Q1 2025 BXP Inc Earnings Call
Good day, and thank you for standing by and welcome to the Q1 'twenty twenty-five DXP earnings conference call. At this time, all participants are in a listen only mode.
After the Speakers' presentation there'll be a question and answer session to ask a question. During this session you will need to press star one on your telephone you will then hear an automated message advising you handle this race. So was your question. Please press star one again.
Please be advised that today's conference is being recorded.
Speaker Change: I 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 first quarter 2025 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 and the most directly comparable GAAP measure in accordance with Reg G. If you did not receive a copy these documents.
Speaker Change: Humans are available in the investors section of our website at investors <unk>. The X P. Dot com a webcast of this call will be available for 12 months at this time, we would like to inform you that certain statements made during this conference call, which are not historical may constitute forward looking statements within the meaning of the private Securities Litigation Reform Act, Although P F.
Speaker Change: <unk> believes the expectations reflected in any forward looking statements are based on reasonable assumptions. It can give no assurance that its expectations will be attained.
Speaker Change: 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 N V S filings with the SEC.
Speaker Change: <unk> does not undertake a duty to update any forward looking statements I would like to welcome one Thomas Chairman and Chief Executive Officer, Doug Linde, President and Mike Labelle, Chief Financial Officer during the Q&A portion of our call. Our regional management teams will be available to address any questions. We ask that those of you participating in the Q&A.
Speaker Change: Portion of the call to please limit yourself to one and only one question. If you have additional queries or follow up please feel free to rejoin the queue I'd now like to turn the call over to Owen Thomas for his formal remarks.
Owen Thomas: You Helen and good morning to all of you our results in the first quarter demonstrated DXP continued strong performance, given our execution and a sustained property and capital market recovery, our <unk> per share for the quarter was in line with our forecast.
Owen Thomas: We completed over $1 1 million square feet of leasing in the quarter, which was 25% above the leasing volume we achieved in the first quarter of 'twenty four.
Owen Thomas: Further over the last four quarters, our leasing volume of $5 9 million square feet with 33% higher than the prior four quarters.
Owen Thomas: Importantly, we made progress leasing up our development pipeline assets and completed several significant leases with important clients such as Goodwin Procter coolly and a defense technology company.
Owen Thomas: We completed over $4.2 billion of financing activity, demonstrating improving market conditions and DXP strong access to capital.
Owen Thomas: We released our 2020 for sustainability and impact report highlighting DXP.
Owen Thomas: Dxp's leadership, and accomplishments and sustainable business practices importance of capital providers clients and communities we serve.
Owen Thomas: Now starting with the operating environment. The obvious question is what impact will tariff and other federal policies have on Dxp's business.
Owen Thomas: So far the tariff program is an increased volatility in the capital markets created concerns over the potential for higher prices inflation and interest rates.
Owen Thomas: And reduced consumer confidence leading to more economists are forecasting a recession or slower U S GDP growth.
Speaker Change: For DXP the primary drivers of leasing activity, our corporate confidence and in person work behavior. Our primary concern has been that our clients may delay or terminate space requirements due to the more uncertain operating environment. This has not happened.
Speaker Change: Specifically for the 1 million square feet of deals, where we have a signed LOI and are negotiating a lease to date only a single 8000 square foot perspective user declined to go declined to move forward due to market conditions.
Doug Linde: Doug will describe our current pipeline of leasing activity, which remains robust.
Doug Linde: Federal funding cuts to the NIH and other research organizations as well as uncertainties over FDA approvals are causing significant concerns for the life science community community in creating additional headwinds for life science leasing.
Doug Linde: If the U S were to enter a recession leasing demand would undoubtedly slow but interest rates would likely be lower in remote work would likely decrease due to a weaker labor market tariffs will drive up material prices increasing construction costs.
Doug Linde: Given non U S material procurement is a modest component of our construction budgets and contractors are eager for new business, we don't see tariffs, having a major impact on our construction estimates and Doug will provide a real time example of this.
Doug Linde: As mentioned last quarter. We think does has had a positive has a positive impact on Dxp's, Washington D. C business as federal workers and their contractors, who are our clients return to the office.
Doug Linde: We are already seeing increased foot traffic retail activity and parking revenue at Reston Town Center as a result of dose.
Doug Linde: Moving to office market conditions, I will continue to emphasize that the premier workplace segment, where <unk>, primarily competes continues to materially outperformed the broader office market.
Doug Linde: Amir workplaces as defined in Cbre's research.
Doug Linde: Continue to be the highest quality, 7% of buildings, representing 13% of total space and our five CBD markets.
Doug Linde: Direct vacancy for Premier workplaces, as just over 13% versus 19% for the broader market.
Doug Linde: Likewise net absorption for Premier workplaces has been a positive 18 million square feet over the last three years versus a negative 30 million square feet for the broader market.
Doug Linde: Asking rents for Premier workplaces continue to be more than 50% higher than the broader market.
Doug Linde: Regarding the real estate private equity capital markets office sales volume in the first quarter was $7 6 billion.
Doug Linde: Down approximately 14% from the first quarter of last year.
Doug Linde: Financing remains available on transactions continue to close.
Doug Linde: The current market volatility has widened credit spreads in both the <unk> MBS and REIT investment grade unsecured markets, which should have some impact on pricing.
Doug Linde: There are several premier workplace transactions are underway in the U S. There were few new commitments of note.
Doug Linde: Moving to Dxp's capital allocation activities of new investments, we commenced the development of $2 90, Kohl's a $6 seven 670 unit, 100% market rate multifamily development project in the Soho West Submarket of downtown Jersey City.
Doug Linde: Jersey city's multifamily market as highly attractive due to its easy access to Manhattan in a less expensive housing option, resulting in robust population growth strong demand for apartments, and resultant rent growth. Despite new development activity. Our partners in the project are Albani's organization as co developer and crew.
Doug Linde: <unk> capital partners as a financial partner.
Doug Linde: A key attraction of the investment for US is the capital structure, where <unk> will be providing a $20 million in common equity for a 19, 5% interest in the project and $65 million of preferred equity with a 13% preferred return.
Doug Linde: At project stabilization, the $225 million senior loan and DXP the crude preferred equity investment will represent under 65% of the total 456 million dollar cost of the project.
Doug Linde: The unleveraged cash development yield on cost is projected to be more than 6%.
Doug Linde: Including development fees and carried interest earned we project the common and preferred equity investments together will deliver total returns in the mid teens.
Doug Linde: Construction has commenced delivery of the initial units are scheduled for the first half of 2028 and asset stabilization is forecast for the second half of 2029.
Doug Linde: Continuing with new development I have described our 930000 square foot $3 43, Madison project in Midtown with direct lobby access to the Grand Central Madison Concourse.
Doug Linde: And located two blocks south of J P Morgan with new headquarters building.
Doug Linde: The Midtown office market is strong and experiencing rent growth with a vacancy rate under 7% for the higher quality buildings.
