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Boston Properties Beats Estimates

BXP VNO

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Boston Properties Inc (BXP - Analyst Report), a real estate investment trust (REIT), reported second quarter 2012 FFO (funds from operations) of $206.8 million or $1.37 per share, compared with $181.6 million or $1.23 per share in the year-earlier quarter.. The increase in FFO was driven by higher rental revenue. The reported FFO for the quarter beat the Zacks Consensus Estimate by 13 cents

Total revenues during the quarter were $472.9 million, compared with $433.9 million in the year-ago quarter. The quarterly revenues were well above the Zacks Consensus Estimate of $425 million. The overall portfolio was 91.6% leased at quarter-end.

During the quarter, Boston Properties sold its Bedford Business Park portfolio in Bedford, Massachusetts, for approximately $62.8 million in cash. The divested asset portfolio included two office/technical buildings and one Class A office building. It aggregated approximately 470,000 net rentable square feet.

At the same time, the company placed in-service 510 Madison Avenue – a Class A office property (55% leased) spanning approximately 356,000 net rentable square feet in New York City. Boston Properties completed and placed in-service One Patriots Park. This is a Class A 100% leased office project totaling approximately 268,000 net rentable square feet in Reston, Virginia.

During the quarter, Boston Properties used available cash to repay the mortgage loan (totaling $65.1 million) collateralized by One Freedom Square. The property is in Reston, Virginia.

In addition, an unconsolidated joint venture in which Boston properties held a 60% stake entered into a lease termination agreement with an existing tenant in New York City. As per the agreement, the tenant terminated its lease early for an area of approximately 36,000 square feet.  The client is expected to pay $28.4 million to the unconsolidated joint venture through May 1, 2014 (of which Boston’s share is approximately $17.0 million)

During the reported quarter, the company’s Operating Partnership completed a public offering of $1.0 billion of its 3.850% senior unsecured notes schedule to mature in  2023 and generated net proceeds of $989.4 million. Subsequent to the quarter-end, the company's Operating Partnership intends to redeem the remaining $225.0 million of its 6.25% senior notes due 2013. The company expects to fund this redemption using cash.

Boston Properties utilized its proceeds at the market (ATM) stock offering program to issue nearly 1.3 million shares during the quarter. Gross proceeds were approximately $139.2 million.

Subsequent to the end of the quarter, the company formed a joint venture to own Fountain Square. This is an office and retail complex spanning approximately 811,000 net rentable square feet and is located in Reston, Virginia.The joint venture partner will contribute approximately $385.0 million and related mortgage indebtedness totaling approximately $211.3 million for a 50% interest in the joint venture.The company expects to contribute cash totaling approximately $87.0 million for its 50% interest, to be distributed to the joint venture partner.

Boston Properties ended second quarter 2012 with cash and cash equivalents of $1.7 billion. The company expects third quarter 2012 FFO in the range of $1.13–$1.15 per share, while FFO for full year 2012 is expected in the range of $4.85–$4.91.

Boston Properties currently retains a Zacks #3 Rank, which translates into a short-term Hold rating. We also maintain our long-term Neutral recommendation on the stock. One of its competitors, Vornado Realty Trust (VNO - Analyst Report) currently also retains a Zacks #3 Rank.

Note: FFO, 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

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