BXP, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021. BXP is a REIT that develops, owns and manages primarily Class A office properties in Boston, Los Angeles, New York, San Francisco and Washington, DC. BXP conducts substantially all operations through Boston Properties Limited Partnership (BPLP). Unless noted, financial amounts below are in U.S. dollars.
Financial performance and position
- Revenue: $713.7 million, down 5.2% from $752.6 million. Lease revenue fell 3.4% to $685.8 million; parking and other revenue declined $7.6 million, and hotel revenue fell to $0.6 million from $6.8 million.
- Profit and EPS: Net income was $128.1 million versus $577.1 million. Net income attributable to BXP common shareholders was $91.6 million, or $0.59 per diluted share, versus $497.5 million, or $3.20. The year-ago quarter included $410.2 million of real estate sale gains; Q1 2021 included a $6.4 million preferred-stock redemption charge.
- Operating performance: Company-share net operating income (NOI), a non-GAAP measure, was $424.4 million, down 5.9% from $452.8 million. Same-property NOI declined 5.0%, mainly reflecting lower occupancy and parking revenue. FFO attributable to BXP common shareholders was $243.8 million versus $284.1 million.
- Cash flow: Operating cash flow was $152.1 million, compared with $175.2 million. Investing activities used $242.3 million and financing activities used $679.9 million, largely reflecting debt repayment/redemption and distributions. Dividends and distributions of $171.6 million exceeded operating cash flow by approximately $19.5 million.
- Debt and liquidity: Consolidated debt was $12.54 billion at March 31, including $9.63 billion of unsecured senior notes and $2.90 billion of mortgage debt. All consolidated debt was fixed-rate; weighted-average GAAP interest rate was 3.64%, with a six-year weighted-average maturity. Debt was 41.62% of consolidated market capitalization. Cash and cash held in escrows totaled $949.2 million, including $251.8 million in escrow. BPLP had no borrowings on its $1.5 billion revolving facility and reported compliance with debt covenants.
- Distributions: The common dividend and OP-unit distribution remained $0.98 per share/unit for the quarter.
Material changes versus the prior-year quarter
- Common-share earnings and FFO were lower; the sharp GAAP earnings decline principally reflects the absence of the prior-year real estate sale gains.
- Company-share NOI decreased $27.7 million. Same-property average occupancy fell to 91.6% from 94.3%; portfolio in-service office and retail occupancy was 88.7% at quarter-end, down from 90.1% at December 31, 2020.
- Parking revenue declined, primarily due to lower transient and monthly parking. The Boston Marriott Cambridge remained weak, with 10.9% occupancy versus 59.6% a year earlier.
- Interest expense increased $6.3 million to $107.9 million. General and administrative expense increased $8.5 million, primarily due to compensation expense.
- Q1 2020 included $410.2 million of BXP real estate sale gains; Q1 2021 had none. Q1 2021 did include a $10.3 million gain from selling BXP’s 50% interest in the Annapolis Junction joint venture.
Outlook, management commentary and risks
- Management said the pandemic continued to weigh on office-market conditions. Physical property occupancy remained below capacity as many employers deferred return-to-office and space decisions. The company expected 2021 leasing volume to remain below pre-pandemic levels; it provided no specific earnings or FFO guidance in the supplied filing text.
- Rent collections in Q1 were 99.0% overall, including 99.6% for office tenants and approximately 89.0% for retail tenants. COVID-related cash rent abatements and deferrals were approximately $9.1 million in the quarter.
- BXP signed approximately 592,000 square feet of leases in Q1. Its nine-property construction and redevelopment pipeline totaled approximately 4.3 million square feet, with approximately $2.7 billion of estimated company-share investment and $1.4 billion remaining. As of May 3, the office pipeline was 86% pre-leased; the total pipeline excluding the Observatory project was 71% pre-leased.
- Management emphasized life-sciences development, including projects in Waltham and South San Francisco, while noting speculative leasing and construction execution risks. It anticipated low hotel occupancy until travel demand recovers.
- Management described liquidity as sufficient for current development costs, debt repayment and REIT distribution requirements, citing approximately $1.5 billion of revolver availability and $593.2 million of available cash as of May 3. These amounts are subsequent-date figures and are not the March 31 balance-sheet cash amount.
- Q1 financing actions included issuing $850 million of 2.55% notes due 2032, redeeming $850 million of 4.125% notes due 2021, repaying a $500 million delayed-draw term loan and redeeming all Series B preferred stock for approximately $201.3 million. The preferred redemption was completed April 1.
- Other risks include uncertain post-pandemic office demand, tenant credit and rent collection, development costs and delays, refinancing and interest-rate exposure, joint-venture obligations, and potentially inadequate coverage for catastrophic or pandemic-related losses. The filing states that pandemic-related insurance coverage and losses could not yet be determined.
- Subsequent to quarter-end, BXP agreed to acquire two fully leased Waltham life-sciences buildings for approximately $100 million, subject to customary closing conditions.
Most important facts for investors to verify
- Whether occupancy, leasing volumes, rent collections and tenant concessions improve as office return-to-work progresses.
- How the $1.4 billion of remaining development investment is funded, and whether projects meet cost, delivery and pre-leasing expectations.
- Whether operating cash flow can support distributions and planned investment without relying on additional borrowing or asset sales.
- The timing and refinancing terms for upcoming consolidated and joint-venture maturities, including joint-venture debt not included in consolidated debt.
- Whether hotel, parking and retail operations recover, and the extent of any continuing COVID-related credit losses or insurance exposure.
- Completion and economics of the proposed Waltham acquisition and any contemplated asset dispositions or co-investment arrangements.