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BXP Writes Down Over $340M On 3 Office Properties, Posts Strongest Leasing Quarter Since 2019

BXP took over $340M in write-downs on three office properties in the fourth quarter, even as it logged its strongest leasing quarter since before the pandemic, the company reported Wednesday.

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Colorado Center in Santa Monica.

The nation's largest publicly traded office landlord wrote down about $169M on the Colorado Center in the Los Angeles area, roughly $121M on Gateway Commons in San Francisco and all of the $47M in equity it had in Safeco Plaza in Seattle. All of these noncash impairment charges were related to BXP’s investments in joint ventures.

The company also executed 83 leases in the fourth quarter, totaling more than 2.3M SF, the REIT's strongest leasing quarter since Q2 2019. 

The amount leased is about 130% of the company's historical 10-year average for the fourth quarter, according to a release. 

Discussing the write-downs, BXP Chief Financial Officer Mike LaBelle said accounting rules for unconsolidated joint ventures differ from those for other types of investments. Each quarter, the company must reassess their valuations and determine whether any changes are significant enough to be considered permanent, he said on the company's fourth quarter earnings call.

BXP hasn't completed additional leasing at the Colorado Center, the life sciences market in San Francisco is slow and the company hasn't achieved positive absorption at Safeco Plaza, LaBelle said.

“Every quarter we evaluate this and look at the cash flows and value the assets,” LaBelle said. “It tripped our test this quarter. And so when it trips the ‘other-than-temporary’ test, you basically have to bring it down to the fair market value, which is using a more kind of distress discount and cap rate environment, which is why the numbers are bigger than they were.

“It is an accounting issue,” he added. “It is noncash. It does not reflect any change in our outlook for these assets, or any change in kind of what is going on in these assets right now.”

The company doesn't project similar write-downs to reoccur in 2025, it said in its earnings release.

Formerly known as Boston Properties, BXP owns more than 50M SF of properties in Boston, Los Angeles, New York, San Francisco, Seattle and Washington, D.C.

BXP's total portfolio occupancy was 87.5%, up slightly from 87% in Q3. The portfolio was 89.4% leased, including vacant space for leases that haven't begun, compared to 89.1% in Q3. The leases signed in the fourth quarter had a weighted average term of 10.3 years. 

“Return to office is clearly accelerating, and it's helping our leasing activity,” BXP CEO Owen Thomas said on the call. “I think it's varied a bit by industry, and therefore we see it a little bit differently by region because different industries have different concentrations in different regions.”

The company's quarterly revenue of $858.6M came in above analyst expectations, though its earnings missed that target by $1.93 per share. Its share price was down almost 2.5% as of 1:30 p.m. EST.