BXP Raises FFO Guidance as Occupancy Climbs Despite Impairment Hit
BXP posted second-quarter funds from operations of $1.78 a diluted share, beating its guidance midpoint by 8 cents even as an $18 million impairment charge pushed net income down to $68.6 million.
BXP (BXP) reported second-quarter revenue of $895.7 million, up 3.1% from $868.5 million a year earlier, as the office real estate investment trust posted gains in occupancy that offset a one-time charge tied to an asset sale.
Net income attributable to BXP fell to $68.6 million, or $0.43 a diluted share, from $89.0 million, or $0.56 a diluted share, in the second quarter of 2024. The decline reflected a $0.10-a-share non-cash impairment charge tied to the anticipated disposition of Sumner Square in Washington, DC, partially offset by $0.08 a share of higher revenue from increased occupancy and lower-than-projected operating expenses. BXP recognized an $18.0 million impairment loss in the quarter tied to Sumner Square, compared with none in the year-earlier period.
Funds from operations, the REIT industry's preferred earnings measure, rose to $283.4 million, or $1.78 a diluted share, from $271.7 million, or $1.71 a diluted share, a year earlier, and came in 8 cents above the midpoint of the company's guidance.
Total portfolio occupancy rose 100 basis points sequentially to 88.4% in the second quarter, with about 86% of the gain coming from leasing across the existing portfolio and the remainder from 290 Binney Street, a newly placed-in-service property that is fully occupied. The leased percentage across the total portfolio climbed to 91.3%, up 40 basis points from the first quarter, leaving a 290-basis-point gap of roughly 1.3 million square feet between leased and occupied space that BXP expects about 85% of to begin generating rent before year-end. In BXP's central business district portfolio, occupancy improved to 90.7% from 89.8% at the end of 2023, while the leased rate rose to 93.6% from 92.5%.
General and administrative expense rose to $50.4 million from $42.5 million, an increase of roughly 19% that outpaced revenue growth. Income from unconsolidated joint ventures improved to a $2.4 million loss in the quarter from a $3.3 million loss a year earlier; on a six-month basis, the swing was more pronounced, moving to a $33.0 million gain from a $5.5 million loss, reflecting gains on property sales within joint-venture income.
BXP lowered the midpoint of its full-year 2024 EPS guidance by $0.03 a diluted share, to a range of $2.14 to $2.24, primarily because of the Sumner Square impairment, partially offset by improved operating performance. At the same time, the company raised the midpoint of its full-year FFO guidance by $0.05 a diluted share, to $6.99 to $7.05, due to better-than-projected portfolio performance. For the third quarter, BXP guided to EPS of $0.50 to $0.52 and FFO of $1.80 to $1.82 a diluted share.
On the balance sheet, total assets declined to $25.17 billion at June 30 from $26.17 billion at the end of 2023, while total liabilities fell to $17.44 billion from $18.47 billion, driven largely by a reduction in unsecured senior notes to $8.81 billion from $9.81 billion. BXP entered a new $1.2 billion construction loan on July 28 for its 343 Madison Avenue development in New York, carrying a four-year term with a one-year extension option and an initial rate of SOFR plus 2.50%, which steps down to SOFR plus 2.25% upon meeting leasing and construction milestones.
BXP also disclosed new leasing progress across its development pipeline. Pre-leasing at 343 Madison Avenue reached 50% following a roughly 148,000-square-foot lease with McDermott Will & Schulte, and the company's Reservoir Place redevelopment began construction 89% pre-leased to Boston Dynamics across 322,000 to 363,000 square feet. Separately, BXP formed a residential joint venture in Herndon, Virginia, on a 359-unit, 4.7-acre parcel, retaining a 20% ownership stake as it monetizes residential entitlements.