BXP, Inc. (BXP) Earnings Call Transcript & Summary

Hello. Good morning, everyone. My name is Anthony Powell, and I'm a U.S. REIT analyst here at Barclays. I'm here today with Doug Linde, President; and Mike LaBelle, CFO of BXP, formerly Boston Properties. Good morning, gentlemen. So Boston Properties is the largest owner/developer of office or what we're calling premier workspaces or workplaces in the country, so with the markets in New York, Boston, D.C., Los Angeles, San Francisco area and Seattle. Good morning, everyone, again. So often a big topic in real estate this year, up and down, but actually up recently as I think people's sentiment has improved in the space.

So a lot of talk about companies requiring for people back in the office in recent weeks, especially after Labor Day. We're hearing it from financial firms, law firms, whatnot. Are you seeing more foot traffic in your building? And if so, do you think there will be some more leasing activity in the near term?

Anthony, thanks for having us. Good morning, everybody. We, as Anthony said, are in the premier workplace business. And we have, I would say, been seeing a very modest but continual increase in the overall utilization of the workplaces that we have in our buildings that started way back when, during Omicron, is just sort of continue to sort of percolate up. And I don't, I can't tell you that there's been much of any change "since Labor Day weekend." Actually, we've had one whole week. And obviously, August is a slower month, particularly in a place like Manhattan. We see pretty consistent utilization. The interesting thing is that it's actually across all of our markets now. So what we're seeing in terms of the use of our spaces in a place like San Francisco is, from a trend line perspective, very similar to what we're seeing in Boston and in New York City, which is that's where we have the most clarity because we have turnstiles. Obviously, if you don't have turnstiles in a building, you don't really have the same visibility. And in general, the occupancy patterns that we're seeing are that on a consistent basis, Tuesday, Wednesdays and Thursdays are, for all intents and purposes, pretty darn close to where they were pre-pandemic in terms of the overall number of people who are coming into our buildings. Fridays and Mondays are a big difference. And Fridays are probably the most distinct change, right? There's virtually nobody in our portfolio from a user perspective that is really using more than, call it, 20% of their physical spaces on a Friday. And the question will be, from my perspective is how if, at all, that will change? And I think that's really where we're going to start to see "higher utilization." But in general, our clients are coming back and they're asking their people to come back and their people are consistently coming back most of the week.

And you talked about premier workplaces and the overall ops market allowed you. Last year at your Investor Day, you started to bifurcate these markets. How real is that bifurcation? And is -- can you really kind of have a trophy segment in office area that's not impacted by some of the troubles which you see elsewhere in kind of lower-quality buildings?

Yes. So I think that the evidence is pretty clear that there's a huge bifurcation between what we would define as premier, some people would call it Class A plus. But we've actually allowed CBRE to sort of define which buildings in the markets are premier and then the rest of the market. And I think the most clear evidence is in absorption it, right? There has been dramatic negative absorption in the non-premier spaces across our markets. and there's been a modest amount of positive absorption over the last 2 or 3 years. And so I think that's the most clear indication of that. I think the other thing that you have to appreciate is that in markets where things were very tight in 2019, there were locations that were on the margin but that we're very "acceptable" because there was largely no space available. And as the supply problems that we're seeing in every one of our cities across the nation, not just BXP but all of the -- and the landlords doing our business are dealing with, those marginal locations are no longer the kind of places people want to be. They don't necessarily have the transportation network, they're not of the same quality. And so we think that there's actually going to be even stronger desire for our clients and our prospective clients to go into these premier buildings. And so the most obvious market where you can describe this is San Francisco. And there are tremendous number of buildings in places that were sort of in the South of Market area or in the Civic Center area or in the other sort of peripheral areas that are effectively not really being viewed in the same way as a core asset in the CBD of San Francisco on Market Street. So a building like Embarcadero Center or a building on Mission Street like Salesforce Tower. And it's that differentiation both in terms of quality of product and location that we think is going to inure to the benefit of BXP and the premier office buildings.

Got it. So you talked about seeing some positive absorption in the premier workplace area. Could you maybe give us more detail about just current leasing dynamics in your key markets? I know this is a -- generally a down year because of the economy or whatnot with leasing but maybe going to the new tail.

