BXP Faces Headwinds

Real estate investment trust [REIT] industry analyst Greg Sukenik had this to say recently in his latest updated report on Boston Properties (BXP):

'BXP reported 3rd quarter FFO of $1.15 per diluted share, which was in line with our estimates. Rental rates continue to increase in most markets in which the company operates. The company continues to ramp up development at good initial yields. In addition, BXP is taking advantage of high asset pricing and realizing large gains from sales. Due to asset sales, we expect minimal earnings growth in 2008.

'The national employment looks bleak and we expect job growth to continue to moderate in early 2008. As a result, we expect occupancies to tick downward in some of the company's CBDs as the financial sector is hit with layoffs due to current problems in the credit markets.

'As we are worried about job growth and think the employment picture will continue to get worse, we expect this will weigh on office landlords. In particular, we think a downturn in the NYC financial sector is only beginning, and this could weigh on the fortunes of office landlords in this region. We expect only modest earnings growth in 2008. We are setting our price target at $88.00 per share or 19.0x 2007 FFO estimates.'

REG Retains Its Buy

A Buy recommendation, after a downward revision in the target price, is maintained to the share prices of real estate investment trust (REIT), Regency Centers Corporation (REG), by Zacks real estate analyst Greg Sukenik who believes that the company's valuation remains compelling and the shares are worth buying.  The following excerpts explain his position:

'REG reported FFO of $0.97 per share was $0.02 below our estimates. The miss was due to higher-than-expected G&A. Despite the miss, operations continue to improve, and rental rates grew at an impressive pace in the quarter. Due to recent share price declines, the company's valuation remains compelling, and we think grocery anchored retail companies will fare well, even if discretionary retail spending subsides in the coming quarters.

'REG has a solid balance sheet, with low debt and plenty of room for dividend increases. In addition, the company has a large development pipeline with very attractive initial yields, currently projected at about 9%. At 16.8x our 2007 FFO estimate of $4.15 per share, Regency is trading at a premium (7%) to the Zacks retail strip mall weighted peer group average.

'Due to a sector-wide sell-off, shares of REG have traded down about 13% since mid-October, and the company's valuation remains attractive relative to long-term growth prospects. After the latest increase, the company's dividend yield, at 3.8% is slightly below the sector's average of 4.0%. While low, the dividend is safe and we could see future increases, as we estimate a going forward payout ratio (dividend paid/FFO after capital expenses) of about 85%.