Boston Properties, Inc. (NYSE:BXP) Q4 2022 Earnings Call Transcript

Boston Properties, Inc. (NYSE:BXP) Q4 2022 Earnings Call Transcript February 1, 2023

Operator: Good day and thank you for standing by. Welcome to the BXP’s Fourth Quarter and Full Year 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there’ll be a question-and-answer session. Please be advised that today’s conference is being recorded. I’d now like to hand the conference over to your first speaker today, to Helen Han, Vice President of Investor Relations. Please go ahead.

Helen Han: Good morning and welcome to BXP’s fourth quarter and full year 2022 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 measures 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 attained. Factors and risks that could cause actual results to differ materially from those expressed or implied by forward-looking statements were detailed in yesterday’s press release and from time to time in 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 one question. If you have any 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.

Owen Thomas: Thank you Helen and good morning everyone. Today I will cover BXP’s continued strong operating performance as demonstrated in our fourth quarter and full year 2022 results. I’ll discuss key economic and market trends impacting BXP and finish with BXP’s capital allocation decisions and activities. Despite increasing economic headwinds, BXP continued to perform in the fourth quarter and had strong overall operating results throughout 2022. Our FFO per share this quarter was above both market consensus and the midpoint of our guidance. Our FFO per share grew 15% in 2022 due to development deliveries and strong leasing activity. We completed 1.1 million square feet of leasing in the fourth quarter and 5.7 million square feet of leasing for all of 2022 which is 95% of our average annual leasing over the last 10 years.

The weighted average term for leases signed in 2022 was 9.2 years. This success can again be attributed to not only BXP’s strong client relationships and our team’s execution, but also the increased share of tenant demand captured by premier workplaces, which are the hallmark of BXP’s strategy and portfolio. BXP raised $1.2 billion in additional liquidity through a $750 million unsecured green bond offering and the extension and upsizing of a bank term loan ensuring funding for our sizable and substantially leased development pipeline in a challenging capital markets environment. And lastly on 2022, BXP continues to be a decorated industry leader in sustainability having most recently won Nareit’s Leader in the Light Award named the highest ranking real estate company and 29th overall on Newsweek’s list of Most Responsible Companies and one of only eight property companies named to the Dow Jones Sustainability Index.

Notwithstanding the running debate on whether the U.S. economy will experience a hard or soft landing, commercial real estate markets are currently in a recession. Many of our clients are experiencing a slowdown in growth or reductions in top line revenue and as a result are focused on cost control including moderating headcount and space use. We all read the daily headlines of layoffs which have been most significant in the technology industry, but are migrating into other sectors. Many companies, particularly in the technology sector are halting new requirements and/or giving back space to the market. The key culprit for the current economic slowdown is inflation, which sparked unprecedented federal reserve tightening measures last year, including rapidly increasing interest rates, quantitative tightening measures, and more regulatory scrutiny of banks.

The better news is inflation is starting to come down. The federal reserves is expected to moderate further interest rate increases with the Fed funds rate possibly peaking around 5% and the capital markets with a 10 year U.S. Treasury at 3.5% and rallying equity markets are much less hawkish on inflation than the Federal Reserve. We are not able to predict the depth or length of the current economic slowdown, but its trajectory is coming into clearer focus. Our goal is to position BXP for success regardless of the economy’s trajectory by carefully managing leverage and liquidity. The leasing activity is declining due to corporate earnings pressure. The premier workplace segment of the office market continues to materially outperform. Users are increasingly interested in upgrading their buildings and workspaces to attract their workforce back to the office, resulting in an accelerating flight to quality in the office industry.

As described previously, CBRE is tracking the performance of premier workplaces in the U.S. and for the five CBDs where BXP operates, premier workplaces represent approximately 17% of the 700 million square feet of space and less than 13% of the total buildings. As of yearend 2022, direct vacancy for premier workplaces was 9.6% versus 14.7% for the rest of the market, also for all of 2021 and 2022, net absorption for premier workplaces was a positive 7.1 million square feet versus a negative 25.4 million square feet for the balance of the market. Rents and rent growth are higher for Premier workplaces and we believe the segment captures well over half of all leasing activity. Including two buildings undergoing renovation 94% of BXP’s CBD space is in buildings rated as premier workplaces, which has been and will be critical for our leasing success.