Yes. So we are in the midst of what I would refer to as dealing with the economic cycle that is I would define as a slowdown in economic activity in corporate America and in job cuts and, therefore, in a lack of growth from our clients. So we're out of the sort of we're not sure if we need office space anymore. We're not entirely sure how we're using our space. Work from home is a problem. That's not what's going on right now. What's going on right now is companies are dealing with the economic uncertainty associated with what the Federal Reserve has done and the impacts of that on their business. And it's absolutely true that we're not seeing the same "unemployment issues" that we've typically seen. But I would argue that there's a bifurcation between corporate America and the service economy defined as leisure, hospitality, travel, et cetera, entertainment. And so what we are dealing with today is just sort of that natural cyclical slowdown. And the challenges that we are seeing is that we've now gone through 2 or 3 years of this in terms of the other challenges that were occurring because of work from home because of the pandemic. And so things are just going to take longer to sort of "come to an equilibrium" meaning where you have enough demand that the supply challenges that we as an industry are dealing with today will no longer be as critical. And there are certain small submarket where that's actually happening. And if you're sitting here in Midtown Manhattan and you go over to Park Avenue with the sort of Midtown East submarket and you look at the Class A or premier buildings, you were actually seeing what I would refer to as a constant, consistent and positive market as we're seeing relatively little amounts of available supply, we are seeing consistent demand largely from asset management, venture capital, hedge fund, private equity, small financial institutions, and you're seeing an availability rate actually getting close to what you would deem as a [indiscernible] market, some place somewhere between 10% and 12%. And so there will be pockets like that, that we're seeing. However, if you're in a market that is broadly more geared towards technology, which is where the bulk of the layoffs have occurred and the bulk of the challenges are from a growth perspective, those markets are going to be slower to recover. And so you will not see quite the same amount of demand. And so if I look at the BXP portfolio, our Manhattan portfolio by far is performing the best right now in terms of overall leasing activity. And I would say that our Manhattan portfolio is sort of a ring above everything else. Then you would drop down and you would look at market like the Boston market, again which is, got a significant financial services and professional services embedded inventory of clients. And it would be second. And then third would be our Washington, D.C. marketplace. For us, BXP, that's largely Northern Virginia. But again, our Northern Virginia portfolio is geared towards non-technology companies for the most part. So for example, we're opening up the building or we opened up a building with our major tenant moving in, which is Volkswagen or Fannie Mae or not a Facebook or a Meta or a Google or an Amazon. And then the West Coast is still slower, and it's largely slow because it has a much more dominant technology-oriented demand base. And so while we're starting to see significant upturns, and we can talk for a minute if you want about AI. But I can't tell you if AI is going to be the next great thing relative to business productivity, but I can tell you that there's over 1 million square feet of net positive absorption that's occurring. In the greater San Francisco CBD right now from AI companies, they are all going to plug-and-play sublet space. So you've heard about probably the transaction was done with the Slack building, and you probably heard about a transaction that's likely to occur in the building. Those transactions in themselves are almost 450,000 square feet of positive demand from that industry. So there are some what I refer to as green shoots that are occurring in places like that.

Yes. So I guess anything more on AI. That's super, I guess, encouraging to AI stepping up in any other markets where you've seen AI demand. Anything in Seattle you see from AI yet?

Yes. So in Seattle, we just haven't seen it. In Seattle, I would tell you that the AI-focused thought is in two organizations, Amazon and Microsoft, although those organizations have over a decade move towards owning a significant amount of real estate and have been building buildings for their own accounts. And so they are not net absorbers of space right now, and we have not seen the sort of proliferation of the OpenAIs of the world, which are really focused and located in the Greater San Francisco region.

San Francisco generally has gotten a lot of negative press in the past several months. Outside of AI, what are you seeing there in terms of street conditions, people going back to the office and you want some tenants to lease, anything, what's going on?

