Boston Properties (NYSE: BXP) is a real estate investment trust, or REIT, that specializes in urban, Class A office properties located in some of the most densely populated and high-barrier markets in the United States. The company is the largest publicly traded office owner, developer, and operator in the market, both by the size of its portfolio and the market value of the company.
In this article, we'll take a closer look at Boston Properties' portfolio, its business strategy, recent developments with the company, and its history of stock performance and dividend payments.
Boston Properties company profile
Boston Properties is the largest office REIT in the market and specializes in Class A (top-quality) office properties in urban areas. The company owns a portfolio of 196 properties with a total of 51.2 million square feet of space. As of December 2020, Boston Properties has a market capitalization of $15.8 billion.
Despite its name, Boston Properties' portfolio is concentrated in six markets. Roughly one-third of the rental income does come from the Boston area, but other key markets include New York City; Washington, D.C.; northern Virginia; San Francisco; and Los Angeles. (New York and San Francisco are the two largest by far, other than Boston.) Most properties are located in the high-density urban areas of these markets.
Like most urban office buildings, there are some retail elements in the company's properties. But the vast majority (92%) of rent comes from offices.
As you might expect from such a large REIT, Boston Properties has a diverse tenant base, with no tenant accounting for more than 3.5% of the company's rent. Top tenants include salesforce.com (NYSE: CRM), Alphabet (Google) (NASDAQ: GOOGL) (NASDAQ: GOOG), the U.S. government, and Bank of America (NYSE: BAC), just to name a few examples.
One current focus area investors should be aware of is that Boston Properties is aggressively adding life science office properties to the portfolio. The company currently has about 3.3 million square feet of life science office space but has identified an additional 5.8 million square feet of potential lab conversion and development opportunities.
One potential negative is that Boston Properties has a significant amount of exposure to co-working offices, particularly WeWork, which hasn't exactly been a profitable company. This is a relatively small amount of the company's rent but worth keeping an eye on.
A key differentiator is that while many office REITs mainly acquire existing properties, Boston Properties develops new office buildings from the ground up. In fact, the company has 4.3 million square feet of space currently under development or redevelopment and another 15 million square feet in its future development pipeline.
Furthermore, it isn't just that Boston Properties develops office buildings but that it actively recycles capital to maximize return potential. In the 23 years since its IPO, Boston Properties has spent $15 billion on acquisitions, but it has strategically sold $11.7 billion worth of properties along the way, many at large profits.
Boston Properties news
Obviously, the biggest recent news item affecting REITs (and pretty much every other type of company, for that matter) is the COVID-19 pandemic. Office REITs were one of the hardest-hit REIT subsectors as the pandemic spread, among fears office demand will never be the same, thanks to technological advances that have made working from home easier than ever before.
While nobody has a crystal ball that can predict when and to what extent people will return to offices, we do know Boston Properties remains strong for the time being. Of the 92% of rent that comes from office tenants, the company collected 99% of it in the third quarter. Few other REITs in any subsector can boast that kind of rent collection.
But Boston Properties wasn't entirely unscathed. For example, the company makes some of its money from charging for parking, and that type of income declined by $10.6 million as compared with the third quarter of last year. And the company's only hotel property was closed until early October -- and it's operating at about 10% occupancy.
Recent leasing activity indicates the COVID-19 pandemic's long-term effects might not be too bad. The company just signed a new 20-year lease with Volkswagen Group of America (OTCPK: VWAGY) for 196,000 square feet of office space in one of its properties under development. And this was just one of several new leases signed in the second half of 2020.
Over 91% of Boston Properties' portfolio is currently leased, so there's no major occupancy concern. Plus, the average tenant has nearly eight years left on their lease, so it's not as if tenants could rapidly vacate their offices even if they wanted to. We'll just have to wait and see how the rest of the pandemic plays out.
Management believes that in the future, office space will still be in demand and that we'll see a widespread return to office work in the second half of 2021. In Boston Properties' third-quarter conference call, CEO Owen Thomas had this to say on the matter:
We are confident of economic recovery and believe our properties and markets will perform well over time, given their proximity to resilient and growing tech and life science demand. Regarding location, there continues to be speculation about companies moving from major urban environments to secondary markets or suburban locations. To date, we have seen no evidence of pandemic-driven movement among our customer base to secondary cities or suburban locations.
Boston Properties stock price and dividend
Since its 1997 IPO, Boston Properties has handily beaten both the S&P 500, producing a nearly 1,000% total return for investors, compared with 544% for the S&P over the same time period.