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Good day, and thank you for standing by. Welcome to the Q4 2025 BXP Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker, Helen Han, Vice President, Investor Relations. Please go ahead.

Good morning, and welcome to BXP's Fourth Quarter and Full Year 2025 Earnings Conference Call. The press release and supplemental package were distributed last night and furnished on Form 8-K. In the supplemental package, BXP has reconciled all non-GAAP financial measures to the most directly comparable GAAP measure in accordance with Reg G. If you did not receive a copy, these documents are available in the Investors section of our website at investors.bxp.com. A webcast of this call will be available for 12 months. At this time, we would like to inform you that certain statements made during this conference call, which are not historical, may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act. Although BXP believes the expectations reflected in any forward-looking statements are based on reasonable assumptions, it can give no assurance that its expectations will be a 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 in BXP's filings with the SEC. BXP does not undertake a duty to update any forward-looking statements. I'd like to welcome Owen Thomas, Chairman and Chief Executive Officer; Doug Linde, President; and Mike LaBelle, Chief Financial Officer. During the Q&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 to please limit yourself to 1 and only 1 question. If you have an additional query or follow-up, please feel free to rejoin the queue. I would now like to turn the call over to Owen Thomas for his formal remarks.

Thank you, Helen, and good morning to all of you. BXP had a very strong year of performance in 2025 in all areas critical to our business, namely leasing, asset sales, development starts and deliveries, financing and client service, notwithstanding our below reforecast FFO per share outcome for the fourth quarter. We remain on track, if not ahead, in executing the detailed business plan we outlined for shareholders at our investor conference last September. This morning, I'll review our progress toward achieving the critical components of this plan, which are leasing and growing occupancy, asset sales and deleveraging external growth primarily through new development, capital raising for 343 Madison Avenue and increasing focus on urban premier workplace concentration. Though Doug will provide details on BXP's leasing activity, in summary, we had a strong fourth quarter and full year of leasing and our forecast occupancy gains have commenced. We completed over 1.8 million square feet of leasing for the fourth quarter and over 5.5 million square feet for the full year 2025, well above our goals for the year. As we've explained on prior calls, leasing activity is tied to both our clients' growth and use of their space. We have every reason to be confident that the positive environment we are experiencing for leasing will continue into 2026 as earnings for companies in both the S&P 500 and Russell 2000 indices, a proxy for our client base are expected to grow at double-digit rates, an acceleration above 2025 growth levels. Return to office mandates from corporate users continue to grow and take effect. Placer.ai's office utilization data indicates December 2025 was the busiest in office December since the pandemic and showed a 10% increase in office visits nationwide from December 2024. Concerns and speculation about the impact of AI on job growth and by extension leasing activity are not supported by the actions of our clients, many of which are growing their footprints, upgrading their space, and/or executing long-term leases. In fact, we're experiencing accelerating demand from AI companies, particularly in the Bay Area in New York City. The near-term negative impacts of AI on jobs are more likely in support functions, which are generally not occupying premier workplaces. Providing further support for our leasing activity is the consistent strength and outperformance of the premier workplace segment of the office market where BXP is a market leader. Premier workplaces represent roughly the top 14% of space and 7% of buildings in the 5 CBD markets where BXP competes. Direct vacancy for premier workplaces in these 5 markets is 11.6%, 560 basis points lower than the broader market, while asking rents for Premier Workplaces continue to command a premium of more than 50% over the broader market. Over the last 3 years, net absorption for Premier Workplaces has been a positive 11.4 million square feet versus a negative 8 million square feet for the balance of the market, which is nearly a 20 million square foot difference. Given these positive supply and demand market trends and our strong leasing in 2025, we believe our target of 4% occupancy gain over the next 2 years remains achievable and more likely than when we made the forecast last September. Our second goal is to raise capital and optimize our portfolio through asset sales. During our Investor Day, we communicated an objective to sell 27 land, residential and nonstrategic office assets for approximately $1.9 billion in net aggregate sale proceeds by 2028. We are off to a strong start. So far, we've closed the sale of 12 assets for total net proceeds of over $1 billion, $850 million in 2025 and $180 million this month. In addition, we have under contract or agreed to terms the sale of 8 assets with estimated total net proceeds of approximately $230 million in 2026. In total, we have 21 transactions closed or well underway with estimated net proceeds of roughly $1.25 billion. As of now, dispositions estimated for 2026 aggregate over $400 million, and we will be exploring additional sales. For the $1 billion in dispositions that have been closed, there are 7 land sales for $220 million, 2 apartment sales for $400 million and 3 office lab sales for $400 million. We have been able to achieve attractively valued land sales by creatively positioning our office land for other uses. To date, we have sold or are in the process of selling land to a corporate user, a municipal user, a light manufacturing developer, a utility and most importantly, developers for residential use, both apartments and for-sale townhomes. Across Lexington, Waltham and Westin Massachusetts, Montgomery County, Maryland, Fairfax County, Virginia, Santa Monica, California and West Windsor Township, New Jersey, we have received or are pursuing entitlements for over 3,500 residential units which is creating significant value for shareholders and will be the backbone of both our apartment development and land sales activity going forward. We sold 2 high-quality apartment buildings, which we built in Reston Town Center in Cambridge, Massachusetts for approximately 4.6% cap rates both were profitable developments for BXP. Lastly, on office sales, we elected not to participate in a debt restructuring at Market Square North and sold our interest to our partner for our share of the existing debt balance. We sold 140 Kendrick Street, our only asset located south of the I-90 interchange on Route 128 in suburban Boston at a relatively high cap rate of 9.5%. However, we maximized its income potential, having leased the building to 96%, and the local market is not strategic to BXP given our lack of scale. Lastly, we sold our 50% interest in Gateway Commons to a strategic buyer that has significant scale in South San Francisco for a 6.2% cap rate and the property is 63% leased. Though we think South San Francisco is an attractive life science market longer term, given high vacancy rates and low net absorption, it will take some time to capture the upside and we received a reasonable price from a logical buyer. With this deal, we have exited the Life Science business on the West Coast, but remain committed to the sector through our substantial life science holdings in the Boston region. Supporting our disposition efforts, office transaction volume in the private market continues to improve as more equity investors become constructive on the sector, and financing is available at scale, particularly in the CMBS market, with tightening credit spreads. In the fourth quarter, Significant office sales were $17.3 billion, which is up 43% from the third quarter of 2025 and up 21% from the fourth quarter of the prior year. The transaction most relevant to BXP's portfolio that occurred in the fourth quarter was the sale of a 47.5% interest in 101 California Street in San Francisco, for a 5.25% cap rate and $775 a square foot. The building is a market leader in San Francisco, comprising 1.25 million square feet and is 88% leased with attractive property level financing through 2029. The third goal is to grow FFO through new development selectively with office given market conditions and more actively for multifamily with an equity partner. For office, we continue to allocate more capital to developments than acquisitions because we're finding very high-quality development opportunities with pre-leasing that we believe will generate over 8% cash yield upon delivery, which is roughly 150 to 250 basis points higher than cap rates for debatably equivalent quality asset acquisitions. Additional advantage as new buildings generally have longer weighted average lease term and limited near- and medium-term CapEx requirements. The trade-off is timing as developments obviously takes several years to deliver. This past quarter, we created a second preleased premier workplace development in the Washington, D.C. CBD market. Following our success at 725 12th Street, we were approached by Sidley Austin to find them a new Washington, D.C. headquarters. We identified 2100 M Street as an attractive site with frontage on New Hampshire Avenue and 21st Street. We simultaneously negotiated a purchase of this site for $55 million or $170 a square foot and executed a 15-year lease for 75% of the to-be built not yet designed 320,000 square foot premier workplace. The total development budget is estimated to be approximately $380 million, and the forecast unleveraged cash yield upon delivery is in excess of 8%. Though we have closed on the site, construction will not commence until 2028 and building delivery is expected in 2031. For multifamily, we have 3 projects with over 1,400 units under construction and are in various stages of entitlement and/or design for 11 projects totaling over 5,000 units, one of which will commence in 2026. We expect to continue to capitalize new development starts with financial partners owning the majority of the equity. We continue to advance our development pipeline with 8 office, life science, residential and retail projects underway, comprising 3.5 million square feet and $3.7 billion of BXP investment. We expect these projects will deliver strong external growth both in the near term with the delivery of 290 Binney Street midway through the year and over the longer term. Our final goal is to introduce a financial partner into 343 Madison Avenue, our leading premier workplace development in New York City, given its location with direct access to Grand Central Terminal and state-of-the-art design and amenities. We finalized a lease commitment with Starr for 29% of the space in the middle bank of the tower and are negotiating a letter of intent for another 16% of the building located just above Starr. We have committed to nearly 50% of the construction costs and our projections remain on track for a stabilized unleveraged cash return of 7.5% to 8% upon delivery in 2029. We are in discussions with several potential equity partners for a 30% to 50% leverage interest in the property and also have had constructive discussions with several construction lenders for financing at attractive terms. Our leasing, construction and capital markets execution continues to derisk the 343 Madison investment, and we intend to complete this recapitalization in 2026. We are making strong progress with our strategy for BXP to reallocate capital to premier workplace assets in CBD locations. We recently launched new developments at 343 Madison Avenue in New York City and 725 12th Street in Washington, D.C. We plan to launch construction of 2100 M Street in 2028 and the majority of the office and land assets we are selling are in suburban locations. We continue to evaluate additional premier workplace development and acquisition opportunities but remain disciplined about quality, pricing, and the result in leverage and earnings impacts. In conclusion, our clients are, in general, growing, healthy and more intensively using their space, creating increasingly positive leasing market conditions concentrated in the premier workplace segment of the market. New construction for office has virtually halted leading to higher occupancy and rent growth in many submarkets where BXP operates. Debt and equity investors are becoming constructive on the office sector, resulting in more availability of capital at better pricing. BXP is very much on track executing our business plan as outlined last September, which we believe will deliver both FFO growth and deleveraging in the years ahead. And I'll turn it over to Doug.

