Summary
- Boston Properties delivered a good Q1 2020 as most of its rents in the quarter were collected before the outbreak of COVID-19.
- Boston Properties may continue to face some headwinds due to COVID-19 as more employees become comfortable with working from home.
- The REIT pays a 4.3%-yielding dividend and has the potential to deliver a return of 19%.
Investment Thesis
Boston Properties (BXP) delivered a solid Q1 2020 as the outbreak of COVID-19 only happened towards the end of the quarter. The company should be able to navigate through the challenge as it has enough liquidity to pass through the crisis and finish its development projects. However, the long-term growth demand in the office sector may diminish as many people may become comfortable with working from home. This may hurt Boston Properties’ ability to raise its rents in the long term. The company pays a 4.3%-yielding dividend and has the potential to deliver a price return of 19.4% by the end of 2021. Therefore, it is still a good income stock to own. However, we would not overweight the stock due to its gloomier growth outlook.
Data by YCharts
Recent Developments: Q1 2020 Highlights
Boston Properties delivered a solid Q1 2020. It appears that COVID-19 has not caused a material impact on its Q1 top and bottom line as most of its March rents were collected in early March before the lockdown started. Its revenue increased by 4% year over year to $752.6 million. Similarly, its funds from operations increased by 6.8% from $266 million in Q1 2019 to $284.1 million in Q1 2020. On a per share basis, its FFO of $1.83 per share was an increase of 6.4% year over year from last year’s $1.72 per share.
Earnings And Growth Analysis
Near-term pandemic impact is manageable
Despite near-term challenges caused by COVID-19, Boston Properties’ rent collection remain close to historical levels. In fact, it has collected 98% of its June 2020 rents as of June 27, 2020. The company has signed new leases and renewed 915 thousand square feet of space in Q2 2020 (including 400 thousand square feet with Microsoft in Reston, VA). The company has a health security plan aiming to improve its tenants’ confidence. The plan includes implementing an SOP on cleaning, investing in air & water quality, and applying physical distancing codes (e.g. occupant density control, access and elevators, etc.).
