Boston Properties Reports 3Q Results

Boston Properties BXP reported third-quarter results that put it on pace to exceed our full-year expectations. However, we plan no immediate change to our fair value estimate for this office landlord, as we expect future results to deteriorate in the weak leasing environment and in light of recent tenant departures. For the quarter (on a year-over-year basis), total revenue increased 5% and earnings before interest, taxes, depreciation, and amortization increased 8.5%. But these results were aided by an increase in revenue-generating property assets and somewhat masked the weakness in the firm's same-store (internal) results. On a cash basis, same-store net operating income fell 5%. We believe this decline in same-store results mainly reflects the recent loss of major tenants Lehman Brothers and General Motors, which together represented about 4% of revenue. However, given the difficult leasing market in midtown Manhattan where these vacancies arose, we believe it will be difficult for Boston Properties to re-lease the space, causing a drag on internal results for some time.