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What to Expect From Boston Properties (BXP) in Q3 Earnings?

Zacks Equity Research

Boston Properties, Inc. BXP is scheduled to report third-quarter 2019 results on Oct 29, after the market closes. The company’s results will likely reflect year-over-year (y/y) growth in funds from operations (FFO) per share and revenues.

In the last reported quarter, this office real estate investment trust’s (REIT) FFO of $1.78 per share surpassed estimates by 2.3%. Results were backed by higher occupancy and strong leasing activity. Further, higher lease revenues from development project completions and improvements in the company’s in-service portfolio drove bottom-line growth.

Over the preceding four quarters, the company surpassed the FFO per share estimates on three occasions and missed in the other, the average positive surprise being 0.29%. This is depicted in the graph below:

Kimco Realty Corporation Price and EPS Surprise
 

Kimco Realty Corporation Price and EPS Surprise


Kimco Realty Corporation price-eps-surprise | Kimco Realty Corporation Quote

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

Factors to Influence Q3 Results

The U.S. office market continued to witness methodical growth in the third quarter. This comes at a time when the U.S economy is at its now record-long, economic expansion cycle. In fact, employment growth remained sturdy, with the July-September quarter adding 157,000 new jobs on an average. This is likely to have supported healthy leasing activity and rental rate growth.

In fact, report from Newmark Knight Frank suggests that the U.S. office market tightened during third-quarter 2019. In fact, vacancy rates shrunk 40 basis points year over year, although 8.9 million square feet of new office space was delivered during the quarter.

In addition, job growth in office-using sectors facilitated 2.6% y/y improvement in asking rents. However, absorption in the September-end quarter totaled 7.5 million square feet of space, declining from 13.9 million square feet of space in the prior-year quarter.

Amid this favorable condition in the office real estate sector, Boston Properties’ assets in high-rent, high barrier-to-entry geographic markets are expected to have enabled the company to enjoy higher rents. In fact, the Zacks Consensus Estimate for third-quarter rental revenues is pegged at $708 million and indicates y/y improvement of 8%.

This is anticipated to have boosted Boston Properties’ revenue growth during the quarter. Moreover, the Zacks Consensus Estimate for the quarter’s total revenues is pegged at $680.7 million and indicates 8.3% y/y growth.

However, revenues from development and management services are expected to have sequentially declined by 7% to $9.24 million in the September-end quarter.

Also, prior to the third-quarter earnings release, the company has been witnessing downward estimate revisions. As such, the Zacks Consensus Estimate of FFO per share for the quarter has been revised 2.2% downward to $1.72 over the past month, reflecting analysts’ bearish sentiments. Nonetheless, it represents y/y growth of 4.9%. The company anticipates third-quarter 2019 FFO per share of $1.75-$1.77.

Key Developments in Q3

In September, Boston Properties announced the acquisition of 880 and 890 Winter Street, a two-building, class A office campus in Waltham, MA. It shelled out $106 million in cash for this acquisition. The buyout will boost its footprint in Boston’s thriving suburb that is witnessing rising demand for class A space.

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.

Earning ESP: Boston Properties has an Earnings ESP of -5.68%.

Zacks Rank: The company currently carries a Zacks Rank of 2 (Buy).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Stocks That Warrant a Look

Digital Realty Trust, Inc. DLR, scheduled to release earnings on Oct 29, has an Earnings ESP of +2.61% and carries a Zacks Rank of 3, at present.

Senior Housing Properties Trust SNH, slated to report July-September quarter results on Nov 7, has an Earnings ESP of +3.23% and currently holds a Zacks Rank of 2.

Stag Industrial, Inc. STAG, set to release quarterly figures on Oct 30, has an Earnings ESP of +1.1% and carries 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 gauge the performance of REITs.

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