Boston Properties(US:BXP)2023-08-06 16:00PART I. FINANCIAL INFORMATION Financial Statements (unaudited) This section presents the unaudited consolidated financial statements for Boston Properties, Inc. and Boston Properties Limited Partnership, including balance sheets, statements of operations, and cash flows Boston Properties, Inc. Financial Statements Boston Properties, Inc. reported a net income of $182.2 million for the six months ended June 30, 2023, a decrease from $366.0 million in 2022, with diluted EPS falling to $1.16 BXP Consolidated Balance Sheet Summary (in thousands) | Metric | June 30, 2023 (in thousands) | December 31, 2022 (in thousands) | | :--- | :--- | :--- | | Total Assets | $25,341,680 | $24,207,669 | | Total Liabilities | $17,048,845 | $15,837,237 | | Total Equity | $8,286,543 | $8,363,819 | BXP Statement of Operations Summary (in thousands, except per share data) | Metric | Six Months Ended June 30, 2023 (in thousands) | Six Months Ended June 30, 2022 (in thousands) | | :--- | :--- | :--- | | Total Revenue | $1,620,353 | $1,528,234 | | Net Income Attributable to BXP | $182,215 | $366,044 | | Diluted EPS | $1.16 | $2.33 | BXP Statement of Cash Flows Summary (in thousands) | Metric | Six Months Ended June 30, 2023 (in thousands) | Six Months Ended June 30, 2022 (in thousands) | | :--- | :--- | :--- | | Net Cash from Operating Activities | $613,183 | $616,639 | | Net Cash from Investing Activities | ($554,864) | ($980,170) | | Net Cash from Financing Activities | $833,359 | $365,223 | Boston Properties Limited Partnership Financial Statements Boston Properties Limited Partnership reported a net income of $206.9 million for the six months ended June 30, 2023, a decrease from $415.6 million in 2022, with diluted earnings per unit falling to $1.18 BPLP Consolidated Balance Sheet Summary (in thousands) | Metric | June 30, 2023 (in thousands) | December 31, 2022 (in thousands) | | :--- | :--- | :--- | | Total Assets | $25,095,318 | $23,957,763 | | Total Liabilities | $17,048,845 | $15,837,237 | | Total Capital | $6,905,128 | $6,833,027 | BPLP Statement of Operations Summary (in thousands, except per unit data) | Metric | Six Months Ended June 30, 2023 (in thousands) | Six Months Ended June 30, 2022 (in thousands) | | :--- | :--- | :--- | | Total Revenue | $1,620,353 | $1,528,234 | | Net Income Attributable to BPLP | $206,928 | $415,617 | | Diluted Earnings per Common Unit | $1.18 | $2.38 | BPLP Statement of Cash Flows Summary (in thousands) | Metric | Six Months Ended June 30, 2023 (in thousands) | Six Months Ended June 30, 2022 (in thousands) | | :--- | :--- | :--- | | Net Cash from Operating Activities | $613,183 | $616,639 | | Net Cash from Investing Activities | ($554,864) | ($980,170) | | Net Cash from Financing Activities | $833,359 | $365,223 | Notes to the Consolidated Financial Statements These notes detail the company's accounting policies, financial activities, property portfolio, debt instruments, segment performance, and subsequent events including a new joint venture - As of June 30, 2023, the company owned or had interests in a portfolio of 191 commercial properties totaling approximately 54.1 million net rentable square feet, primarily consisting of premier workplaces125 - The company consolidates six Variable Interest Entities (VIEs), including its operating partnership BPLP and five in-service properties, for which it is the primary beneficiary20127 - On May 15, 2023, BPLP issued $750.0 million of 6.500% unsecured senior notes due 2034, and on January 4, 2023, entered into a $1.2 billion unsecured term loan facility subsequently hedged in May 2023173174176 - Subsequent to quarter-end, on July 28, 2023, the company entered into a joint venture for the future development of 343 Madison Avenue in New York City234295 Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the economic outlook, return-to-office trends, and the company's strategy, highlighting increased leasing activity, 4.3% NOI growth for the first six months of 2023, and strong liquidity - The company's strategy focuses on its leadership in the premier workplace segment, which continues to outperform the broader office market in vacancy and net absorption as companies upgrade their spaces to attract employees back to the office218220 - In Q2 2023, the company signed approximately 938,000 square feet of leases, an increase from 660,000 in Q1 2023, with the overall in-service premier workplace and retail portfolio 88.3% occupied and 90.4% leased as of June 30, 2023221 Net Operating Income (NOI) Comparison (in thousands) | Period | 2023 (in thousands) | 2022 (in thousands) | Change (in thousands) | % Change | | :--- | :--- | :--- | :--- | :--- | | Six Months Ended June 30 | $994,495 | $953,358 | $41,137 | 4.31% | | Three Months Ended June 30 | $503,489 | $484,042 | $19,447 | 4.02% | - As of July 28, 2023, the company had approximately $1.4 billion in cash and $1.5 billion available under its revolving credit facility, which management believes is sufficient to fund capital requirements and investment opportunities434 Results of Operations Net Operating Income (NOI) increased by $41.1 million (4.3%) to $994.5 million for the six months ended June 30, 2023, primarily driven by acquired and in-service properties Six-Month NOI Change by Portfolio (in thousands) | Portfolio | 2023 NOI (in thousands) | 2022 NOI (in thousands) | Change (in thousands) | | :--- | :--- | :--- | :--- | | Same Property | $904,094 | $904,634 | ($540) | | Acquired | $43,920 | $4,792 | $39,128 | | Placed In-Service | $49,558 | $10,142 | $39,416 | | Development/Redevelopment | ($3,607) | $11,377 | ($14,984) | | Sold | $530 | $22,413 | ($21,883) | | Total NOI | $994,495 | $953,358 | $41,137 | - The increase in Same Property operating expenses for the first six