Boston Properties(US:BXP)2025-02-27 20:36Part I - Business and Risk Factors This section outlines BXP's business, strategies, sustainability, human capital, and key risk factors Business Overview BXP is a leading office REIT focused on high-quality workplaces in six major U.S. gateway markets, managing a portfolio of 185 properties totaling 53.3 million square feet as of December 31, 2024 - BXP is one of the largest publicly-traded office REITs in the United States, with a portfolio of 185 commercial properties aggregating approximately 53.3 million net rentable square feet as of December 31, 20242930 - The company's properties are concentrated in six gateway markets: Boston, Los Angeles, New York, San Francisco, Seattle, and Washington, DC30 - BXP operates through an UPREIT structure, where BXP, Inc. is the REIT and general partner, and Boston Properties Limited Partnership (BPLP) is the operating partnership that holds substantially all assets. As of December 31, 2024, BXP owned an approximate 89.7% interest in BPLP1314 Transactions During 2024 In 2024, BXP acquired full ownership of 901 New York Avenue, purchased 725 12th Street, advanced a 2.3 million sq. ft. development pipeline, and managed debt, while recognizing $341.3 million in impairment losses - Acquired its joint venture partner's 50% interest in 901 New York Avenue, DC, and purchased 725 12th Street, DC, for redevelopment3738 - Recognized an impairment loss of approximately $13.6 million on a portion of its Shady Grove property in Maryland, which is pending disposition39 - Advanced a development pipeline of seven properties totaling 2.3 million sq. ft., with an estimated remaining investment of $1.3 billion. Several projects were fully or partially placed in-service during the year41434445 - BPLP repaid $700.0 million of senior notes, established a $500.0 million commercial paper program, and completed a public offering of $850.0 million in 5.750% unsecured senior notes due 2035515255 - Recognized other-than-temporary impairment losses on its investments in three unconsolidated joint ventures: Colorado Center ($168.4 million), Gateway Commons ($126.1 million), and Safeco Plaza ($46.8 million)68 - Sold a 45% interest in the 290 Binney Street development project in Cambridge, MA, retaining a 55% controlling interest69 Business and Growth Strategies BXP aims to maximize total return by developing, owning, and managing premier properties in core gateway markets, leveraging in-house expertise for external growth through selective development and acquisitions, and internal growth via high-quality property management and redevelopment - The company's core business strategy is to target a few carefully selected dynamic gateway markets (Boston, LA, NY, SF, Seattle, DC) and be a leading developer and owner in each73 - External growth strategies include developing premier workplaces and mixed-use properties, acquiring underperforming assets for repositioning, and pursuing build-to-suit opportunities74767780 - Internal growth is driven by high-quality property management to encourage renewals, efficient re-leasing of space, and strategic redevelopment of existing assets to increase cash flow and value7883 Sustainability BXP is committed to sustainable growth, targeting carbon-neutral operations by 2025, and has received numerous accolades for its leadership, with energy and water intensity showing a general downward trend - BXP has committed to achieving carbon-neutral operations (Scope 1 and 2 GHG emissions) by 2025 for its occupied and actively managed buildings85 - In 2024, BXP earned its ninth consecutive 5-star GRESB rating, was named to the Dow Jones Sustainability Index for the fourth consecutive year, and was recognized as an ENERGY STAR Partner of the Year88 Energy and Water Consumption Trends (2015-2023) | Year | Energy Intensity (kBtu/SF) | Total Energy Consumption (MWh) | Water Intensity (Gal/SF) | Total Water Consumption (Cubic Meters) | |:---|:---|:---|:---|:---| | 2015 | 80.1 | 961,194 | 30.1 | 3,700,410 | | 2016 | 77.8 | 951,339 | 29.1 | 3,624,110 | | 2017 | 75.9 | 941,484 | 28.2 | 3,547,810 | | 2018 | 74.1 | 931,629 | 27.3 | 3,471,510 | | 2019 | 72.3 | 921,774 | 26.4 | 3,395,210 | | 2020 | 61.2 | 778,507 | 18.9 | 2,423,721 | | 2021 | 60.0 | 762,280 | 18.5 | 2,369,061 | | 2022 | 63.5 | 806,155 | 20.7 | 2,659,681 | | 2023 | 65.2 | 827,918 | 21.8 | 2,795,641 | Human Capital Management As of year-end 2024, BXP employed 816 individuals, emphasizing a positive work environment, career development, and comprehensive benefits, resulting in an average tenure of 9.5 years and a 10.8% voluntary turnover rate - As of December 31, 2024, the company had 710 non-union and 106 union employees89 - The average employee tenure is approximately 9.5 years, with 34% of employees having worked at BXP for ten or more years. The voluntary workforce turnover rate in 2024 was 10.8%95 - The company offers comprehensive benefits including health insurance, a 