Boston Properties Announces Second Quarter 2019 Results; Reports EPS of $1.06 and FFO Per Share Of $1.78

Exceeds Top End of Guidance Ranges and Increases Full Year 2019 Outlook

BOSTON–(BUSINESS WIRE)–Boston Properties, Inc. (NYSE: BXP), the largest publicly-traded developer, owner and manager of Class A office properties in the United States, reported results today for the second quarter ended June 30, 2019.

Financial highlights for the second quarter include:

  • Total revenue increased more than 10% to $733.7 million as compared to total revenue of $664.5 million for the quarter ended June 30, 2018.
  • Net income attributable to common shareholders increased 28% to $164.3 million, or $1.06 per diluted share (EPS), compared to $128.7 million, or $0.83 per diluted share, for the quarter ended June 30, 2018. The increase was primarily due to greater lease revenue from the completion of development projects, improvements from the in-service portfolio and a gain on the sale of a joint venture asset during the second quarter of 2019.
  • Funds from Operations (FFO) increased 13% to $276.3 million, or $1.78 per diluted share, from FFO of $244.4 million, or $1.58 per diluted share, for the quarter ended June 30, 2018, primarily due to greater lease revenue from the completion of development projects and improvements from the Company’s in-service portfolio.

    • FFO of $1.78 per diluted share was $0.04 greater than the mid-point of the Company’s second quarter guidance provided on April 30, 2019, due to $0.02 per share of greater-than-projected portfolio performance and $0.02 per share due to deferral of expenses into the second half of 2019.

The Company provided guidance for the third quarter of 2019 with projected EPS of $0.81 – $0.83 per diluted share and projected FFO of $1.75 – $1.77 per diluted share.

The Company also increased its full year 2019 EPS guidance by approximately $0.36 per share at the mid-point and increased its full year 2019 FFO guidance by approximately $0.06 per share at the mid-point compared to guidance provided on April 30, 2019. See “EPS and FFO Per Share Guidance” below.

Recent business highlights include:

  • Increased portfolio occupancy to 93.4% in the Company’s in-service office properties, an increase of 50 bps from the first quarter 2019 and an increase of 300 bps compared to the second quarter of 2018.
  • Partially placed in-service The Hub on Causeway – Podium, a 385,000 square foot development in Boston, Massachusetts. The project features creative office space that will be the new US headquarters for Rapid7, a cybersecurity and IT operations analytics solution provider. It also features multi-level retail, restaurants and amenities including Boston’s largest urban grocery, the Northeast’s first ArcLight Cinema with 14 screens, an intimate 1,500-person concert venue and a food hall and sports bar. The Hub on Causeway – Podium is 89% pre-leased and is the first phase of a 1.3 million square foot, mixed-use development project in which the Company has a 50% ownership interest.
  • Commenced development of its 325 Main Street development project at Kendall Center in Cambridge, Massachusetts. The Company expects the new, 16-story building will be approximately 420,000 square feet (including a retail component) and will replace the existing, four-story, approximately 115,000 square foot building currently on site. The development project is 90% pre-leased to Google, LLC for a term of 15 years.
  • Signed lease renewals with the U.S. government at New Dominion Technology Park in Herndon, Virginia totaling 492,000 square feet for a term of 15 years.
  • Completed an $850 million green bond offering of 3.400% unsecured senior notes due 2029.
  • Completed three dispositions in the quarter raising approximately $150 million in net cash proceeds. Among the dispositions in the quarter was the sale of 540 Madison Avenue in New York, New York. The Company and its 40% joint venture partner completed the sale of the 39-story, 284,000-square foot, office building in midtown Manhattan on June 27, 2019 for a gross sales price of $310 million, or $1,094 per square foot, reflecting a 3.8% cash yield on current NOI. Boston Properties realized net proceeds of approximately $107 million from the sale after the assignment of $120 million of mortgage debt and closing costs.

