Blaine Heck

Blaine Heck asked about the implications of the Quixote write-down, specifically if it signals plans for a sale and if there are interested buyers. He also inquired about potential broader sales within the studio portfolio. Additionally, he sought details on the Hollywood Media Portfolio's CMBS maturity, including the tenor of lender conversations, potential for extension, and the need for equity infusion. Finally, he asked about opportunities to monetize 1455 Market prior to the city's purchase option and the city's right of first refusal.

Answer

Victor Coleman, CEO and Chairman, explained that Quixote is being managed down to be a flat business by year-end, with Glenoaks' alternatives to be evaluated. He noted that the studio market is still early in evaluation, but asset quality is performing. Harout Diramerian, CFO, clarified that the Quixote write-down was due to accounting rules for operating businesses. Victor Coleman declined to discuss specifics of the Hollywood Media Portfolio loan negotiations due to ongoing dialogue. Regarding 1455 Market, Victor Coleman stated the city's purchase option is a fair market value purchase with a $200/sq ft floor, and the city has not indicated interest in buying. He also mentioned interest from JV partners for the asset once stabilized.

Blaine Heck inquired about the implications of the Quixote write-down, specifically if it signals a potential sale of the business or broader studio portfolio, and whether there are interested buyers. He also asked for an update on the Hollywood Media Portfolio loan, including extension possibilities and potential equity infusions, and the opportunity to monetize 1455 Market before the city's purchase option.

Answer

CEO Victor Coleman stated that Quixote is being managed down to be a flat business by year-end, with no specific plans for Glenoaks yet. CFO Harout Diramerian clarified the write-down was due to accounting rules for operating businesses. Victor Coleman declined to discuss specifics of the Hollywood Media Portfolio loan negotiations but expressed satisfaction with progress. Regarding 1455 Market, Victor Coleman explained the city's option is a fair market value purchase with a $200/sq ft floor, and while the city hasn't indicated interest, multiple JV partners are interested in participating post-stabilization.

Blaine Heck of Wells Fargo Securities inquired about potential future tenant move-outs, the expected pace of office occupancy recovery, the company's balance sheet priorities, and the strategic cost-cutting measures at the Quixote studio business.

Answer

Chairman & CEO Victor Coleman confirmed there are no significant tenant issues that would derail the recovery and projected reaching a mid-80s leased percentage by 2026. He stated the focus has shifted from the balance sheet to leasing execution. President Mark Lammas detailed that Quixote's cost-cutting efforts have lowered the breakeven point and could generate $30-40 million in NOI if show counts normalize.

Blaine Heck of Wells Fargo inquired about the status of the three additional asset sales beyond the initial tranche, asking if they were close to contract. He also asked why the total proceeds target had increased and requested clarification on what constitutes a "high-caliber show" returning to the studio business.

Answer

CEO Victor Coleman confirmed that of the additional sales, one is in contract and another is in LOI negotiation, with the higher proceeds target reflecting good pricing and the potential inclusion of a larger, unmarketed asset. EVP of Leasing Arthur Suazo explained that "high-caliber shows" refers to long-running episodic television series that require multiple stages and significant ancillary services, noting a significant increase in inquiries for such productions in January.

Blaine Heck inquired about the drivers behind Hudson Pacific's accelerated asset sales, the rationale for securitizing additional office assets, and the potential impact on debt covenants. He also asked about the long-term stability of studio production in Los Angeles and whether new tax credits could reverse any production outflow.

Answer

CEO and Chairman Victor Coleman explained that the assets being sold are non-core and that the company is exploring a JV or CMBS structure for a portfolio of six other assets, which would not impact covenants. Regarding the studio business, Coleman expressed confidence that proposed state tax credits would help normalize production levels in Los Angeles, which he noted is part of a nationwide industry slowdown, and that activity is already showing signs of recovery for 2025.

Blaine Heck asked about the potential impact of Artificial Intelligence (AI) on Lineage's business, encompassing both warehouse operations and the Global Integrated Solutions (GIS) segment, given the company's existing technology investments.

Answer

Greg Lehmkuhl, President and CEO, asserted that cold storage is fundamentally insulated from AI disruption as it bridges food production and consumption, a need AI cannot eliminate. He highlighted Lineage's decade-long investment in data science, cloud-native infrastructure, and API-oriented systems. He detailed current AI applications, including LinOS for operational decisions, automation stack optimization, energy management, and 'Lineage Eye' for computer vision. Lehmkuhl emphasized Lineage's readiness to integrate robotics and AGVs via LinOS and its unique position to leverage its vast data sets for customer supply chain optimization, concluding that Lineage sees significant upside from AI.

Blaine Heck posed a high-level question regarding the potential impact of AI on Lineage's business, across both its warehouse and Global Integrated Solutions (GIS) segments.

Answer

Greg Lehmkuhl, President and CEO, emphasized that while AI can enhance supply chain efficiency, cold storage remains fundamentally essential. He highlighted Lineage's extensive investments in AI through LinOS, automation, energy management, computer vision, and readiness for robotics, leveraging its large data sets as a competitive advantage.

Blaine Heck from Wells Fargo Securities asked why guided AFFO per share is expected to decline from Q2 to Q3 despite higher EBITDA, and what key variables drive the wide Q4 AFFO guidance range.

Answer

CFO Rob Crisci explained the Q3 AFFO decline is due to the timing of maintenance CapEx, with some spending shifting from Q2. He attributed the wide Q4 guidance range primarily to uncertainty around the occupancy ramp. Because the seasonal build is just beginning, a shift of a week or two in inventory flows can materially impact results, making a wider range prudent.

Blaine Heck asked about the acquired Tyson properties, inquiring about their age, condition, potential redevelopment needs, and the acquisition yield. He also questioned the funding sources for the deal and the company's remaining investment capacity.

Answer

CEO W. Lehmkuhl stated the acquisitions were done at a low double-digit EBITDA multiple. CFO Rob Crisci added that the assets are in very good condition, with necessary CapEx factored into the returns. For funding, Lehmkuhl mentioned using their revolver, noting ample capacity as an investment-grade company and the potential for future public bond issuance, while maintaining a patient and disciplined approach to capital deployment.

Blaine Heck asked about the impact of new supply on rental rates in specific markets and the outlook for new deliveries in 2025 and beyond.

Answer

CEO W. Lehmkuhl stated that new construction peaked in 2023 and is projected to decrease significantly in 2024 and 2025. He noted that this new capacity was built at historically high costs, making it difficult for new entrants to compete. He anticipates that market dislocations from underperforming competitors will create acquisition opportunities for Lineage, which holds distinct advantages in scale, technology, and network.

Blaine Heck asked about the potential impact of Trump administration policies, specifically increased tariffs, on Lineage's business and its significant port exposure.

Answer

CEO W. Lehmkuhl expressed confidence in the company's ability to perform well in any political or economic environment. Regarding tariffs, he noted that food is a global necessity and Lineage's network of 250 ports is built to support shifts in global trade flows, such as a customer sourcing from Vietnam instead of China.

Blaine Heck from Wells Fargo inquired about the current supply landscape and excess capacity within the cold storage market across the U.S., Europe, and Asia, particularly in Americold's target markets.

Answer

Rob Chambers, CEO, indicated that excess supply is largely concentrated in the U.S., particularly in food distribution and support locations, with over 15% incremental capacity added by new market entrants. He noted that European and Asia Pacific markets have not experienced similar dynamics and that new project announcements have slowed, suggesting the peak of new capacity deliveries is likely past.

Blaine Heck asked for insights into the current supply picture and excess capacity in the cold storage market across the U.S., Europe, and Asia, particularly in Americold's target markets.

Answer

CEO Rob Chambers indicated that excess supply is primarily in the U.S., concentrated in food distribution and support locations, with over 15% incremental capacity added by new market entrants. He noted that many new facilities are underperforming, and new development announcements have slowed, with some customers returning to Americold. The 15% excess capacity is based on pallet positions.

Blaine Heck of Wells Fargo Securities followed up on customers using their own infrastructure, asking about their remaining capacity. He also questioned the specific business impacts, direct or indirect, attributable to tariffs.

Answer

CEO George Chappelle reiterated that customers using their own space is a contextual indicator of the tough demand environment, not a major capacity issue, and expects that inventory to return to 3PLs when demand recovers. Regarding tariffs, he stated the direct impact is minimal, but the indirect effects—such as reduced consumer confidence and fear of inflation—are significant headwinds that suppress overall demand.