401(k) with matching contributions, an employee stock purchase plan, tuition reimbursement, and paid parental leave98107 Risk Factors The company faces diverse material risks including economic downturns, real estate market volatility, financial leverage, cybersecurity threats, environmental liabilities, and maintaining REIT status - Business and Operational Risks: Performance is highly dependent on the economic conditions of its six key markets. A downturn could reduce demand and rental rates. The company's success also depends on key personnel whose continued service is not guaranteed135138 - Real Estate Risks: The company is subject to risks including difficulties in renewing leases, sustained changes in client preferences toward hybrid/remote work, competition from other properties, and potential cost overruns in development projects140142146147 - Financial Risks: The company faces risks from using debt, including refinancing risk and the impact of elevated interest rates on variable-rate debt. Covenants in debt agreements could adversely affect financial condition200201204 - Cybersecurity and Technology Risks: The company faces risks from security breaches, cyber-attacks, and disruptions of its IT networks. The use of AI also presents new risks related to data privacy and security175180 - Environmental and Insurance Risks: Potential liability for environmental contamination could result in substantial costs. Some potential losses, such as those from terrorism or earthquakes, may not be fully covered by insurance167188 - REIT Status Risks: Failure to qualify as a REIT would result in corporate taxation, substantially reducing funds available for dividends. To maintain REIT status, the company may be forced to borrow funds or make distributions under unfavorable market conditions220223 Cybersecurity BXP manages cyber risks through a NIST-based program, overseen by the Audit Committee, involving regular assessments, testing, and employee training, with no material incidents reported to date - The company's cybersecurity risk management program is based on the National Institute of Standards and Technology (NIST) Cybersecurity Framework239 - The program includes annual internal and biennial third-party assessments, annual penetration testing, monthly vulnerability assessments, and regular employee training and phishing simulations241242 - The Audit Committee is responsible for overseeing cybersecurity risks and meets at least annually with the company's IS department to discuss the cybersecurity defense strategy245 - As of the report date, the company is not aware of any cybersecurity threats or incidents that have materially affected or are reasonably likely to materially affect its business, operations, or financial condition238 Properties BXP's portfolio comprises 185 properties totaling 53.3 million square feet, 87.5% occupied, with technology & media and legal services as top tenant sectors Portfolio Summary as of December 31, 2024 | Property Type | Number of Properties | Net Rentable Sq. Ft. | % Occupied | |:---|:---|:---:|:---:| | Office | 146 | 45,755,552 | 87.9% | | Life Sciences | 12 | 2,042,226 | 77.2% | | Retail | 13 | 1,061,761 | 91.6% | | Residential | 6 | 1,840,072 | 81.2% | | Hotel | 1 | 334,260 | 77.2% | | Under Construction/Redevelopment | 7 | 2,285,000 | 50.3% (Leased) | | Total Portfolio | 185 | 53,318,871 | N/A | Historical Occupancy and Revenue (In-Service Properties) | Year Ended Dec 31 | Percentage Occupied | Average Annualized Revenue per Sq. Ft. | |:---|:---:|:---:| | 2024 | 87.5% | $81.21 | | 2023 | 88.4% | $78.81 | | 2022 | 88.6% | $75.99 | | 2021 | 88.8% | $73.76 | | 2020 | 90.1% | $72.67 | - The top three clients by square feet are Salesforce (2.10%), Google (1.97%), and Biogen (1.84%)263 - The portfolio is diversified across several sectors, with Technology & Media (21.0%), Legal Services (17.1%), and Financial Services (20.1% combined) being the largest265 Lease Expiration Schedule (% of Total Square Feet) | Year of Expiration | Percentage of Total Square Feet | |:---|:---:| | 2025 | 6.16% | | 2026 | 3.82% | | 2027 | 4.49% | | 2028 | 7.31% | | 2029 | 7.64% | | Thereafter | 34.39% | Legal Proceedings The company is involved in various ordinary course legal proceedings, including disputes over acquisition fees, construction impacts, and wage claims, which management believes will not have a material adverse effect - The company is a defendant in a lawsuit regarding fees from a 2010 property acquisition in New York. While a court has ruled that an "Additional Fee" and "Final Fee" are owed, the amount has not been determined and could be material if the plaintiff's calculations are accepted868869871 - A tenant at an adjacent property has sued the company over construction activities at the 290 Binney Street development project, seeking injunctive relief and damages. A preliminary injunction was denied, but the case is ongoing872874875 - The company is a named defendant in a