Bloomberg News

Boston Properties Third-Quarter FFO Jumps 26% as Rent Grew

October 25, 2011

(Updates with 2012 FFO projection in fifth paragraph, comment from analyst in sixth.)

Oct. 25 (Bloomberg) -- Boston Properties Inc., the owner of New York’s General Motors Building and Boston’s John Hancock Tower, said third-quarter funds from operations rose 26 percent as rent revenue increased.

FFO, which gauges a property company’s ability to generate cash, climbed to $190.3 million, or $1.28 a share, from $150.8 million, or $1.07, a year earlier, the Boston-based real estate investment trust said today in a statement. Analysts projected FFO of $1.24 a share, according to the average of 18 estimates in a Bloomberg survey.

Boston Properties’s focus on owning top-quality buildings in major U.S. office markets has helped the company maintain growth in a weak economy, Chairman and Chief Executive Officer Mortimer Zuckerman said at an Oct. 5 investor conference. San Francisco, New York and Boston, three of the REIT’s main areas, were among the top five U.S. cities for office-rent growth during the third quarter, according to Reis Inc.

“Because of the quality they offer, Boston Properties has stickier demand for their kind of space,” said Jeffrey Langbaum, an analyst at New York-based WJB Capital Group Inc. with a “hold” rating on the stock, said before the report. “But right now, there still are fears about what the leasing market is going to look like and how revenue will flow in for office landlords.”

Next Year’s Forecast

Boston Properties, the largest U.S. office REIT, projected that FFO next year will be $4.58 to $4.78 a share. That is short of the $5.13 average estimate by 20 analysts surveyed by Bloomberg.

The projection likely reflects costs relating to the redevelopment of an office complex in Reston, Virginia; certain accounting changes; and “some level of caution, which given the headlines lately is not unwarranted,” said Alex Goldfarb, a New York-based analyst with Sandler O’Neill & Partners LP, who rates Boston Properties a “buy.”

The 17-member Bloomberg REIT Office Property Index lost 20 percent in the third quarter as concern mounted that Europe’s debt crisis may spur a global recession and the U.S. economy is weakening, potentially reducing tenant demand for space. Boston Properties fell 16 percent in the three months ended Sept. 30, the worst performance since the first quarter of 2009.

Revenue Gain

The company’s third-quarter revenue rose 17 percent from a year earlier $452.4 million. Rent revenue was $436.2 million, also up 17 percent.

Total portfolio occupancy was 91.3 percent, down from 93.2 percent at the end of 2010. In midtown Manhattan, occupancy fell to 96.5 percent from 96.9 percent.

Third-quarter results for REITs probably won’t be “significantly different” from recent trends because commercial real estate demand tends to be lagging, John Perry, an analyst with Deutsche Bank AG in New York, wrote in an Oct. 20 report. He is seeking information in the companies’ management commentary for signs of weaker leasing.

Zuckerman, the billionaire owner of the New York Daily News newspaper, has said the U.S. is in a “modern-day depression” as home prices slump, consumer confidence stagnates and the unemployment rate sticks above 9 percent.

Boston Properties’s buildings are almost all in New York, Boston, Washington and San Francisco. The company also owns the Carnegie Center complex in Princeton, New Jersey. It terminated a $468 million agreement to sell that property in June.

The third-quarter results were announced after the close of regular U.S. trading. Boston Properties fell 2.1 percent to $92.99 today in New York.

(Boston Properties will hold a conference call tomorrow at 10 a.m. New York time. To listen, visit BXP US <Equity> EVT <GO> or see LIVE <GO>.)

--Editors: Kara Wetzel, Christine Maurus

To contact the reporter on this story: David M. Levitt in New York at dlevitt@bloomberg.net

To contact the editor responsible for this story: Kara Wetzel at kwetzel@bloomberg.net


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