Other events during the second quarter include:

  • A joint venture in which the Company has a 50% interest obtained construction financing with a total loan commitment of $255 million for its 7750 Wisconsin Avenue development project on April 26, 2019. The 734,000 square foot build-to-suit, Class A office building is located in Bethesda, Maryland and is 100% pre-leased to an affiliate of Marriott International, Inc. The construction financing bears interest at a variable rate equal to LIBOR plus 1.25% per annum and matures on April 26, 2023, with two, one-year extension options, subject to certain conditions.

Transactions completed subsequent to June 30, 2019:

  • Executed a 75-year ground lease with The George Washington University for land parcels at 2100 Pennsylvania Avenue located in Washington, DC on July 16, 2019. With the execution of the ground lease, the Company commenced development of a 480,000 square foot property that will include approximately 450,000 square feet of Class A office space and 30,000 square feet of retail space. The project is located in the vibrant Foggy Bottom neighborhood of Washington, DC and is adjacent to the Company’s highly successful 2200 Pennsylvania Avenue mixed-use property. The office space in the 2100 Pennsylvania Avenue project is 66% pre-leased to a tenant for a term of 16 years.

The reported results are unaudited and there can be no assurance that these reported results will not vary from the final information for the quarter ended June 30, 2019. In the opinion of management, the Company has made all adjustments considered necessary for a fair statement of these reported results.

EPS and FFO per Share Guidance:

The Company’s guidance for the third quarter and full year 2019 for EPS (diluted) and FFO per share (diluted) is set forth and reconciled below. Except as described below, the estimates reflect management’s view of current and future market conditions, including assumptions with respect to rental rates, occupancy levels and the earnings impact of the events referenced in this release and otherwise referenced during the conference call and in the Company’s Supplemental Operating and Financial Data for the quarter ended June 30, 2019. The estimates do not include possible future gains or losses or the impact on operating results from other possible future property acquisitions or dispositions, other possible capital markets activity or possible future impairment charges. EPS estimates may be subject to fluctuations as a result of several factors, including changes in the recognition of depreciation and amortization expense and any gains or losses associated with disposition activity. The Company is not able to assess at this time the potential impact of these factors on projected EPS. By definition, FFO does not include real estate-related depreciation and amortization, impairment losses on depreciable real estate or gains or losses associated with disposition activities. There can be no assurance that the Company’s actual results will not differ materially from the estimates set forth below. For details of the Company’s assumptions related to guidance for the third quarter and full year 2019 for EPS (diluted) and FFO per share (diluted), please see the Second Quarter 2019 Supplemental Operating and Financial Data located on the Investor Relations section of the Company’s website at www.bxp.com.

As set forth below, the Company has updated its projected EPS (diluted) for the full year 2019 to $3.32 – $3.38 per share from $2.95 – $3.02 per share. This is an increase of approximately $0.36 per share at the mid-point of the Company’s guidance provided on April 30, 2019, primarily due to projected Company share of gains on sales of real estate of $0.29 per share, $0.02 per share of greater-than-expected portfolio performance, $0.05 per share of lower-than-expected interest expense, $0.01 per share due to increases in fee revenue and a $0.01 per share decrease in depreciation expense, partially offset by the loss of $0.02 per share from the sale of 540 Madison Avenue.

In addition, the Company has updated its projected guidance range for FFO per diluted share for the full year 2019 to $7.02 – $7.08 per share from $6.95 – $7.02 per share. This is an increase of approximately $0.06 per share at the mid-point of the Company’s guidance provided on April 30, 2019, primarily due to $0.02 per share of greater-than-expected portfolio performance, $0.05 per share of lower-than-expected interest expense, $0.01 per share due to increases in fee revenue, partially offset by the loss of $0.02 per share from the sale of 540 Madison Avenue.

