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Earnings Preview: Boston Properties

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Boston Properties Inc. ([url=]BXP[/url]), a real estate investment trust (REIT), is scheduled to report its fiscal 2012 first quarter earnings after the closing bell on May 1, 2012. The current Zacks Consensus Estimate for the first quarter is $1.14 per share, representing a year-over-year growth of 1.40%.

Fourth Quarter Recap

Boston Properties 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.

Agreement of Analysts

In the last 7 days, there were no upward earnings estimate revision for the first quarter, while 1 out of 14 analysts covering the stock revised it downwards. For fiscal 2012, 1 out of 18 analysts covering the stock raised the earnings estimate in the last 7 days, while none decreased the same. These represents that the analysts are slightly bearish about the short-term earnings prospect of the company, while being bullish on a long-term perspective.

Magnitude of Estimate Revisions

Earnings estimates have remained stagnant in the last 7 days for the first quarter and full fiscal 2012 at $1.14 and $4.79 per share, respectively, meaning that the analysts are circumspect about both the short- and long-term performance of the company.  

Moving Forward

Boston Properties owns and develops one of the largest Class-A office, industrial, and hotel properties in the U.S. Boston Properties concentrates on a few select high-rent, high barrier-to-entry geographic markets which usually fare better in a faltering economy. Two of the largest markets of the company, New Yorkand Washington DC are still among the best of the office markets in the U.S. 

The company also has one of the best balance sheets in the sector with manageable near-term debt maturities and adequate liquidity to take advantage of distressed selling as asset values of office and retail properties continue to drop.

However, Boston Properties has a large development pipeline which increases operational risks in the current credit-constrained market, exposing it to rising construction costs, entitlement delays, and lease-up risk.

We currently have a ‘Neutral’ recommendation on Boston Properties with a Zacks #2 Rank, which translates into a short-term ‘Buy’ rating. We also have a ‘Neutral’ recommendation and a Zacks #3 Rank (short-term ‘Hold’ rating) for Vornado Realty Trust (VNO - Free Report) , one of the competitors of Boston Properties.

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