8-K: Boston Properties Reports Mixed Q1 Results, Adjusts Full-Year Guidance
Summary
- Boston Properties (BXP) announced its financial results for the first quarter of 2024, with revenue increasing by 4.5% to $839.4 million compared to $803.2 million in the same quarter of 2023.
- Net income attributable to Boston Properties, Inc. was $79.9 million, or $0.51 per diluted share, compared to $77.9 million, or $0.50 per diluted share, in the first quarter of 2023.
- The company's EPS fell short of its guidance midpoint by $0.16 per diluted share, primarily due to a $0.08 per diluted share non-cash impairment charge related to its Shady Grove, Maryland investment and $0.06 per diluted share in greater depreciation and amortization expense.
- Funds From Operations (FFO) was $271.3 million, or $1.73 per diluted share, which was in line with the midpoint of BXP's guidance, and comparable to $272.0 million, or $1.73 per diluted share, in the first quarter of 2023.
- BXP has revised its full-year 2024 EPS guidance to $1.97 $2.09 per diluted share and FFO guidance to $6.98 $7.10 per diluted share, representing a reduction of approximately $0.33 and $0.06 per share, respectively, at the midpoint of the guidance provided last quarter.
- The company executed 61 leases totaling approximately 900,000 square feet with a weighted-average lease term of 11.6 years.
- BXP's CBD portfolio was 91.0% occupied and 92.8% leased, with approximately 91.0% of BXP's share of annualized rental obligations coming from clients in the CBD portfolio.
- The company commenced development of 121 Broadway, a 439-unit residential project in Cambridge, Massachusetts.
- BXP completed the acquisition of its joint venture partner's 50% interest in 901 New York Avenue for $10.0 million, recording a gain on consolidation of approximately $21.8 million.
- The company also completed the sale of a 45% interest in 290 Binney Street to Norges Bank Investment Management (NBIM), reducing BXP's share of the project's estimated development spend by approximately $533.5 million.
- Boston Properties Limited Partnership (BPLP) repaid $700.0 million in senior notes upon maturity and exercised a one-year extension option on its unsecured term loan facility.
- BPLP established an unsecured commercial paper program with a maximum aggregate amount outstanding of $500 million and increased the maximum borrowing amount under its unsecured revolving credit facility from $1.815 billion to $2.0 billion.
Sentiment
Score: 5
Explanation: The sentiment is neutral to slightly negative. While revenue increased and leasing activity was solid, the downward revision of full-year guidance and the EPS miss due to impairment charges and increased expenses temper the positive aspects. The company is facing headwinds but is taking steps to manage its balance sheet and maintain its strategic focus.
Positives
- Revenue increased by 4.5% year-over-year.
- The company executed approximately 900,000 square feet of leases with a weighted-average lease term of 11.6 years.
- BXP's CBD portfolio remains strong with 91.0% occupancy and 92.8% leased.
- The company completed the acquisition of its joint venture partner's interest in 901 New York Avenue, which will simplify operations and increase ownership.
- The sale of a 45% interest in 290 Binney Street to NBIM will reduce BXP's development spend by approximately $533.5 million.
- BPLP successfully repaid $700 million in senior notes and extended its term loan facility.
- BPLP established an unsecured commercial paper program and increased its revolving credit facility, enhancing financial flexibility.
- BXP is on track to achieve carbon-neutral operations by 2025.
Negatives
- EPS for the first quarter fell short of guidance by $0.16 per diluted share.
- The company incurred a $0.08 per diluted share non-cash impairment charge related to its Shady Grove, Maryland investment.
- Depreciation and amortization expense was greater than expected by $0.06 per diluted share.
- Full-year 2024 EPS guidance was reduced by approximately $0.33 per share at the midpoint.
- Full-year 2024 FFO guidance was reduced by approximately $0.06 per share at the midpoint.
- Increased interest expense, primarily due to greater non-cash fair value interest expense and the expected deferral of interest rate cuts, impacted guidance.
Risks
- Changes in general economic and capital market conditions, including continued inflation and increased interest rates, could impact results.
- Supply chain and labor market disruptions may affect development and operations.
- Potential longer-term changes in consumer and client behavior resulting from economic downturns could impact demand.
