Good day, and thank you for standing by. Welcome to BXP's Second Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers presentation, there will be a question-and-answer session. [Operator Instructions]. Please be advised that today's conference call is being recorded. I would now like to hand the conference call over to your first speaker, Helen Han, Vice President of Investor Relations. Please go ahead.

Good morning, and welcome to BXP's second quarter 2024 earnings conference call. The press release and supplemental package were distributed last night, we 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 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 Ritchie, 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 only one question. If you have an additional clarity 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, everyone. BXP's performance in the second quarter once again demonstrated the relative market strength of the premier workplace segment of the commercial office industry as well as BXP's strength and execution. Our FFO per share was $0.06 above our forecast and $0.05 above market consensus for the second quarter. Further, we raised the midpoint of our FFO per share guidance for 2024 by $0.08. We completed over 1.3 million square feet of leasing, which is 41% greater than the second quarter of 2023 and close to our 10-year average leasing volume for the second quarter. As our leasing volume continues to escalate exceeding current lease expirations, we expect our occupancy will increase over time. Weighted average lease term on leases signed this past quarter remained long at nine years. On sustainability this past quarter, we released our 2023 Sustainability & Impact Report, hosted our third annual Sustainability & Impact Investor Update and were recognized by Time Magazine as one of the world's most sustainable companies, ranking number one in the U.S. among property owners. Delivering sustainable real estate solutions is increasingly important to our clients as well as the communities where we operate, and decreases our cost of capital given the growing number of ESG investors interested in our debt and equity securities. Moving to macro market conditions. We continue to experience market tailwinds for the two most important external forces impacting BXP's performance, interest rates and corporate earnings growth. The U.S. inflation report released on July 11th reflected a 3% inflation rate for June, lower than expectations, sparking new forecasts of accelerated interest rate cuts by the Fed as well as lower market yields for the 10-year U.S. Treasury. Lower interest rates are obviously favorable for real estate and BXP's valuation and for…

Thanks, Owen, I really enjoy celebrating my birthday with all of you on the call every two years, one of the highlights. So as we described during our NAREIT June meetings and the webcast that we did, the trend line of BXP's leasing activity in the second quarter of '24 picked up materially relative to what we executed in the first quarter and what we discussed on our last call, all really good stuff. As of June 30, we've completed 2.2 million square feet of leasing for '24. When we spoke to you during our May call, we stated our pipeline of leases under negotiation at that time, May 1, was 875,000 square feet. And as Owen highlighted, we signed leases for 1.32 million square feet between April 1 and June 30, a lot more. And our active pipeline of leases under documentation today has grown to 1.39 million square feet. So if we complete this pool of transactions, we will have leased 3.59 million square feet of space, exclusive of our leases and documentation. We have an additional set of transactions under discussion totaling about 850,000 square feet. So if we execute 50% of those transactions, we will more than achieve our leasing guidance of 4 million square feet for the year. This quarter, we completed 73 transactions, 37 lease renewals for 830,000 square feet, 36 new leases encompassing 500,000 square feet. 12 clients expanded into 228,000 square feet of additional square footage, while we had 4 contractions totaling 63,000 square feet. 45% of our absorption was growth from our existing client pool. As a point of comparison, last quarter, we completed 61 transactions with 29 renewals, encompassing about 400,000 square feet and 32 leases for 494,000 square feet, and we had only 3 expansions for 18,000 square feet,…

Great. Thanks, Doug. Happy birthday.

Thank you.

So this morning, I'm going to cover the details of our second quarter performance and the increase to our 2024 full-year guidance. So for the second quarter, we reported funds from operations of $1.77 per share that exceeded the midpoint of our guidance from last quarter by $0.06 per share. Our portfolio NOI came in $0.01 ahead of the midpoint of our guidance. The majority of this resulted from lower operating expenses in the quarter. Our rental revenue was closely aligned with our expectations. And as Doug described, our occupancy decline was anticipated in our guidance as we've covered with you in the last two earnings calls. $0.05 of our earnings beat came from a reduction in non-cash interest expense that we don't expect to recur and that you should not incorporate in our run rate going forward. The change is due to our reassessing of future earnout payment related to our Skyline multifamily project in Oakland. The reassessment results in the reversal of $9 million of previously accrued non-cash interest expense. Our structuring of this deal with the protection of an earnout in lieu of an upfront land purchase is saving us nearly $40 million of projected land payments. So moving to the full-year. We're increasing our FFO guidance for 2024 to $7.09 to $7.15 per share. At the midpoint, this equates to $7.12 per share and is an increase of $0.08 per share over the prior guidance midpoint. In addition to the second quarter outperformance, we anticipate $0.02 per share of better projected portfolio NOI in the back half of the year from our in-service portfolio. We've negotiated three lease terminations, all in Boston, with payments that will add incremental income in the second half of 2024. Net of lost rental income or NOI is projected to be…

