BXP, Inc. (BXP) — Q2 2021 Form 10-Q
Reporting period: Three and six months ended June 30, 2021. BXP is a REIT whose operating partnership, Boston Properties Limited Partnership (BPLP), conducts substantially all of the business. Unless noted, financial figures below are BXP consolidated amounts in U.S. dollars.
Business context
BXP owns, develops and manages primarily Class A office properties in Boston, Los Angeles, New York, San Francisco and Washington, D.C. At quarter-end, its portfolio included 197 properties and approximately 51.5 million net rentable square feet, including nine properties under construction or redevelopment. Management highlighted growing life-sciences leasing and development activity, alongside continued pandemic effects on offices, retail, parking and hotel operations.
Financial and operating performance
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Total revenue | $713.8 million | $654.8 million | $1,427.5 million | $1,407.3 million |
| Net income | $141.3 million | $298.6 million | $269.4 million | $875.7 million |
| Net income attributable to BXP common shareholders | $111.7 million | $266.5 million | $203.4 million | $764.2 million |
| Diluted EPS | $0.71 | $1.71 | $1.30 | $4.91 |
| Company share of NOI (non-GAAP) | $432.3 million | $397.9 million | $856.7 million | $850.6 million |
| Net cash from operating activities | Not presented quarterly | $560.5 million | $554.3 million |
Q2 revenue rose 9.0% year over year, while company share of NOI increased 12.6%. For the first half, NOI increased 2.6%. These non-GAAP NOI figures are management’s measure and are not a substitute for GAAP results.
Q2 GAAP earnings fell sharply against a prior-year quarter that included approximately $203.8 million of real-estate sale gains. First-half 2021 included only $7.8 million of real-estate sale gains, compared with $613.9 million in first-half 2020. The 2021 half also included a $6.4 million preferred-stock redemption charge and $0.9 million of early debt-extinguishment losses.
At June 30, cash and cash equivalents were $557.3 million, with another $80.0 million held in escrows. Operating cash flow was $560.5 million; investing activities used $563.6 million and financing activities used $1,078.9 million in the first half. Cash and escrow balances decreased by $1,082.0 million during that period, primarily reflecting debt repayments, preferred-stock redemption and distributions, partly offset by new note proceeds.
Consolidated debt was $12.54 billion: $9.63 billion of unsecured senior notes and $2.90 billion of mortgage debt. All consolidated debt was fixed-rate at quarter-end; the weighted-average GAAP interest rate was 3.64%, and weighted-average maturity was 5.8 years. Debt equaled 38.65% of consolidated market capitalization, a market-based leverage measure. The $1.5 billion revolving credit facility had no borrowings at June 30; BPLP reported approximately $1.3 billion of availability as of August 2 after $205 million of subsequent borrowings. BXP reported covenant compliance at June 30.
Material changes and operating trends
- Overall in-service office and retail occupancy was 88.6% at June 30, versus 88.7% at March 31. Q2 leasing totaled approximately 1.2 million square feet, more than twice Q1 volume; signed leases averaged 7.5 years.
- Same-property average occupancy declined year over year, but reported same-property lease revenue increased partly because prior-year bad-debt write-offs were unusually large. Q2 2021 write-offs of accrued rent and receivables were substantially lower than Q2 2020.
- Q2 parking and other revenue increased $4.3 million year over year, primarily from transient parking. The Boston Marriott Cambridge generated $1.6 million of Q2 revenue but remained at diminished occupancy. Management said the hotel and parking had not returned to pre-pandemic levels.
- BXP redeemed all outstanding 5.25% Series B preferred stock on April 1, using approximately $200 million of principal cash, plus accrued dividends. It also repaid a $500 million term-loan balance and redeemed $850 million of 2021 notes, while issuing $850 million of 2.55% notes due 2032.
- The renewed $1.5 billion revolving facility extends to June 2026, reduces borrowing spreads and includes sustainability-linked pricing. BXP also established a discretionary co-investment program targeting $1.0 billion of partner equity, with stated initial investment capacity of about $2.0 billion after leverage.
Outlook, risks and contingencies
Management described economic conditions and leasing activity as improving, but expected 2021 leasing volume to remain below pre-pandemic levels and office occupancy to be relatively steady through year-end. It anticipated continued recovery in parking and hotel revenue as in-person work and travel resume. The filing provides no specific full-year earnings or revenue guidance.
Nine development and redevelopment projects represented approximately $2.7 billion of estimated total investment, with about $1.2 billion of BXP’s share remaining to be invested. Management expected active projects to be delivered on time and budget; that expectation is subject to construction, leasing, cost and financing risks. Acquisitions and dispositions were also planned or pending, including Safeco Plaza, 360 Park Avenue South and the sale of Spring Street properties; subsequent to quarter-end, BXP closed the Shady Grove acquisition.
Key uncertainties include COVID-19’s effects on tenant credit, rent collections, office demand and travel; interest rates and access to capital; development costs and schedules; joint-venture partner performance and refinancing needs; and insurance availability and coverage for pandemics, terrorism and earthquakes. BXP noted that uninsured or underinsured catastrophic losses could materially affect results. It also disclosed LIBOR transition risks. Joint ventures had approximately $2.7 billion of aggregate debt, of which BXP’s proportionate share was about $1.2 billion, generally not included in consolidated debt. Ordinary-course legal proceedings were not expected by management to have a material adverse effect. Disclosure controls were reported effective.
Important facts for investors to verify
- Whether office leasing, occupancy, rent collections and tenant credit quality continue to improve beyond Q2, particularly as leases expire.
- How much of the decline in GAAP earnings reflects the absence of prior-year property-sale gains, versus changes in recurring operations.
- Actual funding needs, timing and returns for the development pipeline and pending acquisitions, and the impact on liquidity and leverage.
- Debt maturities and refinancing exposure, including joint-venture debt and the disclosed 2022 maturities.
- How COVID-19, insurance limitations and changing office-use patterns affect property values, cash flows and future capital requirements.