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Boston Properties Announces Second Quarter 2012 Results

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, the Company’s ability to satisfy 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 2012, whether as a result of new information, future events or otherwise.

Financial tables follow.

 
BOSTON PROPERTIES, INC.
CONSOLIDATED BALANCE SHEETS
   
June 30, December 31,
2012 2011
 
(in thousands, except for share amounts)
(unaudited)

ASSETS

 
Real estate $ 13,143,487 $ 12,303,965
Construction in progress 732,734 818,685
Land held for future development 270,169 266,822
Less: accumulated depreciation   (2,781,218 )   (2,642,986 )
Total real estate 11,365,172 10,746,486
 
Cash and cash equivalents 1,671,997 1,823,208
Cash held in escrows 31,381 40,332
Investments in securities 11,036 9,548
Tenant and other receivables, net of allowance for doubtful accounts of $1,834 and $1,766, respectively 43,507 79,838
Related party notes receivable 282,416 280,442
Interest receivable from related party notes receivable 98,866 89,854
Accrued rental income, net of allowance of $2,693 and $2,515, respectively 559,646 522,675
Deferred charges, net 504,475 445,403
Prepaid expenses and other assets 41,480 75,458
Investments in unconsolidated joint ventures   670,653     669,722  
Total assets $ 15,280,629   $ 14,782,966  
 

LIABILITIES AND EQUITY

 
Liabilities:
Mortgage notes payable $ 2,877,125 $ 3,123,267
Unsecured senior notes, net of discount 4,863,413 3,865,186
Unsecured exchangeable senior notes, net of discount 1,155,669 1,715,685
Unsecured line of credit - -
Accounts payable and accrued expenses 163,496 155,139
Dividends and distributions payable 93,353 91,901
Accrued interest payable 61,947 69,105
Other liabilities   308,354     293,515  
Total liabilities   9,523,357     9,313,798  
 
Commitments and contingencies   -     -  
 
Noncontrolling interest:
Redeemable preferred units of the Operating Partnership   51,537     55,652  
 
Equity:
Stockholders' equity attributable to Boston Properties, Inc.
Excess stock, $.01 par value, 150,000,000 shares authorized, none issued or outstanding - -
Preferred stock, $.01 par value, 50,000,000 shares authorized, none issued or outstanding - -
Common stock, $.01 par value, 250,000,000 shares authorized, 150,794,602 and 148,186,511 shares
issued and 150,715,702 and 148,107,611 shares outstanding at June 30, 2012 and December 31,
2011, respectively 1,507 1,481
Additional paid-in capital 5,184,710 4,936,457
Dividends in excess of earnings (34,463 ) (53,080 )
Treasury common stock, at cost (2,722 ) (2,722 )
Accumulated other comprehensive loss   (14,978 )   (16,138 )
Total stockholders' equity attributable to Boston Properties, Inc. 5,134,054 4,865,998
 
Noncontrolling interests:
Common units of the Operating Partnership 573,241 548,581
Property partnerships (1,560 ) (1,063 )
           
Total equity   5,705,735     5,413,516  
           
Total liabilities and equity $ 15,280,629   $ 14,782,966  
 
BOSTON PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
       
Three months ended Six months ended
June 30, June 30,
2012 2011 2012 2011
 
(in thousands, except for per share amounts)
 
Revenue
Rental
Base rent $ 372,285 $ 346,515 $ 728,376 $ 684,122
Recoveries from tenants 57,475 48,255 109,222 93,495
Parking and other   23,524     21,098     45,951     40,159  
Total rental revenue 453,284 415,868 883,549 817,776
Hotel revenue 10,049 8,904 16,865 14,852
Development and management services   9,564     9,095     17,710     16,521  
Total revenue   472,897     433,867     918,124     849,149  
 
