Boston Properties’ Earnings Call Maps Path Back to Growth

Boston Properties ((BXP)) has held its Q4 earnings call. Read on for the main highlights of the call.

Boston Properties Balances Near-Term Headwinds With Clear Path Back to Growth

Boston Properties’ latest earnings call struck a cautiously optimistic tone, with management emphasizing strong leasing activity, a robust and high-yielding development pipeline, and rapid progress on planned asset sales that are strengthening the balance sheet. While near-term funds from operations (FFO) and net operating income (NOI) will be pressured by dispositions, higher leasing costs, and muted cash same-property growth, executives underscored that these are deliberate trade-offs to secure long-term occupancy and support a return to FFO growth in 2026.

Leasing Momentum Underpins Occupancy Recovery

Boston Properties reported standout leasing performance, signing roughly 1.8 million square feet in the fourth quarter and more than 5.5 million square feet for the full year, well ahead of internal targets. In-service occupancy improved by about 70 basis points in Q4 to 86.7% at year-end, and management aims to push this to around 89% by the end of 2026, a roughly 230-basis-point gain. The company entered 2026 with about 1.243 million square feet of signed leases not yet commenced and expects to complete approximately 4.0 million square feet of leasing this year. The near-term pipeline is active, with 1.1–1.2 million square feet under negotiation and another 1.3 million square feet in discussions, and an impressive 95% conversion rate on leases currently being negotiated, reinforcing confidence in continued occupancy gains.

High-Yield Development Pipeline Drives Future Earnings

The REIT’s development engine remains a key source of long-term growth. Boston Properties has eight active development projects totaling roughly 3.5 million square feet, representing about $3.7 billion of its capital. Management highlighted that its office developments are projected to generate unleveraged cash yields above 8% on delivery, attractive returns in the current interest rate environment. At 2100 M Street in Washington, D.C., the company acquired the site for $55 million and secured a 15-year lease for 75% of the 320,000-square-foot building, supporting a forecast yield above 8% on a roughly $380 million budget. Meanwhile, the fully pre-leased 290 Binney life science project in Cambridge—573,000 square feet leased to AstraZeneca—will deliver Boston Properties’ share in June 2026, on an investment of about $500 million, offering highly visible future NOI.

Accelerated Dispositions Reshape Portfolio and Boost Liquidity

Boston Properties is moving quickly on its strategic plan to dispose of non-core or lower-priority assets, both to recycle capital and to fortify the balance sheet. Against a stated goal of $1.9 billion of dispositions by 2028, the company has already closed on 12 assets for more than $1.0 billion in net proceeds—approximately $850 million in 2025 and another $180 million this January. In total, 21 transactions are closed or well underway, with estimated proceeds of about $1.25 billion, and the company expects more than $400 million of asset sales in 2026. Fourth-quarter asset sales produced $208 million of gains on $890 million of transactions and generated roughly $800 million of net proceeds, significantly enhancing liquidity and giving management more flexibility to reduce leverage and fund higher-return projects.

Stronger Balance Sheet and Lower Interest Expense

The proceeds from recent sales have materially strengthened Boston Properties’ financial position. The company now holds about $1.5 billion in cash and equivalents and is using this liquidity primarily to pay down debt, including plans to redeem a $1.0 billion bond maturing this year. Management expects these actions, combined with a more favorable refinancing environment, to bring consolidated net interest expense down to $581–$593 million in 2026, with overall net interest savings of $38–$48 million versus 2025. This deleveraging trend not only supports the new development but also provides a cushion against any prolonged softness in certain office markets.

FFO Guidance Signals a Turn Back to Growth in 2026

After a period of pressure from market conditions and planned asset sales, Boston Properties is guiding to a return to FFO growth in 2026. The company introduced 2026 FFO guidance of $6.88–$7.04 per share, with a midpoint of $6.96, about $0.11 above the 2025 level. Key positive drivers at the midpoint include $0.19 per share from same-property NOI growth, $0.27 per share from contributions by developments coming online, and $0.24 per share from lower interest expense. These are partially offset by roughly $0.41 per share in dilution from completed and expected asset sales and $0.09 per share from higher general and administrative costs. The message to investors is that while dispositions and elevated spending suppress near-term FFO, they are laying the groundwork for a more stable growth profile.