class action wage and hour lawsuit filed in January 2025 concerning security services at its New York City buildings877 Part II - Financial Information This section presents BXP's financial performance, liquidity, capital resources, and market risk disclosures, along with audited financial statements and supplementary data Market for Common Equity and Related Matters BXP common stock trades on the NYSE, with a policy of regular quarterly dividends to maintain REIT status, though its five-year total return underperformed key indices - BXP's common stock is listed on the New York Stock Exchange under the symbol "BXP"276 - The company has a policy to pay regular quarterly dividends and must distribute at least 90% of its taxable income to maintain its REIT qualification277 Cumulative Total Return Comparison (2019-2024) | Index | 2019 | 2020 | 2021 | 2022 | 2023 | 2024 | |:---|:---:|:---:|:---:|:---:|:---:|:---:| | BXP, Inc. | $100.00 | $71.65 | $90.43 | $55.54 | $61.55 | $69.01 | | S&P 500 Index | $100.00 | $118.40 | $152.39 | $124.79 | $157.59 | $197.02 | | Equity REIT Index | $100.00 | $92.00 | $131.78 | $99.67 | $113.35 | $123.25 | | Office REIT Index | $100.00 | $81.56 | $99.51 | $62.07 | $63.34 | $76.95 | Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) MD&A highlights premier workplaces outperforming, a 2.1% NOI increase to $2.04 billion, significant net income decrease due to impairment charges, and strong liquidity management Outlook The company anticipates an improving operating environment driven by corporate earnings, return-to-office trends, and limited new development, while actively managing its premier portfolio, development pipeline, liquidity, and leverage - Key market forces include corporate earnings growth, return-to-office behavior, and limited new development, which are serving as tailwinds. Interest rates remain a critical uncertainty302 - In Q4 2024, BXP executed 2.3 million sq. ft. of leases, its strongest quarter since Q2 2019. For the full year, 5.6 million sq. ft. were leased with a weighted-average term of 9.8 years309311 - The company is actively pursuing dispositions of three land sites and one operating property, which could generate approximately $200.0 million in net proceeds in 2025320 Results of Operations (FY 2024 vs. FY 2023) Net income attributable to BXP, Inc. decreased by $175.9 million to $14.3 million in FY 2024 due to significant impairment charges, despite a 2.1% increase in total NOI to $2.04 billion, while Same Property NOI declined 3.3% BXP Net Income and NOI Reconciliation (in thousands) | Metric | 2024 | 2023 | Change | % Change | |:---|:---:|:---:|:---:|:---:| | Net Income Attributable to BXP, Inc. | $14,272 | $190,215 | $(175,943) | (92.50)% | | Net Operating Income | $2,041,045 | $1,998,776 | $42,269 | 2.11% | - The Same Property Portfolio NOI decreased by $65.0 million (3.3%), driven by a $55.7 million (4.9%) increase in operating expenses and an $11.8 million (0.4%) decrease in total rental revenue375378382 - Loss from unconsolidated joint ventures increased by $103.6 million, primarily due to $341.3 million in impairment charges in 2024 compared to $272.6 million in 2023415 - Interest expense increased by $65.5 million (11.3%) primarily due to new mortgage financings, the issuance of new senior notes, and borrowings under the commercial paper program426427 Liquidity and Capital Resources BXP maintains strong liquidity with $366.7 million cash and $1.2 billion credit facility availability, managing $16.2 billion consolidated debt and a $1.3 billion development pipeline, supported by $1.23 billion in operating cash flow - As of February 21, 2025, the company had approximately $366.7 million in cash and $1.2 billion available under its $2.0 billion 2021 Credit Facility451485 Consolidated Debt Summary (December 31, 2024) | Debt Type | Carrying Amount (in thousands) | |:---|:---:| | Mortgage notes payable, net | $4,276,609 | | Unsecured senior notes, net | $10,645,077 | | Unsecured term loans, net | $798,813 | | Unsecured commercial paper | $500,000 | | Total Consolidated Debt | $16,220,499 | - The company's share of debt from unconsolidated joint ventures was approximately $1.4 billion as of December 31, 2024509 Cash Flow Summary (in thousands) | Cash Flow Activity | 2024 | 2023 | |:---|:---:|:---:| | Net cash provided by operating activities | $1,234,501 | $1,301,520 | | Net cash used in investing activities | $(1,237,396) | $(1,193,681) | | Net cash (used in) provided by financing activities | $(274,476) | $767,916 | - The company has material cash commitments of approximately $1.84 billion, primarily for client obligations ($692.0 million) and construction contracts ($1.15 billion)538 Funds from Operations (FFO) For 2024, BXP's FFO was $1.12 billion, a slight decrease from $1.14 billion in 2023, with diluted FFO per share at $7.10, reflecting adjustments for real estate depreciation and impairment losses FFO Reconciliation for BXP, Inc. (in