U.S. Markets closed

Boston Properties (BXP) to Post Q2 Earnings: What's in Store?

Zacks Equity Research

Boston Properties, Inc. BXP is scheduled to report second-quarter 2020 results on Jul 28, after market close. The company’s results are expected to reflect year-over-year growth in revenues, while funds from operations (FFO) per share are expected to have declined.

In the last reported quarter, this office real estate investment trust’s (REIT) FFO per share of $1.83 rose 6.4% year over year. Results were backed by greater-than-projected revenues.

Over the preceding four quarters, the company beat the FFO per share estimates on all occasions, the average surprise being 1.57%. This is depicted in the graph below:

Boston Properties, Inc. Price and EPS Surprise

 

Boston Properties, Inc. Price and EPS Surprise
Boston Properties, Inc. Price and EPS Surprise

Boston Properties, Inc. price-eps-surprise | Boston Properties, Inc. Quote

Let’s see how things are shaping up for this announcement.

The office real estate market felt the full effect of the coronavirus pandemic in the second quarter, with demand for such properties decreasing amid a blow to the labor markets and the higher adoption of remote working solutions.

According to a Cushman & Wakefield CWK report, net absorption for the quarter was negative 22.8 million square feet, declining steeply from the prior quarter’s 5.2 million square feet. Moreover, the national office vacancy rate increased 50 basis points (bps) sequentially to 13.7%.

Nonetheless, the supply of office space remained in check during the quarter probably due to the coronavirus outbreak-led construction interruptions. In fact, completed office space during the second quarter was 9.9 million square feet, down from 13 million square feet completed in the March-end quarter. Additionally, similar to the trends observed during the Great Recession, asking rents for the quarter continued to increase despite an increase in vacancies. In fact, asking rents sequentially increased 1.5% to $34.03 per square foot during the June-end quarter.

In stark contrast to the drop in the national leasing activity, Boston Properties’ Class A office properties in five high-growth U.S. markets enjoyed strong lease economics. In fact, during April and May, the company signed around 870,000 square feet of new leases and renewals.

Moreover, office rental receipts for April, May and June were 95%, 97% and 98%, respectively. The strength in rent collections indicates the company’s high-quality tenants and this will support its revenues in the April-June quarter. Notably, the Zacks Consensus Estimate for the quarter’s total revenues is pegged at $697.6 million, suggesting 2.6% year-over-year growth.

However, Boston Properties is expected to have continued to witness low physical occupancy despite repopulation activities started in Boston, New York and Washington DC regions in June. Occupancy at the company’s portfolio is expected to be 93%, unchanged sequentially.

Moreover, the coronavirus outbreak has continued to weaken travel demand, thereby, impacting hotel revenues. Amid this, the company’s revenues from its hotels for second-quarter 2020 are expected to sequentially decline 27.8% to $5.7 million.

Prior to the second-quarter earnings release, the Zacks Consensus Estimate of FFO per share for the quarter has witnessed negative estimate revisions. Notably, second-quarter FFO per share estimate witnessed a marginal downward revision to $1.74 over the past week, indicating bearish sentiments of analysts. Moreover, it suggests a year-over-year decline of 2.25%.

Earnings Whispers

Our proven model doesn’t conclusively predict a positive surprise in terms of FFO per share for Boston Properties this time around. The combination of a positive Earnings ESP and Zacks Rank #3 (Hold) or better increases the odds of a FFO beat. But that’s not the case here.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Earnings ESP: Boston Properties has an Earnings ESP of -0.14%.

Zacks Rank: The company currently carries a Zacks Rank of 4 (Sell).

Stocks That Warrant a Look

Here are a few stocks in the REIT sector that you may want to consider, as our model shows that these have the right combination of elements to report a positive surprise this quarter:

Extra Space Storage Inc. EXR, set to report quarterly numbers on Aug 4, currently has an Earnings ESP of +2.65% and a Zacks Rank of 3. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Iron Mountain Incorporated IRM, slated to release second-quarter earnings on Aug 6, has an Earnings ESP of +4.76% and a Zacks Rank of 3 at present.

Note: Anything related to earnings presented in this write-up represents funds from operations (FFO) — a widely used metric to gau0ge the performance of REITs

Just Released: Zacks’ 7 Best Stocks for Today

Experts extracted 7 stocks from the list of 220 Zacks Rank #1 Strong Buys that has beaten the market more than 2X over with a stunning average gain of +24.1% per year.

These 7 were selected because of their superior potential for immediate breakout.

See these time-sensitive tickers now >>


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
 
Iron Mountain Incorporated (IRM) : Free Stock Analysis Report
 
Boston Properties, Inc. (BXP) : Free Stock Analysis Report
 
Extra Space Storage Inc (EXR) : Free Stock Analysis Report
 
Cushman Wakefield PLC (CWK) : Free Stock Analysis Report
 
To read this article on Zacks.com click here.