Premier Workplace Assets Continue to Outperform

Management emphasized the structural advantage of owning “premier workplace” properties in top-tier central business districts. Across its five major CBD markets, Boston Properties’ premier assets have a direct vacancy rate of 11.6%, roughly 560 basis points below the broader market. These properties are also achieving over a 50% rent premium compared with the rest of the market. Over the last three years, premier workplaces have recorded net absorption of 11.4 million square feet, while the balance of market has seen an 8 million square foot decline—an almost 19.4 million square foot performance spread. This data underscores the bifurcation in office demand and supports the company’s strategy of concentrating capital in high-quality, centrally located assets.

Flagship Development Leasing Adds Visibility

Leasing traction at key projects is helping to derisk the development pipeline. At 2100 M Street in Washington, D.C., law firm Sidley Austin has committed to 75% of a planned 320,000-square-foot building under a 15-year lease, giving the project substantial pre-leasing coverage ahead of completion. In New York City, the 343 Madison development is also building momentum: Boston Properties has already effectively covered nearly 50% of construction costs through leasing commitments, with insurer Starr taking 29% of the space and another approximately 16% under a letter of intent. Management is targeting a stabilized unleveraged cash return of 7.5%–8% at 343 Madison by 2029, reinforcing that even in a challenged office market, top-tier projects can still command attractive economics and long-term tenants.

Improving Transaction and Capital Markets Back Strategy

Boston Properties is benefiting from a nascent recovery in transaction and capital markets, which is supporting its disposition and recapitalization efforts. Private office transaction volume improved meaningfully in the fourth quarter, with significant office sales totaling $17.3 billion, up 43% quarter over quarter and 21% year over year. At the same time, CMBS and broader debt markets are showing tighter spreads and greater availability of capital, enabling better execution on asset sales and refinancings. This more constructive backdrop is key to monetizing non-core assets at reasonable pricing and lowering the company’s overall cost of capital.

Q4 FFO Miss Highlights Cost and Credit Pressures

Despite the broader positive strategic narrative, quarterly results were not without blemishes. Fourth-quarter FFO came in at $1.76 per share, missing the midpoint of guidance by $0.05. The shortfall stemmed mainly from higher-than-expected general and administrative expenses and a $6 million noncash credit reserve, equivalent to about $0.03 per share, tied to accrued rent from two tenants. G&A for the quarter was about $3.5 million, or $0.02 per share, above forecasts. Management framed these items as largely episodic, but they underscore both the cost pressures of managing a large portfolio and the tenant-credit risk that persists in certain sectors.

Dispositions Bring Near-Term NOI and FFO Dilution

The same asset sales that are improving Boston Properties’ balance sheet are also weighing on its near-term earnings metrics. The company expects NOI to decline by roughly $70–$74 million from 2025 to 2026 as a result of executed and anticipated dispositions, translating into a 2026 FFO dilution of about $0.06–$0.08 per share. Management stressed that this dilution is consistent with the strategy laid out at its Investor Day and reflects a deliberate shift away from lower-priority or weaker assets toward higher-yielding developments and core premier workplace properties.

Higher Concessions and Leasing Costs Reflect Competitive Markets

Leasing success has come at a cost, particularly in more challenged markets. Blended leasing transaction costs in the fourth quarter averaged about $128 per square foot, above Boston Properties’ typical historical range of $85–$100 per square foot. For 2026, the company expects free rent to range from $130 million to $150 million, above 2025 levels, with concession packages especially elevated on the West Coast. On that coast, cash mark-to-market rents for leases signed in the quarter were roughly 10% lower, illustrating the pricing pressure landlords face in more supply-heavy or slower-demand submarkets. While these incentives are pressuring near-term cash flows, the company views them as a necessary investment to secure long-term commitments from high-quality tenants.

