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Boston Properties Inc. (BXP - Analyst Report), one of the leading real estate investment trusts (REITs), reported fourth quarter 2011 FFO (funds from operations) of $179.3 million or $1.21 per share, compared with $89.9 million or $0.64 per share in the year-earlier quarter. Fund from operations, a widely used metric to gauge the performance of REITs, is obtained after adding depreciation and amortization and other non-cash expenses to net income.

The reported FFO for the quarter surpassed the Zacks Consensus Estimate by 2 cents. The decrease in fourth quarter 2010 FFO was primarily due to loss from early extinguishment of debt totaling approximately $81.7 million or $0.50 per share.

For full year 2011, FFO was $711.0 million or $4.84 per share, compared with $547.4 million or $3.90 per share in the previous year. The reported FFO for fiscal 2011 exceeded the Zacks Consensus Estimate by 2 cents.

Total revenues of the company during the reported quarter were $452.8 million, compared with $392.5 million in the year-ago quarter. The quarterly revenues were well above the Zacks Consensus Estimate of $430 million. For full year 2011, total revenues were $1.76 billion, compared with $1.55 billion in 2010. The fiscal 2011 revenues were well above the Zacks Consensus Estimate of $1.69 billion. The overall portfolio was 91.3% leased at quarter-end.

During the reported quarter, Boston Properties completed and placed in-service the office component of the Atlantic Wharf development project in Boston, Massachusetts. The office component includes 798,000 net rentable square feet of space (currently 93% leased). Consequently, the company terminated the construction loan facility collateralized by the project totaling $192.5 million.

The company repaid a mortgage loan totaling $50.0 million during fourth quarter 2011, collateralized by its ‘Reservoir Place’ property in Waltham, Massachusetts, using available cash.  At the same time, the company’s Value-Added Fund refinanced a mortgage loan collateralized by its ‘Mountain View Technology Park’ property in Mountain View, California. The new mortgage loan totaling $20.0 million is scheduled to mature on November 22, 2014.

During the reported quarter, an unconsolidated joint venture (in which Boston Properties has a 30% stake) obtained construction financing totaling $107.0 million collateralized by its ‘500 North Capitol Street’ redevelopment project in Washington, DC. Simultaneously, an unconsolidated joint venture (in which the company has a 50% interest) obtained construction financing totaling $19.0 million, collateralized by its ‘Annapolis Junction’ development project in Annapolis, Maryland.

During the quarter, Boston Properties acquired ‘2440 West El Camino Real’ – a 140,000 net rentable square foot Class A office property (currently 100% leased) in Mountain View, California, for $71.5 million in cash. During the quarter, the company also sold ‘Two Grand Central Tower’ – a joint venture property in which it had a 60% interest, for $401.0 million, including the assumption of $176.6 million of mortgage debt. Located in New York City, Two Grand Central Tower is a 650,000 net rentable square foot Class A office tower. Net cash proceeds totaled approximately $210.0 million, out of which the company’s share was approximately $126.0 million.

During fourth quarter 2011, the company completed a public offering of $850.0 million in aggregate principal amount of 3.700% senior unsecured notes due 2018. The notes were priced at 99.767% of the principal amount to yield an effective interest rate of 3.853% to maturity. At the same time, the company repurchased $50.0 million aggregate principal amount of its 2.875% exchangeable senior notes due 2037 for approximately $50.2 million.

Boston Properties ended fourth quarter 2011 with cash and cash equivalents of about $1.8 billion. The company expects first quarter 2012 FFO in the range of $1.12–$1.14 per share, while FFO for full year 2012 is expected in the range of $4.65–$4.78.

We presently have a long-term ‘Neutral’ rating on Boston Properties, which currently has a Zacks #3 Rank that translates into a short-term ‘Hold’ recommendation. We also have a ‘Neutral’ recommendation and a Zacks #3 Rank for Vornado Realty Trust (VNO - Analyst Report), one of the competitors of Boston Properties.

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