Boston Properties Should Find a Good Home in Your Portfolio

Boston Properties also holds real estate in five other metropolitan areas around the US. Its REIT status allows for low taxation at the company level. Most of the profits and cash flow are then distributed to shareholders as quarterly dividends. As such, BXP usually has been more of a bond substitute (read: income generator) than an equity play. Covid-related changes such as work from home and hybrid remote plus in-person work curtailed the demand for office space since the start of the pandemic. That hurt BXP and other office property owners over the past three years. How much of a hit should BXP have taken considering funds from operations (FFO) dropped 6.42%, from a record $7.01 per share in 2019 to about $6.56 in 2021? Dividends were prudently held steady from 2019 through the present. Book value managed to rise slightly, from $35.43 at year-end 2019 to around $39.50 as of Dec. 31, 2022. FFO surprisingly hit an all-time high of $7.53 or so during 2022, but figures to dip slightly in 2023. Over the past decade BXP posted very respectable gains across all major metrics despite the Covid-related disruptions. 2022's poor market action, though, sent the stock down to levels not seen since 2011. As of Jan. 1, 2023 today's buyers of BXP are getting substantially more value and yield than ten years ago for 32.1% less than it cost back then. That combination bodes very well for a renewed upturn in the shares to arbitrage away the large discrepancy between price and value. What is the proper price for BXP? From 2012 through 2022, BXP averaged 19.5-times its annual FFO, while paying about 2.76% in current yield. Starting 2023 those metrics read 9.3-times FFO along with a stellar 5.8% yield. The P/FFO is about half its historical normal. The yield is now more than double BXP's average level. BXP's absolute price is lower than the nadir during the Covid-ravaged 2020 market. That is bad news for continuous holders but terrific news for those going long BXP right now. Even a partial reversion to the mean valuation could easily send BXP back up to near $109 by this time next winter. That would deliver about 66.7% in total return. BXP's typical premium to book value was 213.4% over the most recent decade. At present that premium is down to an exceptionally low 70.6%. Reverse engineering to a normalized premium to book value suggests $123.93 is possible once the investment mood towards office property owners picks back up. Yahoo Finance likes BXP, too, but takes a more conservative view on its year-ahead prospects. Its 12-month goal price of $84.47 is based on BXP commanding just 11.7-times FFO. That appears too low based on all previous trading. Simply hitting that low-ball result would provide a solid 30.8% total return. Research house Morningstar is more in line with my own take on BXP. Morningstar assigns a 4-star (Buy) rating to the shares while calling $107 as its present-day, not year-ahead, true value. Boston Properties would reach 5-star status if it dips to below $64.20. Quantitatively based Fast Graphs is equally sanguine on BXP's future price action. The call a 17.97-times P/FFO as normal. Assume just a 15-times FFO on 2023's projected results and $108.30 becomes a reasonable Dec. 31, 2023 goal price. In my world the chance at a 66% total return on a relatively high-quality name appears quite tempting. The fact that BXP routinely peaked between $124 and $147 during each of the past nine years makes a goal of $108 seem probable, not far-fetched. A reasonably secure 5.8% income stream is hard to find these days. Add in the high probability of nice capital appreciation to that and Boston Properties seems worthy of inclusion to most people's portfolios.

Boston Properties Should Find a Good Home in Your Portfolio

After a major 2022 selloff, this REIT should have solid total return prospects. Let's see how to play it.

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