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Can Boston Properties (BXP) Regain Its Luster in Q1 Earnings?

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Boston Properties, Inc. (BXP - Free Report) is scheduled to report first-quarter 2021 results on Apr 27, after market close. The company’s results are expected to reflect year-over-year declines in quarterly funds from operations (FFO) per share and revenues.

In the last reported quarter, the office real estate investment trust’s (REIT) FFO per share of $1.37 missed the Zacks Consensus Estimate by 14.4%. Results were affected by a year-over-year decline in revenues from leases.

Over the preceding four quarters, the company beat the FFO per share estimates on one occasion and missed in the others, the average negative surprise being 7.4%. This is depicted in the graph below:

Boston Properties, Inc. Price and EPS Surprise

 

Boston Properties, Inc. Price and EPS Surprise

Boston Properties, Inc. price-eps-surprise | Boston Properties, Inc. Quote

Let’s see how things have shaped up for this announcement.

With further reopening of the economy and vaccine distribution at a faster pace, there has been an uptick in office job from their pandemic lows. Amid this, Boston Properties’ portfolio of modern class A office buildings has been well poised to have benefitted from the flight-to-quality preference of office tenants. Despite a lackluster office market scenario, the company inked 3.7 million square feet of leases in 2020. With an improvement in job markets, the trend is likely to have continued in first-quarter 2021 as well.

The company inked a 63,000-sq-ft, 15-year lease with a healthcare company at 195 West Street in Waltham, MA, and a 60,000-sq-ft lease extension with a technology company at 200 West Street in Waltham, MA. These are likely to have aided the lease rate of its in-service portfolio.

Apart from these, the company has a 3.3-million-sq-ft stabilized portfolio of 46 life-science buildings (as of Dec 31, 2020). With robust tailwinds, the asset category is likely to have performed well and aided the company’s performance in the March-end quarter.

Specifically, the aging demography and increasing life expectancy of the U.S. population have been driving the demand for life-changing therapies and cures. This has been offering scope for scientific innovation and biopharma drug development by biotechs. Moreover, in light of the global efforts to develop vaccines and treatments for coronavirus, the demand for drug innovation continued to be robust in first-quarter 2021.

The underlying demand drivers are expected to have strengthened the life-science market’s fundamentals, leasing activity and rent growth. Also, favorable drug approval trends and high life-science funding have been positives. Amid this, Boston Properties is anticipated to have witnessed a decent demand, occupancy and tenant retention at its lab properties.

However, the pandemic’s impact on the labor markets continued to lull the U.S. office real estate market in the first quarter of 2021, resulting in negative net absorption and an increase in vacancy rates. In fact, since the U.S. economy slashed around three million office-using jobs in March and April of 2020, the United States has added only 1.9 million office-using jobs through March 2021. Moreover, the work-from-home scenario has continued to put downward pressure on leasing.

Specifically, going by a Cushman & Wakefield (CWK - Free Report)  report, the U.S. office sector witnessed negative net absorption of 41.1 million square feet, marking the third consecutive quarter of such decline. In fact, since March 2020, 138.4 million square feet of office space was shed in the United States. Further, vacancy increased to 16.4% in the March-end quarter from 13% a year ago.

Amid this, the company’s footprint in markets, which are currently under stress due to the pandemic, is likely to have witnessed significant headwinds. In a bid to maintain occupancy and attract renters, it is likely to have provided free rent and tenant improvement allowances. This is likely to have affected its quarterly performance.

Also, with continued remote working, first-quarter parking and other revenues are expected to have declined. Notably, the Zacks Consensus Estimate for the same is pegged at $16.28 million, indicating a 33.6% decline from the year-ago reported figure.

Overall, the Zacks Consensus Estimate for first-quarter revenues is pegged at $658.6 million, indicating a year-over-year decline of 7.3%.

Prior to the first-quarter earnings release, the company is witnessing downward estimate revision, indicating the bearish sentiment of analysts. In fact, the Zacks Consensus Estimate for first-quarter FFO per share has been revised 1.9% downward to $1.55 over the past week. Also, the figure suggests a year-over-year fall of 15.3%.

The company projects first-quarter 2021 FFO per share of $1.53-$1.57.

Earnings Whispers

Our proven model doesn’t conclusively predict a surprise in terms of FFO per share for Boston Properties this time around. The combination of a positive Earnings ESP and Zacks Rank #3 (Hold) or better increases the odds of a FFO beat. But that’s not the case here.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Earnings ESP: Boston Properties has an Earnings ESP of -0.48%.

Zacks Rank: It currently carries a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Stocks That Warrant a Look

Here are some stocks in the REIT sector that you may want to consider, as our model shows that these have the right combination of elements to report a surprise for the first quarter:

Digital Realty Trust, Inc. (DLR - Free Report) , scheduled to report quarterly numbers on Apr 29, currently has an Earnings ESP of +1.06% and a Zacks Rank of 3.

CubeSmart (CUBE - Free Report) , slated to release quarterly numbers on Apr 29, has an Earnings ESP of +3.14% and a Zacks Rank of 3 at present.

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