Boston Properties, Inc. (NYSE:BXP) is a real estate investment trust (REIT) that owns office buildings in major cities like L.A., NYC, and San Francisco. It holds a property portfolio that includes 52 million net rentable square feet over nearly 200 commercial real estate properties.
Widespread stay-at-home and lockdown orders sent businesses online and that hurt Boston Properties. People left major cities for small towns to work virtually instead of the office. That leaves investors wondering is Boston Properties stock a Buy or a Sell?
Investors are excited about the prospects of a reopened economy, even though it’s likely to be a slow road. And a return to normalcy won’t necessarily mean office buildings return to former occupancy levels with vigor. It could be the end of an era for that way of life.
Will Boston Properties shareholders enjoy a new lease on life?
Boston Properties Has A Massive Footprint
Boston Properties owns, operates, and manages a portfolio of office spaces across the U.S. It also develops properties, meaning it has nearly $3 billion worth of active developments under construction. Nearly three quarters of that space is already pre-leased and should be in service by 2022.
It also has residential projects on the way, along with several office renovations. It’s prominent in city centers like Boston, Los Angeles, New York City, San Francisco, and Washington D.C.
These landmark cities have big industries that easily filled office spaces in the past, but things are changing in the future. New York City alone lost an average of 2,600 people per week since the pandemic began.
Because the world went virtual, many people left these city centers for cheaper small towns and rural areas. This could cause a changing dynamic in commercial real estate, but that doesn’t mean Boston Properties can’t move with the market.
Is Boston Properties Stock A Buy?
Boston Properties pays a quarterly dividend of $0.98 per share, for a $3.92 or 4.27 percent annual dividend yield.
The Trust held $21.2 billion in assets in 2019, and its third quarter earnings call showcased leases secured with Volkswagen, Fannie Mae, and more high-profile clients.
In spite of the challenges of the pandemic (which included $10 million in tenant write-offs), it pulled off $1.57 earnings per share. It also sold over $700 million in assets in the first three quarters of 2020 and expects to continue selling assets through the next year as the economy recovers.
Of course, economic recovery isn’t guaranteed. And the line between the economy and stock market continues to widen through a K growth path. This heightens the risks associated with investing in Boston Properties.
Risks of Buying Boston Properties Stock
Boston Market operates in a lot of cities that are on the decline. Its management has a positive outlook on businesses returning to offices, but that may not happen.
Dozens of major companies are switching to long-term remote work schedules for employees. Several Silicon Valley companies paid their employees to leave the area for cheaper zip codes and take pay cuts.
Nevertheless earnings are on the rebound following a very dismal 2020 and the signs of life in the bottom line are likely to spur a further resurgence in BXP share price.
Still, the push to virtual work may be a lot more permanent than office building bulls may have you believe. Just like malls before them, the office building could become a virtual ghost town. That doesn’t mean they are necessarily out for the count though.
Some malls found a boosted footprint during the holiday season. They are a popular place to hang out when everything is closed with lockdown orders. Office buildings could make a comeback one day too.
Even with virtual work widely available, some may choose to go to work to get away from being couped up at home.
Is Boston Properties In A Sinking Boat With Rivals?
Boston Properties isn’t the only player in office real estate. It has competitors in every market it’s in (and will have to fight its way through stiff competition to enter new markets). One long-standing rival it fought for control of NYC real estate is Donald Trump.
The REIT also competes against Vornado Realty Trust (VNO), Granite Properties, Kilroy, JBG Smith, and more. Each of these real estate sharks needs to show growth for investors.
Residential is a seller’s market. Historically low interest rates combined with government stimulus and fewer houses on the market means prices are on their way up through 2021. But office leases may end up on the downturn as landlords struggle to find paying tenants.
Boston Properties needs to be on its A game to succeed in the upcoming real estate market, which is sure to be unstable.
Is Boston Properties Stock A Buy? The Bottom Line
Boston Properties is a commercial real estate investment trust that owns a variety of office properties in key markets. It develops, operates, and maintains these properties for major companies. It took a pummeling during national shutdown orders but recovered most of its market capitalization thereafter.
Its strategy to stay liquid is selling off underperforming assets, although many of its tenants are paid current.
Economic recovery won’t be as linear and clean as investors may hope. Unemployment is still at record highs, and companies need to continue cutting costs to stay in business. The age of automation and work-from-home schedules is upon us.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.