Yes. So what I would tell you is that professional services, traditional professional services is leading the charge in San Francisco. I mean remember that San Francisco was effectively the financial capital of the West Coast for decades. And while many of the large universal banks have sort of moved away from there, Wells Fargo being the latest that's going to be moving its headquarters to New York City, there's still a significant number of small financial institutions and a lot of private capital that is in that market. And those companies are utilizing their space and they are coming back to work and, in some cases, they are growing. And that is where the bulk of the demand is. There is very little what I would refer to as tech-heightened demand. So Salesforces, Amazon, Microsoft, Googles, those larger companies which, by the way, were a very, very important force from a demand perspective from 2010 to 2019 when that market was exploding on a relative basis. Those companies were taking significant blocks of space. And obviously, that's where much of the sublet space has come from over the past couple of years.

Got it. Okay. And then I guess in terms of another area, life science, a big, big part of your development pipeline, a big part of your exposure especially in Boston and other markets, some concern there about just capital raising more difficult there, slowdown in demand. You guys have done a lot of deals there in the past 12 months. What are you seeing there going forward for that?

So I sort of tongue in cheek say there's more demand for office space than there is for life science based on a relative basis, obviously, life science being a smaller market. And as we all know, there's not a lot of demand for office, so that says something about life science. So what I would tell you is that we went through an extraordinary period of time from a capital-raising perspective in the life science industry between 2000 and call it '18 and 2020, where the amount of private capital that came into the industry was extraordinary and it was -- it allowed a whole host of small life science companies to form, and those companies are able to then [ get space ]. And during that same period of time, there was very little supply. And so if you went back to where the supply under construction in 2017, '18, '19, it was de minimis. And so you had very, very low supply and, therefore, you had developers like ourselves who are saying, "Aha, there's an opportunity here to build." And so what we saw was a significant number of projects starting to get developed and built in the life science sector, particularly in markets like the Greater Boston market and South San Francisco markets which are two, by far, the most dominant life science markets in the country. And you saw the capital just get starved. So what happened -- and the rest of the capital markets happened in spades under the life science market. And so you are now seeing the results of that, which are significant number of life science companies are going out and trying to do new capital raises and they're getting down valuations. In many cases, those companies are not able to raise capital productively relative to what their needs are. Many of them are merging, many of them are being acquired by larger companies that are looking for their, effectively, their R&D or their inflexible capital that they've created. And so there's just a lot less demand right now. We are still seeing private capital being raised by the major venture funds that are in the life science industry, and they are deploying that capital, but they're doing it at a rate that's similar to 2015 and '16, not 2019, '20 and '21. And so we're going to start to see more demand, but we're also going to see demand that's significantly less than we saw in '20 and '21 and '22. And so we're going to have to deal with the fact that there's a bunch of new products that's being built, and there are a number of fewer -- many fewer companies looking for a significant amount of space. And that's it's really a supply and demand issue, and it's fundamentally that. BXP, knock on wood, isn't, for the most part, and I'll let Mike talk about our life science exposure, has been doing build-to-suits. And so while we do have some available speculative life science under construction, the rebuilding, two of them are in the Greater Boston market, one of them is 45% leased and the other one is 0% leased, but in total, it's about 250,000 square feet of space. And then we have one building that we're doing as a joint venture with ARE in South San Francisco, and that's a 300,000 square foot building, and we've leased about 75,000 square feet there. That's the extent of our existing inventory exposure, but our sort of bread-and-butter company developments have been to place, people like Biogen and most recently, AstraZeneca and an organization called the Broad Institute who've taken 100% of our buildings for generally 10 to 15 years, and these are on a build-to-suit bases, and they're great credit. So Mike, you may want to sort of talk to our life science and tenant exposure.

Sure. So we have been growing our life science portfolio, as Doug said, with the growth and the demand from life science companies. So it was kind of 4% or 5% of our product company for a long time, and then we grew it to 8%, and now we're growing it to 12% or 13% with the development that we're doing, that is 65% pre-leased. So we have a portfolio of life science companies generating revenue for the company. About 75%, 80% of that is what I would call larger-cap public companies, so the AstraZenecas, the Biogens, the Sanofis, the Genentechs type of companies in the world. And the remainder of it, the 15% to 20% is what I would call a very diverse array of the smaller biotech companies, some of which are start-ups, some of which have gone public that are funded either by venture capital or private equity or, in some cases, as I said, public. And we've had very good success with those companies over long periods of time because we've been in these markets for a long time. We've only had one company have a credit problem, and we were able to replace that client immediately, which kind of goes to the quality of our locations and the quality of the [indiscernible] building.

