Boston Properties Announces Fourth Quarter 2015 Results

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Hub on Causeway at North Station

BOSTON–Boston Properties, Inc., a real estate investment trust, reported results for the fourth quarter ended December 31, 2015.

Results for the quarter ended December 31, 2015

Funds from Operations (FFO) for the quarter ended December 31, 2015 were $197.3 million, or $1.28 per share basic and $1.28 per share diluted. This compares to FFO for the quarter ended December 31, 2014 of $193.2 million, or $1.26 per share basic and $1.26 per share diluted. The weighted average number of basic and diluted shares outstanding totaled approximately 153,602,000 and 153,897,000, respectively, for the quarter ended December 31, 2015 and 153,128,000 and 153,550,000, respectively, for the quarter ended December 31, 2014.

Hub on Causeway at North Station
Hub on Causeway at North Station

The Company’s reported FFO of $1.28 per share diluted was less than the guidance previously provided of $1.39-$1.41 per share diluted primarily due to the loss from early extinguishment of debt of $0.13 per share associated with the defeasance of the mortgage loan collateralized by 100 & 200 Clarendon Street offset by better than expected portfolio operations of $0.01 per share.

Net income available to common shareholders was $137.9 million for the quarter ended December 31, 2015, compared to $174.5 million for the quarter ended December 31, 2014. Net income available to common shareholders per share (EPS) for the quarter ended December 31, 2015 was $0.90 basic and $0.90 on a diluted basis. This compares to EPS for the quarter ended December 31, 2014 of $1.14 basic and $1.14 on a diluted basis. Net income available to common shareholders for the quarter ended December 31, 2015 includes gains on sales of real estate aggregating approximately $81.3 million, or $0.48 per share basic and $0.48 per share on a diluted basis, compared to $126.1 million, or $0.73 per share basic and $0.73 per share on a diluted basis, for the quarter ended December 31, 2014.

Results for the year ended December 31, 2015

FFO for the year ended December 31, 2015 was $823.7 million, or $5.37 per share basic and $5.36 per share diluted. This compares to FFO for the year ended December 31, 2014 of $807.5 million, or $5.27 per share basic and $5.26 per share diluted. The weighted average number of basic and diluted shares outstanding totaled 153,471,000 and 153,844,000, respectively, for the year ended December 31, 2015 and 153,089,000 and 153,620,000, respectively, for the year ended December 31, 2014.

Net income available to common shareholders was $572.6 million for the year ended December 31, 2015, compared to $433.1 million for the year ended December 31, 2014. EPS for the year ended December 31, 2015 was $3.73 basic and $3.72 on a diluted basis. This compares to EPS for the year ended December 31, 2014 of $2.83 basic and $2.83 on a diluted basis.

The reported results are unaudited and there can be no assurance that these reported results will not vary from the final information for the quarter and year ended December 31, 2015. In the opinion of management, all adjustments considered necessary for a fair presentation of these reported results have been made.

As of December 31, 2015, the Company’s portfolio consisted of 168 properties aggregating approximately 46.5 million square feet, including 11 properties under construction/redevelopment totaling approximately 4.6 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 December 31, 2015 was 91.4%.

Significant events during the fourth quarter included:
• The Company entered into a forward-starting interest rate swap contract, which fixed the ten-year swap rate on a notional amount of $25.0 million. The Company has now entered into forward-starting interest rate swap contracts which fix the ten-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.

767 Fifth Partners LLC [the consolidated 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 two contracts entered into subsequent to December 31, 2015, which fix the ten-year swap rate on notional amounts aggregating $200.0 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 2.619% per annum on notional amounts aggregating $450.0 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 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 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. Net cash proceeds, which included reimbursements for certain infrastructure costs, totaled approximately $13.8 million, resulting in a gain on sale of real estate totaling approximately $2.0 million. The parcel sold consisted of approximately 5.8 acres of the Company’s approximately 18.3 acre property.

• On October 22, 2015, a joint venture in which the Company has a 50% interest commenced construction of the Hub on Causeway at North Station containing approximately 385,000 net rentable square feet of retail and office space located in Boston, Massachusetts.

• On October 26, 2015, the Company entered into an agreement to sell its Reston Eastgate property located in Reston, Virginia. Reston Eastgate is a parcel of land containing approximately 21.7 acres located at 11011 Sunset Hills Road. The Company also entered into a development management agreement with the buyer to develop the site into a Class A office property totaling approximately 190,000 net rentable square feet and associated parking garage. The Company expects that the sale will close by the end of the fourth quarter of 2017. However, the sale is subject to final zoning approvals and the satisfaction of customary closing conditions and there can be no assurance that the sale will be consummated on the terms currently contemplated or at all. Pending the completion of the sale, the Company has agreed with the buyer not to disclose the purchase price and other monetary terms of the transaction.

