News Release Details

Reports diluted FFO per share of $1.41
Reports diluted EPS of $1.20

BOSTON--(BUSINESS WIRE)--Oct. 29, 2015-- Boston Properties, Inc. (NYSE: BXP), a real estate investment trust, reported results today for the third quarter ended September 30, 2015.

Funds from Operations (FFO) for the quarter ended September 30, 2015 were $217.3 million, or $1.41 per share basic and $1.41 per share diluted. This compares to FFO for the quarter ended September 30, 2014 of $223.4 million, or $1.46 per share basic and $1.46 per share diluted. The weighted average number of basic and diluted shares outstanding totaled approximately 153,595,000 and 153,786,000, respectively, for the quarter ended September 30, 2015 and 153,120,000 and 153,273,000, respectively, for the quarter ended September 30, 2014.

The Company’s reported FFO of $1.41 per share diluted was greater than the guidance previously provided of $1.34-$1.36 per share diluted primarily due to better than expected portfolio operations of $0.02 per share, lease termination income of $0.03 per share and development and management services income of $0.01 per share.

Net income available to common shareholders was $184.1 million for the quarter ended September 30, 2015, compared to $127.7 million for the quarter ended September 30, 2014. Net income available to common shareholders per share (EPS) for the quarter ended September 30, 2015 was $1.20 basic and $1.20 on a diluted basis. This compares to EPS for the quarter ended September 30, 2014 of $0.83 basic and $0.83 on a diluted basis.

The reported results are unaudited and there can be no assurance that the results will not vary from the final unaudited information for the quarter ended September 30, 2015. In the opinion of management, all adjustments considered necessary for a fair presentation of these reported results have been made.

As of September 30, 2015, the Company’s portfolio consisted of 171 properties aggregating approximately 46.6 million square feet, including 14 properties under construction/redevelopment totaling approximately 4.7 million square feet. The overall percentage of leased space for the 154 properties in service (excluding the Company’s two residential properties and hotel) as of September 30, 2015 was 91.3%.

Significant events during the third quarter included:

• The Company entered into forward-starting interest rate swap contracts, including one contract entered into subsequent to September 30, 2015, which fix the 10-year swap rate on notional amounts aggregating $225.0 million. The Company has now entered into forward-starting interest rate swap contracts which fix the 10-year swap rate at a weighted-average rate of approximately 2.423% per annum on notional amounts aggregating $550.0 million. The interest rate swap contracts were entered into in advance of a financing with a target commencement date in September 2016 and maturity in September 2026.
• The Company’s 767 Fifth Partners LLC consolidated entity (the entity in which the Company has a 60% interest and that owns 767 Fifth Avenue (the General Motors Building) in New York City) entered into forward-starting interest rate swap contracts, including one contract entered into subsequent to September 30, 2015, which fix the 10-year swap rate on notional amounts aggregating $125.0 million. 767 Fifth Partners LLC has now entered into forward-starting interest rate swap contracts which fix the 10-year swap rate at a weighted-average rate of approximately 2.762% per annum on notional amounts aggregating $275.0 million. These interest rate swap contracts were entered into in advance of a financing with a target commencement date in June 2017 and maturity in June 2027.
• On July 23, 2015, the Company commenced construction of its Cambridge Residential project, a residential project aggregating approximately 164,000 square feet comprised of 274 apartment units and approximately 9,000 square feet of retail space located in Cambridge, Massachusetts. On August 13, 2015, the Company acquired an approximately 8,700 square foot parcel of land necessary for the development for a purchase price of approximately $2.0 million.
• On July 23, 2015, the Company commenced construction of its Reston Signature Site project, a residential project aggregating approximately 514,000 square feet comprised of 508 apartment units and approximately 24,000 square feet of retail space located in Reston Town Center in Reston, Virginia.
• On July 31, 2015, the Company entered into a 99-year ground and air rights lease (the “Lease”) with the Massachusetts Department of Transportation (“MDOT”) with respect to the parking garage located at 100 Clarendon Street (the “Clarendon Garage”) and the concourse level of the Massachusetts Bay Transportation Authority’s Back Bay Station (the “Station”). The Lease amends and restates the air rights lease which the Company had assumed in 2010 at the time it acquired its interests in both the Clarendon Garage and the office tower located at 200 Clarendon Street (formerly known as the John Hancock Tower). The Lease requires the Company to pay a total of approximately $37.0 million and provides the Company with options to acquire certain air rights above both the Clarendon Garage and the Station with the amount of developable square footage associated with the air rights to be determined at a later date. The previous lease had 45 years remaining in its term. Upon execution of the Lease, the Company made a $5.0 million payment and the Lease requires the Company’s remaining obligation to be used to fund improvements to the Station.