months of 2023 was driven by higher real estate taxes (+$12.1 million), particularly in New York City, and other operating expenses (+$17.4 million), including $2.3 million in opening costs for the View Boston Observatory282 - Gains on sales of real estate decreased by $118.9 million for the six months ended June 30, 2023, as there were no sales in 2023, compared to gains from two property sales in the same period of 2022319 - Interest expense for the first six months of 2023 increased by $71.3 million, primarily due to higher interest on unsecured term loans and credit facilities (+$29.9 million) and the issuance of new senior notes in late 2022 (+$25.4 million)324347 Liquidity and Capital Resources The company maintains strong liquidity with $15.5 billion in consolidated debt, a $1.6 billion development pipeline, and sufficient capital to meet upcoming obligations and fund new projects - As of June 30, 2023, the company had 13 properties under construction/redevelopment, with an estimated remaining equity requirement of approximately $1.6 billion to be funded through 2026455453 Consolidated Debt Summary (as of June 30, 2023, in thousands) | Debt Type | Carrying Amount (in thousands) | | :--- | :--- | | Fixed rate mortgage notes, net | $3,274,764 | | Unsecured senior notes, net | $10,985,395 | | Unsecured term loan, net | $1,196,046 | | Total Consolidated Debt | $15,456,205 | - The company has upcoming debt maturities including $500 million of 3.125% notes due September 2023 and $700 million of 3.800% notes due February 2024, which it expects to fund with available cash, asset sales, or refinancing428 - On May 17, 2023, BXP renewed its "at the market" (ATM) stock offering program, allowing for the sale of up to $600.0 million of its Common Stock, with no shares issued under this program to date268434 Funds from Operations (FFO) Funds from Operations (FFO) attributable to Boston Properties, Inc. for Q2 2023 was $292.8 million or $1.86 per diluted share, a decrease primarily due to the absence of property sales gains BXP FFO Reconciliation (in thousands) | Metric | Q2 2023 (in thousands) | Q2 2022 (in thousands) | | :--- | :--- | :--- | | Net Income Attributable to BXP | $104,299 | $222,989 | | Adjustments (Depreciation, etc.) | $188,545 | $81,571 | | FFO Attributable to BXP | $292,844 | $304,560 | BPLP FFO Reconciliation (in thousands) | Metric | Q2 2023 (in thousands) | Q2 2022 (in thousands) | | :--- | :--- | :--- | | Net Income Attributable to BPLP | $118,098 | $253,788 | | Adjustments (Depreciation, etc.) | $208,227 | $85,101 | | FFO Attributable to BPLP | $326,325 | $338,889 | Quantitative and Qualitative Disclosures about Market Risk The company's primary market risk is interest rate changes, with $15.5 billion in consolidated debt as of June 30, 2023, of which $1.2 billion in variable-rate debt was fully hedged - As of June 30, 2023, the company had no unhedged variable rate debt, as its entire $1.2 billion of variable rate borrowings was subject to interest rate swaps488 Consolidated Debt by Rate Type (as of June 30, 2023) | Rate Type | Amount (billions) | Percentage of Total | | :--- | :--- | :--- | | Fixed Rate | $14.3 | ~92.3% | | Variable Rate (Hedged) | $1.2 | ~7.7% | | Total | $15.5 | 100% | Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of June 30, 2023, with no material changes to internal control over financial reporting during Q2 - The Chief Executive Officer and Chief Financial Officer of Boston Properties, Inc. concluded that the disclosure controls and procedures for both BXP and BPLP were effective as of June 30, 2023515516 - There were no material changes in internal control over financial reporting during the second quarter of 2023 that materially affected, or are reasonably likely to materially affect, the company's internal controls515516 PART II. OTHER INFORMATION Legal Proceedings The company is subject to ordinary course legal proceedings, generally covered by insurance, and not expected to materially affect its financial position or liquidity - The company reports that it is subject to ordinary course legal proceedings, which are generally covered by insurance and are not expected to have a material adverse effect on its financial condition542 Risk Factors There were no material changes to the risk factors previously disclosed in the company's 2022 Annual Report on Form 10-K - There were no material changes to the risk factors previously disclosed in the company's 2022 Annual Report on Form 10-K543 Unregistered Sales of Equity Securities and Use of Proceeds During Q2 2023, BPLP issued 7,449 common units to BXP for $67.80 and repurchased 11,627 LTIP and MYLTIP units from terminated employees - BPLP issued 7,449 common units to BXP in connection with BXP's issuance of restricted stock to non-employee directors and settlement of deferred stock awards546 - BPLP repurchased 11,627 LTIP and MYLTIP units during the quarter from terminated employees at a price of $0.25 per unit548519 Defaults Upon Senior Securities The company reported no defaults upon its senior securities during the period - The company reported no defaults upon senior securities549521 Other Information The company reported no other information required to be disclosed under this item - The company reported no other material information for the quarter522551 Exhibits This section lists exhibits filed with the Form 10-Q, including credit agreements, senior notes indenture, and required CEO and CFO certifications - Exhibit 4.1 contains the Supplemental Indenture for the $750 million 6.500% Senior Notes due 2034558 - Exhibit 10.1 is the First Amendment to the Ninth Amended and Restated Credit Agreement, dated June 1, 2023553 - Exhibits 31.1 through 32.4 contain the required CEO and CFO certifications under the Sarbanes-Oxley Act525558