Boston Properties Announces Second Quarter 2013 Results

Boston Properties Announces Second Quarter 2013 Results

Reports diluted FFO per share of $1.28

Reports diluted EPS of $2.94


BOSTON--(BUSINESS WIRE)-- Boston Properties, Inc. (NYSE: BXP), a real estate investment trust, reported results today for the second quarter ended June 30, 2013.

Funds from Operations (FFO) for the quarter ended June 30, 2013 were $195.4 million, or $1.29 per share basic and $1.28 per share diluted. This compares to FFO for the quarter ended June 30, 2012 of $206.5 million, or $1.37 per share basic and $1.36 per share diluted. The weighted average number of basic and diluted shares outstanding totaled 151,938,203 and 153,796,959, respectively, for the quarter ended June 30, 2013 and 150,312,215 and 152,047,213, respectively, for the quarter ended June 30, 2012.

The Company's reported FFO of $1.28 per share diluted was greater than the guidance previously provided of $1.25-$1.27 per share. The Company's reported FFO included the following items, among others, that were not reflected in the guidance: approximately $0.01 per share as a result of lower operating expenses and approximately $0.01 per share of higher than expected leasing and other fee income.

Net income available to common shareholders was $452.4 million for the quarter ended June 30, 2013, compared to $118.6 million for the quarter ended June 30, 2012. Net income available to common shareholders per share (EPS) for the quarter ended June 30, 2013 was $2.95 basic and $2.94 on a diluted basis. This compares to EPS for the second quarter of 2012 of $0.79 basic and $0.78 on a diluted basis.

The reported results are unaudited and there can be no assurance that the results will not vary from the final information for the quarter ended June 30, 2013. In the opinion of management, all adjustments considered necessary for a fair presentation of these reported results have been made.

As of June 30, 2013, the Company's portfolio consisted of 179 properties, comprised primarily of Class A office space, one hotel, three residential properties and four retail properties, aggregating approximately 44.8 million square feet, including eight properties under construction totaling 2.8 million square feet. In addition, the Company has structured parking for vehicles containing approximately 15.7 million square feet. The overall percentage of leased space for the 168 properties in service (excluding the two in-service residential properties and the hotel) as of June 30, 2013 was 92.1%.

Significant events during the second quarter included:

