Key Factors to Impact Boston Properties' (BXP) Q4 Earnings
Boston Properties, Inc. BXP is slated to report fourth-quarter and full-year 2023 results on Jan 30 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 0.54% 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 1.68%. This is depicted in the graph below:
Boston Properties, Inc. Price and EPS Surprise
Boston Properties, Inc. price-eps-surprise | Boston Properties, Inc. Quote
US Office Market
Per a Cushman & Wakefield CWK report, the economic uncertainty, hybrid-work environment and declines in office-using employment continued to keep occupiers cautious about office leasing decisions, resulting in a decrease in new leasing activity and renewals in the fourth quarter.
The fourth quarter of 2023 marked the eighth straight quarter for office demand being negative. Net negative absorption for the quarter was -19.2 million square feet (msf), which pushed the 2023 annual total to -77.5 msf.
The overall U.S. gross leasing activity in 2023 was 282 msf, which reflected a decline of 21% from the prior year. Moreover, the national vacancy rate climbed 200 basis points (bps) in 2023 and finished the year at 19.7%, which marks an all-time high. The national asking rent came in at $37.67 in the quarter.
However, total leasing increased quarter over quarter in 31 U.S. markets. This included all three Manhattan markets, San Francisco, San Jose, Charlotte and Austin.
Moreover, across a fourth of U.S. markets, vacancy fell, and it remained below 15% in 35 of the markets that were followed by Cushman & Wakefield. Premium quality office space continued to be in demand and outperformed the broader market. Particularly, office vacancy for such assets is almost 300 bps below the overall average, while asking rents are 40% higher.
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 improving demand for top-tier assets with class-apart amenities, the company’s properties are likely to have witnessed healthy leasing activity.
There is a solid demand for life-science assets 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 fourth 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.
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 fourth-quarter revenues is pegged at $762.28 million, suggesting growth of 3.14% from the prior-year quarter’s reported number. The consensus estimate for quarterly parking and other revenues is pegged at $29.05 million, slightly down from $29.65 million reported in the prior quarter but up from $26.99 million in the year-ago period.
A solid balance sheet position is likely to have supported its development activities in the quarter.
However, 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.
For 2023, management expects average in-service portfolio occupancy to range from 88% to 89.0%. We expect the company to maintain an occupancy rate of 88.6% in 2023.
Further, higher interest expenses are expected to have been a spoilsport. Management expects consolidated net interest expenses for 2023 between $510 million and $520 million. Our estimate suggests a year-over-year rise of 18.6% in interest expenses in 2023.
Boston Properties’ activities in the to-be-reported quarter were inadequate to garner analysts’ confidence. The Zacks Consensus Estimate for the quarterly FFO per share has remained unrevised at $1.81 over the past month. The figure suggests a 2.69% decrease from the year-ago quarter’s tally.
For 2023, Boston Properties projected FFO per share in the band of $7.25-$7.27. The full-year outlook of the company is based on the assumption of its share of the same property NOI on a cash basis (excluding termination income) growth of 1.50-2.5%.
For the full year, the Zacks Consensus Estimate for FFO per share has been unrevised at $7.27 over the past month. The figure indicates a 3.45% decrease from the year-ago reported figure. However, the Zacks Consensus Estimate for 2023 revenues is pegged at $3.05 billion, indicating an increase of 4.38% from the year-ago reported number.
Here Is What Our Quantitative Model Predicts:
Our proven model does not conclusively predict a surprise in terms of FFO per share for Boston Properties this season. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of an FFO beat, which is not the case here.
Boston Properties currently carries a Zacks Rank of 3 and has an Earnings ESP of -1.17%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Stocks That Warrant a Look
Here are three stocks from the broader REIT sector — Welltower Inc. WELL, VICI Properties Inc. VICI and Kimco Realty Corporation KIM — you may want to consider as our model shows that these have the right combination of elements to report a surprise this quarter.
Welltower is slated to report quarterly numbers on Feb 13. WELL has an Earnings ESP of +0.80% and carries a Zacks Rank of 3 presently. You can see the complete list of today’s Zacks #1 Rank stocks here.
VICI Properties, scheduled to report quarterly numbers on Feb 22, has an Earnings ESP of +2.16% and carries a Zacks Rank of 2.
Kimco Realty, slated to release quarterly numbers on Feb 8, has an Earnings ESP of +2.56% and carries a Zacks Rank of 2 at present.
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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Boston Properties, Inc. (BXP) : Free Stock Analysis Report
Kimco Realty Corporation (KIM) : Free Stock Analysis Report
Welltower Inc. (WELL) : Free Stock Analysis Report
VICI Properties Inc. (VICI) : Free Stock Analysis Report
Cushman & Wakefield PLC (CWK) : Free Stock Analysis Report
