activity in those properties.

Speaker Change: Obviously, we have we have lower expectations at higher expectations, but depending upon the particular property as well as the that particular sort of environment, what the demand might be for that in San Francisco, we've done a really good job actually of leasing available space at 535 mission because of interestingly the sort of demand that is that it is.

Rob: Yeah, well you hit on 535, which has had really great leasing experience in 'twenty four and we've got a good pipeline of deals we're talking to they're still and our strategy. Both at 535 Embarcadero added 680 fulsome centered around an amenity based offering first in a premier workplace.

Rob: Environment. So we just finished this fantastic amenity center and Embarcadero Center called the mosaic, it's gotten great reviews, and it's a super great draw for bringing new clients and it's something that not every other building is offering I certainly don't think that the quality. So we're doing that at embarcadero or we have a similar.

Speaker Change: To capture and the success of that building is added grabbing that demand and we need to do more of that we also need to do more leasing at Embarcadero Center, and we need to do more leasing at $60 Ultimate and Rob can talk about some of the things that we're doing to accelerate our activity in those properties.

Speaker Change: Yes, well you hit on 535, which has had really great leasing experience in 'twenty four and we've got a good pipeline of deals we're talking to they're still and our strategy. Both at $5 35, and Embarcadero added 60, 80 fulsome centered around an amenity based offering first premier workplace.

Type of focused amenity offering under construction now at 680 fulsome, we've done some remodeling to the lobby and we're going to add another portion on the ground floor, which will be a tenant amenity.

Rob: That's going to definitely get some traction we're also going to enhance the roof deck, we have a capital plan in place that's going to be completed this year on the roof deck of 680, Folsom, which again is going to be in a nice way to differentiate that building.

Speaker Change: Environment. So we just finished this fantastic amenity center and Embarcadero Center called the mosaic, it's gotten great reviews, and it's a super great draw for bringing new clients and that's something that not every other building is offering I certainly don't think that the quality. So we're doing that at Embarcadero, we have a similar.

Rob: I think we're positioning all of these buildings for success, we have a great spec suite program and all the buildings that we've used over the years and it's when you go down the list of deals that we did last year. Many of them are in the spec suites. So.

Speaker Change: Type of focused amenity offering under construction now at 680 fulsome, we've done some remodeling to the lobby and we're going to add another portion on the ground floor, which will be a tenant amenity.

Rob: It's not the only focus but it's certainly an important focus and we're going to keep doing that and I'll just I'll close on the point that San Francisco had positive net absorption for the fourth quarter that hasn't happened in a long time. So it's a good sign and we feel it in our activity and so we're optimistic we're on that kind of a good year.

Speaker Change: That's going to definitely get some traction we're also going to enhance the roof deck, we have a capital plan in place that's going to be completed this year on the roof deck of 680, fulsome, which again is going to be in a nice way to differentiate that building.

Rob: Okay.

Rob: Thank you.

Speaker Change: And I show. Our next question comes from the line of Richard Amazon from Wedbush Securities. Please go ahead.

Speaker Change: I think we're positioning all these buildings for success, we have had great spec suite program and all the buildings that we've used over the years and it's when you go down the list of deals that we did last year. Many of them are in the spec suites. So.

Richard Amazon: Good morning.

Richard Amazon: So at the outset, you talked about your lack of exposure to the GSA.

Richard Amazon: Leasing.

Speaker Change: It's not the only focus but it's certainly an important focus and we're going to keep doing that and I'll just I'll close on the point, but San Francisco had positive net absorption for the fourth quarter that hasn't happened in a long time. So it's a good sign and we feel it in our activity and so we're optimistic we're going to have a good year.

Richard Amazon: Business.

Richard Amazon: But perhaps perhaps.

Richard Amazon: Defense contractors followed.

Richard Amazon: Trump.

Richard Amazon: Five day, our T O.

Richard Amazon: <unk> approach to government workers than you have Amazon JP Morgan Salesforce I'm I'm wondering how critical this is into your own leasing.

Speaker Change: Okay.

Richard Amazon: Outlook for 'twenty six 'twenty seven in terms of return to office is it enough to be two or three days a week for you to have a successful negotiating platform or do you need that to kind of ramp to a full week eventually over the course of the next few years and whether or not you can comment on the conversations you're having.

Speaker Change: Thank you.

Speaker Change: And I show. Our next question comes from the line of Richard Amazon from Wedbush Securities. Please go ahead.

Speaker Change: Good morning.

Speaker Change: At the outset, you talked about your lack of exposure to the GSA.

Speaker Change: Leasing.

Speaker Change: Business.

But perhaps.

Richard Amazon: With your tenants about what their plans are for return to office over the next few years. Thanks.

Speaker Change: Defense contractors followed.

Speaker Change: Trump.

Speaker Change: <unk>.

Richard Amazon: Yes, no return to office is clearly accelerating and it's helping our leasing activity I think it's varied a bit by industry and therefore, we see it a little bit differently by region because different industries have different concentrations in different regions. So that's a big plus look we have always said return to office is important.

Speaker Change: Approach to government workers than you have Amazon JP Morgan Salesforce I'm wondering how critical this is into your own leasing.

Speaker Change: Outlook for 2006, and 27 in terms of return to office is it enough to be two or three days a week for you to have a successful negotiating platform or do you need that to kind of ramp to a full week eventually over the course of the next few years and whether or not you could comment on the conversations you're having.

Richard Amazon: Leasing, but also corporate earnings growth as a proxy for corporate health is actually even more important and that's also a positive so I would put both of those.

Richard Amazon: In the same category when you think about the health of the client base that we serve in terms of number of days in the week I mean look I think even for clients that are only coming in two or three days a week. They want everybody in the office on the same days because that's why they are there is to collaborate so it's hard to save space.

Speaker Change: With your tenants about what their plans are for return to office over the next few years. Thanks.

