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Analyst Blog

On Sep 6, 2013, we reiterated our long-term Neutral recommendation on Boston Properties Inc. (BXP - Analyst Report). Though we remain encouraged with the company’s better-than-expected second-quarter results and strategic efforts to improve its core operations, we believe that new supply and increased utilization of office space in its operating markets will remain overhangs.

Why Neutral?

Aided by lower operating expenses and higher-than-expected leasing and other fee income, Boston Properties’ second-quarter 2013 FFO (funds from operations) per share of $1.28 were a penny above the Zacks Consensus Estimate and the company’s guidance of $1.25–$1.27 per share.

However, this owner and developer of Class A office properties in the U.S., experienced a 5.9% fall in FFO per share year over year. It also lowered its guidance for 2013 FFO per share.

Boston Properties concentrates on a few select high-rent, high barrier-to-entry geographic markets.  The company is making strategic efforts to improve its core operations. It has a decent balance sheet with manageable near-term debt maturities and adequate liquidity to take advantage of distressed selling.

Yet, the demand remains moderate for office space with unemployment levels remaining elevated and adequate space availability. New supply as well as increased utilization of office space are headwinds for the demand of the company’s properties. Moreover, the rise in interest rates adversely affects the company’s funding expenses.

Over the last 30 days, the Zacks Consensus Estimate for 2013 FFO per share remained stable at $4.93 while that for 2014 moved down a cent to $5.55 per share. The stock currently has a Zacks Rank #3 (Hold).

Other Stocks to Consider

Better performing REITs that are worth a look include Sovran Self Storage Inc. (SSS - Snapshot Report) with a Zacks Rank #1 (Strong Buy) as well as Highwoods Properties Inc. (HIW - Analyst Report) and SL Green Realty Corp. (SLG - Analyst Report), both carrying a Zacks Rank #2 (Buy).

Note: FFO, a widely accepted and reported measure of the performance of REITs is derived by adding depreciation, amortization and other non-cash expenses to net income.
 

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