UPDATE 2-Boston Properties third-quarter FFO rises

* Q3 FFO $1.13 vs $1.10 Thomson Reuters I/B/E/S estimates

* FFO up 19.6 pct

* Shares unchanged in after-hours trade

(Adds forecast, background, occupancy)

NEW YORK, Oct 27 (Reuters) - Boston Properties Inc (BXP.N), which owns and develops office properties in major U.S. cities, said third-quarter funds from operations rose 19.6 percent over last year, when it incurred charges related to the collapse of tenant Lehman Brothers.

The company, which owns office buildings in New York, San Francisco, Boston and the Washington, D.C., area, reported FF0 of $158.5 million, or $1.13 per share, on Tuesday compared with $132.5 million, or $1.09 per share.

The average forecast by analysts was $1.10 per share, according to Thomson Reuters I/B/E/S.

In the third quarter of 2008, the company incurred a non- cash charge of 15 cents a share relating to leases of defunct tenants Lehman Brothers Inc and law firm Heller Ehrman. Last year's results also included a charge of 4 cents per share related to interest rate hedging contracts.

FFO, a measure of performance, 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. The number of sales remains a fraction of what it was the prior year, leaving valuations sketchy due to a lack of comparable trades.

The company, whose chairman is publisher Mortimer Zuckerman, owns or has interest in 146 properties totaling 49.6 million square feet.

Total revenue during the quarter rose 5.4 percent to $377.3 million.

During the quarter, total occupancy fell to 92.1 percent from 94.5 percent at the end of December 2008. Occupancy in Boston Properties Midtown Manhattan buildings, which command the highest rents, fell to 93.7 percent from 98.4 percent.

For the fourth quarter, the company said it expects FFO in the range of $1.04 to $1.06 per share, below the average forecast of $1.09 per share, according to Thomson Reuters I/B/E/S.

It also set an outlook for 2010 for FFO in the range of $4.00 to $4.20 per share. Analyst had forecast $4.29 per share.

Boston Properties shares closed on Tuesday at $60.91, down 2.3 percent, or $1.43 on the New York Stock Exchange and were unchanged in after-hours trading. (Reporting by Ilaina Jonas; editing by Andre Grenon)