Doug Linde: 2022, 2023, and 2024 were all record years in New York City for leases signed in excess of about $100, a square foot and $200 a square foot three.
Doug Linde: 343, Madison is the only immediately actionable office development site in close proximity to Grand Central terminal.
Doug Linde: We have made lease proposals to seven anchor clients, primarily financial service firms.
Doug Linde: With an average requirement of 350000 square feet. There are another 10 clients with requirements aggregating over three 2 million square feet to a receive presentations and are considering the building.
Doug Linde: We expect to launch this $2 billion project in 2025, where as a reminder, DXP owns a 55% interest.
Doug Linde: We are in various stages of negotiation for the sale of eight land sites that will generate if successful net proceeds of approximately $250 million over the next 24 months.
Doug Linde: All of these sales require re entitlement, creating a more extended closing period, we continue to evaluate additional asset monetization opportunities.
Doug Linde: So in conclusion DXP as a domestic business with long term leases and a stable dividend that will not be as heavily impacted as other industries by volatility in global trade.
Doug Linde: Further new construction for office has dropped precipitously and users are gravitating to higher quality assets the combination creating rent growth in several of our submarkets.
Doug Linde: DXP is maintaining momentum in both leasing leasing and new investment activity. Despite this more challenging market environment.
Doug Linde: With our current leasing momentum in only three 9% portfolio lease rollover in 2026, and five 1% in 2027, we expect to gain occupancy revenue <unk> in the years ahead.
Doug Good: <unk> deliveries and potentially acquisitions will add additional growth I'll turn it over to report to Doug Good morning, everybody.
Doug Good: It's a beautiful spring day here in Boston, and we have a pretty optimistic report that we're going to give you.
Owen Thomas: Owen described our views of the business environment and the current challenges that are associated with the constant dynamic changes in trade relationships in government efficiency.
Owen Thomas: My comments this morning will address what we're seeing in our results and our client interactions.
Owen Thomas: Our client purchase cycle may be a lagging indicator, but based on the first quarter leasing results. Both in our current pipeline of transactions under negotiation.
Owen Thomas: Our funnel of possible additional activity, we've seen very little impact on our 2025 plan.
Owen Thomas: Which calls for about 4 million square feet of leasing, but more importantly, including about 3 million square feet of leasing on vacant space and none in 2025 explorations, which is where our focus is.
Owen Thomas: <unk> square footage.
Owen Thomas: During the first quarter, we executed just over $1 1 million square feet, which is almost 35% more than our seasonal Q1 average over the last five years more importantly, the activity included 467000 square feet of leases on vacant space and 561000 square feet of <unk>.
Owen Thomas: 2025 known explorations.
Owen Thomas: This 1 million square feet of leasing activity on our near term exposure vacant space and twenty-five explorations will drive improvements to our occupancy over the next 12 to 18 months.
Owen Thomas: <unk> for 125, our current pool of leases in negotiation is one 1 million square feet. It covers an additional 435000 square feet of currently vacant space to.
230000 square feet of 25 explorations.
Owen Thomas: 90000 square feet up 26, and 27 expirations, which will lower our future exposure as well as our second lease at 725 12 Street.
Owen Thomas: We have another one 7 million square feet of active pipeline transactions, which could cover an additional million square feet of vacant space or 'twenty five explorations.
Owen Thomas: This would put us on our target for our full year 'twenty five vacant in 2025 expiring lease guidance of about 3 million square feet.
Owen Thomas: One of the influences from Owen's comments would seem to be enhanced caution from clients as they navigate uncertainty.
And we would be naive to think we won't see some impact but speaking to you today and has yet to be material.
Owen Thomas: Let me give you a few examples of current client behavior and.
Owen Thomas: An existing Boston client with a recent return to work mandate believed it needs additional seats, but it's being measured in its approach and waiting until there is clarity of use before they commit to more space.
Owen Thomas: And our Reston, Virginia portfolio, where we have an embedded base of defense and security clients.
Owen Thomas: Where does probably we would think had the most impact we're seeing renewals an incremental additional space needs not downsizing and canceled requirements.
Owen Thomas: As a government cant there is a government contractor in the market that wants to relocate a $50 to 60000 square feet block of space to the town center and at the moment, we are unable to accommodate them.
Owen Thomas: In Manhattan, we have one existing 11000 square foot client.
Owen Thomas: Its expansion plans on hold thing we wanted to watch how the financial markets evolve in the same building another 11000 square foot client in the same industry as negotiating for an 11000 square foot expansion.
The aggregate.
Owen Thomas: These conversations are consistent with what we were hearing in January 90 days ago.
Owen Thomas: As we discussed in January.
Owen Thomas: The expiration of 350000 square feet at 205th Avenue, coupled with about 150000 square feet of expirations in San Francisco CBD quarter.
Owen Thomas: Given SKU reduction to 86, 9%, a 60 basis point decrease from last quarter. However, we executed a lease for 244000 square feet of that now vacant space at 200 staff and expect occupancy in late 2006, and our pipeline of deal discussions covers more than 125000 square feet of our San Francisco.
Owen Thomas: CBD vacancy so were staying pretty level, the least in service portfolio stayed flat quarter to quarter at 89, 4%. So our leased but not yet commenced square footage has grown to 250 basis points or over one 2 million square feet over are occupied.
Owen Thomas: We're footage and.
Owen Thomas: And we expect about 800000 square feet to commence in 'twenty five with almost all the rest in 'twenty six.
Owen Thomas: We have a large pickup in our development leasing this quarter noticed page 15 of our supplemental where we signed up another floor at $3 60 Park Avenue South our second lease at 725 12 signed during the second quarter and we completed 162000 square foot lease at $10 50 Winter Street, resulting in a jump from 50.
Owen Thomas: Percent to 62% pre leased on our development pipeline.
Owen Thomas: 50 Winter Street was out of service and we had previously terminated all of the leases in order to reposition it as a life science building long story short a defense technology company that is currently occupying a 40000 square feet in the market approached us to lease the entire building for 15 years, and we made the decision to pivot back to.
Owen Thomas: The building is 100% pre leased and will be brought into service in Q3 dollars 25.
Owen Thomas: Office market conditions are consistent with our remarks last quarter with a possible exception that conditions are even tighter than our Midtown New York City portfolio.
Speaker Change: Bay of Boston in Reston, Virginia. What this means is that availability is sparse rents are increasing and concessions remain constant.
Speaker Change: We completed 91091 individual transactions this quarter 300000 in Boston 420000 in New York 350000 on the West Coast and 80000 square feet investing.
Speaker Change: The overall mark to market on a cash basis was up about 5% with an increase in Boston flat in New York and decreases on the West Coast and interesting.
Speaker Change: Other than the new lease at 250 and at $10 50 Winter no other transaction exceeded 40000 square feet.