 

Third Quarter 2019

 

Full Year 2019

 

Low

High

 

Low

High

Projected EPS (diluted)

$

0.81

 

$

0.83

 

 

$

3.32

 

$

3.38

 

Add:

 

 

 

 

 

 

 

Projected Company Share of Real Estate Depreciation and Amortization

0.94

 

0.94

 

 

3.84

 

3.84

 

Impairment loss

 

 

 

0.14

 

0.14

 

Projected Company Share of (Gains) Losses on Sales of Real Estate

 

 

 

(0.28

)

(0.28

)

Projected FFO per Share (diluted)

$

1.75

 

 

$

1.77

 

 

$

7.02

 

 

$

7.08

 

% Growth in FFO as compared to 2018

6.7

%

7.9

%

 

11.4

%

12.4

%

Boston Properties will host a conference call on Wednesday, July 31, 2019 at 10:00 AM Eastern Time, open to the general public, to discuss the second quarter 2019 results, the 2019 projections and related assumptions, and other matters that may be of interest to investors. The number to call for this interactive teleconference is (877) 706-4503 (Domestic) or (281) 913-8731(International) and entering the passcode 9765558. A replay of the conference call will be available through August 14, 2019, by dialing (855) 859-2056 (Domestic) or (404) 537-3406 (International) and entering the passcode 9765558. There will also be a live audio webcast of the call, which may be accessed on the Company’s website at www.bxp.com in the Investor Relations section. Shortly after the call, a replay of the webcast will be available in the Investor Relations section of the Company’s website and archived for up to twelve months following the call.

Additionally, a copy of Boston Properties’ second quarter 2019 “Supplemental Operating and Financial Data” and this press release are available in the Investor Relations section of the Company’s website at www.bxp.com.

Boston Properties (NYSE: BXP) is the largest publicly-held developer and owner of Class A office properties in the United States, concentrated in five markets – Boston, Los Angeles, New York, San Francisco and Washington, DC. The Company is a fully integrated real estate company, organized as a real estate investment trust (REIT), that develops, manages, operates, acquires and owns a diverse portfolio of primarily Class A office space. The Company’s portfolio totals 50.9 million square feet and 193 properties, including twelve properties under construction.

This press release contains forward-looking statements within the meaning of the Federal securities laws. You can identify these statements by our use of the words “assumes,” “believes,” “budgeted,” “estimates,” “expects,” “guidance,” “intends,” “plans,” “projects” and similar expressions that do not relate to historical matters. You should exercise caution in interpreting and relying on forward-looking statements because they involve known and unknown risks, uncertainties and other factors, which are, in some cases, beyond Boston Properties’ control and could materially affect actual results, performance or achievements. These factors include, without limitation, the Company’s ability to satisfy the closing conditions to the pending transactions described above, the Company’s ability to enter into new leases or renew leases on favorable terms, dependence on tenants’ financial condition, the uncertainties of real estate development, acquisition and disposition activity, the ability to effectively integrate acquisitions, the uncertainties of investing in new markets, the costs and availability of financing, the effectiveness of our interest rate hedging contracts, the ability of our joint venture partners to satisfy their obligations, the effects of local, national and international economic and market conditions, the effects of acquisitions, dispositions and possible impairment charges on our operating results, the impact of newly adopted accounting principles on the Company’s accounting policies and on period-to-period comparisons of financial results, regulatory changes and other risks and uncertainties detailed from time to time in the Company’s filings with the Securities and Exchange Commission. Boston Properties does not undertake a duty to update or revise any forward-looking statement, including its guidance for the third quarter and full fiscal year 2019, whether as a result of new information, future events or otherwise.

Financial tables follow.

BOSTON PROPERTIES, INC.

CONSOLIDATED BALANCE SHEETS

(Unaudited)

 

 

June 30,

 

December 31,

2019

 

2018

 

(in thousands, except for share and par value amounts)

ASSETS

 

 

 

Real estate, at cost

$

20,858,468

 

 

$

20,870,602

 

Construction in progress

812,408

 

 

578,796

 

Land held for future development

272,332

 

 

200,498

 

Right of use assets – finance leases

187,269

 

 

 

Right of use assets – operating leases

149,839

 

 

 

Less: accumulated depreciation

(5,050,606

)

 

(4,897,777

)

Total real estate

17,229,710

 

 

16,752,119

 

Cash and cash equivalents

1,087,001

 

 

543,359

 

Cash held in escrows

75,923

 

 

95,832

 

Investments in securities

33,411

 

 

28,198

 

Tenant and other receivables, net

87,727

 

 

86,629

 

Related party note receivable

80,000

 

 

80,000

 

Note receivable

19,718

 

 

19,468

 

