Boston Properties IncBXP

Morningstar Rating

Stock Research and Analysis

by Todd Lukasik, CFA

We like Boston Properties' strategy of owning high-quality office buildings in supply-constrained markets with barriers to entry, and we think it supports our narrow moat rating for the firm. Furthermore, the long-term leases Boston Properties signs Read more

Bulls Say

Tenants sign long-term leases that include regular rent payments, a share of operating expenses, and periodic rent bumps. This should result in a nice stream of recurring revenue for Boston Properties in the long term and at least partially offsets the potentially negative impact of future inflation.

Boston Properties' high-quality properties in supply-constrained markets have enjoyed relatively strong demand in both good economic times and bad. Its portfolio has historically achieved occupancy rates roughly 5 percentage points higher than its markets' averages.

With roughly $2 billion in available liquidity and demonstrated access to capital markets in size and on reasonable terms, Boston Properties is well-positioned to consider acquisitions of additional properties that can drive cash flow growth.

Even without acquisitions, Boston Properties should grow its business with the completion of roughly $2 billion in developments (more than half of which has already been spent) through 2015 and what we consider to be inflation-plus organic growth prospects in its legacy portfolio.

Our analysis suggests that a meaningful dividend boost--either a significant one-time bump or consistent annual growth in the mid- to high single-digits--is possible over the medium term. Read more

Bears Say

If unemployment remains elevated or job growth remains weak, demand for office space will remain tepid, pressuring rents and occupancy rates.

With significant levels of space either generally available or being developed in Boston Properties' core markets, tenants will retain the upper hand in lease negotiations.

It will be difficult for Boston Properties to earn appropriate returns on recent acquisitions purchased at sub-five capitalization rates, including the near-$1 billion purchase of the John Hancock Tower in late 2010.

In the current low-rate environment, investors may have bid up prices of other sources of yield, such as REITs. There is risk that capital will flow out of REITs should interest rates rise in the future, pressuring asset values. Read more

Management

We think Boston Properties exhibits exemplary stewardship. In an industry where many view increased scale as a worthy goal in and of itself, Boston Properties has shown a penchant for placing value creation ahead of portfolio size. Specifically, it Read more

Profile

Boston Properties was founded in 1970 by Mortimer Zuckerman and Edward Linde. In the years since, Boston Properties has assembled a collection of roughly 125 office buildings, Read more