Speaker Change: Our highlights in Bakken in the quarter were in the urban edge, where we did the 15 year lease at 10, 50 winter and a 39000 square foot lease at 180 City point last quarter I remarked that we were touring life science clients that had no lab infrastructure needs. While the first of these transactions was executed in the first quarter at 180 <unk>.
Speaker Change: In addition, we are in lease negotiations with a second client for another 40000 square feet at 180 City point.
Speaker Change: These life science companies are looking exclusively for office space as they focus their capital on acquiring derisked products that are in trials, rather than pure drug discovery, and therefore don't need lab infrastructure.
Speaker Change: The economics of doing it office transaction on raw space, even though the building was purpose built lab infrastructure in it are far superior to a lab transaction given the elevated tenant improvements necessary to compete in the markets. These tax hold in south San Francisco as well as greater Boston.
Speaker Change: In Manhattan. In addition to the new client of 205, we were able to do three separate 25000 square foot client expansions at the General Motors building 599, Lexington Avenue, and $2 50, West 55th Street.
Speaker Change: Our most significant Midtown availability today is at 510 Madison and we are in lease negotiations on four full floors.
Speaker Change: Taking rents in our Midtown properties are up double digits relative to year ago, and concessions are flat to slightly lower.
Speaker Change: Our availability in Manhattan is concentrated at $3 60 Park Avenue, South demand is picking up and there has been some improvement in small tech tenant inquiry.
Speaker Change: The most significant change in San Francisco over the last quarter has been the completion of some of the large transactions that were in the works. The total volume of leases in the market has settled at a lower level as there were fewer active larger requirements, but there are lots of potential clients under 50000 square feet working in the market today.
Many of the traditional office users have continued to rationalize their space, which has led to a little if any growth in the San Francisco CBD traditional demand to increasing incremental leasing is all about tenant relocations.
Speaker Change: We had one law firm move out how do you see at the end of 'twenty, four and two others renew but they contracted on a total of five floors are 125000 square feet. Each of the two renewals had one floor of give back.
Speaker Change: We've leased 120000 square foot floor in our lease and lease discussions for another 125000 square feet of vacant space.
Speaker Change: View space is in short supply, but spacing in the lower sections of buildings is available and competitive.
Speaker Change: Our new amenity center the mosaic the strong draw for new clients, considering Embarcadero Center.
Speaker Change: 2024, it was a terrific absorption here for the AI companies with more than 1 million square feet of positive absorption, we need to see this trend continue.
Speaker Change: AI is getting it gets a disproportionate share of all venture investing and more than 65% of it is going to San Francisco based companies. So the future bodes well.
Speaker Change: Before I conclude my remarks, I wanted to discuss tariffs as they relate to construction activities. We are currently bidding a multifamily project in Jersey City 290 holes to date.
Speaker Change: About 60% of the job has been bid and awarded and we are inside of our hard cost estimates by a few percentage points.
Speaker Change: Had one trade where the award bid necessitated a tariff upcharge the contract, including the tariff cost was still below our budgeted estimate for the subcontract, but it's going to add somewhere between one 5% and 4% for that particular trade.
Speaker Change: Given the overall slowdown in new construction, there seems to be enough subcontract contractor interest to offset potential tariff increases remember that construction is a composition of labor materials and profit.
Mike Labelle: While this is certainly a positive outcome for 290 Coles, it's too early to predict how U S tariff policy will impact our future development activity and with that I'll turn the call over to Mike.
Mike Labelle: Great. Thanks, Doug appreciate it.
Mike Labelle: Good morning, everybody.
Mike Labelle: Today I plan to cover our activity in the debt capital markets, which Owen described briefly is very significant which it was our first quarter earnings results and an update to our full year 2025 earnings guidance.
Mike Labelle: As you know the debt markets have experienced significant volatility over the past month.
Mike Labelle: Credit spreads have widened and the unsecured and secured bond markets, especially for lower rated credits spreads for stronger companies like us are no tightening again, but are still wider than earlier in the year.
Mike Labelle: Our 10 year bond spreads have increased by about 30 basis points and we could issue in the 10 year unsecured bond market at about 180 basis point spread today or a fixed rate right around 6%.
Mike Labelle: The Treasury market has also experienced large swings ranging almost 100 basis points this year.
Mike Labelle: Issuers need to pick their spots in this market.
Mike Labelle: Also can take advantage of the volatility when the market Dislocates.
Speaker Change: We were opportunistic a few weeks ago in the middle of the day with with dramatic swings in fed rate cut expectations, we swapped $300 million of floating rate debt for a year and a fixed slipper is 368% and locked in some savings.
Speaker Change: We continue to have open access to all of the markets and we are busy in the bank market the MBS and the commercial paper market this quarter.
Speaker Change: In the bank market, we increased and extended our corporate facilities, including increasing the borrowing capacity on our revolving line of credit by $250 million.
Speaker Change: The $2 2 billion and extending it for five years, we also extended our $700 million term loan for four years, plus one year extension options.
Speaker Change: And we closed $275 million construction loan practice, silver plus 250 basis points in the bag.
Speaker Change: The market for a new 290 call Street joint venture residential development in Jersey City.
Speaker Change: And the <unk> market, we closed the $252 million 10 year fixed rate refinancing of our loan on the Marriott headquarters building that we developed it priced at a fixed rate of five 5%, representing a credit spread of 124 basis points over the $4 two 6% 10 year treasury rate at the time of closing.
Speaker Change: We closed this loan prior to the recent disruption in the markets and the spread would likely be wider today.
Speaker Change: We remain in active commercial paper issuer and have increased our outstandings to $750 million.
Speaker Change: The CPE market is our cheapest source of debt capital spreads had been moving around a little in the last 30 days don't want a relatively reasonable 10 to 15 basis point range for US our portfolio is currently priced at a weighted average yield of 472%.
Speaker Change: Turning to our first quarter results our earnings came right in line with the midpoint of our guidance range and we reported <unk> of $1 64 per share as.
Speaker Change: As we look at the rest of 2025 here are a few items to consider.
Speaker Change: First and as we discussed last quarter, we have two larger explorations in the second quarter aggregating 465000 square feet in our urban edge portfolio in Boston, We expect our occupancy to decline slightly in Q2 before starting to increase in the back half of 2025 is our signed leases and our 2025.
Speaker Change: Leasing plans start to take occupancy.
Speaker Change: Second in our strongest markets of Midtown Manhattan, and the back Bay of Boston, we're creating transactions to increase future revenue, where we currently don't have available space as.
Speaker Change: As a result, we are taking back space early to complete long term leases with expanding our incoming clients.
Speaker Change: This quarter, we terminated two floors at 599 Lexington for this purpose and we're working on a floor at both the Prudential tower and at 200 Clarendon Street.
Speaker Change: These deals pulled forward downtime into 2025 in favor of starting new leases with higher rents in 2026.
Speaker Change: The new leases will be reflected in our leased percentage, but not an occupancy in 2025.
