Boston Properties Earnings: Higher Interest Rates and a Challenging Office Market Weigh on Results

Higher interest rates and a challenging office market environment weighed on Boston Properties’ BXP second-quarter results. The no-moat-rated firm reported funds from operations, or FFO, of $1.86 per share in the second quarter, which was about 4% lower than the $1.94 reported in the second quarter of the previous year. The decrease in FFO from the previous year was primarily due to higher interest expenses, which were partially offset by higher contributions from portfolio operations. The company also updated its full-year 2023 FFO guidance to $7.24-$7.29 per diluted share, which is about $0.10 per share higher than the previous full-year guidance. We are reducing our fair value estimate for Boston Properties to $95 per share from $98 after incorporating the second-quarter results.

The overall portfolio occupancy rate was down 30 basis points on a sequential basis and 120 basis points year over year, as it was reported at 88.3% for the current quarter. Management has maintained its guidance of an 88.0%-89.5% occupancy rate for full-year 2023. Same-store net operating income after excluding termination income was flat year over year, and same-store cash NOI was 2.2% higher compared with the previous year for the consolidated portfolio. The company expects same-store cash NOI growth of 1.5%-2.5% for the full year, which we think is decent in the current context. The company executed on 891,347 square feet of new leases during the quarter, with net rent growing by 10.02% on the second-generation leases signed during the quarter compared with previously expired leases.