Moving to real estate capital markets for office assets, U.S. transaction volume slowed materially to $12 billion in the fourth quarter down 40% from the third quarter. Transaction volume across all real estate classes was down 36% over the same period. Mortgage financing is very challenging to arrange and available for only the highest quality leased assets and sponsors. First mortgage financing costs have risen materially over the past year based on both higher rates and credit spreads. Given the dearth of transaction activity, office asset pricing is difficult to determine, but it is clear cap rates have risen. There were a handful of BXP comparable transactions of note in the quarter. In the Route 128 quarter of Boston, two separate lab sales were completed for a total of $375 million, one sold to a REIT and another to an institutional investor.

So one of the transactions is a redevelopment pricing parameters indicate a stabilized yield of at least 6% and pricing per square foot in the mid-900s. In Sunnyvale, California, two separate and fully leased office complexes sold for $415 million, one to a private real estate company and the other to an international fund. Initial cap rates ranged from 4.8% to 6.2% and prices per square foot from 1140 to 1230 . Regarding BXP’s capital market activity in the fourth quarter, we closed both the previously described acquisition of a 27% interest in 205th Avenue in New York City and the sale of The Avant, a luxury residential building in Reston. For all of 2022 we acquired $1.6 billion of lab and office assets and completed over $860 million of dispositions of office and residential assets.

So we have additional asset sales in our targeted pipeline. Completion of the dispositions will require more liquid capital market conditions. New acquisitions will be opportunistic and solely focused on premier workplaces, life science and residential development. BXP’s volumes for acquisitions and dispositions are very difficult to predict for 2023 given current market conditions. Our development pipeline continues to be active delivering growth to our current and future financial results. This past quarter we fully placed into service the 1.1 million square foot Reston Next premier workplace, which is 90% leased on a long-term basis to Fannie Mae and VW of America. This project was delivered below budget on costs and is projected to yield 7.7% upon stabilization.

We also placed into service 880 Winter Street, a 244,000 square foot, very successful office to lab conversion project located in Waltham that is 97% leased. We purchased the office building in 2019 for $270 a square foot, spent approximately $500 a square foot on the conversion and delivered the project at an initial cash yield of 10%. We also commenced the conversion of 105 Carnegie Center, a 70,000 square foot suburban office building in our Carnegie Center asset in Princeton to lab use. This is our first attempt at Life Science at Carnegie Center and we have life science clients reviewing the opportunity. There are two projects, 290 and 300 Binney Street in Cambridge that do not appear on our fourth quarter construction and progress schedule that we are commencing in the first quarter and have an impact on our current 2023 financial projections, which Mike will discuss in greater detail.

As described on our last call, Biogen is in the process of vacating the 300 Binney Street office building and we will commence the conversion of the asset to lab use for the Broad Institute, which has agreed to lease the building for 15 years. We have also completed the necessary pre-development hurdles to commence the development of 290 Binney Street, a 570,000 square foot 16 story lab building leased to AstraZeneca for 15 years. We estimate that the project will cost approximately $1.2 billion and expect it to be delivered in 2026 at an initial cash yield in the mid-6% range. Given the annual escalations in the AstraZeneca lease, the initial FFO yield is materially higher. 290 Binney Street is a complicated development entailing the demolition of a 1136 stall parking garage, the temporary relocation of parking capacity from this garage, the construction of a subterranean vault, which will house an electrical substation currently being permitted by Eversource and other facilitating agreements.

Commencing 290 Binney Street also creates an obligation for BXP to build 121 Broadway, which is a 37-story, 4,440 unit residential tower which will likely commence in 2024. In addition to these two buildings, BXP also has remaining rights for an additional 580,000 square foot life science building in our Kendall Center development, which due to upfront infrastructure costs carried by the first two projects has the potential to be developed at significantly higher yields than 290 Binney Street. These projects demonstrate the skill of BXP’s development team in identifying an opportunity to creatively solve a community problem of locating a new electrical substation and having the expertise to bring the project to reality by solving problems for multiple interested stakeholders, thus creating a highly accretive development opportunity for BXP.

After all of these movements and including the 290 and 300 Binney Street projects, our current development pipeline of 13 office, lab and residential projects as well as View Boston, the observation deck at the Prudential Center aggregates approximately 4 million square feet and $3.3 billion of BXP investment that we project based on delivery date and lease up assumptions to add more than $240 million to our NOI over the next five years at a 7.3% average cash yield on cost when stabilized. The commercial component of our development pipeline is 51% pre-leased. So in summary, despite adverse market conditions, BXP had another very successful quarter and year with financial performance above expectations, strong FFO growth, significant leasing success and robust investment and capital reallocation activity.