Thanks, Owen. Good morning, everybody. So filling in some details on our leasing progress. When we made our presentations at our Investor Day, we had all of our regional executives on the dias and they described a very constructive and an improving environment for our portfolio across each of our markets. Our remarks last quarter reinforced that outlook. Our leasing results this quarter continue to affirm the sentiment. As you read last night, the fourth quarter total leasing volumes were strong and exceeded our expectations, and our occupancy jumped about 70 basis points, with about 35% of that gain stemming from improvements in the portfolio leasing and the other parts from reductions to the portfolio size, aka, the asset sales. We are excited to announce our new development leasing and those investments are going to drive net operating income growth from 29% to 32% but we are in the here and the now. It's our in-service vacant space leasing and covering near-term lease expirations that will drive our occupancy improvement and same-store revenue growth in '26 and '27. In the fourth quarter, we completed about 500,000 square feet of vacant space leasing, which included about 70,000 square feet of leases that were expiring in the fourth quarter, and we executed leases on 550,000 square feet of '26 and '27 expiring space. In the full year '25, we executed leases totaling over 1.7 million square feet of vacant space and we start 2026, with 1.243 million square feet of executed leases on vacant space that have yet to commence. Calendar year '26 expirations have been reduced down to 1.225 million square feet. The bottom line is that if we were to do no additional leasing in '26, our occupancy would remain flat for the year. The good news is that we have lots of activity, and we are going to doing lots of leasing and we have begun to execute leases. We expect to complete 4 million square feet of leasing in 2026, which is consistent with what we suggested during our Investor Day presentations. We have 1.1 million square feet in negotiations today, including more than 750,000 square feet of currently vacant space and 125,000 square feet associated with 2026 expirations. On top of that, our discussion pipeline currently sits at about 1.3 million square feet and includes more than 700,000 square feet of vacant space. This is about 10% larger than the pipeline from the third quarter call. We've made significant progress on residential entitlement work, as Owen described, across a number of our assets, and some of this work is going to allow us to take out of service and demolish suburban office buildings and then redevelop those parcels into higher-value residential uses consistent with our portfolio optimization strategy. In Waltham, our rezoning efforts have reached a point where we have removed 1000 Winter Street, a 275,000 square foot office building from the in-service portfolio this quarter. Next quarter, as leases expire, we will be removing 2800 28th Street, a 115,000 square foot office building and 2850 28th Street, a 146,000 square foot office building, both in the Santa Monica Business Park from the in-service portfolio. We've submitted our project application in mid-December for 385 units on the site of our 2800 28th Street office building, which is about 50% leased today. We will be relocating many of these existing tenants and hope to be under construction in early '27 on the first residential project in Santa Monica. We've also reached an agreement with an institutional partner to commence development at Worldgate in Herndon, Virginia, where we purchased 300,000 square feet of office space with plans to re-entitle and demolish it. These buildings were never in service. The entitlements are nearing completion, and we anticipate starting during the second quarter. As Owen said, we also received our zoning approvals to build 100 townhomes, which we are actively marketing and 200 apartments in Weston Mass on unentitled land and are moving forward with site plan approval. As Owen discussed, we sold a number of assets at the end of '25 and in January, we completed 2 more transactions. On a combined basis, these sales reduced our portfolio by 2 million square feet and the assets were 78% leased. The in-service portfolio as we sit here today, is 46.6 million square feet. Owen mentioned our expected property sales for '26. Based on the transactions in documentation today and the removal of the 2 buildings at SMBP, the portfolio is expected to be reduced by another 1 million square feet by the end of the first quarter. We ended the year with in-service occupancy of 86.7%. I said we are negotiating leases on 750,000 square feet of vacant space. We expect 600,000 of that to be in occupancy in the fourth -- by the fourth quarter of '26. Again, we're also negotiating leases on 125,000 square feet of '26 expirations. This 725,000 square feet of leasing on a portfolio of 45.6 million square feet will add 160 basis points of occupancy by the end of '26. We will sign additional leases on vacant space and/or renew '26 expirations and thereby achieve 200 basis points of occupancy improvement by the end of the year, ending the year at about 89%, just as we stated in September. The overall mark-to-market on leases signed this quarter was flat on a cash basis, though the regional variations were pretty meaningful. We had a 10% increase in Boston, New York and D.C. were essentially flat, and the West Coast was actually down 10%. Boston was led by strong markups in the Back Bay portfolio. New York was very space sensitive. In other words, we had 1 lease at the General Motors Building that was up 9%, along with another lease in the same building, same elevator bank that was a negative 13%. In our West Coast portfolio, in particular in Embarcadero Center, the structure of the leases made a big difference. For example, we had 2 leases in Embarcadero Center Four in close proximity that had a $20 square foot difference due to 1 lease having a very small TI allowance and no free rent and the other having a full build in the year. This quarter, we executed a number of large leases. Excluding the 2 development property assets, we signed 17 leases over 20,000 square feet, with the largest at about 115,000 square feet. 44% were involving renewals, extensions or expansions and 56% were with new clients. Existing client expansions encompassed about 162,000 square feet of the activity. We also had about 100,000 square feet of clients that renewed but contracted. The second generation rents in the leasing [ statistics ] this quarter represent about 900,000 square feet and the gross rents were down about 3%. The DC number reflects the reality of 10 years of 2.25% to 3% annual escalation on top of operating expense increases. As I've said in prior calls, almost every DC area lease has a cash roll down of upon expiration. In San Francisco, the statistics include only 57,000 square feet and just 23,000 square feet of that was CBD office. The change in the office portfolio rent was a decline of about 9%. Before I pass the call to Mike, I want to make a few comments on our individual markets. In the BXP portfolio, Midtown New York, the Back Bay of Boston and Western Virginia continue to have the tightest supply and therefore, the most landlord favorable market conditions. And this quarter, the most significant improvements we've seen were at -- in the Park Avenue South submarket in Midtown and the [ South of Mission ] Market in San Francisco. In the Boston CBD, where we are 97.5% occupied we completed another early renewal and extension in the Back Bay portfolio. We executed a 115,000 square foot lease, which included an 18,000 square foot of expansion that involved BXP freeing up space from other clients in the building. When you're 97.5% occupied, it's hard to lease vacant space. We completed a second large transaction in the Back Bay that was a 57,000 square foot renewal of a 95,000 square foot block. The client had sublet the remaining space in '24, and we're negotiating a lease with a current subtenant to go direct for 10 years when the prime lease expires in 2027. Again, an indication of the tightness in the market. In our Urban Edge portfolio, we signed another life science client at 180 CityPoint, actually done yesterday, which brings that building to 92% leased. Our remaining first-generation life science availability from the Urban Edge is now limited to 27,000 square feet at 180 and 113,000 square feet at 103, totaling 140,000 square feet. In our view, the macro issues around life science bottomed at the beginning of '25. Nonetheless, demand for wet lab space has not recovered. There are a few users actively touring but the requirements from early-stage clients continue to be limited. Construction at 290 Binney Street in Cambridge is nearing an end. Rent is going to commence in April and we expect to deliver the building into occupancy in June. In New York, the most significant change in our activity has been in the Midtown South portfolio. On January 1st, '25, we had signed leases of just over 100,000 square feet at our 450,000 square foot 360 Park Avenue South development. We executed leases on 4 floors in the fourth quarter, which brought the total leasing in the building to 262,000 square feet or 59%. We are negotiating leases on an additional 6 floors that should bring the building to 90% leased during the first quarter. We will have 2 floors available in the building. And across Madison Square Park, we leased an additional 32,000 square feet at 200 Fifth in early January, leaving us with a total of 33,000 square feet of availability where we had 350,000 square feet vacated in 2025. Starr is currently a tenant in 240,000 square feet at 399 Park. We expect their relocation to 343 Madison will occur in the third quarter of 2029. We have already received inquiries about their space. At each of our properties, at the 53rd Street campus, the average in-place fully escalated rent is less than $110 a square foot, which is significantly below the current market. As a case in point, we signed a lease of 599 Lexington Avenue in the fourth quarter of 2024. We are documenting a lease on an adjacent floor in the building today with a starting rent that is 25% higher. In San Francisco, the most significant change in the portfolio is at 680 Folsom and 50 Hawthorne. You will recall that in late October, about 90 days ago, I described the strong interest we were seeing at the building, where we had 208,000 square feet of vacancy and 63,000 square feet of expirations in June 2026, but no leases in negotiation. Today, we have executed 2 leases totaling 69,000 square feet and are negotiating leases for an additional 132,000 square feet. All of these leases agreed to terms during the last 60 days of 2025. While the AI demand has not translated into commensurate growth in ancillary professional service tenants in high-rise assets in the markets, overall, non-AI client activity is also improving. This quarter, we completed almost 200,000 square feet of leases at Embarcadero Center and 535 Mission, which is almost double what we did in the third quarter. Many of our asset sales were on the Peninsula of San Francisco. Our remaining in-service assets are in Mountain View. Client tours continue to accelerate in this market as well, and we have signed an LOI for a 52,000 square foot building at Mountain View Research. Finally, D.C. Activity in D.C. continues to be concentrated in Reston Town Center. This quarter, we were able to manufacture 43,000 square feet of expansion space for a growing defense contractor by doing an early termination with a client that was acquired not using their space and had a 2032 expiration. We also completed 195,000 square feet of additional transactions with 15 clients. Any leasing pause associated with the government shutdown from the fall is fully recovered. That wraps up my comments, and we'll turn it over to Mike to talk about guidance for 2026.

