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    BXP Inc (BXP)

    Business Description

    BXP is one of the largest publicly traded office real estate investment trusts (REITs) in the U.S., primarily focused on developing, owning, and managing premier workplaces. The company's properties are concentrated in six major U.S. gateway markets: Boston, Los Angeles, New York, San Francisco, Seattle, and Washington, DC . BXP generates revenue mainly through leasing these premier workplaces to clients, emphasizing long-term leases with financially strong clients across diverse market sectors . Additionally, BXP earns revenue from its View Boston observatory at The Prudential Center, hotel operations, and management and development fees from joint ventures and third-party property owners .

    1. Leasing of Premier Workplaces - Generates revenue by leasing office spaces in major U.S. gateway markets, focusing on long-term agreements with financially robust clients .
    2. View Boston Observatory - Includes ticket sales, special events, food and beverage, and merchandise sales at The Prudential Center .
    3. Hotel Operations - Earns revenue from room rentals and other guest services .
    4. Management and Development Fees - Provides management and development services to unconsolidated joint ventures and third-party property owners .

    Q2 2024 Summary

    Initial Price$65.35April 1, 2024
    Final Price$60.69July 1, 2024
    Price Change$-4.66
    % Change-7.13%

    What went well

    • Expected occupancy growth to boost same-store NOI: BXP anticipates that occupancy will grow next year, positively impacting same-store NOI as leasing volumes exceed current lease expirations.
    • Successful amenity upgrades driving tenant demand and retention: The company has completed significant amenity improvements across its portfolio, which have been well received and are leading to increased tenant demand, higher utilization, and improved retention rates.
    • Pursuing residential development projects with attractive yields and joint venture partnerships: BXP is actively pursuing residential developments on land they control, targeting yields in the mid-6% range or higher, and plans to bring in joint venture partners, enhancing future growth opportunities.

    What went wrong

    • Occupancy Decline Leading to Lower Same-Store NOI: BXP experienced a decline in occupancy in 2024 compared to the previous year, resulting in a modest decrease in same-store NOI. The company acknowledges uncertainty in the timing of occupancy growth, which may continue to impact financial performance.
    • Elevated Leverage and Refinancing Risks: BXP's leverage ratio has increased due to funding of development projects that won't deliver for several years. The leverage is expected to remain higher than their typical target for the next several quarters, raising concerns about refinancing debt at potentially higher interest rates.
    • Delays in Development Projects and Potential Earnings Impact: The company has pushed back stabilization dates on several development projects. With capitalization of interest and expenses ceasing 12 months after base building completion, projects that are not fully leased may negatively affect earnings, as expenses will be recognized without corresponding revenue.

    Q&A Summary

    1. Occupancy Guidance and 2025 Outlook
      Q: How will occupancy and leasing activity trend into 2025?
      A: Occupancy is expected to increase over time, but it's hard to project exactly when it will materially improve. The trajectory is upward, and if we end the year in the mid-87% range, we could reach 88% occupancy in 2025.

    2. Leverage and Refinancing Concerns
      Q: What's the trajectory for leverage over the next 6–12 months?
      A: Our leverage ratio is temporarily higher due to funding our development pipeline. As these developments deliver and start generating EBITDA, leverage will moderate by a full turn, bringing it back down to 6.5x to 7.5x, our typical target range. We expect to stay higher than that for the next several quarters but anticipate moderation as projects stabilize.

    3. Office Market Activity and Acquisitions
      Q: Is transaction activity in the office market picking up, potentially involving foreclosures?
      A: There's been very limited foreclosure activity for premier assets. However, we're seeing increased testing of the market with certain buildings being offered. It's interesting to see if the bid-ask spread will be bridged; so far, owners haven't accepted current bids.

    4. Tech and Life Science Leasing Recovery
      Q: When will tech and life science leasing return to normal?
      A: On the tech side, it's about companies investing in real estate relative to their human capital. The pipeline of funding is being raised, but it takes time to translate into growth. We anticipate more job creation in life science and technology sectors, but the timing is uncertain.

    5. Capital Expenditure Plans
      Q: What's the update on CapEx plans given higher lease commencements?
      A: Maintenance CapEx will run between $80 million and $100 million this year, in line with historical averages. Repositioning CapEx is more meaningful this year, primarily at 200 Clarendon Street.

    6. Development Project Delays
      Q: How do you view lease-up periods for delayed development projects?
      A: Stabilization dates assume 85% occupancy. We expect leasing to occur 12 to 18 months prior to stabilization, with tenants moving in as space is built out. We stop capitalizing interest 12 months after the base building is completed.

