BXP, Inc. (Boston Properties) — 2011 Form 10-K
Reporting period: Fiscal year ended December 31, 2011. The filing also provides selected fourth-quarter results; these are quarterly figures, while most financial data below are for the full year. BXP is a REIT focused primarily on Class A office properties in Boston, New York, Princeton, San Francisco and Washington, D.C.
Business context and portfolio
- At year-end, BXP owned or had interests in 153 properties with approximately 42.2 million net rentable square feet, including seven projects under construction totaling 2.6 million square feet. In-service portfolio occupancy was 91.3%, versus 93.2% a year earlier.
- The in-service portfolio was 91.3% leased; average annualized revenue per square foot was $53.58. Average remaining lease term, including unconsolidated ventures, was approximately 6.8 years.
- Development pipeline: estimated total investment of approximately $1.77 billion, of which about $1.02 billion had been invested by year-end. BXP also controlled approximately 510.5 acres with potential for 11.4 million square feet of development.
Financial performance and liquidity
| Metric | 2011 | 2010 | Change |
|---|---|---|---|
| Total revenue | $1.760 billion | $1.551 billion | +13.5% |
| Operating income | $618.6 million | $610.5 million | +1.3% |
| Net income attributable to BXP | $272.7 million | $159.1 million | +71.4% |
| Diluted EPS | $1.86 | $1.14 | +63.2% |
| FFO attributable to BXP, non-GAAP | $711.0 million | $547.4 million | +29.9% |
| Cash from operating activities | $606.3 million | $375.9 million | +$230.4 million |
- Revenue growth reflected acquisitions and projects placed in service. Same-property consolidated NOI, excluding hotel, rose 0.9%; total consolidated NOI rose 12.5%. NOI is a non-GAAP measure.
- Operating margin was approximately 35.2%, versus 39.4% in 2010; depreciation and amortization increased 29.8% to $439.2 million, contributing to the difference between revenue and operating-income growth.
- Year-end cash and cash equivalents were $1.823 billion, versus $478.9 million. Investing cash outflow was $90.1 million, compared with $1.161 billion in 2010; financing cash inflow was $828.0 million, versus a $184.6 million outflow.
- Consolidated debt was $8.704 billion, up from $7.786 billion. All consolidated debt was fixed-rate at year-end; the GAAP weighted-average rate was 5.39% and weighted-average maturity was approximately 5.5 years. Debt equaled 34.25% of consolidated market capitalization, a market-price-sensitive measure. Unconsolidated joint ventures had $2.989 billion of debt in aggregate; BXP’s stated proportionate share was approximately $1.4 billion.
- The $750 million revolving credit facility had no borrowings at year-end and $736.9 million available after letters of credit. The quarterly common dividend increased from $0.50 to $0.55 per share in December 2011; declared 2011 dividends totaled $2.05 per share.
Fourth-quarter results and material changes
- Fourth-quarter 2011 revenue was $452.8 million, versus $392.5 million a year earlier. Net income attributable to BXP was $101.6 million, or $0.69 per diluted share, compared with a $12.9 million loss, or $0.09 loss per share, in fourth-quarter 2010.
- The fourth-quarter 2011 results included a $46.2 million gain on sale recognized through unconsolidated joint ventures related to Two Grand Central Tower. The 2010 fourth quarter included approximately $81.7 million of debt-extinguishment losses. These items make the quarterly earnings comparison less indicative of recurring operations.
- Same-property occupancy declined to 91.6% from 92.3%. Same-property rental revenue nevertheless increased 0.95%, with higher average revenue per square foot partly offset by lower occupancy. Full-year total portfolio occupancy fell from 93.2% to 91.3%.
- 2011 FFO increased partly alongside higher contribution from joint ventures and newly acquired or completed properties. BXP’s share of the Two Grand Central sale generated a $46.2 million gain after the venture recorded a $40.5 million impairment and sale loss; FFO excludes the gain.
Management outlook, risks and unusual items
- Management expected 2012 same-property NOI to decline approximately 1.5%–3%, reflecting vacancies and lease expirations, before occupancy improvement from leasing activity. It forecast hotel NOI of $8.5–$9.5 million, development and management fee income of $25–$30 million, general and administrative expense of $85–$87 million, and net interest expense of $390–$395 million.
- Management identified approximately $361 million of development funding and $209 million of maturing debt repayment, refinancing or repurchase needs through the remainder of 2012. It expected remaining development commitments through 2015 to be funded by cash and available construction-loan draws.
- Leasing conditions were improving in Cambridge and parts of San Francisco; Manhattan activity was stable but slowed in the second half of 2011. Washington, D.C. public-sector leasing was affected by federal budget uncertainty, while private-sector activity was moderate. Management also noted abundant capital and low rates could constrain acquisition returns.
- BXP disclosed that its $25 million Montvale Center mortgage was in default, with debt service unpaid and interest accruing at 9.93%. A receiver had been appointed, and BXP expected the property to transfer to the lender in first-quarter 2012. The $143.9 million Bay Colony mortgage matured in June 2012.
- In February 2012, the Operating Partnership repurchased or redeemed the remaining $576.2 million of its 2.875% exchangeable notes due 2037. BXP also announced proposed acquisitions of 453 Ravendale Avenue for approximately $6.7 million and 100 Federal Street for $615 million; both were subject to closing conditions and were not completed as of the filing.
- Key risks include exposure to office demand and economic conditions in five concentrated markets; lease rollover and tenant credit; development cost, timing, leasing and financing risks; refinancing and covenant risks; joint-venture debt and partner exposure; and limits or costs associated with terrorism, earthquake and other insurance, environmental liabilities, tax protection agreements and REIT qualification.
- Auditors gave an unqualified opinion on the financial statements and internal control over financial reporting. Management reported effective internal controls. Ordinary-course legal matters were not expected to have a material adverse effect.
Important facts for investors to verify
- Reconcile reported net income and FFO to recurring property-level performance, particularly the Two Grand Central gain and prior-year debt-extinguishment loss.
- Track occupancy, leasing spreads, concessions, tenant improvement costs and expected revenue interruption from 2012 lease expirations and Reston redevelopment.
- Confirm resolution of the Montvale default and repayment or refinancing of the Bay Colony maturity and other 2012 debt obligations.
- Monitor funding, leasing and delivery progress for the development pipeline, including final project costs and remaining capital needs.
- Review the status and financing of the proposed 100 Federal Street and 453 Ravendale acquisitions, and the effect of any equity issuance or additional borrowing.
- Assess unconsolidated joint-venture debt, guarantees and potential capital calls alongside consolidated debt and liquidity.