Great. Thanks, Doug. Good morning, everybody. So this morning, I plan to cover the details of our fourth quarter and our full year 2025 performance. I'm going to spend most of my time, though on our 2026 initial earnings guidance that we included in our press release, with additional details in the supplemental financial package. For 2025, we reported total consolidated revenues of $3.5 billion and full year FFO of $1.2 billion or $6.85 per share. Our fourth quarter FFO was $1.76 per share, and it came in short of the midpoint of our guidance by $0.05 per share due primarily to higher-than-anticipated G&A expense and noncash reserves for accrued rental income. Our G&A expense for the quarter was $3.5 million or $0.02 higher than our projection. $0.01 per share of this was from higher compensation expense and $0.01 was from higher legal expenses that were related to the elevated leasing activity that we saw in the quarter. We also recorded approximately $6 million or $0.03 per share of credit reserves for the accrued rent balances for 2 clients in the portfolio. One is a 60,000 square foot firm that provides educational services to federal employees in Washington, D.C. and the other is a 10,000 square foot restaurant in New York City. Both clients remain in occupancy today, and we fully reserved their accrued rent balances due to our concerns of future rent collection. In aggregate, the rental obligation at our share is relatively small at $4 million annually. The balance of the portfolio performed in line with our expectations with revenues modestly above budget and higher expenses, largely driven by elevated utility costs in the Northeast due to colder-than-normal weather. We also reported gains on sale in the quarter of $208 million on $890 million of asset sales. Gains on sale are not part of our FFO, but they are part of net income and EPS. We received net proceeds from the sales activity of $800 million that has increased our liquidity and will be used to reduce debt. We currently have $1.5 billion in cash and cash equivalents, a portion of which will be utilized in February to redeem our $1 billion bond that expires this quarter. With that, I will turn to our 2026 guidance. We are introducing 2026 FFO guidance with a range of $6.88 to $7.04 per share, which is within consensus estimates. The midpoint of our guidance for FFO was $6.96 per share, and it represents an increase of $0.11 per share from 2025. At a high level, our 2026 guidance can be summarized as follows: internal growth in NOI from higher occupancy in our same-property portfolio, external growth in NOI generated by our development deliveries, lower interest expense from utilizing the proceeds of asset sales to reduce debt. These are partially offset by a reduction in NOI from executing asset sales in 2025 and 2026 that is consistent with our strategic asset sales plan that we described at our Investor Day. Noncash amortization of our new stock-based outperformance plan, which is designed to align management incentives with long-term shareholder value creation and a reduction in NOI from taking buildings out of service for future residential development, positioning them for higher value creation. To get into details, I will start with the expected growth in our same-property portfolio. Doug did a great job describing the ramp-up in occupancy from both signed leases that have not yet started and our active leasing pipeline. As he described, we expect occupancy to climb from 86.7% at year-end 2025 to approximately 89% by the end of 2026, which is a meaningful increase. We expect first quarter occupancy in the same property pool to be relatively flat, followed by improvement with average occupancy during the year of between 87.5% to 88.5%. As a result, we expect our same-property NOI growth to build throughout the year. Our assumptions for 2026 same-property NOI growth are between 1.25% and 2.25% from 2025. Based upon our same-property NOI of $1.88 billion, this equates to approximately $33 million or $0.19 per share of incremental NOI at the midpoint. On a cash basis, our results will be impacted by several terminations that we have proactively manufactured to accommodate either growing existing clients or new clients, like the one Doug described. In each of these cases, we will have new clients taking occupancy with free rent periods during 2026, so we are effectively trading cash rent for GAAP rent in the near term to accommodate growing clients, and we're getting valuable additional lease term. One of these occurred in the fourth quarter, resulting in $8 million of cash termination income in 2025. Our 2026 guidance assumes termination income of $11 million to $15 million, A portion of this is from 3 additional terminations that we're negotiating. The incremental increase in termination income in 2026 is approximately $2 million or $0.01 per share at the midpoint of our guidance. Even though termination income is cash income, we do exclude it from our same property guidance, and the impact is muting our cash same-property growth in 2026. Our assumption for 2026 cash same-property NOI growth is 0% to 0.5% from 2025. Our assumption for termination income at the midpoint would equate to an additional 70 basis points of same-property cash NOI growth. As Doug described, we're taking 3 buildings out of service for redevelopment into future residential sites and are in varying stages of entitlement. We are not doing any new leases in these buildings and expect to relocate existing clients to other buildings. The reduction in NOI from these buildings in 2026 is $13 million or $0.07 per share. Turning to our development portfolio. In 2025, we delivered 3 new properties totaling 700,000 square feet and $518 million of total investment. These properties include 1050 Winter Street in Waltham and Reston Next Phase II, which are 100% and 92% leased, respectively. We also delivered 360 Park Avenue South, where we're 59% leased today. And as Doug described, we have leases under negotiation to bring it to around 90%. We expect to have occupancy of all of this space by the year-end 2026, and we will have a full year of revenue in 2027. The most meaningful development that will impact 2026 is our 573,000 square foot 290 Binney Street life science project in Cambridge that is 100% leased to Astra