    7. Terminations and Impact
      Q: Can you provide details on recent lease terminations?
      A: One termination impacts 20,000 square feet of occupancy in the near term. Another tenant is downsizing and relocating within our portfolio. We've secured new tenants for these spaces, offsetting the impact.

    8. Net Effective Rent Growth
      Q: When will net effective rents for premier assets pick up?
      A: In the Park Avenue submarket, net effective rents are higher today than six months ago and higher than a year ago. Vacancy is less than 8%, leading to increased face rates and stable concessions, which boosts net effectives.

    9. Premium Product Leasing and Renewals
      Q: Is the leasing pickup focused on premium products, and how much is renewal?
      A: The pickup is clearly in premier buildings. About 40% of our leasing is added occupancy, with the rest being renewals. We have visibility into renewals for 2025 and 2026.

    10. Operating Expense Growth
      Q: Why were operating expenses elevated in the same-store portfolio?
      A: Operating expenses were less than expected but increased slightly due to utilities and repair and maintenance in the second quarter. We anticipate higher expenses seasonally in the third quarter due to weather conditions.

    11. New Apartment Developments
      Q: What yields are expected on new apartment developments, and how will they be funded?
      A: We're targeting mid-6% yields and higher on projects mostly on land we control. We'll likely bring in joint venture partners, keeping a percentage similar to our 20% ownership in the Skymark project.

    12. Amenity Upgrades in Buildings
      Q: Is it time to re-engage in amenity upgrades given leasing pickup?
      A: We've effectively upgraded almost every building, with projects either underway or nearly complete. These upgrades are demanded by tenants and are essential for retention and attracting new leases.

    13. Election Impact on Business
      Q: Are there regulatory changes from the election that could impact the business?
      A: We don't foresee significant differences at the federal level. State and local elections have a larger impact, particularly regarding real estate taxes, entitlements, transit, and public safety.

    14. Same-Store NOI Outlook
      Q: How will commencements and expirations affect same-store NOI next year?
      A: Same-store NOI is modestly down this year due to lower occupancy. We expect some occupancy growth next year, which should help improve same-store NOI.

    15. Forward Earnings Growth and Leasing
      Q: How does corporate earnings growth translate to leasing activity?
      A: There's a clear correlation between S&P 500 earnings growth and our leasing activity. As companies grow and become healthier, they're more likely to hire and lease space. This holds true even with tech companies being cautious.