Speaker Change: We have taken a 360000 square foot building in the urban edge of Boston out of service. This quarter, we are relocating several clients into the other buildings in our portfolio.
Speaker Change: The building is extremely well located and we're evaluating multiple feasible future redevelopment plans.
Speaker Change: The impact is a shift in the NOI of this asset from our same property pool to our out of service portfolio.
Doug Linde: Also as Doug mentioned, we signed 160000 square foot lease at $10 50 Winter Street, we're completing a repositioning of the building and added it to our development pipeline with full occupancy projected in the third quarter of 2025.
Doug Linde: This deal component combined with leases signed at 180 City point, and 360 Park Avenue, South as well as faster than expected lease up at our Sky Mark residential development in Reston has resulted in our increasing our assumption for the contribution from our developments placed in service.
Doug Linde: So overall, we are narrowing our 2025 guidance range and maintaining our midpoint with a new range of $6 80 to $6 92 per share the changes in our guidance assumptions include an increase in the contribution of our same property portfolio of <unk> an increase in the.
Doug Linde: <unk> from developments placed in service of <unk> offset by a reduction of <unk> and NOI from our buildings out of service and minor changes to our net interest expense of one set.
Doug Linde: Leasing remains our biggest focus and we're delighted by another strong quarter of more than $1 1 million square feet of leasing in the portfolio or pipeline continues to build with $2 8 million square feet of signed letters of intent and active proposals, which represents an increase of 15% since our last call.
Doug Linde: Last quarter.
Doug Linde: These $2 8 million square feet, along with over one 2 million square feet of signed leases that have not yet hit our revenue and occupancy totaled 4 million square feet and it compares favorably to the $3 8 million square feet of lease expirations, we have through the end of 2026.
Doug Linde: This is what gives us confidence that we can grow our occupancy as we look ahead into 2026 and 2027.
Doug Linde: That completes our formal remarks, operator can you open the lines up for questions. Thank.
Speaker Change: Thank you Sir.
Speaker Change: As a reminder to ask a question you will need to press star one on your telephone to withdraw your question. Please press star one again.
Speaker Change: We ask that you. Please limit your questions to no more than one but feel free to go back into the queue as time permits we'll be happy to take your follow up question at that time.
Speaker Change: Please standby, while we compile the Q&A roster.
Speaker Change: And I show. Our first question comes from the line of Steve <unk> from Evercore ISI. Please go ahead.
Speaker Change: Yes, thanks, good morning.
Steve: Guess Owen or Doug as it relates to $3 43, Madison I mean, the commentary around the demand is quite good I realize the building does it maybe lend itself to pre leasing given the size of tenants, but like how are you sort of sizing up the start no start.
Steve: Pre lease and is this just a building where you kind of have to make the commitment to go forward get it under construction before you can really get any leasing and what kind of yield are you targeting on this building could you go forward.
Steve: Yeah.
Steve: Okay.
Steve: Sure.
Steve: 950000 foot.
Steve: We will not be I'll likely ask the property.
Steve: $15 15 range would be my guess.
Steve: Our.
Steve: First priority.
Yes.
Steve: Yes.
Steve: July with prospective going forward with the project.
Steve: Given that demand profile that I've described in my remarks, we have a lot of confidence in this property.
Steve: But we don't have to make that decision until July but thats. When we will have to make and then our.
Steve: Forecast yield or what we're trying to get on the property to 8%, which we think is appropriate given the higher interest rate environment that we're operating in.
Speaker Change: Can you just might want to comment so you've been part of every one of these presentations. We've done I think there is a significant amount of interest for organizations.
Speaker Change: 150 to 300000 square feet that actually would consider and are considering doing a pre commitment to this building.
Speaker Change: Yes, that's right we've had we've.
Speaker Change: We've had numerous conversations and multiple rounds of those conversations with some tenants about committing to the building which.
Speaker Change: At 150000 square feet is a little bit unusual usually those tenants are not looking for years out for their space, but it remains the case that very high quality space at scale and the Park Avenue and Plaza District, Submarkets is vanishingly rare and so those companies are willing.
Speaker Change: <unk> to sort of look ahead of time and stretched in terms of figuring out how to get into 343. So there has been a lot of interest from folks who are willing to commit on a pre lease basis.
Speaker Change: Okay.
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: Good morning, Doug you mentioned in your prepared remarks that the plan this year.
Speaker Change: For 4 million square feet of leasing, including 3 million square feet on vacant space and twenty-five explorations.
Speaker Change: Wanted to ask how confident you were in this plan and when you look at the explorations. This year you have about $1 9 million square feet expiring.
Speaker Change: So can we deduct that you're planning to grow occupancy by about 1 million square feet. This year I'm not sure how developments in first quarter activity it factors into this.
Jon: Yes sure. Thanks for the question Jon So so as of today.
Jon: Got about 1 million square feet of leasing on vacant 25 explorations and in my sort of pipeline of whats under negotiation today like leases that are being actually documented there's another 400000 square feet of quote unquote vacant space in 250000 square feet of 25 exploration. So net net we're actually on <unk>.
Jon: More than halfway there.
Jon: And again my pipeline of other activity is another million square feet of that type of space. So I.
Jon: I feel really good about our leased square footage percentage.
I say this with all due respect it's really hard for us to do.
Jon: Correlate leased with occupancy on a quarter by quarter basis, because we just don't know when that revenue is going to commence.
Jon: So if youre looking at our lease square footage, which is what I'm trying to point people to and that number is continuing to expand.
Jon: That is going to be where the revenue comes from and as I said the vast majority of what we're doing today is going to be in 'twenty five or 'twenty six.
Jon: So I am very confident of our occupancy build as we move into 'twenty six because all of the things. We're doing now will be in service by that.
Jon: It's very hard for me to say on 12, 31 2025, our occupancy is going to be X percent because I just don't know what the revenue recognition is going to require from us.
Jon: Thank you.
Speaker Change: And I show. Our next question comes from the line of Nick <unk> from Scotiabank. Please go ahead.
Jon: Thanks.
Jon: I guess, maybe just following up on the point on on how to think about occupancy and earnings impact through the year.
Mike Labelle: Can you maybe just frame out Mike.
Mike Labelle: Mike you gave the exploration thats known in the second quarter, but as we're thinking about all of this pipeline of activity that's either gotten done or do you feel like is going to get done.
Mike Labelle: And the impact for 2025 on NOI occupancy asset so how should we think about the earnings guidance range right now about <unk>.
Mike Labelle: What still needs to get accomplished to get to a.
Certain points on on the range for let's say occupancy in SSO. Thanks.
Mike Labelle: Look we narrowed our our range primarily because of the success that we have in our leasing.
Mike Labelle: The timing of some of those occupancy starts that we now know about.
Mike Labelle: So the bottom end of the range was lower we got a lot of leasing done. So we have a lot more confidence that the bottom end is better and we brought up the bottom end of our same store guidance as well.
