Boston Properties (BXP) to Post Q2 Earnings: What's in Store?
Boston Properties, Inc. BXP is slated to report second-quarter 2023 results on Aug 1, after market close. While its quarterly results are likely to reflect year-over-year growth in revenues, funds from operations (FFO) per share might exhibit a decline.
In the last reported quarter, this office real-estate investment trust (REIT) delivered a surprise of 1.76% in terms of FFO per share. BXP’s quarterly results reflected better-than-anticipated revenues on healthy leasing activity.
Over the preceding four quarters, Boston Properties’ FFO per share surpassed the Zacks Consensus Estimate on all occasions, the average beat being 2.46%. This is depicted in the graph below:
Boston Properties, Inc. Price and EPS Surprise
Boston Properties, Inc. price-eps-surprise | Boston Properties, Inc. Quote
Factors at Play
Per a Cushman & Wakefield CWK report, the overall recovery in the U.S. office market demand remains choppy, with recession fears lingering amongst occupiers. The pace of job growth has been slower than in early 2022, and the rate of deceleration for office-using employment is higher. Amid this, the second quarter recorded a negative net absorption of 26.9 million square feet (msf), marking the lowest quarter in two years.
The overall gross leasing activity for the four quarters ended second-quarter 2023 was 289 msf. Further, leasing activity in the quarter slumped 24% year over year. While leasing slid for four straight quarters, it was still 49 msf (20%) above the pandemic-era low witnessed in the first quarter of 2021.
Also, the greater availability of sublease space (2.9% of the total inventory, almost three times the pre-pandemic norm of around 1%) is a key concern for this sector’s recovery. The second-quarter national vacancy rate rose 70 basis points to 19.2%, reflecting the largest quarter-over-quarter increase since mid-2021. The national asking rent was $37.34 for the quarter.
Nonetheless, the Cushman & Wakefield report highlights that demand for select premium office spaces continues to outperform the broader market, with 21 of the 92 U.S. markets tracked by the company reporting positive net absorption in the second quarter.
As for Boston Properties, its portfolio of modern, class A office buildings is expected to have benefited from the growing preference for premier office buildings by tenants, aiding leasing activity and occupancy growth.
The company’s long-term lease agreements with a diverse, creditworthy tenant base across industries are likely to have helped generate stable cashflows during the to-be-reported quarter, boosting the top line.
Also, given that the demand for life-science assets is booming on the back of drug research and innovation, BXP’s life-science assets are anticipated to have witnessed robust demand during the second quarter. In addition, the company’s efforts to convert numerous straight office buildings to laboratory/life science spaces in its suburban portfolio on this growing demand are likely to have given it an edge.
The Zacks Consensus Estimate for second-quarter revenues is pegged at $752.8 million, suggesting growth of 4.3% from the prior-year quarter’s tally. However, the consensus estimate for quarterly parking and other revenues is pegged at $25.15 million, implying a 4.9% fall from the year-ago period’s reported number of $26.47 million.
We expect Boston Properties to have continued with its development and redevelopment activities in the second quarter, aiding net operating income growth. Further, its solid balance sheet position is likely to have supported its development pipeline as well.
The company’s activities during the to-be-reported quarter were adequate to secure analysts’ confidence. The Zacks Consensus Estimate for the quarterly FFO per share has been revised marginally northward to $1.80 over the past two months. The figure, however, suggests a fall of 7.2% from the prior-year period’s reported number.
A choppy office real estate market scenario, rising supply of office properties in some markets where the company operates and high interest expenses might have impaired BXP’s quarterly performance to some extent. We estimate interest expense to rise 22.1% year over year in the quarter.
Earnings Whispers
Our proven model does not conclusively predict an FFO beat for Boston Properties this time. The right combination of two key ingredients — a positive Earnings ESP and Zacks Rank #3 (Hold) or higher — increases the odds of a beat. However, that’s not the case here.
Earnings ESP: Boston Properties has an Earnings ESP of -0.36%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Zacks Rank: Boston Properties currently carries a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Stocks That Warrant a Look
Here are some stocks that are worth considering from the REIT sector, as our model shows that these have the right combination of elements to deliver a surprise this reporting cycle:
American Tower AMT is slated to report quarterly numbers on Jul 27. AMT has an Earnings ESP of +2.82% and carries a Zacks Rank #3 presently.
Ventas VTR is scheduled to report quarterly numbers on Aug 3. VTR has an Earnings ESP of +1.75% and a Zacks Rank #2 (Buy) currently.
Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.
Note: Anything related to earnings presented in this write-up represent funds from operations (FFO) — a widely used metric to gauge the performance of REITs.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
American Tower Corporation (AMT) : Free Stock Analysis Report
Ventas, Inc. (VTR) : Free Stock Analysis Report
Boston Properties, Inc. (BXP) : Free Stock Analysis Report
Cushman & Wakefield PLC (CWK) : Free Stock Analysis Report