Blaine Heck from Wells Fargo & Company asked for the specific signals needed to confirm a return to normal seasonality in the second half of the year. He also questioned the potential impact of future changes in U.S. tariff and deportation policies on Americold's business and its exposure to imported goods.

Answer

CEO George Chappelle and President of Americas Rob Chambers identified new business wins from their sales initiatives as the primary driver for second-half occupancy growth, supported by low customer inventory levels. On policy changes, Chappelle noted that imported goods represent a very small portion of their business, minimizing direct tariff risk. He also suggested that new, efficient supply chain solutions with partners like CPKC could create a tailwind.

Blaine Heck asked for the specific catalysts needed for the expected operational inflection in the second half of next year. He also inquired about the current transaction market, Americold's interest in acquisitions, and the preference between M&A and development.

Answer

CEO George Chappelle identified moderating inflation and lower interest rates as the key catalysts needed to spur consumer demand. On the capital allocation question, he stated a strong preference for development, citing a robust $1B+ pipeline. While always open to M&A, he stressed a disciplined valuation approach, noting the company will only buy accretive assets and will not pay its own premium multiple for smaller, less capable companies.

Blaine Heck requested more detail on Empire State Realty Trust's 2026 occupancy forecast, specifically asking about the 91% midpoint given the 93.6% leased rate, the 250,000 sq ft of expected vacates (including FDIC), and any other potential headwinds. He also questioned the Net Debt to Adjusted EBITDA ratio exceeding the 6x target and its implications for future investment or share buyback activity.

Answer

Ryan Kass, Co-Head of Real Estate and Chief Revenue Officer of Real Estate, expressed confidence in the 90%-92% year-end occupancy guidance, attributing the timing of vacancies to large move-outs in Q1 and Q4, including a 70,000 sq ft tenant at the Empire State Building. Christina Chiu, President, clarified that the Net Debt to Adjusted EBITDA ratio is not a strict limit, allowing for opportunistic acquisitions, and that ESRT maintains a game plan to manage leverage. Tony Malkin, Chairman and CEO, emphasized using the balance sheet for growth opportunities while remaining peer-leading.

Blaine Heck noted that the net debt to Adjusted EBITDA ratio was above the previously stated loose target of 6x and asked about plans for moderation and potential impacts on investment or share buyback activity.

Answer

President Christina Chiu clarified that while 6x net debt to Adjusted EBITDA is a loose target, it's not a strict limit, and the ratio may tick up for strategic opportunities. She emphasized continued access to capital, prudent balance sheet management, and addressed debt maturities. Chairman and CEO Tony Malkin reiterated that the balance sheet is used for growth opportunities, maintaining a peer-leading position.

Blaine Heck of Wells Fargo Securities inquired about Empire State Realty Trust's revised Observatory guidance, asking about July visitation trends and whether the new forecast is conservative. He also asked about the potential impact of the recent NYC mayoral primary results on tenant leasing decisions.

Answer

Chairman & CEO Anthony Malkin attributed the Observatory's performance to significant bad weather and lower demand from international pass programs, noting the guidance reflects these first-half trends. President Christina Chiu added that while the outlook is based on current data, the team always aims to outperform. On the political climate, Mr. Malkin stated there has been no impact on leasing, as ESRT focuses on policy, not politics. EVP of Real Estate Thomas Durels confirmed that leasing momentum remains strong due to a dwindling supply of high-quality office space.

Blaine Heck followed up on acquisitions, asking about the ideal investment profile for higher-yielding opportunities and how far on the risk spectrum ESRT would go. He also asked about the Observatory, questioning if management sees an impact from market weakness and what levers they can pull to achieve guidance.

Answer

Chairman and CEO Anthony Malkin explained that ESRT's unique redevelopment capabilities allow them to pursue what others might consider risky office investments, viewing them as 'derisked' opportunities for higher returns. Regarding the Observatory, Malkin stated they have not detected significant demand shifts beyond logical events like bad weather and will continue to focus on disciplined operations, targeted marketing, and reservation-based cost controls to navigate the environment.

Blaine Heck of Wells Fargo inquired about where stock buybacks rank in terms of capital allocation priorities. He also asked for clarification on CapEx expectations for 2025, given the lumpy spending observed in Q4 2024.

Answer

Chairman and CEO Anthony Malkin indicated that while buybacks are always considered, the company plans to launch a preferred equity investment program in 2025 as a primary way to deploy capital. CFO Stephen Horn explained that the elevated Q4 CapEx was due to a $23.5 million timing issue on a TI disbursement and that overall CapEx is expected to decrease in 2025.

Blaine Heck questioned why the full-year FFO guidance was raised by only $0.01 despite a $0.02 quarterly beat. He also asked about the strategy behind the dilutive transaction of selling First Stamford Place to acquire lower-yield Williamsburg retail assets and whether ESRT would seek higher-yield deals.

Answer

EVP, CFO & Treasurer Stephen Horn clarified that the guidance increase accounts for non-recurring items in Q3, higher G&A costs, and transaction-related dilution. President and CFO Christina Chiu and Chairman and CEO Anthony Malkin explained the transaction strategy focuses on long-term cash flow growth, not just initial FFO yield, by recycling capital from non-core suburban assets into prime NYC retail. They noted that for new capital deployment, they would seek more opportunistic, higher-return investments.

Blaine Heck with Wells Fargo asked about the potential impact of AI displacement on Marcus & Millichap's business, specifically inquiring which segments, deal sizes, or business units might be affected and if the company's focus on the Private Client group offers more or less protection from AI disruption. He also questioned the strong growth in broker count, asking if it was expected, if specific specialties were targeted, and about future headcount growth plans. Finally, he asked about the impact of market disruption and AI fear on strategic acquisition opportunities and the company's appetite for external growth.

Answer

President and CEO Hessam Nadji explained that AI is expected to significantly improve manual processes like underwriting and data analysis, leading to greater efficiency and lower costs. He differentiated between the first wave of AI (task replacement) and the more complex second wave (interpretive intelligence), noting the challenges of applying AI to the disorganized and nuanced data of commercial real estate. Nadji emphasized that while AI might impact fee pressure, it will ultimately enhance the broker's value proposition by making the industry more selective and focused on interpretive and people skills, rather than disintermediating the relationship and due diligence components of transactions. He attributed the strong growth in broker count to concerted efforts over three years in recruiting and training, with experienced hires expected to contribute more significantly to deal size in 2026. Regarding strategic transactions, Nadji stated that AI does not deter their M&A strategy, and the primary obstacle to past acquisitions was market uncertainty and valuation gaps, which are now fading, making future diversification more predictable. CFO Steve DeGennaro added that the challenge of guaranteed upfront value for founders in acquisitions has been a significant factor.

Blaine Heck asked if recent market disruptions and AI concerns might create opportunities for lower-cost strategic acquisitions and how these factors influence Marcus & Millichap's risk-reward assessment for external growth and the profile of potential expansion opportunities.

Answer

President and CEO Hessam Nadji affirmed that the company's strategy for attracting talent and acquiring boutiques remains unchanged and is even enhanced by AI as a business factor. He explained that past acquisition attempts in appraisal, valuation, cost aggregation, and investment management did not materialize due to near-term market uncertainty, reliance on guaranteed upfront value, and a wide bid-ask spread. Nadji emphasized the company's focus on long-term talent integration rather than retirement plans for founders. He noted that as market certainty returns in 2026, confidence in acquisition predictability increases, and the desire to diversify the platform is energized.

Blaine Heck of Wells Fargo Securities inquired about the shifting transaction volume trends between private and institutional segments, the reasons for declining commission rates despite higher private client activity, the impact of a recent tax accounting change, and the company's strategy for external growth and capital allocation, including M&A and share repurchases.

Answer

President and CEO Hessam Nadji attributed the private client segment's strength to improved price discovery and financing, calling the institutional slowdown a temporary aberration due to tariff news. He explained that lower commission rates resulted from a mix shift towards deals over $100 million, which carry lower fees. Nadji also confirmed active M&A dialogues with improved seller valuation attitudes. EVP & CFO Steve DeGenero clarified the tax methodology change normalizes reporting and affirmed a balanced capital allocation strategy, continuing dividends and share repurchases while preserving capital for acquisitions.

Blaine Heck of Wells Fargo Securities inquired about the shifting transaction volume trends between private client and larger institutional segments, the factors behind the decline in average commission rates, the implications of a recent tax accounting change, the current landscape for external growth opportunities, and the company's capital allocation priorities, particularly regarding share repurchases.