BXP is well positioned to weather the current economic slowdown given our premier workplace market positions, our strong and increasingly liquid balance sheet, our significant and well leased development portfolio in progress, and our potential to identify additional investment opportunities in the current market dislocation. Let me turn the discussion over to Doug.

Douglas Linde: Thanks Owen. Good morning everybody. So Owen really spent some time describing the totality of what’s going on at BXP. I’m going to be a little bit more concentrated today and talk about demand. Every day seems to bring another announcement of staff reduction from some large or medium sized employer. And while the cons — these announcements have been concentrated in the technology industries, as Owen described, primarily big tech, we’re also seeing them in the finance industry, the legal industry, and broader corporate America. Now I can point to examples of companies in our portfolio that are growing, but we are the first to acknowledge that the pool of clients overall demand that we serve is unlikely to be growing their overall footprint in 2023, aka hard to see much in the way of positive absorption.

If there’s a silver lining in the job reductions that are being announced, it’s an improvement in the labor availability is manifesting itself in encouraging ways. Fewer job listings being offered for remote work. Forms of hybrid work seem to be sticky, but the power dynamic between employers and employees is shifting. Companies are stepping up the days that workers are asked, required, cajoled to come into the office. In our portfolio, we’re seeing a steady increase in the number of unique occupants that are in the office each week. We measure the unique number of card swipes on a daily basis where we have turnstiles. These numbers vary day-to-day and if I compare the best day in March of 2022, which is after the last sort of COVID omicron surge versus the best day in January, so a week ago, across the BXP portfolio volume is up almost 40%.

I don’t know how others measure their usage. BXP measures against the number of seats we have in our spaces. On a daily basis utilization ranges from between 34% in San Francisco, 48% in Boston, and 58% in New York City. And if we look at the number of unique users coming into our buildings on a weekly basis relative to the number of seats, we’re currently seeing as much as 82% in New York City, 76% in Boston, and 70% in San Francisco. Our clients are using their space, they’re just not coming to the office every day. As Owen said, we’ve spent a better part of 18 months redefining our business with you as being developers and operators of premier workplaces. As Owen described in his comments, the bifurcation between premier product and general office space continues to widen.

The availability rates published by the brokerage firms and reported as headlines in business publications and newspapers, track all of the space. A meaningful amount of the existing office inventory may have a higher and a better use as an alternative product and it’s not relevant to users searching for space today. Conversions will happen and we are studying non-BXP buildings in our markets, but this process is going to take years. So the published statistics are going to be sticky even though much of the availability is not attractive to users at any price. In fact, it’s hard to see a potential client looking at a BXP offering that would consider many of the buildings captured in the broad market surveys. Again, we have to acknowledge that there continues to be additions to of new sublet or soon to be direct opportunities in premier space from technology companies, 181 Fremont Street in San Francisco being the latest example.

Availability in premier space matters, but other issues matter even more. The floor plate size matters. The build out configuration matters. Amenities matter. In markets like Boston or San Francisco, parking availability matters, and the specific location matters. As we explained in our press release last night, while our reported in-service occupancy has declined in the quarter as we said it would on our last call and in our Nareit meetings in November, it is simply due to the addition of new in-service buildings that have leases that have not commenced and are reported as vacant. This includes Reston Next that is 69% occupied and 90% leased and 880 Winter Street that’s 85% occupied and 97% leased.

CBD: The mark to market on the leases we signed this quarter were up 7% in Boston, 9% in San Francisco, flat in New York City and down 11% in DC. It should come as no surprise that we think BXP’s premier workspace portfolio is highly differentiated, but on top of that, our operating teams are the best in the business. I want to describe three transactions we accomplished in the fourth quarter that illustrate our team’s creativity. In Boston we were getting a 100,000 square feet block of space back in one of our assets. The team identified a client that typically does not do direct deals with landlords, but generally looks at sublet space. We engaged the principles in a tour of the space. The space was in great condition and we were able to secure a lease that met the tenant’s desire to have an attractive annual rent as possible in a premier building with limited capital outlay and make a long-term commitment.

The lease was executed in late December. In San Francisco a client with a fast approaching termination option in its existing non-DXP building wanted to move to View space. They toured the market in early in December and then identified two spaces in the 34% available market that met their needs. On December 26th, we signed a binding letter of intent. The client understood they were not taking any counterparty risk with BXP and we signed the lease for 50,000 square feet or two and a half floors that were vacant on January 16th. In October, our New York team identified a client that had a lease expiration and no ability to renew in place in mid-2023, which is a very tight timeline. We sent an unsolicited proposal for two vacant floors in our 53rd Street campus.