Accrued rental income, net

973,167

 

 

934,896

 

Deferred charges, net

676,082

 

 

678,724

 

Prepaid expenses and other assets

68,701

 

 

80,943

 

Investments in unconsolidated joint ventures

936,835

 

 

956,309

 

Total assets

$

21,268,275

 

 

$

20,256,477

 

LIABILITIES AND EQUITY

 

 

 

Liabilities:

 

 

 

Mortgage notes payable, net

$

2,956,833

 

 

$

2,964,572

 

Unsecured senior notes, net

8,390,708

 

 

7,544,697

 

Unsecured line of credit

 

 

 

Unsecured term loan, net

498,700

 

 

498,488

 

Lease liabilities – finance leases

172,902

 

 

 

Lease liabilities – operating leases

199,344

 

 

 

Accounts payable and accrued expenses

418,429

 

 

276,645

 

Dividends and distributions payable

165,419

 

 

165,114

 

Accrued interest payable

89,289

 

 

89,267

 

Other liabilities

355,984

 

 

503,726

 

Total liabilities

13,247,608

 

 

12,042,509

 

 

 

 

 

Commitments and contingencies

 

 

 

Equity:

 

 

 

Stockholders’ equity attributable to Boston Properties, Inc.:

 

 

 

Excess stock, $0.01 par value, 150,000,000 shares authorized, none issued or outstanding

 

 

 

Preferred stock, $0.01 par value, 50,000,000 shares authorized; 5.25% Series B cumulative redeemable preferred stock, $0.01 par value, liquidation preference $2,500 per share, 92,000 shares authorized, 80,000 shares issued and outstanding at June 30, 2019 and December 31, 2018

200,000

 

 

200,000

 

Common stock, $0.01 par value, 250,000,000 shares authorized, 154,642,030 and 154,537,378 issued and 154,563,130 and 154,458,478 outstanding at June 30, 2019 and December 31, 2018, respectively

1,546

 

 

1,545

 

Additional paid-in capital

6,278,961

 

 

6,407,623

 

Dividends in excess of earnings

(710,592

)

 

(675,534

)

Treasury common stock at cost, 78,900 shares at June 30, 2019 and December 31, 2018

(2,722

)

 

(2,722

)

Accumulated other comprehensive loss

(51,340

)

 

(47,741

)

Total stockholders’ equity attributable to Boston Properties, Inc.

5,715,853

 

 

5,883,171

 

Noncontrolling interests:

 

 

 

Common units of the Operating Partnership

608,593

 

 

619,352

 

Property partnerships

1,696,221

 

 

1,711,445

 

Total equity

8,020,667

 

 

8,213,968

 

Total liabilities and equity

$

21,268,275

 

 

$

20,256,477

 

BOSTON PROPERTIES, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 

 

Three months ended June 30,

 

Six months ended June 30,

 

2019

 

2018

 

2019

 

2018

 

(in thousands, except for per share amounts)

Revenue

 

 

 

 

 

 

 

Lease

$

680,189

 

 

$

 

 

$

1,359,440

 

 

$

 

Base rent

 

 

516,439

 

 

 

 

1,035,946

 

Recoveries from tenants

 

 

95,259

 

 

 

 

190,377

 

Parking and other

26,319

 

 

26,904

 

 

51,225

 

 

53,038

 

Hotel revenue

14,844

 

 

14,607

 

 

23,782

 

 

23,709

 

Development and management services

9,986

 

 

9,305

 

 

19,263

 

 

17,710

 

Direct reimbursements of payroll and related costs from management services contracts

2,403

 

 

1,970

 

 

5,798

 

 

4,855

 

Total revenue

733,741

 

 

664,484

 

 

1,459,508

 

 

1,325,635

 

Expenses

 

 

 

 

 

 

 

Operating

 

 

 

 

 

 

 

Rental

257,971

 

 

237,790

 

 

515,488

 

 

478,119

 

Hotel

9,080

 

 

8,741

 

 

16,943

 

 

16,814

 

General and administrative

35,071

 

 

28,468

 

 

76,833

 

 

64,362

 

Payroll and related costs from management services contracts

2,403

 