    Key Metrics

    View all financials →
    Revenue by Segment - in Millions of USDFY 2013Q1 2014Q2 2014Q3 2014Q4 2014FY 2014Q1 2015Q2 2015Q3 2015Q4 2015FY 2015Q1 2016Q2 2016Q3 2016Q4 2016FY 2016Q1 2017Q2 2017Q3 2017Q4 2017FY 2017Q1 2018Q2 2018Q3 2018Q4 2018FY 2018Q1 2019Q2 2019Q3 2019Q4 2019FY 2019Q1 2020Q2 2020Q3 2020Q4 2020FY 2020Q1 2021Q2 2021Q3 2021Q4 2021FY 2021Q1 2022Q2 2022Q3 2022Q4 2022FY 2022Q1 2023Q2 2023Q3 2023Q4 2023FY 2023Q1 2024Q2 2024Q3 2024
    Lease756.875761.733767.181768.913,054.7788.59790.6799.471
    - Termination Income--------
    Parking and Other24.00926.98430.42831.48112.932.21634.634.255
    Hotel8.10113.96913.48411.8547.48.18614.815.082
    Development and Management Services8.9809.8589.28412.7840.96.1546.46.770
    Direct Reimbursements5.2354.6093.9064.0517.84.2934.13.649
    - Base Rent--------
    - Recoveries from Tenants--------
    Total Revenue803.200817.153824.283828.963,273.6839.439850.5859.227
    Revenue by Geography - in Millions of USDFY 2013Q1 2014Q2 2014Q3 2014Q4 2014FY 2014Q1 2015Q2 2015Q3 2015Q4 2015FY 2015Q1 2016Q2 2016Q3 2016Q4 2016FY 2016Q1 2017Q2 2017Q3 2017Q4 2017FY 2017Q1 2018Q2 2018Q3 2018Q4 2018FY 2018Q1 2019Q2 2019Q3 2019Q4 2019FY 2019Q1 2020Q2 2020Q3 2020Q4 2020FY 2020Q1 2021Q2 2021Q3 2021Q4 2021FY 2021Q1 2022Q2 2022Q3 2022Q4 2022FY 2022Q1 2023Q2 2023Q3 2023Q4 2023FY 2023Q1 2024Q2 2024Q3 2024
    Boston282.101287.557293.835294.161,157.649292.848304.44319.914
    Los Angeles0.0000.0000.0003.893.89020.40118.4718.661
    New York258.192262.979268.680263.761,053.615260.809261.81258.295
    San Francisco139.735140.105139.053135.11554.006136.572135.03132.081
    Seattle14.25817.06013.66018.8563.83010.91010.5210.821
    Washington, DC94.69994.98595.86596.41381.958107.452109.72109.036
    Princeton--------
    - Office Revenue-------821.609
    - Residential Revenue-------12.117
    - Hotel Revenue-------15.082
    Total Revenue788.985817.153811.093856.343,273.569828.992839.98859.227
    KPIs - Metric / QuarterFY 2013Q1 2014Q2 2014Q3 2014Q4 2014FY 2014Q1 2015Q2 2015Q3 2015Q4 2015FY 2015Q1 2016Q2 2016Q3 2016Q4 2016FY 2016Q1 2017Q2 2017Q3 2017Q4 2017FY 2017Q1 2018Q2 2018Q3 2018Q4 2018FY 2018Q1 2019Q2 2019Q3 2019Q4 2019FY 2019Q1 2020Q2 2020Q3 2020Q4 2020FY 2020Q1 2021Q2 2021Q3 2021Q4 2021FY 2021Q1 2022Q2 2022Q3 2022Q4 2022FY 2022Q1 2023Q2 2023Q3 2023Q4 2023FY 2023Q1 2024Q2 2024Q3 2024
    **Net Rentable Square Feet of 901 New York Avenue**544,256544,256548,346548,425-523,939524,000509,088
    **Net Rentable Square Feet of 760 Boylston Street**118,000118,000118,000118,000-118,000118,000118,000
    **Net Rentable Square Feet of 100 Causeway Street**-634,000634,000634,000--634,000633,818
    **Termination Income**$0.2 million$(164,000)$2.3 million$10,485,000-$5,319,000$0.8 million$5.7 million
    **Parking and Other Revenue**$23,463,000$26,886,000$29,649,000$30,676,000-$29,693,000$33.89 million$34.255 million
    **Real Estate Operating Expenses**-$540,020,000-$1,095,353,000-$292,630,000$3,106,000$3,043,000

    Executive Team

    NamePositionStart DateShort Bio
    Owen D. ThomasChairman of the Board and Chief Executive OfficerApril 2013Owen D. Thomas has been a director and CEO of Boston Properties, Inc. since April 2013. He has over 35 years of experience in the real estate industry, with previous roles at Morgan Stanley, including CEO of Morgan Stanley Asia Ltd. .
    Douglas T. LindePresidentMay 2007Douglas T. Linde has been the President of BXP since May 2007. He joined BXP in January 1997 and has held various positions, including CFO and Treasurer. He has over 37 years of experience in real estate .
    Raymond A. RitcheySenior Executive Vice PresidentJanuary 2016Raymond A. Ritchey has been with BXP since 1980 and has served as Senior Executive Vice President since January 2016. He supports BXP's regional businesses and coordinates leasing and client relationships .
    Michael E. LaBelleExecutive Vice President, Chief Financial Officer & TreasurerJanuary 2016Michael E. LaBelle has been the EVP, CFO & Treasurer of BXP since January 2016. He oversees finance, accounting, tax, and investor relations, among other responsibilities. He joined BXP in March 2000 .
    Bryan J. KoopExecutive Vice President, Boston RegionJanuary 2016Bryan J. Koop has been the EVP, Boston Region of BXP since January 2016. He oversees BXP's Boston area operations and joined BXP in 1999 .
    Rodney C. DiehlExecutive Vice President, West Coast RegionsFebruary 2024Rodney C. Diehl has been the EVP, West Coast Regions of BXP since February 2024. He oversees operations in the San Francisco Bay Area, Los Angeles, and Seattle regions .
    Peter V. OtteniExecutive Vice President, Co-Head of the Washington, DC RegionJanuary 2022Peter V. Otteni has been with BXP since 2000 and serves as EVP, Co-Head of the Washington, DC Region. He has held various positions at BXP, including VP, Development .
    Hilary J. SpannExecutive Vice President, New York RegionSeptember 2021Hilary J. Spann has been the EVP, New York Region of BXP since September 2021 and became the Head of the New York Region in January 2022. She oversees all activities in New York and Princeton, NJ .
    John J. StromanExecutive Vice President, Co-Head of the Washington, DC RegionJanuary 2022John J. Stroman has been the EVP, Co-Head of the Washington, DC Region at BXP since January 2022. He oversees leasing, legal, and property management activities for the region .
    Donna D. GareschéExecutive Vice President, Chief Human Resources OfficerFebruary 2023Donna D. Garesché has been with BXP since 2010 and serves as EVP, Chief Human Resources Officer since February 2023. She leads BXP's human capital strategy .
    Eric G. KevorkianSenior Vice President, Chief Legal Officer & SecretaryJune 2022Eric G. Kevorkian has been the SVP, Chief Legal Officer & Secretary of BXP since June 2022. He oversees legal and risk management departments and has been with BXP since 2003 .
    Michael R. WalshSenior Vice President, Chief Accounting OfficerMay 2016Michael R. Walsh has been the SVP, Chief Accounting Officer of BXP since May 2016. He oversees financial reporting, property accounting, and tax compliance .

