BXP Cuts Dividend, Announces Asset Sale To Help Fund New Office Tower

Office REIT BXP cut its dividend by nearly 30% and announced plans to sell noncore assets to help fund its next round of development. 

BXP will cut its dividend from 98 cents to 70 cents, which will generate roughly $50M of capital per quarter for the REIT, CEO Owen Thomas said during a speech at a triennial investor day conference Monday.

The REIT has a pipeline of nearly 30 buildings it was planning to sell to raise nearly $2B, Thomas added.

The cash will help Boston-based BXP pay down debt to decrease its leverage — a move that executives hope will boost shareholder value — and fund the construction of at least one New York office tower at 343 Madison Ave.

“We've been holding these assets as a bank, if you will, for lower cap rates, and we're at that point,” Thomas told the gathered analysts Monday morning. “Given the 343 development, we're more in need of capital. And so this is the right time to sell them. We're going to do it.”

Thomas laid out BXP’s strategy for future growth during a roughly 40-minute speech. He said the REIT was focused on leasing up its portfolio, selling noncore assets, building more multifamily properties and seeking out private equity partnerships.

BXP will continue to focus on developing and owning trophy offices in central business districts and will move to offload some suburban assets. It is targeting growth in its core gateway markets of New York, Boston, San Francisco and Washington, D.C. Thomas said the REIT had no plans to expand to the U.S. Southeast or Southwest. 

“We've taken a very sharp knife — or pencil, or whatever you want to say — to our land holdings, and we have been very discerning about what we think can be developed as office and what will be developed as residential,” Thomas said. “We are going to be selling a lot of those assets and monetizing them on behalf of shareholders, because the world has changed.”

Among those changes is that Thomas doesn’t believe there will be any significant office development in American suburbs for the foreseeable future. The shift is leading BXP to push deeper into multifamily development, with a current pipeline of 1,400 units under construction and roughly 6,600 units under consideration, Thomas said. 

BXP had 186 properties totaling 54M SF that were 89% leased at the end of June. The REIT says the share of the properties it owns generates $3.3B annually. BXP’s stock was trading down nearly 1.5% early Monday morning. Its value is up more than 2% year to date. 

While the REIT is known as a developer and holder of luxury office space, it doesn’t plan to be a long-term operator in the residential space. 

“Unlike in the office world, we're going to be much more merchant. Once these buildings are up and leased and full, we don't manage them, it's less strategic to our company, and so we're going to sell them,” Thomas said.

BXP, formerly known as Boston Properties, is also looking to introduce a capital partner to the 343 Madison Ave. development. The REIT was effectively forced to begin construction at the site on July 30 or potentially lose its 99-year ground lease on the property. 

The REIT is also looking for a capital infusion for a planned 2M SF tower at 3 Hudson Blvd. in New York. An $80M loan between BXP and its partner, The Moinian Group, on the long-stalled project went into a maturity-driven default in January. The loan remains on BXP’s books and is accruing interest, according to the company's second-quarter disclosures, but the project has yet to go vertical.

The portfolio of roughly 30 properties BXP is planning to offload includes about 12 plots of nonproducing land that the firm expects will generate $400M in proceeds, four multifamily properties that it expects will raise more than $500M, and office properties primarily in suburban markets. 

The land and residential sales are expected to generate returns, but the office sales will be dilutive, Thomas said. Still, the REIT expects the impact to funds from operations to be neutral. 

“This is a great time to invest in office, and we want to be more active investing in office. We want to take those assets that we don't think have a brighter future in terms of what we were going to do with them, and we want to turn them into cash so we can recycle that capital into something that is more fitting to the office market,” Thomas said.