U.S. GDP grew 6.7% in the second quarter but is expected to slow in the third quarter due to the surge in infections caused by the Delta variant.
However, daily COVID infection levels have dropped over 50% from highs in September, which bodes well for strong economic growth in future quarters.
The relatively low unemployment rate at 4.8% is being driven by both new job creation, which recently has been tepid and workers withdrawing from the workforce.
There are over 10 million job openings across the U.S. and virtually every employer, including BXP, is experiencing a highly competitive labor market.
Annual inflation remains high at 5.4% in September, driven largely by energy prices, which are up 25% versus one year ago.
Lastly, the 10-year U.S. treasury rate has increased approximately 40 basis points to 1.6% since our last earnings call.
Our FFO per share this quarter was $0.03 above market consensus and $0.04 above the midpoint of our guidance, which Mike will detail shortly.
We completed over 1.4 million square feet of leasing, significantly more than double the volume achieved in the first quarter, well above the leasing achieved in the second quarter and just under our long-term third quarter average.
Our clients continue to make even longer-term commitments as the leases signed in the third quarter had a weighted average term of 9.3 years versus 7.5 years in the second quarter.
Year-to-date, we have completed 3.3 million square feet of leasing with an average lease term of 8.3 years.
In addition to our leasing activity, which included a 524,000 square foot long-term renewal with Wellington at Atlantic Wharf, Google purchased a 1.3 million square foot building in New York for its use.
In the Silicon Valley alone, Apple completed a 720,000 square foot new requirement.
Facebook is looking for 700,000 additional square feet.
And ByteDance is searching for approximately 250,000 to 300,000 square feet.
In the Seattle region, Facebook is pursuing a 0.5 million square foot requirement in South Lake Union and Amazon has executed on enormous growth in Bellevue.
Our leading region is New York City, which hit 52% occupied last week.
Our lagging region is San Francisco, which is increasing, but currently at 18%, and the remaining regions are in between.
$26 billion of significant office assets were sold in the third quarter, up 38% from last quarter and up 165% from the third quarter a year ago.
Of note, this past quarter in all of our markets, One Canal Park, an empty 112,000 square foot office building in Cambridge sold to a REIT for $131 million or $11.70 a square foot.
As mentioned, Google exercised its option to purchase St. John's Terminal in New York City, which is a 1.3 million square foot office building that fully occupies and the price was $2.1 billion or $1,620 a foot.
Coleman Highline, which is a 660,000 square foot office complex under construction in North San Jose and fully leased to Verizon, sold for $775 million, which is $1,180 a square foot and a 4.2% initial cap rate to a non-U.S. buyer.
153 Townsend Street, which is 179,000 square foot office building in San Francisco sold for $231 million or $1,290 a square foot to a local operator and fund manager.
West 8th is a 540,000 square foot office building in the Denny Triangle, Seattle, sold for $490 million or $910 a square foot to a REIT.
49% interest in 655 New York Avenue in Washington, D.C. sold for a gross price of $805 million or $1,060 a square foot and a 4.7% cap rate.
The building comprises over 760,000 square feet, is 93% leased and sold to a non-U.S. investor with a domestic advisor.
And lastly, The Post, which is 100,000 square foot fully leased office building in Beverly Hills, sold for $153 million, which is $1,530 a square foot and a 4.8% initial cap rate to a domestic fund manager.
We're also on track to close the 360 Park Avenue South acquisition with Strategic Capital Program Partners on December 1, thereby entering the Midtown South market in New York City.
Regarding dispositions, we completed the sale of our Spring Street Office Park in Lexington Mass this week, bringing our share of gross sale proceeds from dispositions year-to-date to $225 million.
We're also marketing for sale two additional buildings, which, if completed, are projected to yield approximately $200 million in gross proceeds.
On development activities, this quarter, we delivered 0.5 million square feet of Verizon and other tenant space at 100 Causeway and 285,000 square feet of Fannie Mae space at Reston Next.
In the aggregate, we have 4.3 million square feet of development underway that is 72% pre-leased.