Speaker Change: Yes, no return to office is clearly accelerating and it's helping our leasing activity I think it's varied a bit by industry and therefore, we see it a little bit differently by region because different industries have different concentrations in different regions. So that's a big plus look we have always said return to office is important.

Richard Amazon: People weren't allocating okay, you come in Monday Tuesday, and this group comes in Thursday Friday. So so I don't think necessarily going from four days to five days increase of space demand.

Speaker Change: Leasing, but also corporate earnings growth as a proxy for corporate health is actually even more important and that's also a positive so I would put both of those.

Richard Amazon: Under that logic.

Richard Amazon: Thank you.

Speaker Change: In the same category when you think about the health of the client base that we serve in terms of number of days in the week I mean look I think even for clients that are only coming in two or three days a week. They want everybody in the office on the same days because thats why they are there is to collaborate so it's hard to save space.

And I show. Our next question comes from the line of Blaine Heck from Wells Fargo. Please go ahead great.

Blaine Heck: Great. Thanks, good morning related to the earlier question on concessions and increasing costs. So I'm wondering whether you've noticed a change in tenants' willingness to move and upgrade their space given the higher cost to move and higher cost to build out their space over and above what you've given them and <unk> and whether thats driven more.

Speaker Change: People aren't allocating okay, you come in Monday Tuesday, and this group comes in Thursday Friday. So so I don't think necessarily going from four days to five days increase of space demand.

Blaine Heck: Have a preference to renew in place because of those cost pressures, maybe even slowing the flight to quality and if so how does that factor into your leasing strategy.

Speaker Change: Under that logic.

Speaker Change: Thank you.

Speaker Change: And I show. Our next question comes from the line of Blaine Heck from Wells Fargo. Please go ahead.

Blaine Heck: Yes, so I'm going to I'm going to give you a response on that and then all the regions sort of chime in.

Blaine Heck: Thanks, Good morning related to the earlier question on concessions and increasing costs I'm wondering whether you've noticed the change in tenants' willingness to move and upgrade their space given the higher cost to move and higher cost to build out their space over and above what you've given them and <unk> and whether thats driven more of.

Speaker Change: My sense from what I have been seeing is that.

Speaker Change: Most of our clients have said.

Speaker Change: We have to rebuild our space because we have to be competitive with our our offering to our employees.

Speaker Change: And interestingly.

Blaine Heck: The preference to renew in place because of those cost pressures, maybe even slowing the flight to quality and if so how does that factor into your leasing strategy.

Speaker Change: If you have older space call, it 10, plus year old space.

Speaker Change: The brain damage associated with staying in place and renovating it.

Speaker Change: Is not something that is very attractive to many of our clients and unless they are forced to do that and they would prefer to move in many cases, they would prefer to move within our buildings. If we had space available to them, but in many cases, we can't do that and so so they are going ahead and spending the money and right now.

Blaine Heck: Yes, so I'm going to I'm going to give you a response on that and then all the regions sort of chime in.

Blaine Heck: My sense from what I have been seeing is that.

Blaine Heck: Most of our clients have said.

Blaine Heck: We have to rebuild our space because we have to be competitive with our our offering to our employees and interestingly.

Speaker Change: Again, and as Owen talked about earlier, our confidence that our clients have based upon the economy is giving them I'd say the conviction that it's a good time to be making that capital allocation to their space.

Blaine Heck: If you have older space call It 10, plus year old space the.

Blaine Heck: The brain damage associated with staying in place and renovating it is.

Speaker Change: Maybe Hillary and Rod you can start and then Brian can talk about sort of the CBD location and then perhaps Jake you talk about what's going on in the rest of it.

Blaine Heck: Is not something that is very attractive to many of our clients and unless they are forced to do that and they would prefer to move in many cases, they would prefer to move within our buildings. If we had space available to them, but in many cases, we can't do that and so so they are going ahead and spending the money and right now.

Speaker Change: Okay.

Speaker Change: Rod This is Hillary I would entirely agree with the comment around the difficulty regarding renovating in place we've seen clients be very reluctant to do that I think that there is a lot of confidence in the New York market around the direction of the economy and for the client base and Bx piece.

Blaine Heck: Again, and as Owen talked about earlier, our confidence that our clients have based upon the economy is giving them I'd say the conviction that it's a good time to be making that capital allocation to their space.

Speaker Change: New York portfolio around their business models and their future and so what we are seeing a lot of his clients expanding in our buildings, taking new space and building that space out. We're also seeing new demand coming into the portfolio and of course that.

Speaker Change: So maybe Hillary and Rod you can start and then Brian talked about sort of the CBD location and then perhaps Jay can you talk about what's going on in the rest of it.

Speaker Change: That tendency is generally always our full newbuild.

Speaker Change: Rod This is Hillary I would entirely agree with the comment around the difficulty regarding renovating in place we've seen clients be very reluctant to do that.

Speaker Change: No.

Speaker Change: I think it's much more of a case, where the demand drivers are expansion of the economy and expansion of the business units and their they want fresh new space that will help them compete for.

Speaker Change: I think that there is a lot of confidence in the New York market around the direction of the economy and for.

Speaker Change: Our employees and we will help them compete for clientele. So.

Speaker Change: The client base in DXP is new York portfolio around their business models and their future and so what we are seeing a lot of his clients expanding in our buildings, taking new space and building that space out. We're also seeing new demand coming into the portfolio and of course that.

Speaker Change: So that's the trend that I see in New York.

Speaker Change: Rod.

Speaker Change: I would just add that I think what we're not seeing is the short term renewals that we saw early.

Speaker Change: Emerging out of the pandemic.

Speaker Change: That tendency is generally always our full newbuild.

Most of our clients are confident in what the future looks like and are not asking for short term renewals I mean, I think in those cases, it's tough if somebody's willing to just do a one or two year extension of three year. Even then it's hard to pull a tenant like that out of a building, but most of the people. We're talking to are willing to make long term commitments 10 plus years. So.

