Key Factors to Impact Boston Properties' (BXP) Q3 Earnings
Boston Properties, Inc. BXP is slated to report third-quarter 2023 results on Nov 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 3.33% in terms of FFO per share. The 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 2.08%. 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
U.S. Office Market in Q3
Per a Cushman & Wakefield CWK report, although overall office demand is under pressure due to macroeconomic uncertainty and a high interest rate environment, select markets are bucking the negative trend. Net absorption of negative 20.8 million square feet (msf) in the third quarter improved from the negative 22.0 and 22.9 msf recorded in the first and second quarters this year, respectively.
In addition, occupiers’ growing preference for the latest and best office properties has played a key role in leading to positive net absorption rates in these. Further, the occupancy in top-tier assets was more than 300 (basis points) bps higher than the overall market, excluding the buildings in lease-up. For the six gateway markets, top-tier asset occupancy was 700 bps higher.
The Cushman & Wakefield report also highlights the fact that even though vacant available sublease inventory increased in the third quarter, the pace has slowed down.
However, leasing activity slid for five quarters straight and slumped 24% year over year in the quarter. The overall gross leasing activity in the four quarters ended third-quarter 2023 was 281 msf. Also, the national vacancy rate reached an all-time high of 19.4%, increasing 220 bps year over year. The national asking rent came in at $37.48 in the quarter.
Nonetheless, 25 U.S. markets, including several gateway markets like Boston, Los Angeles non-CBD, Midtown South in Manhattan and San Francisco, experienced a sequential increase in leasing activity.
BXP’s Portfolio & Q3 Projections
Boston Properties owns a portfolio of modern, class A office buildings concentrated in a few select high-rent, high-barrier-to-entry geographic markets of Boston, Los Angeles, New York, San Francisco, Seattle and Washington, DC. Given the robust demand for top-tier assets with class-apart amenities, the company’s properties are likely to have witnessed healthy leasing activity.
In addition, the demand for life-science assets is on the rise amid the increasing need for drug research and innovation. Against this backdrop, the demand for BXP’s life-science assets is anticipated to have fared well during the third quarter.
The company is converting numerous straight office buildings to laboratory/life science spaces in its suburban portfolio, especially its Kendall Center project, which is one of the leading preferred locations for life-science clients in the world. Such efforts are likely to have given it an edge.
BXP’s long-term lease agreements with a diverse tenant base across industries having a solid credit profile are expected to have led to stable revenue generation during the to-be-reported quarter, boosting the top line.
The Zacks Consensus Estimate for third-quarter revenues is pegged at $767.2 million, suggesting growth of 3.8% from the prior-year quarter’s reported number. The consensus estimate for quarterly parking and other revenues is pegged at $27.6 million, up from $26.9 million reported in the prior quarter but down from $28.2 million in the year-ago period.
A robust balance sheet position is likely to have supported its development activities in the quarter.
Nonetheless, the elevated supply of office properties in some markets where the company operates is anticipated to have cast a pall on its quarterly performance to a certain extent. The rising supply is escalating competition from developers, owners and operators of office properties and other commercial real estate. This might have partly limited BXP’s ability to retain tenants at relatively higher rents and/or backfill tenant move-outs and vacancies.
Further, higher interest expenses are expected to have been a spoilsport. Our estimate suggests a year-over-year rise of 3.5% in BXP’s third-quarter interest expenses.
The Zacks Consensus Estimate for the quarterly FFO per share has been revised 1.1% northward to $1.85 over the past two months. However, the figure suggests a fall of 3.1% from the prior-year period’s reported number.
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 -0.75%. 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 #2 (Buy). 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:
Ventas VTR is scheduled to report quarterly numbers on Nov 2. VTR has an Earnings ESP of +0.08% and a Zacks Rank of 3 currently.
SBA Communications SBAC is slated to report quarterly numbers on Nov 2. SBAC has an Earnings ESP of +0.27% and carries a Zacks Rank #3 presently.
Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.
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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Ventas, Inc. (VTR) : Free Stock Analysis Report
Boston Properties, Inc. (BXP) : Free Stock Analysis Report
SBA Communications Corporation (SBAC) : Free Stock Analysis Report
Cushman & Wakefield PLC (CWK) : Free Stock Analysis Report