These future deliveries plus the stabilization of recently delivered projects are projected to add approximately $190 million to our NOI and 3.8% to our annual NOI growth over the next few years.
We believe BXP is about to experience a strong growth ramp, which we project to be approximately 13% in FFO per share in 2022, driven by improving economic conditions and leasing activity, recovery of variable revenue streams, delivery of a well-leased development pipeline, completion of four new acquisitions, a strong balance sheet combined with capital allocated from large-scale private equity partners to pursue additional new investment opportunities as the pandemic recedes, a rapidly expanding life science portfolio in the nation's hottest life science markets and low interest rates and decreasing capital costs.
But when we're budgeting jobs that will start eight to 12 months from now, we're using a 5% to 6% escalation in our total construction costs.
We are in the process of rebidding our Platform 16 base building project, which was previously budgeted in late 2019 with an eye toward our 2022 restart.
We have net leases, under which 100% of the operating expense and real estate taxes are paid by the tenant, and we have gross leases with a base year that is set upon the lease commencement with increases in expenses over that base year added to the rental obligation of the tenant.
The universe of square footage that is encompassed in the statistics is about 500,000 square feet and it includes 105,000 square feet of short-term transactions, 18 to 24 months, that we signed in the heart of the pandemic with tenants that were not in a position to make a long-term commitment but they were prepared to extend for a negotiated discounted as-is deal.
One of those tenants has since agreed to lease space for 13 years, where the interim rent was $60 a square foot and they'll be paying $103 a square foot, and this is in a New York asset.
If you eliminate that 105,000 square feet, the statistics that we would have shown you changed dramatically, going from down 14% to effectively flat.
Our life science and office portfolio make up 91% of our revenues.
As we look toward 2022, we currently have more than 800,000 square feet of signed leases that have not commenced.
In 2022, lease expirations for the whole portfolio, not just our share, totaled about 2.9 million square feet, and we already have renewal conversations underway on over 25% of that space.
Historically, we have leased well over 1 million square feet a quarter each and every year.
You may remember that we were asked about a 200,000 square foot sublet at 399 Park Avenue during various conference calls in 2020.
Now there still is significant supply of direct and sublease space in New York City and our view is that net effective rents remain down 10% to 15% from pre-pandemic levels.
During the quarter, we completed eight deals totaling 113,000 square feet in the CBD portfolio.
Many of these spaces were vacant, but the two largest had a roll up of 8% in one case and a roll down of 4% in another.
About 70,000 square feet of leases are in the category of leases that will not have a revenue commencement until sometime in mid '22.
Last week, we signed a lease at Dock 72 for 42,000 square feet.
We have an additional 340,000 square feet of leases under negotiation in New York right now, including almost 200,000 square feet at Dock 72.
We don't anticipate revenue commencement on 65% of that space until 2023.
At Carnegie Center, down in Princeton, we did eight leases for 38,000 square feet and have another 106,000 square feet in active lease documentation.
Our culinary collective, The Hugh, has opened at our 53rd Street campus in 601 Lex.
During the quarter, we completed seven leases totaling 70,000 square feet in Reston, and we're in lease negotiation on another seven deals totaling 125,000 square feet.
But the urban market core Reston is under 10% vacant, and it continues to dramatically outperform with starting rents in the high 40s to low 50s gross.
The Reston Next development is welcoming Fannie Mae into the building this month, and we are actively marketing and leasing the remaining 160,000 square feet of available space.
During the quarter, we completed a lease with a new theater operator for 50,000 square feet.
Last week, we signed a 20,000 square foot lease with a local restaurant distillery and yesterday, a new 20,000 square foot fitness operator.
We have three more restaurants totaling 22,000 square feet that are close to execution.
This 115,000 square feet of leased retail is not expected to have any revenue contribution until 2023.
In the District of Columbia, we continue to chip away at our current availability at Net Square 901 New York Avenue and Market Square North.
We completed seven leases for 49,000 square feet during the third quarter and have signed another 32,000 square feet during October.
And year-to-date, we've signed 162,000 square feet over eight transactions.