Expenses
Operating
Rental 161,853 143,633 318,299 282,524
Hotel 6,616 6,281 12,715 12,020
General and administrative 19,066 18,721 46,685 43,364
Transaction costs 8 1,361 2,112 1,433
Depreciation and amortization   111,643     110,259     220,583     218,852  
Total expenses   299,186     280,255     600,394     558,193  
 
Operating income 173,711 153,612 317,730 290,956
Other income (expense)
Income from unconsolidated joint ventures 21,191 8,882 32,912 16,858
Interest and other income 2,382 1,953 4,028 2,927
Gains (losses) from investments in securities (186 ) 6 615 379
Gains from early extinguishments of debt 274 - 1,041 -
Interest expense   (99,901 )   (94,583 )   (203,138 )   (193,108 )
Income from continuing operations 97,471 69,870 153,188 118,012
Discontinued operations
Income (loss) from discontinued operations 398 (132 ) 884 (80 )
Gain on sale of real estate from discontinued operations 36,877

-

36,877

-

Gain on forgiveness of debt from discontinued operations   -     -     17,807     -  
Net income 134,746 69,738 208,756 117,932
Net income attributable to noncontrolling interests
Noncontrolling interests in property partnership (457 ) (503 ) (1,003 ) (1,032 )
Noncontrolling interest - redeemable preferred units of the Operating
Partnership (765 ) (842 ) (1,566 ) (1,665 )
Noncontrolling interest - common units of the Operating Partnership (10,360 ) (8,194 ) (16,400 ) (14,296 )
Noncontrolling interest in discontinued operations - common units of the
Operating Partnership   (4,094 )   15     (6,115 )   10  
Net income attributable to Boston Properties, Inc. $ 119,070   $ 60,214   $ 183,672   $ 100,949  
 
Basic earnings per common share attributable to Boston Properties, Inc.:
Income from continuing operations $ 0.57 $ 0.41 $ 0.90 $ 0.70
Discontinued operations   0.22     -     0.33     -  
Net income $ 0.79   $ 0.41   $ 1.23   $ 0.70  
 
Weighted average number of common shares outstanding   150,312     145,864     149,328     143,990  
 
Diluted earnings per common share attributable to Boston Properties, Inc.:
Income from continuing operations $ 0.57 $ 0.41 $ 0.90 $ 0.70
Discontinued operations   0.22     -     0.33     -  
Net income $ 0.79   $ 0.41   $ 1.23   $ 0.70  
 
Weighted average number of common and common equivalent shares
outstanding   150,694     146,695     149,720     144,610  
 
BOSTON PROPERTIES, INC.
FUNDS FROM OPERATIONS (1)
(Unaudited)
       
Three months ended Six months ended
June 30, June 30,
2012 2011 2012 2011
 
(in thousands, except for per share amounts)
 
Net income attributable to Boston Properties, Inc. $ 119,070 $ 60,214 $ 183,672 $ 100,949
 
Add:
Noncontrolling interest in discontinued operations -
common units of the Operating Partnership 4,094 (15 ) 6,115 (10 )
Noncontrolling interest - common units of the Operating
Partnership 10,360 8,194 16,400 14,296
Noncontrolling interest - redeemable preferred units of
the Operating Partnership 765 842 1,566 1,665
Noncontrolling interests in property partnerships 457 503 1,003 1,032
Less:
Income (loss) from discontinued operations 398 (132 ) 884 (80 )
Gain on sale of real estate from discontinued operations 36,877 - 36,877 -
Gain on forgiveness of debt from discontinued operations   -     -     17,807     -  
 
Income from continuing operations 97,471 69,870 153,188 118,012
 
Add:
Real estate depreciation and amortization (2) 135,030 137,495 267,520 273,599
Income (loss) from discontinued operations 398 (132 ) 884 (80 )
Less:
Noncontrolling interests in property partnership's share
of funds from operations 956 966 1,966 1,959
Noncontrolling interest - redeemable preferred units of
the Operating Partnership   765     842     1,566     1,665  
 
