Boston Properties, Inc. Q1 2010 Earnings Call Transcript

Boston Properties, Inc. Q1 2010 Earnings Call Transcript
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Boston Properties, Inc. (BXP)

Q1 2010 Earnings Call

April 28, 2010 10:00 am ET

Executives

Arista Joyner – Investor Relations Manager

Mortimer B. Zuckerman – Chairman of the Board & Chief Executive Officer

Douglas T. Linde – President & Director

Michael E. LaBella – Chief Financial Officer, Senior Vice President & Treasurer

Raymond A. Ritchey – Executive Vice President & National Director of Acquisitions and Development

Analysts

Michael Bilerman – Citigroup

John Guinee – Stifel Nicolaus & Company

Steve Sakwa – ISI Group

Chris Caton – Morgan Stanley

Ross Nussbaum – UBS Securities

Jordan Sadler – KeyBanc Capital Markets

Jamie Feldman – Bank of America Merrill Lynch

Jay Habermann – Goldman Sachs

Alexander Goldfarb – Sandler O’Neill

Michael Knott – Green Street Advisors, Inc.

Mitch Germaine – JMP Securities

George Auerbach – ISI Group

Presentation

Operator

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Welcome to Boston Properties first quarter earnings call. This call is being recorded. All audience lines are currently in a listen only mode. Our speakers will address your questions at the end of the presentation during the question and answer session. At this time I would like to turn the conference over to Arista Joyner, Investor Relations Manager for Boston Properties. Please go ahead.

Arista Joyner

Welcome to Boston Properties first quarter earnings conference call. The press release and supplemental package were distributed last night as well as furnished on Form 8K. In the supplemental package the company has reconciled all non-GAAP financial measures to the most directly comparable GAAP measure in accordance with Reg. G requirements. If you did not receive a copy these documents are available in the investor relations section of our website at

www.BostonProperties.com

.

An audio webcast of this call will be available for 12 months the investor relations section of our website. At this time we would like to inform you that certain statements made during this conference call which are not historical may constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Although Boston Properties believes the expectations reflected in any forward-looking statements are based on reasonable assumptions it can give no assurance that its expectations will be obtained.

Factors and risks that could cause actual results to differ materially from those expressed or implied by forward-looking statement were detailed in Tuesday’s press release and from time-to-time in the company’s filings with the SEC. The company does not undertake a duty to update any forward-looking statements.

Having said that, I’d like to welcome Mort Zuckerman, Chairman of the Board and Chief Executive Officer; Doug Linde, President; and Michael LaBelle, Chief Financial Officer. Also during the question and answer portion of our call our regional management team will be available to answer questions as well. I would now like to turn the call over to Doug Linde for his formal remarks.

Douglas T. Linde

Mort, I think you’re going to start today, right?

Mortimer B. Zuckerman

Well we are I think continuing to do fairly well as a company in what has been a very, very difficult environment but one which I must say I think is getting somewhat moderated and easier and improving. The economy in general as we all know has been through a very, very difficult patch and the recovery I suspect will be slower than the typical recovery from a different kind of recession, this being a recession that was obviously provoked by a financial crisis that came about as a result of the collapse of the housing market and what it all did to the securitization, the world of securitization and through that the world of finance.

As all of the serious studies of these kinds of recessions that are provoked by a financial crisis indicate recoveries from this kind of recession is longer and slower than the typically recovery from the kinds of recessions we have had since the end of World War II. I guess that’s one reason why this is going to be called the great recession and let’s just hope it’s just a recession and I still think it will just be a recession. We are certainly in an area of the economy that has been affected by it in this sense in that a lot of office building activities of the American business world, the corporate life of America has been under the cost controls and concerns about over expansion I think was spread throughout the business economy.

Nevertheless, I think as I’m sure you’ve heard from us before and probably have heard from other people who are in this world of commercial office space before. We are in the same markets that we have underscored before, namely supply constraint markets. Supply constraint for difference reasons, in Washington it’s because of a height limit, in New York because of the lack of available sites, in Boston because of an unbelievably complicated approval process and in Cambridge because there are no sites, etc. was a lot less difficult to deal with and the demand situation has been affected by the fact that there has been a drop in rents and when these buildings, the better buildings become available at somewhat lower prices there are a lot of tenants that say, “Well, I couldn’t afford it before but I can afford it now.”

I think this is particularly true in our New York activities where we are really in the range of 98% occupancy in terms of either lease space or space that we’re just drawing leases on so we’re in very, very good shape in that market in part because the buildings that we have and if we had more space of that kind I suspect we would continue to do very well with it. If we could add a couple of hundred thousand square feet to any number of our buildings in New York we could lease that space within a matter of a few months.

In that sense, I think we are fairing quite well. We are also trying to position ourselves to take advantage of what opportunities we think will be coming down the pike over the next year or 18 months. Amongst other things, to do this we have been very diligent in terms of trying to take advantage of where we think the financial markets provide very good financing opportunities for us. As you all may know we raised $700 million several weeks ago on what we thought were very, very good terms, just shy of 11 years of maturity and I think the basic rate was somewhere around 5.6% to 5.5%.

Now, the reason why this is valuable for us is I am sure obvious to all of you but I’ll just repeat it, it does give us the opportunity to be in the market for certain opportunities that will be coming forth. That gives us a cost of money that makes it possible for us to get some decent leverage or positive leverage when we can finance them at the kinds of yields that we were able to do on a corporate financing. We really have close to $3 billion in effect in one form or another of available equity to use for activities.

We hope that we will be able to put a good chunk of that money to work over the next year. I think this will be advantageous to the company’s growth over the medium term and over the longer term. So we are I think not in the strongest market we’ve ever been, to put that mildly. There are certain markets as you will hear from subsequent reports which are not as good as say the New York area or the Washington area but frankly we believe that these markets are steadily firming up.

One of the things that is going to contribute to that is that there is very, very, very much reduced new supply coming on the market over the next several years. I would say that the new construction of the kind of office space that is competitive with us has probably dropped at least 80% if not more and I think it will be very difficult for a lot of companies to finance new construction. I think we are going to be in an improving market as demand slowly, slowly begins to increase relative to the amount of available space and the supply is just going to be virtually non-existent.

So we are fairly comfortable, maybe even modestly optimistic about the next several years and what it will mean for us in terms of occupancy and rentals. With that, I will turn this over to Doug who will give you a specific report on the company and then we can have a Q and A afterwards when we’ve given you a detailed report on the company. Thank you all very much for listening.

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