Boston Properties (BXP) Q2 FFO Beats, Revenues Increase

Boston Properties Inc. (NYSE:BXP) reported second-quarter 2016 funds from operations (“FFO”) per share of $1.43 backed by higher revenues. Reported FFO was above both the Zacks Consensus Estimate of $1.40 and the year-ago figure of $1.36.

Motably, quarterly FFO per share was higher than the REIT’s (real estate investment trust) previously guided range of $1.36–$1.38, thanks to the earlier-than-anticipated tenant termination income and better-than-expected portfolio operations.

Total revenue during the quarter improved 0.9% year over year to $623.5 million, comfortably surpassing the Zacks Consensus Estimate of $607.8 million. Growth was primarily attributable to a rise in rental revenues. Rental revenues were up 0.9% year over year to $605.2 million, aided by an uptick in base rents.

Property Update

As of Jun 30, 2016, Boston Properties’ portfolio comprised of 168 properties, covering a total of around 46.5 million square feet of space. This included eight under-development properties, covering an area of 3.8 million square feet.

The overall operating portfolio, comprising 157 properties (excluding 2 residential properties and one hotel), was 90.8% leased as of Jun 30, 2016.

Notably, during the quarter, the company acquired 3625-3635 Peterson Way – a 218,000 net rentable square foot office property – in Santa Clara, CA for roughly $78.0 million in cash. It is fully leased to a single tenant through Mar 2021. Following its expiration, the company plans to develop the site into a Class A office campus with a total of around 632,000 net rentable square feet of space.

Subsequent to the quarter end, Boston Properties forayed into the Los Angeles market by acquiring a 49.8% stake in an existing joint venture that owns and operates the Colorado Center in Santa Monica, CA, for a gross purchase price of around $511.1 million.

Liquidity

Boston Properties exited second-quarter 2016 with cash and cash equivalents of nearly $1.2 billion, up from $723.7 million as of 2015 end.

Outlook

The company has updated its full-year guidance to $5.92–$5.99 per share from the previous projection of $5.85–$5.95. The Zacks Consensus Estimate of $5.93 lies within the guided range. The company raised its outlook to include the impact of its 49.8% stake buyout in Colorado Center and a higher portfolio performance.

It expects its third-quarter 2016 FFO per share in a range of $1.40–$1.42, below the Zacks Consensus Estimate of $1.45.

Our Viewpoint

We are encouraged with a better-than-expected results at Boston Properties. The company is poised to grow amid healthy labor market conditions, with properties in select high-rent, high barrier-to-entry geographic markets, diversified tenant and industry base, including several bellwethers. Further, with the Santa Monica office market having a solid concentration of technology, media, advertising and entertainment tenants in Los Angeles, the stake acquisition in the Colorado Center seems a strategic fit for Boston Properties. Yet, stiff competition and additional supply in some of its markets pose concerns for the company.

Boston Properties currently carries a Zacks Rank #3 (Hold).

We now look forward to other REITs that are scheduled to release second-quarter 2016 results this week. These include Essex Property Trust Inc. (NYSE:ESS) , Apartment Investment and Management Company (NYSE:AIV) and Taubman Centers, Inc. (NYSE:TCO) .

Note: FFO, 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. All EPS numbers presented in this write up represent FFO per share.