  • On April 1, 2013, the Company was designated as the Owner's Representative by Harvard Planning and Project Management to provide development management services for Harvard's new Health and Life Sciences Facility.
  • On April 1, 2013, the Company used available cash to repay the mortgage loan collateralized by its 140 Kendrick Street property located in Needham, Massachusetts totaling approximately $47.6 million. The mortgage loan bore interest at a fixed rate of 7.51% per annum and was scheduled to mature on July 1, 2013. There was no prepayment penalty.
  • On April 1, 2013, the Company commenced construction on the initial phase of its Transbay Tower development project totaling approximately 1.4 million net rentable square feet located in San Francisco, California.
  • On April 4, 2013, a joint venture in which the Company has a 50% interest obtained construction financing collateralized by its Annapolis Junction Building Seven development project located in Annapolis, Maryland totaling $22.0 million. The construction financing bears interest at a variable rate equal to LIBOR plus 1.65% per annum and matures on April 4, 2016, with two, one-year extension options, subject to certain conditions.
  • On April 10, 2013, the Company acquired the Mountain View Research Park and Mountain View Technology Park properties from its Value-Added Fund for an aggregate purchase price of approximately $233.5 million. In conjunction with the acquisition, the Value-Added Fund repaid the mortgage loans collateralized by the Mountain View Research Park and Mountain View Technology Park properties totaling approximately $90.0 million and $20.0 million, respectively, as well as the outstanding loans payable to the Company's Operating Partnership totaling approximately $8.6 million and $3.7 million, respectively. The Mountain View Research Park and Mountain View Technology Park mortgage loans bore interest at variable rates equal to LIBOR plus 2.00% per annum and LIBOR plus 2.50% per annum, respectively, and were scheduled to mature on May 31, 2014 and November 22, 2014, respectively. Prior to the acquisition, the Company's ownership interest in the properties was approximately 39.5%. As a result of the acquisition, the Company owns 100% of the properties and is accounting for them on a consolidated basis.
  • On April 11, 2013, the Company's Operating Partnership completed a public offering of $500.0 million in aggregate principal amount of its 3.125% senior unsecured notes due 2023. The notes were priced at 99.379% of the principal amount to yield an effective rate (including financing fees) of 3.279% to maturity. The notes will mature on September 1, 2023, unless earlier redeemed. The aggregate net proceeds from the offering were approximately $492.5 million after deducting the underwriting discount and transaction expenses.
  • On April 15, 2013, the Company announced that holders of its Operating Partnership's 3.75% Exchangeable Senior Notes due 2036 (the "Notes") had the right to surrender their Notes for purchase by the Operating Partnership (the "Put Right") on May 18, 2013. On April 15, 2013, the Company also announced that the Operating Partnership issued a notice of redemption to the holders of the Notes to redeem, on May 18, 2013 (the "Redemption Date"), all of the Notes outstanding on the Redemption Date. In connection with the notice of redemption, holders of the Notes had the right to exchange their Notes on or prior to May 16, 2013. Notes with respect to which the Put Right was not exercised and that were not surrendered for exchange on or prior to May 16, 2013, were redeemed by the Operating Partnership at a redemption price equal to 100% of the principal amount of the Notes plus accrued and unpaid interest thereon to, but excluding, the Redemption Date. Based on final information provided to the Operating Partnership by the trustee for the Notes, no Notes were validly tendered and accepted for purchase in the Put Right. Pursuant to the notice of redemption, an aggregate principal amount of $990,000 of the Notes was redeemed on May 18, 2013. The remaining aggregate principal amount of $449,010,000 of the Notes was surrendered for exchange and, in addition to the repayment of the principal in cash, the Company issued an aggregate of 419,116 shares of its common stock in exchange for the Notes.
  • On April 25, 2013, the Company commenced construction of its 601 Massachusetts Avenue development project totaling approximately 478,000 net rentable square feet located in Washington, DC. The project is approximately 79% pre-leased.
  • On May 30, 2013, a joint venture in which the Company has a 60% interest completed the sale of its 125 West 55th Street property located in New York City for a sale price of $470.0 million, including the assumption by the buyer of the mortgage loan collateralized by the property totaling approximately $198.6 million. 125 West 55th Street is a Class A office property totaling approximately 588,000 net rentable square feet.
  • On May 31, 2013, a joint venture in which the Company has a 30% interest refinanced its construction loan collateralized by 500 North Capitol Street, NW located in Washington, DC. The construction loan totaling approximately $90.6 million bore interest at a variable rate equal to LIBOR plus 1.65% per annum and was scheduled to mature on October 14, 2014. The new mortgage loan totaling $105.0 million requires interest-only payments at a fixed interest rate of 4.15% per annum and matures on June 6, 2023.
  • On May 31, 2013, the Company's two joint venture partners in 767 Venture, LLC (the entity that owns 767 Fifth Avenue (The GM Building) in New York City) transferred all of their interests in the joint venture to third parties. In connection with the transfer, the Company and its new joint venture partners modified the Company's relative decision making authority and consent rights with respect to the joint venture's assets and operations. These changes resulted in the Company having sufficient financial and operating control over 767 Venture, LLC such that the Company now accounts for the assets, liabilities and operations of 767 Venture, LLC on a consolidated basis in its financial statements instead of under the equity method of accounting. Upon consolidation, the Company recognized a non-cash gain on its investment of approximately $363.4 million. The financial impact and reporting implications are presented on the accompanying table entitled "Projected Operating Results." There can be no assurance that the actual operating results will not differ materially from these projections.
  • On June 5, 2013, a joint venture in which the Company has a 60% interest refinanced its mortgage loans collateralized by 540 Madison Avenue located in New York City. The mortgage loans aggregating approximately $118.0 million bore interest at a weighted-average fixed rate of 5.20% per annum and were scheduled to mature on July 11, 2013. The new mortgage loan totaling $120.0 million requires interest-only payments at a variable rate equal to LIBOR plus 1.50% per annum and matures on June 5, 2018.
  • On June 14, 2013, the Company completed and fully placed in-service 17 Cambridge Center, a Class A office project with approximately 195,000 net rentable square feet located in Cambridge, Massachusetts. The property is 100% leased.
  • On June 27, 2013, the Company's Operating Partnership completed a public offering of $700.0 million in aggregate principal amount of its 3.800% senior unsecured notes due 2024. The notes were priced at 99.694% of the principal amount to yield an effective rate (including financing fees) of 3.916% to maturity. The notes will mature on February 1, 2024, unless earlier redeemed. The aggregate net proceeds from the offering were approximately $691.9 million after deducting the underwriting discount and transaction expenses.
  • On June 28, 2013, the Company completed the sale of its 303 Almaden Boulevard property located in San Jose, California for a sale price of $40.0 million. Net cash proceeds totaled approximately $39.3 million. 303 Almaden Boulevard is a Class A office property totaling approximately 158,000 net rentable square feet. During the first quarter of 2013, the Company recognized an impairment loss totaling approximately $3.2 million, which was excluded from FFO in accordance with NAREIT's definition, as the carrying value of the property exceeded its net sale price. As a result, there was no loss on sale of real estate recognized during the three months ended June 30, 2013.