And I know cap rates now are pretty hard to figure out, but is there a cap rate delta between a high-quality [ high-tech ] building versus high-quality office building right now?

So if you had a pre-leased life science building that was purpose-built in a market like San Francisco "the South San Francisco " market or in Cambridge, Massachusetts, from what we have seen in terms of capital raises, those assets are trading today at cap rates in the, call it, 6-ish percent range. I would tell you that if you had an office building in one of those locations today, that there would be a premium in terms of the cap rate to that. I don't know what it is because quite frankly, there has not been an office building sale of any significance with a long-term lease for probably 18 months. And so it's really harder for me to sort of describe that. We've heard about sales that are at least in the market for stabilized buildings that are attempting to be done in a 6.5 to 6.75 range brand-new building construction, but we just haven't seen it yet. And largely, that's due to the fact that the old buyers who are prepared to do a transaction today are buyers who don't need debt, right? So if you want to raise debt capital for the acquisition of a piece of real estate, if you're doing it on a floating rate basis, you're paying SOFR of, what's SOFR , 5, 5.25, so plus a spread of 250 basis points probably or more. AAA CMBS, we're trading in at 300 basis points, which means, as you know, 40% LTV, you're talking about over 7%, so debt dilutive. And so if you're going to ask someone to purchase a real estate asset, it basically has to be 100% equity, and there are very few organizations around the globe who are prepared to write meaningful checks at 100% equity for any large assets. So we just haven't seen those [ through done yet ].

Moving on to, I guess, WeWork and then recently, you said that they wanted to renegotiate all their leases of all their landlords. They're at 1.3% rental obligations, and you had discussions with them yet if they were to need any of their spaces back. I know one is important, some slower leasing activity there. So maybe you can go into that.

Yes. So I got a lovely love letter from WeWork on Friday afternoon, about 3:00 after they had their call, Mike, right, that Mike or other associates, basically they're telling the world that they're going to have to renegotiate their leases. We actually went through a renegotiating with WeWork and their former management team in March and April. So we may sort of have already done our thing. I honestly don't know because I really don't know what their next sort of incarnation of this is going to be. We're going to be commercial. We're going to do what we're going to have to do. WeWork as slowly but surely become less and less of a viable organization from a credit perspective and, therefore, it's become less important to the markets. We have some really high-quality properties. Right now, WeWork is in 4 locations for us. They're all on the West Coast and then the Brooklyn Navy Yard. And they've struggled with the Brooklyn Navy Yard since the day they opened. That was supposed to have been their corporate headquarters at one point and then they changed their mind. So how they originally conceived that property and wanted to become are two different things. And so I am sure that we will not be achieving the same amount of revenue from WeWork that we were achieving 6 months ago. We have credit in the form of LCs of a reasonable amount that will get us through 2023 and probably most in 2024. And then to the extent that they're unable to survive or we're not prepared to renegotiate, they're in Salesforce Tower, which is a great building or in 535 Mission which is a great building. They're in Embarcadero Center in the midrise and the high rise of [ that building ], which is a great building. They're in a portion of Madison Centre. They've already given us back two floors. And so they're -- we only have two floors, but we're winning there. And then we have our project at Dock 72. They obviously default on a project that we had with them in Washington, D.C. last quarter. And so we've taken 100% of that space back, and we're actually in a position where we're doing a significant amount of re-leasing of that space right now. So we'll get through it. It's going to be a blip but it's not going to be a significant change in our revenue side. But on the margin, it matters.

Right. Maybe a more fun question. The View obviously is right in Boston. How is that trending versus -- they open up summer, I guess.

Yes. So the challenge we have with describing View Boston in it and how we're doing is that we were in this quirky place this summer where we didn't know when we were going to be able to open not because the property wasn't done, but because we needed to get a liquor license. And getting a liquor license in Massachusetts is not an easy thing to do, and there's a long drawn-out process and you actually have to go out and buy a liquor license procurement. And so because of that, we held off on our marketing. And so we are, I'd say, just now starting to market View Boston as a first destination. And so we'll, I think, over the next, call it, year, we'll know. When we get to the summer of 2024, we'll really know how well it's going to be doing. I mean it's doing fine right now, but it's not near to the kind of capacity that it could have in terms of the amount of people that we can bring through it. Interestingly, what we're finding is that there, it's surprising to us, there's actually more corporate and sort of event desire for it because of where it is and what it is. And so we're trying to sort of tread the fine line between making sure it's available to the public and also getting the revenue from corporate users who may be interested in renting out significant portions of it for evenings or [ for day ].

