BofA Goes Against Tide On Boston Properties, Upgrades To Buy With Street's Highest Price Target

Boston Properties, Inc. BXP is likely to be a beneficiary of leasing progress in New York City and San Francisco, development leasing and new development starts and above-average 2019 growth, a Bank of America Merrill Lynch said in a Thursday note. 

The Analyst

BofA's Jeffrey Spector upgraded Boston Properties from Neutral to Buy and increased the price objective from $140 to $145, the highest on the Street.

The Thesis

Spector termed the rating as an "anti-consensus Buy," given that the shares have eight Buy ratings and 16 Neutral ratings on the Street. 

An NYC tour with the Boston Properties leasing team and feedback from local market contacts give Spector comfort that the company can lease the remaining vacancies at 399 Park and 159 East 53rd, he said. 

"We are not making a call on an immediate widespread improvement for NYC office, but we now believe these assets are priced and positioned well for BXP to lease," Spector said. 

Most markets look healthy, with Boston Properties poised for good growth in 2019, according to BofA. 

The firm sees limited earnings risk for the REIT in 2018 and 2019 from rising rates, as floating-rate debt exposure was 1 percent of Boston Properties' total debt at the end of 2017. Though the debt could rise, Spector said development costs will be capitalized until project completion.

"The only large maturity through 2019 is $700 million of 5.85-percent notes in 2019," Spector said. "We believe rates would have to rise at least 150 bps more for refinancing of these notes to be dilutive to funds from operations." 

The Price Action

Boston Properties shares are down 15 percent over the past year.

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