Boston Properties(BXP) - 2020 Q1 - Quarterly Report

Explanatory Note Explanatory Note on Combined Reporting The report combines financial statements for Boston Properties, Inc (BXP) and its operating partnership (BPLP) under an Umbrella Partnership REIT (UPREIT) structure - The report combines the financial statements of Boston Properties, Inc (BXP) and Boston Properties Limited Partnership (BPLP), reflecting an Umbrella Partnership REIT (UPREIT) structure[11] - As of March 31, 2020, BXP held an approximate 89.7% ownership interest in BPLP, with the remaining 10.3% held by limited partners[12] - Key financial statement differences relate to equity, capital, and the treatment of BPLP's limited partners as noncontrolling interests in BXP's statements[15] - A historical accounting difference created a $280.0 million step-up in BXP's real estate assets compared to BPLP's, impacting depreciation and gains[17] PART I. FINANCIAL INFORMATION ITEM 1. Financial Statements (unaudited) This section presents the unaudited consolidated financial statements for BXP and BPLP for the quarter ended March 31, 2020 Boston Properties, Inc. Financial Statements BXP's Q1 2020 net income rose to $497.5 million, driven by a $410.2 million gain on real estate sales BXP Consolidated Statement of Operations Highlights (Q1 2020 vs Q1 2019) | Metric | Q1 2020 (in thousands) | Q1 2019 (in thousands) | | :--- | :--- | :--- | | Total Revenue | $752,556 | $725,767 | | Gains on sales of real estate | $410,165 | $(905) | | Net Income | $577,146 | $131,159 | | Net income attributable to BXP common shareholders | $497,496 | $98,105 | | Diluted EPS | $3.20 | $0.63 | BXP Consolidated Balance Sheet Highlights (as of March 31, 2020) | Metric | March 31, 2020 (in thousands) | Dec 31, 2019 (in thousands) | | :--- | :--- | :--- | | Total Real Estate | $17,518,173 | $17,622,212 | | Total Assets | $21,829,698 | $21,284,905 | | Total Liabilities | $13,402,961 | $13,262,304 | | Total Stockholders' Equity (attributable to BXP) | $6,047,866 | $5,684,687 | BXP Consolidated Statement of Cash Flows Highlights (Q1 2020) | Metric | Q1 2020 (in thousands) | | :--- | :--- | | Net cash provided by operating activities | $175,197 | | Net cash used in investing activities | $(73,793) | | Net cash provided by financing activities | $65,288 | Boston Properties Limited Partnership Financial Statements BPLP's Q1 2020 net income surged to $566.3 million, primarily due to a $419.7 million gain on real estate sales BPLP Consolidated Statement of Operations Highlights (Q1 2020 vs Q1 2019) | Metric | Q1 2020 (in thousands) | Q1 2019 (in thousands) | | :--- | :--- | :--- | | Total Revenue | $752,556 | $725,767 | | Gains on sales of real estate | $419,654 | $(905) | | Net Income | $588,444 | $134,837 | | Net income attributable to BPLP common unitholders | $566,333 | $113,382 | | Diluted EPU | $3.27 | $0.66 | BPLP Consolidated Balance Sheet Highlights (as of March 31, 2020) | Metric | March 31, 2020 (in thousands) | Dec 31, 2019 (in thousands) | | :--- | :--- | :--- | | Total Real Estate | $17,238,140 | $17,330,881 | | Total Assets | $21,549,665 | $20,993,574 | | Total Liabilities | $13,402,961 | $13,262,304 | | Total Partners' Capital | $4,764,550 | $3,525,463 | Notes to the Consolidated Financial Statements The notes detail the company's portfolio, significant Q1 transactions, accounting changes, and subsequent events including a major debt offering - As of March 31, 2020, the Company's portfolio consisted of 196 commercial properties totaling approximately 51.8 million net rentable square feet[76] - In Q1 2020, the Company formed a joint venture for its Gateway Commons complex, realizing a gain of $217.7 million for BXP[105] - The Company sold New Dominion Technology Park for $256.0 million, realizing a gain of approximately $192.3 million for BXP[106] - The company adopted a new accounting standard for credit losses on January 1, 2020, with a $1.5 million adjustment to Dividends in Excess of Earnings[93] - Subsequent to quarter-end, BPLP completed a public offering of $1.25 billion of 3.250% unsecured senior notes due 2031[186] - The company is providing notice to its insurers regarding potential claims for business interruption losses related to COVID-19, though coverage is uncertain[136] ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section analyzes financial results and liquidity, with a significant focus on the emerging impacts of the COVID-19 pandemic Outlook and COVID-19 Impact The company's outlook is dominated by the COVID-19 pandemic, which has impacted rent collections, construction, and hotel operations - The effects of COVID-19 led to low physical occupancy and pauses in construction projects in Boston, New York, and San Francisco[198] - The company's Boston Marriott Cambridge hotel closed in March 2020, and parking revenue has become minimal, both expected to materially impact revenue[205][206] - Key priorities during the pandemic include tenant health security, leasing available space, and maintaining a conservative balance sheet[209] April 2020 Rent Collection Statistics | Tenant Category | April Rent Collected | | :--- | :--- | | All Tenants | ~93% | | Office Tenants | ~97% | | Retail Tenants | ~36% | Results of Operations Q1 2020 net income increased significantly due to gains on real estate sales, while Same Property NOI grew 3.90% - The increase in net income was primarily driven by gains on sales of real estate, which totaled $410.0 million for BXP in Q1 2020[248][298] - Same Property lease revenue increased by $27.8 million (4.3%) due to higher rental rates and occupancy[262] - Hotel net operating income decreased by approximately $1.1 million, with