Mike Labelle: Close to that.
Mike Labelle: Some of the top end of the range was related to.
Speaker Change: Let me start.
For leasing that we've done.
Speaker Change: Yes.
Speaker Change: Now in 2000.
Speaker Change: We've started in 2020, but we're doing deals or deals where we get the revenue back probably in 2020.
Speaker Change: Thanks.
Speaker Change: Yes.
Speaker Change: Back a little bit on the top end of our range primarily for that reason.
Speaker Change: Yeah.
Speaker Change: And the range.
Speaker Change: For guidance, we provide.
Speaker Change: Okay.
Speaker Change: The activity.
Speaker Change: And we've seen.
Speaker Change: Okay.
Speaker Change: One of the very latest.
Speaker Change: So meaningful.
Speaker Change: Understood.
Speaker Change: Mr <unk>.
Speaker Change: <unk>.
Speaker Change: Fabulous and great.
Speaker Change: So it's not convenient occupancy from 2011.
Speaker Change: We have another call it 50000 square feet of availability in that building, we're talking to two tenants right now one of the tenants we take the space immediately the other tenant will probably not take the space until 2026. So if on average the right. There is a 100 Bucks a square foot on a 100000 square feet right. That's a meaningful amount of dollars that is going to shift one way or the other and in.
Speaker Change: Therefore is why we have the range, where we have it and unfortunately, we just don't know until these leases are signed and we actually see what the condition requirements are of how we're delivering this space of which way we're going to go and is that sort of subtlety that sort of is why we're so I am still fixated on our lease square footage and not necessarily are our quarter to quarter.
Speaker Change: Occupancy.
Speaker Change: And the other transaction that I described in my notes and maybe I'll try to describe a little better as these four floors that we have in 599 in the back Bay.
Speaker Change: Where we have leases in place right that are expiring either the very end of 'twenty five or early in 2006. So we know those tenants are going right. So we're marketing that space now and we have live clients the need to expand or want to come into the building.
Speaker Change: So in order to get the dividend in 2000.
Speaker Change: Six.
Speaker Change: Something will be existing tenant that wants to leave in 2025.
Speaker Change: Good thing for us.
Speaker Change: Going forward revenue going forward.
Speaker Change: And some chips off the table in 2025.
Speaker Change: All of that.
Speaker Change: Great.
Speaker Change: Thank you.
Speaker Change: And I show. Our next question comes from the line of Ronald Camden from Morgan Stanley. Please go ahead.
Speaker Change: Hey, just a quick one we've been having a little bit of trouble hearing maybe it's just us but.
Ronald Camden: I guess I'd love to focus on one just trends on the ground in the life science market I think you've touched a little bit in your opening comments about that space, but you guys always have a pretty good perspective, just what are you seeing and what do you think it will take for that to turn around and then if I could ask a little bit of a follow up just on the Boston market overall.
Ronald Camden: <unk> job growth starts to slow there just what your thoughts there. Thanks so much.
Speaker Change: So let me answer the question on life Science first.
Speaker Change: I would say that we have seen very little in the way of new requirements for raw life science space and either South San Francisco or in the greater Boston, Waltham, Lexington market, which is where we have our space.
Speaker Change: We are seeing as I described earlier life science.
Speaker Change: Organizations that want office space looking at our portfolio and greater Waltham in a meaningful amount and so I would not be surprised if we have leased well over 100000 square feet of life science client demand, but not lab space in our Waltham marketplace in too.
Speaker Change: 25.
Speaker Change: Things are actually slightly more extensive and more robust and I use that word subtlety pardon.
Speaker Change: Pardon me.
Speaker Change: A pickup in demand.
Speaker Change: The greater Boston market and it is.
Speaker Change: With the marketplace.
Speaker Change: The issues associated with follow up quote unquote.
Speaker Change: And to the health and human services World and how thats impacting potentially.
Speaker Change: New therapies are going to be regulated by the FDA.
Speaker Change: Thanks, a lot.
Speaker Change: Ladies and gentlemen, please continue to hold your conference call will resume momentarily.
Speaker Change: Please continue to hold your conference call will resume momentarily okay. We're back.
Speaker Change: I think you hear US, yes, I can't allowing Clark you may for so and then.
Speaker Change: Your question on Boston is relative to just overall.
Speaker Change: <unk> quote demand growth and job growth.
Speaker Change: I'll, let Brian handle that one yes, I think the.
Speaker Change: Key for Boston, right now, especially in our.
Speaker Change: Urban edge portfolios momentum that Doug.
Speaker Change: And both Bravo and I can't say this is a huge trend yet, but we are seeing in a couple of deals that we were able to land in this first quarter. They were transactions that were heading some other place, but needed capital, which the building wasn't.
Speaker Change: To supply, we're seeing more of that because of capital stack issues and a lot of the existing product out there and then also flexibility that Doug mentioned on that one defense contractor transaction, where we were able to pivot from life Science development that we had for that building laid out to the office use.
Speaker Change: Especially it's used for this defense contractor, so flexibility and capital are really there.
Speaker Change: B something thats getting noticed by the tenant rep community in a bigger way, we will see how big of a trend that is but it's certainly helping us to get deals transacted.
Speaker Change: Thank you.
Speaker Change: And I show. Our next question comes from the line of Anthony Pallone from Jpmorgan. Please go ahead.
Speaker Change: Alright, thank you.
Speaker Change: Can you talk about your west coast leasing activity and what Youre seeing there as it relates to strengths and weaknesses by either tenant type or sub market and anything that's changed in the last couple of months, yes. So I'll make a brief comment and then I'll turn it over to Rod.
Rod: My view is that as I said earlier, the large users have all sort of landed.
Rod: And there is a significant amount of embedded tenants in the market, but they're all of a smaller nature and for the most part the financial services legal professional services are incrementally either staying in place or seeing a modest amount of space reduction still.
Rod: But there are quite a few what I would refer to as early stage and smaller.
Rod: AI and other technology companies that are in the market looking for space.
Doug: Yes, I think that's right Doug.
Doug: Mostly what we are busy with right now with the leasing, particularly at Embarcadero Center has been with a lot of the law firms. Other other financial firms that are in the market and these are relocations generally.
Doug: So that's very active that theres been a lot of them and it's contributing to the volume that you've seen coming out of the west coast.
Doug: On the AI front.
Doug: Still meaningful and I think it's important to note that the footprint of AI companies in San Francisco now has over 5 million square feet.
Doug: And so theres a lot of companies that are that are out poking around and again named so we haven't heard others have not heard of in the past are showing up and taking space and it is encouraging and so I think that we're going to continue to see that.
Doug: We are seeing I'd say, a little bit less of that down in Silicon Valley.
Doug: Been a little bit slower down there, but there's still I think a few more larger requirements that have hit our radar in the last month or so which is good.
Doug: Thank you.