[Operator Instructions] And I show our first question comes from the line of Steve Sakwa from Evercore ISI.

I guess maybe it's a combination for the 3 of you, but it sounds like you've had good success on the disposition front and maybe even accelerated the timing. I'm just curious, Owen, if you've kind of taken a harder or a sharper pencil to the portfolio and thought about maybe more dispositions to really tighten up the portfolio. And to the extent that you have I guess, how do you balance that in terms of Mike's comment about FFO growth? And I guess, are you willing to sell more to kind of sharpen the portfolio even if it has kind of negative FFO consequences in the short term?

Steve, our original goal that we outlined in September last year was $1.9 billion of sales for over the 3 years from September and I think at this point, I'd say we're sticking with that forecast. That all being said, we have a list of assets that we'd like to sell. And if we get a price that we find attractive, we will execute on it. . We are paying attention to the dilutive impacts to earnings. One thing that we have repeated over and over, and I think it's important for everyone to understand. One thing that's helping us with this is a lot of the sales that we're doing are land, and those are completely accretive because they're not generating any income. I'm not sure they're being valued in the public market, and we're using the proceeds to reduce debt. So -- and we're going to continue to sell land assets. I described 3,500 residential units that we're currently getting entitled on land that former office development sites or buildings out of service. And when we go to sell that land, that will be accretive sales. But it will be balanced out with some additional office. I gave some an example, the 140 Kendrick was an example this quarter, which was a little bit of a higher cap rate, which is an offset. So net-net, the answer to your question is we're sticking with our forecast, we might sell more. We're paying attention to the dilutive impacts, but we're also paying attention to optimizing our portfolio and deleveraging and creating capital for our development program.

I would just add one thing. I mean, of the $1.9 billion that we discussed -- that Owen just discussed, we're off to a great start.

Yes.

And I would say the pace of the first $1.1 billion that we've got kind of closed is slightly ahead of where we anticipated. So when you look at the $0.06 to $0.08 of dilution I just described, it is within the range that we gave at the Investor Day. The range of the Investor Day was $0.04 to $0.09. It's a little bit at the higher end. And the reason for that is that a couple of the office sales occurred more quickly than we anticipated, which is great.

Yes. My only additional comment, Steve, is that -- so Owen described all this residential activity we had. I'm just sort of putting an order of magnitude on it, there's probably somewhere between $200 million and $300 million of land value there. And assuming a portion of it is just going to be sold as townhome sites that we will not have an equity interest, and we'll just sell away. But assume a majority of it is going to be residential. We're -- I assume we're 20% of that. And then our 20% is going to be added to our development pipeline, right? So we're going to take cash off the table and make incremental investment in development as we do that on a going forward basis. So there's a little bit of dilution on a relative basis, but there's actually accretion because we're going to be making what we believe to be highly accretive investments relative to what the residential yields will be.

And I share our next question in the queue comes from the line of Michael Goldsmith from UBS.

Doug, I think you said you had 1.1 million square feet in negotiations and 1.3 million square feet in discussions. What conversion rate are you underwriting for this pool? How is that maybe compared to the last couple of years? And the historical conversion rate during prior improvement cycles. .

Yes. So Michael, on the 1.1 million, it's actually now at 1.2 million as of late last night of deals that are in "lease" negotiation, I think our conversion rate is like 95%. We rarely see something drop off there. And then on our sort of pipeline of things, I'd say the conversion rate there is somewhere in the 0.5 million square feet, plus or minus, but it keeps growing, right? So as I said to you before, we're going to lease 4 million square feet of space. And so we've identified as of today about 2.3 million square feet or 2.4 million square feet of space. We will probably have identified 5 million square feet of space to get to that 4 million square feet at the end of the year.

And I show our next question comes from the line of Anthony Paolone from JPMorgan.

You mentioned in your commentary that you didn't feel that AI was cannibalizing any space needs in the portfolio. So can you maybe talk in a little bit more detail about how you're tracking that, if you think that, perhaps, it's cannibalizing other types of space that's not in your portfolio? Or just any more color on that would be helpful, I think. .

Tony, I'll kick it off, and Doug and Mike may also have comments on this. This is incredibly hard thing to forecast. I think all of you on this call realize that. The points that we can only make to you right now is what we're experiencing, which is accelerating leasing activity. And I just -- Doug described it, I described it, our clients are -- they're growing more than they're shrinking. They're taking better space, they're signing longer leases. And in fact, I would say AI so far for BXP's footprint has been a net plus, not a negative because we've had very significant AI leasing not only at BXP but maybe more importantly, in the Bay Area, which is an important market. It's been a very important driver of net absorption there. So that's what we're seeing today. Our instinct on this is as we think about AI, and we use it in our own work is that it's much more likely in the near term to dislocate more repetitive tasks and support jobs. And those kinds of positions generally are not resident in premier workplaces, which is substantially our portfolio. But again, I'd just go back to -- this is hard to forecast. This is what we're seeing right now.

