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Boston Properties Beats Q2 FFO on Revenues, Tweaks Guidance

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Boston Properties Inc. (BXP - Free Report) reported second-quarter 2014 FFO (funds from operations) per share of $1.35, beating the Zacks Consensus Estimate by 2 cents and the prior-year quarter figure by 7 cents. Results benefited from better-than-expected growth in revenues.

FFO per share also came ahead of the company’s previously guided range of $1.32–$1.34 per share, thanks to property-associated cost savings as well as higher than expected development and management services income. However, the company has slightly tweaked its previously issued guidance.

Nevertheless, total revenue during the quarter advanced 15.6% year over year to $589.8 million, coming well above the Zacks Consensus Estimate of $566 million. The quarterly hike was primarily attributable to a significant increase in rental revenues.

Rental revenues escalated 16.3% year over year to $570.9 million.  The year-over-year increase was mainly driven by an uptick in base rents and higher tenant recoveries revenues.   

Property Update

As of Jun 30, 2014, Boston Properties’ portfolio comprised 180 properties spanning approximately 46.6 million square feet, including 13 properties under development totaling 4.8 million square feet. Its properties include Class A office space, one hotel, three residential and five retail assets. Additionally, the company has structured parking lots covering around 15.8 million square feet.

The overall operating portfolio, comprising 163 properties (excluding the three in-service residential properties and the hotel), was 93.0% leased, up 60 basis points sequentially.

Notably, in Apr 2014, a consolidated JV, in which the company has 95% stake, inked a deal with, Inc. (CRM - Free Report) to lease around half (714,000 square feet) of the new Salesforce Tower in San Francisco, CA. (1.4 million square foot). The building, whose construction has already started, is expected to be accomplished in early 2017. (Read: Boston Properties-Salesforce Ink Lease Deal)


Boston Properties exited second-quarter 2014 with cash and cash equivalents of around $1 billion, down from $2.4 billion as of the year-end 2013.


Boston Properties expects its third-quarter 2014 FFO per share in the range of $1.36–$1.38. The Zacks Consensus Estimate of $1.36 per share lies within this range.

The company has tweaked its previously issued guidance for 2014 FFO per share. Presently, it expects full year 2014 FFO per share to be in the range of $5.24–$5.29, compared with the prior projection of $5.25–$5.33 per share. The Zacks Consensus Estimate of $5.27 per share also comes in this range.

The company’s current 2014 full-year outlook incorporates a projected rise in same property (GAAP) net operating income of 2.00%–2.50%, higher than the prior estimation of 1.75%–2.50%, as well as an increase in development and management service income.

However, it includes a negative impact of 5 cents per share arising from accomplished and expected sales of Mountain View Technology Park and Mountain View Research Park Building Sixteen, Patriots Park and Broad Run Business Park Land.

Our Viewpoint

Boston Properties’ endeavors to maintain a dominant position in the high barrier-to-entry geographic markets in the U.S bode well going forward. Moreover, the company’s strategic deals, like that of Salesforce, are expected to boost its strong diversified tenant base comprising several U.S. bellwethers. However, though the overall office market is recovering in the U.S., the rate of revival is tepid.

Boston Properties currently holds a Zacks Rank #3 (Hold). We now look forward to other REITs, which are scheduled to release their earnings this week and the next. These include Host Hotels & Resorts, Inc. (HST - Free Report) and HCP Inc. (HCP - Free Report) . Both these stocks carry a Zacks Rank #2 (Buy).

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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