Answer

President and CEO Hessam Nadji attributed the private client segment's strength to improved price discovery and financing, while describing the institutional slowdown as a temporary aberration. He explained that lower commission rates were due to a mix shift toward more transactions over $100 million. CFO Steve DeGenero clarified the tax methodology change normalizes the rate and is not a recurring negative impact. Regarding capital, both executives affirmed a balanced strategy, using the company's strong balance sheet to fund M&A, dividends, and share buybacks simultaneously.

Blaine Heck of Wells Fargo Securities inquired about several key areas, including the shifting transaction volume trends between private and institutional markets, the reasons for declining commission rates despite higher private client revenue, the forward impact of a recent tax accounting change, potential external growth and M&A opportunities, and the company's capital deployment priorities between share repurchases and acquisitions.

Answer

President and CEO Hessam Nadji explained that the private client segment's growth was driven by better price discovery and financing availability, converting long-standing client outreach into transactions. He characterized the dip in larger transactions as a temporary aberration due to tariff volatility and tough comps, not a strategic shift. Nadji attributed the lower average commission rate to a mix shift toward a higher number of deals over $100 million, which carry lower percentage fees. He also confirmed active M&A dialogues for core business tuck-ins and advisory/valuation firms. CFO Steve DeGenero clarified the tax methodology change was made to reduce volatility and normalize the rate over time, providing a dollar-based outlook for Q3. DeGenero also affirmed the company's balanced capital allocation strategy, stating they have ample dry powder for M&A while continuing dividends and share repurchases.

Blaine Heck of Wells Fargo Securities inquired about several key areas, including the shifting trends in transaction volume between private and institutional clients, the factors driving the decline in average commission rates, the impact of a recent tax accounting change, the status of external growth opportunities, and the company's capital allocation priorities, specifically regarding share repurchases.

Answer

President & CEO Hessam Nadji attributed the strength in the private client segment to improved price discovery and financing availability, while noting the dip in larger transactions was a temporary anomaly due to tariff-related volatility. He explained that the lower average commission rate was caused by a mix shift towards mega-deals over $100 million. EVP & CFO Steve DeGenero clarified that the tax methodology change was made to normalize reporting amid fluctuating profitability forecasts. Both executives affirmed a balanced capital allocation strategy, utilizing the company's strong balance sheet to simultaneously fund dividends, M&A, and share repurchases.

Blaine Heck from Wells Fargo Securities inquired about several key areas, including the shifting transaction volume mix between private and institutional clients, the reasons for the decline in commission rates despite higher private client activity, the impact of a recent tax accounting change, the pipeline for M&A opportunities, and the company's capital allocation strategy regarding share repurchases versus external growth.

Answer

President and CEO Hessam Nadji explained that the Q2 institutional slowdown was a temporary aberration due to tariff volatility and not a strategic shift. He attributed the lower commission rate to a higher number of deals over $100 million, which carry lower percentage fees. Regarding M&A, Nadji confirmed active discussions for brokerage and advisory acquisitions, noting improved seller valuation attitudes. CFO Steve DeGenero clarified the tax methodology change was made to normalize rate volatility and affirmed the balanced capital allocation strategy. Hessam Nadji emphasized the balance sheet's strength to support M&A, dividends, and buybacks concurrently.

Blaine Heck asked about the commercial real estate financing environment, particularly for the Private Client segment, and the timeline for transaction volumes to return to long-term averages. He also inquired about normalized EBITDA expectations post-recovery, the potential impact of the recent election on regulations like the 1031 Exchange, and the company's current M&A strategy and opportunity set.

Answer

Executive Hessam Nadji explained that while bank and credit union lending is gradually easing for smaller deals, the key catalyst is the narrowing bid-ask spread. Larger institutional investors are less reliant on financing and are motivated by attractive pricing. He projects a gradual, though solid, market recovery that is unlikely to reach long-term averages in 2025 due to a different economic environment than the post-pandemic recovery. Nadji noted that while market factors might suggest lower normalized EBITDA than in 2021-22, MMI's investments in talent and acquisitions should provide an additional lift. He views the election outcome as generally favorable for real estate, potentially extending tax provisions, and highlighted the failure of California's Prop. 33 as a positive. Regarding M&A, Nadji and Executive Steve Degennaro stated the focus has been on tuck-in brokerage teams and boutiques, though they are exploring complementary businesses like appraisal and investment management. They noted the M&A bid-ask spread has narrowed, but they remain disciplined.

Blaine Heck asked about STAG Industrial's current cost of capital, specifically the spread between its cost of debt and equity, and required returns on investment. He also questioned the percentage of leases with fixed-rate renewal options and if any significant ones are expected in upcoming quarters.

Answer

CFO Matts Pinard detailed the cost of debt, noting private placement spreads of 140-150 bps and a potential 25-30 bps benefit in the public bond market, placing current market rates at 5.5-5.75%. He estimated the cost of equity in the low 6s and highlighted over $100 million in retained cash flow, allowing the company to fund its 2026 plan without accessing equity markets. CEO Bill Crooker added that fixed-rate renewals are in the single digits, were concentrated in Q4 2025, and are not an unlimited feature across the portfolio.

Blaine Heck asked about STAG's overall cost of capital, including the cost of debt and equity, and the spread between these and required returns on investment. He also inquired about the percentage of leases with fixed-rate renewal options and if any significant ones are expected in coming quarters.

Answer

Matts Pinard, CFO, detailed the cost of debt, noting private placement spreads of 140-150 basis points over and a potential 25-30 basis point benefit in the public bond market, estimating current market rates at 5.5-5.75%. He estimated the cost of equity in the low 6s. Mr. Pinard highlighted that STAG retains over $100 million in cash flows after dividends, allowing the company to fund its 2026 business plan without accessing equity capital markets, maintaining leverage at the midpoint of its range (5.25x at midpoint for 2026). Bill Crooker, CEO, added that fixed-rate renewal options are in 'single digits' of leases and are laddered throughout the year, not concentrated, except for the unusual concentration in Q4 2025 which impacted spreads.

Blaine Heck inquired about UCLA's lease expirations through 2033 and the company's ability to re-retain them, and also asked for color on Douglas Emmett's political initiatives in 2026 and their impact on G&A.

Answer

Jordan Kaplan (President and CEO) clarified that UCLA departments operate independently, and he does not foresee substantial shrinking. Stuart McElhinney (VP of Investor Relations) added that the five expiring UCLA leases this year are small, averaging 12,000 sq ft. Mr. Kaplan explained that political engagement in election years, driven by initiatives impacting the company, leads to additional G&A costs. Peter Seymour (CFO) noted that G&A remains low compared to peers, even with advocacy spending.

Blaine Heck inquired about the status of UCLA leases, particularly the impact of government funding issues and the company's strategy for re-retaining them, and asked for details on Douglas Emmett's political initiatives for 2026, including targeted regulations and their impact on G&A.

Answer

President and CEO Jordan Kaplan clarified that UCLA's leasing decisions are departmental, not monolithic, and while some leases may expire, he doesn't foresee substantial overall shrinkage. VP of Investor Relations Stuart McElhinney added that the expiring UCLA leases in 2026 are small. Mr. Kaplan explained that political engagement has become necessary due to its impact on operations in California, leading to additional G&A costs in election years. CFO Peter Seymour noted that G&A remains low compared to peers, even with advocacy spending.

Blaine Heck from Wells Fargo Securities asked for an update on the lease rate at Studio Plaza, the timing of NOI contributions, and the demand for remaining space. He also questioned the timeline and potential NOI impact of the 10900 Wilshire office-to-residential conversion.

Answer

VP of IR Stuart McElhinney stated that while specific building stats are not disclosed, leasing velocity at Studio Plaza is strong, with NOI contributions occurring over time as tenants move in. CEO Jordan Kaplan added that the 10900 Wilshire conversion will be phased, similar to their successful Hawaii project, minimizing NOI disruption during the process and resulting in stable NOI upon completion.

Blaine Heck of Wells Fargo & Company asked about the typical lag time between leasing and occupancy in the portfolio and sought confirmation on the 70% retention expectation for the year. He also inquired about the new joint venture partner for the Westwood acquisition and their interest in future deals.

Answer

President and CEO Jordan Kaplan confirmed the historical retention rate is reliably around 69-70%. He explained the leased-to-occupied spread can range from 100 to over 350 basis points, depending on leasing velocity. Executive Stuart McElhinney added that move-ins are typically quick, within one or two quarters. Kaplan declined to name the new JV partner but emphasized their strong interest and the continued appetite from existing partners for new deals.