Thank you, sir. [Operator Instructions]. And I show our first question comes from the line of Nick Yulico with Scotiabank. Please go ahead.

Thanks. Good morning. So I appreciate some of the clarity there on the occupancy guidance and the leasing activity. Sounds like some of this is -- or a lot of this is sort of timing related in terms of the adjustment to the occupancy and same-store guidance. Is there a way to give us a feel for if some of the recent leasing pace continues, how that could translate into occupancy growth next year? I know Owen did talk earlier about getting to the point where occupancy will increase over time. I mean any sort of early thoughts on 2025 impact? Thanks.

So Nick, this is Doug. So I think that Owen's comment was 100% accurate, which is our occupancy is going to increase. Mike would also tell you that we have a cycle with regards to particularly our CBD leasing, which by the way, we're in the mid-90s on an occupancy level right now. Where those leases take some time to go from lease to occupied, right? So we have a 200,000 square foot piece of space that's available in a particular building, and we sign a lease for it, but we may not see actual occupancy for 12 to 16 months because the tenant has to actually physically build out the space. And so it's a little hard for us to give you a tight projection on when our occupancy number will actually start to materially increase. The trajectory is -- there's no question it's going up. And if we end the year again with this new adjusted in-service portfolio with the availability that we have in these life science buildings, in the mid 87s, we will -- my guess is, be in the 88 in 2025, and we could get lucky relative to delivering some space where the tenant takes it in and as condition. And suddenly, we get a big pickup in "occupied", and therefore, we can start recognizing revenue. Those are the kind of things that would make a material difference, but we're not counting on those.

Thank you. Our next question comes from the line of Steve Sakwa from Evercore ISI. Please go ahead.

Thanks. You guys talked about maybe pursuing some new apartment developments. I'm just curious if you sort of look at pricing today for materials and kind of current rents, what sort of yields do you get on un-trended rents today? And it sounds like you might bring in JV partners, but how would you just sort of think about funding those? And what percentage of those deals would you likely keep?

Yes. Steve, it's Owen. So most of what we're pursuing is on land or other assets that we control that we are re-entitling. There's -- it's no secret that there's a shortage of housing, certainly affordable housing in this country broadly. And I think communities are a lot more interested in entitling housing projects today than they have been in the past. And that's a real help to our activities. The obstacle is what you described, which is costs, which have gone up not only for materials but also capital, given interest rates. But to come to your question, we have a pretty significant portfolio of land that we control that we're pushing through this entitlement and design process, but not all the projects pencil. What we're trying to get on a project basis is mid-6 yields and higher. And as you also suggested, our goal would be to bring in JV partners for that. I mentioned this Skymark project that we are currently opening in Reston, we own 20% of that project and have an 80% JV partner. And our hope is to establish similar types of joint ventures for these projects in our pipeline.

Yes. And Steve, this is Doug. I will just make the following additional comment, which is this stuff works with stick frame. So the things that we are looking at in our Suburban I'd say, non-office likely potential properties in the Greater Waltham market as well as in Northern Virginia are the places where you will probably see us being able to start things sooner rather than later. CBD construction and CBD rents are much harder to pencil right now. And all of our teams are looking at it and studying it, but we don't -- we're not sure that 2025 will be a position from -- an economic start on that stuff.

Thank you. And our next question comes from the line of Michael Griffin with Citi. Your line is open.

