Boston Properties Announces Second Quarter 2018 Results
BOSTON--(BUSINESS WIRE)--Jul 31, 2018--(NYSE: BXP), a real estate investment trust and one of the largest owners, managers and developers of Class A office properties in the United States, reported results today for the second quarter ended June 30, 2018.
Financial highlights for the quarter include:Net income attributable to common shareholders of $128.7 million, or $0.83 per diluted share, compared to $133.7 million, or $0.87 per diluted share, for the quarter ended June 30, 2017. Funds from Operations (FFO) of $244.4 million, or $1.58 per diluted share. This compares to FFO of $257.9 million, or $1.67 per diluted share, for the quarter ended June 30, 2017. FFO of $1.58 per diluted share was $0.04 per share greater than the mid-point of the Company’s previous guidance of $1.53 - $1.55 per diluted share, primarily due to: $0.02 per share of greater than projected portfolio operations; $0.01 per share resulting from greater than projected development and management services revenue; and $0.01 per share of lower than projected interest expense. The Company also increased its guidance for full year 2018 EPS and FFO per share as follows: Projected EPS (diluted) for 2018 of $3.48 - $3.53 per share, an increase of $0.18 per share from the mid-point of its most recent guidance; andProjected FFO per share (diluted) for 2018 of $6.36 - $6.41 per share, an increase of $0.07 per share from the mid-point of its most recent guidance. Recent business highlights include: Acquired Santa Monica Business Park in Santa Monica, California, a 47-acre office park consisting of 21 buildings totaling approximately 1.2 million net rentable square feet, in a joint venture with Canada Pension Plan Investment Board.Established a joint venture to acquire a development site at 3 Hudson Boulevard in New York City that can accommodate the future development of a Class A office tower with up to 2.0 million net rentable square feet.Signed a 440,000 square foot lease with an affiliate of Verizon Communications, Inc. and commenced development of The Hub on Causeway - Office development project located at 100 Causeway Street in Boston, Massachusetts, a 627,000 square foot, Class A office tower with the Company’s 50/50 joint venture partner Delaware North. Under the lease agreement, Verizon will lease approximately 70% of the office tower for a term of 20 years.
At June 30, 2018, the Company’s portfolio consisted of 178 properties aggregating approximately 50.2 million square feet, including twelve properties under construction/redevelopment totaling approximately 6.0 million square feet. The overall percentage of leased space for the 162 properties in-service (excluding the Company’s three residential properties and hotel) as of June 30, 2018 was 90.4%.
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, 2018. In the opinion of management, the Company has made all adjustments considered necessary for a fair statement of these reported results.
Significant events during the second quarter included:
Development activitiesOn June 7, 2018, the Company completed and fully placed in-service its Signature at Reston development project comprised of 508 apartment units and retail space aggregating approximately 518,000 square feet located in Reston, Virginia. The retail space totaling approximately 25,000 net rentable square feet is approximately 81% leased and the residential units are currently approximately 35% leased. On June 20, 2018, the Company partially placed in-service its Proto Kendall Square development project comprised of 280 apartment units and retail space aggregating approximately 167,000 square feet located in Cambridge, Massachusetts. The retail space totaling approximately 15,000 net rentable square feet is approximately 98% leased and the residential units are currently approximately 32% leased.
Acquisition and disposition activitiesOn May 24, 2018, the Company completed the sale of its 91 Hartwell Avenue property located in Lexington, Massachusetts for a gross sale price of approximately $22.2 million. Net cash proceeds totaled approximately $21.7 million, resulting in a gain on sale of real estate totaling approximately $15.5 million. 91 Hartwell Avenue is an approximately 119,000 net rentable square foot Class A office property.
Capital markets activitiesOn April 19, 2018, a joint venture in which the Company has a 50% interest obtained construction financing with a total commitment of $180.0 million collateralized by its Hub on Causeway - Residential development project. The construction financing bears interest at a variable rate equal to LIBOR plus 2.00% per annum and matures on April 19, 2022, with two, one-year extension options, subject to certain conditions. The joint venture has not yet drawn any funds under the loan. The Hub on Causeway - Residential is an approximately 320,000 square foot project comprised of 440 residential units located in Boston, Massachusetts. On April 24, 2018, the Company’s Operating Partnership exercised its option to draw $500.0 million on its unsecured delayed draw term loan facility. The unsecured term loan totaling $500.0 million bears interest at a variable rate equal to LIBOR plus 0.90% per annum based on the Company’s Operating Partnership’s current credit rating and matures on April 24, 2022. On April 27, 2018, a joint venture in which the Company has a 60% interest refinanced the mortgage loan collateralized by its 540 Madison Avenue property located in New York City totaling $120.0 million. The mortgage loan bears interest at a variable rate equal to LIBOR plus 1.10% per annum and matures on June 5, 2023. The previous mortgage loan bore interest at a variable rate equal to LIBOR plus 1.50% per annum and was scheduled to mature on June 5, 2018. 540 Madison Avenue is an approximately 284,000 net rentable square foot Class A office property.