Regional and Sector Weaknesses Temper the Story

The call also highlighted the uneven nature of office and life science demand across regions. On the West Coast, rent roll-downs and concessions are more pronounced, with the aforementioned 10% cash mark-to-market decline illustrating the pressure. In life science, the company described demand as uneven, prompting Boston Properties to exit its West Coast life science holdings because of high vacancy and weak net absorption, while remaining committed to its Boston life science exposure, where fundamentals are stronger. Some suburban assets have been sold at higher cap rates—such as 140 Kendrick at a 9.5% cap—reflecting the weaker investor appetite for non-core suburban locations relative to core CBD premier workplaces.

Higher G&A and Incentive Costs Weigh on Earnings

Operating expenses at the corporate level are set to rise, adding another headwind to near-term FFO. Boston Properties guided 2026 G&A to a range of $176–$183 million, up $13–$20 million year over year, or about $0.09 per share at the midpoint. Roughly $0.07 per share of that increase is noncash amortization tied to a new outperformance, stock-based incentive plan that only pays out if the company’s stock delivers significant appreciation. While this structure aligns management incentives with shareholder returns, it still contributes to reported G&A expense and partially offsets the benefits of lower interest costs and growing development contributions.

Muted Near-Term Cash NOI as BXP Trades Rent for Term

Investors looking at near-term cash metrics will see relatively modest growth. For 2026, Boston Properties is guiding to cash same-property NOI growth of just 0%–0.5%, even as GAAP same-property NOI is expected to rise by 1.25%–2.25%. The gap reflects the company’s strategy of offering meaningful free rent and tenant improvement packages today in exchange for higher long-term GAAP rents and extended lease terms. The company is also accommodating tenant relocations and terminations within its portfolio, which can temporarily soften cash flows but supports higher-quality tenancy and stronger occupancy over time.

Tenant Credit Concerns Remain an Isolated, Manageable Risk

Tenant credit risk remains a watchpoint, but management presented it as targeted rather than systemic. In the fourth quarter, Boston Properties recorded about $6 million, or $0.03 per share, in credit reserves against accrued rent for two tenants: a 60,000-square-foot education services firm in Washington, D.C., and a 10,000-square-foot restaurant in New York City. While these exposures are modest—together representing around $4 million in annual rent at the company’s share—they underscore lingering pressure in certain tenant categories. The company is using reserves and close monitoring to manage these risks, while benefitting from the relative strength of demand for its premier workplace portfolio.

Guidance: Modest FFO Growth Built on Occupancy, Development and Lower Interest Costs

Boston Properties’ 2026 guidance lays out a detailed roadmap for a modest but clear return to growth. FFO is projected at $6.88–$7.04 per share, up from $6.85 in 2025, driven by same-property NOI rising 1.25%–2.25% on a base of about $1.88 billion, which adds roughly $33 million, or $0.19 per share, at the midpoint. Occupancy is expected to climb from 86.7% at the end of 2025 to around 89% by late 2026, with average occupancy of 87.5%–88.5% for the year. Cash same-property NOI is forecast at a more subdued 0%–0.5%, reflecting free rent and concessions, while termination income is projected at $11–$15 million. Developments are expected to contribute an incremental $44–$52 million in NOI (approximately $0.27 per share), partially offset by $70–$74 million of NOI lost from asset sales and another $13 million from properties taken out of service, amounting to roughly $0.07 per share of drag. The company assumes about $360 million of 2026 dispositions, with net proceeds of around $230 million and associated FFO dilution of $0.06–$0.08, alongside consolidated interest falling by $25–$37 million and total net interest expense of $581–$593 million, supported by roughly $1.5 billion in cash and the planned refinancing of a $1 billion bond.

In sum, Boston Properties’ earnings call painted a picture of a company leaning into its strengths—premier workplaces, high-return developments, and a more liquid balance sheet—while openly acknowledging near-term earnings drag from asset sales, concessions, and rising G&A. For investors, the story is one of near-term noise but improving underlying momentum: occupancy is climbing, developments are well-leased with attractive returns, and FFO is forecast to resume growth in 2026. The ultimate payoff will depend on how effectively the company continues to execute its leasing and disposition strategies amid an uneven office and life science market backdrop.