BXP, Inc. — Form 10-Q Summary
Reporting period: Quarter and six months ended June 30, 2022. The filing combines BXP’s and Boston Properties Limited Partnership’s (BPLP’s) reports; BPLP conducts substantially all of the business. Financial amounts below are in U.S. dollars. Interim financial statements are unaudited.
Key financial metrics
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Total revenue | $773.9 million | $713.8 million | $1,528.2 million | $1,427.5 million |
| Net income attributable to BXP common shareholders | $223.0 million | $111.7 million | $366.0 million | $203.4 million |
| Diluted EPS | $1.42 | $0.71 | $2.33 | $1.30 |
| Company’s share of NOI (non-GAAP) | $471.9 million | $432.3 million | $931.5 million | $856.7 million |
| FFO attributable to BXP (non-GAAP) | $304.6 million | $268.6 million | Not provided in the supplied filing text | Not provided in the supplied filing text |
- Revenue and operations: Q2 revenue increased about 8.4% year over year; first-half revenue increased about 7.1%. Lease revenue remained the largest component. Parking revenue improved as activity returned, and hotel revenue rose substantially from pandemic-affected 2021 levels.
- Profit and unusual items: Q2 net income attributable to BXP common shareholders nearly doubled, while company-share NOI rose 9.2%. The increase in reported earnings was substantially affected by the $96.2 million gain on the Virginia 95 Office Park sale, compared with $7.8 million of gains in Q2 2021. First-half gains on real estate sales were $118.9 million, versus $7.8 million a year earlier; the period also included a $6.6 million assignment fee. Prior-year first-half results included a $6.4 million preferred-stock redemption charge and $2.6 million of preferred dividends.
- Operating costs: First-half same-property rental revenue increased 4.1%, while same-property real estate operating expenses rose 6.0%, reflecting higher cleaning, utilities, repairs, maintenance, security and occupancy-related costs. Same-property NOI increased 4.6%.
- Cash flow and liquidity: First-half operating cash flow was $616.6 million, compared with $560.5 million. Investing used $980.2 million, including $727.8 million for acquisitions; financing provided $365.2 million. At June 30, cash and cash equivalents were $456.5 million and escrow cash was $46.4 million. At August 2, management reported available cash of $289.9 million, including $103.8 million attributable to consolidated joint venture partners, and about $1.2 billion available under the revolver.
- Debt: Consolidated debt was $13.65 billion at June 30; BXP’s share of debt, including its share of unconsolidated joint venture debt and excluding partners’ share of consolidated debt, was $13.74 billion. Consolidated debt was 46.72% of consolidated market capitalization. Approximately 93.45% of consolidated debt was fixed-rate; weighted-average GAAP interest rate was 3.37% and weighted-average maturity was 5.8 years. The $730 million unsecured term loan is variable-rate, bears term SOFR plus 0.95% as of June 30, and matures May 16, 2023. The revolver had $165 million drawn at June 30, with approximately $1.3 billion then available.
Business, leasing and investment activity
- BXP owned or held joint venture interests in 193 commercial properties totaling about 53.7 million net rentable square feet, primarily Class A office space, across Boston, Los Angeles, New York, San Francisco, Seattle and Washington, DC. Twelve properties, totaling about 4.2 million square feet, were under construction or redevelopment.
- In-service office and retail occupancy was 89.5% at June 30, up 40 basis points sequentially and 90 basis points year over year. BXP signed approximately 1.9 million square feet of leases and renewals in Q2, its strongest quarter since Q3 2019. Management noted that approximately 975,000 square feet of signed leases covering currently vacant space had not yet commenced.
- BXP acquired Seattle’s Madison Centre for approximately $724.3 million net, funded by the $730 million term loan. The property was about 93% leased at June 30. BXP sold Virginia 95 Office Park for $127.5 million gross and 195 West Street for $37.7 million gross.
- The development pipeline’s estimated total investment attributable to BXP was approximately $2.6 billion, with about $1.1 billion remaining to invest. The overall pipeline was 49% pre-leased as of August 2; approximately $1.4 billion of developments expected to deliver through Q2 2023 was 81% pre-leased.
Outlook, risks and contingencies
- Management outlook: The filing provides qualitative commentary, not specific earnings or revenue guidance. Management cited rising inflation, higher interest rates and credit spreads, more difficult private-market financing, and increasing costs for potential future construction. Management also reported continued strong leasing and said tighter in-person work policies and companies’ hiring during the pandemic without adding space could support demand. It expects a slight near-term occupancy decline while signed leases commence, and expects occupancy to increase slightly in 2023 from the Q2 level.
- Capital priorities: Management plans to manage leverage, fund committed development, lease available space, complete construction and pursue selective acquisitions and developments. It said 2023 maturities include the $730 million term loan and $500 million of senior notes, and expects higher interest expense in 2023 from floating-rate debt and refinancing. Management expects to address maturities using cash, asset-sale proceeds, the revolver and/or refinancing.
- Principal risks: Economic slowdown or recession, inflation and rising rates, client credit deterioration and weaker office-space demand, capital-market access, construction cost increases and delays, joint-venture partner performance, and development and refinancing risk. The company also cites climate, cyber, terrorism, earthquake, pandemic, environmental and uninsured-loss exposures. Earthquake coverage may be insufficient; some coverage is provided through the company’s captive insurer and therefore is not equivalent to third-party insurance.
- Contingencies and controls: The company reported approximately $26.4 million of letters of credit and performance obligations related to lender and development requirements. Management said ordinary-course legal matters, generally covered by insurance, are not expected to materially adversely affect financial position, results or liquidity. BPLP was in compliance with its stated financial covenants at June 30. Management concluded disclosure controls were effective and reported no material second-quarter change in internal control over financial reporting.
Important facts for investors to verify
- How much of reported earnings growth reflects property operations versus the Virginia 95 and other asset-sale gains, assignment income, and prior-year preferred-stock charges?
- Whether the $730 million variable-rate term loan and $500 million of 2023 notes are refinanced or repaid on acceptable terms, and the resulting interest expense.
- Whether occupancy and signed leases convert to recognized revenue as expected, particularly the approximately 975,000 square feet of vacant space awaiting lease commencement.
- Whether construction costs, leasing concessions and remaining pipeline investment remain within estimates, and whether pre-leasing and delivery schedules hold.
- Whether planned dispositions, potentially exceeding $850 million in 2022, are completed on the expected terms and timing; this is a management expectation, not a guarantee.
- How much liquidity is available for BXP itself after accounting for joint venture partner interests, development spending, dividends and debt needs.