Speaker Change: <unk>.

Speaker Change: I think it's much more of a case, where the demand drivers are expansion of the economy and expansion of the business units and their they want fresh new space that will help them compete for.

Speaker Change: Employees, and we will help them compete for clientele. So.

Speaker Change: I think that they are doing exactly what you said, Doug which is they are looking to build a better offering for their employees to come back and entice them back and we're seeing that across all of our existing tenants and then the ones that we're trying to pull out of other buildings definitely hey, Jake Jake comment on the sort of the opportunities that the two tenants that we're talking to about wrestling next half to stay where.

So thats the trend that I see in New York.

Speaker Change: Rod.

Speaker Change: I would just add that I think what we're not seeing is.

Speaker Change: The short term renewals that we saw early on.

Speaker Change: Emerging out of the pandemic.

Speaker Change: Most of our clients are confident in what the future looks like and are not asking for short term renewals I mean, I think in those cases, it's tough if somebody is willing to just do a one or two year extension of our three year. Even then it's hard to pull tenant like that out of a building, but most of the people. We're talking to are willing to make long term commitments 10 plus years. So.

Speaker Change: They want where they are and what they're doing.

Speaker Change: Yes, sure I mean.

Speaker Change: Again, we are having very interesting and productive conversations with lots of clients.

Speaker Change: In the northern Virginia market.

Speaker Change: Over half of our holdings in the D. C region are in Reston Town Center, which is.

Speaker Change: I think that they are doing exactly what you said, Doug which is they're looking to build a better offering for their employees to come back and entice them back and we're seeing that across all of our existing tenants and then the ones that we're trying to pull out of other buildings definitely Jake.

Speaker Change: What I would say is the home to the who's who of the defense and cyber security community.

Speaker Change: And these are groups that can pay market, leading rents and are seeking trophy quality product.

Speaker Change: In a mixed use environment and a lot of that is just because they want to attract and retain and motivate their employee base. So.

Speaker Change: Comment on the sort of the opportunities that the two tenants that we're talking to about wrestling next half to stay where they want where they are and what they're doing.

Speaker Change: We're seeing lots of inbounds in that regard and so it's exciting for the future Reston Town Center.

Speaker Change: Yes, sure I mean.

Speaker Change: Again, we are having very interesting and productive conversations with lots of clients.

Speaker Change: But again just to sort of keep going on the shake the two tenants that we're actually talking to you about about rest of the next have the ability to stay where they are and pay rent that is significantly lower than what we were what we're charging.

Speaker Change: The northern Virginia market over half of our holdings in the DC region are in Reston Town Center, which is.

Speaker Change: What I would say is the home to the who's who of the defense and cyber security community.

Speaker Change: Block V correct.

Speaker Change: Absolutely absolutely and in each case, the landlords would happily accept.

Speaker Change: And these are groups that can pay market, leading rents and are seeking trophy quality product.

Speaker Change: Renewals with with these clients but.

Speaker Change: In a mixed use environment and a lot of that is just because they want to attract and retain and motivate their employee base. So.

Speaker Change: These clients want change they want to motivate their employees to continue to come to work and do the important work that they do to generate revenue for them. So.

Speaker Change: We're seeing lots of inbounds in that regard and so it's exciting for the future rest in town center.

Speaker Change: They're looking to change up their environments move to these mixed use environments that are more exciting.

Speaker Change: But again just to sort of keep going on the shake the two tenants that we're actually talking to you about about Reston next have the ability to stay where they are and pay rent that is significantly lower than what we what we're charging.

Speaker Change: And provide a better ground floor plane for their employees and more excitement and more amenities and we're seeing that in spades in reston.

Brian: Brian Yes.

Brian: More varied I'd say at least two to three significant renewals with situations where.

Speaker Change: Block be correct.

Speaker Change: Absolutely absolutely and then each case.

Speaker Change: The landlords would happily accept.

Brian: We had clients that they are.

Speaker Change: Renewals with these clients but.

Initial space was well ahead of its time and how they work today isn't.

Speaker Change: These clients want change they want to motivate their employees.

Speaker Change: Continue to come to work and do the important work that they do to generate revenue for them. So.

Brian: That much different than how it was when they did the original lease but I would say that that's just an example of three <unk>.

Speaker Change: They're looking to change up their environments moved to these mixed use environments that are more exciting.

Brian: Extraordinarily good.

Speaker Change: And provide a better ground floor planning for their employees and more excitement and more amenities and we're seeing that in spades in reston.

Brian: Thoughtful plans from previously and in those cases, they did some fresh up they did some <unk>.

Brian: Adding of some amenities, but nothing significant but they are exceptional spaces to begin with and really thoughtful on the new side, we're definitely seeing.

Speaker Change: Brian Yes, ours is a little bit more varied I'd say in it.

Speaker Change: Two to three significant renewals, we had situations where.

Speaker Change: We had clients that they are.

Brian: The willingness of the clients to add additional dollars of their own on top of tenant finish that we may provide to really create a great space.

Speaker Change: Initial space was well ahead of its time and how they work today isn't.

Speaker Change: That much different from how it was when they did the original list, but I would say that that's just an example of three.

Brian: And I would also say that the.

Brian: The amount of interest in seeing new space and examples of it.

Speaker Change: Extraordinarily good.

Speaker Change: Thoughtful plans from previously and in those cases, they did some fresh up they did some <unk>.

Brian: As far more than I've ever seen we just redid our own space.

Low <unk>.

Speaker Change: Adding of some amenities, but nothing significant but they are exceptional spaces to begin with and really thoughtful on the new side, we're definitely seeing.

Brian: And it's incredible the response, we've had from our own people, but we have probably at least a tour a day of clients coming to see it there I've never seen a situation where the clients want to talk to us.

Speaker Change: The willingness of the clients too.

Speaker Change: Add additional dollars of their own on top of tenant finish that we may provide to really create a great space and I would also say that the.