Let's move on to development, which you do very well. You talked about the Park Avenue and some market in Grand Central, the strongest in the city. You introduced a JV to [ equip Madison and the area ]. Maybe talk about why you entered it in a JV. Is that project moved up in your priority list versus maybe a few months ago? And what do you see as the opportunity there?

Sure. So we have two developments that are ongoing right now in Manhattan. One of them is 360 Park Avenue South, which is a physical renovation that we're doing, and I'll let Mike talk about sort of where we are in that. And then 343 Madison is a project for the future. It's not this cycle. So we entered into an agreement with the Port Authority to round that property almost 3 years ago. And the process they began was actually 1.5 years before that, so call it 5 years ago. And obviously, things have changed, and so -- in two ways. One is there's less demand than there was; and two, costs have gotten significantly higher. And so in order for that project to pencil, we're going to need rents that are at a significant premium to the rents that you can currently find space that on Park Avenue or on Lexington Avenue or anywhere in sort of "the Lexington/ Park Avenue/Plaza District" markets of Manhattan. That doesn't mean to say that we won't be able to find a tenant that once to pay those rents and is prepared to pay those rents for the construction, but we're going to need that to occur. And so what we have done is effectively created an option where we are going ahead and we're rebuilding or building the East Side access, which is the, effectively the platform at grade level to get you down to the new Grand Central/Long Island railroad station. And we have the next couple of years to sort of figure out whether or not we want to start on that project. And if we choose not to, then we get all our money back without carry. And if we move forward, we are in a position where we can build an 800,000 to 900,000 square foot beautiful brand-new sleek tower in a location that is literally sitting almost on top of Grand Central Station, but we're going to need a lead tenant to do that. We're not in a position where we're going to go technically. Quite frankly, there's no construction financing to do with speculative development. We have a joint venture partner for that right now. That joint venture partner has material decision-making rights as well, and we haven't identified who that is. But the two of us will figure out if there's enough interest in the building to get going at some time in 2024, 2025.

So what kind of per square foot rent do you need to make that decision?

So I would say that the rents will need to be well in excess of $200 a square foot for that building. And that's simply a reflection of construction costs because actually, we have effectively leveraged land position. So we don't have a major basis in our land. We have a land payment that's required to the port, but it's a participating payment. And so it's simply a question of the fact that cost has gone up significantly. And it's an interesting sort of conundrum from my perspective for our industry and for the city, which is that we're at a point now where new construction pricing and if you attribute a land value to it, will require rents well in excess of $200 a square foot for anybody who wants to build anything. And obviously, you can rent space in places like Third Avenue probably for, I don't know, $50, $60 a square foot on a gross basis, and you can rent space on in great buildings in the Plaza District and on Park Avenue for somewhere in the $140 to $180 to $190 a square foot. They were our buildings with fewer -- were new construction at the tops of buildings that are generating over $200 a square foot. But that's for sort of a small piece of space at the tops of building. And so where there's this really big bridge that you're going to have to cross between new construction rents in order to rationalize new investment and where the market is, which from my perspective means that there's an opportunity for the market to really improve from a landlord's perspective before we sort of get to the point where people start to put themselves in a position where they're able to build these buildings, which is a good thing from a real estate portion perspective but may not allow for new construction in Manhattan for quite some time.

And Doug, that's not just a Manhattan thing. I mean cost inflation and cost of capital have gone up significantly so that the cost of our product has gone up dramatically, so that in all of our markets, if you will just build something new, you would need rents that are way, way above current market rents in order to get a reasonable return. So our view is that we're going to do several years without new development starts in our space.

So maybe to 360 kind of what's going on management leasing and redevelopment?