• On August 14, 2015, the Company partially placed in-service 601 Massachusetts Avenue, a Class A office project with approximately 478,000 net rentable square feet located in Washington, DC. The property is 87% leased.
• On September 9, 2015, the Company received a third interim distribution from its unsecured creditor claim against Lehman Brothers, Inc. totaling approximately $3.6 million, leaving a remaining claim of approximately $29.4 million that the Company believes has a market value of approximately $2.5 million. There can be no assurance as to the timing or amount of additional proceeds, if any, that the Company may ultimately realize on the claim.
• On September 10, 2015, the Company partially placed in-service The Point, a retail project with approximately 17,000 net rentable square feet of retail space located in Waltham, Massachusetts. The property is 84% leased.
• On September 15, 2015, the Company acquired its partner’s 50% interest in the consolidated entity that owns Fountain Square located in Reston Town Center in Reston, Virginia for cash of approximately $100.9 million and the partner’s share of assumed mortgage indebtedness totaling approximately $105.6 million. Fountain Square is an office and retail complex aggregating approximately 759,000 net rentable square feet, comprised of approximately 522,000 net rentable square feet of Class A office space and approximately 237,000 net rentable square feet of retail space.
• On September 18, 2015, a consolidated entity in which the Company has a 50% interest completed the sale of its 505 9th Street, N.W. property located in Washington, DC for approximately $318.0 million, including the assumption by the buyer of approximately $117.0 million of mortgage indebtedness. Net cash proceeds totaled approximately $194.6 million, of which the Company’s share was approximately $97.3 million. The Company recognized a gain on sale of real estate totaling approximately $199.5 million, of which approximately $101.1 million was allocated to the outside partners and is included within noncontrolling interests in property partnerships in the Company’s consolidated statements of operations. 505 9th Street, N.W. is an approximately 322,000 net rentable square foot Class A office building.
• On September 22, 2015, a joint venture in which the Company has a 50% interest completed and fully placed in-service Annapolis Junction Building Seven, a Class A office project with approximately 127,000 net rentable square feet located in Annapolis, Maryland. The property is 100% leased.
• On September 30, 2015, a joint venture in which the Company has a 50% interest extended the loan collateralized by its Annapolis Junction Building Six property. At the time of the extension, the outstanding balance of the construction loan totaled approximately $13.4 million and was scheduled to mature on November 17, 2015. The extended loan has a total commitment amount of $15.9 million, bears interest at a variable rate equal to LIBOR plus 2.25% per annum and matures on November 17, 2016. Annapolis Junction Building Six is a Class A office property with approximately 119,000 net rentable square feet located in Annapolis, Maryland.

Transactions completed subsequent to September 30, 2015 included:

• On October 1, 2015, the Company completed the sale of a parcel of land within its Washingtonian North property located in Gaithersburg, Maryland for a gross sale price of approximately $13.3 million. The parcel contains approximately 5.8 acres of the Company’s approximately 19.3 acre property.
• On October 1, 2015, the Company used available cash to repay the mortgage loan collateralized by its Kingstowne Two and Kingstowne Retail properties located in Alexandria, Virginia totaling approximately $29.8 million. The mortgage loan bore interest at a fixed rate of 5.99% per annum and was scheduled to mature on January 1, 2016. There was no prepayment penalty.
• On October 7, 2015, the Company entered into an agreement to sell its Innovation Place property for a gross sale price of $207.0 million. Innovation Place, located in San Jose, California, is a 26-acre site with one occupied and three vacant existing office buildings and a total of approximately 574,000 square feet (approximately 463,000 square feet of which are vacant) located at 3100-3130 Zanker Road. Currently, the remainder of the site is used for 1,699 surface parking spaces but the land supports an additional 537,000 square feet of office/R&D development and two parking structures with a total of approximately 3,000 parking spaces. The Company expects that the sale will close in the fourth quarter of 2015. However, the sale is subject to the satisfaction of closing conditions and there can be no assurance that the sale will be consummated on the terms currently contemplated or at all.

