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Boston Properties (Baa2/A-/BBB)

Highlights from the BXP Q4 2009 release:

FFO for the year ended December 31, 2009 were $606.3 million, or $4.63 per share basic and $4.59 per share diluted. This compares to FFO for the year ended December 31, 2008 of $403.8 million, or $3.37 per share basic.

Revenue declined 3.2% to $377.9 million as base rent decreased 1.7%. Analysts expected $359 million.

Q4 FFO/sh: $1.08 versus expectations of $1.06

Guidance Q1 2010 $1.02-$1.04 expected is $1.02

Guidance 2010: $4.10-$4.25 expected is $4.12

Profitability:

Operating margin at 66.9% is up 100bps from prior quarter but down 140bps from 12/08.

FFO Payout: 48% versus 44% 9/09.

FAD Payout: 66% versus 62% 9/09 and 72% 12/08.

Interest Coverage including capitalized interest: 2.67% down 25 bps vs. 9/09 and 26bps vs. 12/08.

Capital structure:

$2.6B in mortgage notes - unchanged from 12/08

$2.2B in senior unsecured notes - up $700MM from 12/08

$1.9B in senior unsecured converts - unchanged from 12/08

$6.7B in total debt (at a weighted rate of 5.87% - GAAP basis).

$5B in equity - up $800MM from 12/08

Debt Maturities:

Company has $310MM in debt maturities in 2010, $605MM due in 2011(majority being a payment on Citi Center) and $930MM due in 2012 - with a $1B untapped unsecured LOC (matures 8/10 w/ a 1 year term-out) and $1.4B in cash on its books in addition to FFO, liquidity over the next few years should not be an issue (there is a $1.4B lump due in 2014 which includes $450MM of a convert).

Covenants:

Debt/Total Assets: 47% (covenant is <60%)

Secured Debt/Total Assets: 23% (covenant is <50%)

Unencumbered Assets/Unsecured Debt: 2.50% (covenant is >150%)

EBITDA/Interest: 2.59x (covenant is >1.5x)

It is worth noting that:

For senior notes issued prior to October 9, 2009, Capitalized Property Value is determined for each property and is the greater of (A) annualized EBITDA capitalized at an 8.5% rate for CBD properties and a 9.0% rate for non-CBD properties, and (B) the undepreciated book value as determined under GAAP. Capitalized Property Value for the 5.875% senior notes due 2019 that were issued on October 9, 2009 will be determined for each property and is the greater of (A) annualized EBITDA capitalized at an 8.0% rate for CBD properties and a 9.0% rate for non-CBD properties, and (B) the undepreciated book values as determined under GAAP.

Equity Metrics:

P/FFO: 14x Slightly above peers

Forward P/FFO: 15x

Div Yield (Curr): 3.4% Slightly below peers

Return underperforming peers YTD at -3.50%

1yr return outperforming peers at 24%

Properties:

Weakness across markets, which is to be expected. All in all, not the cataclysm expected by many in the sector. Portfolio occupancy at quarter end stood at 92.4% (+30bps) from 3Q09 levels.

All in all, not a bad quarter although the stock looks like it will be opening down.

  • Stock looks fairly valued (if not a little high due to the 12 month run-up, which is systemic).
  • CDS is quoted 5 better (128/38).
  • BXP 5.875% indicated $104/$105 which is Z+166 and the BXP 5.625% '15 are quoted Z+141 (using Z to get par equivalent). Curve is typical, but as shown earlier, older debt has better covenants (admittedly, company is bound to them as long as older debt is outstanding). Bonds are tight relative to peers, but it partially to do with being one of the best in breed and the "A" rating.
  • No preferreds in the name.

Lets wait for the call and see what they say.

Disclosure: No Positions

Source: Boston Properties: Q4 Data Points