So 360 is a building that is really well located in Midtown South, both the Madison Square part. It's going to be coming to completion next year. We've got our first letter of intent signed for a commercial tenant. That will be about 20% of the space. And our expectation is that, that will be a building that will start to become occupied, rent paying in late '24,'25. We've got a number of other proposals that we're working on [ all across ] the building. And as it comes to fruition, and you only start to see what it is, I think that will accelerate.

Yes. So today, we have announced that we've got a restaurant called Crown Shy, which I'm not in New York but I'm told Crown Shy, which is that has a location on Pine Street is a sort of a special place, a unique kind of an environment. And that's actually going to be part of our lobby experience at 360 Park Avenue South. And interestingly, the majority of the clients who are looking at that building are actually financial services-oriented clients. So we're negotiating right now actually with an asset manager, not with a tech company that's looking to sort of be cool in that location because that's where tech businesses...

Yes. And then I guess going to the West Coast, you talked about pausing Platform 16 in San Jose. Was that decision one can bet? I know you just talked about the construction being difficult, but I guess, what would you need to [ do that ]?

Yes. So we looked at Platform 16 in the following way. It is a great brand-new construction building, but at the moment, it is in a position where it has to compete with a significant amount of okay and high-quality suburban office buildings that are on the South of Market going back to the market because many of the tech titans down in Silicon Valley have reduced their [ utilization space ]. So Facebook and then particularly Google have announced plans to obviously either put a bit on the sublet market or not renew leases. And so as we look at the opportunity in that building, we said to ourselves, do we want to open this building in the third or fourth quarter of 2024 and be in a position where we're having to compete with higher quality but older buildings that are going to be at a significant discount, a rental rate perspective than what we would have expected or what we need to create an acceptable return at Platform 16. And the answer was, there's just not enough large-scale demand. And typically, large-scale demand is 12 to 24 months out in front of its need for space for us to sort of put ourselves in a position where that's the right window for us to open up this building. And so we have ordered some of the parts. So we have parts of the kit, if you will, to build the building available to us. And we're going to button up the -- effectively, all the below-grade work, so the Platform, if you will, or Platform 16. So that's the underground, so the subterranean parking. And we're going to mothball it and put ourselves in a position where we can restart it and we can complete the remainder of the building within about 18 months, which is a significant, more quick delivery than new construction would occur, if it were to occur, and we're going to wait for a better market. And what's a better market? A better market is when we see a meaningful number of tenants of 200,000 to 400,000 square feet actually in the market looking for positive absorption, right, not just musical chairs but positive absorption, because we want to get the premium rent that this building deserves, and we're not going to spend the incremental capital unless we can do that. And so we can start it tomorrow again or restart it tomorrow if we wanted to, but we won't do that until we see meaningful amounts of change in the demand picture.

So maybe a couple of balance sheet questions [indiscernible]. Earlier this year, we have thought that we've been hard to get any kind of office deals done in the spot market that you guys have been able to be able to do refinancing this year. Maybe talk about what you've been able to do this year and what's left for you to do the next say 12 to 18 months in terms of refinancing. And maybe talk on the dividend, do you see the current level as sustainable or desirable [ when you go into that ]?

Sure. So we've been pretty busy this year, last year and this year, in raising capital and refinancing our expirations -- are preparing to refinance our expirations. So our liquidity right now is over $2.5 billion, and that's after paying off with cash of $500 million of bonds that came due in September, which we issued bonds in May to refinance that. We've also refinanced or extended about $0.5 billion of the mortgages this year. In an environment that's been a little bit challenging for refinancing mortgages, we were successful getting 4 or 5 transactions done. So we feel like we're incredibly well positioned from a liquidity perspective to complete the funding of our development pipeline, which is about $1.6 billion and fund all of the means that we have. We don't have anything else expiring in 2023. We had a couple of mortgages that expire -- were expiring in August and September that we have now refinanced or extended. So those are complete. And then next year, we have a $700 million bond issuance coming due. We have another about $1 billion worth of mortgages. And again, it's not just one mortgage, we're talking about 4 or 5 different mortgages so they're not huge in size. We are looking at both the secured and the unsecured market to refinance our bonds that are coming due. And I think we will have the opportunity to do either one. Both of those markets are available to us, so we're kind of monitoring and tracking to see what we think has the best execution and the best pricing for us in the market. So while it's difficult and obviously, that is more expensive than it was, that is available to us. And we feel like we're really, really well positioned for it. The dividend, we've maintained our dividend for a number of years. Our dividend is very well covered by our cash flows every quarter. So we're anticipating that we will continue to distinguish ourselves in our market as a company that has strong cash flows, that has a well-covered dividend and maintain that dividend. I think that, that's just one of a number of ways that we distinguish our company in our sector. We also have continued earnings growth over a long period of time. Yes, there was a blip during COVID. It was a very small blip this year as the rates have gone up. But overall, our trend line is still very positive. We've got this development pipeline that's going to generate growth for us. So that will go to capital growth and also taxable income growth over time.

