BXP, Inc. — 2019 Form 10-K Summary
Business context and reporting period
For the fiscal year ended December 31, 2019; the filing was signed March 2, 2020. BXP is a REIT whose operating partnership, Boston Properties Limited Partnership (BPLP), conducts substantially all operations. The company develops, owns and manages primarily Class A office properties concentrated in Boston, Los Angeles, New York, San Francisco and Washington, D.C.
At year-end, BXP owned or held interests in 196 properties totaling approximately 52.0 million net rentable square feet, including 11 properties under construction or redevelopment. In-service office and retail properties were 93.0% leased. BXP owned approximately 89.6% of BPLP.
Financial and operating highlights
| Metric | 2019 | 2018 | Change |
|---|---|---|---|
| Total revenue | $2.961 billion | $2.717 billion | +9.0% |
| Net income attributable to BXP common shareholders | $511.0 million | $572.3 million | -10.7% |
| Diluted EPS | $3.30 | $3.70 | -10.8% |
| FFO attributable to BXP common shareholders (non-GAAP) | $1.086 billion | $974.5 million | +11.4% |
| Net cash from operating activities | $1.181 billion | $1.150 billion | +2.7% |
| Dividends declared per common share | $3.83 | $3.50 | +9.4% |
Net operating income (NOI, non-GAAP) rose 10.7% to $1.826 billion; same-property NOI increased 6.9%. Same-property rental revenue grew 6.1%, reflecting higher average revenue per square foot and occupancy. Company-wide in-service office and retail occupancy increased 160 basis points to 93.0%; average annualized revenue per square foot rose to $69.72 from $66.63. For second-generation leases commencing in 2019, management reported a 26.2% increase in net rents on qualifying space.
Fourth-quarter revenue was $757.5 million versus $705.2 million a year earlier. Quarterly net income attributable to BXP common shareholders was $140.8 million versus $148.5 million, and diluted EPS was $0.91 versus $0.96.
Balance sheet, cash flow and liquidity
- Year-end cash and cash equivalents were $645.0 million; cash plus cash held in escrows totaled $691.9 million.
- Consolidated debt was $11.812 billion, up from $11.008 billion. Fixed-rate debt was 95.8%; weighted-average GAAP interest rate was 3.75%, and weighted-average maturity was 5.9 years. Debt equaled 33.0% of consolidated market capitalization, a market-value-based measure.
- Debt comprised approximately $8.39 billion of unsecured senior notes, $2.92 billion of property mortgage debt and $499 million outstanding on the term loan. The $1.5 billion revolving facility had no borrowings outstanding at year-end.
- As of February 21, 2020, BXP reported approximately $395 million of cash, including $105 million attributable to consolidated joint-venture partners, and approximately $1.5 billion available under its revolving facility. Management said liquidity and expected financing and asset-sale proceeds should support existing projects and potential investments.
- Operating cash flow was $1.181 billion; investing cash outflow was $1.015 billion and financing cash outflow was $113.4 million. Investing included $546.1 million for construction in progress, $251.8 million for tenant improvements and $149.0 million for acquisitions.
Material changes and unusual items
- GAAP net income fell despite higher revenue and NOI. Lower property-sale gains were a major factor: BXP reported $0.7 million of real estate sale gains in 2019 versus $182.4 million in 2018. FFO, which excludes specified real-estate depreciation, impairments and sale gains, increased.
- Interest expense increased $34.5 million to $412.7 million. BXP also recorded $29.5 million in losses on early debt extinguishments, including a $28.0 million loss on redeeming $700 million of 5.625% notes, and a $24.0 million impairment of One Tower Center.
- BPLP issued $850 million of 3.40% notes due 2029 and $700 million of 2.90% notes due 2030; it redeemed $700 million of 5.625% notes due 2020. BXP acquired its partner’s remaining 5% interest in Salesforce Tower for net cash consideration of approximately $186.8 million.
- Development and redevelopment commitments were substantial: estimated total investment was approximately $3.1 billion, with $1.4 billion remaining at year-end. About 76% of the commercial space in the pipeline was pre-leased as of February 21, 2020. A 15-year Google lease covered approximately 379,000 square feet at the 325 Main Street development.
- The company adopted new lease accounting in 2019, affecting balance-sheet presentation and revenue classifications; some year-to-year comparisons are therefore affected by reclassification.
Outlook, commentary and risks
Management described economic conditions and leasing trends as generally favorable at year-end 2019, citing low interest rates, strong leasing in most core markets and development progress. Priorities included leasing available and future-expiring space, completing developments, managing debt maturities, maintaining balance-sheet discipline and selectively selling assets. The regular quarterly common dividend was raised 3%, from $0.95 to $0.98, beginning with the fourth-quarter 2019 dividend. The filing gives no quantified earnings or FFO guidance.
Management noted that the potential economic and business effects of the coronavirus outbreak were uncertain as of the filing date. Principal risks include dependence on five markets and office demand; tenant credit and lease rollover; competition and changing space utilization; construction cost, schedule, financing and lease-up risks; significant development spending; interest-rate and refinancing exposure; LIBOR transition; joint-venture debt and partner risks; climate and catastrophe exposure; and possible environmental, cyber, regulatory and REIT-qualification issues. The U.S. Government was the largest tenant by square feet, representing 3.07% of the in-service portfolio; approximately 6.64% of portfolio square footage was scheduled to expire in 2020.
Subsequent events included completion of the $256 million gross sale of New Dominion Technology Park on February 20, 2020, and commencement of the first phase of Platform 16 development. The independent auditor issued unqualified opinions on the financial statements and internal controls; the impairment assessment of long-lived assets was identified as a critical audit matter.
Most important facts for investors to verify
- Whether leasing, occupancy and net-rent growth remain strong, especially in New York and Washington, D.C., and how the 2020 lease expirations are addressed.
- Development cost, delivery and lease-up progress, including the remaining approximately $1.4 billion investment requirement and pre-leasing levels.
- Debt maturities, refinancing access, covenant compliance, joint-venture debt exposure and the availability of committed liquidity.
- How much reported earnings and FFO depend on recurring property operations versus property sales, impairments, debt-extinguishment costs and joint-venture gains.
- The eventual effect of the coronavirus outbreak and broader economic changes on tenants, office demand, asset values and BXP’s dividend capacity.