No bad stock

Boston Properties, Inc.
CEO : Mr. Owen David Thomas

Quarterly earnings growth(YoY,%)

Michael LaBelle says,

Capital Raising Activities

• Boston Properties has raised $1.35 billion through 3 capital raising activities in different markets, including selling a residential building, issuing green bonds, and extending and upsizing their corporate unsecured term loan.
• The net proceeds raised from these deals are $2.6 billion, increasing the liquidity of the company substantially.

Fourth Quarter Earnings Results

• Reported fourth quarter FFO of $1.86 per diluted share and full year 2022 FFO of $7.53 per diluted share, exceeding street consensus.
• The improvement was primarily from better performance in their portfolio with NOI of about $4 million or $0.02 per share ahead of the forecast.
• Took a $51 million or $0.29 per share non-cash impairment charge in the quarter, reducing the book value of their equity interest in the Dock 72 property located in Brooklyn, New York.
• The outperformance was partially offset by a penny of higher net interest expense related to their $750 million green bond offering that was not part of their original guidance.

Changes to 2023 Guidance

• The two significant changes to the 2023 FFO guidance are the impact of commencing their 290 Binney Street development and the interest expense associated with their new financings.
• The aggregate impact of starting 290 Binney and issuing incremental debt capital will reduce their 2023 FFO by $0.15 per share.
• The projected increases come from higher contribution from their 205th Avenue acquisition and better than projected leasing in their development pipeline, lower net interest expenses due to higher earnings on their cash balances and higher capitalized interest, and higher fee income reflecting higher projected construction management fees.

Overall Outlook

• Despite the projected reduction in FFO of 5% from last year after growing 15% in 2022, Boston Properties remains confident due to their significant pipeline of accretive developments that are expected to deliver over the next few years and the belief that interest rates will become less of a headwind in the future.

Douglas Linde says,

Demand for Office Space

• Overall demand for office space is unlikely to grow in 2023 due to ongoing job reductions in various industries.
• However, labor availability is improving and there is a steady increase in the number of unique occupants in BXP’s portfolio, with a 40% increase in volume compared to last year.
• Utilization of office space ranges from 34% in San Francisco to 58% in New York City.

Bifurcation of Premier and General Office Space

• The bifurcation between premier product and general office space continues to widen, and availability rates only track all of the space, including non-premier spaces that may not be relevant to users.
• Additions of new sublet or direct opportunities in premier space are still happening, such as 181 Fremont Street in San Francisco.
• Conversions will happen, but it will take years, and published statistics will remain sticky.

Occupancy Rates

• Reported in-service occupancy has declined due to the addition of new in-service buildings that have leases that have not commenced and are reported as vacant.
• Reston Next is 69% occupied and 90% leased, while 880 Winter Street is 85% occupied and 97% leased.

Q & A sessions,

Lower Overall Demand and Occupancy

• The speaker thinks that there is less overall demand in the market due to changes in the economy.
• They do not expect positive absorption to occur.
• While they believe they will lease more space than their peers, they think there will be a period of time before tenants start “growing” again.
• Occupancy is expected to start moving up in the second quarter.

Vacancies and Concession Packages

• The company is comfortable handling modest concession packages and strong face rates, even in buildings where there is very little space available.
• They are thinking about different approaches, such as offering free rent, more CapEx, or turnkey builds, to increase occupancy in spaces with vacancies.
• Transaction costs are generally higher due to the high cost of moving or relocating, and landlords are contributing capital in the form of additional free rent or additional TI, rather than the “face rent” on the deal.

First Quarter Performance and Guidance

• The first quarter is expected to be down due to seasonal fluctuations and higher G&A expenses.
• The portfolio is expected to be up slightly overall.
• Interest expenses are expected to be higher in the first quarter than in the fourth quarter due to borrowing more money in the fourth quarter.
• FFO is expected to increase significantly in the second and third quarters due to various factors such as the opening of View Boston and expected occupancy increases.