Great, thanks. Owen, I want to go back to your comments around expectation for forward earnings growth and kind of how that translates to leasing. Should we take it as the fact that there is a pivot to earnings growth improves the outlook versus maybe the magnitude of what corporate earnings growth is expected to be maybe relative to history? And then I imagine that a lot of that growth is coming from tech companies, just given the fact that they've been more hesitant to lease space as we've seen over the past couple of years, how does that maybe factor into using that metric as a good forward indicator of leasing demand?

Yes, Michael. Good morning. So we provide in our IR deck, a graph of S&P 500 earnings growth versus BXP's leasing activity. There's a clear correlation. Not all of our clients are in the S&P 500, but S&P 500 earnings growth is just an indicator of, I would say, corporate health. And when companies are growing and they're healthy, they're more likely to invest higher and lease space. So I think it's real. And this year, it's proving itself once again because in '23, we had more muted leasing activity. There was no S&P 500 earnings growth. This year, the growth is stronger and our leasing is stronger. So that correlation holds. You are 100% right. I think, in terms of your comments about tech leasing. When you look at the markets today, I would say outside of tech and life science, our leasing is almost back to normal, whatever that is defined as pre-pandemic. Those are the two places that there is a gap. And I recognize some of the S&P 500 earnings growth is coming from tech companies. But again, when you look at the data, that correlation holds, S&P 500 earnings growth to leasing, and it seems like it's holding this year in 2024.

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

Thank you. You pushed back the stabilization dates of several development projects. How should we think about the likely lease-up period versus those new dates, and Mike, if you can remind us of your capitalization interest policy. I know in the past, you stopped capitalizing as soon as initial occupancy took place. And I just wanted to clarify that position.

So John, I think that the stabilization dates assume a 85% occupied square footage of the building. So that's sort of how that works. So presumably, the leasing would be done in the 12 to 18 months prior to that date occurring and we would be building out space and generating revenue when those tenants actually moved in. And I'll let Mike talk about our capitalization method.

So the policy around capitalization is that we stop capitalizing interest and any expenses associated with assets like real estate taxes, 12 months after the base building is completed. So like for 103 CityPoint and 180 CityPoint that Doug described that is going into the in-service portfolio later this year, those base buildings completed in the third and fourth quarter '23. So in the third and fourth quarter '24, the capitalized interest will stop on those assets. And so they're not fully leased. So we'll have some impact there. The 751 gateway asset completed its base building in the second quarter of '24 and 360 Park is later this year. So those will have some impact next year and then later next year for 360 Park. That's kind of the timing associated with how the capitalized interest works.

And again, unfortunately, it's just geography, but we throw all of these development assets 12 months after we've completed base building into our in-service portfolio wherever they are leased. And so they have a muting effect on our occupancy, even though they're not really apples-to-apples part of the in-service portfolio that we're describing on a sort of quarter-by-quarter basis.

Thank you. And I'm showing our next question comes from the line of Blaine Heck from Wells Fargo. Your line is open.

Great, thanks. Good morning. Owen, conversations about the potential impacts of the election are ramping up. So I wanted to get your thoughts on whether you see any possible changes in regulations or the overall economic or political environment that would be impactful to your business under either party?

Yes. I don't think it's a huge difference for us. I mean, clearly, there's some tax issues that are coming up over the next couple of years where if there's a -- one party or the other gets elected, it could have some impact. But I will say state and local elections have a larger impact on our day-to-day business. What's going on with real estate taxes in our city, what's our ability to entitle real estate, what's going on with commuter -- transit, what's going on with safety and crime and are -- in the streets of our cities. Those types of issues have a bigger impact on us than issues at the federal level.

Thank you. And I'm showing our next question, comes from the line of Camille Bonnel from Bank of America. Please go ahead.

Good morning. I wanted to pick up on the portfolio's CapEx spend for the first half of the year, which looks to be tracking in line with 2023 levels and well below your historic average. So could you provide an update on the CapEx assumptions you have planned, given expectations for higher lease commencement?

So our maintenance CapEx, I would suggest it's going to run somewhere between $80 million and $100 million this year, which is in line with, I would say, historical type of averages, maybe a little bit lower. We do have some repositioning CapEx that is more meaningful this year than it was last year, primarily at 200 Clarendon Street, where we're putting in a pretty significant amenity center that is going to result in tenant retention and higher rents in that asset. So you may have noticed this quarter, there was a little bit more of repositioning capital. On the leasing side, this quarter was lower because we just didn't have that many leases commenced this quarter. It was just a little bit bulky, obviously, quarter-to-quarter on our leases commenced. And I think that a run rate -- annual run rate is $200 million to $240 million of lease transaction costs that would be part of our AFFO calculation.

