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Boston Properties Inc. (NYSE:BXP), a leading real estate investment trust (REIT), reported fiscal 2011 second quarter funds from operations (FFO) of $1.23 per share, which well exceeded the Zacks Consensus Estimate by 5 cents. Fund from operations, a widely used metric to gauge the performance of REITs, is obtained after adding depreciation and amortization and other non-cash expenses to net income.

We cover below the results of the recent earnings announcement, as well as the subsequent analyst estimate revisions and the Zacks ratings for the short-term and long-term outlook for the stock.

Earnings Report Review

Second quarter 2011 FFO was $181.6 million or $1.23 per share, compared with $156.9 million or $1.12 per share in the year-earlier quarter. The increase in second quarter 2011 FFO was primarily due to strong rental income, which improved 14.1% during the quarter on a year-over-year basis.

Total revenues of the company during the reported quarter were $436.5 million, compared with $393.8 million in the year-ago quarter. The quarterly revenues were well above the Zacks Consensus Estimate of $409 million. The overall portfolio was 91.9% leased at quarter-end.

Earnings Estimate Revisions - Overview

Fiscal earnings estimates have moved up for Boston Properties since the earnings release, meaning that analysts are bullish about the long-term performance of the company. Let’s dig into the earnings estimate details.

Agreement of Estimate Revisions

In the last 30 days, fiscal 2011 earnings estimates were raised by 5 analysts out of 10 covering the stock, while none have lowered the same. For fiscal 2012, 7 out of 20 analysts covering the stock have revised their estimates upward during the same time period, while none have lowered it. This indicates that the fiscal earnings estimates are skewed in the positive direction.

Magnitude of Estimate Revisions

Earnings estimates for fiscal 2011 have surged by 14 cents in the last 30 days to $4.77. For full year 2011, Boston Properties expects FFO in the range of $4.78–$4.83. For fiscal 2012, earnings estimates have increased by 7 cents to $5.12, which signifies that the market fundamentals of the geographic areas that are being specifically focused by the company are gradually improving. Management further remained upbeat, albeit moderately given the current volatility in the macroeconomic environment, to record relatively strong results in the coming quarters.

Moving Forward

The long-term earnings estimate picture for Boston Properties is neutral. Boston Properties concentrates on a few select high-rent, high barrier-to-entry geographic markets which usually fare better in a faltering economy. Two of the largest markets of the company, New York and Washington DC are still among the best of the office markets in the U.S. Furthermore, about 76.6% of the net operating income of the company was generated from the Central Business Districts during second quarter 2011, which drive above-average organic growth over time.

However, Boston Properties has a large development pipeline which increases operational risks in the current credit-constrained market, exposing it to rising construction costs, entitlement delays, and lease-up risk.

Currently, we maintain our long-term ‘Neutral’ rating on Boston Properties, which presently has a Zacks #2 Rank that translates into a short-term ‘Buy’ recommendation. We also have a ‘Neutral’ recommendation and a Zacks #3 Rank (short-term ‘Hold’) for Vornado Realty Trust (NYSE:VNO), a competitor of Boston Properties.

Source: Earnings Scorecard: Boston Properties