Boston Properties, Inc. (BXP - Free Report) concentrates on a few select high-rent, high barrier-to-entry office markets that usually fare better in an uncertain economy. These office markets include Boston, Los Angeles, New York, San Francisco and Washington, DC.
The company has been experiencing solid leasing activity in its markets and growth in demand for office space created by technology and life science businesses. In fact, over the last five years, the company has achieved an annual compounded revenue growth rate of 8.17%.
Moving ahead, with economic improvement and recovery in the job market, we expect healthy growth in demand for office spaces to continue. This is because, as the economy revives, business grows and corporate sectors seek expansion. This then leads to renting of more space to accommodate increased workforce.
Amid all this, Boston Properties remains well poised to grow, given its premium office portfolio and improving core operations. Further, the company is likely to experience solid contribution in 2018 from its non-same-property portfolio, mainly driven by development deliveries.
Boston Properties also came up with a decent performance in the third quarter. The company’s funds from operations (“FFO”) per share of $1.57 surpassed the Zacks Consensus Estimate of $1.54. The figure also came in higher than the year-ago quarter tally of $1.42. In addition, quarterly FFO per share exceeded the company’s previously guided range of $1.52-$1.54.
Results indicated an improvement in portfolio operations, and development and management services revenues. It also raised its full-year 2017 FFO per share guidance to $6.24-$6.25 from $6.20-$6.25 provided earlier.
Shares of Boston Properties outperformed the industry it belongs to in the past three months. The company’s shares logged in a gain of 2.9% compared with growth of 2.4% recorded by the industry. Moreover, the stock has witnessed the Zacks Consensus Estimate for current-year FFO per share being revised 0.2% upward in a month’s time, reflecting analyst’ bullish sentiments. Given its progress on fundamentals, the stock is likely to keep performing well in the quarters ahead.
Nonetheless, there is growth in supply of office space in the market. This remains a concern because higher supply usually leads to lesser absorption and curtails landlords’ capability to demand more rents.
There is also a trend of increased concessions in some of the markets. Moreover, big financial players are opting for resizing of their business and cost-containment efforts, which is curbing demand for office space.
Additionally, the company mainly has assets in only five U.S. markets, which makes it susceptible to economic downturns over there. Though these markets are among the best in the sector, Boston Properties’ geographic concentration could affect its operations.
Further, hike in interest rate is a concern for the company. Essentially, rising rates imply higher borrowing cost for the company, which would affect its ability to purchase or develop real estate and lower dividend payouts as well. Moreover, the dividend payout itself might become less attractive than yields on fixed income and money market accounts.
Boston Properties currently carries a Zacks Rank #3 (Hold).
Stocks to Consider
Some better-ranked stocks in the REIT space are Cedar Realty Trust (CDR - Free Report) , DCT Industrial Trust (DCT - Free Report) and Regency Centers Corporation (REG - Free Report) . Each of these stocks carries a Zacks Rank of 2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Cedar Realty’s FFO per share estimates for 2017 remained unchanged at 54 cents in a month. Its share price has increased 17.0% in the past six months.
DCT Industrial Trust’s current-year FFO per share estimates have been revised upward by a cent to $2.44 in a month’s time. Its share price has increased 15.3% in the past six months.
Regency Centers’ 2017 FFO per share estimates have remained unchanged at $3.67 in a month’s time. Its share price has increased 8.3% in the past six months.
Note: All EPS numbers presented in this report represent funds from operations (FFO) per share. FFO, a widely used metric to gauge the performance of REITs, is obtained after adding depreciation and amortization and other non-cash expenses to net income.
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