REVPAR falling 29.1% due to the COVID-19 pandemic[282][283] - General and administrative expense decreased by $5.3 million, primarily due to an $8.4 million decrease in deferred compensation plan liability[285] Net Operating Income (NOI) Comparison (Q1 2020 vs Q1 2019) | Portfolio | Q1 2020 NOI (in thousands) | Q1 2019 NOI (in thousands) | % Change | | :--- | :--- | :--- | :--- | | Same Property Portfolio | $454,775 | $437,689 | 3.90% | | Total Property Portfolio | $471,653 | $447,715 | 5.35% | Liquidity and Capital Resources The company maintains a strong liquidity position with $1.6 billion in cash and has a development pipeline requiring $1.2 billion in funding - As of May 5, 2020, the company had approximately $1.6 billion in cash and $1.5 billion available under its revolving credit facility[326][327] - The company has a development pipeline with an estimated remaining funding requirement of approximately $1.2 billion through 2024[321][325] - As of March 31, 2020, 93.79% of the company's total debt was fixed-rate, with a weighted-average maturity of 5.6 years[358] - The company's unconsolidated joint ventures had approximately $2.3 billion of debt, of which the company's proportionate share was $1.0 billion[366] Consolidated Debt Summary (as of March 31, 2020) | Debt Component | Amount (in thousands) | | :--- | :--- | | Fixed rate mortgage notes, net | $2,919,157 | | Unsecured senior notes, net | $8,393,009 | | Unsecured line of credit | $250,000 | | Unsecured term loan, net | $499,058 | | Total Consolidated Debt | $12,061,224 | Funds from Operations (FFO) BXP's Q1 2020 FFO per diluted share increased to $1.83 from $1.72 in the prior year, reflecting improved operating performance BXP Funds from Operations (FFO) (Q1 2020 vs Q1 2019) | Metric | Q1 2020 (in thousands) | Q1 2019 (in thousands) | | :--- | :--- | :--- | | Net income attributable to BXP common shareholders | $497,496 | $98,105 | | Adjustments (Depreciation, Gains on Sales, etc.) | $(213,434) | $167,902 | | FFO attributable to BXP common shareholders | $284,062 | $266,007 | BPLP Funds from Operations (FFO) (Q1 2020 vs Q1 2019) | Metric | Q1 2020 (in thousands) | Q1 2019 (in thousands) | | :--- | :--- | :--- | | Net income attributable to BPLP common unitholders | $566,333 | $113,382 | | Adjustments (Depreciation, Gains on Sales, etc.) | $(250,133) | $182,932 | | FFO attributable to BPLP common unitholders | $316,200 | $296,314 | ITEM 3. Quantitative and Qualitative Disclosures about Market Risk The company's primary market risk is interest rate risk, which is largely mitigated by a high proportion of fixed-rate debt - As of March 31, 2020, approximately $11.3 billion of the company's consolidated debt bore interest at fixed rates, reducing rate exposure[388] - The company had approximately $750.0 million of variable-rate debt; a 100 basis point rate increase would have raised Q1 2020 interest expense by about $1.9 million[389] - The company acknowledges the expected discontinuation of LIBOR after 2021 and notes its debt agreements specify alternative variable rates[391] ITEM 4. Controls and Procedures Management concluded that disclosure controls and procedures for both BXP and BPLP were effective as of March 31, 2020 - Management concluded that the disclosure controls and procedures for both BXP and BPLP were effective as of March 31, 2020[392][394] - There were no material changes in internal control over financial reporting during the first quarter of 2020[393][395] PART II. OTHER INFORMATION ITEM 1. Legal Proceedings The company is subject to ordinary course legal proceedings that are not expected to have a material adverse effect - The company is subject to ordinary course legal proceedings, which are generally covered by insurance and are not expected to have a material adverse effect[398] ITEM 1A. Risk Factors This section details significant risks posed by the COVID-19 pandemic, including impacts on rent collection, property values, and construction - The COVID-19 pandemic is expected to continue to materially and adversely affect the company's financial condition and tenant operations[400] - Key risks include tenants being unable to pay rent, which could reduce cash flows and impact the ability to pay dividends[402] - Construction delays due to work-stoppage orders could lead to increased costs and lower investment returns[406] - A sustained shift away from in-person work could adversely affect the long-term demand for office space[406] ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds During Q1 2020, BXP issued 461,856 shares of common stock in exchange for BPLP common units and repurchased 8,292 shares - During Q1 2020, BXP issued 461,856 shares of common stock in exchange for an equal number of BPLP common units[410] - BPLP issued approximately 70,694 common units to BXP in exchange for approximately $4.29 million in proceeds from BXP's employee stock plans[414] - BXP repurchased a total of 8,292 shares of its common stock, primarily to satisfy employee tax withholding obligations[411][412] ITEM 3. Defaults Upon Senior Securities The company reported no defaults upon its senior securities during the period - None[417] ITEM 4. Mine Safety Disclosures The company reported no mine safety disclosures - None[417] ITEM 5. Other Information The company reported no other information required to be disclosed under this item - None[418] ITEM 6. Exhibits This section lists exhibits filed with the Form 10-Q, including certifications, a supplemental indenture, and an amendment to bylaws - Exhibits filed include CEO and CFO certifications, a supplemental indenture for the May 2020 senior notes offering, and an amendment to the company's bylaws[420]