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Analyst Blog

On Dec 13, 2013, we reiterated our long-term Neutral recommendation on real estate investment trust (REIT), Boston Properties Inc. (BXP - Analyst Report). This was based on the company’s fundamentals, decent third-quarter results and the recent dividend announcement. However, adequate space availability remains a concern and prevents us from harboring a completely positive outlook on the stock.

Why the Reiteration?

Late in October, Boston Properties came up with encouraging results. The company reported third-quarter 2013 funds from operations (FFO) per share of $1.29, which was a penny ahead of the Zacks Consensus Estimate. Moreover, it was 12.2% higher than the year-ago quarter figure of $1.15 per share. The results were aided by increased revenues and improved core operations.

In a major boost to shareholders’ confidence, Boston Properties recently declared a special cash dividend of $2.25 per share, which will be paid on Jan 29, 2014 to stockholders of record as of Dec 31, 2013.

Notably, the disposition of 45% stake in the company’s Time Square Tower property in Oct 2013 primarily facilitated the special dividend. Boston Properties also declared a regular quarterly cash dividend of 65 cents per share for third-quarter 2013. This dividend is also payable on Jan 29, 2014 to shareholders of record as of the close of business on Dec 31, 2013.

Boston Properties has been successful in maintaining a strong grip on high barrier-to-entry geographic markets in the U.S through notable portfolio enhancement activity.  Also, the company has a strong balance sheet position with adequate liquidity to fund further portfolio related initiatives. Moreover, the declaration of a special cash dividend was commendable as it helped raise shareholders’ spirits.

However, Boston Properties generates a significant amount of revenues from its office portfolio. Notably, the demand for office properties is highly correlated to job growth. Currently, sluggish growth in jobs and persistent office space efficiency trends are limiting growth momentum of the office sector fundamentals, thereby affecting the company’s top-line growth.

Over the last 7 days, the Zacks Consensus Estimate for both 2013 and 2014 remained stable at $4.88 and $5.38 per share, respectively. Hence, the stock currently has a Zacks Rank #3 (Hold).

Other Stocks to Consider

Some better-ranked stocks in the REIT sector include Getty Realty Corp. (GTY - Snapshot Report), Sabra Health Care REIT, Inc. (SBRA - Snapshot Report) and Winthrop Realty Trust (FUR - Snapshot Report). All these carry a Zacks Rank #1 (Strong 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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