Brian: This much about how we see trends in that.

Brian: We see future layoffs.

Brian: Just to add to this conversation from DXP standpoint, we're eating our own cooking.

The amount of interest in seeing new space and examples of it.

Brian: Boston region in the San Francisco region, we're in space they had been in for well over a decade and in the last six months. They both moved.

Speaker Change: As far more than I've ever seen we just did our own space.

Speaker Change: Level 16.

Speaker Change: And it's.

Brian: Here in Boston It per tower to a lower floor and Embarcadero center to a lower floor and there is no doubt that the newbuild out has created a lot of energy and enthusiasm for our teams and so we're experiencing this phenomenon that you are hearing about firsthand.

Speaker Change: It's incredible the response, we've had from our own people, but we are probably at least a tour a day of clients coming to see it there I've.

Speaker Change: I've never seen a situation where the clients want to talk to us.

Speaker Change: This much about how we see trends and how we see future layouts.

Brian: Thank you.

Speaker Change: And I show. Our next question comes from the line of Caitlin Burrows from Goldman Sachs. Please go ahead.

Speaker Change: I would just add to this conversation from DXP standpoint, we're eating our own cooking the Boston region in the San Francisco region. We're in space. They had been in for well over a decade and in the last six months. They both moved.

Caitlin Burrows: Hi, everyone. You mentioned earlier that the negative absorption they get seem to have stopped in a few markets and you did mentioned positive absorption in San Francisco and <unk>. But then you also mentioned that law firms in San Francisco are still reducing their footprint and others are rationalizing space. So just makes it seem difficult that absorption would consistently increase if thats what youre, saying.

Speaker Change: Here in Boston, it proves how or to a lower floor at Embarcadero center to a lower floor and there is no doubt that the newbuild out has created a lot of energy and enthusiasm for our teams and so we're experiencing this phenomenon that youre hearing about firsthand.

Speaker Change: From the tenants. So I'm wondering if you can give some details on what gives you confidence that absorption will continue to be positive in San Francisco and like is the demand there to that and take advantage of the amenities that you are creating that you went through before.

Speaker Change: Thank you.

Speaker Change: And I show. Our next question comes from the line of Caitlin Burrows from Goldman Sachs. Please go ahead.

Caitlin Burrows: Do you want to take that.

Caitlin Burrows: Yes, I mean, there's no question that some of the existing obviously traditional tenants are.

Hi, everyone. You mentioned earlier that the negative absorption spigot starts in a few markets and you did mentioned positive absorption in San Francisco and <unk>, But then you also mentioned that law firms in San Francisco are still reducing their footprint and others are rationalizing space. So just makes it seem difficult that absorption would consistently increase if thats what youre seeing from.

Caitlin Burrows: In some cases right sizing I mean, we've experienced it with some of our own law from clients I.

Caitlin Burrows: I think you have to just add into that the the growing demand that is coming from these new technology companies you can see it's AI or you can just say, it's the new wave of technology companies, which is.

Speaker Change: Tenants. So I'm wondering if you can give some details on what gives you confidence that absorption will continue to be positive in San Francisco and like is the demand. There to then take advantage of the amenities that youre, creating that you went through before Roger.

Caitlin Burrows: Traditionally brought the Bay area in San Francisco in particular out of these.

Caitlin Burrows: These down cycles. So we're seeing it we're seeing yes listen companies' names I've never even heard of that are out in the market. So.

Brian: Brian you want to take that.

Caitlin Burrows: John I think I think you can point to obviously the bigger AI deals with open AI and anthropic can scale AI and some of these others that have done deals as examples of tenants that are going to use space and so.

Speaker Change: Yes, I mean, there's no question that some of the existing I would say traditional tenants are still in some cases right sizing I mean, we've experienced it with some of our own law firm clients.

Brian: I think you have to just add into that the.

Caitlin Burrows: We're going the right direction and I think finally showed up in the numbers. This quarter. So we will see what happens, but it feels it feels different than it did a year ago I can tell you that much gateway for sure.

Brian: The growing demand that is coming from these new technology companies you can see it's AI or you can just say, it's the new wave of technology companies, which is.

Caitlin Burrows: Okay.

Brian: Traditionally brought the Bay area in San Francisco in particular out of these.

Caitlin Burrows: Thank you.

Speaker Change: And I show. Our next question comes from the line a few power arena from Keybanc. Please go ahead.

Brian: These down cycles. So we're seeing it we're seeing list of companies names I've never even heard of that are out in the market. So.

Speaker Change: Alright. Thank you so biogen announced some layoffs to their research Department last week and they are your third largest tenant and I was wondering if there was any potential impact from PSP given that you only have about two and a half years left on their term.

Speaker Change: John I think I think you can point to obviously the bigger AI deals with open AI and anthropic can scale AI and some of these others that have done deals as examples of tenants that are going to use space and so.

Speaker Change: And is there any read through on life science broadly on this announcement.

Speaker Change: We're going the right direction and I think finally showed up in the numbers. This quarter. So we'll see what happens, but it feels it feels different than it did a year ago I can tell you that much Caitlin for sure.

Speaker Change: <unk>.

Speaker Change: I think look Biogen is a company that has gone through many fits and starts over the decades that it has been in Kendall square, we have one building with them, which is a lab building the lease expires in the middle of 2028 and.

Speaker Change: Okay.

Speaker Change: Thank you.

Speaker Change: And I show. Our next question comes from the line a few power arena from Keybanc. Please go ahead.

Speaker Change: That's.

Speaker Change: Great. Thank you, so biogen announced some layoffs to their research Department last week and they are.

Speaker Change: Basically in the midst of the next election cycle. There's so much that's going to happen between now and then I I can't even contemplate what the world will look like for lab space and in Kendall square, but that's it's the one location on the globe that I would rather have more than less lab space and so to the extent that Biogen makes a decision to do.