 

1,970

 

 

5,798

 

 

4,855

 

Transaction costs

417

 

 

474

 

 

877

 

 

495

 

Depreciation and amortization

177,411

 

 

156,417

 

 

342,005

 

 

322,214

 

Total expenses

482,353

 

 

433,860

 

 

957,944

 

 

886,859

 

Other income (expense)

 

 

 

 

 

 

 

Income from unconsolidated joint ventures

47,964

 

 

769

 

 

48,177

 

 

1,230

 

Gains on sales of real estate

1,686

 

 

18,292

 

 

781

 

 

114,689

 

Interest and other income

3,615

 

 

2,579

 

 

7,368

 

 

4,227

 

Gains from investments in securities

1,165

 

 

505

 

 

4,134

 

 

379

 

Impairment loss

 

 

 

 

(24,038

)

 

 

Interest expense

(102,357

)

 

(92,204

)

 

(203,366

)

 

(182,424

)

Net income

203,461

 

 

160,565

 

 

334,620

 

 

376,877

 

Net income attributable to noncontrolling interests

 

 

 

 

 

 

 

Noncontrolling interests in property partnerships

(17,482

)

 

(14,400

)

 

(36,312

)

 

(31,634

)

Noncontrolling interest—common units of the Operating Partnership

(19,036

)

 

(14,859

)

 

(30,627

)

 

(35,311

)

Net income attributable to Boston Properties, Inc.

166,943

 

 

131,306

 

 

267,681

 

 

309,932

 

Preferred dividends

(2,625

)

 

(2,625

)

 

(5,250

)

 

(5,250

)

Net income attributable to Boston Properties, Inc. common shareholders

$

164,318

 

 

$

128,681

 

 

$

262,431

 

 

$

304,682

 

Basic earnings per common share attributable to Boston Properties, Inc. common shareholders:

 

 

 

 

 

 

 

Net income

$

1.06

 

 

$

0.83

 

 

$

1.70

 

 

$

1.97

 

Weighted average number of common shares outstanding

154,555

 

 

154,415

 

 

154,540

 

 

154,400

 

Diluted earnings per common share attributable to Boston Properties, Inc. common shareholders:

 

 

 

 

 

 

 

Net income

$

1.06

 

 

$

0.83

 

 

$

1.69

 

 

$

1.97

 

Weighted average number of common and common equivalent shares outstanding

154,874

 

 

154,571

 

 

154,859

 

 

154,638

 

 

BOSTON PROPERTIES, INC.

FUNDS FROM OPERATIONS (1)

(Unaudited)

 

 

Three months ended June 30,

 

Six months ended June 30,

 

2019

 

2018

 

2019

 

2018

 

(in thousands, except for per share amounts)

 

 

 

 

 

 

 

 

Net income attributable to Boston Properties, Inc. common shareholders

$

164,318

 

 

$

128,681

 

 

$

262,431

 

 

$

304,682

 

Add:

 

 

 

 

 

 

 

Preferred dividends

2,625

 

 

2,625

 

 

5,250

 

 

5,250

 

Noncontrolling interest – common units of the Operating Partnership

19,036

 

 

14,859

 

 

30,627

 

 

35,311

 

Noncontrolling interests in property partnerships

17,482

 

 

14,400

 

 

36,312

 

 

31,634

 

Net income

203,461

 

 

160,565

 

 

334,620

 

 

376,877

 

Add:

 

 

 

 

 

 

 

Depreciation and amortization expense

177,411

 

 

156,417

 

 

342,005

 

 

322,214

 

Noncontrolling interests in property partnerships’ share of depreciation and amortization

(17,869

)

 

(18,426

)

 

(35,871

)

 

(36,647

)

Company’s share of depreciation and amortization from unconsolidated joint ventures

14,778

 

 

9,312

 

 

30,248

 

 

18,756

 

Corporate-related depreciation and amortization

(412

)

 

(406

)

 

(807

)

 

(811

)

Impairment loss

 

 

 

 

24,038

 

 

 

Less:

 

 

 

 

 

 

 

Gain on sale of real estate included within income from unconsolidated joint ventures

47,757

 

 

 

 

47,757

 

 

 

Gains on sales of real estate

1,686

 

 

18,292

 

 

781

 

 

114,689

 

Noncontrolling interests in property partnerships

17,482

 

 

14,400

 

 

36,312

 

 

31,634

 

Preferred dividends

2,625

 

 

2,625

 

 

5,250

 

 

5,250

 

Funds from operations (FFO) attributable to the Operating Partnership common unitholders (including Boston Properties, Inc.)