Thank you. And I'm showing our next question, comes from the line of Connor Mitchell with Piper Sandler. Please go ahead.

Hey, good morning. Thanks for taking my questions. Kind of following along with Mike's answer there and providing some CapEx on adding some amenities. I was just wondering, with the leasing coming back, you guys had a good quarter of leasing volume and building out the pipeline some more, do you feel it's time to really reengage in building amenity upgrades in existing buildings? Or are you still looking for a little bit more of a push from the demand side?

So this is Doug. What I would say is I'm going to ask some of the regional management teams to discuss what's going on, but we have effectively done almost every building from the sort of a reimagination, reamenitization project perspective, it's either underway or it's just about complete. And I can let Rod talk about what's going on Embarcardero Center and I'll let Peter, Jake talk about the things that we've been doing in the Greater D.C. market, and then Brian can discuss 200 Clarendon Street, but that's kind of the last of the major changes. Hilary has a few little things going on the margin in some of her buildings. But why don't we start with Rod.

Yes. So as Doug mentioned, we are in the process of doing an amenity center at Embarcadero Center. And this is -- we have always had a conference facility. And what we've done now is basically we're decommissioning that conference facility and we're building a brand-new both conference and amenity center over three Embarcadero. So that is under construction, and it's got both indoor and outdoor space. It's going to be available primarily to our tenants, but it will be available to the general public as well. And we're excited about it. And it's an absolute must. I mean we are making those same improvements, similar in concept anyway at our other projects, and it's demanded by the tenants. So very excited about getting this one done.

Pete?

Hey, good morning. This is Pete Otteni in D.C. So I would say we've been, as Doug said, through several major projects here in the D.C. market. We just opened Wisconsin Place in the Chevy Chase Maryland market here recently to great fanfare and we're optimistic that, that's going to translate as Rod was just describing, and Doug did into both increased demand and retention at the property. We're under construction at Sumner Square, and that will be done later this year. That's the result of some leasing that we have -- Jake and his team have mostly already done, and that was demanded by some of those tenants through part of their renewal. And then upcoming is at 901 New York Avenue as part of our lease renewal with Finnegan late last year and early this year. we're doing a pretty major renovation of both that lobby, the existing lobbies and the replacement of the amenity center on the lower level. So I would say we are mostly through that in the D.C. market. There's no major ones on the horizon, and I'll see if Jake has anything to add.

No, nothing to add other than in terms of the repositioning that we just opened at Wisconsin place. It's been met with quite a bit of fanfare. We've had some broker events, and there's definitely some activity and interest in that space now, which is exactly what we wanted to have happened. And at 901 New York Avenue, we will hopefully commence construction on those renovations in the first quarter of next year. And again, a lot of that information has been shared with the brokerage community and with the plus or minus 100,000 square feet of vacant space we have in that asset, we've got some really good activity on that space.

Bryan, do you want to just sort of talk about 200 Clarendon Street?

Yes. We're towards the tail end of our investments in execution. Doug mentioned at 200 Claredon, that's a three-year process of design and inclusion with our clients in that building also tied to commitments to renewal. And that is under construction as we speak and going well. At the Prudential Center, our View Boston should be included in upgrade of amenities for our clients. View Boston has a tremendous amount of design factors that were put in by input from the clients, the major clients at the Prudential Center for event space for meeting space, et cetera. And then we finished at 140 Kendrick in the urban edge portfolio to tremendous success, really great feedback on that high utilization. And if we do any others, it will be on the margin in, let's say, one of the possible urban edge larger assets, but it would be insignificant compared to our other investments.

Thank you. And our next question comes from the line of Caitlin Burrows from Goldman Sachs. Please go ahead.

Hi, good morning everyone. You guys talked about how the tech and life science areas are two where leasing is not quite back to normal, whatever that might be, but that the other areas are. So just thinking of the tech and life science, I think the details are different for each of them. But like what do you think gets them back? How much downsizing is there still to see? But yes, could you talk about that a little bit more?