With some persistence we were able to arrange a tour. We mobilized our construction department to deliver the space per their needs and in December we signed a lease for two vacant floors and an option for a third. Owen mentioned that we delivered our life science project at 880 Winter Street this quarter. We also completed our first lease at 651 Gateway. We have available space as well at our two developments in Waltham. The life science market is also experiencing a slowdown in demand. At the present time, we have not made any commitments to build additional projects other than 290 Binney Street, which is a 100% leases to AZ and the 70,000 square foot project that Owen described at Carnegie Center. It’s a challenging market. There is not going to be positive market absorption in the near-term.

We believe that BXP will outperform the market and we will lease our available space because our portfolio is fundamentally comprised of premier workspaces and the demand that is in the market wants to be in these types of properties. Medium and small financial and professional service clients will make up the bulk of the leasing we complete in 2023. We completed 72 leases during the fourth quarter. Only one lease was above a 100,000 square feet. Tour activity continues to be strongest in the Boston CBD and New York City markets where the concentration of technology users is less pronounced and the weighting market occupancy leans more heavily towards traditional, financial and professional services firms. Not surprisingly, the most active buildings in our portfolio are the GM building and 200 Clarendon.

With that, I’ll stop and turn the call over to Mike.

Michael LaBelle: Great, thanks Doug. Good morning everybody. I plan to cover the details of our fourth quarter performance and the changes to our 2023 earnings guidance. However, I would like to start with a summary of our recent capital raising activities. We’ve been very busy in the capital markets and have substantially bolstered our liquidity heading into 2023. In the last 120 days, we’ve executed on three transactions in three different markets. We sold one of our residential buildings in Reston Town Center for $141 million and a 4.3% cap rate. We issued $750 million of five-year unsecured green bonds, and in January we extended and upsized our corporate unsecured term loan to $1.2 billion, an increase of $470 million. In aggregate, the net proceeds raised from these deals is $1.35 billion and we now have liquidity of $2.6 billion, which puts us in an extremely strong position to complete our development pipeline, including our recently commenced 570,000 square foot fully pre-leased, 290 Binney Street Life science project, as well as provide additional capital for other opportunities that may arise.

We’ve also reduced our 2023 loan maturity exposure to $930 million, which is comprised of $500 million of senior unsecured notes that expired in September and five expiring mortgages totaling $430 million at our share. The majority of these mortgages have embedded extension options and we anticipate renewing or refinancing all of these facilities. Given the challenging state of the current debt markets, particularly with respect to the mortgage markets, we are very well positioned. Now I’d like to turn to our fourth quarter earnings results. We reported fourth quarter FFO of $1.86 per diluted share and full year 2022 FFO of $7.53 per diluted share. This is a penny ahead of the midpoint of our guidance and $0.02 cents ahead of street consensus.

The improvement was primarily from better performance in our portfolio with our NOI of about $4 million or $0.02 per share ahead of our forecast. The outperformance was a mix of higher lease revenue, stronger results from our hotel in Cambridge and higher building service income, especially in New York City where we see the highest space utilization. The portfolio outperformance was partially offset by a penny of higher net interest expense related to our $750 million green bond offering that was not part of our original guidance. Although not part of FFO I do want to describe that we took a $51 million or $0.29 per share non-cash impairment charge in the quarter, reducing the book value of our equity interest in our Dock 72 property located in Brooklyn, New York.

This building is owned in a joint venture where we hold 50%. The building has suffered from weekly leasing conditions in Brooklyn and last quarter the primary client contracted by two floors. It’s currently just 25% occupied, although it is 42% leased, including leases that have not yet commenced. Overall, we had a strong year in 2022. We increased revenue by 8% and our FFO by 15% over 2021. Our growth came from our same property portfolio as well as our developments and our acquisitions. Our same property NOI increased 4% over 2021, which was the high end of our range, and on a cash basis it was even stronger with cash NOI growth in our same property portfolio of 6.5% over 2021. Our development deliveries added $0.24 per share to our 2022 earnings and our acquisitions net of our dispositions added $0.10 per share.

Now I’d like to turn to an update to our 2023 guidance. As we detailed in our press release, the two most significant changes to our 2023 FFO guidance are the impact of commencing our 290 Binney Street development and the interest expense associated with our new financings. We did not incorporate 290 Binney in our guidance last quarter due to several significant contingencies we needed to clear prior to starting the projects that were outside of our control. Our team successfully closed out these items late in the fourth quarter and we were able to start the project in January. The development plan includes closing and demolishing the existing Binney Street garage. That garage produced $8.6 million of NOI in 2022, and we will lose this income in 2023 and going forward until the completion of the development, which will include a new underground parking facility.