Transactions completed subsequent to June 30, 2013:

  • On July 1, 2013, the Company completed and fully placed in-service its Cambridge Center Connector project with approximately 43,000 net rentable square feet located in Cambridge, Massachusetts. The project is 100% leased.
  • On July 15, 2013, the Company executed a binding contract for the sale of its 1301 New York Avenue property located in Washington, DC for a net contract sale price of approximately $121.7 million. After adjusting for outstanding lease and other transaction costs to be assumed by the buyer, the gross sale price is approximately $135.0 million. 1301 New York Avenue is a Class A office property totaling approximately 201,000 net rentable square feet. The sale is subject to the satisfaction of customary closing conditions and there can be no assurance that the sale will be consummated on the terms currently contemplated, or at all.
  • On July 19, 2013, a joint venture in which the Company has a 50% interest completed the sale of its Eighth Avenue and 46th Street project located in New York City for an imputed sale price of $45.0 million. Eighth Avenue and 46th Street is comprised of an assemblage of land parcels and air-rights. Net cash proceeds to the Company totaled approximately $21.8 million, after the payment of transaction costs.
  • On July 26, 2013, the Company's Operating Partnership amended and restated the revolving credit agreement governing the Company's Unsecured Line of Credit, which, among other things, (1) increased the total commitment from $750.0 million to $1.0 billion, (2) extended the maturity date from June 24, 2014 to July 26, 2018 and (3) reduced the per annum variable interest rates and other fees. Based on the Operating Partnership's current credit rating, borrowings will bear interest at a per annum rate equal to LIBOR plus 1.00%. Under the amended and restated Unsecured Line of Credit, the Operating Partnership may increase the total commitment to $1.5 billion, subject to syndication of the increase.

EPS and FFO per Share Guidance:

The Company's guidance for the third quarter and full year 2013 for EPS (diluted) and FFO per share (diluted) is set forth and reconciled below. The estimates include the impact of (1) the Operating Partnership's issuance of $700 million of 3.800% senior unsecured notes on June 27, 2013, which will result in related interest expense of approximately $0.08 per share for the period July 1 - December 31, 2013, (2) a reduction in capitalized interest due to a decline in the Company's average corporate borrowing rate which is expected to result in $0.02 per share of higher interest expense for the remainder of 2013 and (3) the anticipated sale of 1301 New York Avenue in the third quarter of 2013, which is expected to result in approximately $0.02 per share of less income for the remainder of 2013. In addition and 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 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.