Blaine Heck of Wells Fargo Securities inquired about the intended uses for the company's large cash balance, including debt paydowns, acquisitions, or funding for the Barrington project. He also asked if the quarterly increase in tenant recoveries was due to any one-time factors.

Answer

President and CEO Jordan Kaplan explained the cash is for liquidity, potential debt management, and future acquisitions, with ongoing cash flow funding repositioning projects. CFO Peter Seymour clarified that the increase in tenant recoveries was due to normal seasonality in billing and reconciliation cycles, not a one-time event.

Blaine Heck inquired about any observed impact of AI displacement on the tenant base in Sun Belt markets and potential elevated exposure in specific areas. He also asked about the duration of elevated CapEx and straight-line rent impacting cash flow, and the company's comfort with the dividend payout ratio.

Answer

Ted Klinck, CEO, and Brian Leary, COO, reported no observed AI impact, noting continued in-migration and expansions, with AI seen as a productivity tool for their smaller customer base. Brendan Maiorana, EVP and CFO, explained that 2025 CapEx was elevated, expecting lower spend in 2026, and anticipates increased future cash flow from higher cash NOI and normalized CapEx, referencing past retained cash flow.

Blaine Heck asked about the impact of AI displacement on the tenant base, specifically if any AI-related layoffs have been observed and if any markets have elevated exposure to AI-driven job displacement. He also inquired about the duration of elevated CapEx and straight-line rent impacting cash flow, and the company's comfort with the payout ratio and dividend during this period.

Answer

Ted Klinck, CEO, stated that they have not observed AI impacts, noting continued in-migration, companies taking more space, and expansions outpacing contractions. Brian Leary, COO, added that their smaller customer base acts as an insulator. Brendan Maiorana, EVP and CFO, explained that 2025 cash flow was slightly below dividend coverage due to elevated leasing CapEx ($145M vs. normal $100M), expecting lower spend in 2026. He emphasized that straight-line rent represents future cash flow, and increased cash NOI will significantly improve cash flow, aiming to return to prior levels of retaining cash above the dividend.

Blaine Heck inquired about which markets are currently benefiting most from tenant migration, whether the level of this activity has changed, and how long elevated capital expenditures are expected to impact ASFO, FAD, or cash flow, along with the board's comfort level regarding the dividend.

Answer

CEO Ted Klinck and COO Brian Leary highlighted Dallas, Charlotte, and Nashville as leading markets for in-migration, noting an acceleration of this trend from California, the Midwest, the Northeast, and internationally. EVP and CFO Brendan Maiorana explained that elevated CapEx is expected through next year and potentially 2027 due to signed leases and a robust leasing pipeline. He projected significant cash flow improvement from NOI growth and normalizing leasing costs, leading to strong cash flow growth over several years.

Blaine Heck from Wells Fargo asked which markets are currently experiencing the most significant tenant migration, comparing current trends to past periods, and also questioned the expected duration of elevated capital expenditures and the board's comfort with the current dividend level.

Answer

CEO Ted Klinck highlighted Dallas, Charlotte, and Nashville as key markets benefiting from accelerating in-migration, with COO Brian Leary adding that tenants are primarily from California, the Midwest, and Northeast, with some international interest. EVP and CFO Brendan Maiorana indicated elevated CapEx is expected through 2027 due to ongoing occupancy build and a strong leasing pipeline, while expressing confidence in future NOI and cash flow growth to support the dividend.

Blaine Heck asked if tenants are shifting to short-term renewals due to market uncertainty and questioned the impact of elevated leasing capital on cash flow and the company's comfort with its dividend.

Answer

COO Brian Leary and CEO Theodore Klinck confirmed they are not seeing a broad shift to short-term renewals, noting that expansions outpaced contractions 4-to-1. Executive Brendan Maiorana acknowledged that higher leasing capital will make near-term cash flow 'lumpier' but stressed the company's long-term focus. CEO Theodore Klinck affirmed comfort with the dividend, highlighting over $150 million in free cash flow generated above the dividend since the pandemic began.

Blaine Heck inquired about the drivers of strong rental rate growth, the leasing progress and potential 2025 revenue contribution from the 23 Springs project, and the company's near-term disposition strategy for its Pittsburgh portfolio.

Answer

CEO Theodore Klinck attributed rental strength to large deals in Atlanta and a broader 'flight to quality,' noting that Highwoods wins as both a premium and a value option. He confirmed the 23 Springs project is ahead of schedule, with CFO Brendan Maiorana adding that its earnings contribution will be weighted to the second half of 2025. Regarding Pittsburgh, Klinck stated the plan is to exit patiently, waiting for a more favorable transaction market, while noting that current leasing activity there is encouraging.

Blaine Heck requested an update on the mark-to-market status across Kilroy's target markets, particularly noting any recent changes, especially in Los Angeles given its significant proportion of upcoming expirations. He also asked for commentary on the political environment in each market, identifying which ones offer the best conditions for businesses and employees, and specific improvements observed since Angela Aman joined Kilroy.

Answer

CEO Angela Aman highlighted portfolio repositioning in Los Angeles, with Beverly Hills and Long Beach seeing rent comps up. EVP of CIO Eliott Trencher provided specific mark-to-market figures: LA and San Francisco are about 10% above market, San Diego and Washington 5% below, and Austin 15% below. Ms. Aman identified San Francisco as having the most momentum politically, with the new mayor and board of supervisors fostering a better business and community environment, particularly impacting development like Flower Mart.

Blaine Heck asked for an update on the mark-to-market trends across Kilroy's target markets, particularly noting any recent changes in Los Angeles given its large proportion of expirations. He also inquired about the political environment in each market, identifying which ones offer the best conditions for businesses and employees, and specific improvements observed since Angela Aman joined Kilroy.

Answer

Angela Aman, CEO, highlighted portfolio repositioning in Los Angeles, with rents comping up in Beverly Hills and Long Beach. Eliott Trencher, EVP of CIO, specified mark-to-market: LA and San Francisco are ~10% above market, San Diego and Washington ~5% below, and Austin ~15% below. Angela noted San Francisco has shown the biggest political momentum and change in approach, fostering a better business environment and developer interaction, particularly evident in the Flower Mart project.

Blaine Heck from Wells Fargo Securities asked for management's perspective on the net impact of AI on office demand and inquired about the size and characteristics of the non-core portfolio targeted for disposition.

Answer

CEO Angela Aman expressed optimism about AI's net impact, viewing it as a growth strategy creating new roles that benefit Kilroy's markets. Regarding dispositions, Aman and EVP & CIO Eliott Trencher explained the strategy is asset-by-asset, focusing on submarket positioning and selling where their fundamental outlook is more pessimistic than the capital markets' view.

Blaine Heck asked about the future plans for the Flower Mart property in San Francisco, including potential changes to the property mix and the timeline for ceasing interest capitalization. He also inquired about the current political and business environment on the West Coast and potential election impacts.

Answer

CEO Angela Aman described Flower Mart as an exceptional long-term asset where near-term development is unlikely, emphasizing a focus on maximizing its ultimate value rather than making short-term pivots. She also stated that the political and business environments in West Coast markets have seen real improvement over the last 18-24 months, a trend she expects to continue in San Francisco post-election, driven by more moderate policies focused on quality of life and safety.

Blaine Heck inquired about the mix of additional investments for 2026 between acquisitions and developments, target yields for acquisitions, and any additional near-term development projects. He also asked about the company's openness to equity issuance given strong stock performance and potential asset dispositions.

Answer

President and CEO Stephen E. Budorick detailed a development pipeline of roughly 1 million sq ft, targeting an 8.5% cash-on-cash yield for developments, and considering acquisitions opportunistically with yields exceeding development opportunities, with none built into current guidance. He stated that equity issuance is a 'last alternative' as the company can self-fund investments internally, and dispositions of non-defense assets are market-dependent, not driven by development pace.

Blaine Heck from Wells Fargo asked about COPT Defense Properties' openness to equity issuance given strong stock performance, its ranking among funding sources, and potential asset dispositions.

Answer

Stephen E. Budorick, President and CEO, stated that equity issuance is a last alternative, as the company can internally fund expected development investments and can temporarily increase its debt ratio. He mentioned a few non-defense assets in the 'other' segment are targeted for disposition, dependent on market conditions rather than development pace.