Funds from operations (FFO) attributable to the Operating
Partnership 231,178 205,425 418,060 387,907
 
Less:
Noncontrolling interest - common units of the Operating
Partnership's share of funds from operations   24,361     23,856     44,327     46,420  
 
Funds from operations attributable to Boston Properties, Inc. $ 206,817   $ 181,569   $ 373,733   $ 341,487  
 
Boston Properties, Inc.'s percentage share of funds from
operations - basic   89.46 %   88.39 %   89.40 %   88.03 %
 
Weighted average shares outstanding - basic   150,312     145,864     149,328     143,990  
 
FFO per share basic $ 1.38   $ 1.24   $ 2.50   $ 2.37  
 
Weighted average shares outstanding - diluted   152,047     148,156     151,093     146,071  
 
FFO per share diluted $ 1.37   $ 1.23   $ 2.49   $ 2.35  
   
(1) Pursuant to the revised definition of Funds from Operations adopted by the Board of Governors of the National Association of Real Estate Investment Trusts (“NAREIT”), we calculate Funds from Operations, or “FFO,” by adjusting net income (loss) attributable to Boston Properties, Inc. (computed in accordance with GAAP, including non-recurring items) for gains (or losses) from sales of properties, impairment losses on depreciable real estate of consolidated real estate, impairment losses on investments in unconsolidated joint ventures driven by a measurable decrease in the fair value of depreciable real estate held by the unconsolidated joint ventures, real estate related depreciation and amortization, and after adjustment for unconsolidated partnerships and joint ventures. FFO is a non-GAAP financial measure. The use of FFO, combined with the required primary GAAP presentations, has been fundamentally beneficial in improving the understanding of operating results of REITs among the investing public and making comparisons of REIT operating results more meaningful. Management generally considers FFO to be a useful measure for reviewing our comparative operating and financial performance because, by excluding gains and losses related to sales of previously depreciated operating real estate assets, impairment losses and real estate asset depreciation and amortization (which can vary among owners of identical assets in similar condition based on historical cost accounting and useful life estimates), FFO can help one compare the operating performance of a company's real estate between periods or as compared to different companies.
 
Our computation of FFO may not be comparable to FFO reported by other REITs or real estate companies that do not define the term in accordance with the current NAREIT definition or that interpret the current NAREIT definition differently.
 
FFO should not be considered as an alternative to net income attributable to Boston Properties, Inc. (determined in accordance with GAAP) as an indication of our performance. FFO does not represent cash generated from operating activities determined in accordance with GAAP, and is not a measure of liquidity or an indicator of our ability to make cash distributions. We believe that to further understand our performance, FFO should be compared with our reported net income attributable to Boston Properties, Inc. and considered in addition to cash flows in accordance with GAAP, as presented in our consolidated financial statements.
 
(2) Real estate depreciation and amortization consists of depreciation and amortization from the Consolidated Statements of Operations of $111,643, $110,259, $220,583 and $218,852, our share of unconsolidated joint venture real estate depreciation and amortization of $23,513, $26,680, $46,634 and $53,745, and depreciation and amortization from discontinued operations of $243, $821, $1,040 and $1,656, less corporate-related depreciation and amortization of $369, $265, $737 and $654 for the three and six months ended June 30, 2012 and 2011, respectively.
BOSTON PROPERTIES, INC.
PROJECTED ANNUALIZED 2012 RETURNS ON
OPERATING PROPERTY ACQUISITION
FOR THE THREE MONTHS ENDING DECEMBER 31, 2012
(dollars in thousands)
     
Fountain
Square
 
Base rent and recoveries from tenants $ 8,286
Straight-line rent 551
Fair value lease revenue (144 )
Other income   185  
Total rental revenue 8,878
 
Operating Expenses 3,068
     
Revenue less Operating Expenses 5,810
 
Interest expense 3,015
Fair value interest expense (1,553 )
Depreciation and amortization 5,486
     
Net loss $ (1,138 )
 