Sure. So Camille [ph], this is Doug. So on the tech side, I actually don't think it's about downsizing much anymore, Caitlin, it's really at this point about whether they want to make high value-added investments in their real estate relative to their current platform of human beings and where their spaces are. So as an example, you may see some tech companies, large tech companies making incremental expansions in particular cities because that's where they think talent is. But on the margin, those companies are not growing quickly. We are starting to see dollars, right? And you're seeing this both on the life science side as well as the venture side being raised by companies that will be the next group of organizations that are doing something that to create value for the world at large, the business community, the improvement in the human condition from the perspective of life science and elongating the value of people's lives. That pipeline of money, it takes time to move into the organizations and those organizations to really create for new opportunities for growth from an office perspective. It's been going on. We're hoping that we'll start to pick up, but I'm not smart enough to know when that's going to happen, but we know it will happen. And as we think about our cities and our portfolio, we have a view that there will be more creation of new jobs and new economic activity in life science and in technology broadly thinking, then there will be in traditional financial services to asset management, professional and administrative services. So we're banking on that happening. It's just a question of when, and it's really hard to be able to sort of give you a time frame for that.

So and just to add a little bit to what Doug said, and I've mentioned this on prior calls, the -- a lot of the large tech companies took a lot of space in '21 and '22. And I think there's a digestion process that's underway, and we can't really forecast when that completes. But again, I would reiterate Doug's point about where the relative growth will be. And then I think the other thing that's interesting that I mentioned in my opening remarks is what are the in-person work policies of the tech companies, and Salesforce just this last month or last couple of months announced that starting in October, they expect almost all their employees to be in the office three to five days a week, and that's a big change in their policy, and they're one of the biggest employers in San Francisco. So I think that's going to have an impact as well.

Thank you. And our next question comes from the line of Vikram Malhotra from Mizuho. Please go ahead.

Thanks for taking the question. Just two clarifications to the comments. I guess, one, you've described sort of East Coast and financial leasing picking up, particularly in New York, but maybe more broadly, how much of that is focused primarily on the premium product versus sort of the general market? In other words, is it still the divergence, or is the market actually picking up? Number one. And then number two, just in your comments on leasing and what that may mean for occupancy. Could you maybe give us more color how much of that is actually renewal? Or how much visibility today do you have on renewals into '25? Thanks.

Owen, do you want to take the first question?

Yes. I mean, Vikram, the hiccup is clearly in the premium buildings. I gave you all the statistics on it, the asking rent gap. There's a lot of speculation. Well, as the market improves, this gap is going to be decreased. So that hasn't happened. It's definitely stayed flat, if not grown. I do think in certain locations, though, that are very desirable like around Grand Central Station, the market strength does creep into the -- beyond the premier segment. I think that's true for special locations.

And Vikram, on your question about sort of renewal versus new. So I -- one of the things I provided in my remarks were the amount of vacant space that we leased in each quarter and what's going forward. And so that number is coming out to somewhere around 40% of our leasing is those types of added occupancy generators, and the rest of it are renewals. And generally, when we're doing renewals, the majority of it is forward, but some of it is relatively broadly speaking sort of in the contractual expiration period of the given year. So we do have a bunch of leasing that we're doing for 2024 expirations, but the majority of that is for 2025 and 2026.

Thank you. And I show our next question, comes from the line of Floris van Dijkum from Compass Point LLC. Please go ahead.

Good morning guys. Thanks for taking my question. Owen, you mentioned something in your comments about potentially transaction activity in the office market maybe starting to pick up and some of the pipeline as we think about it, the foreclosures maybe starting to transact, could you maybe talk a little bit more about that part of the market, what percentage of those assets could be premium or the ones that you would target? And maybe also talk about the disconnect between buyers and sellers? And what does that mean for your -- are people closer to your cost of capital? Or are they -- or expectations on the seller and on the lenders still too high?