 Third Quarter 2013 Full Year 2013
Low-HighLow-High
Projected EPS (diluted)$0.97-$0.99$4.76-$4.81
 
Add:
Projected Company Share of Real Estate Depreciation and Amortization

0.83

-

0.83

3.30

-

3.30

Less:
Projected Company Share of Gains on Sales of Real Estate

0.53

-

0.53

3.17

-

3.17

      

Projected FFO per Share (diluted)

$

1.27

-

$

1.29

$

4.89

-

$

4.94

 

Boston Properties will host a conference call on Wednesday, July 31, 2013 at 10:00 AM Eastern Time, open to the general public, to discuss the second quarter 2013 results, the 2013 projections and related assumptions, and other related 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 12883890. A replay of the conference call will be available through August 15, 2013, by dialing (855) 859-2056 (Domestic) or (404) 537-3406 (International) and entering the passcode 12883890. 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 2013 "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, self-administered and self-managed real estate investment trust that develops, redevelops, acquires, manages, operates and owns a diverse portfolio of Class A office space, one hotel, three residential properties and four retail properties. The Company is one of the largest owners and developers of Class A office properties in the United States, concentrated in five markets - Boston, New York, Princeton, 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," "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, satisfaction of the closing conditions to the pending transactions described above, the 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 (including the impact of the European sovereign debt issues), 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 2013, whether as a result of new information, future events or otherwise.

 
BOSTON PROPERTIES, INC.
CONSOLIDATED BALANCE SHEETS
     
June 30,December 31,
 2013  2012 
 
(in thousands, except for share amounts)
(unaudited)

ASSETS

 
Real estate$17,056,758$13,581,454
Construction in progress1,483,1141,036,780
Land held for future development290,085275,094
Less: accumulated depreciation (2,996,520) (2,934,160)
Total real estate15,833,43711,959,168
 
Cash and cash equivalents1,608,7311,041,978
Cash held in escrows54,82955,181
Investments in securities14,22612,172
Tenant and other receivables, net of allowance for doubtful accounts of $1,377 and $1,960, respectively66,03969,555
Related party notes receivable-282,491
Interest receivable from related party notes receivable-104,816
Accrued rental income, net of allowance of $3,641 and $1,571, respectively625,654598,199
Deferred charges, net945,918588,235
Prepaid expenses and other assets179,74190,610
Investments in unconsolidated joint ventures 137,975  659,916 
Total assets$19,466,550 $15,462,321 
 

LIABILITIES AND EQUITY

 
Liabilities:
Mortgage notes payable$4,484,657$3,102,485
Unsecured senior notes, net of discount5,834,9734,639,528
Unsecured exchangeable senior notes, net of discount734,2781,170,356
Unsecured line of credit--
Mezzanine notes payable311,637-
Related party notes payable180,000-
Accounts payable and accrued expenses212,998199,102
Dividends and distributions payable112,425110,488
Accrued interest payable141,67672,461
Other liabilities 560,496  324,613 
Total liabilities 12,573,140  9,619,033 
 
Commitments and contingencies -  - 
 
Noncontrolling interest:
Redeemable preferred units of the Operating Partnership 110,876  110,876 
 
Redeemable interest in property partnership 98,162  97,558 
 
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 and no shares issued and outstanding at June 30, 2013 and December
31, 2012, respectively200,000-
Common stock, $0.01 par value, 250,000,000 shares authorized, 152,463,640 and 151,680,109 shares issued and
152,384,740 and 151,601,209 shares outstanding at June 30, 2013 and December 31, 2012, respectively1,5241,516
Additional paid-in capital5,246,2435,222,073
Earnings (dividends) in excess of dividends (earnings)192,492(109,985)
Treasury common stock, at cost(2,722)(2,722)
Accumulated other comprehensive loss (12,689) (13,817)
Total stockholders' equity attributable to Boston Properties, Inc.5,624,8485,097,065
 
Noncontrolling interests:
Common units of the Operating Partnership570,135539,753
Property partnerships489,389(1,964)
  
Total equity 6,684,372  5,634,854 
  
Total liabilities and equity$19,466,550 $15,462,321 
 
 
BOSTON PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
       
Three months endedSix months ended
June 30,June 30,
 2013  2012  2013  2012 
 
(in thousands, except for per share amounts)
Revenue
Rental
Base rent$403,942$371,019$781,670$725,844
Recoveries from tenants68,43457,361132,863109,009
Parking and other 23,969  23,356  47,799  45,615 
Total rental revenue496,345451,736962,332
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