Transactions completed subsequent to June 30, 2018:On July 13, 2018, the Company entered into a joint venture with a third party to acquire a development site at 3 Hudson Boulevard that, upon the future acquisition of additional available development rights, can accommodate a Class A office tower with up to 2.0 million net rentable square feet located on the entire square block between 11th Avenue and Hudson Boulevard Park from West 34th Street to West 35th Street in New York City. The Company owns a 25% interest in and will be the managing member of the joint venture. The acquisition includes improvements consisting of excavation work and foundation elements that are currently being constructed on the site. The Company contributed cash totaling approximately $45.6 million at closing and will contribute in the future approximately $62.2 million for its initial capital contribution, a portion of which will fund the remaining costs to complete the foundation elements to grade for the future office building. In addition, the Company has provided $80.0 million of mortgage financing to the joint venture which bears interest at a variable rate equal to LIBOR plus 3.50% per annum and matures on July 13, 2023, with extension options, subject to certain conditions. On July 19, 2018, the Company completed the acquisition of Santa Monica Business Park in the Ocean Park neighborhood of Santa Monica, California for a purchase price of approximately $627.5 million, including $11.5 million of seller funded leasing costs after the effective date of the purchase and sale agreement. Santa Monica Business Park is a 47-acre office park consisting of 21 buildings totaling approximately 1.2 million net rentable square feet. Approximately 70% of the rentable square footage is subject to a ground lease with 80 years remaining, including renewal periods. The ground lease provides the Company with the right to purchase the land underlying the properties in 2028 with subsequent purchase rights every 15 years. The property is 94% leased. The acquisition was completed in a joint venture with Canada Pension Plan Investment Board, which invested approximately $147.4 million for a 45% ownership interest in the joint venture. Boston Properties will provide customary operating, property management and leasing services to, and invested approximately $180.1 million in the joint venture. The acquisition was completed with $300.0 million of financing. The mortgage financing bears interest at a variable rate equal to LIBOR plus 1.28% per annum and matures on July 19, 2025. At closing, the borrower under the loan entered into interest rate swap contracts with notional amounts aggregating $300.0 million through April 1, 2025, resulting in a fixed rate of approximately 4.063% per annum through the expiration of the interest rate swap contracts. On July 27, 2018, the Company entered into a joint venture with its partner at The Hub on Causeway mixed-use development to acquire the air rights for the development of an approximately 627,000 net rentable square foot Class A office tower at the site to be known as 100 Causeway Street. The joint venture entered into a lease agreement with an affiliate of Verizon Communications, Inc. under which Verizon will lease approximately 70% of the office tower for a term of 20 years. With the execution of the lease, the joint venture commenced development of the project. The Company will serve as co-development manager for the project and will own a 50% interest in the joint venture. The Company’s share of the total project cost is estimated to be approximately $270 million.
EPS and FFO per Share Guidance:
The Company’s guidance for the third quarter and full year 2018 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 referred to below. 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.
As set forth below, the Company has updated its projected EPS (diluted) for the full year 2018 to $3.48 - $3.53 per share from $3.28 - $3.37 per share. This is an increase of $0.18 per share at the mid-point of the Company’s guidance consisting of $0.11 per share related to gains on sales of real estate recorded in the second quarter of 2018, $0.03 per share of better than expected portfolio operations, $0.03 per share of additional development in management services revenue, and $0.02 per share of lower interest expense, offset by ($0.01) per share related to the sale of 91 Hartwell Avenue in the second quarter of 2018.
In addition, the Company has updated its projected guidance for FFO per share (diluted) for the full year 2018 to $6.36 - $6.41 per share from $6.27 - $6.36 per share. This is an increase of $0.07 per share at the mid-point consisting of $0.03 per share of better than expected portfolio operations, $0.03 per share of additional development and management services revenue, and $0.02 per share of lower interest expense, offset by ($0.01) per share related to the sale of 91 Hartwell Avenue in the second quarter of 2018.
Boston Properties will host a conference call on Wednesday, August 1, 2018 at 10:00 AM Eastern Time, open to the general public, to discuss the second quarter 2018 results, the 2018 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 6696808. A replay of the conference call will be available through August 22, 2018, by dialing (855) 859-2056 (Domestic) or (404) 537-3406 (International) and entering the passcode 6696808. There will also be a live audio webcast of the call which may be accessed on the Company’s website at www.bostonproperties.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 2018 “Supplemental Operating and Financial Data” and this press release are available in the Investor Relations section of the Company’s website at www.bostonproperties.com.
Boston Properties is a fully integrated real estate company, organized as a real estate investment trust, that develops, redevelops, acquires, manages, operates and owns a diverse portfolio of primarily Class A office space totaling 50.2 million square feet and consisting of 166 office properties (including nine properties under construction), six residential properties (including three properties under construction), five retail properties and one hotel. The Company is one of the largest owners and developers of Class A office properties in the United States, concentrated in five markets - Boston, Los Angeles, New York, San Francisco and Washington, DC.
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 2018, whether as a result of new information, future events or otherwise.
Financial tables follow.
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