- The inability to enter into or renew leases on favorable terms could affect occupancy and revenue.
- Dependence on clients' financial condition and competition from other developers could pose challenges.
- Geopolitical conflicts and the impact of highly infectious diseases could affect financial condition and operations.
- Uncertainties of investing in new markets and the costs and availability of financing could impact growth.
- The effectiveness of interest rate hedging contracts and the ability of joint venture partners to satisfy their obligations could affect financial performance.
- The impact of newly adopted accounting principles and the costs to comply with regulatory changes could affect results.
- The timing of development cost outlays and development deliveries could impact earnings.
Future Outlook
BXP provided guidance for second quarter 2024 EPS of $0.45 $0.47 and FFO of $1.70 $1.72 per diluted share, and full year 2024 EPS of $1.97 $2.09 and FFO of $6.98 $7.10 per diluted share. This represents a reduction of approximately $0.33 and $0.06 per share of EPS and FFO, respectively, at the midpoint of our guidance provided last quarter.
Management Comments
- The estimates reflect managements view of current and future market conditions, including assumptions with respect to rental rates, occupancy levels, interest rates, the timing of the lease-up of available space, the timing of development cost outlays and development deliveries, and the earnings impact of the events referenced in this release and those referenced during the related conference call.
- We have made no changes to our prior guidance for full-year portfolio occupancy and NOI.
Industry Context
The results reflect the ongoing challenges in the commercial real estate sector, including increased interest rates and economic uncertainty, while also highlighting BXP's focus on premier workplaces in key gateway markets. The company's leasing activity and development pipeline indicate a continued commitment to growth and long-term value creation.
Comparison to Industry Standards
- BXP's occupancy rates in its CBD portfolio, at 91.0% occupied and 92.8% leased, are generally strong compared to industry averages, which have seen some decline due to remote work trends.
- The company's focus on premier workplaces in dynamic urban gateway markets aligns with a strategy to attract high-quality tenants and maintain premium rental rates, which is a common approach among top-tier REITs.
- The reduction in full-year guidance, particularly for EPS, reflects the broader challenges faced by the real estate sector, including increased interest rates and higher operating costs, which are impacting many of BXP's peers.
- The company's development pipeline, including the 121 Broadway residential project, demonstrates a diversification strategy similar to other large REITs that are expanding into mixed-use and life sciences properties.
- The joint venture with NBIM for 290 Binney Street is a common strategy among large REITs to share development costs and risks, while also leveraging the expertise of institutional investors.
- BXP's sustainability initiatives, including its commitment to carbon-neutral operations by 2025, are in line with the growing emphasis on ESG factors among leading real estate companies.
Stakeholder Impact
- Shareholders will be impacted by the reduced full-year guidance and the EPS miss in the first quarter.
- Employees may be affected by any potential cost-cutting measures or changes in strategy.
- Clients may benefit from the company's focus on premier workplaces and sustainability initiatives.
- Creditors will be impacted by the company's debt management activities and changes in its credit profile.
Next Steps
- BXP will host a conference call on May 1, 2024, to discuss the first quarter 2024 results and provide a business update.
- BXP will hold its third annual Sustainability & Impact Investor Update on May 15, 2024.
Key Dates
- January 5, 2025: Maturity date of the mortgage loan for 901 New York Avenue.
- May 16, 2024: Original maturity date of the unsecured term loan facility, which was extended to May 16, 2025.
- May 15, 2024: Date of BXP's third annual Sustainability & Impact Investor Update.
- April 30, 2024: Date of the first quarter 2024 earnings release.
- April 29, 2024: Date BPLP made an approximately $500.0 million optional repayment on its term loan facility and increased the maximum borrowing amount under its unsecured revolving credit facility.
- April 22, 2024: Date BXP published its 2023 Sustainability & Impact Report.
- April 17, 2024: Date BPLP established an unsecured commercial paper program.
- April 16, 2024: Date BPLP provided notice to exercise its one-year extension option on its unsecured term loan facility.
- February 1, 2024: Maturity date of BPLP's 3.800% senior notes.
- October 26, 2023: Date BPLP entered into a $600.0 million mortgage loan.
