Boston Properties Sees Rising Demand For Mixed-Use Assets

Boston Properties BXP has been witnessing rising demand for mixed-use properties from tenants. In a recent video interview at REITworld 2017 with Nareit, the company's CEO — Owen Thomas — revealed the fact but noted that the company still remains an office REIT. According to him, although the company is involved in mixed-use development, retail and apartment assets constitute less than 10% of its total portfolio.

Notably, mixed-use developments reduce the distance between housing, workplaces, retail businesses, and other amenities and destinations. Hence, mixed-use developments enable companies to grab the attention of people who prefer to live, work and play in the same area.

Further, Boston Properties is right on track to record 25% increase in its net operating income (NOI) by 2020. Specifically, contribution from delivery of several new developments is likely to constitute two-third of this growth in NOI. Encouragingly, its developments are already 75% leased as of now, highlighting decent demand for the company's properties.

The remaining one-third is expected to be achieved by raising the combined occupancy level of nine properties to 93% from 90%. According to Thomas, the company is "about half-way" toward this target.

Boston Properties enjoys the ownership and development of class-A office properties that are concentrated in five core markets — Boston, Los Angeles, New York, San Francisco and Washington, DC. This focus on select high-rent, high barrier-to-entry geographic markets is a strategic fit given that such markets usually fare better in an uncertain economy.

Over the last five years, the company witnessed an annual compounded revenue growth rate of 8.17%. Given Boston Properties' improving core operations and solid contribution from development deliveries, it is anticipated to experience growth in top line in the near term.

Also, with economic improvement and recovery in job market, healthy growth in demand for office spaces is poised to continue. However, increased supply of office space has been curbing the pricing power of landlords and resulting in elevated concession levels. Furthermore, rate hikes have added to its woes.

Boston Properties currently carries a Zacks Rank #3 (Hold). In the past six months, shares of the company have outperformed the industry. While the stock has gained 4.8%, the industry has incurred loss of 0.3% during this period. You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.



Better-ranked stocks in the REIT space include Franklin Street Properties FSP, Columbia Property Trust CXP and MedEquities Realty Trust MRT. All three carry a Zacks Rank of 2 (Buy).

Franklin Street Properties' Zacks Consensus Estimates for 2017 FFO per share remained unchanged at $1.05 over the past month. Its share price has inched up 0.4% in three months' time.

Columbia Property Trust's FFO per share estimates for the current year have climbed 2.7% to $1.15 in two months' time. The stock has gained 5.3% over the past three months.

MedEquities Realty's FFO per share estimates for 2017 moved up 0.9% to $1.12 over the past two months. Its shares have lost 5.0% during the past three months.

Note: All EPS numbers presented in this report represent funds from operations (FFO) per share. FFO, a widely used metric to gauge the performance of REITs, is obtained after adding depreciation and amortization and other non-cash expenses to net income.

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