Speaker Change: And I show. Our next question comes from the line of Blaine Heck from Wells Fargo. Please go ahead.
Speaker Change: Great. Thanks. Good morning can you talk about leverage and funding a little bit more debt to EBITDA ticked up to eight three times on your numbers this quarter, which is higher than the run at historically I guess, how are you thinking about your comfort there given the additional projects you are taking on and any thoughts on near term moves to bring that down.
Speaker Change: Down or should we just expect you to kind of wait in anticipation of natural downward movement in that metric as developments come online and with potential occupancy upside.
Speaker Change: So the.
Speaker Change: First quarter leverage went up a little bit and it was kind of exacerbated by the seasonality of the first quarter.
Speaker Change: So our DNA is much higher in the first quarter than it is for the rest of the year.
Speaker Change: So that was a big reason because the EBITDA for the first quarter is just lower and you annualize it and it makes a big difference. So if you kind of normalize for that.
Speaker Change: It was more like seven nine so it still did go up from $7 six 5% to seven nine and I would expect that it's going to continue over the next several quarters to move up as we fund the development pipeline.
Speaker Change: Then when.
Speaker Change: <unk> hundred 90 <unk> delivers.
Speaker Change: In.
Speaker Change: The second quarter or third quarter of next year mid next year, we're going to get a lot of income coming in.
Speaker Change: We also have lease.
Speaker Change: Leasing continuing on the other parts of our development pipeline that will bring income in so I would say it would be moderating after that from a funding perspective.
Speaker Change: We continue to use incremental debt today.
Speaker Change: Today, which is why youre seeing the leverage to move up a little bit.
Speaker Change: We continue to view that once our pipeline delivers our leverage will go down from here.
Owen Thomas: And then as Owen described we are looking at.
Owen Thomas: Monetizing non income producing real estate zone mentioned $250 million of land transactions, we're working on.
Owen Thomas: Where we could execute and sell those assets over the next couple of years.
Owen Thomas: We're going to continue to look at opportunities like that.
Owen Thomas: To assist us with funding.
Owen Thomas: And then we will also look at private equity sources.
Owen Thomas: If we need to do.
Owen Thomas: Spending on where our stock price goes public equity sources. It just depends on where that is as well as incremental debt in order to fund additional investments that we may have.
Owen Thomas: This would make one last comment which is that 290 Binney Street from a cash perspective is going to be online in less than a year. So we may not be recognizing revenue, but the cash is going to be there. So effectively on a true basis. Our EBITDA is going to start coming down in a meaningful way when that happens and I believe thats late April of 2026, so even though.
Owen Thomas: Quote unquote occupancy may not Kurt from a revenue recognition perspective, the cash is going to be up.
Owen Thomas: Okay.
Owen Thomas: Thank you.
Speaker Change: And I show. Our next question comes from the line of Jana gallon from Banc of America Securities. Please go ahead.
Jana gallon: Thank you good morning.
Speaker Change: Just wanted to congratulate you on the refinancings and financings completed in <unk> in the market timing I guess, given the capital Marlin capital markets volatility in the last month.
Speaker Change: Or you think DXP can issue unsecured debt <unk> and <unk> pricing would look like today.
Speaker Change: Look as I mentioned in my call that the bond market for US has widened and now it's coming back so things are kind of settling down a little bit in the bond market over the last week or two I would say.
Speaker Change: So our bond spread.
Speaker Change: In early April they moved out 50 basis points and now they're up 30 basis points. So they are settling in and I think for stronger credit.
Speaker Change: Spread widening is less than when you get out into high yield the spread wedding at significantly wider so thats in the unsecured bond market and I think the same thing is in the <unk> market.
Speaker Change: High quality lower leveraged.
Speaker Change: Deal can get done.
Speaker Change: And.
Speaker Change: Higher leveraged stuff is going to be tough and AAA is.
Speaker Change: See MBS widened pretty dramatically so they had gotten too.
Speaker Change: 100 basis points or less they went out to 250 basis points.
Speaker Change: And now they're back below 200 basis points. So there's just been a lot of volatility. So again I think people have to think about timing and be prepared.
Speaker Change: In advance.
Strike when that market is good.
Speaker Change: And again I mentioned, the commercial paper market, which is also a live market that we're in every day and theres been a little bit of widening there.
Speaker Change: But again, it's kind of settled down so I would say things are improving right now we could issue 10 year unsecured debt at 6%.
Speaker Change: On the <unk> market is really dependent on I would say, it's more asset specific.
Speaker Change: I think if you have a 50% leveraged high quality loan with good weighted average lease term.
Speaker Change: Probably get it done.
Speaker Change: The low to mid twos.
Speaker Change: So over probably the five year I would say tenure is harder to come by.
Speaker Change: Thank you.
Speaker Change: And I show. Our next question comes from the line of Seth <unk> from Citi. Please go ahead.
Speaker Change: Hi, Good morning, Thanks for taking my question I just wanted to ask a quick question about your.
Speaker Change: In service portfolio occupancy guidance that looks like reservoir place in Rosslyn Center.
Were kind of taken out in 651 gateway.
Speaker Change: Wasn't added this quarter kind of what are the puts and takes there and are there any changes that we should be thinking about there as it relates to kind of.
Speaker Change: The NOI run rate kind of going forward.
Speaker Change: So we talked about rest of the corporate center last quarter. So thats a building that was a 100% leased at the end of the year.
Speaker Change: The tenant vacated we knew they were going to vacate.
Speaker Change: And it's the location for us too.
Speaker Change: Build the next phase of Reston Town Center, which is 3 million square feet of density.
Speaker Change: So thats been in the works for years.
Speaker Change: We have the density approved.
Speaker Change: And we will be working over the next few years trying to make some of that development a reality.
Speaker Change: Reservoir place.
Speaker Change: The asset I mentioned on.
Speaker Change: In my remarks, which was one building in the urban edge of Boston.
Speaker Change: It's.
Speaker Change: You know an older office building incredibly well located great visibility and we think there is likely a better utilization for that real estate potentially.
Speaker Change: So we elected to start to move some of the clients that were in there into other buildings in our portfolio somewhat to the CBD similar to other urban edge assets.
Speaker Change: And we've just elected to take it out of service and that was.
Speaker Change: 360000 square foot building and it had I think 220000 square feet of vacancy.
Speaker Change: At the end of the quarter.
Speaker Change: As I said, we're relocating tenants out of it.
Speaker Change: There is a couple of other buildings that we are considering pulling out of service out of suburban buildings.
Speaker Change: That total somewhere between 250 and 300000 square feet.
Speaker Change: That are vacant today.
Speaker Change: We could take out of service.
Speaker Change: And then the development pipeline, which is coming into service includes 651 gateway.
Speaker Change: 360 Park Avenue South.
And rest in.
Speaker Change: Next block P and so all of those will get added we believe sometime in 2025.
