Morningstar | Boston Properties Posts Healthy 1Q Results; We Maintain FVE
Boston Properties Group released impressive first-quarter results that reflected the strength of its enviable portfolio of properties across five of the healthiest office markets in the U.S. Companywide revenue increased 10%, while funds from operations rose 15% over the first quarter of 2018. These results confirm our long-term thesis that Boston Properties will continue to see growth driven by its portfolio of high-quality office assets. Accordingly, we expect to maintain our $138 per share fair value estimate for no-moat-rated Boston Properties. After shares increased slightly in reaction to the encouraging quarterly results, we view Boston Properties as fairly valued.Underpinning the strength in the company’s financial results was a combination of same-property net operating income growth and a material increase in companywide occupancy rates. During the quarter, occupancy for Boston Properties’ in-service office and retail portfolio increased by about 2.4% over a year earlier. Meanwhile, same-property NOI grew 9.2% on a cash basis. Among its various markets, results in Boston, San Francisco, and Los Angeles were particularly buoyant. By contrast, the central business district in Washington, D.C., continues to struggle because of weak demand, while results in New York City are mixed as office operators contend with elevated supply amid continued strength in demand.
Boston Properties continues to seek out value by pursuing developments rather than acquiring properties. We think this strategy is prudent, given current market environments that feature low capitalization rates and attractive potential yields in supply-constrained central business districts. This strategy appears to be paying off, as evidenced by the success of the company’s Salesforce Tower development in San Francisco. Additionally, management’s projected cash yield on its pipeline of commercial developments is an impressive 7%.
Boston Properties is a real estate investment trust that develops, owns and manages primarily office properties. The company's properties are concentrated in five markets: Boston, Los Angeles, New York, San Francisco and Washington, DC. The company is a real estate company, with in-house knowledge and resources in acquisitions, development, financing, capital markets, construction management, property management, marketing, leasing, accounting, risk management, tax and legal services. The company manages Boston Properties Limited Partnership, which is the entity through which the company conducts substantially all of its business and owns (either directly or through subsidiaries) substantially all of its assets.
Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors.
Morningstar provides data on approximately 530,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 18 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries and had approximately $185 billion in assets under advisement and management as of June 30, 2016.
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