Earnings Scorecard: Boston Properties

| About: Boston Properties, (BXP)
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Boston Properties Inc. (NYSE:BXP), a leading real estate investment trust (REIT), reported fiscal 2010 fourth quarter recurring funds from operations (FFO) of $1.14 per share, which well exceeded the Zacks Consensus Estimate by 6 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
Total revenues of the company during the quarter were $392.5 million, compared with $376.1 million in the year-ago quarter. The quarterly revenues were well above the Zacks Consensus Estimate of $375 million. The overall portfolio was 93.2% leased at quarter-end.

For full year 2010, Boston Properties reported FFO of $547.4 million or $3.90 per share, compared with $606.3 million or $4.59 per share in the year-ago period. Recurring FFO for fiscal 2010 was $4.40 per share, which exceeded the Zacks Consensus Estimate by 5 cents. Total revenues during the year were $1.6 billion, compared with $1.5 billion in 2009. The fiscal revenues were marginally ahead of the Zacks Consensus Estimate of $1.5 billion.

Earnings Estimate Revisions- Overview
Fiscal earnings estimates have climbed 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 7 days, fiscal 2011 earnings estimates were raised by 4 analysts out of 10 covering the stock, while none have lowered the same. For fiscal 2012, 3 out of 16 analysts covering the stock have revised their estimates upward during the same time period, while none have lowered it. This indicates a clear positive directional movement for the fiscal year earnings.

Magnitude of Estimate Revisions
Earnings estimates for fiscal 2011 have increased by 9 cents in the last 7 days to $4.50. For fiscal 2012, earnings estimates have increased by 2 cents to $4.79. This is encouraging news for the company. Boston Properties expects first quarter 2011 FFO in the range of $1.06–$1.08 per share, while FFO for full year 2011 is expected in the range of $4.45–$4.60.

Moving Forward
The long-term earnings estimate picture for Boston Properties is positive. 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 74.9% of the net operating income of the company is generated from the Central Business Districts during fourth quarter 2010, 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 #3 Rank that translates into a short-term ‘Hold’ recommendation and indicates that the stock is expected to perform in line with the overall U.S. equity market for the next 1–3 months. We also have a ‘Neutral’ recommendation and a Zacks #3 Rank for Vornado Realty Trust (NYSE:VNO), a competitor of Boston Properties.