BXP, Inc. — 2012 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2012; the filing also reports fourth-quarter results. BXP is a REIT focused mainly on Class A office properties in Boston, New York, Princeton, San Francisco and Washington, DC.
Business context and portfolio
- At year-end, BXP owned or held interests in 157 properties with approximately 44.4 million rentable square feet, including nine projects under construction totaling 2.8 million square feet. In-service properties were 91.4% leased.
- The portfolio was concentrated in office real estate; the company also held retail, residential and hotel properties and controlled approximately 509 acres of development land.
- Average remaining lease term was approximately 6.9 years. About 4.0% of portfolio space, excluding 601 Massachusetts Avenue slated for redevelopment, was scheduled to expire in 2013.
Financial and operating performance
| Metric | 2012 | 2011 | Change / context |
|---|---|---|---|
| Total revenue | $1.876 billion | $1.751 billion | Up 7.1% |
| Operating income | $651.7 million | $616.8 million | Up 5.7% |
| Net income attributable to BXP | $289.7 million | $272.7 million | Up 6.2% |
| Basic / diluted EPS | $1.93 / $1.92 | $1.87 / $1.86 | Includes 2012 property-sale gain; continuing-operations EPS fell to $1.71 basic from $1.86 |
| FFO attributable to BXP | $741.4 million | $711.0 million | Up 4.3%; non-GAAP measure |
| Cash from operating activities | $642.9 million | $606.3 million | Up $36.6 million |
| Cash used in investing activities | $1.278 billion | $90.1 million | Higher acquisition and development spending |
| Cash and cash equivalents | $1.042 billion | $1.823 billion | Down $781.2 million |
| Consolidated debt | $8.912 billion | $8.704 billion | Weighted-average GAAP rate 5.13%; all consolidated debt was fixed-rate |
- Consolidated debt was approximately 33.0% of market capitalization at year-end. The $750 million unsecured credit facility had no borrowings and approximately $735 million available.
- Consolidated NOI was $1.157 billion, up 5.0%; same-property NOI excluding the hotel declined 0.3%. Same-property rental revenue rose 1.2%, while operating expenses increased 4.0%, including higher real estate taxes.
- Reported operating margin was approximately 34.7%, versus 35.2% in 2011, as expenses rose faster than revenue.
- Declared common dividends totaled $2.30 per share for 2012; the quarterly dividend was raised from $0.55 to $0.65 effective with the dividend declared in November.
Material changes and unusual items
- Acquired 100 Federal Street in Boston for approximately $615 million and acquired the 680 Folsom Street development project in San Francisco. BXP also consolidated the Fountain Square joint venture in Reston.
- Issued $1.0 billion of 3.85% senior notes due 2023 and redeemed $225 million of 6.25% notes due 2013. It also repurchased or redeemed all remaining 2.875% exchangeable notes due 2037.
- Sold Bedford Business Park for approximately $62.8 million, recognizing a $36.9 million gain. This gain materially supported reported net income and was classified in discontinued operations.
- Income from unconsolidated joint ventures fell to $49.1 million from $85.9 million, principally because 2011 included a $46.2 million gain related to the sale of Two Grand Central Tower.
- Montvale Center’s January 2012 foreclosure was later dismissed due to a trustee procedural error. BXP reversed the previously recognized debt-forgiveness gain, restored the property and debt to year-end statements, and reported a later foreclosure sale awaiting court ratification. The filing says these events did not affect cash flow.
- Recorded $4.5 million of expense related to the COO’s resignation and a $3.2 million cumulative non-cash ground-rent adjustment for prior periods, which management said was not material to prior or current-period statements.
Outlook, commentary and risks
- Management projected 2013 same-property NOI growth of approximately 1.5%–2.5%, with average occupancy of 92%–93%, and expected new-lease rents generally near current rents, assuming market rates did not change.
- Management forecast 2013 net interest expense of $385–$392 million, hotel NOI of $10–$11 million, and development and management fee income of $26–$30 million. It expected income from unconsolidated joint ventures to decline $18–$23 million from 2012.
- Projects under construction had estimated total investment of approximately $1.77 billion, of which $1.15 billion had been invested at year-end. Management cited approximately $1.0 billion of remaining funding needs through 2015, including subsequent projects, and anticipated capital-markets activity and asset sales to help fund needs and refinance maturities.
- Near-term funding considerations included approximately $593 million of BXP’s share of 2013 debt maturities, including $450 million of exchangeable notes subject to a holder repurchase right in May 2013. Management reported approximately $800 million of available cash and $735 million of credit-facility availability as of February 21, 2013.
- Management described strong 2012 leasing activity, but noted slow Washington, DC leasing amid federal budget uncertainty and a competitive Midtown Manhattan market. Boston life-sciences and technology demand, and San Francisco technology-sector demand, were described as comparatively favorable.
- Key risks include dependence on five regional markets and office tenants; federal spending exposure in Washington, DC; lease rollover and tenant credit; construction costs, delays, leasing and financing for the development pipeline; refinancing and covenant risk; joint-venture obligations; and potential uninsured catastrophe, environmental and REIT-qualification exposures.
- PricewaterhouseCoopers LLP gave unqualified opinions on the financial statements and internal control over financial reporting. Management also concluded disclosure controls were effective. Ordinary-course litigation was not expected by management to have a material adverse effect.
Important facts for investors to verify
- Reconcile GAAP earnings and EPS to recurring property performance, including the Bedford sale gain, discontinued operations, joint-venture results and non-GAAP FFO/NOI.
- Review the maturity and put schedule, especially the May 2013 exchangeable-note repurchase right, and confirm refinancing and liquidity after year-end.
- Track actual development spending, leasing, completion timing and stabilization against the approximately $1.0 billion stated remaining funding requirement.
- Monitor occupancy, same-property expenses and rent growth, particularly Washington, DC demand and the 2013 lease-expiration cohort.
- Confirm the court outcome for Montvale Center’s later foreclosure sale and assess related accounting effects.
- Assess the Transbay Tower joint venture’s 2013 ownership change and land acquisition, including the resulting expected 95% nominal interest and consolidation.