EUR 850.00 For Business Accounts Only

Morningstar | Decreasing Fair Value Estimate for Boston Properties to $138 Per Share

With its focus on newly developed Class A office properties, Boston Properties continues to attract top-tier tenants. Salesforce Tower, the 1,070-foot skyscraper named after the cloud computing company, has added to the ever-changing San Francisco skyline. The property is representative of the new breed of developments that make up Boston Properties' multi-billion-dollar pipeline. We see a deep market, particularly on the West Coast, as expanding companies looking to attract young talent match up well with Boston Properties' offerings. However, the company has very little exposure to these central business districts, with less than 2% of the office space in San Francisco and Los Angeles. While San Francisco remains tight on supply, we see potential in the company's Los Angeles growth.Boston Properties recently established a presence in Los Angeles with the purchase of Colorado Center, which comprises six buildings and over 1 million square feet of office space. It anticipates this is its first of many properties in this market as it works to deepen its presence over the long term. On the other side of the country, the company has had success in the Boston suburbs, filling its properties with life science and technology tenants. This represents a shift in tenant base from legal services to more-innovative biotechnology and life science firms. While healthcare is an attractive industry from a leasing perspective, we have concerns about the proportion of the company’s portfolio that is suburban-focused, where space is typically not an issue and new supply can easily enter the market and lure tenants away. Some aspects of the portfolio are better than others. Washington, D.C., remains an area of concern, as 10-year annual market rent growth is below 1% compared with New York and San Francisco at 3.7% and 6.0%, respectively. Competitor Vornado has spun off its Washington portfolio, which we view as a challenged area for office space going forward. Management has been prudent in recycling capital over the years, maintaining a modern portfolio of assets that continue to meet tenant demand in an evolving labor market.