Speaker Change: Your third largest tenant and I was wondering if there was any potential impact from DXP given that you only have about two and a half years left on their term and is there any read through on life science broadly on this announcement.

So.

Speaker Change: I think look Biogen is a company that has gone through many fits and starts over the decades that it has been in Kendall square.

Speaker Change: <unk> or they grow.

Speaker Change: We'll be ready to <unk>.

Speaker Change: <unk> or whatever the opportunity is in that building and again, it's the only building that we have with Biogen. The other building that we have has already been basically master lease to another organization in.

Speaker Change: Have one building with them, which is a lab building the lease expires in the middle of 2028.

Speaker Change: And.

Speaker Change: Biogen has been it has not been in that building for the last 15 years.

Speaker Change: That's.

Speaker Change: Basically in the midst of the next election cycle. There is so much that's going to happen between now and then I can't even contemplate what the world will look like for lab space and.

Speaker Change: Thank you.

Speaker Change: And I show. Our next question comes from the line of Bill and present ski from Green Street. Please go ahead.

Speaker Change: Kendall square, but it's the one location on the globe that I would rather have more than less lab space.

Bill Smallski: I appreciate you taking the question guys just going back to some of your comments on sort of concession the concessionary environment remained elevated to what it once was and I guess in some of your tighter market at least within your portfolio such as Boston and New York are you guys starting to be able to push space rent for that on a net effective basis, we're starting to see.

Speaker Change: So to the extent that Biogen makes a decision to downsize or are they grow.

Speaker Change: We will be ready to <unk>.

Speaker Change: Capture whatever the opportunity is in that building and again, it's the only building that we have with Biogen. The other building that we have has already been basically master lease to another organization.

Speaker Change: Incremental improvement and then I guess as you sort of think about that.

Speaker Change: Biogen has been it has not been in that building for that block 15 years.

Bill Smallski: Next two years right going into 2006, and 27, you guys mentioned being able to likely pick up significant occupancy.

Thank you.

Speaker Change: And I show. Our next question comes from the line of Bill and Brzezinski from Green Street. Please go ahead.

Bill Smallski: We also expect you guys to be able to push net effective rent growth play significantly in those years or can you sort of put some guardrails around that for us.

Speaker Change: Okay.

Speaker Change: I appreciate you taking the question guys just going back to some of your comments on sort of concession the concessionary environment remaining elevated to what it once was I guess some of your tighter market at least within your portfolio such as Boston and New York are you guys starting to be able to push space rent. So that on a net effective basis, we're starting to see incremental improvement.

Bill Smallski: So unequivocally in the Midtown market and in the greater Boston back Bay market.

Our rents are higher in 2024 than they were in 2023 and for the modest amount of space that we have available they will be higher in 2025.

Bill Smallski: In the Midtown Park Avenue market same phenomenon accept the increase has been much larger.

Speaker Change: And then I guess as you sort of think about that.

Speaker Change: Next two years right going into 2006, and 27, you guys mentioned being able to likely pick up significant occupancy I mean should we also expect you guys to be able to push net effective rent growth quite significantly in those years or can you sort of put some guardrails around that for us.

Bill Smallski: The increases are double digit in terms of what we have seen between 'twenty three 'twenty four and what we probably will see in 'twenty five to 'twenty six.

Bill Smallski: I do not want to make a suggestion that we're going to see.

Speaker Change: So unequivocally in the Midtown market and in the greater Boston back Bay market.

Bill Smallski: A groundswell of rental rate increases across all of our markets and the entire portfolio I think those particular markets are unusual because of what we discussed earlier in the call relative to the de Minimis de Minimis amount of large block availability and the fact that we're getting closer and closer to new new construction pricing and Boston were not quite there yet.

Speaker Change: Our rents are higher in 2024 than they were in 2023 and for the modest amount of space that we have available they will be higher in 2025.

Speaker Change: In Midtown Park Avenue market.

Speaker Change: Same phenomenon, except the increase has been much larger.

Speaker Change: And then obviously in where we are in Midtown Manhattan, but it's you know, it's a very constructive environment in those marketplaces, it's not as constructive elsewhere just leave the one thing I would add Doug is that there's no new development, because it's going to be coming in 'twenty six 'twenty seven in these markets.

Speaker Change: The increases are double digit in terms of what we have seen between 'twenty three 'twenty four and what we probably will see in 'twenty five to 'twenty six.

I do not want to make a suggestion that we're going to see.

Speaker Change: A groundswell of rental rate increases across all of our markets and the entire portfolio I think those particular markets are unusual because of what we discussed earlier in the call relative to the de Minimis de Minimis amount of large block availability and the fact that we're getting closer and closer to new new construction pricing and Boston were not quite there yet.

Bill Smallski: From a supply perspective, there is.

Bill Smallski: Nothing too.

Bill Smallski: For those clients to look at.

Bill Smallski: So that will benefit us.

Bill Smallski: Thank you.

Bill Smallski: And I show. Our next question comes from the line of Michael Lewis from <unk> Securities. Please go ahead.

Speaker Change: Thank you. So you hit this topic of concessions in Capex from a few different angles. When we put together the increased leasing volume as we get the occupancy back up in the higher costs.

Speaker Change: And then obviously in where we are in Midtown Manhattan, but it's it's a very constructive environment in those marketplaces, it's not as constructive elsewhere just leave the one thing I would add Doug is that there's no new development, because it's going to be coming in 'twenty six 'twenty seven in these markets.

Speaker Change: Thank you give guidance for fat, but should we expect fad and cash flow to be under pressure in the near term at least until you kind of stabilize the occupancy or is that not.

Speaker Change: From a supply perspective, there is there is.

Speaker Change: Not the case.

Speaker Change: Nothing too.

Speaker Change: For those clients to look at and so that will benefit us.

Speaker Change: I'm not going to give a projection for 2006 and 2007 for.

Speaker Change: Yes.