The bulk of the demand in the last 18 months has come from traditional financial asset management and professional services firms that have focused on the best space in the best buildings.
This quarter, we've completed over 100,000 square feet of leases, including full floor transactions in Embarcadero.
The average starting rent was just over $100 a square foot on those full floor deals, a 21% increase over expiring rents.
We are negotiating leases on another 106,000 square feet right now.
The BXP ARE joint venture has signed an LOI with a full building user for 751 Gateway, 230,000 square feet and we're actively responding to proposals for our anticipated redevelopment of 651 Gateway, about 300,000 square feet, which won't commence until the third quarter of next year.
Further down the Peninsula and Mountain View, activity has picked up in the last 30 days.
This quarter, we completed two full building deals totaling 58,000 square feet.
For those of you who saw that the Tesla announcement that they're moving their headquarters to Texas, you may have missed that they leased 325,000 square feet in Palo Alto contemporaneously with that announcement.
High-quality new construction availability is very limited in the valley, and we're actively considering when we should restart the construction of Platform 16 next to Diridon Station and the future of Google development in San Jose.
They agreed to expand by 70,000 square feet at Atlantic Wharf, and we're going to terminate 156,000 square feet at 100 Federal Street in 2023.
We completed an additional 73,000 square feet of leases in our Back Bay portfolio, and we have about 50,000 square feet of leases under negotiation today in that same group of properties.
We have signed an LOI for the 118,000 square feet formerly occupied by Lord & Taylor, as well as 40,000 square feet of in-line space that's currently vacant or in default.
This 158,000 square feet will likely commence paying rent in early '23.
Last week, we signed our first lease at 880 Winter Street, our lab conversion that we started four months ago, 37,000 square foot deal, which we'll deliver in the middle of next year, and we are in the final stages of negotiation on another 128,000 square feet, which will bring that 224,000 square foot building to 74% leased, and we have active dialogue on the rest of the space.
And during the quarter, we signed over 105,000 square feet of leases with life science tenants at 1,000 Winner, 1,100 Winner and Reservoir Place traditional office buildings.
This quarter, we took advantage of the low interest rate environment and very attractive credit spreads to issue $850 million of 12-year unsecured green bonds when the underlying 10-year treasury rate was 1.3%.
We achieved a coupon of 2.45%, the lowest in the company's history.
We utilized the proceeds to redeem $1 billion of 3.85% unsecured notes on October 15.
The early prepayment will result in a redemption charge of $0.25 per share in the fourth quarter of 2021.
The only other significant debt maturity we have in the next 18 months is our $620 million mortgage on 601 Lexington Avenue in New York City that expires in April of next year.
Similar to the bond we redeemed, this loan also carries an above-market interest rate of 4.75%.
For the third quarter, we announced FFO of $1.73 per share, that's $0.04 per share higher than the midpoint of our guidance and $0.03 ahead of consensus estimates.
Our outperformance came from better portfolio NOI with $0.02 of higher rental and parking revenue and approximately $0.02 of lower-than-projected operating expenses.
Our share of this quarter's parking revenue totaled $22 million.
This compares to a comparable pre-COVID quarterly result from the third quarter 2019 of $28 million.
At the bottom, in the second quarter of 2020, our share of parking revenue was $14 million, so we are over 50% of the way back.
On an annualized basis, using the third quarter run rate, we have about $25 million of revenue or $0.14 per share to recover before we are back to pre-COVID annual parking levels of $113 million.
Our Kendall Square hotel was profitable for the first time in six quarters contributing about $1 million of positive NOI.
Given the hotel's location in the heart of Cambridge and adjacent to MIT, we expect that it will ultimately restabilize at or above the $15 million annual NOI generated in 2019, though certainly not in 2022.
This quarter, our share of retail rental revenue was $43.6 million.
On an annualized basis, this is $16 million less than our share of 2019 retail revenue, which totaled $190 million.
If you combine and annualize our third quarter hotel NOI and our share of parking and retail revenues, we have the opportunity to gain approximately $52 million or $0.30 per share to return to 2019 full-year levels.