I guess I'm going to ask -- I will ask Rod and Hilary to sort of make some comments on their markets because I think that they're emblematic of what is going on. And Rod will, I assume, talk about just the growth in technology jobs in the form of AI companies and AI "sort" of vertical and/or horizontal business structures that are coming. And Hilary is going to describe what's going on with not only technology but with sort of the financial services and professional services sectors that are so much and so important to New York. So Rod, why don't you start?

Yes. Thanks, Doug. So I think if we're talking about the cannibalization. I don't know that I can speak to that specifically. But with respect to the demand that we're seeing in San Francisco and the Bay Area in general, from AI, it's just been tremendous. We've been talking about it on calls in the past, and that definitely now is showing up in the statistics. The overall tenant demand in San Francisco right now sits just around 8 million square feet and 36% of that is from AI or AI-related technology companies. So that's pretty -- it's a lot. And every time we turn around, there's another deal that's being talked about or getting signed. So there's the big ones, the OpenAI, the Anthropics of the world, and then there's a lot of small ones, too, that keep getting [ informed ]. So I just -- it's definitely a wave of demand that we're taking advantage of. We spoke about 680 Folsom and the tenant demand down there. And it's happening. So that's all positive as far as we're concerned for our portfolio.

Hilary?

Thanks. We are seeing real strength in the financial services sector. We continue to see companies having a difficult time securing space that they need for expansion or simply if they're trying to locate in Manhattan for the first time. I heard a statistic the other day that there is only one space that is direct with a landlord above 100,000 square feet in the premier buildings in Midtown. And I think that's a pretty telling statistic. So we've continued to see demand from our existing clients wanting to expand. We have seen stronger interest from tech and media in Midtown South, which is reflected in the statistics that Doug mentioned regarding our lease-up at 360 Park Avenue South, which is approaching 90% when we complete the leasing that's underway now. Many of those tenants are either AI-powered or have an AI component to their business. And then we still are leasing to more traditional financial services businesses, and those have come down -- some of them have come down from Midtown to Midtown South as they're seeking premier workplaces. The other thing I would mention, and Rod referred to Anthropic, there was an article out last week that Anthropic is seeking between 250,000 and 450,000 square feet in New York City. So there's definitely an expansion of AI businesses in New York. And I think that, that is driving some of the demand pickup in Midtown South and the Flatiron District. But for Midtown proper in the Park Avenue submarket and the Plaza District and premier workplace, very heavily dominated by financial services industries who continue to expand.

So just to sort of you may get -- come to a conclusion, I think that both things can be true. You can have job displaced from artificial intelligence products, but you can also have growth in certain submarkets and certain cities in the country. And as Owen said, we happen to be in those places where we're seeing the growth. So is there going to be less overall job growth because of AI over the next decade? Maybe, but we're not seeing it impacting our portfolio.

And I show our next question in the queue comes from the line of John Kim from BMO Capital Markets.

I wanted to go to Mike's comments in his prepared remarks about quarterly FFO consistently growing throughout the year as occupancy improves, which sets up for a strong '27. Should we interpret that as the fourth quarter '26 being the quarterly baseline run rate for next year?

You mean for '27, John?

Yes. I mean I think that's a good start. I think that we provide guidance for the first quarter of '26, which is always seasonally our lowest quarter because of the vesting for G&A. And we also expect that our kind of in-service occupancy from the same-property portfolio will be flat in the first quarter, and then the occupancy will build after that. And we'll see consistent growth. I would say there's more in the back half than the first half, that will lead to 2027 growth as we get a full year of some of this occupancy growth in '26. And then given the low rollover we have, we anticipate that we're going to have higher occupancy in '27. Owen touched on again the 400 basis points that we expect, and we still anticipate seeing that. So I can't give you 2027 guidance right now, but we're feeling really optimistic about where we stand.

Yes. So John, my comment would be, I sort of gave you a lot of numbers in my remarks, which you can go back and read if you have the time. But big picture, right, what I said was our lease expirations in 2026 have been covered by the leases that we've already signed that have yet to commence, and we are going to lease more vacant space. We are also going to lease more space that's rolling over in 2027. It would not be a surprise for me to be talking to you in January of 2027 and saying, "Oh, by the way, we've already covered the vast majority of our exposure for 2027. So any occupancy increases that we get are going to be driving to the bottom line, AKA, what we're seeing in '26 is going to happen in '27. And obviously, we're getting in '25 to '26, the improvements from our development portfolios, which Mike described, in '27, we're going to have full year from an occupancy perspective on 290 Binney Street, and we're going to have all of this occupancy that is going to be in the portfolio in 2026 driving 2027. So that's why we were pretty bullish about both the growth in our earnings from our same-store and our growth in our development assets coming online as when we talked to you in September in Manhattan when we did our Investor Day. We just -- and we're just as bullish today as we were then.

And I show our next question comes from the line of Alexander Goldfarb from Piper Sandler.

Sort of building on Steve and John's question, Owen, certainly appreciate the focus on minimizing dilution for earnings and Mike, your comment on FFO acceleration on a quarterly basis. As you guys think about leasing, is there a way to reimagine leasing? I'm not talking about development, but I'm talking when you have existing space to shorten the downtime, meaning I don't know if there's a better way to do the build-out, the demolition or how leases are structured. But one of the frustrating things that we see in REIT land is just the amount of time, like 2 years or whatever between a tenant moving out and a new one moving in. And I didn't know if there's a way to shorten that. So from an earnings perspective, all the good stuff that you're doing takes effect sooner versus waiting the 2 years or so that we often have to wait for office.

So Alex, you're sort of asking, is there an accounting solution to the fact that you have turnover. And I think the answer is not really. I think as we've said in the past, the condition of our space is what matters. And what I would say is that the one thing that I think we have done, which doesn't help in the short term, but certainly decreases the amount of downtime is that we've been doing more turnkey builds and when we're doing a turnkey builds, we're kind of controlling the date when the space will get completed, and we're reducing the free rent component of the deal so that when the tenant comes in, instead of having free rent, they're having much less free rent. And so that's sort of truncating that. And wherever possible, we are trying to deliver space in its current condition. And if we're able to deliver space in its current condition, we can start recognizing revenue when the space is accepted by our next client, if it's a move. But I would say we're -- our focus always is on trying to reduce downtime. And so we look at lots of different levers to do that, but I don't think we're going to be able to eliminate it in a material way.

Yes. I would just add, Alex, I mean, we provide these tools to our leasing teams on things that they can do to structure leases so that we can recognize revenue more quickly regarding how the build-out is completed and who's doing the build-out and things like that. Ultimately, it's a negotiation with the client, though, because the client has an opinion as well on how they want that completed. So there's just a negotiation that has to occur. And obviously, ultimately, getting the transaction completed is the most important thing.

And I show our next question comes from the line of Johnson

This is Nick Yulico. So a question on -- in terms of -- I know the focus has been a return to FFO growth. Clearly, there's leasing that's a big aspect of that. But can you just talk about a couple of the other ways to sort of help that process, whether it's on the G&A side, are you able to find any better efficiencies through AI or other venues? And then also on the development side, how you're thinking about kind of managing the size of the pipeline and also bringing in equity stakes earlier to projects kind of like what you're talking about with 343 Madison as a way to sort of manage dilution from development, which for you guys can take a while. I guess I'm also wondering on like 121 Broadway, if you're considering any sort of partner there in relation to that.