Speaker Change: Thank you.

Speaker Change: <unk>.

Speaker Change: And I show. Our next question comes from the line of Michael Lewis from <unk> Securities. Please go ahead.

Speaker Change: I think for 2025.

Speaker Change: Feel pretty good about it.

Speaker Change: It will probably be a little bit lower than this year.

Michael Lewis: Thank you. So you hit this topic of concessions in Capex from a few different angles. When we put together the increased leasing volume as we get the occupancy back up in the higher costs.

Speaker Change: In line with kind of the <unk>.

Speaker Change: The drop that we had this year we.

Speaker Change: We do have.

Speaker Change: No free rent that is burning off so as I mentioned, the cash flow from the portfolio.

Michael Lewis: Don't think you gave guidance for fat, but should we expect fad and cash flow to be under pressure in the near term at least until you kind of stabilize the occupancy.

Speaker Change: Is increasing.

Speaker Change: Don't expect our.

Speaker Change: Capex and ti to be significantly different than they were.

Michael Lewis: That's not the case.

24 could be a little bit higher than it was in 2024.

Michael Lewis: I'm not going to give a projection for 2006 and 2007 for <unk>.

Speaker Change: But I don't expect a meaningful change.

Michael Lewis: <unk>.

Michael Lewis: I think for 2025.

Speaker Change: Thank you.

Speaker Change: And I show. Our next question comes from the line of amortize concerning off from Deutsche Bank. Please go ahead.

Michael Lewis: Feel pretty good about it.

Michael Lewis: It will probably be a little bit lower than this year.

Michael Lewis: In line with kind of the <unk>.

Speaker Change: Okay.

Speaker Change: Yes.

Michael Lewis: The drop that we had this year we.

Speaker Change: Good morning, just a quick one in regards to all the leasing activity kind of.

Michael Lewis: We do have.

Michael Lewis: Free rent that is burning off so as I mentioned, the cash flow from the portfolio.

Speaker Change: In the fall.

Michael Lewis: Is increasing.

Speaker Change: On renewals and early renewals of leases expiring next year or a year or two and reducing <unk>.

Michael Lewis: Don't expect our.

Michael Lewis: Capex and ti to be significantly different than they were.

Michael Lewis: 24 could be a little bit higher than it was in 2024.

Speaker Change: Leasing risk in 25 months when you think.

Speaker Change: How you think about balancing the certainty of renewal today.

Michael Lewis: But I don't expect a meaningful change.

Michael Lewis: Thank you.

Speaker Change: Maybe again waiting six to nine months, where we've been.

Speaker Change: And I show. Our next question comes from the line of amortize concerning off from Deutsche Bank. Please go ahead.

Speaker Change: Leasing environment.

Speaker Change: It would be better.

Michael Lewis: Okay.

Speaker Change: You can kind of get better economics from a renewal I'm just kind of curious how you think those two themes.

Yes.

Good morning, just a very quick one in regards to all the leasing activity kind of.

Speaker Change: The ultimate decision to kind of renew a little bit earlier.

Michael Lewis: Leasing up.

Speaker Change: So the Bx P. Mentality is that we are not market timers, we would never have been and we never will be and if we have a client that wants to engage we will constructively attempt to do a renewal with that client I mean, the fact of the matter is and everyone. Understands this downtime is a cost of any trends.

Michael Lewis: On renew early renewals of leases expiring next year or a year or two and reducing <unk>.

Michael Lewis: Leasing risk in 25 months when you think.

Michael Lewis: Curious, how you think about balancing the circuit.

Michael Lewis: Renewal today.

Michael Lewis: Maybe again waiting six to nine months, where the.

Speaker Change: Action and to the extent that you can eliminate downtime between a lease if the tenant were to leave in and where the kind of order to say, that's a value and that value can be split in a way with the renewal that it cannot be split with waiting for the next best tenant and so from our perspective, we try and the commercial and thoughtful and we try and.

Michael Lewis: The leasing environment is still a little bit better.

Michael Lewis: Sure.

Michael Lewis: Maybe you can kind of get better economics from a renewal I'm just kind of curious how you think those two things.

Michael Lewis: Similar to the ultimate decision to kind of renew a little bit earlier.

Speaker Change: So the Bx P. Mentality is that we are not market timers, we would never have been and we never will be and if we have a client that wants to engage we will constructively attempt to do a renewal with that client I mean, the fact of the matter is and everyone. Understands this downtime is a cost of any <unk>.

Speaker Change: Work with our clients that if our clients are interested in renewing we do everything we can to renew them. Obviously, we have to be cognizant of what we think the market conditions are and where we think market rents are and where they might be going but we are we never are going to be greedy and we are never going to trying to market time.

Speaker Change: Action and to the extent that you can eliminate downtime between a lease if the tenant were to leave in and where the kind of order to say, that's a value and that value can be split in a way with the renewal that it cannot be split with waiting for the next best tenant.

Speaker Change: Thank you.

Speaker Change: And I'm sure. Our last question in the queue comes from the line of Jamie Feldman from Wells Fargo. Please go ahead.

Speaker Change: Great. Thanks for taking a follow up from our team. So we wanted to get your thoughts on how the rest of this offer office recovery may play out.

Speaker Change: So from our perspective, we try and be commercial and thoughtful.

Speaker Change: The Park Avenue recovery was pretty unique this cycle with J P Morgan and send it out with investments in leasing there.

Speaker Change: We try and work with our clients that if our clients are interested in renewing we do everything we can to renew them. Obviously, we have to be cognizant of what we think the market conditions are and where we think market rents are and where they might be going but we never are going to be greedy and we are never going to trying to market time.

Speaker Change: Also encouraging to hear you say the back Bay is tightening also.

Speaker Change: But do you think other submarkets across your portfolio are structured to tighten up in the same way as the cycle continues or do you think it will be more about filling specific buildings, rather than sub markets tightening tightening in the future.

