Boston Properties, Inc. (NYSE: BXP) is the largest publicly traded developer, owner, and manager of premier workplaces in the United States. The company's portfolio is concentrated in six dynamic gateway markets - Boston, Los Angeles, New York, San Francisco, Seattle, and Washington, DC. BXP has delivered places that power progress for its clients and communities for more than 50 years.
In the first quarter of 2024, BXP reported net income of $106.6 million and total revenue of $839.4 million. The company's annual net income for the fiscal year 2023 was $190.2 million, while its annual revenue was $3.27 billion. BXP's annual operating cash flow for 2023 was $1.30 billion, and its annual free cash flow was $817.0 million.
Business Overview
BXP is a fully integrated real estate company, organized as a real estate investment trust (REIT). As of March 31, 2024, including properties owned by unconsolidated joint ventures, BXP's portfolio totaled 53.5 million square feet and 187 properties, including 11 properties under construction/redevelopment.The company's core strategy has always been to develop, acquire and manage premier workplaces in gateway markets with high barriers-to-entry and attractive demand drivers. BXP focuses on executing long-term leases with financially strong clients that are diverse across market sectors. This strategy has proven valuable as clients are increasingly interested in premier workplaces in vibrant, amenitized, accessible and high-demand locations to encourage more in-person work.
Leasing Activity and Occupancy
In the first quarter of 2024, BXP executed 61 leases totaling approximately 900,000 square feet with a weighted-average lease term of 11.6 years, compared to approximately 660,500 square feet of leases executed in the first quarter of 2023 with a weighted-average lease term of 7.7 years. The company's CBD portfolio of premier workplaces was 91.0% occupied and 92.8% leased (including vacant space for which BXP has signed leases that have not yet commenced) at March 31, 2024.The overall occupancy of BXP's in-service office and retail properties was 88.2% at March 31, 2024, a decrease of 20 basis points from December 31, 2023. Including vacant space for which the company has signed leases that have not yet commenced, BXP's in-service office and retail properties were approximately 89.9% leased at March 31, 2024.
Investment Activity
Consistent with its strategy, BXP completed the acquisition of its joint venture partner's 50% economic ownership interest in the joint venture that owns 901 New York Avenue located in Washington, DC for a purchase price of $10.0 million in the first quarter of 2024. This transaction resulted in the company recording a gain on consolidation of approximately $21.8 million.Additionally, in March 2024, BXP completed the sale of a 45% interest in 290 Binney Street, a life sciences development located in Kendall Square in Cambridge, Massachusetts, to an institutional investor. The institutional investor's investment in 290 Binney Street will reduce BXP's share of the project's estimated development spend over time by approximately $533.5 million.
As of March 31, 2024, BXP's development/redevelopment pipeline consisted of 11 properties that, when completed, are expected to total approximately 3.2 million net rentable square feet. The company's share of the estimated total cost for these projects is approximately $2.6 billion, of which approximately $1.4 billion remains to be invested.
Geographic Breakdown
Boston: BXP's Boston portfolio, which includes the CBD and Cambridge markets, was approximately 94.7% occupied and 95.9% leased as of March 31, 2024. The company executed approximately 178,000 square feet of leases and approximately 435,000 square feet of leases commenced in the Boston region during the first quarter.Los Angeles: BXP's Los Angeles in-service portfolio of approximately 2.3 million square feet was 86.1% occupied and 87.2% leased as of March 31, 2024.
New York: BXP's New York CBD in-service portfolio was approximately 91.5% occupied and 95% leased as of March 31, 2024. The company executed approximately 225,000 square feet of leases in the New York region during the first quarter.
San Francisco: BXP's San Francisco CBD in-service properties were approximately 86.6% occupied and 87.4% leased as of March 31, 2024. The company executed approximately 109,000 square feet of leases in the San Francisco region during the first quarter.
Seattle: BXP's Seattle in-service portfolio, which includes Safeco Plaza and Madison Centre, was approximately 81.8% occupied and 83.1% leased as of March 31, 2024.
Washington, DC: BXP's Washington, DC CBD in-service properties were approximately 86.7% occupied and 88.9% leased as of March 31, 2024. The company executed approximately 336,000 square feet of leases in the Washington, DC region during the first quarter.
Revenue Breakdown and Trends
BXP's total revenue for the first quarter of 2024 was $839.4 million, up 1.3% from the prior-year period. This increase was primarily driven by:Lease Revenue: Lease revenue (excluding termination income) increased by $29.2 million, or 3.9%, to $774.7 million, primarily due to the acquisition of Santa Monica Business Park and 901 New York Avenue.
Parking and Other Revenue: Parking and other revenue increased by $8.0 million, or 34.0%, to $31.4 million, primarily due to the completion and opening of the View Boston observatory at The Prudential Center.
These increases were partially offset by a slight decline in lease revenue from the Same Property Portfolio, which decreased by $1.9 million, or 0.3%, due to a decrease in average occupancy from 90.2% to 89.3%.
Guidance and Outlook
For the full year 2024, BXP has provided guidance for funds from operations (FFO) in the range of $6.98 to $7.10 per share. This represents a reduction of $0.06 per share at the midpoint from the company's prior guidance, primarily due to $0.05 of higher non-cash fair value interest expense and $0.02 of higher interest expense from higher short-term interest rates, partially offset by $0.01 of lower G&A expense.The company expects average in-service portfolio occupancy to range from 87.2% to 88.6% for 2024. Management anticipates occupancy to decline slightly in the second quarter of 2024 before improving in the back half of the year.
Risks and Challenges
BXP faces several risks and challenges, including:- Volatile or adverse global economic and geopolitical conditions, which could adversely affect economic conditions and restrict access to cost-effective capital.
- General risks affecting the real estate industry, such as changes in client preferences, dependence on clients' financial condition, and competition from other developers, owners, and operators.
- Risks and uncertainties affecting property development and construction, including continued inflation, supply chain disruptions, labor shortages, and construction delays.
- Risks associated with the availability and terms of financing, as well as the use of debt to fund acquisitions and developments.
- Risks associated with actual or threatened terrorist attacks and other significant disruptions of the company's information technology networks and systems.
Liquidity
As of March 31, 2024, BXP had approximately $15.4 billion of outstanding consolidated indebtedness, representing approximately 57.2% of its Consolidated Market Capitalization. The company's debt structure includes $9.8 billion in publicly traded unsecured senior notes, $4.4 billion in property-specific mortgage debt, and $1.2 billion outstanding under an unsecured term loan.BXP had available cash of approximately $502.5 million (of which approximately $125.9 million is attributable to its consolidated joint venture partners) and $2.0 billion available under its unsecured revolving credit facility as of March 31, 2024. The company's liquidity and capital resources are sufficient to fund its remaining capital needs on existing development and redevelopment projects, repay maturing indebtedness, satisfy its REIT distribution requirements, and pursue attractive investment opportunities.