On Jun 7, 2013, we reiterated our long-term recommendation on
Boston Properties Inc.
) at Neutral. The decision is based on the company's improved
core operations and strategic repositioning efforts, though
rising expenses and stiff competition from developers, owners and
operators of office properties and other commercial real estate
remains a plausible concern.
Boston Properties' first-quarter 2013 funds from operations (FFO)
per share of $1.06 came in considerably below the Zacks Consensus
Estimate of $1.21 and the year-ago quarter level of $1.12.
Substantial increase in operating expenses hurt the quarterly
Yet, a rise in revenues acted as a tailwind. Notably, during the
quarter, Boston Properties appointed Owen D. Thomas as the new
CEO, succeeding Mortimer B. Zuckerman. As a result, the company
recognized a part of the compensation expenses in the quarter
with the remaining to be realized by the second quarter of 2014.
In addition, the company incurred charges related to its
Nevertheless, the company 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.
Notably, the company's Times Square Tower in Manhattan is on
sale, as per a Bloomberg report.
The deal value for this 1.2 million-square-foot office
building is expected to surpass $1 billion. The news was revealed
by the company at the National Association of Real Estate
Investment Trusts conference in Chicago.
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Mostly occupied, the Times Square Tower, a 47-story Class A
office tower, enjoys an enviable location in the popular shopping
district with its tenant roaster including several law firms,
restaurant chain and clothing retailer
). Rise in rents and the value of such properties in the
area are attractive and, hence, the value recognition of its
asset through sale by Boston Properties is a strategic fit. The
company can redistribute the funds in its several other projects.
Yet, the demand remains moderate for office space in several
other regions with unemployment levels remaining elevated and
space availability adequate, thus creating pressure on the rent
Following the release of first-quarter 2013 results, over the
last 30 days, the Zacks Consensus Estimate for 2013 fell
marginally to $5.10 per share. For 2014, it went down by 0.4% to
$5.63 per share. The stock now has a Zacks Rank #3 (Hold).
Other Stocks to Consider
Better performing REITs include
Sunstone Hotel Investors Inc.
), both carrying a Zacks Rank #1 (Strong 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.