BXP, Inc. (BXP) — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022. BXP is a REIT that conducts substantially all of its business through Boston Properties Limited Partnership (BPLP); BXP owned approximately 89.6% of BPLP at quarter-end. Unless otherwise noted, amounts below are consolidated and in U.S. dollars.
Business context and operating performance
BXP develops, owns and manages primarily Class A office properties across Boston, Los Angeles, New York, San Francisco, Seattle and Washington, DC. At March 31, 2022, it owned or held joint venture interests in 201 commercial properties totaling approximately 53.1 million net rentable square feet, including 11 properties under construction or redevelopment.
- Signed approximately 1.2 million square feet of leases and renewals in Q1, with a weighted-average term of approximately 7.3 years.
- Occupancy across in-service office and retail properties was 89.1%, up 30 basis points from December 31, 2021. Average occupancy in the same-property portfolio was 91.1%, down from 91.5% a year earlier.
- The development and redevelopment pipeline totaled approximately 4.1 million square feet, was 54% pre-leased as of April 29, 2022, and had approximately $1.2 billion of remaining investment required from BXP’s share.
Financial results and liquidity
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Total revenue | $754.3 million | $713.7 million | Up 5.7% |
| Net income | $177.0 million | $128.1 million | Up 38.1% |
| Net income attributable to BXP common shareholders | $143.0 million; $0.91 per share | $91.6 million; $0.59 per share | Up 56.1% in income |
| Company’s share of NOI | $469.3 million | $443.9 million | Up 5.7% |
| FFO attributable to BXP common shareholders | $286.1 million | $243.8 million | Up 17.4% |
| Net cash provided by operating activities | $219.5 million | $152.1 million | Up $67.4 million |
Calculated consolidated net margin was approximately 23.5% versus 18.0%; Q1 2022 included a $22.7 million gain on sale of real estate. NOI and FFO are non-GAAP measures and may not be comparable with similarly named measures reported by other companies.
- Operating cash flow was $219.5 million; investing activities used $151.3 million and financing activities used $87.0 million. Cash and cash equivalents plus restricted cash totaled $482.3 million at quarter-end, compared with $949.2 million a year earlier.
- Consolidated debt was $13.0 billion at March 31, including $9.5 billion of unsecured senior notes, $3.3 billion of mortgage debt and $255 million drawn on the revolving facility. Debt was 36.6% of consolidated market capitalization; the weighted-average GAAP interest rate was 3.39%.
- At April 25, BXP reported approximately $313.8 million of available cash and approximately $1.3 billion available under its revolving facility. Management stated that liquidity was sufficient for planned requirements and opportunities.
- The quarterly common dividend was $0.98 per share. Management said the Board would continue to assess the dividend in light of taxable income, liquidity and other circumstances.
Material changes versus Q1 2021
- Lease revenue rose 4.7%; same-property lease revenue, excluding termination income, increased 3.5%, primarily from higher average revenue per square foot. Same-property NOI increased 4.4%.
- Parking and other revenue increased approximately $4.7 million in the same-property portfolio, mainly reflecting higher parking activity. Same-property operating expenses rose 4.3%, including higher cleaning, utilities, repairs and security costs, partly offset by lower real estate taxes.
- Net income growth also reflected the $22.7 million property-sale gain and the absence of the prior-year preferred-stock redemption charge and preferred dividends. Interest expense fell $6.7 million. Income from unconsolidated joint ventures declined $3.0 million, partly because Q1 2021 included a $10.3 million gain on a joint-venture investment sale.
- Cash from operations improved, while cash used in investing and financing was substantially lower than in Q1 2021. The prior-year financing period included major debt issuance and repayment transactions.
Outlook, risks and notable items
- Management was optimistic about demand for high-quality office space as employees return to offices, and expected occupancy to continue increasing. It reported that Q1 leasing was in line with the company’s 10-year, pre-pandemic first-quarter average.
- BXP expected to sell $700 million to $900 million of assets in 2022. It agreed after quarter-end to acquire Seattle’s Madison Centre for $730 million, initially expected to be funded with a one-year term loan and ultimately with asset sales and/or joint venture equity; closing was subject to customary conditions.
- Management expected active developments and redevelopments to be delivered on time and budget, but warned that inflation, supply-chain constraints, labor availability and the war in Ukraine could raise costs or delay completion. Delays could create additional costs or lease-related penalties and termination rights.
- Economic and geopolitical risks cited include COVID-19, the war in Ukraine, high inflation, rising interest rates, slower growth, capital-market volatility and possible tenant financial weakness. Other risks include leasing demand, refinancing access, development execution, joint-venture obligations, and uninsured or underinsured losses from catastrophes.
- The Boston Marriott Cambridge hotel continued to operate at a loss; management expected low occupancy to persist until business and leisure travel recovered. Management also said Omicron affected first-quarter parking and hotel revenue.
- After quarter-end, BXP signed an approximately 570,000-square-foot AstraZeneca lease at the planned 290 Binney Street life-sciences project. Lease effectiveness and construction remained subject to conditions, with no assurance they would be satisfied.
- Management reported no material adverse effect expected from ordinary-course legal proceedings. BXP and BPLP reported effective disclosure controls and no material change in internal control over financial reporting during the quarter.
Most important facts for investors to verify
- Whether occupancy, leasing activity and same-property NOI continue to improve, especially in the largest office markets.
- Whether the Madison Centre acquisition closes as planned and how its financing is ultimately funded, including the anticipated asset sales or joint-venture capital.
- Progress, leasing and remaining cost requirements for the development pipeline, including exposure to construction inflation, labor constraints and delays.
- Debt and liquidity developments: revolving-facility availability, refinancing plans for joint-venture debt, and the transition of LIBOR-linked contracts to replacement rates.
- Whether the $700 million to $900 million 2022 asset-sale target is achieved and how sale proceeds affect debt, investment capacity and REIT distributions.
- The sustainability of the $0.98 quarterly dividend amid changing taxable income, interest rates and capital needs.