Speaker Change: So it's 651 gateway, we're kind of taking the lead from our partner and when they deliver that.
Speaker Change: But if all of those deliver and Theres no additional occupancy that would add somewhere between 50 and 70 basis points to the vacancy on the headlines.
Speaker Change: Yes.
Speaker Change: Thank you.
Speaker Change: And I show next question comes from the line of Alexander Goldfarb from Piper Sandler. Please go ahead.
Alexander Goldfarb: Hey, good morning.
Speaker Change: Mike just Doug just going back to the discussion on the uncertainty over when tenants take occupancy.
Alexander Goldfarb: The initial outlook call back in I guess it was January early February.
Alexander Goldfarb: Yes.
Alexander Goldfarb: Discussion was of a steep.
Alexander Goldfarb: <unk> ramp in the back half of this year based on how the occupancy trends were going and.
Alexander Goldfarb: Tenants, taking space do you still feel comfortable that we will see this.
Alexander Goldfarb: Ramp up in the back half of the year or because of what you were talking about as far as uncertainty over when tenants may take space that ramp up.
Alexander Goldfarb: Actually be pushed to 'twenty six versus seeing it in the back half of this year.
Alexander Goldfarb: I mean, Alex I think it'll be both right. So if you look at our the midpoint of our guidance right and you look at what the <unk> needs to be in the third.
Alexander Goldfarb: The remaining quarters.
Alexander Goldfarb: The second quarter is going to be impacted in a little bit of a negative way.
Alexander Goldfarb: Although it's up a little bit primarily because G&A is lower but the third and fourth quarter is going to be up pretty meaningfully and a lot of that is coming from occupancy that is occurring on leases that we've either already signed or we are signing.
And so that's going to be coming in through the through the same store primarily primarily so that's why the the if you just look at I think we're about 66 in the second quarter by 64 in the first quarter, we got to average like $1 78 or something in the other three quarters.
Alexander Goldfarb: In the third and fourth quarter.
Alexander Goldfarb: That's coming from that ramp up.
We're seeing.
Alexander Goldfarb: Thank you.
Speaker Change: And I show. Our next question in the queue comes from the line of Tayo Okusanya from Deutsche Bank. Please go ahead.
Alexander Goldfarb: Okay.
Tayo Okusanya: Hi, Yes. Good afternoon. Thank you good morning, Thanks for taking the time.
Alexander Goldfarb: Doug.
Alexander Goldfarb: It seems like there's been a lot of focus and just.
Alexander Goldfarb: So still an economy and kind of what it could mean to your numbers.
Alexander Goldfarb: And the expectation of a ramp up in the back half, but could you talk.
Alexander Goldfarb: What about potential opportunities to add to the EBITDA guidance and what could be some of those kind of factors.
Alexander Goldfarb: Okay.
Alexander Goldfarb: Yes.
Alexander Goldfarb: I want to make sure I heard you right.
Alexander Goldfarb: Just to answer your question again, because there was a little blurry.
Alexander Goldfarb: Yes.
Alexander Goldfarb: Again on the call we talked a lot about potential risks to you.
Alexander Goldfarb: Number is accelerating in the back half with the slowing economy or client has taken a little bit longer to make decision I'm curious as far as the flip that around and kind.
Alexander Goldfarb: To hear from you in terms of opportunities, where you could actually have better numbers on what would kind of drive some of that yes. So that.
Simply put.
Alexander Goldfarb: Increasing the amount of leasing that we're doing on vacant space, where we're able to recognize the revenue more quickly is going to will drive that and so.
Alexander Goldfarb: We have again a lot of opportunities in both our Manhattan portfolio, which is obviously, where the most strength is in.
Alexander Goldfarb: And that includes five Madison Avenue, and at 350 Park Avenue South.
Alexander Goldfarb: And then at our Embarcadero Center portfolio in San Francisco, which again, where we have opportunities for meaningful increases in occupancy those areas will be aware, if we have outsized performance for our leasing in 2025.
Alexander Goldfarb: They will come from.
Alexander Goldfarb: And again, we have yet to see any signs of duress or.
Alexander Goldfarb: Or hesitancy in either of those markets to date not to say that it won't happen.
Alexander Goldfarb: It's a macro economists are calling for negative GDP growth in recession, and all kinds of things like that again in our behavior of our client interactions, we're not witnessing that yet.
Alexander Goldfarb: Thank you.
Speaker Change: And I show. Our next question comes from the line of Bill and present, a ski from Green Street. Please go ahead.
Speaker Change: Good morning, guys. Thanks for taking the question just sort of wanted to go back to some of the comments on a lot of your west coast markets, and particularly Youre still seeing tenants rationalize or downsize space, particularly amongst.
Speaker Change: The legacy larger big Tech companies. However, Meanwhile, in certain markets like New York, where Youre seeing Google renew a lot of their space Youre seeing Amazon take down new expansion aerospace. So clearly there is some appetite for space across their footprints in markets outside the West coast. So I guess, just as you think about it and speak with these tenants as Steve with brokers and whatnot.
Speaker Change: At what point of the downsizing cycle for a lot of these tenants in the West Coast do you think where do you think.
Speaker Change: They still have another 20%, 30% of those folks get back or you think it's going to be more incremental from this point on so I'm going to I'm going to I'll.
Speaker Change: I'll start the question or the answer and I'll, let rod deal.
Rod: Comment on what's going on in here.
Speaker Change: And.
Speaker Change: In the West Coast, and then I'll, let Larry talk about the contract in New York.
Speaker Change: So my comment would be.
Speaker Change: You have to separate what's going on in the CBD of San Francisco from a downsizing to what's potentially going on down in the Silicon Valley.
Speaker Change: Or the peninsula, However, you want to describe it.
Speaker Change: There is that there is a very different place.
Speaker Change: I think that Youre seeing de Minimis, if any significant.
Speaker Change: Increases in sub leasing or terminations of lease upon exploration in greater CBD, San Francisco today, but you are seeing.
Speaker Change: This is a meaningful amounts of space from technology companies that over overall in the greatest Silicon Valley are still available and could be made available.
Speaker Change: And my guess is if you ask that once some of the large tech companies if they could rationalize more space the answer would probably be yes.
Speaker Change: So so I think that's sort of the big picture perspective, and then in the city of Manhattan.
Speaker Change: I think it's a little bit more subtle we have some organizations that are growing significantly and then we have some that are I'd say remaining status quo, but not necessarily downsizing.
Speaker Change: Rob I'll, let you go first and then I'll ask Hillary for her remarks.
Rob: Yes, Thanks, Doug I think it's a good observation that some of these legacy larger tech companies that are based in the Bay area. While they may have excess space in the Bay area are still very active in other markets I mean, as we talked to our clients in that sector. We're hearing that.
Rob: I think in the Bay area, what you've got is when you look at the big firms that are based here. They have a lot of owned space. In addition to the leased space space and I think youre seeing them.