Blaine Heck from Wells Fargo Securities inquired about the current leasing environment and specific areas of demand strength. He also asked for an update on the Des Moines land parcel, including power procurement, timing, and its potential as a disposition candidate.

Answer

EVP & COO Britt Snider described the leasing environment as very strong, citing significant demand for a new building as an example. President & CEO Stephen Budorick stated it could be four or more years to secure power for the Des Moines site, viewing it as a long-term investment, not a near-term disposition candidate, a point reinforced by EVP & CFO Anthony Mifsud.

Blaine Heck inquired about updates on the potential Space Command relocation to Huntsville, the composition of the 2025 investment pipeline, and the impact of hyperscaler demand shifts on COPT's data center assets.

Answer

President and CEO Stephen E. Budorick stated that a decision on the Space Command relocation is expected within weeks and that the investment pipeline will likely be met with new development starts, as no acquisitions have yet met the company's strict criteria. He also noted that while hyperscaler demand is a factor, the primary challenge for their data center shell program is the timing of power availability, not a pullback in customer demand for their specific product.

Blaine Heck from Wells Fargo & Company asked for clarification on whether any tenants are susceptible to administration changes, the renewal risk for government leases extending into 2026, and the nature of the non-renewals expected in the first quarter.

Answer

CEO Stephen E. Budorick stated that after a deep review, they see no risk to their tenants from administration changes, as their GSA leases support critical, integrated missions. An executive confirmed the government lease extensions are due to normal administrative backlogs with no expected move-outs. Mr. Budorick explained the largest Q1 non-renewal was a long-planned move by a medical tenant, which they view as an opportunity to re-lease the space to a defense contractor.

Blaine Heck followed up on the Des Moines project, asking for an estimate of the total project spend and clarification on funding sources, specifically whether it would require equity or asset sales. He also questioned if the key data center tenant has ambitions in other markets and COPT's appetite to expand with them.

Answer

President and CEO Stephen E. Budorick estimated the total spend for the Des Moines development would be '$1.2 billion or more' over its life. He reiterated the plan to self-fund the project through retained cash flow and debt, viewing a joint venture as a contingent option if the development pace exceeds their capacity. Regarding further expansion, Budorick stated that COPT is 'definitely interested' in pursuing other opportunities with the tenant.

Blaine Heck asked about potential new development projects, inquiring which markets are most supportive from a yield perspective and whether Cousins Properties plans to develop on owned land, redevelop existing properties, or acquire new land for these projects. He also asked for color on rent spreads for the robust 1.1 million square feet late-stage leasing pipeline and general thoughts on 2026 cash rent spreads. Finally, he questioned the optionality for funding the 300 South Tryon acquisition, specifically regarding sales versus debt or equity issuance, and the target costs of capital or yields for each option.

Answer

Colin Connolly, President and CEO, indicated that while no specific development is identified, opportunities exist in tight markets like Uptown Dallas, The Domain, Charlotte's South End, and Buckhead, where rental rates are approaching replacement costs. He noted flexibility regarding land ownership, including owned parcels or joint ventures. Richard Hickson, Executive Vice President of Operations, stated that rent spreads for the late-stage pipeline are expected to be in line with recent activity, excluding Northpark. Colin Connolly added that Cousins Properties is on track for its 48th consecutive quarter of positive second-generation rent roll-up. Regarding funding, Colin Connolly emphasized the company's optionality due to its low-leverage balance sheet and trophy-quality portfolio, balancing financial and strategic aspects. He mentioned a basket approach for dispositions, aiming for disposition yields comparable to reinvestment, with GAAP cap rates in the eights as a priority for accretion.

Blaine Heck asked about Cousins Properties' strategy for new development projects, inquiring which markets offer the most supportive yields, whether the company plans to develop on owned land, redevelop existing assets, or acquire new land. He also sought color on potential rent spreads for the robust 1.1 million sq ft late-stage leasing pipeline and general thoughts on 2026 cash rent spreads. Finally, Heck questioned the optionality for funding the 300 South Tryon acquisition, specifically regarding sales versus debt or equity issuance, and the target costs of capital or yields for each option.

Answer

Colin Connolly, President and CEO, indicated potential development opportunities in Uptown Dallas, The Domain in Austin, Charlotte (South End), and Buckhead, Atlanta, noting flexibility on land ownership. Richard Hickson, EVP of Operations, stated that near-term rent spreads for the late-stage pipeline are expected to be in line with recent activity, excluding Northpark. Colin Connolly highlighted the company's 48th consecutive quarter of positive second-generation rent roll-up. Regarding funding, Colin Connolly emphasized balancing financial and strategic aspects, aiming for disposition yields comparable to reinvestment (GAAP cap rates in the 8s) to ensure accretion.

Blaine Heck inquired about trends in the leasing pipeline by tenant size and industry, net migration patterns into Sunbelt markets, and the likely cap rates for potential dispositions of lower-occupancy, higher-CapEx assets.

Answer

EVP of Operations Richard Hickson described a broad leasing pipeline led by financial services and legal tenants, with strong new-to-market activity in Atlanta and Charlotte. President and CEO Colin Connolly added that Austin is also seeing new demand and explained that recycling capital from lower-occupancy assets into higher-quality properties could be neutral to accretive, especially as the investment sales market improves.

Blaine Heck inquired about potential opportunities in debt investments given market uncertainty. He also asked about the drivers of strong multifamily leasing at Neuhoff and the leasing progress on the project's commercial space.

Answer

President and CEO Colin Connolly confirmed that debt investments are a possibility, offering flexibility, though the company is not building a large-scale debt book. EVP and CIO Kennedy Hicks addressed Neuhoff, stating that strong multifamily velocity has allowed for rent increases. For the commercial space, she noted they are focused on one-to-two floor leases but are seeing larger, longer-term requirements.

Blaine Heck asked about the investment pipeline for 2025, the level of market competition, the strategic mix between debt and equity opportunities, and potential funding sources for large future acquisitions.

Answer

President and CEO Michael Connolly described the investment pipeline as very strong, citing improving fundamentals and a dislocated private capital market as a compelling opportunity for Cousins. He noted a strategic bias towards equity but affirmed openness to debt investments at this point in the cycle. CFO Gregg Adzema added that funding for new deals will be evaluated on a case-by-case basis, with the primary goal of being accretive on a leverage-neutral basis.

Blaine Heck from Wells Fargo & Company asked for details on the Saint Ann Court mortgage acquisition, its near-term maturity, and potential outcomes. He also questioned whether Cousins' investment strategy still includes large portfolio or entity-level transactions.

Answer

President and CEO Michael Connolly described the Saint Ann Court loan as part of a flexible strategy to invest across the capital structure for compelling risk-adjusted returns. While the guidance assumes a payoff at maturity, he noted the outcome is uncertain. Connolly also stated that while the company remains open to all opportunities, the near-term focus is likely on one-off property acquisitions as private and public market valuations converge.

Blaine Heck inquired about First Industrial Realty Trust's strategy regarding the balance between preserving occupancy and pushing rental rates, asking if certain markets or size segments are more vulnerable on the rate side. He also sought an update on Amazon's demand, given its status as the largest tenant and its role as a market barometer, and its appetite for additional space in 2026.

Answer

Peter Baccile, Chief Executive Officer, stated that the company aims to maximize the Net Present Value (NPV) of leases, adapting to market conditions. Peter Schultz, Executive Vice President, emphasized meeting market demands with high-quality assets, noting that lowering rents on a wholesale basis is not a solution for their portfolio. Peter Baccile added that the 'flight to quality' benefits their modern portfolio. Regarding Amazon, Peter Schultz reported their continued activity in various markets, including large-format buildings in Pennsylvania. Jojo Yap, Chief Investment Officer, highlighted Amazon's significant leasing activity of approximately 10 million sq ft in Q4 2025.

Blaine Heck asked about the company's strategy for balancing occupancy preservation versus pushing rental rates across different markets and size segments, identifying any vulnerable areas. He also inquired about Amazon's recent activity and future demand for space, viewing it as a market barometer.

Answer

Peter Baccile (CEO) emphasized maximizing NPV per lease, which varies by market, and remaining competitive. Peter Schultz (EVP) added that high-quality assets attract 'flight to quality,' and lowering rent isn't a wholesale solution for struggling second/third-gen assets. Peter Baccile (CEO) noted movement from Class B to Class A benefits their portfolio. Peter Schultz (EVP) confirmed Amazon is active in several markets, including large-format buildings in Pennsylvania. Jojo Yap (CIO) added that Amazon was particularly active in Q4 2025, leasing about 10 million sq ft.

