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Is it Wise to Retain Boston Properties (BXP) Stock for Now?
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Given the growing demand for premier office spaces, 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, poises it well to ride the growth curve.
Notably, in the second quarter of 2023, the company executed 938,000 square feet of leases with a weighted average lease term of eight years. In the first quarter of 2023, it executed 660,000 square feet of leases with a weighted average lease term of 7.7 years.
This is a testament to the fact that new and existing clients continue to commit to the long-term use of space and prefer a premier workplace environment. Therefore, with an encouraging leasing pipeline and modest lease expirations through 2023, BXP is well-placed to navigate the challenging environment.
This office real estate investment trust (REIT) enjoys a diversified, creditworthy tenant base, which includes several bellwethers. The long-term leases with these tenants assure stable revenue generation for the company, driving steady top-line growth. For 2023, we estimate a year-over-year increase of 4.2% in the company’s revenues from leases.
The life-science industry is booming on the back of the increasing need for drug research and innovation. Against this backdrop, Boston Properties 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. Given the robust demand for life-science assets, BXP is expected to witness healthy leasing activity in the life-science portfolio, driving the segment’s growth.
Further, Boston Properties’ encouraging development and redevelopment pipeline is likely to fuel net operating income growth in the coming years. Its solid balance sheet position, with $3.1 billion of liquidity as of Jun 30, 2023, is likely to continue supporting its efforts to capitalize on long-term growth opportunities.
In addition, BXP’s current cash flow growth is projected at 30.59% compared with 8.77% estimated for the industry. Its trailing 12-month return on equity is 7.98% compared with the industry’s average of 2.97%. This reflects that the company is more efficient in using shareholders’ funds than its peers.
Analysts seem bullish on this Zacks Rank #3 (Hold) company. The Zacks Consensus Estimate for its 2023 funds from operations (FFO) per share has been raised marginally over the past week to $7.26.
Shares of BXP have gained 14.9% in the quarter-to-date period against the industry’s fall of 2.5%.
Image Source: Zacks Investment Research
Nonetheless, a choppy office market environment amid persistent macroeconomic uncertainty is likely to soften the demand for office properties in the near term, raising concerns for this office REIT. Management expects the slowdown in leasing activity to continue for the remainder of 2023. It anticipates most of its leasing to come from small and medium-sized professional and financial services firms in the upcoming period.
Competition from industry peers may limit the company’s ability to retain tenants at relatively higher rents, denting its pricing power. Also, the elevated supply of office properties amid a competitive landscape may adversely impact BXP’s ability to backfill near-term tenant move-outs, hurting occupancy. We project the company to maintain an occupancy rate of 88.4% in 2023.
Given the prevailing high interest rate environment, Boston Properties may find it difficult to purchase or develop real estate with borrowed funds as the costs are likely to be on the higher side. Our estimate suggests a year-over-year rise of 17.4% in interest expense in the current year.
The Zacks Consensus Estimate for Welltower’s 2023 FFO per share has been raised marginally over the past week to $3.54.
The Zacks Consensus Estimate for SBA Communications’ current-year FFO per share has moved marginally northward over the past month to $12.88.
The Zacks Consensus Estimate for Americold Realty Trust’s ongoing year’s FFO per share has been raised 3.3% over the past month to $1.26.
Note: Anything related to earnings presented in this write-up represents funds from operations (FFO) — a widely used metric to gauge the performance of REITs.
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Is it Wise to Retain Boston Properties (BXP) Stock for Now?
Given the growing demand for premier office spaces, 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, poises it well to ride the growth curve.
Notably, in the second quarter of 2023, the company executed 938,000 square feet of leases with a weighted average lease term of eight years. In the first quarter of 2023, it executed 660,000 square feet of leases with a weighted average lease term of 7.7 years.
This is a testament to the fact that new and existing clients continue to commit to the long-term use of space and prefer a premier workplace environment. Therefore, with an encouraging leasing pipeline and modest lease expirations through 2023, BXP is well-placed to navigate the challenging environment.
This office real estate investment trust (REIT) enjoys a diversified, creditworthy tenant base, which includes several bellwethers. The long-term leases with these tenants assure stable revenue generation for the company, driving steady top-line growth. For 2023, we estimate a year-over-year increase of 4.2% in the company’s revenues from leases.
The life-science industry is booming on the back of the increasing need for drug research and innovation. Against this backdrop, Boston Properties 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. Given the robust demand for life-science assets, BXP is expected to witness healthy leasing activity in the life-science portfolio, driving the segment’s growth.
Further, Boston Properties’ encouraging development and redevelopment pipeline is likely to fuel net operating income growth in the coming years. Its solid balance sheet position, with $3.1 billion of liquidity as of Jun 30, 2023, is likely to continue supporting its efforts to capitalize on long-term growth opportunities.
In addition, BXP’s current cash flow growth is projected at 30.59% compared with 8.77% estimated for the industry. Its trailing 12-month return on equity is 7.98% compared with the industry’s average of 2.97%. This reflects that the company is more efficient in using shareholders’ funds than its peers.
Analysts seem bullish on this Zacks Rank #3 (Hold) company. The Zacks Consensus Estimate for its 2023 funds from operations (FFO) per share has been raised marginally over the past week to $7.26.
Shares of BXP have gained 14.9% in the quarter-to-date period against the industry’s fall of 2.5%.
Image Source: Zacks Investment Research
Nonetheless, a choppy office market environment amid persistent macroeconomic uncertainty is likely to soften the demand for office properties in the near term, raising concerns for this office REIT. Management expects the slowdown in leasing activity to continue for the remainder of 2023. It anticipates most of its leasing to come from small and medium-sized professional and financial services firms in the upcoming period.
Competition from industry peers may limit the company’s ability to retain tenants at relatively higher rents, denting its pricing power. Also, the elevated supply of office properties amid a competitive landscape may adversely impact BXP’s ability to backfill near-term tenant move-outs, hurting occupancy. We project the company to maintain an occupancy rate of 88.4% in 2023.
Given the prevailing high interest rate environment, Boston Properties may find it difficult to purchase or develop real estate with borrowed funds as the costs are likely to be on the higher side. Our estimate suggests a year-over-year rise of 17.4% in interest expense in the current year.
Stocks to Consider
Some better-ranked stocks from the REIT sector are Welltower (WELL - Free Report) , SBA Communications (SBAC - Free Report) and Americold Realty Trust (COLD - Free Report) . While COLD sports a Zacks Rank #1 (Strong Buy), WELL and SBAC carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for Welltower’s 2023 FFO per share has been raised marginally over the past week to $3.54.
The Zacks Consensus Estimate for SBA Communications’ current-year FFO per share has moved marginally northward over the past month to $12.88.
The Zacks Consensus Estimate for Americold Realty Trust’s ongoing year’s FFO per share has been raised 3.3% over the past month to $1.26.
Note: Anything related to earnings presented in this write-up represents funds from operations (FFO) — a widely used metric to gauge the performance of REITs.