Add:
Interest expense 3,015
Fair value interest expense (1,553 )
Depreciation and amortization 5,486
     
Unleveraged FFO (1) $ 5,810
 
Less:
Straight-line rent (551 )
Fair value lease revenue 144
     
Unleveraged Cash $ 5,403
 
Purchase price $ 385,000
Estimated closing and other costs   800  
Total Unleveraged Investment $ 385,800
 
Annualized Unleveraged FFO Return (1) 6.0 %
 
Annualized Unleveraged Cash Return (2) 5.6 %
 

Note: the Company will own a nominal 50% interest in the consolidated joint venture.

 

(1) Pursuant to the revised definition of Funds from Operations adopted by the Board of Governors of the National Association of Real Estate Investment Trusts (“NAREIT”), we calculate Funds from Operations, or “FFO,” by adjusting net income (loss) (computed in accordance with GAAP, including non-recurring items) for gains (or losses) from sales of properties, impairment losses on depreciable real estate of consolidated real estate, impairment losses on investments in unconsolidated joint ventures driven by a measurable decrease in the fair value of depreciable real estate held by the unconsolidated joint ventures, real estate related depreciation and amortization, and after adjustment for unconsolidated partnerships and joint ventures. FFO is a non-GAAP financial measure. Unleveraged FFO excludes, among other items, interest expense, which may vary depending on the level of corporate debt or property-specific debt. Annualized Unleveraged FFO Return is also a non-GAAP financial measure that is determined by dividing (A) Unleveraged FFO (based on annualizing the projected results for the three months ending December 31, 2012) by (B) the Company's Total Unleveraged Investment. Management believes projected Annualized Unleveraged FFO Return is a useful measure in the real estate industry when determining the appropriate purchase price for a property or estimating a property's value. When evaluating acquisition opportunities, management considers, among other factors, projected Annualized Unleveraged FFO Return because it excludes, among other items, interest expense (which may vary depending on the level of corporate debt or property-specific debt), as well as depreciation and amortization expense (which can vary among owners of identical assets in similar condition based on historical cost accounting and useful life estimates). Other factors that management considers include its cost of capital and available financing alternatives. Other companies may compute FFO, Unleveraged FFO and Annualized Unleveraged FFO Return differently and these are not indicators of a real estate asset’s capacity to generate cash flow.
 
(2) Annualized Unleveraged Cash Return is a non-GAAP financial measure that is determined by dividing (A) Unleveraged Cash (based on annualizing the projected results for the three months ending December 31, 2012) by (B) the Company's Total Unleveraged Investment. Other real estate companies may calculate this return differently. Management believes that projected Annualized Unleveraged Cash Return is also a useful measure of a property's value when used in addition to Annualized Unleveraged FFO Return because, by eliminating the effect of straight-lining of rent and the treatment of in-place above- and below-market leases, it enables an investor to assess the projected cash on cash return from the property over the forecasted period.
 
Management is presenting these projected returns and related calculations to assist investors in analyzing the Company's acquisition. Management does not intend to present this data for any other purpose, for any other period or for its other properties, and is not intending for these measures to otherwise provide information to investors about the Company's financial condition or results of operations. The Company does not undertake a duty to update any of these projections. There can be no assurance that actual returns will not differ materially from these projections.
 
BOSTON PROPERTIES, INC.
PORTFOLIO LEASING PERCENTAGES
   
 
 
% Leased by Location
June 30, 2012 December 31, 2011
Boston 90.6% 87.1%
New York 95.6% 97.8%
Princeton 75.8% 75.8%
San Francisco 89.7% 87.9%
Washington, DC 94.3% 96.9%
Total Portfolio 91.6% 91.3%
 
 
 
% Leased by Type
June 30, 2012 December 31, 2011
Class A Office Portfolio 91.5% 91.3%
Office/Technical Portfolio 94.6% 92.6%
Total Portfolio 91.6% 91.3%




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