Blaine Heck of Wells Fargo Securities, LLC asked about the company's demand for build-to-suit projects, its appetite for them, and how their returns compare to speculative development. He also asked for a characterization of the current tenant base, categorizing them by their leasing activity level (active, strategizing, or paused).

Answer

President and CEO Peter Baccile explained that build-to-suit returns are typically lower than spec development and it's not a high-volume part of their business, though they do execute on them. He agreed with the characterization of tenant behavior, noting there are groups across the spectrum, from those pausing due to tariff uncertainty to others moving forward to maintain a competitive edge.

Blaine Heck of Wells Fargo inquired about the company's demand and appetite for build-to-suit projects and asked for a characterization of current tenant behavior, from active leasing to being on pause.

Answer

CEO Peter Baccile explained that build-to-suit is not a high-volume business for them as returns are typically lower than spec development. He agreed that tenants are acting across a spectrum, with some pausing due to tariff uncertainty while others, particularly those competing with Amazon, are moving forward. He noted it's difficult to quantify the size of each group.

Blaine Heck of Wells Fargo inquired whether a near-term resolution on tariffs would lead to a quick recovery in leasing activity or if indecision might cause a prolonged delay. He also asked for the annualized FFO impact if the Q4 development leasing is delayed.

Answer

CEO Peter Baccile suggested that even with a tariff resolution, the leasing pickup would likely remain methodical rather than a sudden dam-breaking event, though the shrinking number of alternative spaces is a positive factor. CFO Scott Musil advised that to estimate the annualized impact of the leasing delay, one could multiply the in-year impact of approximately $2 million by 10 or 11 months to get a rough estimate for 2026.

Blaine Heck from Wells Fargo asked if a tariff resolution would lead to a quick leasing recovery and requested the annualized FFO impact of a potential development leasing delay.

Answer

CEO Peter Baccile suggested that a leasing recovery would likely remain methodical rather than sudden, even with a tariff resolution, as the market continues to absorb prior supply. CFO Scott Musil provided a method to estimate the annualized impact of the leasing delay, suggesting one could multiply the quarterly FFO impact by 10 or 11 months for a rough 2026 estimate.

Blaine Heck from Wells Fargo inquired about any changes in tenant behavior in port-adjacent markets due to potential tariffs and asked about the economics of new development, including construction costs and yields.

Answer

President and CEO Peter Baccile stated it was too early to see any tenant reaction to tariff discussions. Chief Investment Officer Jojo Yap noted that construction costs fell about 10% in 2024 and are expected to be flat to slightly down in 2025. Peter Baccile added that their current land bank could support development at a high 6% yield, with the two most recent starts projected to yield over 7%.

Blaine Heck inquired about the key drivers for the Q4 occupancy guidance range of 95% to 97% and asked for a high-level overview of which geographic markets are expected to see supply and demand dynamics inflect sooner than others.

Answer

Executive Vice President of Operations, Chris Schneider, and CFO, Scott Musil, explained that achieving the high end of occupancy guidance depends on development leasing exceeding the 400,000 square feet currently forecasted. Regarding market inflection, Chris Schneider noted that markets like Southern California and New Jersey, which saw initial strong growth, are now normalizing, while Executive Vice President, Peter Schultz, highlighted current strength in Pennsylvania, Nashville, and Houston. Chief Investment Officer, Jojo Yap, added that the Inland Empire East will take more time to absorb supply.

Blaine Heck asked about EastGroup's confidence in maintaining steady rent spreads year-over-year, considering a lower average expiring rent, and whether this is due to market mix.

Answer

CEO Marshall Loeb acknowledged that re-leasing spreads are trending down but expects positive spreads for the year, likely more in the latter half, anticipating a rent inflection due to low vacancy. EVP and COO Brent Wood highlighted the benefit of geographic diversity, with Houston picking up steam as California slows.

Blaine Heck asked about EastGroup's rent spreads, specifically whether a lower average expiring rent in 2026 compared to 2025 provides confidence in steadier year-over-year spreads, or if it's a function of market mix.

Answer

CEO Marshall Loeb acknowledged that rent spreads are trending down but remain positive, with Q4 2025 ending at 40% GAAP and 19% cash. He expects spreads to continue drifting down but emphasized that the market is underbuilt, anticipating a rent inflection point. COO Brent Wood added that market diversity helps, with Houston picking up steam as California has slowed, contributing to overall portfolio stability.

Blaine Heck inquired about recent trends in construction costs and whether they are constraining EastGroup Properties from starting more projects. He also asked about market rents relative to the yields required for new development projects.

Answer

Marshall Loeb, CEO, reported that construction pricing has decreased by 10% to 12% due to high demand for projects outside of data centers. He confirmed that new land acquisitions still pencil out to yields in the low sevens, despite increasing difficulty with permitting and zoning. Loeb clarified that demand, rather than construction costs, has been the primary factor slowing development starts, noting an improvement in market demand during Q3.

Blaine Heck inquired about recent trends in construction costs and whether they have constrained the initiation of new projects. He also asked about market rents relative to the yields required for acceptable development projects.

Answer

CEO Marshall Loeb stated that construction pricing has decreased by 10% to 12% due to contractors being eager for projects, with labor not being an issue. He noted that obtaining transformers and electrical equipment for data centers remains challenging. Development projects are still penciling out into the low sevens for yields, underwritten on today's rents and construction pricing. Loeb clarified that demand, rather than construction costs, has been the primary factor slowing down development starts.

Blaine Heck from Wells Fargo Securities asked for clarification on the expected decrease in Q3 average occupancy, questioning if it's driven by under-leased development conversions.

Answer

EVP & CFO Brent Wood confirmed the decrease in overall portfolio occupancy guidance is primarily due to development projects converting before being fully occupied. He highlighted that same-store occupancy is projected to be 100 basis points higher than total portfolio occupancy in Q3. President and CEO Marshall Loeb added that development buildings are designed with flexibility to accommodate multiple smaller tenants if needed.

In a follow-up question, Blaine Heck of Wells Fargo Securities asked for quantification of development leasing progress made in July and how much of the current FFO guidance is dependent on further leasing.

Answer

President and CEO Marshall Loeb stated that since the end of the quarter, the company has signed three leases totaling approximately 100,000 square feet. He also clarified that the amount of FFO guidance dependent on future development leasing has decreased significantly, from about $0.05-$0.06 in the prior quarter to just $0.01 at this point.

Blaine Heck asked if the company had conducted a stress test analysis on its operating metrics to assess the resilience of its earnings guidance, similar to exercises run by its peers.

Answer

Executive Brent Wood confirmed they did run stress tests, modeling scenarios like lower occupancy, no further development leasing, and doubled bad debt. Without giving specific figures, he concluded that it would take 'some serious stress to push us out of the low end of the range.' He noted that with one-third of the year complete, they are not seeing such stress and feel confident in their position due to their business model and strong balance sheet.

Blaine Heck of Wells Fargo pointed out quarter-over-quarter changes in operating portfolio lease rates, asking for commentary on the decreases in Texas markets and the increases in California markets, and whether these were indicative of broader trends.

Answer

Executive Marshall Loeb explained that the movements were driven by specific, isolated situations rather than market-wide trends. For example, San Francisco's rate increased due to successful backfilling of vacancies, while Charlotte's occupancy was impacted by a single large bankruptcy. Similarly, a new delivery in an Austin submarket with temporary high supply caused a dip there. He emphasized these were property-specific events.

Blaine Heck asked for management's perspective on the potential impact of the upcoming election and increased tariffs on their business, and whether these factors could positively influence near-shoring and onshoring trends.

Answer

President and CEO Marshall Loeb suggested that post-election certainty would be a net positive for tenant planning. He remains bullish on long-term secular trends like onshoring, highlighting strong performance in border markets and significant CHIPS Act funding in Texas and Arizona as evidence that the trend is already underway and will persist regardless of the election outcome.

Blaine Heck asked about the expected cadence for FAD or AFFO over the coming quarters and the impact of higher concessions from office portfolio lease-up, questioning if AFFO would be down year-over-year due to increased leasing costs.

Answer

Michael LaBelle, CFO, projected AFFO to be up slightly year-over-year, driven by less rollover exposure and increased occupancy, estimating AFFO in the $4.40-$4.60 range. He noted that while leasing costs are projected between $220-$250 million annually, AFFO might lag FFO slightly due to free rent periods in new leases, with $130-$150 million in free rent expected for the next year, which will convert to cash rent in 2027.

