Aided by growth in revenues, Boston Properties Inc. (BXP) reported third-quarter 2014 FFO (funds from operations) per share of $1.46, beating the Zacks Consensus Estimate by 9 cents and improving by 17 cents from the prior-year quarter. The company also accomplished the sale of a 45% interest in each of 601 Lexington Avenue, Atlantic Wharf Office Building and 100 Federal Street.
Reflecting positive sentiments, the company’s shares were up 2.0% to $125.57 on Oct 30 from $123.12 at the close of trade on Oct 28, when it reported earnings.
Quarterly FFO per share also came ahead of the company’s previously guided range of $1.36–$1.38 per share, backed by higher-than-estimated termination income associated with a distribution received from Lehman Brothers, higher-than-projected property operations, as well as development and management services income. The benefits were, however, partly curtailed by greater-than-anticipated transaction costs.
Total revenue during the quarter improved 8.3% year over year to $618.8 million, coming well above the Zacks Consensus Estimate of $580 million. The quarterly increase was primarily attributable to a significant rise in rental revenues.
Rental revenues were up 8.1% year over year to $600.4 million. This increase was driven by an uptick in base rents and higher tenant recoveries.
Property Update
As of Sep 30, 2014, Boston Properties’ portfolio comprised 172 properties, mainly Class A office space, 1 hotel, 3 residential and 5 retail assets. These properties, including 10 under development ones, span approximately 46.4 million square feet. Additionally, the company has structured parking lots covering around 15.7 million square feet.
The overall operating portfolio, comprising 158 properties (excluding the three in-service residential properties and the hotel), was 92.0% leased.
Notably, in July, the company accomplished the sale of Office/Technical properties – Mountain View Technology Park properties and Mountain View Research Park Building Sixteen property in Mountain View, CA – for about $92.1 million in total.
Moreover, in September, Boston Properties inked a binding purchase and sale deal to shed 45% stake in each of its three assets – 601 Lexington Avenue in New York City, Atlantic Wharf Office Building and 100 Federal Street in Boston to affiliates of Norges Bank Investment Management. On Oct 30, the company announced this accomplishment for a gross purchase price of around $1.8 billion in cash; with a reduction of the partners pro rata share of the indebtedness secured by 601 Lexington Avenue.
Liquidity
Boston Properties exited third-quarter 2014 with cash and cash equivalents of around $846.7 million, down from nearly $2.4 billion as of year-end 2013.
Outlook
Boston Properties has tweaked its previously issued guidance for 2014 FFO per share. Presently, it expects 2014 FFO per share in the range of $5.24–$5.26, compared with the prior projection of $5.24–$5.29.
The 2014 FFO adjustment reflected an increase in same-property NOI, a rise in net interest expenses and decrease in FFO per share due to the 45% stake sale discussed above.
The company expects its fourth-quarter FFO per share in the range of $1.23–$1.25.
For 2015, the company has provided its guidance. It expects FFO per share in the range of $5.22–$5.42.
Our Viewpoint
Boston Properties’ endeavors to maintain a dominant position in the high barrier-to-entry geographic markets in the U.S. bode well. Moreover, the company’s strategic deals are expected to boost its strong diversified tenant base comprising several U.S. bellwethers. Yet, the recovery in some of the markets is slow and that could partly impede the growth momentum.
Boston Properties currently carries a Zacks Rank #3 (Hold). Presently, we look forward to other REITs that are scheduled to report next week. These include HCP, Inc. (HCP), Vornado Realty Trust (VNO) and Regency Centers Corporation (REG).
Note: 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.
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