Speaker Change: Yes.

Speaker Change: Thank you.

Speaker Change: And I'm sure. Our last question in the queue comes from the line of Jamie Feldman from Wells Fargo. Please go ahead.

Speaker Change: And against that backdrop can you also comment on the impairments taken in the quarter are these signals you don't expect these submarkets to get better are they building specific or are they a function of JV accounting rules.

Speaker Change: Great. Thanks for taking a follow up from our team. So we wanted to get your thoughts on how the rest of this offer office recovery may play out.

Speaker Change: We found the Santa Monica impairment, particularly interesting since our local market context indicate local schools are looking at the office campuses there.

Speaker Change: The Park Avenue recovery was pretty unique this cycle with J P Morgan and fitted out with investments in leasing there. It is.

Speaker Change: As potential relocation options.

Speaker Change: Also encouraging to hear you say the back Bay is tightening also but.

Speaker Change: I'll take the first part of that Jamie and I will turn it over to Mike for the impairments.

Speaker Change: But do you think other sub markets across your portfolio are structured to tighten up in the same way as the cycle continues or do you think it will be more about filling specific buildings, rather than sub markets tightening tightening in the future.

Speaker Change: Look the office market is recovering its recovering because of what we've been talking about on this call, which is increased corporate confidence as well as return to office behavior.

Speaker Change: And against that backdrop can you also comment on the impairments taken in the quarter are these signals you don't expect these submarkets to get better are they building specific or are they a function of JV accounting rules.

Speaker Change: It's certainly the most acute in our portfolio in Midtown and in the back Bay, but Theres clearly spillover benefits I mean.

Speaker Change: We found the Santa Monica impairment, particularly interesting since our local market context indicate local schools are looking at the office campuses there as potential relocation options.

Speaker Change: Doug talked about the action that we have at $5 99 lacks that the spillover from Park Avenue. There is leasing going on on third Avenue. There is leasing going on sixth Avenue.

Speaker Change: It depends on the strength of the market, but there is clearly a benefit to <unk>.

Speaker Change: I'll take the first part of that Jamie and I will turn it over to Mike for the impairments.

Speaker Change: Away from these two markets that we're talking about so look how does that all shake out at the end of the day, it's hard to actually forecast I do think theres, probably some reduction in overall office demand because of the remote work phenomenon, how what percentage of that is I don't know, but don't forget.

Speaker Change: Look the office market is recovering its recovering because of what we've been talking about on this call, which is increased corporate confidence as well as return to office behavior.

Speaker Change: It's certainly the most acute in our portfolio in Midtown and in the back Bay, but Theres clearly spillover benefits.

Speaker Change: You have that impact, but you also have a growing economy. So all these companies are growing they are adding employees and at some point the growth will make up for all of that so.

Speaker Change: Doug talked about the action that we have at $5 99 lacks that the spillover from Park Avenue. There is leasing going on on third Avenue. There is leasing going on sixth Avenue.

Speaker Change: I think those are the forces that you have at work and as we've been talking about over and over again.

Speaker Change: It depends on the strength of the market, but there is clearly a benefit.

Speaker Change: DXP is positioned as the premium office provider in the market and we're seeking.

Speaker Change: Away from these two markets that we're talking about so look how does that all shake out at the end of the day, it's hard to actually forecast I do think theres, probably some reduction in overall office demand because of the remote work phenomenon, how what percentage of that is I don't know, but don't forget.

Speaker Change: To have clients that are leaders in their industries that will pay the premium rent that we're seeking and that segment of the office industry is outperforming materially the rest and that's one of the keys.

Speaker Change: Two our stability that we've experienced throughout this whole office phenomenon.

Speaker Change: You have that impact, but you also have a growing economy. So all these companies are growing they are adding employees and at some point the growth will make up for all of that so.

Speaker Change: Mike talks about the impairments Rod you can just comment on sort of what the activity level is for these schools and also whether they're really able to take.

Speaker Change: I think those are the forces that you have at work and as we've been talking about over and over again.

Speaker Change: Space in the current configurations and for how long Theyre looking to sort of do these these transactions and how that sort of playing out in the Westfalia Margaret.

Speaker Change: DXP is positioned as the premium office provider in the market and we're seeking to.

Speaker Change: To have clients that are leaders in their industries that will pay the premium rent that we're seeking and that segment of the office industry is outperforming materially the rest and that's one of the keys.

Speaker Change: Yeah, Okay. So it.

Speaker Change: It is true there are schools that are in the market that are looking for some temporary space. We're talking with one of them. We've actually got a space in one of our buildings that has some sublease space.

Speaker Change: Two our stability that we've experienced throughout this whole office phenomenon before Mike talks about the impairments Rod you can just comment on sort of what the activity level is for these schools and also whether they're really able to take.

Speaker Change: This particular school is going to be occupying so its a temporary deal until they can figure out what theyre going to do with the rebuild.

Speaker Change: Obviously this is all pretty fresh and there has been just a lot of chaos down there and so we're doing our best possible to help the community. We've done it with this effort with the school. We also housed over 450 firefighters from Oregon in Utah at our Santa Monica Business Park.

Speaker Change: Space and the current configurations and for how long Theyre looking to sort of do these these transactions and how that sort of playing out in the Westfalia Margaret.

Speaker Change: They just recently left.

Speaker Change: Yes, okay. So.

Speaker Change: But they had been there and all their trucks and they were sleeping there and it was we've been very much engaged in trying to help support the community but at.

It's true there are schools that are in the market that are looking for some temporary space. We're talking with one of them. We've actually got a space in one of our buildings that is sublease space.

Speaker Change: These schools I mean, theres a few other ones that are out looking.

Speaker Change: This particular school is going to be occupying so its a temporary deal until they can figure out what theyre going to do with the rebuild.

Speaker Change: Heard Theres a few other buildings in town that are talking to them. So that will absorb some portion of the space at least in the short term.

