UPDATE 2-Boston Properties 2nd-quarter FFO beats forecasts

* FFO of $1.32 a share beats Street view of $1.22

* Unexpected rent payments from Lehman help
(Adds details on GM and Lehman, stock activity, other
background)

NEW YORK, July 21 (Reuters) - Boston Properties Inc
(BXP.N), which owns and develops office properties in key U.S.
cities, reported better-than-expected second-quarter results on
Tuesday but lowered its full-year forecast due to weakening
demand for office space.

The company, which owns office buildings in New York, San
Francisco, Boston and the Washington D.C. area, reported
second-quarter funds from operations, or FFO, of $166.7 million
or $1.32 per share, compared with $141.0 million, or $1.16 per
share in the year earlier quarter.

Results were helped by unexpected rent payments from Lehman
Brothers, its 10th-largest tenant by square feet. Lehman filed
for bankruptcy last year, and Boston Properties established a
reserve for the full amount of Lehman Brothers' rent. However,
Lehman continued to pay rent on its 437,000 square feet at 399
Park Ave. through April, when it rejected the lease. It also
contributed to rent in June for space it still occupied.

The average forecast of analysts polled by Reuters
Estimates was for $1.22 a share, while the company expected
$1.26 to $1.28 per share.

FFO removes the profit-reducing effect of depreciation, a
noncash accounting item.

The credit crisis and ensuing U.S. recession have dealt
U.S. commercial real estate a double punch. Financing for new
buildings and to replace maturing mortgages has dried up, while
rent and occupancy levels have tumbled. Transactions have
plummeted more than 80 percent and valuations are hard to
determine because of the lack of comparable trades.

Boston Properties is facing the remainder of the year
without most of Lehman, which had contributed $44.9 million a
year, or General Motors Corp, which in June rejected a lease
for 120,000 square feet at the former Citigroup Center. GM's
lease was to last until May 2019. GM, which recently emerged
from bankruptcy, was expected to contribute $6.6 million per
year to Boston Properties' revenue.

Boston Properties also is navigating deteriorating markets,
especially in Manhattan. The company, whose chairman is
publisher Mortimer Zuckerman, owns or has interest in 146
properties totaling 49.1 million square feet.

During the quarter, total occupancy of Boston Properties'
portfolio of properties fell to 92 percent, down from 94.5
percent at the end of December. Midtown Manhattan, which is its
richest market, saw the most precipitous drop, to 91.6 percent
from 98.4 percent at the end of 2008.

For properties the company has owned for at least a year,
net operating income, which reflects the cash flow the
properties generate, rose an anemic 0.1 percent.

The company, whose chairman is publisher Mortimer
Zuckerman, cut its previously reduced forecast for 2009 FFO to
a range of $4.55 to $4.63, from $4.65 to $4.80 per share.

Grappling with the credit crisis, many leading U.S. real
estate investment trusts have cut their dividends, and Boston
Properties was among the last holdouts. The company last month
slashed its quarterly dividend to 50 cents per share from 68
cents per share.

It also raised about $842 million from a sale of more than
17 million shares for the repayment of debt and to make future
investments. It used some of the cash to repay the balance on
its revolving credit facility and a $30.1 million mortgage
loan.

Shares of Boston Properties closed at $49.80 on the New
York Stock Exchange and were unchanged in after-hours trade.
Year to date, share are down 9.45 percent, outperforming the
overall benchmark MSCI U.S. REIT Index .RMZ.
(Reporting by Ilaina Jonas; Editing by Tim Dobbyn and Matthew
Lewis)