BXP, Inc. (Boston Properties) — Q3 2020 Form 10-Q
Business context and reporting period
Unaudited results cover the quarter and nine months ended September 30, 2020, compared with the same periods in 2019. BXP is a REIT whose operating partnership, BPLP, conducts substantially all business. The company owned approximately 89.9% of BPLP at quarter-end. Its portfolio comprised 196 properties, including joint-venture interests, with approximately 51.2 million net rentable square feet, primarily Class A office space in Boston, Los Angeles, New York, San Francisco and Washington, D.C.
Financial performance and position
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Total revenue | $693.3m | $743.6m | $2,100.6m | $2,203.1m |
| Net income attributable to BXP common shareholders | $89.9m | $107.8m | $854.5m | $370.2m |
| Diluted EPS | $0.58 | $0.70 | $5.49 | $2.39 |
| Company’s share of NOI (non-GAAP) | $404.4m | $433.3m | $1,255.1m | $1,292.7m |
| FFO attributable to BXP common shareholders (non-GAAP) | $244.0m | $253.6m | Not provided in the supplied filing text | Not provided in the supplied filing text |
| Net cash from operating activities | Not presented quarterly | $782.4m | $819.8m |
Q3 total revenue fell about 6.8% year over year; company-share NOI declined about 6.7%. For the first nine months, common-shareholder net income more than doubled, largely because of $613.7m in real-estate sale gains, rather than stronger property operations; company-share NOI decreased 4.6%.
At September 30, cash and cash equivalents were $1.715bn, with a further $50.0m held in escrows. Net cash used in investing activities was $388.4m for the nine months, including development, improvements and joint-venture contributions, partly offset by property-sale proceeds. Net cash from financing activities was $678.9m, including $1.248bn of senior-note proceeds and $516.6m of dividends and distributions.
Consolidated debt was $13.05bn: $9.64bn of unsecured senior notes, $2.91bn of mortgage debt and $499.3m under the term loan. The reported weighted-average GAAP interest rate was 3.65%, and 96.17% of debt was fixed-rate. The $1.5bn revolving facility had no borrowings at quarter-end; the $500m term loan matures in April 2022. An $850m senior-note maturity is due in May 2021. BXP reported a 48.06% consolidated-debt-to-market-capitalization ratio and compliance with senior-note financial covenants.
Material changes versus comparable periods
- Q3 common-shareholder income declined 16.6%; the prior-year quarter included a $28.0m loss from early debt extinguishment, but 2020 operating pressure and weaker joint-venture results more than offset that comparison.
- Nine-month common-shareholder income rose 130.8%, principally reflecting gains on the Gateway Commons contribution to a joint venture, New Dominion Technology Park sale and partial Capital Gallery sale. Together, those transactions generated approximately $613.6m of BXP gains.
- Same-property NOI fell 5.7% year to date and 8.1% in Q3. COVID-19-related rent write-offs, reduced occupancy and parking revenue, and the hotel closure weighed on performance. Lower utilities and cleaning expenses partly offset revenue declines.
- Nine-month operating cash flow declined $37.4m year over year. Cash and cash equivalents plus escrow balances rose to $1.765bn at quarter-end from $691.9m at year-end 2019, supported by debt issuance and asset-sale proceeds.
Outlook, management commentary and risks
- Management gave no quantitative earnings or revenue guidance in the supplied filing text. It expected 2020 revenue to be adversely affected by retail, parking and hotel weakness, slower leasing, and potential further receivable and accrued-rent write-offs.
- Management reported Q3 rent collections of 97% overall, including 99% from office tenants and 62% from retail tenants. Overall in-service office and retail occupancy was 91.1% at September 30, down 90 basis points from June 30. The portfolio was 80% pre-leased across approximately 4.3m square feet of active development and redevelopment, as of November 3.
- Approximately 811,000 square feet of leases and renewals were signed in Q3. Management said tenant decisions were being deferred amid uncertainty around the pandemic, work-from-home practices and the economic recovery. It cautioned that the long-term effect on office demand was unknown.
- The Boston Marriott Cambridge was closed throughout Q3, reopened October 2, and was operating at a monthly deficit; management expected weak demand and low occupancy to continue. Platform 16 joint-venture construction was paused during Q3 pending greater clarity on economic conditions.
- Management said available cash and approximately $1.5bn of revolver capacity as of November 2 were sufficient, in its view, to fund committed development costs and repay maturing debt while preserving investment flexibility. Its share of remaining development and redevelopment costs through 2024 was approximately $1.0bn.
- Key risks include further pandemic-related tenant distress, rent concessions and collection losses; sustained remote work reducing office demand; reduced parking and hotel activity; capital-market access and refinancing risk; joint-venture obligations; development delays or cost overruns; and potential uninsured losses. The company said pandemic-related insurance coverage and losses could not yet be determined.
Important facts for investors to verify
- Whether office and retail rent collections, occupancy and tenant-credit trends improved or deteriorated after quarter-end, and the level of subsequent rent abatements, deferrals and write-offs.
- How much of reported nine-month earnings came from property operations versus the approximately $614m of real-estate sale gains; review NOI and FFO alongside GAAP earnings.
- Funding and refinancing plans for the $850m May 2021 maturity, the term loan due in 2022, and near-term joint-venture maturities.
- Leasing progress, pre-leasing, costs and delivery timelines for development projects, including projects affected by paused construction or pandemic uncertainty.
- Future performance of the Boston Marriott Cambridge, parking operations and residential properties, and any material changes in insurance coverage or pandemic-related claims.