BXP, Inc. quarterly report, Q3 FY2023

BXP, Inc. (BXP) — Q3 2023 Form 10-Q

Reporting period: Three and nine months ended September 30, 2023. BXP is a REIT whose operating partnership, Boston Properties Limited Partnership (BPLP), conducts substantially all of the business. Unless stated otherwise, financial amounts below are consolidated and in U.S. dollars.

Financial performance and position

Metric	Q3 2023	Q3 2022	Nine months 2023	Nine months 2022
Total revenue	$824.3 million	$790.5 million	$2,444.6 million	$2,318.8 million
Net income (loss) attributable to BXP	$(111.8) million	$361.0 million	$70.3 million	$727.1 million
Diluted EPS	$(0.71)	$2.29	$0.45	$4.62
Company share of NOI (non-GAAP)	$491.0 million	$475.9 million	$1,473.4 million	$1,407.4 million
Net cash provided by operating activities	Not presented quarterly	Not presented quarterly	$914.4 million	$912.4 million

• Q3 revenue grew 4.3%; nine-month revenue grew 5.4%. Q3 company-share NOI increased 2.7%, and nine-month NOI increased 3.8%. NOI is a non-GAAP measure and is not a substitute for GAAP earnings.
• Q3 loss included $272.6 million of non-cash impairments on investments in unconsolidated joint ventures, partly offset by a $35.8 million gain related to the Metropolitan Square restructuring. Q3 2022 included $262.3 million of real estate sale gains; BXP recorded only $0.5 million in Q3 2023. These items, along with higher interest expense, drove the year-over-year earnings decline.
• For the nine months, interest expense rose $107.3 million to $424.5 million. The increase primarily reflected higher-cost debt and term-loan financing, including new senior notes, and reduced capitalized interest.
• Same-property office and premier-workplace NOI was nearly flat: up 0.26% in Q3 and down 0.14% for the nine-month period. Nine-month same-property rental revenue increased 1.9%, but operating expenses rose 6.3%; average occupancy declined from 91.4% to 90.3%.
• At September 30, cash and equivalents were $882.6 million, plus $47.7 million held in escrows. Total assets were $24.7 billion and total liabilities were $16.7 billion.
• Consolidated debt was $15.0 billion: $10.5 billion of unsecured senior notes, $3.3 billion of mortgage debt, and $1.2 billion under an unsecured term loan. The reported consolidated debt-to-market-capitalization ratio was 58.9%. All consolidated debt was fixed-rate or effectively fixed through swaps; the weighted-average GAAP interest rate was 3.97%.
• Cash dividends and distributions paid in the first nine months totaled $515.0 million. BXP declared a quarterly dividend of $0.98 per share, consistent with the comparable 2022 rate.

Material operating changes and outlook

• At quarter-end, the in-service premier-workplace and retail portfolio was 88.8% occupied and 90.4% leased, including signed leases not yet commenced. BXP signed approximately 1.06 million square feet of leases in Q3, with an average term of 8.2 years. Management reported slower leasing decisions and less urgency among clients amid economic uncertainty.
• Management said return-to-office activity was gradually increasing and views premier workplaces as outperforming the broader office market. It attributed 2023’s slower leasing primarily to economic conditions and client caution, while expecting leasing to improve when earnings growth returns. No specific earnings or FFO guidance was provided in the supplied filing text.
• The development and redevelopment pipeline comprised 11 projects, approximately 2.8 million square feet, with BXP’s estimated share of total investment around $2.4 billion and approximately $1.4 billion remaining to fund, primarily through 2026. Commercial space in the pipeline, excluding residential, was 52% pre-leased as of October 30.
• Management identified higher interest rates and credit spreads, constrained private-market financing, higher construction costs, and uncertainty in leasing and capital markets as operating pressures. It said it was prioritizing liquidity, leverage management, selective investment, and discipline in discretionary spending.
• Debt maturities included $700 million of senior notes due February 2024 and a $1.2 billion term loan due May 2024, with a one-year extension option subject to conditions. BXP also had an approximately $405 million share of unconsolidated joint-venture debt maturing in 2024. Management expected to address maturities through available cash, refinancing, extensions, asset sales, or revolving-facility borrowings.
• After quarter-end, BXP closed a $600 million mortgage loan secured by four Cambridge properties, bearing interest at Daily Compounded SOFR plus 2.25% and maturing in 2028; management expected to use proceeds and cash toward the February 2024 notes. As of October 30, management reported approximately $1.4 billion of available cash and approximately $1.8 billion available under the revolving facility.
• WeWork filed for Chapter 11 bankruptcy on November 6, 2023. It leased approximately 493,000 square feet across five BXP workplaces, about 0.97% of the in-service portfolio; BXP warned that leases could be rejected.
• The Metropolitan Square restructuring removed the property from BXP’s in-service portfolio. BXP may fund up to $20 million of a new mezzanine loan bearing 12% interest, compounded monthly, and will continue providing property management and leasing services.

Key risks, contingencies, and unusual items

• Joint-venture investment impairments were recorded for Platform 16 ($155.2 million), 360 Park Avenue South ($54.0 million), 200 Fifth Avenue ($33.4 million), and Safeco Plaza ($29.9 million). Platform 16 construction was paused amid weakening San Jose market conditions; management cited lower market rent assumptions and a longer construction pause.
• Management highlighted risks from office-space demand and client financial health, higher borrowing and refinancing costs, development delays and cost increases, joint-venture obligations, and the availability and cost of insurance. Earthquake coverage may be insufficient, and certain catastrophic losses may be uninsured or exceed policy limits.
• BXP’s 343 Madison Avenue joint venture entered an up-to-99-year ground lease. The project includes required transit-related construction and a proposed approximately 900,000-square-foot workplace; the filing cautions that later phases may not proceed on the contemplated terms or schedule.
• BPLP reported compliance with its senior-note and credit-facility financial covenants at September 30, 2023. Management stated disclosure controls were effective and reported no material change in internal control over financial reporting during the quarter.

Important facts for investors to verify

• Review subsequent occupancy, leasing volume, renewal rents, and tenant concessions, particularly in San Francisco, New York, and Washington, DC.
• Track refinancing or extension plans and final funding costs for the 2024 maturities, including joint-venture debt and the impact of the post-quarter $600 million mortgage loan.
• Assess the assumptions and further valuation changes behind the joint-venture impairments, especially Platform 16 and other properties with challenged leasing or development prospects.
• Monitor remaining development commitments, pre-leasing, project schedules, and any changes to the estimated $1.4 billion of remaining pipeline investment.
• Follow WeWork’s lease decisions and potential effects on occupancy, cash flow, and leasing costs.
• Reconcile GAAP earnings with NOI and FFO, and account for the significant influence of impairment charges, prior-year property-sale gains, and rising interest expense when comparing periods.