Blaine Heck inquired about the expected cadence for FAD or AFFO over the next several quarters and the impact of higher concessions on these metrics, questioning if AFFO would be down year-over-year.

Answer

CFO Michael LaBelle projected AFFO to be up slightly year-over-year, estimating a range of $4.40-$4.60 per share. He noted that less rollover exposure would help, with leasing costs expected between $220 million and $250 million annually and CapEx between $100 million and $125 million. He clarified that AFFO would lag FFO due to free rent periods in new leases ($130 million-$150 million in 2026), which are expected to convert to cash rent in 2027.

Blaine Heck asked for BXP's latest thoughts on the New York mayoral race, any observed impact on tenants, and the general outlook on whether it will significantly affect the New York office market.

Answer

Owen Thomas (CEO, BXP Inc) suggested that negative rhetoric about the mayoral administration is overblown, noting that state approvals limit the mayor's power on issues like public transit and tax increases. He emphasized BXP's focus on working cooperatively with the city for a constructive business environment and citizen safety, and viewed the potential hiring of Jessica Tisch for the NYPD as a positive step, indicating a more constructive outlook than media reports.

Blaine Heck asked for BXP's latest thoughts on the New York mayoral race, its potential impact on the New York office market, and any commentary heard from tenants regarding the situation.

Answer

CEO Owen Thomas suggested that negative media rhetoric about Mayor Mondani's administration is overblown. He acknowledged concerns about potential tax increases but noted the state's lack of appetite for them. He emphasized BXP's focus on working cooperatively with the city for a constructive business environment and citizen safety/security, viewing the potential hiring of Jessica Tisch as NYPD head as a positive step.

Blaine Heck of Wells Fargo asked about BXP's leverage, noting the debt-to-EBITDA ratio ticked up to 8.3x, and questioned management's comfort level and plans to manage it.

Answer

CFO Michael LaBelle clarified the figure was elevated by Q1 seasonality and is closer to 7.9x on a normalized basis. He expects leverage to rise modestly with development funding before declining as projects deliver income. He outlined plans to monetize $250 million in land and use other capital sources. President Douglas Linde added that cash flow from 290 Binney Street will begin in under a year, effectively lowering leverage.

Blaine Heck asked if higher build-out costs are causing tenants to favor renewing in place over moving and upgrading, potentially slowing the 'flight to quality' trend.

Answer

President Douglas Linde and other executives argued the opposite is true. They see clients feeling compelled to build new, competitive spaces to attract talent, finding it too disruptive to renovate in place. Executives from New York and Northern Virginia provided examples of tenants choosing to expand or relocate to new, higher-quality spaces despite the cost, underscoring the strength of the flight-to-quality movement.

Blaine Heck asked if BXP's appetite to grow in its newer markets like Los Angeles and Seattle has changed due to the tougher operating environment, and whether investment focus might shift to healthier markets.

Answer

Chairman & CEO Owen Thomas affirmed that BXP's strategy is to be opportunistic within its six established markets. He explained that while they will pursue the best risk-return opportunities regardless of region, investments on the West Coast are currently harder to underwrite due to slower leasing velocity compared to their East Coast markets.

Blaine Heck asked about potential changes in Prologis' strategic initiatives under CEO Dan Letter's leadership, specifically inquiring about the strategic capital side of the business and the expected timing, scope, and earnings impact of new strategies, including a potential Data Center-focused fund.

Answer

CEO Dan Letter outlined a strategy focused on compounding the core logistics business, broadening the platform, leaning into development where supply is constrained, and leveraging high-return adjacent businesses like Data Centers and Energy. CFO Tim Arndt added that discussions with large investors for a Data Center fund are productive, with capital not being a constraint, and a decision on the optimal capital structure is expected in the coming weeks/months to maximize development opportunities and AUM growth.

Blaine Heck (Wells Fargo) inquired about potential shifts in Prologis' strategic initiatives under CEO Dan Letter's leadership, particularly focusing on the expansion of strategic capital and the potential for a data center-focused fund, including its scope, timing, and earnings impact.

Answer

CEO Dan Letter outlined a strategy centered on strengthening the core logistics business, leveraging high-return adjacent businesses like data centers and energy, and significantly growing strategic capital. CFO Tim Arndt elaborated on the data center fund, noting productive dialogues with large investors, ample capital interest, and an ongoing process to determine the optimal capital structure, with further updates expected in the coming months.

Blaine Heck asked about Prologis's updated thoughts on the transaction market and acquisition opportunities, and whether there has been any movement in cap rates or pricing with the recent moderation in the 10-year Treasury.

Answer

CFO Tim Arndt noted that the transaction market has been surprisingly resilient, with volumes up 25% year-over-year in 2025. He observed consistent overall pricing, with market cap rates in the low fives and IRRs in the low to mid-sevens, depending on location, product type, and remaining WALT, with a current focus on shorter-term WALT.

Blaine Heck of Wells Fargo asked which specific geographic markets could flip most significantly from 'choppy' to competitive, referencing management's comments on 'FOMO'.

Answer

CEO Hamid Moghadam identified Southern California as a prime candidate, arguing it has strong long-term fundamentals but took a big short-term hit, so it could bounce back strongly. Chris Caton, MD of Global Strategy & Analytics, added that international markets like Europe and Latin America are outperforming, while in the U.S., resilient coastal markets include South Florida and Washington D.C., with markets like Dallas and Indianapolis firming up.

Blaine Heck inquired about demand from fund investors, their current allocation strategies for industrial real estate, and the potential for increased redemption requests in the coming quarters.

Answer

Hamid Moghadam, CEO, noted that investor interest was strong before April 2. Afterward, he believes investors are pausing to assess the 'denominator effect' caused by falling public markets. This could reduce the absolute dollars available for real estate, even if the specific interest in industrial remains high, potentially impacting net capital flows.

Blaine Heck of Wells Fargo asked for an update on the portfolio's mark-to-market, the expected cadence of same-store NOI in 2025, and the level of visibility and conservatism in the annual outlook given macro uncertainties.

Answer

CFO Timothy Arndt stated the lease mark-to-market was about 30% at year-end. He projected same-store NOI would be lower in the first half of 2025 due to a temporary dip in occupancy before rebuilding in the second half. CEO Hamid Moghadam acknowledged a degree of conservatism is built into projections, stating his personal view is that the market may surprise to the upside in the back half of the year, though this reflects a range of internal views.

Blaine Heck inquired about the strong demand from Asian e-commerce and 3PL companies, asking if Prologis was leasing to them and whether this demand is a sustainable trend or a temporary pull-forward ahead of potential tariff increases.

Answer

Chris Caton, Managing Director, confirmed that Prologis is actively leasing to these tenants and views it as a sustainable trend. He explained that these Chinese 3PLs, which now account for roughly 20% of market net absorption, are growing rapidly as part of a larger business model shift to bypass traditional importers in response to past tariffs. He downplayed the risk from potential changes to 'de minimis' import rules, noting they represent only 3% of Asian imports.

Blaine Heck asked about any moderation in concessions (TIs or free rent) given the tightening market, and for an update on the King & Spalding lease expiring at 1185 Sixth Avenue.

Answer

Steve M. Durels, EVP and Director of Leasing and Real Property, confirmed early tightening in concessions, particularly at the top end of the market, with TIs down $5-$10/sq ft and free rent reduced from 18 months to 14-16 months over the past three months. Regarding King & Spalding, he noted discussions with subtenants and new replacement tenants, with rents in that part of the building rising 10%-15% over the past six months, despite King & Spalding's historically high escalated rent.

Blaine Heck from Wells Fargo Securities questioned if the focus on smaller leases indicated a slowdown in large-tenant demand and asked for an update on securing a new large-scale development site.

Answer

Chairman & CEO Marc Holliday and EVP Steven Durels denied any slowdown, attributing the trend to a scarcity of large, available blocks of space, noting that overall tenant searches are up significantly year-over-year. Holliday confirmed that securing a new development site is a top priority, with multiple opportunities being actively pursued for a potential deal by year-end.

Blaine Heck requested more detail on the profile of active TAMI tenants and asked about the profile of potential capital partners, particularly whether demand from foreign investors has changed.

