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Boston Properties Inc (BXP - Analyst Report) – a real estate investment trust (REIT) – reported fourth quarter 2012 FFO (funds from operations) per share of $1.27, beating the Zacks Consensus Estimate by 3 cents. This also compares favorably with the year-ago quarter’s FFO per share of $1.21.

For full year 2012, FFO stood at $741.4 million or $4.90 per share compared with $711.0 million or $4.84 per share last year.

Behind the Headlines Number

Total revenue during the quarter stood at $485.4 million compared with $450.5 million in the year-ago quarter. The quarterly revenues reached well above the Zacks Consensus Estimate of $454 million.

For the full year, total revenue came in at $1.88 billion compared with $1.75 billion in 2011. The revenues for the year also surpassed the Zacks Consensus Estimate of $1.75 billion. The quarterly and yearly hikes in revenues were primarily attributable to significant surge in rental revenues.

Rental revenues during the fourth quarter climbed 8.2% to $465.4 million from $430.2 million in the prior-year quarter. For the full year, rental revenues increased 7.2% to $1.80 billion from $1.68 billion in 2011.     

Leasing Activity

During the quarter, Boston Properties inked a 20-year lease deal with a law firm to lease around 246,000 square feet of space at 250 West 55th Street, which is an underdevelopment office building in midtown Manhattan. With the transaction, the property is now about 46% occupied.

Also, the company penned a 20-year lease agreement with another law firm for around 376,000 square feet of space at 601 Massachusetts Avenue, which is the Boston Properties’ proposed development project in Wash. slated to start in the second quarter of 2013. With the transaction, the property is now around 79% anchored.

Subsequent to the end of the quarter, on Jan 7, 2013, Boston Properties signed a 20-year lease deal with the General Services Administration for fully renting a Va.-based property – Three Patriots Park.

Property Update

As of Dec 31, 2012, Boston Properties’ portfolio comprised 157 properties spanning around approximately 44.4 million square feet, including 9 properties under development totaling 2.8 million square feet. In addition, the company has structured parking lots of around 15.9 million square feet.

The overall operating portfolio, which comprised 145 properties (excluding the two in-service residential building and the hotel), was 91.4% leased at the end of the quarter.

Other Transactions

During the quarter, Boston Properties also inked a joint venture (JV) for a 30% interest in a Class A operating office redevelopment project – 500 North Capitol Street, NW, – located in Washington, DC.

The company also formed a JV, which owns and operates a Va.-based office and retail complex – Fountain Square. Boston Properties paid around $87.0 million in cash to the JV partner for gaining 50% interest in it. Post agreement, Boston Properties received the rights to acquire the partner’s 50% interest and the partner got the right to make the former acquire its interest on Jan 4, 2016 for a fixed price of $102.0 million, in each case. The fixed price option rights will expire on Jan 31, 2016.

In addition, Boston Properties penned a JV with an affiliate of Hines to acquire a land in San Francisco, which could hold a 61-story office building – Transbay Tower – of 1.4 million square feet. The acquisition, worth $190.0 million, is expected to close in the first quarter of 2013. The company holds a 50% interest in the JV and has provided a non-refundable deposit of $5.0 million for the land purchase.

Liquidity

During the quarter under review, Boston Properties terminated the construction loan facility worth $170.0 million collateralized by San Francisco-based development project – 680 Folsom Street. The facility was scheduled to mature on May 30, 2015.

Boston Properties ended fourth quarter 2012 with cash and cash equivalents of about $1.04 billion.

Dividend

The company paid a quarterly dividend of 65 cents per share to shareholders of record as of Dec 31, 2012. The dividend represented an increase of 18.2% over the previous quarterly dividend of 55 cents per share.

2013 Outlook

Boston Properties expects first quarter 2013 FFO per share in the range of $1.19–$1.21. Also, the company increased its guidance for 2013 FFO per share to the range of $5.06–$5.18 from the prior range of $5.00–$5.15.   

Our Viewpoint

We are encouraged with Boston Properties’ impressive results in the reported quarter. Moreover, we expect that its strong leasing activity and JV deals will pave way for maintaining a strong grip on high barrier-to-entry geographic markets across the U.S. This will likely drive growth and prove accretive to its earnings going forward.

Boston Properties currently holds a Zacks Rank #4 (Sell). Other REITs that are performing better and are worth a look include Ventas Inc. (VTR - Analyst Report), Terreno Realty Corp. (TRNO - Snapshot Report) and Brandywine Realty Trust (BDN - Snapshot Report). These stocks carry a Zacks Rank #2.

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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