As Owen described, the project is projected to be highly accretive to our future FFO, and by the way, all the lost garage income is incorporated into those development returns. We are also required by GAAP to expense the garage demolition costs of approximately $3.2 million. We expect to incur the demolition expense in the first and second quarters of 2023 with no impact thereafter as the demolition will be complete. These two items related to 290 Binney Street will result in $11.8 million of lower FFO in 2023 or $0.07 per share. With respect to our financing activity, we disclosed in our press release in November that our $750 million green bond offering would add $0.08 per share to our 2023 net interest expense and reduce our FFO guidance.

As a result, we expect the aggregate impact of starting 290 Binney and issuing incremental debt capital will reduce our 2023 FFO by $0.15 per share. Despite this, our new guidance range for diluted FFO of $7.8, to $7.18 per share is a reduction of only $0.09 per share at the midpoint from our guidance last quarter. That means we’ve increased the projected contribution to FFO from other areas. Also, we previously communicated the impact of our bond offering, so the reduction is really only a penny per share from our November adjusted guidance. The projected increases come from three places; first, excluding 290 Binney Street, our assumption for incremental contribution to NOI from acquisitions and development is up $0.02 per share. The increase is from higher contribution from our 205th Avenue acquisition and better than projected leasing in our development pipeline.

Doug described the increased leasing this quarter in the pipeline and some of that will generate revenues in 2023. Second our revised assumption for net interest expenses are lower by $0.03 per share net of the impact of the bond offering, and this improvement is primarily from higher earnings on our cash balances and higher capitalized interest from changes in our development spend and higher interest capitalization rate. And last, we’ve increased our guidance for development and management services income by $2 million or a penny per share, reflecting higher projected construction management fees. So to summarize, we’ve modified our 2023 guidance range for diluted FFO to $7.8, to $7.18 per share, a decline of $0.09 per share at the midpoint.

The changes are the result of costs from starting 290 Binney Street of $0.07 and higher interest expense from our bond offering of $0.08. And these reductions are partially offset by higher contributions to NOI from acquisitions and developments of $0.02 cents, higher interest income and capitalized interest of $0.03 and higher fee income of a penny. Our 2023 forecast result in a projected reduction in FFO of 5% from last year after growing 15% in 2022. The reduction is wholly due to the significant increase in interest rates as our portfolio NOI continues to grow and we have a significant pipeline of accretive developments that are delivering over the next few years. As Owen described, it appears that we are close to the end of the Fed’s tightening cycle, so interest rates should not be the same headwind going forward.

The last thing I would like to mention is that we intend to change the timing of our initial issuance of annual guidance starting next year. We plan to provide guidance for 2024 with our fourth quarter earnings release similar to the other companies in our sector. That completes all of our formal remarks. Operator, can you open up the lines for questions?

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Q&A Session

Operator: Thank you, sir. I show our first question comes from the line of Camille Bonnel from Bank of America. Please go ahead.

Camille Bonnel: Hi, good morning. Your guidance mentioned higher contributions from acquisitions and development activities, but it looks like a few initial occupancy dates for offices and life science projects got pushed back a quarter into next year. Can you just provide a bit of color on what’s contributing to this outlook and any comments specifically on how the leasing pipeline is going for your construction properties would be very helpful? Thank you.

Owen Thomas: So we did a significant amount of leasing at 2100 Penn and a portion of that will contribute in 2023. We did push out by one quarter 360 Park Avenue South based upon where the leasing activity and the development activities are on that asset. And then the other place that we had a little bit of an increase was at 205th Avenue, which is an acquisition we made and we finalized the kind of accounting of straight line rents and fair value rents for that asset. So that’s flowing through into our straight line rents next year, which our guidance is up for straight line rents. Doug, I don’t know if you want to talk anything more about the development leasing. I mean, you talked about it a little bit on notes.

Douglas Linde: Yes, I think in my comments I described sort of where we are, which is big picture we’re about 50% leased on our, the totality of our development assets one. And by the way we’ll be including next quarter 300 Binney and 290 Binney on our CIP schedule. The leasing is slow at 360 Park Avenue South. The leasing picked up as Mike said at 2100 Pennsylvania Avenue. We’re very well leased at the other assets that that got brought on this quarter. So relative to 2023, I don’t think you’re going to see much in the way of changes.