307,819

 

 

272,145

 

 

604,133

 

 

528,816

 

Less:

 

 

 

 

 

 

 

Noncontrolling interest – common units of the Operating Partnership’s share of funds from operations

31,544

 

 

27,704

 

 

61,851

 

 

53,812

 

Funds from operations attributable to Boston Properties, Inc. common shareholders

$

276,275

 

 

$

244,441

 

 

$

542,282

 

 

$

475,004

 

Boston Properties, Inc.’s percentage share of funds from operations – basic

89.75

%

 

89.82

%

 

89.76

%

 

89.82

%

Weighted average shares outstanding – basic

154,555

 

 

154,415

 

 

154,540

 

 

154,400

 

FFO per share basic

$

1.79

 

 

$

1.58

 

 

$

3.51

 

 

$

3.08

 

Weighted average shares outstanding – diluted

154,874

 

 

154,571

 

 

154,859

 

 

154,638

 

FFO per share diluted

$

1.78

 

 

$

1.58

 

 

$

3.50

 

 

$

3.07

 

  1. Pursuant to the revised definition of Funds from Operations adopted by the Board of Governors of the National Association of Real Estate Investment Trusts (“Nareit”), we calculate Funds from Operations, or “FFO,” by adjusting net income (loss) attributable to Boston Properties, Inc. common shareholders (computed in accordance with GAAP) for gains (or losses) from sales of properties, impairment losses on depreciable real estate consolidated on our balance sheet, impairment losses on our investments in unconsolidated joint ventures driven by a measurable decrease in the fair value of depreciable real estate held by the unconsolidated joint ventures and real estate-related depreciation and amortization. FFO is a non-GAAP financial measure, but we believe the presentation of FFO, combined with the presentation of required GAAP financial measures, has improved the understanding of operating results of REITs among the investing public and has helped make comparisons of REIT operating results more meaningful. Management generally considers FFO and FFO per share to be useful measures for understanding and comparing our operating results because, by excluding gains and losses related to sales of previously depreciated operating real estate assets, impairment losses and real estate asset depreciation and amortization (which can differ across owners of similar assets in similar condition based on historical cost accounting and useful life estimates), FFO and FFO per share can help investors compare the operating performance of a company’s real estate across reporting periods and to the operating performance of other companies.

    Our computation of FFO may not be comparable to FFO reported by other REITs or real estate companies that do not define the term in accordance with the current Nareit definition or that interpret the current Nareit definition differently.

    In order to facilitate a clear understanding of the Company’s operating results, FFO should be examined in conjunction with net income attributable to Boston Properties, Inc. common shareholders as presented in the Company’s consolidated financial statements. FFO should not be considered as a substitute for net income attributable to Boston Properties, Inc. common shareholders (determined in accordance with GAAP) or any other GAAP financial measures and should only be considered together with and as a supplement to the Company’s financial information prepared in accordance with GAAP.

BOSTON PROPERTIES, INC.

PORTFOLIO LEASING PERCENTAGES

 

 

 

 

 

 

% Leased by Location

 

June 30,

 

December 31,

2019

2018

Boston

96.8

%

 

95.9

%

Los Angeles

96.7

%

 

96.7

%

New York

93.2

%

 

88.0

%

San Francisco

92.2

%

 

87.8

%

Washington, DC

89.2

%

 

90.7

%

Total Portfolio

93.4

%

 

91.4

%

Contacts

AT THE COMPANY

Michael LaBelle

Executive Vice President,

Chief Financial Officer and Treasurer

(617) 236-3352

Sara Buda

Vice President, Investor Relations

(617) 236-3429

sbuda@bxp.com

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