Dennis Mitchell, CFA Boston Properties BXP-N TOP PICK May 01, 2012

Trading below NAV with leverage to a recovering US economy. High-quality, AAA office buildings in Boston, Manhattan, DC and San Francisco. Yield of 2.5%.

(Market Call Minute.) Top 5 REIT globally.

A very, very high quality asset base of office properties, located in key urban centres in the US, such as Manhattan, San Francisco, Boston. Thinks they will be a beneficiary of the recovery in the US, as there will be more demand for office space. Very sound management team. Yield of 1.88%.

High quality office assets in the US and he is comfortable hanging on to it. They have redevelopment going on that should bump up the share price. Hang on to it if you own it.

High quality. Very good operators. Discount to NAV. Well positioned to capitalize on the trend for modern buildings with more amenities to outperform. Risk/reward in the space is challenged. Has owned in the past and would again.

BXP is quite cheap at 8X cash flow, and has recovered well from its low in March. It should perform better in a rate-pivot scenario. Very little growth is expected, but the yield is solid and payout ratio below 60%. BXP may have moved past an occupancy low point as improving leasing velocity augurs well for cash flow into 2024. Occupancy in the company's operating portfolio rose 50 bps sequentially in 3Q to 88.8%, and the leased percentage was flat at 90.4%. BXP leased over 1 million square feet in 3Q for the first time since 4Q22, with increasing volume in each of the last two quarters showing that there's sustained tenant demand for the best-quality assets. Leasing gains at this level would be sufficient to offset scheduled expirations in 2024, which would lift the leased percentage and potentially boost occupancy further. Guidance for full year 2023 funds from operations was reduced slightly due to higher interest expense and implies a sequential drop in 4Q. We would consider it a decent income stock. 
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This REIT holds offices in New York, Boston, LA and three more US cities. Shares have jumped 15% since the cool CPI report of July 11. They reported clean top and bottom line beats yesterday. In 2022, revenue grew 4%, though FFO fell 9 cents YOY, but both still beat.  They will benefit from the Fed cutting interest rates, which is likely. Occupancy is 87.1% and are seeing positive momentum with new leases. It trades at a reasonable valuation and pays a generous 5.5% dividend, paying you well as you wait for this to turn around.

They own top real estate in coastal cities; office REITs are already recovering and will do better as interest rates decline. Occupancy is returning to normal. Pays a 6% dividend.