Operator: Thank you. And I show our next question comes from the line of John Kim from BMO Capital Markets. Please go ahead.

John Kim: Thanks. Good morning. You spent a lot of time at your Investor Day talking about the occupancy upside potential given your near-term expirations. And I know a lot has changed since then, but you have leased 1.1 million square feet in the fourth quarter. And my question is, how does that compare versus your expectations at the time? And as you sit here today, is 1.1 million square feet, is that a good run rate for the rest of the year?

Owen Thomas: Well, you’re asking if I described how we were thinking about the world in September versus the way we’re thinking about the world today, I would tell you that there’s been a material change in the overall economy relative to the risk of recession and I think there is less demand in the overall environment than there was then. We still feel really good about the overall quality of our assets and the ability to capture incremental demand in the marketplace due to the nature of the tenants that are looking for space. And so again, we actually exceeded our own internal projections at the end of the year because we thought we would be slightly below where we were in the third quarter. And again, if you sort of adjust for bringing these new assets into service and simply put them in at their actual leased occupancy or remove them, we actually increased our overall occupancy during the year.

And so I would tell you, if you look at our exploration schedules for 2023 and you look at the 1.5 million square feet we’ve already leased, and we will, again, hopefully be leasing somewhere in the neighborhood of 750,000 to 1 million square feet per quarter, we should again be increasing our occupancy as we move through 2023.

Michael LaBelle: Yes, John, and just to add, I mean, we’ve maintained our guidance for our same property portfolio and for our occupancy. So our kind of outlook is similar to what it was when we gave guidance last quarter. I think that our occupancy in the first quarter, so three months from now will likely be lower or flat than what it is today. But we’ve got a lot of leases that are already signed that Doug described, the 1.5 million square feet that are coming into play. And I think that’s starting in the second quarter we’re going to see our occupancy grow from there through the rest of the year. And a lot of this occupancy is in coming in some of the major markets like New York City, we’ve got a number of leases that are signed that we’ll be starting in the second quarter.

Doug described a deal in Boston that we did just in December, and that deal is going to start in the second quarter. And we also have some deals in Reston starting. So I think that we feel we’ve been conservative in our approach to our guidance based upon what we see future leasing activity as, but we feel good about the guidance that we provided.

John Kim: Thank you.

Operator: And I show our next question comes from the line of Steve Sakwa from Evercore ISI. Please go ahead.

Steve Sakwa: Yes, thanks, good morning. I didn’t know if you could talk a little bit about maybe Platform 16 and 360 Park Avenue South. And I know both of those buildings were sort of geared towards tech tenants and Doug given your comments about slowing tech demand and even some of these tenants subleasing, I’m just curious how you’re maybe altering the marketing program there or do you just need the macro environment to really get better to see traction on both of those buildings?

Douglas Linde: So let me ask Hilary Spann to talk about 360 Park Avenue South, and I’ll ask Bob Pester to comment on Platform 16.

Hilary Spann: Thanks, Doug. Hi, Steve, how are you doing? So at 360 Park Avenue South, the redevelopment is underway. We are very far along in discussions with a retail tenant that is going to be very exciting when we’re able to announce it. I think it’s fair to say that the demand for 360 Park Avenue South is diversified, but tilted toward tech and media firms because of its location in the Midtown South submarket. And to the point that everyone has been making on this call, that leasing velocity has slowed dramatically starting probably in the end of the second quarter of last year, maybe early third quarter of last year. And so we’re proceeding at pace with the development, and we expect to deliver it as per our original estimates.

And some of the demand that we have seen for that building is actually in a more traditional industry groups, finance, the industries that support finance, et cetera, but no question that the leasing has slowed there. And so we’re thinking that rather than looking at 150,000s, we may be looking more at 50,000 to 75,000 square foot tenants to fill the demand for that building.

Steve Sakwa: Bob, thank you.

Robert Pester: Yes. Hi, Steve. So on Platform 16, the project doesn’t deliver until 2025. And as we’ve told them many times before that San Jose Silicon Valley market is a build and they will come market that typically tenants don’t look at the buildings until they can walk the building or get a feel that this deal is going up. We still see it as a tech building. It’s the only building that’s going to deliver in that 2025 timeframe in the Silicon Valley it’s new. So we’re still optimistic that over the course of the next 24 months that tech user will materialize for the building.

Operator: Thank you. And I show our next question comes from the line of Blaine Heck from Wells Fargo. Please go ahead.