Okay. So you asked like 6 questions there. And I'm going to speed answer a couple of them, and then I'll let Owen to hit the last one. So with regarding to sort of how we're going to accelerate our FFO growth, the first, the second and the third thing that we can do is lease vacant space. That is by far the largest opportunity set. And we're doing that, and you're going to see that quarter after quarter after quarter, we believe, I'm accelerating in terms of the value from that. Second, on the G&A side, we are spending as much time as any organization thinking about whether or not there are ways to "reduce" our overhead costs relative to using tools from artificial intelligence. I will tell you that my view right now is that we're in AI 1.0, which is, I would say, unquantifiable productivity enhancement tools as opposed to cost reduction tools for a business that's the size of BXP. And so we are being thoughtful about how we deploy those things. So net-net, not much in the way of where you're going to see reductions in G&A. And obviously, our G&A as a percentage of our revenues is de minimis and a significant portion of our G&A, you don't see because it's embedded in our properties and it's part of our operating expenses. So there's not much impact on FFO that would occur from that other than when leases roll over and we have a gross lease. On the capital side relative to development, I'll let Owen answer that one.

Yes. So Nick, I would break the portfolio into 2 pieces. One is the future residential and then the office developments. So on future residential, we intend to bring a partner in for everything. So if you look at the last deals that we've done, Skymark, 17 Hartwell, we have 80% partners on those, and we're working on another one right now at Worldgate, where we also have, we think, an 80% partner. So I think you should expect that to continue to be the case for the residential. On the office, this is core to the company, and we think the developments that we're putting together are very profitable. I mean we think delivering these premier workplaces at over an 8% yield, yields great profits for shareholders. So we're reluctant to share. But we are sharing because we're focused on our leverage. So we're starting with 343 Madison, as you heard from Mike and I, that's an important goal to recapitalize that project this year. And then in terms of bringing in partners on additional office developments, it's going to depend on what our leverage profile looks like and how many additional new developments we're able to identify and secure.

And I show our next question comes from the line of Blaine Heck from Wells Fargo.

Can you talk about the cadence we should expect for FAD or AFFO over the next several quarters? And I guess, how we should think about the impact of higher concessions associated with the lease-up of the office portfolio? Should we expect FAD to be down year-over-year given those increased costs driven by leasing successes?

So on AFFO, I actually expect it will be up slightly. We have less rollover to deal with. We are going to increase our occupancy. So we will have additional leasing that will commence for that. But net-net, having less rollover exposure is going to help us. Our expectation on leasing costs are pretty much in line, somewhere between $220 million and $240 million or $250 million a year, depending on what the transaction costs are. And our CapEx is somewhere between $100 million and $125 million, I would say. So if you look at the midpoint of our FFO, I think our AFO -- AFFO will probably be somewhere in the $4.40 to $4.60 range, something like that, which is, I think, a little bit higher than it was this year. So we feel pretty good about where that is. And I think that on the cadence-wise, it will follow the FFO. Although one thing to point out is that as we're gaining occupancy, a lot of these leases have free rent in the beginning years. So I think that the AFFO will lag a little bit the FFO because those deals will be in free rent. And if you looked at our free rent guidance for next year, it's $130 million to $150 million, which is higher than it was last year. So that's a little bit of an offset. But that will -- in 2027, that free rent will turn into a cash rent. So the AFFO should increase.

And I show our next question comes from the line of Jana Galan from Bank of America Securities.

A question on 343 Madison. Great to hear about the additional 16% in negotiations. Can you talk a little bit more about the demand and touring activity? And then as New York City market rents for trophy increases, how does that relationship work for potentially higher rents for an asset 3 years out?

Sure. So I'm going to let Hilary give you the specifics on this. I'd just make a couple of comments. So the first is I'm pretty sure that we're the only building that's going to be delivering new construction before 2029, which is a unique position relative to timing of the demand that Hilary is seeing. And second, we're going to be more, I would say, thoughtful about whether we want to lease the top portion of this building because it's probably some of the more valuable real estate in our -- in the BXP portfolio. And we think that getting closer to the ability to deliver that space to smaller tenants will inure to us. But Hilary, why don't you talk about in general, the demand that we're seeing for 343, particularly from medium-sized companies?

Sure. So I would say that we have very strong demand in financial services tenancies from tenants that are about 150,000 square feet. That is very typically an asset or wealth management business or in some instances, more of a foreign bank type tenancy. And they continue to come through at a pretty decent clip, looking at space in the podium of the building as the mid-rises and sort of upper mid-rises now more or less spoken for. And so I think that we feel very good about where rents are trending for the building, and we will meet the market for rents, whatever that is. And we've had no trouble whatsoever meeting our pro forma on the terms that we're negotiating with existing and prospective clients. So there was some indication earlier in the call, I think Doug said it that rents are going up across Midtown, the Plaza District and Park Avenue, and my observation is that rents have gone up around 15% over the last 12 months. Now 343 Madison is at the top of the market in terms of rents. There are only a couple of other buildings in Midtown that are asking and receiving similar rents. So that market is a little bit in its own stratosphere with regards to the tenants and the demand for it. But I think demand continues to accelerate, and therefore, that will continue to put pressure on pricing from the tenant side, and that will inure to our benefit as we go forward.

And I show our next question comes from the line of Seth Bergey from Citi.

I guess I just wanted to ask maybe a little bit of a bigger picture question here. But you mentioned rents in New York are up around 15%. In the opening comments, you kind of mentioned the regional variation in the cash mark-to-market with Boston 10%, New York, D.C. flat, West Coast down 10%, just kind of understand that different markets are on a different recovery trajectory, but how do you kind of balance some of the rent improvements with the decline of rents from premarket levels? Just trying to get at a little bit of kind of what's the overall mark-to-market in the portfolio? And then as you kind of maybe start to lap some of the COVID rent roll downs or pre-COVID rent roll downs, kind of when does that kind of turn more into a headwind.

In the next couple of years.

So you asked a really hard question to answer with a simple number. The way we think about things is we look at all of the space that we have that is currently occupied. So we're ignoring the space that's vacant because the mark-to-market on vacant space is 100%, right? I mean there's -- it's from a 0. And so the mark-to-market on space that's currently occupied across our portfolio, we sort of go through on a building-by-building basis every quarter, and we make sort of a guesstimate as where we think the market terms would be for that space. And I would say, as of today, across the entire portfolio, it's somewhere in the, call it, high 4s to low 5% range. And that's, I'd say, a meaningful jump from a year ago and a modest jump from where we were a quarter ago. And why is it only a modest jump? I think it's only a modest jump because where we've seen the biggest improvements have been in the Back Bay of Boston, where our rents have gone up and in our Manhattan portfolio where rents have gone up and at the tops of our buildings on the West Coast, in particular, where rents have gone up. But we're seeing still sort of, I'd say, a stability in terms of not -- no real movement in rental rates, and again, I'm ignoring concessions for a minute in sort of the bases of buildings on the West Coast, and our Washington, D.C. portfolio, where, as I said, the issue on a cash basis is the structure of leases in D.C., and I blame Jake Stroman for this, is that he gets these relatively significant annual increases in the rents and he leaves us with this problem where the cash rent upon the expiration of the lease is higher than what the market rent is, right? Because you just -- it's really, really hard to -- over 10 or 15 years, every single year have a 3 plus or minus percent increase. So that's kind of the sort of the makeup of the portfolio. And then within each of the individual markets, I think that we are in a position where we will see a modest amount of gains in our revenues from roll-ups or -- and mitigating roll-downs across the portfolio, but a much more meaningful impact from the occupancy gain, which is why, honestly, we focus on the occupancy gain and not really on what the mark-to-market is. And I think that's going to be the case at least in '26 and '27.

