Boston Properties Inc. (BXP), one of the leading real estate investment trusts (REITs), reported third quarter 2010 FFO (funds from operations) of $150.8 million or $1.07 per share, compared with $158.5 million or $1.13 in the year-earlier quarter. 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.
The third quarter earnings surpassed the Zacks Consensus Estimate by 5 cents. Total revenue of the company during the quarter was $388.2 million, compared with $377.3 million in the year-ago quarter. The quarterly revenues were well above the Zacks Consensus estimate of $370 million. The overall portfolio was 93.4% leased at quarter-end.
During the quarter, Boston Properties executed a 20-year lease agreement with the Defense Intelligence Agency for approximately 523,000 square feet of space in Reston, Virginia. With the deal, the property is currently 100% leased. During the quarter, Boston Properties acquired 510 Madison Avenue, a newly-constructed 347,000 square foot Class-A office property in New York City, for approximately $287 million. The company had earlier acquired a junior mezzanine loan interest on the property for approximately $22.5 million.
Boston Properties also entered an agreement to acquire BayColony Corporate Center in Waltham, Massachusetts for approximately $185.0 million. The purchase price includes $41.1 million in cash and the assumption of approximately $143.9 million of debt. At quarter-end, the company had five properties under development spanning 2.0 million square feet.
During the quarter, Boston Properties acquired a mortgage loan collateralized by a land parcel in Reston, Virginia, for $20.3 million. The company utilized available cash to repay a $55.8 million mortgage loan collateralized by office properties in Princeton, New Jersey. Also during the quarter, unconsolidated joint ventures of the company modified two mortgage loans to extend the debt maturities. The mortgage loans were collateralized by office properties in New York City and Maryland.
Subsequent to the quarter-end, Boston Properties announced its plans to acquire the John Hancock Tower, the tallest building in New England, for approximately $930 million. The company would pay approximately $289.5 million in cash and assume $640.5 million in a senior mortgage loan that bears a fixed annual interest at 5.68% and matures in January 2017. The transaction is expected to close by fourth quarter 2010.
Following the end of the third quarter, Boston Properties utilized available cash to repay two mortgage loans secured by office properties in Reston, Virginia. The company also extended the maturity of its $1.0 billion unsecured revolving credit facility to August 2011.
The strategic moves are aimed at increasing the liquidity of the company and strengthening its balance sheet. Boston Properties ended the quarter with cash and cash equivalents of over $1.3 billion. The company expects fourth quarter 2010 FFO in the range of $1.09–$1.12 per share, while FFO for full year 2011 is expected in the range of $4.20–$4.40. We maintain our Neutral recommendation on the stock, which presently has a Zacks #3 Rank that translates into a short-term “Hold” rating.
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