Boston Properties(US:BXP)2023-11-02 22:53Financial Data and Key Metrics Changes - The company reported funds from operations (FFO) of $1.86 per share, which was $0.02 above the midpoint of guidance [65] - Revenues exceeded assumptions due to better rental revenues, client service income, parking, and hotel performance [35] - Non-cash impairment charges totaled $273 million related to four unconsolidated joint ventures, reflecting a significant market dislocation [35][66] Business Line Data and Key Metrics Changes - The company completed over a million square feet of leasing in the third quarter with a weighted average lease term of over eight years [14] - Net absorption for the premier segment was a positive half a million square feet, contrasting with a negative 600,000 square feet for the balance of the market [7] - The development portfolio now sits at 2.8 million square feet and is 52% leased [56] Market Data and Key Metrics Changes - U.S. transaction volume for office assets dropped 48% from the second quarter to $4.4 billion, marking the lowest quarterly level since Q1 2010 [46] - Direct vacancy for premier workplaces was 12.4% compared to 17% for the balance of the market [16] - The company noted that construction financing for office space is currently difficult to obtain, with traditional lenders reducing exposure to commercial real estate [29] Company Strategy and Development Direction - The company aims to capitalize on unique opportunities to expand its portfolio amid current market dislocation [19] - Focus remains on premier workplace assets, life science, and residential development [49] - The company is actively pursuing additional capital raising through joint ventures and considering incremental asset sales [10] Management's Comments on Operating Environment and Future Outlook - Management expressed that economic conditions are the primary driver of slower leasing activity, with a rebound expected when earnings growth returns [15] - The company remains well-positioned to weather the economic slowdown due to its leadership in the premier workplace market segment [21] - Management highlighted that all office buildings are not the same, with premier workplaces outperforming the broader market [16] Other Important Information - The company has maintained access to capital primarily through unsecured debt markets, which is available to few competitors [19] - The company expects to see additional portfolio vacancy stemming from WeWork defaults as it moves into 2024 [26] - The company has a strong liquidity position with $2.7 billion available [49] Q&A Session Summary Question: Concerns about underwriting lease-up and lease growth - Management noted that buyers are concerned about how to underwrite lease-up and lease growth amid economic uncertainty and the cost of capital [39] Question: Impairments related to joint ventures - Management indicated that the impairment charges reflect accounting adjustments and do not necessarily indicate a meaningful change in asset prospects, except for Platform 16 [40][72] Question: Expectations for WeWork's lease exits - Management stated it is uncertain where WeWork will exit but expects to collect termination income from their leases [87][88] Question: Development opportunities and market conditions - Management discussed the differences between two development opportunities, emphasizing that both serve different market segments [104][105] Question: Pricing adjustments for investment opportunities - Management indicated that pricing adjustments are necessary for buyers to become more active, particularly in light of high borrowing costs [82][93]