Boston Properties: Earnings Preview

Oct.24.11 | About: Boston Properties, (BXP)

Boston Properties Inc. (NYSE:BXP), a real estate investment trust (REIT), is scheduled to report its third quarter 2011 earnings after the closing bell on October 25, 2011. The current Zacks Consensus Estimate for the third quarter is pegged at $1.24 per share, representing an annualized growth of 15.8%.

Second Quarter Recap

Boston Properties reported second quarter 2011 FFO (funds from operations) of $181.6 million or $1.23 per share, compared with $156.9 million or $1.12 per share in the year-earlier quarter. 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.

The reported FFO for the quarter surpassed the Zacks Consensus Estimate by 5 cents. The year-over-year upside in FFO was primarily due to strong rental income, which improved 14.1% during the quarter.

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

During the quarter, Boston Properties placed in-service approximately 16% of its 510 Madison Avenue development project in New York City. The office component of the project, spanning approximately 347,000 net rentable square feet, is currently 39% leased.

Agreement of Analysts

In the last 30 days, two out of the 17 analysts covering the stock increased the earnings estimates for the third quarter while none moved in the opposite direction. Similarly, for fiscal 2011, two out of the19 analysts covering the stock increased their estimates over the last 30 days while none trimmed the same.

Magnitude of Estimate Revisions

Over the last 30 days, earnings estimates for the third quarter and fiscal 2011 estimates decreased from $ 1.23 per share to $1.12 per share and $6.19 per share to $6.07 per share, respectively. This indicates that the analysts are skewed toward the negative direction.

Our Take

Massachusetts-based Boston Properties, Inc. is a fully integrated, self-administered and self-managed real estate investment trust (REIT) that owns and develops one of the largest first-class office portfolios in the U.S.

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.

The company has one of the best balance sheets in the sector with manageable near-term debt maturities and adequate liquidity to take advantage of distressed selling as asset values of office and retail properties continue to drop.

However, Boston Properties face significant competition from developers, owners and operators of office properties and other commercial real estate, including sublease space available from its tenants. This influences its ability to attract and retain tenants at relatively high rents than its competitors, adversely affecting its long-term profitability.

Boston Properties currently retains a Zacks #3 Rank, which translates into a short-term Hold rating. We are also maintaining our long-term Neutral recommendation on the stock. One of its competitors, Vornado Realty Trust (NYSE:VNO) also holds a Zacks #3 Rank.