Good morning, Floris. Yes. Floris, first of all, on the foreclosure activity and short sales, loan sales and things like that, there's been very limited activity in those areas for premier workplaces. I think generally, the premier assets, usually they are less leveraged. They're in stronger hands, and if they are leveraged, they're usually performing pretty well. And if they have a problem, the owners are doing whatever they can to fix the loans. So we just haven't seen much foreclosure or distressed activity with the premier assets for all those reasons. That all being said, we've gone -- we've had a deal drought here for a couple of years. And investors, other owners, they got to get on with their business plans and at some point, they need to transact. And so I do think we're seeing increased, as I described in my comments, testing of the market of certain assets, I won't get into any specifics, but there are definitely a handful of buildings right now that are being offered in the market, I think they're premier, and it's just going to be interesting to me if that bid-ask spread gets bridged. Because right now, I do think there's a bid out there for premier assets. And so far, no owners have elected to take it. And I think the second half of this year will be interesting to see if any of those deals come to fruition.

Thank you. And I show our next question, comes from the line of Reny Pire from Green Street. Please go ahead.

Hi, guys. Thanks for taking the questions. Just curious, I appreciate your comments on the difference between premier assets versus the broader market averages, but just trying to get a sense for at what point you think you can start to see a pickup in net effective rents for you guys in premier portfolio. Is this something that given the difference in rents between premier and non-premier that you don't think you'll start to see? Or sort of just how should we be thinking about prospects for net effective rent growth?

So I'm not entirely sure of what you want to use as your from when-to-when point. But I can tell you that net effective rents in our Park Avenue submarket of Manhattan and I'll let Hilary comment are higher today than they were six months ago, and they're higher today than they were a year ago. I can say the same thing definitively about the Back Bay submarket of Boston, but it's going to take a long time for that to occur in markets where there is a significantly larger availability rate because of the nature of having to basically steal market share from existing embedded occupancy. And Hilary, you can maybe comment on sort of transaction costs and what's going on with the rents in Manhattan because it's obviously the clearest example of what's going on from an NER perspective.

Sure. Thanks, Doug. So in the Park Avenue submarket, which I think is the easiest one to focus on in Manhattan, the vacancy rate, as noted earlier in the call, is less than 8%. And when vacancy drops below, I'd say, about 10%, folks start realizing that if they want to be in that submarket, the pickings are very, very slim and they have to move if they want to get leases done. And that's exactly what we've seen. We first saw face rates rise and concessions remain stable, which is a little bit unusual. In past cycles, you would first see concessions bleed out of the market before face rates began rising. Nevertheless, that's what happened. Face rates have risen. Concessions have remained roughly stable, and so that has caused an increase in net effectives. Now anecdotally and very, very and consistently, we're starting to see concessions move in a little bit. And so we're hopeful that, that means that net effectives will accelerate. But I would just reiterate that there isn't a lot of availability in the strongest submarkets to test that theory against. In addition to the tightness in the Park Avenue submarket and what that's done for net effectives, I would say that it has bled outward in the sense of creating more leasing velocity in adjacent submarkets but those submarkets remain sort of full with concessions. And so I think until those markets demonstrate more tightness in occupancy, we'll see stable concessions and rents flat for the near term.

Thank you. And our next question comes from the line of Peter Abramowitz from Jefferies. Please go ahead.

Yes, thank you. Just noticed that the operating expense growth was a little bit elevated in the same-store portfolio this quarter. Just wondering if you could comment on that, anything you would call out and anything to look for the rest of the year?

I actually think our operating expenses were less than we expected them to be. So I think maybe they increased a little bit because there's a little more utilities expenses in the second quarter and repair and maintenance in the second quarter versus the first quarter. We generally get started a little bit slower at the beginning of the year on some of those items. And I think the third quarter is generally higher than the second quarter seasonally as well because of weather conditions again utilities. And I would expect R&M to be a little bit higher too, and that's kind of in line with where our budget is and that it would be probably a little lower in the fourth quarter.

Thank you. And I'm showing our next question, comes from the line of Omotayo Okusanya from Deutsche Bank. Please go ahead.

Hi, yes. Good morning. Thanks for taking my call. A quick question on leverage. Again, our math picked up again a little bit this quarter. You do have kind of debt that matures next year, that'll probably refinance to a higher rate. Just curious how we should kind of think about the trajectory for leverage over the next six to 12 months and also, if the rising leverage is causing any issues, concerns, if I may use those words, with credit rating agencies?