thousands) | Metric | 2024 | 2023 | 2022 | |:---|:---:|:---:|:---:| | Net income attributable to BXP, Inc. | $14,272 | $190,215 | $848,947 | | Adjustments (Depreciation, Impairment, etc.) | $1,106,206 | $953,582 | $334,606 | | Funds from Operations attributable to BXP, Inc. | $1,120,478 | $1,143,797 | $1,183,553 | Diluted FFO per Share (BXP, Inc.) | Metric | 2024 | 2023 | 2022 | |:---|:---:|:---:|:---:| | Diluted FFO attributable to BXP, Inc. (Numerator) | $1,120,727 | $1,144,052 | $1,183,816 | | Weighted Average Shares (Denominator) | 157,793 | 157,201 | 157,137 | | Diluted FFO per Share | $7.10 | $7.28 | $7.53 | Quantitative and Qualitative Disclosures About Market Risk BXP's primary market risk is interest rate exposure, with 92.6% of consolidated debt fixed-rate, and a 100 basis point rate increase would raise annualized interest expense by $21.0 million - As of December 31, 2024, approximately 92.61% of the company's outstanding consolidated debt bore interest at fixed rates, including the effects of interest rate swaps515 - The company had approximately $1.2 billion of unhedged variable-rate debt outstanding as of December 31, 2024552 - A 100 basis point increase in market interest rates on variable-rate debt would have increased total annualized interest expense by approximately $21.0 million for the year ended December 31, 2024516554 Financial Statements and Supplementary Data This section provides audited consolidated financial statements for BXP and BPLP, including balance sheets, income statements, cash flows, and detailed notes, with unqualified audit opinions Consolidated Financial Statements The consolidated financial statements for BXP and BPLP as of December 31, 2024, show BXP with $26.1 billion in total assets, $18.1 billion in liabilities, and $14.3 million in net income, with BPLP reporting similar figures BXP, Inc. Consolidated Balance Sheet Highlights (in thousands) | Account | Dec 31, 2024 | Dec 31, 2023 | |:---|:---:|:---:| | Total Real Estate | $21,050,255 | $20,593,459 | | Cash and Cash Equivalents | $1,254,882 | $1,531,477 | | Total Assets | $26,084,980 | $26,026,149 | | Total Liabilities | $18,137,324 | $17,833,785 | | Total Equity | $7,938,121 | $8,183,981 | BXP, Inc. Consolidated Statement of Operations Highlights (in thousands) | Account | 2024 | 2023 | 2022 | |:---|:---:|:---:|:---:| | Total Revenue | $3,407,719 | $3,273,569 | $3,108,581 | | Total Expenses | $2,387,385 | $2,239,227 | $2,050,056 | | Interest Expense | $(645,117) | $(579,572) | $(437,139) | | Net Income Attributable to BXP, Inc. | $14,272 | $190,215 | $848,947 | Notes to Consolidated Financial Statements The notes provide detailed disclosures on BXP's accounting policies, real estate transactions, lease accounting, $16.2 billion consolidated debt, derivative instruments, legal proceedings, segment performance, stock-based compensation, and subsequent events - Real Estate (Note 3): Acquired 901 New York Avenue and 725 12th Street. Recognized a $13.6 million impairment loss on the Shady Grove property772776783 - Unconsolidated JVs (Note 6): Recognized $341.3 million in other-than-temporary impairment losses on investments in Colorado Center, Gateway Commons, and Safeco Plaza808813825 - Debt (Note 7): As of Dec 31, 2024, total consolidated debt was $16.2 billion, including $10.6 billion in unsecured senior notes and $4.3 billion in mortgage notes. In 2024, BPLP repaid $700M of notes, issued $850M of new notes, and established a $500M commercial paper program826832834 - Commitments & Contingencies (Note 9): Discloses ongoing litigation, including a dispute over fees from a 2010 NYC property acquisition and a lawsuit related to construction at 290 Binney Street868872 - Segment Information (Note 12): Reports performance by geographic region (Boston, LA, NY, SF, Seattle, DC) using "Company's share of NOI" as the primary profit measure. For 2024, Boston was the largest segment by share of NOI (37.7%), followed by New York (24.2%)910913920 - Subsequent Events (Note 17): In January 2025, BPLP repaid $850.0 million of its 3.200% senior notes at maturity952 Part III - Corporate Governance and Other Information This section covers corporate governance, executive compensation, security ownership, and equity compensation plan details, primarily by reference to the proxy statement Equity Compensation Plan Information As of December 31, 2024, the company had over 5 million securities issuable under approved equity plans and 3.8 million available for future issuance, including non-approved plans Equity Compensation Plan Information as of December 31, 2024 | Plan Category | Securities to be Issued Upon Exercise (a) | Weighted-Average Exercise Price (b) | Securities Remaining for Future Issuance (c) | |:---|:---:|:---:|:---:| | Equity compensation plans approved by security holders | 5,074,957 | N/A | 3,576,975 | | Equity compensation plans not approved by security holders | N/A | N/A | 272,704 | | Total | 5,074,957 | N/A | 3,849,679 |