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Should You Retain Boston Properties (BXP) Stock for Now?
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Boston Properties’ (BXP - Free Report) portfolio of modern, class A office buildings concentrated in a few select high-rent, high-barrier-to-entry geographic markets of Boston, Los Angeles, New York, San Francisco, Seattle and Washington, DC, is well-poised to benefit from the flight-to-quality preference of office tenants.
In 2022, the company signed 5.7 million leases with a weighted-average lease term of 9.2 years, reflecting that several new and existing clients continue to commit to the long-term use of space and prefer a premier workplace environment.
Moreover, BXP’s life-science assets have been witnessing solid demand on the back of the growing need for drug research and innovation, aiding leasing activity.
Amid this, the company is converting numerous straight office buildings to laboratory/life science spaces in its suburban portfolio, especially its Kendall Center project, which is one of the leading preferred locations for life-science clients in the world.
Further, Boston Properties has been enhancing its portfolio quality through repositioning initiatives via acquisitions and the development of properties in core markets, and shedding properties in non-core markets.
In 2022, the company acquired $1.6 billion of lab and office assets, and completed more than $860 million in dispositions of office and residential assets.
Such moves highlight the company’s prudent capital management practices and relieve the pressure on its balance sheet.
On the balance sheet front, Boston Properties exited 2022 with $2.2 billion of liquidity, net debt to EBITDAre (annualized) of 7.57X and a fixed charge coverage ratio of 2.77 times. Also, its unsecured senior debt ratings of BBB+ from S&P Global Ratings and Baa1 from Moody’s render it favorable access to the debt market.
With ample financial flexibility, the company is well-positioned to capitalize on future growth opportunities.
BXP’s current cash flow growth is projected at 30.59% compared with 9.37% growth estimated for the industry. Further, its trailing 12-month return on equity (ROE) is 10.31% compared with the industry’s average of 3.60%. This reflects that the company is more efficient in using shareholders’ funds than its peers.
Nonetheless, a choppy office market environment is likely to soften the demand for the company’s properties, hurting leasing volume in the near term.
Also, the elevated supply of office properties weighs on Boston Properties. Intense competition from developers, owners and operators of office properties and other commercial real estate limits its ability to retain tenants at relatively higher rents and dents its pricing power.
Interest rate hikes are likely to increase borrowing costs, affecting the company’s ability to purchase or develop real estate.
Shares of this Zacks Rank #3 (Hold) company have lost 20.8% in the quarter-to-date period compared with the industry’s fall of 0.3%.
Image: Shutterstock
Should You Retain Boston Properties (BXP) Stock for Now?
Boston Properties’ (BXP - Free Report) portfolio of modern, class A office buildings concentrated in a few select high-rent, high-barrier-to-entry geographic markets of Boston, Los Angeles, New York, San Francisco, Seattle and Washington, DC, is well-poised to benefit from the flight-to-quality preference of office tenants.
In 2022, the company signed 5.7 million leases with a weighted-average lease term of 9.2 years, reflecting that several new and existing clients continue to commit to the long-term use of space and prefer a premier workplace environment.
Moreover, BXP’s life-science assets have been witnessing solid demand on the back of the growing need for drug research and innovation, aiding leasing activity.
Amid this, the company is converting numerous straight office buildings to laboratory/life science spaces in its suburban portfolio, especially its Kendall Center project, which is one of the leading preferred locations for life-science clients in the world.
Further, Boston Properties has been enhancing its portfolio quality through repositioning initiatives via acquisitions and the development of properties in core markets, and shedding properties in non-core markets.
In 2022, the company acquired $1.6 billion of lab and office assets, and completed more than $860 million in dispositions of office and residential assets.
Such moves highlight the company’s prudent capital management practices and relieve the pressure on its balance sheet.
On the balance sheet front, Boston Properties exited 2022 with $2.2 billion of liquidity, net debt to EBITDAre (annualized) of 7.57X and a fixed charge coverage ratio of 2.77 times. Also, its unsecured senior debt ratings of BBB+ from S&P Global Ratings and Baa1 from Moody’s render it favorable access to the debt market.
With ample financial flexibility, the company is well-positioned to capitalize on future growth opportunities.
BXP’s current cash flow growth is projected at 30.59% compared with 9.37% growth estimated for the industry. Further, its trailing 12-month return on equity (ROE) is 10.31% compared with the industry’s average of 3.60%. This reflects that the company is more efficient in using shareholders’ funds than its peers.
Nonetheless, a choppy office market environment is likely to soften the demand for the company’s properties, hurting leasing volume in the near term.
Also, the elevated supply of office properties weighs on Boston Properties. Intense competition from developers, owners and operators of office properties and other commercial real estate limits its ability to retain tenants at relatively higher rents and dents its pricing power.
Interest rate hikes are likely to increase borrowing costs, affecting the company’s ability to purchase or develop real estate.
Shares of this Zacks Rank #3 (Hold) company have lost 20.8% in the quarter-to-date period compared with the industry’s fall of 0.3%.
Image Source: Zacks Investment Research
Stocks to Consider
Some better-ranked stocks from the REIT sector are Alexandria Real Estate Equities (ARE - Free Report) , Terreno Realty (TRNO - Free Report) , each currently carrying a Zacks Rank #2 (Buy), and Service Properties Trust (SVC - Free Report) , sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Alexandria Real Estate’s 2023 funds from operations (FFO) per share stands at $8.94.
The Zacks Consensus Estimate for Terreno Realty’s current-year FFO per share is pegged at $2.17.
The Zacks Consensus Estimate for Service Properties Trust’s 2023 FFO per share is pegged at $1.89.
Note: Anything related to earnings presented in this write-up represents FFO — a widely used metric to gauge the performance of REITs.