Speaker Change: Obviously this is all pretty fresh and there has been just a lot of chaos down there and so we're doing our best possible to help the community. We've done it with this effort with the school. We also housed over 450 firefighters from Oregon in Utah at our Santa Monica Business Park.

Speaker Change: Congratulations Jamie for getting three questions in one question.

Speaker Change: I will touch on the impairment.

Speaker Change: So.

Speaker Change: Impairments for consolidated assets.

Speaker Change: They just recently left.

Speaker Change: Our unusual because of the way the GAAP rules govern assets and the way that you value those if youre going to have a long term hold on effectively and under discounted basis, where we have unconsolidated joint ventures, there's different accounting rules that we have to abide by so every quarter we have to.

Speaker Change: But they had been there and all their trucks and they were sleeping there and it was we've been very much engaged in trying to help support the community but.

Speaker Change: Schools, I mean, theres a few other ones that are out looking.

Speaker Change: A few other buildings in town that are talking to them. So.

Speaker Change: That will absorb some portion of the space at least in the short term.

Speaker Change: Look at the valuations of our own consolidated joint ventures, and determined whether theres a change that is.

Speaker Change: Congratulations Jamie for getting three questions in one question.

Speaker Change: Impacted what we think is what we think might be other than temporary.

Speaker Change: I will touch on the impairment.

Speaker Change: So.

Speaker Change: And the change and so on these west coast assets.

Speaker Change: Impairments for consolidated assets.

Speaker Change: There is a combination of things.

Speaker Change: Our unusual because of the way the GAAP rules govern assets.

Speaker Change: Where we haven't.

Speaker Change: Pleated additional leasing in the vacant space at Colorado Center, we talked about the life science market, South San Francisco being slow.

Speaker Change: And the way that you value those if youre going to have a long term hold on effectively and under discounted basis.

Speaker Change: And in Seattle, We've talked about we didn't talk about it on this call, but the market is slower and we haven't achieved positive absorption.

Speaker Change: We have unconsolidated joint ventures, there's different accounting rules that we have to abide by so every quarter. We have to look at the valuations of our own consolidated joint ventures, and determined whether theres a change that is.

Speaker Change: I'd say go Plaza. So every quarter, we evaluate this and look at the cash flows and.

Speaker Change: Impacted what we think is what we think might be other than temporary.

Speaker Change: And value of the assets and it trips.

Speaker Change: Our test this quarter.

Speaker Change: And so when it trips to the other than temporary test you basically have to bring it down to the fair market value, which is using.

Speaker Change: And the change and so on these west coast assets.

Speaker Change: There is a combination of things.

Speaker Change: Where we haven't.

Speaker Change: More kind of distress discount and cap rate environment, which is why the numbers are bigger than.

Speaker Change: <unk>.

Speaker Change: <unk> additional leasing in the vacant space at Colorado Center, we talked about the life science market, South San Francisco being slow.

Speaker Change: And then they were.

Speaker Change: So it is an accounting issue. It is non cash it does not reflect any change in our outlook for these assets or any change in kind of what is going on in these assets right now.

Speaker Change: And in Seattle, We've talked about we didn't talk about it on this call, but the market is slower and we haven't achieved positive absorption.

Speaker Change: I'd say go Plaza. So every quarter, we evaluate this and look at the cash flows.

Speaker Change: And just just one last point on this Jamie So obviously, our joint venture partner had their call yesterday.

Speaker Change: Value of the assets and it trips.

Speaker Change: Our test this quarter.

Speaker Change: On.

Speaker Change: And.

And so when it trips to the other than temporary test you basically have to bring it down to the fair market value, which is using.

Speaker Change: As I understand it didn't didn't mentioned anything on their gateway investments. So it's consolidated on their books its unconsolidated ours. So.

Speaker Change: More kind of distress discount and cap rate environment, which is why the numbers are bigger than.

Speaker Change: Same asset our plans and their plans are the same and we were in a position where we felt we had taken impairment and obviously they didn't so again. This is these are accounting rules that we have to haul.

Speaker Change: And then they were.

Speaker Change: So it is an accounting issue. It is non cash it does not reflect any change in our outlook for these assets or any change in kind of what is going on in these assets right now.

Speaker Change: Okay.

Speaker Change: Thank you.

Speaker Change: That concludes our Q&A session at this time I'd like to turn the call back over to Owen Thomas Chairman and CEO for closing remarks.

Speaker Change: And just just one last point on this Jamie So obviously, our joint venture partner had their call yesterday.

Speaker Change: We have no closing remarks.

Speaker Change: We've gone an hour and a half and we want to wish all of you a happy new year and thank you for your interest in <unk>.

Speaker Change: On.

Speaker Change: And.

Speaker Change: As I understand it didn't didn't mentioned anything on their gateway investment. So it's consolidated on their books that unconsolidated ours. So.

Speaker Change: Thank you Sir This concludes today's conference call. Thank you for participating you may now disconnect.

Speaker Change: Same asset our plans and their plans are the same and we were in a position where we felt we had taken impairment and obviously they did so again. This is these are accounting rules that we have to vote.

Speaker Change: Okay.

Speaker Change: Okay.

Thank you.

Speaker Change: That concludes our Q&A session at this time I'd like to turn the call back over to Owen Thomas Chairman and CEO for closing remarks.

Speaker Change: We have no closing remarks.

Speaker Change: We've gone an hour and a half and we want to wish all of you a happy new year and thank you for your interest in <unk>.

Speaker Change: Thank you Sir This concludes today's conference call. Thank you for participating you may now disconnect.

Speaker Change: And then with that.

Speaker Change: Was that a lot.

Speaker Change: One.

Speaker Change: Okay.

Speaker Change: [music].

Speaker Change: Okay.

Speaker Change: [music].

Speaker Change: Okay.

Speaker Change: Uh huh.

Speaker Change: [music].

Speaker Change: Okay.

Speaker Change: [music].