Answer

Executive Steven Durels stated that TAMI tenant activity is from relocations driven by growth, with many being household names and some related to AI. On capital partners, Harrison Sitomer and Marc Holliday confirmed they have not seen a drop-off in foreign investor interest for the debt fund or property JVs, noting a weaker U.S. dollar can make investment more attractive.

Blaine Heck of Wells Fargo inquired about the company's preferred structure for future property acquisitions, its stance on issuing equity, and the profile of its recent CMBS investments.

Answer

Marc Holliday, Executive, explained that the acquisition structure is situational, with smaller deals on-balance sheet and larger ones likely in JVs. He noted that while equity issuance is a tool, the company has a track record of reducing its share count. He specified that recent CMBS investments were collateralized by New York City commercial properties.

Blaine Heck inquired about the company's credit and bad debt performance relative to expectations, trends for the rest of the year and into next, and any changes in the tenant watchlist.

Answer

Howard Schwimmer, Co-Chief Executive Officer, reported that the watchlist remains stable with about 20 tenants, and tenant health has been resilient, evidenced by negligible bad debt ($100,000 in Q2, effectively zero in Q3). For Q4, a 70 basis point reserving ($1.7 million NOI) is a cautious measure with potential upside, and a return to historical levels (40-50% of revenue) is anticipated for next year.

Blaine Heck of Wells Fargo Securities questioned the company's increased appetite for acquisitions given its cost of capital and asked why share buybacks weren't being considered as an alternative.

Answer

COO Laura Clark affirmed that capital allocation principles remain focused on cash flow accretion and NAV. She noted that while repositioning and redevelopment offer attractive returns, the company is also evaluating acquisitions where it can accretively recycle disposition proceeds (sold at low 4% cap rates) into higher-yielding opportunities that improve portfolio quality.

Blaine Heck of Wells Fargo Securities questioned the company's increased appetite for acquisitions, asking if they are seeing higher cap rates and whether they would consider share buybacks as an alternative use of capital.

Answer

COO Laura Clark affirmed that capital allocation principles remain focused on accretion and NAV growth. She noted that while repositioning projects offer attractive returns, the company is also evaluating acquisitions to accretively recycle proceeds from dispositions, which have been executed at low 4% cap rates. This strategy aims to acquire higher-yielding assets and improve portfolio quality.

Blaine Heck from Wells Fargo Securities questioned the company's seemingly increased appetite for acquisitions, asking if higher cap rates were available and why this strategy was preferred over share buybacks given the current cost of capital.

Answer

COO Laura Clark stated that capital allocation principles remain focused on cash flow accretion and NAV growth. She noted that the company is evaluating acquisitions that allow for the accretive recycling of disposition proceeds, which have been sold at low 4% cap rates, to acquire higher-quality, higher-yielding assets. Repositioning and redevelopment also remain highly attractive.

Blaine Heck of Wells Fargo Securities questioned the company's seemingly increased appetite for acquisitions, asking about potential cap rates and whether share buybacks were being considered as an alternative use of capital.

Answer

COO Laura Clark affirmed that capital allocation principles remain focused on cash flow accretion and NAV growth. She noted that while repositioning and redevelopment offer attractive returns, the company is also evaluating acquisitions where it can accretively recycle disposition proceeds, which have been sold at a low 4% cap rate.

Blaine Heck of Wells Fargo Securities questioned the potential for increased acquisition activity given the current cost of capital and asked if the company would consider share buybacks as an alternative use of capital.

Answer

COO Laura Clark affirmed that capital allocation principles remain focused on cash flow accretion and NAV growth. She noted that while repositioning and redevelopment offer attractive returns, the company is also evaluating acquisitions where it can accretively recycle disposition proceeds, which have been sold at attractive low-4% cap rates, to acquire higher-yielding assets.

Blaine Heck from Wells Fargo & Company inquired about the expected trajectory of market rent declines, considering existing vacancy and competitor pricing, and how potential tariffs could accelerate this trend.

Answer

COO Laura Clark acknowledged nominal rent pressure but highlighted strong underlying demand, with activity on 80% of vacant spaces. She emphasized the portfolio's embedded growth levers and diverse tenant base. Co-CEO Michael Frankel added that while tariffs create uncertainty around consumer demand, Rexford's infill portfolio focused on regional consumption is relatively insulated from trade flow shifts and benefits from sticky, resilient tenants.

Blaine Heck of Wells Fargo inquired about the specific components driving the 2025 cash same-store NOI growth guidance and asked for early insights on potential industrial demand from regional wildfire rebuilding efforts.

Answer

CFO Mike Fitzmaurice provided a detailed bridge for the 2.5% cash same-store NOI growth guidance, noting positive drivers from cash re-leasing spreads (+270 bps) and rent steps (+320 bps), which are offset by headwinds from concessions (-130 bps), occupancy decline (-100 bps), and higher bad debt (-80 bps). Co-CEO Michael Frankel added that while it is early, the wildfires will undoubtedly drive incremental, phased demand for building materials and infrastructure, which are serviced by Rexford's tenants.

Blaine Heck asked about the impact of California's AB 98 legislation on the portfolio, the outlook for 2025 same-store occupancy, whether the LL Flooring asset would stay in the same-store pool, and for color on the company's cost of capital.

Answer

Co-CEO Howard Schwimmer stated that AB 98 poses no material risk to their current pipeline and may enhance the value of their existing assets. CFO Laura Clark deferred 2025 guidance but confirmed the LL Flooring property will likely be moved to the redevelopment pool. Co-CEO Michael Frankel declined to specify a cost of capital but reiterated that all acquisitions are underwritten to be accretive.

Blaine Heck of Wells Fargo Securities asked for an update on leasing interest for the large 2025 and 2026 expirations, including any planned renovations. He also questioned the potential impact of the New York mayoral race on leasing and whether the ongoing SEC investigation affects the timing of the company's strategic review.

Answer

Peter Brindley, Executive VP & Head of Real Estate, confirmed they are actively marketing the large blocks at 1633 Broadway and are confident due to strong Midtown demand. Chairman, CEO & President Albert Behler stated that the political situation has not caused any tenant hesitation in signing long-term leases. Regarding the strategic review, Behler asserted that the SEC inquiry into historical disclosures is not expected to have any significant impact on the process.

Blaine Heck of Wells Fargo inquired about the sustainability of leasing momentum in San Francisco, activity at One Front Street, and the company's long-term commitment to the market. He also asked for an update on major 2026 lease expirations, including Showtime and Visa, and questioned why same-store NOI guidance was not increased despite higher leasing volume guidance.

Answer

Albert Behler, Chairman, CEO, and President, expressed cautious optimism for San Francisco, citing a more business-friendly political environment and no current impact from tariff discussions. Peter Brindley, EVP, Head of Real Estate, confirmed that while some tenants like Morgan Lewis and Visa will move out in 2026, they are in advanced discussions to backfill a portion of the Visa space and are actively negotiating with tenants for the Showtime space in New York. Wilbur Paes, COO, CFO, and Treasurer, explained the unchanged NOI guidance is primarily due to the timing of lease commencements but could be revised upward later in the year.

Blaine Heck questioned if the 2025 leasing target of 900,000 square feet was ambitious compared to 2024's results, asked about the record-high leasing CapEx in Q4, and sought details on major lease expirations in 2026.

Answer

Albert Behler, Chairman, CEO, and President, expressed confidence in the leasing target, citing a market shift towards Sixth Avenue where Paramount is well-positioned. Peter Brindley, EVP, Head of Real Estate, added that a pipeline of over 500,000 sq. ft. in leases out or advanced negotiations supports the goal. Regarding CapEx, Brindley clarified the Q4 figure was driven by a single turnkey deal and is not a trend, with Wilbur Paes, COO, CFO, and Treasurer, noting the low leasing volume magnified the percentage. For 2026, Brindley identified Showtime as the largest likely move-out in New York and Visa and KPMG as known move-outs in San Francisco.

Blaine Heck inquired about the debt sale of Market Center, the reasons behind the revised lease rate guidance despite higher volume, and the potential timeline for when portfolio occupancy might reach its lowest point.

Answer

Chairman, CEO, and President Albert Behler confirmed the Market Center debt is being marketed by lenders and expects a resolution soon, but PGRE is not running the process. He explained the guidance change was due to re-evaluating the timing of deal closures between Q4 and early 2025, not an unexpected move-out, and highlighted a strong Q4 absorption forecast. EVP, Head of Real Estate Peter Brindley added that New York occupancy is expected to rise, while San Francisco's may dip further before recovering, as that market lags New York's more vibrant activity.