The other thing, Anthony, is that -- so we are -- we've been very defensive, I would say, for the last, call it, 2.5 years and particularly this year. I mean with the dislocation in the capital markets and the inability to raise debt for most real estate organization, we've just sort of said, we want to look for it. We're looking for liquidity, and we want to just put ourselves in a position where we know we don't have any issues. And the bond market has been very hospitable to us, and we've been able to do deals. And every time we do a deal, like call us and say, "I can't believe you did the deal at 6.25%. " And then suddenly, they look at us and say, "Wow, I can't believe you got a deal done at 6.25% 3 months later." So we are thinking that way. But we're also now starting to turn our heads a little bit towards being offensive. And so we're actually also looking at potentially doing some asset sales, joint ventures effectively, with some of our development opportunities that are currently well leased and put ourselves in a position where we actually have additional liquidity to go out and be a little bit more acquisitive and look for opportunities from some of the distress that we think is occurring because of the inability for people to raise capital. That actually creates -- unfortunately, for us, it's good news, bad news. It creates gains, and gains require additional dividend. And so Mike has, I would say, sized our dividend over the last few years, and it's continuing to size this way so that we have the ability to sell assets without having special dividends. And so we have an expectation that we are going to, on a continual basis, be selling some portion of our existing assets, creating gains on sale and then distributing that gain out as part of our dividend. So our dividend is sort of, I'd say, sized for both modest amounts of earnings growth even in the face of higher interest rates and some gains on sales so that we can create liquidity so that we have opportunities to invest in what we hopefully will find as really interesting opportunities on a [indiscernible] basis.

Right. We have time for one question. But before that, I think there's a standard question that we ask all guest panels and audiences. Over the next year, would you expect your position in BXP to, one, increase; two, decrease, or three, stay the same? [Operator Instructions] And then beyond that, any questions from the audience on any of the topics that we discussed or anything else? So I guess to sum up, I guess, the story is that leasing is tough because of the economy and the Federal Reserve or whatnot, but once it comes back, you should be in a position to really take advantage given your portfolio, given your exposure in key markets and given your balance sheet and the ability to go out and create value for that.

So if you ask me what our message is, our message is we have the most preeminent, highest-quality premier workplace portfolio in the country or certainly as a public company. We are doing leasing. Fortunately, we have a decent amount of diversity between East Coast and West Coast and certain markets on the West Coast. We are doing both leasing on available space as well as forward leasing right now. We will hopefully see leasing demand pick up in 2024, 2025, 2026. Those would be good things for us. We will unlikely be seeing much in the way of new product creation in our space over the foreseeable period of time. It means there's a runway for rents to start to appreciate again. We do have to deal with the issues associated with large amounts of available supply even in the premier portion of the sector for a period of time, we're just going to maintain a degree of, I'd say, pressure on the ability to push rental increases or reduce concessions. And then we are, from a balance sheet perspective, about it put it as you can possibly be. We are a leveraged company, but we're not an overly leveraged company. We intend to maintain our investment-grade rating, and that is paramount to us. And we are starting to move from being a defensive thought process company to more of an offensive thought process company. We believe that there will be opportunities for us to grow our portfolio in the same ways. The last few, what I would refer to as dramatic, challenging real estate times, that's when we put this sort of clearance which is a John Hancock Tower in Boston. That's when we purchased the macro portfolio, which included 767 Fifth Avenue General Motors Building. And so interesting things happen when there is this kind of distress, and we hope to take advantage of those things.

Great. Doug, Michael, thank you. Appreciate it.

Thank you. Thank you, everybody.

Thank you.