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BXP Q3 FFO & Revs Top

Zacks Equity Research

Real estate investment trust (:REIT) – Boston Properties Inc. (BXP) reported third-quarter 2013 FFO (funds from operations) per share of $1.29, which came a penny ahead of the Zacks Consensus Estimate. Also, it exceeded the year-ago quarter figure of $1.15 by 12.2%. The results were aided by higher revenues and improved core operations.

Total revenue during the quarter advanced 23% year over year to $574.1 million and was also substantially higher than the Zacks Consensus Estimate of $478 million. The hike in revenues was primarily attributable to a significant surge in rental revenues.

Rental revenues escalated 24.2% year over year to $558.0 million, driven by higher tenant recoveries revenues and base rents.

Notable Portfolio Activities

During the quarter, Boston Properties completed and put into operation the 100% leased Cambridge Center Connector project (approximately 43,000 net rentable square feet) in Massachusetts.

Also, one of its joint ventures (:JV) in which Boston Properties has a 50% stake accomplished the divestiture of its New York City based Eighth Avenue and 46th Street project for $45.0 million.

In addition, Boston Properties offloaded the Washington, D.C.-based 1301 New York Avenue property – a Class A office asset – for a gross sale price of about $135.0 million (after adjusting for outstanding lease and other transaction costs assumed by the purchaser).

Subsequent to the quarter end, early this month, the company closed the divestiture of 45% ownership interest in a New York City-based Class A office property – Times Square Tower – for $684 million. With regards to the sale deal, Boston Properties inked a JV with the purchaser and will offer property management and leasing services to the JV.

Also, in this month, Boston Properties penned a build-to-suit lease deal with NRG Energy, Inc. (NRG) for Class A office space, spanning around 130,000 net rentable square feet, in Princeton, N.J. The property is anticipated to be complete and available for tenancy in 2016.

Property Update

As of Sep 30, 2013, Boston Properties’ portfolio comprised 177 properties spanning approximately 44.6 million square feet, including 8 properties under development totaling 2.8 million square feet. Its properties include Class A office space, one hotel, three residential and four retail assets. Additionally, the company has structured parking lots of around 15.7 million square feet.

The overall operating portfolio, which comprised 166 properties (excluding the two in-service residential properties and the hotel), was 92.8% leased at the end of the quarter.


Boston Properties exited third-quarter 2013 with cash and cash equivalents of about $1.64 billion compared with $1.04 billion as of Dec 31, 2012.

During the quarter under review, the company’s operating partnership amended and restated its unsecured revolving credit facility. The move helped the company increase the total commitment to $1.0 billion from $750.0 million. Also, this pushed the maturity rate to Jul 26, 2018 from Jun 24, 2014 and reduced the interest rates. The total commitment can be further enhanced to $1.5 billion, subject to syndication of the increase.


Boston Properties expects fourth-quarter 2013 FFO per share in the range of $1.23–$1.25. Also, the company provided the outlook for full-year 2014 FFO per share and projects it in the range of $5.20 – $5.35.

Our Viewpoint

We are encouraged with Boston Properties’ decent quarterly results. The company is benefiting from improved core operations and has been successful in maintaining a strong grip on high barrier-to-entry geographic markets across the U.S. Also, Boston Properties has strong balance sheet position with adequate liquidity to facilitate further portfolio enhancement activities. We expect this to drive growth and prove accretive to its earnings going forward.

Yet, the demand remains moderate for office space with elevated unemployment levels and adequate space availability, thus creating pressure on rent and occupancies.

Boston Properties currently holds a Zacks Rank #4 (Sell). REITs that are performing better and are worth a look include Douglas Emmett Inc (DEI) and DuPont Fabros Technology, Inc. (DFT). Both stocks carry a Zacks Rank #2 (Buy).

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.

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