And I show our next question comes from the line of Richard Anderson from Cantor Fitzgerald.

So kind of by design at BXP, there's always sort of a lot going on, good solid real estate decisions that nevertheless can be disruptive in the short term to growth. So you're getting more than 200 basis points of occupancy gains in 2026 per your guidance, and that results in, call it, flattish same-store NOI growth for this year. Doug, you kind of alluded to occupancy falling more to the bottom line in 2027 sort of matriculating to the bottom line just because of all the work that's being done today in this year. Do you foresee sort of a less noisy 2027 so that the next 200 basis points of occupancy gains can be something more representative at the same-store NOI line something in the mid-single-digit type of number. I'm not asking for guidance, but I'm just wondering if you're trying to get ahead of a lot of this work so that you have a cleaner story to tell next year.

Yes. I mean I think the answer is yes. I mean, I don't want to suggest that we're not going to let our regional executives find really interesting things for us to do that might put us in a -- take us slightly off that. But based upon our business in front of us today, we see -- I think, Mike, what was your same store was 1.5% to 2.5%?

1.25% to 2.25%.

1.25%, 2.25%, and my expectation is that we'll -- that will be better next year than it is this year because of the nature of the vacancy that's being pulled up and the fact that so much of it is in the back end of the year.

Yes, I think that's an important point. And we went through this at our Investor Day with the graph we showed of the buildup in occupancy, where the first and the second quarter of '26 is not going to have as meaningful of increases as the back half of '26 based upon when we anticipate -- when we have the signed leases starting and when we anticipate the pipeline leases starting. And then that occupancy will build on itself into '27, right? So for '26, our average increase is only up about 100 basis points. By the end of the year, it's a little over 200 basis points, and then you get a full year of that in '27 plus the incremental occupancy we should get in '27. So it should continue to build on itself and improve.

And I show our next question comes from the line of Caitlin Burrows from Goldman Sachs.

Just maybe more specific question on 290 Binney. You mentioned that rents are going to commence in April and you expect to deliver the building into occupancy in June. So I was just wondering if you could clarify when does GAAP NOI start to be recognized? And when does capitalized interest come off? Does that happen at the same time? And is it early April, late June or something in between?

It does happen at the same time. And the way this transaction was structured is we had a hard rent start date, but the tenant improvement design and costs have taken a little bit longer than the original expectation based upon some design changes that were made by the client. And so those tenant improvements are not going to be complete and get a CLO until sometime probably late in June. And our revenue recognition rules are that we can't start revenue recognition until it's done. So we have to wait until the end of June to start revenue, and then we will stop capitalizing interest also on that. And just as a reminder, we're capitalizing interest at 100% of the cost because it's a consolidated joint venture, even though we only own 55%. That was something we talked about at our Investor Day. And it's just important because it impacts our net interest expense guidance. It's embedded in the guidance that I provided. So cash rent will start in April. It will be prepaid rent on the balance sheet. And then in June 30th, all that cash rent will come in and be straight-lined through the full lease term starting in June.

And I show our next question comes from the line of Floris Van Dijkum from Ladenburg Thalmann.

My question was sort of philosophical on your outlook for tenant improvements. And you mentioned in one of your earlier prepared comments that some of the spreads that you reported were negative because you didn't provide TIs. What is happening in your opinion on TI packages? And maybe talk a little bit about -- because obviously, it depends a little bit on markets as well and market specifics, which markets are seeing improvements as one of your peers called out the fact that I think New York office TI packages, they expect to come down in '26. So maybe if you could talk about that a little bit, that would be useful.

Sure. So I'll just sort of go around our [indiscernible] big picture. So I would tell you that our tenant improvement concession in our downtown portfolio is getting stronger, meaning it's becoming a lower number. Our tenant concession package in our Urban Edge portfolio is pretty stable. In our Greater Washington, D.C. portfolio, our concession package in our CBD assets is stable. Our concession package in our Northern Virginia assets is getting slightly lower. In our Midtown portfolio, we are pulling back on the concessions that we're offering by a modest amount. And on the West Coast, I would say the concession packages are still not going down. They're not going up the way they went up in 2024 to '25 and '25, but they're still pretty elevated, and that's largely just due to the overall availability of space.

And I show our next question comes from the line of Brendan Lynch from Barclays.

Congrats on all the leasing momentum. We have, however, seen a number of announcements from Fortune 500 companies suggesting they will be shrinking headcount. How should we think about that impacting your portfolio? And maybe I could see it from 2 perspectives. One, they might need less space, but conversely, it could also be driving more return to office for the employees that are retained. So any thoughts on those dynamics would be helpful.

That's a hard one to answer. Look, when we see announcements for job losses, it's obviously can't be a positive per se for us. But we -- as we've described, hopefully, very clearly on this call, we're just not seeing weakness in our leasing activity from our clients. We track our clients that we renew, are they growing or shrinking? And over the last several years, our indicator is that they've been growing. So it's just not our experience. We try to read into these layoffs and what exactly is going on. It feels in some of these cases, like it's business units that are being closed and things like that. So we're just not seeing the impact of it in our leasing activity.

And I show our next question comes from the line of Vikram Malhotra from Mizuho.

I guess just maybe a bigger picture, longer-term question for either -- anyone in the team or all of you, I guess. Given the momentum, you're talking about 88% going into '27 building further. I guess, would you venture whether it's like 3 years or 5 years, like what do you think BXP's kind of structural peak occupancies for the portfolio that you keep refining versus, say, pre-COVID or pre-GFC? And then can you link that to rent spreads or rent growth in your buildings, particularly maybe expand upon San Francisco? Thanks.

So Vikram, what I would say is that getting above 93% on a portfolio with an average lease length of 8 to 9 years is probably attainable, but will be hard to surpass. And with regard to San Francisco, that's where we have the most opportunity for improvement. San Francisco obviously had the most difficult time of it from pre-COVID through COVID and now the recovery is obviously happening. And so I would say there, we have the most significant amount of upward opportunity. There, from a rollover perspective, I think we're going to -- on the overall portfolio of spaces that are currently in occupancy, we're probably modestly rolling down over that portfolio, and that's largely because the rents in the basis of the building have not kept up with the increases in the rents at the tops of the building. We are seeing positive mark-to-markets on the top 20% to 30% of every one of our towers in San Francisco. And when Salesforce Tower ultimately starts to roll over, we'll have significant positive mark-to-market. In the short term, the rollover that we have in Embarcadero Center, which is lower down in EC 1, 2, 3, there's probably a modest roll down that will occur there.

And I think it's clear that rental rates are directly linked to occupancy. And that's why we're feeling in the Back Bay of Boston and in Midtown New York, where the occupancy has tightened and rents are accelerating. So clearly, as we get the portfolio better leased, there's going to be less space for us to lease. We can be more choosy and charge more for those spaces. And then we also look for opportunities to work those spaces early like we are now with some of the terminations that we talked about where we're trying to take advantage of opportunities where there's not enough space in a building and trying to accommodate growth from our clients and grow our revenue stream.

