Real estate investment trust (REIT) -
Boston Properties Inc.
) second-quarter 2013 FFO (funds from operations) per share of
$1.28 were a penny above the Zacks Consensus Estimate and the
company's guidance of $1.25-$1.27 per share. The results were
aided by lower operating expenses and higher-than-expected
leasing and other fee income.
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However, this owner and developer of Class A office properties in
the U.S., experienced a 5.9% fall in FFO per share from $1.36
reported in the year-ago quarter. The company has also lowered
its guidance for 2013 FFO per share.
Behind the Headlines Number
Total revenue during the quarter advanced 9.3% to $515.3 million
from $471.3 million in the year-ago quarter. The quarterly
revenues were well above the Zacks Consensus Estimate of $470
million. The hike in revenues was primarily attributable to a
significant surge in rental revenues.
Rental revenues climbed 9.9% to $496.3 million from $451.7
million in the prior-year quarter. The increase was primarily
driven by higher base rents and tenant recoveries revenues.
Notable Portfolio Activities
During the quarter, Boston Properties started construction of
Transbay Tower development project's initial phase in San
Francisco, Calif. as well as the 601 Massachusetts Avenue
development project in Washington, D.C. (79% pre-leased).
In addition, Boston Properties acquired the Mountain View
Research Park and Mountain View Technology Park properties from
its Value-Added Fund for approximately $233.5 million in total.
Prior to the purchase, the company's ownership stake in the
properties was around 39.5%.
In the quarter under review, one of its joint venture (JV) in
which Boston Properties has a 60% stake accomplished the sale of
its 125 West 55th Street property - a Class A office property
- in New York City for $470.0 million.
Moreover, two of its JV partners in 767 Venture, LLC (owner of
767 Fifth Avenue (The GM Building) in New York City) transferred
their entire stake in the JV to third parties. As a result, the
JV terms were modified and the move resulted in Boston Properties
gaining significant financial and operating control over 767
Also, a Class A office project - 17 Cambridge Center in
Cambridge, Mass. - was completed during the quarter and fully
placed in service. The property is 100% leased.
As of Jun 30, 2013, Boston Properties' portfolio comprised 179
properties spanning approximately 44.8 million square feet,
including 8 properties under development totaling 2.8 million
square feet. Its properties include Class A office space, one
hotel, three residential properties and four retail properties.
In addition, the company has structured parking lots of around
15.7 million square feet.
The overall operating portfolio, which comprised 168 properties
(excluding the two in-service residential properties and the
hotel), was 92.1% leased at the end of the quarter.
During the quarter under review, Boston Properties used its
available cash to pay-off the mortgage loan worth $47.6 million
collateralized by its 140 Kendrick Street property located in
Needham, Mass. The facility was scheduled to mature on Jul 1,
Boston Properties exited second-quarter 2013 with cash and cash
equivalents of about $1.6 billion compared with $909.4 million at
the end of the prior quarter and $1.04 billion as of Dec 31,
Boston Properties expects third-quarter 2013 FFO per share in the
range of $1.27-$1.29. However, the company has lowered its
guidance for 2013 FFO per share to $4.89-$4.94 from the
previously reduced range of $4.97-$5.07. This reflects higher
interest expense and less income for the rest of the year as a
result of the expected sale of 1301 New York Avenue in
Boston Properties is benefiting from improved core operations and
has been successful in maintaining a strong grip on high
barrier-to-entry geographic markets across the U.S. Yet, the
demand remains moderate for office space with elevated
unemployment levels and adequate space availability, thus
creating pressure on rent and occupancies.
Boston Properties currently holds a Zacks Rank #3 (Hold). Other
REITs that are performing better and are worth a look include
Winthrop Realty Trust
) that has a Zacks Rank #1 (Strong Buy) as well as
PS Business Parks Inc.
), both carrying a Zacks Rank #2 (Buy).
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.