BXP, Inc. — Q3 2021 Form 10-Q
Business context and reporting period. The filing covers the quarter and nine months ended September 30, 2021. BXP is a REIT focused primarily on developing, owning and managing Class A office properties; its operating partnership, BPLP, conducts substantially all of the business. The portfolio comprised 202 properties totaling approximately 52.5 million net rentable square feet, including nine properties under construction or redevelopment. Unless noted, financial amounts below are in millions.
Financial performance and position
- Third-quarter revenue: $730.1, up 5.3% from $693.3 a year earlier. Lease revenue was $692.3, up 3.8%. Parking and other revenue rose to $23.5 from $16.3, helped by improved transient parking and insurance proceeds.
- Third-quarter earnings: Net income attributable to BXP common shareholders was $108.3 versus $89.9; diluted EPS was $0.69 versus $0.58. Company share of NOI, a non-GAAP measure, increased 8.8% to $458.7. BXP common-shareholder FFO was $270.5 versus $244.0.
- Nine-month results: Revenue was $2,157.6 versus $2,100.6, up 2.7%; BXP common-shareholder net income was $311.7 versus $854.5, and diluted EPS was $1.99 versus $5.49. The decline primarily reflects $613.7 of 2020 real estate sale gains versus $8.1 in 2021. Company share of NOI increased 4.6% to $1,355.8.
- Cash flow and liquidity: Nine-month operating cash flow was $786.9 versus $782.4. Investing activities used $998.4, including development, acquisitions and improvements; financing activities used $425.9. Cash and cash equivalents were $1,002.7 at September 30, with a further $79.2 held in escrows. The $1.5 billion revolving facility had no balance outstanding at quarter-end; availability was approximately $1.2 billion as of November 2, alongside $362.7 of available cash.
- Debt and leverage: Consolidated debt was $13.38 billion, all fixed-rate at quarter-end, with a 3.57% GAAP weighted-average interest rate and 5.9-year weighted-average maturity. Consolidated debt was 41.55% of market capitalization; BXP’s share-of-debt ratio was 41.73%. The company reported compliance with applicable debt covenants.
- Dividends: The quarterly common dividend was $0.98 per share. BXP redeemed all Series B preferred stock in April 2021 for approximately $201.3.
Material changes versus comparable periods
- Third-quarter company-share NOI rose 8.8%, while overall in-service office and retail occupancy edged down to 88.4% from 88.6% at June 30. Management attributed operating improvement partly to higher rental revenue, parking recovery and lower interest expense.
- Nine-month GAAP earnings fell sharply because 2020 included substantial property-sale gains. In contrast, nine-month NOI rose 4.6%; same-property NOI increased 4.6%.
- Same-property average occupancy for the nine months declined to 91.7% from 93.4%. Management said rent per square foot partly offset the occupancy effect. For second-generation leases commencing in Q3, reported net rents declined 14.23% versus prior leases.
- BXP issued $850 million of 2.55% notes due 2032 and $850 million of 2.45% notes due 2033, redeemed $850 million of 4.125% notes due 2021, repaid a $500 million term loan and refinanced its revolving facility. In October, it redeemed $1 billion of 3.85% notes due 2023; the company expects an approximately $43.9 million early-extinguishment loss in Q4.
Outlook, management commentary and risks
- Leasing and occupancy: BXP signed approximately 1.4 million square feet of leases in Q3, with a 9.2-year weighted-average term; volume was about 90% of its pre-pandemic Q3 average. Management expected occupancy to be relatively flat for the rest of 2021 and to begin improving in 2022 as signed leases commence and available space is backfilled. No specific earnings or revenue guidance was provided.
- Development: The nine-project pipeline represented estimated total investment of approximately $2.7 billion, with $1.1 billion of BXP share remaining to be invested. It was 72% pre-leased as of November 2; office projects were 87% pre-leased and lab/life-sciences projects 21%. Management expected active projects to be delivered on time and budget, but cautioned that supply-chain constraints and construction-cost increases could disrupt schedules or raise costs. New-project budgets included projected cost increases of approximately 5–6%.
- Portfolio and strategy: BXP acquired two life-sciences buildings in Waltham and the Shady Grove Bio+Tech Campus, and entered Seattle through a joint venture acquisition of Safeco Plaza. It continued expanding lab and life-sciences development and repositioning. The company reported an 11.6% vacancy rate at September 30 and expected lease expirations in 2021 and 2022 totaling approximately 7.6% of the portfolio.
- Costs and COVID-19: Management noted inflation, higher labor costs and potential energy-cost increases, particularly in Boston, but said lease structures generally pass through operating expenses and limit near-term exposure. COVID-19 effects on tenants, rent collection, office demand, travel, cash flows and insurance coverage remained uncertain. The Boston Marriott Cambridge returned to positive NOI in Q3, but travel demand and hotel occupancy remained below historical levels.
- Capital needs and risks: Priorities include funding development, tenant improvements, debt service and REIT distributions. A $618.7 million mortgage secured by 601 Lexington Avenue matures in 2022; BXP was seeking to refinance it, with no assurance of completion on anticipated terms. Risks also include joint-venture partner obligations, refinancing access and costs, construction delays and overruns, interest-rate and LIBOR transition exposure, and uninsured or underinsured catastrophic losses. Management stated that pandemic-related losses and insurance coverage could not yet be quantified.
- Contingencies: Letters of credit and performance obligations totaled approximately $25.8 million. The filing also describes guarantees tied to joint ventures and development projects. Management said ordinary-course legal matters were generally insured and were not expected to materially affect financial position, results or liquidity.
Important facts for investors to verify
- Whether occupancy and leasing improve as management anticipated, and how lease commencements, expirations and rent concessions affect cash rent and same-property NOI.
- Whether the $1.1 billion remaining development-equity requirement, construction budgets and pre-leasing assumptions remain achievable amid cost and supply-chain pressures.
- Progress and terms of refinancing the 601 Lexington Avenue loan due in 2022, and the effect of the October 2021 note redemption and expected Q4 charge on liquidity and interest expense.
- Reconciliation of GAAP earnings, NOI and FFO, particularly the effect of prior-year property-sale gains and the non-GAAP measures’ definitions.
- COVID-related tenant collections, hotel recovery, insurance recoveries and the extent of exposure to uninsured or underinsured losses.