So our leverage ratio is impacted by the funding of our development pipeline in a negative way. And then in a positive way when that development pipeline delivers and starts generating EBITDA, right? So every quarter, we're funding developments that aren't going to be completing and delivering for a year or two or three. We have two major developments in Cambridge that are going to be delivering, one, 300 Binney Street delivering in the first quarter of next year. And the other one is 290 Binney Street that is 3x the size of that one, that's going to be delivering in 2026. Both of those are 100% leased. So when that stabilize, it will moderate the leverage. The other developments we -- as was mentioned earlier, we pushed out a little bit, but when they stabilize, they will also moderate the leverage. So that will be, I'd say, impactful. And when we think about leverage, we think about kind of pro forma leverage for those types of investments, which would reduce our leverage probably a full turn or so, plus or minus, which would bring it back down below into the 6.5x to 7.5x range, right, which is where we kind of typically target. So I think we're temporarily higher than that, but we were going to stay higher than that for the next several quarters, the time frame that you just described as we complete this pipeline.

Thank you. And our next question comes from the line of Upal Rana from KeyBanc Capital Markets. Please go ahead.

Great, thanks. Good morning. Could you give us a little more detail on the terminations. It looks like one of them was from [indiscernible] at 1100 Winter. But what were the others? And how do these transpire, any timing associated with these would be really helpful. Thank you.

So the terminations -- not all of them have occurred. The one that you mentioned was in the media. And one of them -- that one was a pure termination. The square footage in the media was inaccurate, however, it only impacts 20,000 square feet of our occupancy in the near term. The other two, one is the tenant that we're downsizing and relocating within our portfolio. They're staying with us. And we've got another tenant that is 4, 5x their size that is going to be coming in and taking their space as well as other vacant space that is in that building. So that deal is not signed yet, but it's something that we're working on, and we're confident in. And then the last one is a tenant at the Prudential Center, where we have a tenant whose business plan has changed. They've been looking to vacate their space and we have somebody else that wants it. So that tenant is going to be coming in. But the exiting tenant will be leaving in either the third or maybe the beginning of the fourth quarter, probably the third quarter, but the new tenants is not going to be coming until the first quarter of '25. And so that's really the situation we're dealing with on these is the exiting tenants are leaving in 2024, and the new tenants aren't coming until 2025. We also had a similar situation in the New York City market at 601 Lex, where we have an expanding tenant that's looking for space, and we found somebody that would exit. And so that tenant has exited, but the expanding tenant will not be going in until mid-'25. So it's just an example, if you add up all that square footage, it's 100,000 square feet of occupancy that's hurting us this year, where we're really -- it's really a good thing because we're bringing in a client that's a growing client who wants to sign a long-term lease with a client who's closer to their expiration date, maybe their plans have changed. In the case of New York, the client had already signed a lease in another building a couple of years ago because they needed space and so they were able to just consolidate into that building. So every situation is a little bit different. It's all case-by-case. But this is kind of what we do. We try to manage these buildings and work these buildings so we can limit downtime, increase rents and cover exposure.

Thank you. And our final question comes from the line of Ronald Kamdem from Morgan Stanley. Please go ahead.

Hey, just a quick one for me. Look, if I think about this year on the same-store NOI front, some expirations that you guys have been able to backfill quite nicely, but still sort of end up being a headwind to the same-store NOI. So as we roll into next year, maybe can you talk about whether it's commencements or sort of larger exploration, sort of those two aspects, how should we think about as you're rolling into next year sort of potential headwind tailwinds, either from commencements or expiration? Thanks so much.

So the same-store NOI this year, which is modestly down, right, is due to occupancy being a little bit lower this year than it was last year, right? We've actually offset that a little bit with rent growth. So rents are actually higher than they were last year, but the occupancy has a much bigger impact than the roll up or the roll down of a lease by 5% or 10%. So as Doug described in his occupancy views and we can't -- we don't know the exact timing, but our expectation is that we will start to have more -- some occupancy growth next year. And if we get occupancy growth, that should go into the same-store, so that will help the same-store.

Thank you. And this concludes our Q&A session. At this time, I would like to turn it back over to Owen Thomas for closing remarks.

We have no more closing remarks, and I would like to thank everybody for their interest in BXP. Have a good rest of the day.

And this concludes today's conference call. Thank you for participating. You may now disconnect.