I show our next question comes from the line of Dylan Burzinski from Green Street.

I guess just maybe sort of paralleling the question that was asked, I think, 2 questions ago about just job growth and that sort of not being as strong with layoffs going on. And maybe sort of adding the fact about return to office that I think you mentioned at the beginning of the call, Owen, I think a lot of what's going on is just pent-up demand driving a significant amount of leasing activity given, call it, lease [indiscernible] that's been happening over the last several years. Are you able to talk about sort of how long -- how much longer you guys would expect this sort of return to office movement to continue driving leasing activity? Is this sort of a 12-month phenomenon, 18 months? Just sort of curious where you guys think we're at as it relates to this return to office normalization driving pent-up demand.

Well, I think there's room to go. I gave you the office visits. We try to come up with indices that help us understand what's going on. I've quoted the Placer.ai data. I think that we've got some additional improvement that could happen. The questions that were -- that you all are giving us are around these layoffs and jobs. The other side of it is, historically, our leasing activity has been tied to earnings growth because when companies are making money, they lease, they take risks, they go into new businesses, they hire people and they lease space. And if you look at the forecast for broad indices of U.S. corporations, earnings are projected to be higher in 2026. The job -- the earnings growth is projected to be higher in '26 than it was in '25. These layoffs that are going on, are they office using jobs? Are they jobs that are in premier workplaces, so front office jobs. There's lots of data that you need to have in addition to a press release to understand what the impact is of these layoffs are on office usage, particularly in the premier workplace segment.

And Dylan, I'll give you my perspective on sort of what we're seeing in our portfolio and juxtapose that to what you read about from a job announcement. So one of the shipping companies has announced 48,000 job losses. My assumption is none of those jobs are being lost in any office space in Manhattan, Boston, Washington, D.C. or on the West Coast of California, in San Francisco, Seattle or West L.A. And when I look at the portfolio makeup in terms of where the growth is coming from and where the demand is coming from, what I would tell you is that our financial service clients, and I'm using that and asset management sort of in the same venue, those companies are just growing. Those -- this is not about we need more space because our people weren't showing up. They're basically hiring more people for various strategies associated with whatever their business plan is, and therefore, they need more space. It has nothing to do with return to work. Any of the expansion from our legal firms, I don't believe is about return to work. It's about, I think, our firms are hiring more attorneys because they have desires to grow their businesses and they're finding -- they're poaching from other organizations that may be losing. And because of that, they need another office for those people. I don't think they're saying, and now you have to come back to work 5 days a week and you're only coming back to work 1 day a week, and therefore, we're changing our makeup. I just don't see a lot of that going on. And then when I think about our portfolio in Northern Virginia, which is really more corporate America, and I'll let Jake sort of talk about where that demand is coming from. I don't think any of it is about, well, we now need more space because we "have more people" coming to the office every day. And Jake, you can sort of comment on where all of our expansion has been and our demand has come from in Northern Virginia and how that's all working.

Yes, sure. Thanks, Doug. Yes, Dylan, what I would just say is that, in particular, in Reston Town Center, between the defense and cybersecurity industry, it's really a who's who of corporate campuses. And most of the employees of these organizations are tech-related, usually former military background, folks that are in their 30s that have a home and want to have a house and kids and white picket fence and so they typically live in Reston Town Center, Western Fairfax County and Loudoun County. And with Reston Town Center, it's really the first stop for those groups as it relates to where that talent rest its head every night.

And I show our next question comes from the line of Ronald Kamdem from Morgan Stanley.

A lot of my questions have been asked, but just wanted a quick update, just looking at the data for San -- excuse me, L.A. and Seattle and some of the occupancy moves there and the market has been going in the wrong direction. Obviously, smaller markets for you all, but just a quick update on the market and sort of the strategy there on the ground for the few assets you have.

Sure. Rod, do you want to take that one?

Yes, sure. So just starting up in Seattle. I mean, we have our 2 assets in the CBD. And we've actually had really good demand from some of our in-place tenants that have expressed some growth needs. So we're accommodating that. I don't think when you compare Seattle to the demand that we're seeing in San Francisco, it hasn't quite mirrored that yet, but it's starting to. And historically, Seattle has kind of lagged San Francisco, call it, a year to 18 months. And so I expect this year, we're going to see some continued demand -- increasing demand up there. So we're optimistic that we're going to capture some of that. Down in L.A., it's a little different story. Remember, we're just in West L.A. out in Santa Monica, we have 2 projects there. And I think that market is still kind of recovering still from many things, COVID being one of them, but then just the contraction in the entertainment business and the consolidation of that is affecting us in terms of demand down there. But that being said, we've actually started the year with some good activity. We've got a couple of proposals we're chasing. So we think that things have picked up there maybe as well. But it's been slower than we're seeing in the Bay Area.

And Ron, I mean, I said it and Owen said it, I mean we're taking 2 Santa Monica Business Park buildings out of service totaling about 260,000 square feet of space. We're going to build high-value, very accretive, exciting residential multifamily projects there because we think that there's much more value in that asset class at that location than there is in hoping for a recovery in the office market in the short term. And so that's -- those are the decisions we're making. And we think that over time, we may see more and more of that going on in that particular asset. And that's a 30-acre asset, which could have an awful lot of residential use over the next decade or two.

And I show our last question comes from the line of Michael Lewis from Truist Securities.

I feel almost guilty asking another question. My question is about leasing capital. So we saw this $128 a square foot on the TIs and LCs this quarter. It sounds like from your comments, that's probably unique to the leases in the quarter, and you're not seeing more pressure on leasing capital. I was going to ask if you're able to share how much leasing capital you have committed but not spent yet? Because I would guess as you're leasing up and improving occupancy, maybe that pool of capital is building significantly more than you normally see. So I don't know if you have any comments around that.

So I think you're asking how much of -- how much leasing have we "provided" to our clients that they have yet to spend, right? That's the question you're asking?

Yes, that's right.

I do not have that number in front of me right now. And we do disclose that number in every Q and every K, however.

Yes. Is that an interesting trend to look at? Or do you think that's kind of off base on thinking about the pool of capital that might be building?

I don't know how much it's necessarily building. I mean it is a significant number because many of our clients do take a long time to actually ask for the money or spend the money. So there is an amount of dollars out there that is in the hundreds of millions of dollars that will be spent sometime over the next few years as those clients complete that work. I have not seen it trend significantly higher. I think if you look at our transaction costs over time, you're right that this quarter is a definite outlier. They've really ranged between kind of $85 a square foot and a little over $100 a square foot as every quarter, which is a mix of renewal and new and includes leasing commissions and tenant improvement costs. So when I look at our AFFO projections, right, I'm not assuming $128 a square foot, but I am assuming somewhere around $100 a square foot on a going-forward basis based upon kind of where we are in the market right now.

Yes. The other thing, Michael, just about the stuff that's in our supplemental is that those leasing costs are based upon leases that are having "a revenue event this quarter. And so it's typically a backward-looking portfolio. So there are leases that may have been signed in late 2023, early 2024 that are just starting to move into that revenue recognition change. And so over time, we would expect to see that trending slowly coming down as the market improves as well.

That concludes our Q&A session. At this time, I'd like to turn the call over to Owen Thomas, Chairman and Chief Executive Officer, for closing remarks.

Thank you all for your questions. I'm not sure there's much more we could possibly say. Have a good rest of the day. Thank you.