Looking at the rest of this year, we released fourth quarter 2021 guidance of $1.50 to $1.52 per share and full-year 2021 guidance of $6.50 to $6.52 per share.
Our fourth quarter guidance includes the $0.25 share redemption charge related to our bond refinancing.
Excluding the charge, our fourth quarter guidance would be sequentially higher than third quarter results by $0.03 per share at the midpoint.
The improvement is primarily from Verizon taking occupancy of its 440,000 square foot lease at the Hub on Causeway office development this quarter and lower interest expense after our refinancing.
And while we expect our same property portfolio NOI will also grow sequentially, the growth is partially offset by the FFO dilution from the sale of our Spring Street office campus in suburban Boston that closed for $192 million this week.
We have three major drivers that are all headed in the right direction, that provide for very strong FFO growth of 13% at the midpoint over 2021.
We're delivering five of our development properties over the next four quarters totaling $1.6 billion of investment.
These projects totaled 3 million square feet of additions to our portfolio and are 92% leased.
They include the Hub on Causeway in Boston that is leased to Verizon, 325 Main Street in Cambridge that is leased to Google, the 200 West Street Life Science development in Waltham that is leased to Translate Bio; Marriott's new headquarters facility in Bethesda, Maryland; and Reston Next that is leased to Fannie Mae and Volkswagen in Reston.
It is also possible that our Life Science conversion at 880 Winter Street in Waltham will begin to contribute in late 2022.
In total, we expect our development deliveries to contribute an incremental $65 million to $70 million to our FFO in 2022.
We expect these acquisitions will add $7 million to $10 million to our share of NOI next year.
Our guidance assumes that our share of same-property NOI will grow between 2% and 3.5% next year.
Our leasing velocity has picked up in the last two quarters where we've leased 2.7 million square feet of signed leases.
On a cash basis, we expect our share of 2022 same-property NOI growth to be much stronger at between 5.5% and 6.5% over 2021.
This equates to between $90 million and $100 million of incremental cash NOI to 2022.
Much of our cash NOI growth is coming from approximately $50 million of free rent that is burning off in contractual leases.
As I mentioned earlier, we will incur a debt redemption charge of $0.25 per share in the fourth quarter of '21.
Also, we are aggressively refinancing loans that were placed five to 10 years ago in a higher interest rate environment with low-cost current market financing.
In aggregate, we expect that 2022 interest expense will be $52 million to $60 million less than in 2021.
That equates to $0.30 to $0.34 of incremental positive impact on our 2022 FFO.
So to summarize, our guidance for 2022 FFO was $7.25 to $7.45 per share.
The midpoint of our range is $7.35, which is 13% or $0.84 a share higher than the midpoint of our 2021 guidance.
At the midpoint, the incremental growth is coming from $0.43 from development and acquisitions, $0.25 from our same property portfolio and $0.32 from lower interest expense.
This will be offset by $0.06 of dilution from our 2021 disposition activity, $0.06 of lower termination income and $0.04 of higher G&A.
The past 18 months have brought challenges and uncertainty to so many, including our team at BXP.

Summary:
But when we're budgeting jobs that will start eight to 12 months from now, we're using a 5% to 6% escalation in our total construction costs.
The early prepayment will result in a redemption charge of $0.25 per share in the fourth quarter of 2021.
For the third quarter, we announced FFO of $1.73 per share, that's $0.04 per share higher than the midpoint of our guidance and $0.03 ahead of consensus estimates.
Looking at the rest of this year, we released fourth quarter 2021 guidance of $1.50 to $1.52 per share and full-year 2021 guidance of $6.50 to $6.52 per share.
Our fourth quarter guidance includes the $0.25 share redemption charge related to our bond refinancing.
As I mentioned earlier, we will incur a debt redemption charge of $0.25 per share in the fourth quarter of '21.
At the midpoint, the incremental growth is coming from $0.43 from development and acquisitions, $0.25 from our same property portfolio and $0.32 from lower interest expense.