• On November 1, 2015, the Company completed and fully placed in-service 535 Mission Street, a Class A office project with approximately 307,000 net rentable square feet located in San Francisco, California. The property is 99% leased.

• On November 1, 2015, the Company completed and fully placed in-service The Point (formerly 99 Third Avenue), a retail project with approximately 16,000 net rentable square feet located in Waltham, Massachusetts. The property is 85% leased.

• On December 2, 2015, the Company completed and fully placed in-service 690 Folsom Street, an office and retail project with approximately 26,000 net rentable square feet located in San Francisco, California. The property is 100% leased.

• On December 15, 2015, the Company legally defeased the mortgage loan collateralized by its 100 & 200 Clarendon Street (formerly known as the John Hancock Tower and Garage) properties located in Boston, Massachusetts. The mortgage loan had an outstanding principal balance of $640.5 million, bore interest at a fixed rate of 5.68% per annum and was scheduled to mature on January 6, 2017. The cash required for the defeasance was approximately $667.3 million. As a result of the defeasance, the Company recognized a loss from early extinguishment of debt of approximately $22.0 million, consisting of approximately $26.8 million, which is the difference between the purchase price for the U.S. government securities acquired for the defeasance and the outstanding principal balance of the mortgage loan, and approximately $1.4 million of unamortized deferred financing costs, offset by approximately $4.8 million from the acceleration of the remaining balance of the historical fair value debt adjustment and approximately $1.4 million of accrued interest expense through the effective date of the defeasance.

• On December 17, 2015, the Company completed the sale of its Innovation Place property for a gross sale price of $207.0 million. Net cash proceeds totaled approximately $199.3 million, resulting in a gain on sale of real estate totaling approximately $79.1 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. The remainder of the site is currently 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.

• On December 17, 2015, the Company announced that its Board of Directors declared a special cash dividend of $1.25 per common share, in addition to the Company’s regular quarterly dividend of $0.65 per common share, which was paid on January 28, 2016 to shareholders of record as of the close of business on December 31, 2015. The decision to declare a special dividend was primarily a result of the sale of approximately $584 million of assets in 2015. The Board of Directors did not make any change to the Company’s policy with respect to regular quarterly dividends. The payment of the regular quarterly dividend of $0.65 per share plus the special dividend of $1.25 per share resulted in a total payment of $1.90 per share on January 28, 2016. Holders of common units of limited partnership interest in Boston Properties Limited Partnership, the Company’s Operating Partnership, as of the close of business on December 31, 2015 received the same total distribution per unit on January 28, 2016.

• On December 22, 2015, a joint venture in which the Company has a 50% interest completed and fully placed in-service Annapolis Junction Building Eight, a Class A office project with approximately 126,000 net rentable square feet located in Annapolis, Maryland. The property is 0% leased.

Transactions completed subsequent to December 31, 2015:
• On January 20, 2016, the Company’s Operating Partnership completed a public offering of $1.0 billion in aggregate principal amount of its 3.650% senior unsecured notes due 2026. The notes were priced at 99.708% of the principal amount to yield an effective rate (including financing fees) of 3.766% to maturity. The notes will mature on February 1, 2026, unless earlier redeemed. The aggregate net proceeds from the offering were approximately $988.9 million after deducting underwriting discounts and estimated transaction expenses.

• On January 25, 2016, the Company’s Compensation Committee approved the 2016 Multi-Year, Long-Term Incentive Program (the “2016 MYLTIP”) as a performance-based component of the Company’s overall compensation program. The Company currently expects that under the Financial Accounting Standards Board’s Accounting Standards Codification (“ASC”) 718 “Compensation – Stock Compensation,” the 2016 MYLTIP will have an aggregate value of approximately $17.3 million, which amount will generally be amortized into earnings over the four-year plan period under the graded vesting method and has been reflected in the 2016 guidance below.

• On February 1, 2016, the Company completed the sale of its 415 Main Street property (formerly Seven Cambridge Center) located in Cambridge, Massachusetts to MIT for a gross sale price of approximately $105.4 million. As part of its lease signed on July 14, 2004, MIT was granted a fixed price option to purchase the building at the beginning of the 11th lease year, which option was exercised by MIT on October 22, 2014. 415 Main Street is an office/technical property with approximately 231,000 net rentable square feet occupied by the Broad Institute.

• On February 3, 2016, the Company entered into a lease termination agreement with a tenant for an approximately 85,000 square foot lease at its 250 West 55th Street property located in New York City. The lease was scheduled to expire on February 28, 2035. In consideration for the termination of the lease, the tenant paid the Company approximately $45.0 million, which will be recognized in the first quarter of 2016. The termination income and the corresponding reduction in rental revenue in future quarters are reflected in the 2016 guidance below.

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