    Questions to Ask Management

    1. With leverage expected to remain elevated over the next several quarters due to your development pipeline funding, how are you addressing potential concerns from credit rating agencies, and what measures are you taking to mitigate refinancing risks in a higher interest rate environment?
    2. Given the decline in same-store NOI driven by lower occupancy rates, despite leasing efforts, what specific strategies are you implementing to reverse this trend, and how confident are you in achieving the projected occupancy growth next year?
    3. As operating expenses have increased due to higher utilities and repair and maintenance costs, and are expected to rise further in the third quarter, how are you managing these costs to protect your margins, and what impact do you anticipate on your financial performance for the remainder of the year?
    4. Considering the limited acquisition opportunities in the premier workplace segment and the current bid-ask spread preventing transactions, how do you plan to achieve growth through acquisitions, and are you adjusting your investment criteria to capitalize on potential market dislocations?
    5. With rising construction and capital costs challenging the feasibility of new residential developments and not all projects meeting your target yields, how are you prioritizing these projects, and what alternative strategies are you exploring to achieve the mid-6% yields you're seeking?

    Past Guidance

    Q2 2024 Earnings Call

    • Issued Period: Q2 2024
    • Guided Period: FY 2024
    • Guidance:
      1. Funds from Operations (FFO): $7.09 to $7.15 per share, midpoint $7.12 per share, increased by $0.08 per share over prior guidance midpoint .
      2. Termination Income: $14 million to $16 million, increased by $8 million .
      3. Same-Property NOI Growth: Negative 1.5% to negative 3% from 2023 .
      4. Net Interest Expense: $578 million to $588 million .

    Q1 2024 Earnings Call

    • Issued Period: Q1 2024
    • Guided Period: FY 2024
    • Guidance:
      1. Funds From Operations (FFO): $6.98 to $7.10 per share, reduced by $0.06 per share at the midpoint .
      2. Interest Rate Assumptions: Additional $0.05 per share of noncash fair value interest expense .
      3. Occupancy and Same-Store NOI: Occupancy expected to decline slightly before improving; same-property NOI growth negative 1% to 3% .
      4. General and Administrative (G&A) Expense: Reduced by $0.01 per share .
      5. Fee Income Projection: Modest reduction .

    Q4 2023 Earnings Call

    • Issued Period: Q4 2023
    • Guided Period: FY 2024
    • Guidance:
      1. FFO Guidance: $7.00 to $7.20 per share, $0.18 per share decrease from 2023 .
      2. Net Interest Expense: $570 million to $590 million, $72 million increase at midpoint .
      3. Fee Income: $25 million to $28 million .
      4. Same-Property NOI Growth: Negative 1% to negative 3% .
      5. Development Contributions: $35 million to $42 million, or $0.20 to $0.24 per share .
      6. Occupancy: 87.2% to 88.6% .
      7. Interest Rate Assumptions: 75 basis points of Fed cuts modeled .

    Q3 2024 Earnings Call

    • Issued Period: Q3 2024
    • Guided Period: N/A
    • Guidance: The documents do not contain information about BXP's guidance from the Q3 2024 earnings call. Therefore, I cannot provide the guidance for Q3 2024.