EPS and FFO per Share Guidance:

The Company’s guidance for the fourth quarter 2015, full year 2015 and full year 2016 for EPS (diluted) and FFO per share (diluted) is set forth and reconciled below. Except as described below, the estimates reflect management’s view of current and future market conditions, including assumptions with respect to rental rates, occupancy levels and the earnings impact of the events referenced in this release and otherwise referenced during the conference call referred to below. The estimates do not include possible future gains or losses or the impact on operating results from other possible future property acquisitions or dispositions, other possible capital markets activity or possible future impairment charges. EPS estimates may be subject to fluctuations as a result of several factors, including changes in the recognition of depreciation and amortization expense and any gains or losses associated with disposition activity. The Company is not able to assess at this time the potential impact of these factors on projected EPS. By definition, FFO does not include real estate-related depreciation and amortization, impairment losses or gains or losses associated with disposition activities. There can be no assurance that the Company’s actual results will not differ materially from the estimates set forth below.

As shown below the Company has updated its guidance for FFO per share (diluted) for the full year 2015 to $5.46 - $5.48 per share. The updated guidance reflects, among other items, an increase of $0.06 per share from the results of the 3rd quarter that exceeded the Company’s prior guidance. For the fourth quarter 2015, the Company projects its results to be in line with its prior guidance with a projected increase in FFO from acquisition activity of $0.01 per share offset by a decrease of $0.01 per share resulting from the deferment of anticipated operating expenses from the 3rd quarter to the 4th quarter. The increase in the Company’s projected share of Gains on Sales of Real Estate of $0.44 per share primarily reflects the projected gain on sale related to the anticipated sale of the Company’s Innovation Place property located in San Jose, California.

The Company’s guidance for the full year 2016 for EPS (diluted) and FFO per share (diluted) is set forth and reconciled below. In addition, the estimates for the full year 2016 when compared to the full year 2015 include, among other things, (1) a range of year-over-year performance in the Company’s same property GAAP NOI of (0.75%) to 1.25% contributing ($0.07) - $0.11 per share, (2) the placing in service of development properties during 2015 and 2016, which the Company expects to add $0.20 - $0.23 per share, (3) a decrease in net interest expense of $0.04 to $0.10 per share and (4) a decrease in the deduction for same property NOI for noncontrolling interests of $0.06 to $0.11 per share. These items are offset by (1) the elimination of income from completed and projected asset sales during 2015 and 2016 of $0.09 per share, (2) an increase in general and administrative expenses of $0.03 to $0.05 per share and a decline in the Company’s share of termination income of $0.13 - $0.15 per share. The Company’s projected share of Gains on Sales of Real Estate in 2016 relate to the anticipated sale of the Company’s 415 Main Street property located in Cambridge, Massachusetts.

Boston Properties will host a conference call on Friday, October 30, 2015 at 10:00 AM Eastern Time, open to the general public, to discuss the third quarter 2015 results, the fourth quarter 2015, full fiscal year 2015 and full fiscal year 2016 projections and related assumptions, and other related matters that may be of interest to investors. The number to call for this interactive teleconference is (877) 796-3880 (Domestic) or (281) 913-8731 (International) and the passcode is 57659626. A replay of the conference call will be available through November 13, 2015, by dialing (855) 859-2056 (Domestic) or (404) 537-3406 (International) and the passcode is 57659626. There will also be a live audio webcast of the call which may be accessed on the Company’s website at www.bostonproperties.com in the Investor Relations section. Shortly after the call a replay of the webcast will be available in the Investor Relations section of the Company’s website and archived for up to twelve months following the call.

Additionally, a copy of Boston Properties’ third quarter 2015 “Supplemental Operating and Financial Data” and this press release are available in the Investor Relations section of the Company’s website at www.bostonproperties.com.

Boston Properties is a fully integrated, self-administered and self-managed real estate investment trust that develops, redevelops, acquires, manages, operates and owns a diverse portfolio of Class A office space, one hotel, four residential properties and five retail properties. The Company is one of the largest owners and developers of Class A office properties in the United States, concentrated in four markets – Boston, New York, San Francisco and Washington, DC.

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 Company’s 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, 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 fourth quarter 2015, full fiscal year 2015 and full fiscal year 2016, whether as a result of new information, future events or otherwise.

(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. common shareholders (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. common shareholders (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 $153,015, $157,245, $475,082 and $466,143 and our share of unconsolidated joint venture real estate depreciation and amortization of $3,808, $5,099, $2,562 and $14,669, less corporate-related depreciation and amortization of $334, $332, $1,017 and $1,014 for the three and nine months ended September 30, 2015 and 2014, respectively.

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Source: Boston Properties, Inc.

Boston Properties, Inc.
Michael LaBelle, 617-236-3352
Senior Vice President, Chief Financial Officer
or
Arista Joyner, 617-236-3343
Investor Relations Manager