BXP, Inc. 2015 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2015. The filing combines Boston Properties, Inc. (BXP), a REIT, and Boston Properties Limited Partnership (BPLP), through which substantially all operations are conducted. Figures below are primarily consolidated and in U.S. dollars; the filing reports annual results, with selected fourth-quarter data noted separately.
Business context
BXP owns, operates and develops commercial real estate, concentrated in Boston, New York, San Francisco and Washington, DC. At year-end, it owned or held interests in 168 properties totaling approximately 46.5 million rentable square feet; 11 properties totaling 4.6 million square feet were under construction or redevelopment. In-service occupancy was 91.4%.
Financial and operating performance
| Metric | 2015 | 2014 | Change |
|---|---|---|---|
| Total revenue | $2.491 billion | $2.397 billion | +3.9% |
| Operating income | $849.4 million | $801.8 million | +5.9% |
| Net income attributable to BXP common shareholders | $572.6 million | $433.1 million | +32.2% |
| Diluted earnings per BXP common share | $3.72 | $2.83 | Up |
| Funds from Operations (FFO), attributable to BXP | $823.7 million | $807.5 million | +2.0% |
| Net cash provided by operating activities | $799.4 million | $695.6 million | +$103.9 million |
| Same-property NOI | $1.465 billion | $1.441 billion | +1.7% |
Net income growth was substantially influenced by $375.9 million of gains on real estate sales, versus $168.0 million in 2014, and by higher operating income. The filing cautions that FFO and NOI are non-GAAP measures and are not substitutes for GAAP earnings or cash flow.
Same-property rental revenue rose 2.7%; property operating expenses increased 4.6%, limiting same-property NOI growth. Average occupancy in the same-property portfolio declined from 93.9% to 92.8%. Across the total in-service portfolio, leased occupancy edged down from 91.7% to 91.4%, while annualized revenue per square foot increased to $60.89 from $58.97.
Fourth quarter: Revenue was $624.2 million. Net income attributable to BXP common shareholders was $137.9 million, or $0.90 per diluted share. The quarterly figures include the effect of real estate sale gains; the filing’s selected interim table reports income before sale gains of $85.4 million.
Balance sheet, debt and liquidity
- At December 31, 2015, cash and cash equivalents were $723.7 million, down from $1.763 billion a year earlier. Total assets were $18.379 billion and consolidated debt was $9.037 billion.
- All consolidated debt was fixed-rate at year-end. The weighted-average GAAP interest rate was 4.34% and the stated/coupon rate was 4.91%; average debt maturity was approximately 4.3 years. Consolidated debt to market capitalization was 29.05%; management also reported adjusted debt of $8.401 billion.
- The $1.0 billion revolving credit facility had no borrowings at year-end, with approximately $983.6 million available after letters of credit. BPLP reported compliance with its financial covenants.
- Operating cash flow was $799.4 million; investing activities used $280.2 million and financing activities used $1.559 billion. Financing outflows included $1.226 billion of dividends and distributions. Investing cash flow included a $667.3 million purchase of securities to defease the Clarendon mortgage.
- Mortgage principal payments were approximately $576.9 million in 2016 and $2.068 billion in 2017. Management described five mortgage/mezzanine loans totaling approximately $2.9 billion as maturing through 2017, including joint-venture interests.
Material changes and unusual items
- BXP completed asset sales totaling approximately $743 million gross in 2015, including Residences on The Avenue, 505 9th Street, Innovation Place and land parcels. Reported BXP sale gains totaled $375.9 million. A remaining NOI-support obligation of approximately $5.2 million applied to Residences on The Avenue; the filing also describes rent-support obligations associated with other sales.
- BXP defeased the $640.5 million Clarendon mortgage in December. The transaction required approximately $667.3 million of cash and produced a $22.0 million loss on early extinguishment of debt.
- The Board declared a $1.25-per-share special dividend in addition to the regular $0.65 quarterly dividend; the combined $1.90 was paid January 28, 2016. The special dividend reflected taxable gains from 2015 asset sales.
- Development investment was approximately $1.1 billion to date against estimated total project investment of $2.6 billion. Management estimated approximately $1.5 billion remained to fund through 2020.
- After year-end, BPLP issued $1.0 billion of 3.650% senior notes due 2026, with net proceeds of approximately $988.9 million. Management anticipated using part of the proceeds to repay the approximately $211 million Fountain Square mortgage when prepayable.
Outlook, management commentary and principal risks
- Management expected 2016 same-property NOI growth to be relatively flat, citing lease expirations, downtime and planned repositionings. It projected occupancy of 90%–92% and believed lease-up and development deliveries could support significant revenue growth in 2017.
- Management expected 2016 hotel NOI of $13–$15 million; development and management services income of $20–$24 million; general and administrative expense of $102–$107 million; and interest expense of $400–$415 million. These are estimates with stated assumptions, not guarantees.
- Management expected 2016 gross asset sales to be less than half of 2015’s approximately $584 million of assets sold. It emphasized development over acquisitions at prevailing acquisition yields and generally expected new construction to require significant pre-leasing.
- Market commentary was strongest for Boston and San Francisco; management described Washington, DC leasing as competitive and slow, and New York outlook as more restrained. Salesforce Tower was 59% pre-leased as of February 2016.
- Key risks include concentration in four metropolitan markets and office property, tenant credit and lease rollover, development cost and leasing risk, substantial debt maturities and refinancing needs, joint-venture partner and tax-protection constraints, and potential uninsured earthquake, terrorism, environmental or cyber losses. The U.S. Government was the largest tenant by square feet, while no single tenant generated more than 10% of rental revenue in 2015.
- Management reported ordinary-course legal matters not expected to materially affect financial position, results or liquidity. The filing reports effective internal control over financial reporting and unqualified auditor opinions.
Important facts for investors to verify
- Reconcile GAAP earnings growth with the $375.9 million of property-sale gains and compare recurring operating trends using same-property NOI and FFO definitions.
- Review lease rollover, occupancy and concessions, including 2016 expirations equal to 7.1% of portfolio square feet, and assess whether the planned repositionings delay leasing or reduce NOI.
- Confirm refinancing and repayment plans for 2016–2017 maturities, including the impact of the January 2016 notes issuance and the Fountain Square loan repayment.
- Track remaining development costs, pre-leasing and delivery schedules, particularly Salesforce Tower and other large projects, against management’s funding and stabilization assumptions.
- Assess cash available after dividends, development spending and debt service; distinguish the regular dividend from special distributions tied to taxable gains.
- Check contingent sale-support obligations, joint-venture debt and guarantees, tax-protection agreements, insurance limits and the status of the remaining Lehman Brothers claim.