Keywords
Filings with Classifications
Insider Transaction Report
- The scheduled acquisition of additional shares and LTIP Units by a director signals confidence in the company's future prospects and aligns management's interests with shareholders.
Quarterly Report (Form 10-Q)
- Net income attributable to BXP, Inc. decreased by $18.7 million year-over-year.
- Net income attributable to Boston Properties Limited Partnership decreased by $21.221 million year-over-year.
Quarterly Report
- Net income attributable to BXP, Inc. decreased compared to the same quarter last year.
- FFO decreased compared to the same quarter last year.
Quarterly Report
- The company reported a net loss for the quarter and a decrease in FFO per share for the year, primarily due to non-cash impairment charges.
- The midpoint of guidance for 2025 FFO per diluted share is projected to be lower than full year 2024 FFO per diluted share primarily due to higher net interest expense.
Quarterly Report
- The company's leasing activity increased by 25% compared to the same period in 2023.
- The company's CBD portfolio was 90.1% occupied and 92.1% leased as of September 30, 2024.
- The company completed the acquisition of its joint venture partners 50% economic ownership interest in the joint venture that owns 901 New York Avenue, located in Washington, DC.
Quarterly Report
- Boston Properties Limited Partnership (BPLP) completed a public offering of $850.0 million in aggregate principal amount of its 5.750% unsecured senior notes due 2035.
- BPLP entered into a new $100.0 million unsecured term loan that bears interest at a variable rate of SOFR plus 1.05% and matures on September 26, 2025 with three one-year extension options.
Quarterly Report
- FFO per diluted share for the third quarter was greater than the mid-point of BXP's updated guidance by $0.01 per diluted share.
Debt Issuance Announcement
- Boston Properties Limited Partnership completed the issuance and sale of $850 million aggregate principal amount of 5.750% Senior Notes due 2035.
- The net proceeds to the Partnership from the sale of the Notes, after deducting underwriting discounts and estimated transaction expenses, are estimated to be approximately $841.9 million.
Quarterly Report
- Net income attributable to BXP, Inc. and Boston Properties Limited Partnership decreased compared to the same period last year.
Quarterly Report
- The company has established an unsecured commercial paper program, allowing for borrowings up to $500 million.
- The company has a $2.0 billion unsecured revolving credit facility, with no outstanding balance as of June 30, 2024.
- The company may seek to enhance its liquidity to fund its current and future development activity, pursue additional attractive investment opportunities and refinance or repay indebtedness.
Quarterly Report
- EPS and FFO per share exceeded the mid-points of BXP's guidance by $0.05 and $0.06 per share, respectively, primarily due to lower non-cash interest expense and greater contributions from portfolio operations.
Quarterly Report
- Boston Properties Limited Partnership (BPLP) established an unsecured commercial paper program, allowing it to issue up to $500.0 million in unsecured commercial paper notes.
- BPLP exercised its remaining accordion option under its unsecured revolving credit facility to increase the current maximum borrowing amount under the credit facility from $1.815 billion to $2.0 billion.
Quarterly Report
- BXP may sell shares of its common stock under its at-the-market (ATM) stock offering program.
- BPLP may issue unsecured commercial paper notes up to a maximum aggregate amount outstanding at any one time of $500 million.
- BXP may seek to enhance its liquidity to fund its current and future development activity, pursue additional attractive investment opportunities and refinance or repay indebtedness.
Quarterly Report
- BPLP established an unsecured commercial paper program with a maximum aggregate amount outstanding of $500 million.
- BPLP increased the maximum borrowing amount under its unsecured revolving credit facility from $1.815 billion to $2.0 billion.
Quarterly Report
- The company's EPS fell short of its guidance midpoint by $0.16 per diluted share.
- Full-year 2024 EPS guidance was reduced by approximately $0.33 per share at the midpoint.
- Full-year 2024 FFO guidance was reduced by approximately $0.06 per share at the midpoint.
Quarterly Report
- The company's EPS exceeded the mid-point of its guidance by $0.15 per diluted share, primarily due to better-than-projected income from unconsolidated joint ventures and interest income.
- The company's FFO per diluted share exceeded the mid-point of its guidance by $0.02 per diluted share, primarily due to better-than-projected interest income and development and management services income.
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