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What's in Store for Boston Properties' (BXP) Q2 Earnings?

Zacks Equity Research

Boston Properties, Inc. BXP is scheduled to report second-quarter 2019 results on Jul 30, after the market closes.The company’s results will likely reflect year-over-year 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 $1.72 per share surpassing estimates by 3.6%. Results were supported by higher occupancy and strong leasing activity.

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 0.04%. 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-eps-surprise | Boston Properties, Inc. Quote

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

Factors to Influence Q2 Results

The U.S. office market continued to witness methodical growth in the second 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 April-June quarter adding 171,000 new jobs on an average. As the labor market maintains its hiring levels, it has likely supported healthy leasing activity.

In fact, report from Newmark Knight Frank suggests that the U.S. office market tightened during the second quarter of 2019. In fact, continued job creation in office-using sectors spurred new demand, resulting in 3.2% year-over-year growth in asking rents, while vacancy rates shrunk 50 basis points as compared to second-quarter 2018. Further, absorption for the June-end quarter totaled 10.2 million square feet of space, increasing from 9.3 million square feet of space in the prior-year quarter.

Also, amid healthy growth in demand for office spaces, office landlords can raise rents for properties.
In fact, the company’s rental revenues are expected to improve 3.4% sequentially to $702 million during the June-end quarter.

Significant leasing activity and growth in rental revenues will likely drive the company’s performance. In fact, in April, the company signed a new lease with Bank of America for 545,000 square feet of space at 100 Federal Street property in Boston, MA. With this 15-year lease, the bank has renewed its lease that was scheduled to expire in 2022.

Amid this, the Zacks Consensus Estimate for the quarter’s total revenues is pegged at $678.9 million and indicates 11% year-over-year growth.

While overall economic conditions suggest that this cyclical expansion will continue throughout the year, it has also attracted many developers to add more office space in the market. In fact, the construction pipeline reached its highest level of the cycle during second-quarter 2019, with nearly 11.9 million square feet of new deliveries entering the market. This high level of supply of office space is a concern as it limits landlords’ pricing power.

While the company anticipates second-quarter 2019 FFO per share of $1.73-$1.75, the Zacks Consensus Estimate for the same is currently pegged at $1.74, suggesting 10% growth from the year-ago quarter reported tally. However, given the lack of any solid catalyst for becoming overtly optimistic about the company’s business activities and prospects, the estimate remained unchanged over the past month.

Earnings Whispers

Here is what our quantitative model predicts:

Boston Properties has the right combination of two key ingredients — a positive Earnings ESP  and Zacks Rank #3 (Hold) or higher — for increasing the odds of an earnings beat.

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

Earnings ESP: Boston Properties’ Earnings ESP is +0.06%.

Zacks Rank: It currently carries a Zacks Rank of 3.

A positive Earnings ESP is a meaningful and leading indicator of a likely beat in terms of FFO per share. This, when combined with a favorable Zacks rank, makes us reasonably confident of a positive surprise.

Other Stocks That Warrant a Look

CyrusOne Inc. CONE, scheduled to release earnings on Aug 1, has an Earnings ESP of +1.37% and carries a Zacks Rank #3, at present.

Corporate Office Properties Trust OFC, slated to report quarterly figures on Jul 29, has an Earnings ESP of +0.66% and carries a Zacks Rank of 3, currently. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Healthcare Realty Trust Incorporated HR set to release June-end quarter results on Jul 30, has an Earnings ESP of +0.72% and currently holds a Zacks Rank #3.

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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