Rob: Each one of them with a little bit of a different story, but there.
Rob: In their own way consolidating into there.
Rob: Premier workplaces, if you will that they have taken maybe spaces and the anticipation of growth that maybe are not at the quality. They want and so those are the spaces. They are putting on the market for sublease and.
Rob: Folding back into their core better properties and so.
Rob: So I think in the Bay area at least those firms still do have some excess capacity and we're going to have to work through that in the supply you see that in the statistics.
Rob: But I think thats.
Rob: That's what I would say with the firms that are based in the bay area in particular.
Rob: Rob.
Speaker Change: More of a peninsula Silicon Valley issue that a city of San Francisco as you're right.
Speaker Change: Yes, I mean, I think there are some examples of that in San Francisco, but it's mostly down in the valley.
Speaker Change: With the largest firms that are down there and again each one of them kind of has their own story, but.
Speaker Change: There's probably more of that space down in the valley and I'm talking excess capacity.
Speaker Change: Sublease space than there is in San Francisco.
Speaker Change: And then Hillary your view on what's sort of going on with large tech in Manhattan.
With large tech in Manhattan.
Speaker Change: Specifically on Tech I would say that the.
Speaker Change: Large tech is stable at this point, we've heard that.
Speaker Change: This matter has taken some space that they were planning to sublease to off the market and will be occupying that themselves in hudson yards.
Speaker Change: You referenced the Amazon transaction, that's obviously a positive for that building in absorption.
Speaker Change: <unk>.
Speaker Change: We're also starting to see more activity in the smaller tech space.
Speaker Change: And then around Midtown South and so that has been a net positive because most of the big leasing thats been done in that sub market.
Speaker Change: But then by more traditional type tenants coming out of Midtown proper so.
Speaker Change: As it pertains to Tac I'd say, New York feels stable and.
Speaker Change: We are starting to see some green shoots on the leasing front and more broadly speaking in terms of downsizing and <unk>.
Speaker Change: <unk> is expanding if I could just get one take up all the leasing activity that is the New York region did in the first quarter, which was.
Speaker Change: Just over 398000 square feet.
Speaker Change: 7000 square feet with a straight renewal and everything else with either a new tenant or an expansion. So if that gives you a sense of the pressure of demand in New York I thought that was a pretty interesting statistic.
Speaker Change: Just one additional thing for <unk>.
Speaker Change: Boston both tech.
Speaker Change: Conventional clients, whether it's low or finance is that we are seeing.
Speaker Change: Trend, where there is an adjustment being made as people understand their workforce needs greater there was a undershot in other words not enough space allocated for focused work and there was maybe extra collaboration space Thats, all getting used but we're hearing from several clients.
Speaker Change: Both of those sectors Tech conclude that hey, we undershot the focused work areas and they're needing to add on that so we'll see how the formula terms out and whether thats, a big nice absorption issue for us, but it is definitely happening where they start to get a greater handle on the percentages of workspace.
Speaker Change: Thank you.
Speaker Change: And I show. Our next question comes from the line of Brendan Lynch from Barclays. Please go ahead.
Brendan Lynch: Great. Thanks for taking my question I wanted to follow up on.
Brendan Lynch: Your comments around pulling forward some explorations to redevelop assets.
Brendan Lynch: It sounds like the specifics of those redevelopment projects are still under consideration.
Brendan Lynch: Can you just talk about.
Brendan Lynch: When that might be finalized and when the actual development process might be able to begin.
Brendan Lynch: So that is a that is a very fluid.
Brendan Lynch: Entitlement and user.
Brendan Lynch: Equation that has to sort of get resolved so as an example.
Brendan Lynch: Brian and his team in Boston are at the moment and having a conversation about a piece of the existing office space that they're thinking they might be able to get zoned for a meaningful amount of multifamily right as those that conversation sort of moves forward theres a jurisdiction theres a state their transportation issue.
Brendan Lynch: All of that sort of has to get resolved in these these are time consuming processes. So it's very hard to sort of give you a a short duration deep for that stock unlikely any of it will be actively in development in 2025, but opportunities for some of the stuff that really.
Brendan Lynch: Start to commence in 2026 and government right now.
Speaker Change: Thank you.
Speaker Change: And I shared on our last question in the queue comes from the line of Peter Abramowitz from Jefferies. Please go ahead.
Speaker Change: Yes. Thanks for taking my question I just wanted to ask about 125 Broadway I believe Biogen announced theyre going to be moving to a new development elsewhere in Cambridge, maybe you have until 2008 two.
Speaker Change: To address that but just curious about kind of the asset whether you think it needs any repositioning or whether it's something that you think you can just released kind of as is and.
Speaker Change: How much of that space as traditional lab space versus office.
Speaker Change: Thinking about positioning that for potentially a new tenant yes. So I'll just describe what the building is and I'll, let Brian described the market. So 125 Broadway.
Speaker Change: As a true lab building, which is predominantly lab infrastructure and it's been the home of Biogen for.
Speaker Change: 30 plus years.
Speaker Change: And the building has been re invested by Biogen, but I am sure when Biogen moved out if in fact, they are moving out and they haven't told us they are moving out but there is a presumption that theyre moving out.
Speaker Change: There will be some amount of work that needs to get done to rethink the system in the building, but it's likely going to continue to be a life science building.
Speaker Change: Yes, they were.
Speaker Change: Going with the assumption is.
Speaker Change: That would be moving out however, they have told us that they are still assessing their needs.
Several of those needs are specialized uses within that particular building and determining whether or not in fact, it can go to the next phase, but in terms of that being in the cluster that we've got there.
Speaker Change: That building back we'd be highly confident in that as a product.
Speaker Change: But we are talking to Biogen about third.
Speaker Change: Portfolio needs, there, which we've had there for 40 years, so there's a lot of fluidity to it.
Speaker Change: Thank you.
Unidentified Operator: I'm showing no further questions in the queue at this time that concludes our Q&A session. At this time I would like to turn the call back to Owen Thomas for closing remarks.
Speaker Change: No further remarks, thank all of you for your attention and interest in DXP.
Yeah.
Speaker Change: Thank you. This concludes today's conference call. Thank you for participating you may now disconnect good day.
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: [music].
Okay.
Speaker Change: [music].
Speaker Change: So.
Speaker Change: Dan.
Speaker Change: [music].
Speaker Change: Yes.
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: Okay.
Speaker Change: Yes.
Speaker Change: [music].
Speaker Change: Yes.
Speaker Change: [music].
Speaker Change: Yeah.
Speaker Change: [music].
Speaker Change: Yes.
Speaker Change: <unk>.
Speaker Change: Hum.
Speaker Change: [music].
Speaker Change: Yeah.
Speaker Change: [music].
Speaker Change: Yes.
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: Okay.
Speaker Change: Okay.
Speaker Change: [music].
Speaker Change: Sure.
Speaker Change: Okay.
Speaker Change: [music].