Boston Properties Inc. (BXP), a leading real estate investment trust (REIT), reported fiscal 2011 first quarter funds from operations (FFO) of $1.12 per share, which well exceeded the Zacks Consensus Estimate by 3 cents. 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.
We cover below the results of the recent earnings announcement, as well as the subsequent analyst estimate revisions and the Zacks ratings for the short-term and long-term outlook for the stock.
Earnings Report Review
First quarter 2011 FFO was $160.0 million or $1.12 per share, compared with $149.6 million or $1.07 per share in the year-earlier quarter. The increase in first quarter 2011 FFO was primarily due to strong rental income, which improved 11.4% during the quarter on a year-over-year basis.
Total revenues of the company during the quarter were $417.9 million, compared with $378.1 million in the year-ago quarter. The quarterly revenues were well above the Zacks Consensus Estimate of $385 million. The overall portfolio was 91.7% leased at quarter-end.
(Read our full coverage on this earnings report: Boston Properties Beats Estimates)
Earnings Estimate Revisions- Overview
Fiscal earnings estimates have remained a mixed bag for Boston Properties since the earnings release, meaning that analysts are circumspect about the long-term performance of the company. Let’s dig into the earnings estimate details.
Agreement of Estimate Revisions
In the last 30 days, fiscal 2011 earnings estimates were raised by 4 analysts out of 20 covering the stock, while 6 have lowered the same. For fiscal 2012, 3 out of 21 analysts covering the stock have revised their estimates upward during the same time period, while 5 have lowered it. This indicates that the fiscal earnings estimates are skewed in the negative direction.
Magnitude of Estimate Revisions
Earnings estimates for fiscal 2011 have remained static in the last 30 days at $4.55. For full year 2011, Boston Properties expects FFO in the range of $4.45–$4.55. For fiscal 2012, earnings estimates have dipped by 4 cents to $4.89, which signifies that although the market fundamentals are gradually improving, they are yet to reach their optimum range to gain sufficient investor confidence.
Moving Forward
The long-term earnings estimate picture for Boston Properties is neutral. 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 York and Washington DC are still among the best of the office markets in the U.S. Furthermore, about 76.4% of the net operating income of the company was generated from the Central Business Districts during first quarter 2011, which drive above-average organic growth over time.
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.
Currently, we maintain our long-term ‘Neutral’ rating on Boston Properties, which presently has a Zacks #3 Rank that translates into a short-term ‘Hold’ recommendation and indicates that the stock is expected to perform in line with the overall U.S. equity market for the next 1–3 months. We also have a ‘Neutral’ recommendation and a Zacks #3 Rank for Vornado Realty Trust (VNO), a competitor of Boston Properties.
About Earnings Estimate Scorecard
Len Zacks, PhD in mathematics from MIT, proved over 30 years ago that earnings estimate revisions are the most powerful force impacting stock prices. He turned this ground breaking discovery into two of the most celebrating stock rating systems in use today. The Zacks Rank for stock trading in a 1 to 3 month time horizon and the Zacks Recommendation for long-term investing (6+ months). These “Earnings Estimate Scorecard” articles help analyze the important aspects of estimate revisions for each stock after their quarterly earnings announcements. Learn more about earnings estimates and our proven stock ratings at http://www.zacks.com/education/
BOSTON PPTYS (BXP): Free Stock Analysis Report
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