Boston Properties (NYSE: BXP) could be the best contrarian investment for the age of coronavirus. The office building REIT is making money and signing up new tenants in a pandemic.
For example, Volkswagen Group of America signed a 20-year-lease for 196,000 square feet of office space in Reston, Virginia, a press release reveals. Volkswagen will use the space in Boston Properties’ (BXP) Reston Town Center for its North American headquarters.
In addition, the biotech company Translate Bio will lease 138,000 square feet of lab space from Boston Properties in Waltham, Massachusetts. The space is in Boston Properties’ building at 200 West Street, a press release reveals.
Does Boston Properties Make Money?
Boston Properties (BXP) makes money. The real estate investment trust (REIT) reported a quarterly gross profit of $431.84 million and a quarterly operating income of $234.32 million on 30 September 2020.
The quarterly gross profit rose from $413.01 million on 30 June 2020. The quarterly operating income grew from $194.27 million on 30 June 2020.
Moreover, Boston Properties’ quarterly revenues rose from $654.27 million on 30 June 2020 to $693.27 million on 30 September 2020. However, Stockrow estimates Boston Properties revenue growth fell by 6.76% in the quarter ending on 30 September 2020.
How much Cash Does Boston Properties Generate?
In addition, Boston Properties (BXP) reported a quarterly operating cash flow of $228.15 million on 30 September 2020. The quarterly operating cash flow fell from $379.07 million on 30 June 2020.
However, Boston Properties reported a negative quarterly ending cash flow of -$226.87 million on 30 September 2020. The quarterly ending cash flow fell from $1.133 billion on 30 June 2020.
Boston Properties borrowed a lot of money in 2020. Boston Properties reported a quarterly financing cash flow of $800.73 million on 30 June 2020. However, the quarterly financing cash flow fell to -$187.13 million on 30 September 2020.
Thus, I think Boston Properties is a healthy company that can raise money through financing but it pays of debts fast.
What Value Does Boston Properties have?
Boston Properties Inc. (NYSE: BXP) had $1.765 billion in cash and short-term investments on 30 September 2020. The cash and short-term investments fell from $1.992 billion on 30 June 2020.
Boston Properties had some value in the form of $22.959 billion in Total Assets on 30 September 2020. However, the Total Assets fell from $23 billion on 30 June 2020.
Boston Properties claims to be the largest-publicly held developer and owner of Class A office properties in the United States with 10 properties in New York City, 11 properties in the San Francisco Bay Area, 25 properties in the Washington DC area, two properties in Los Angeles, and 18 properties in the Boston Area.
However, Boston Properties leases prestige properties to corporations and other organizations. Demand for such properties because many executives and professionals are working from home.
Stanford University economist Nicholas Bloom estimates 42% of Americans were working from home in June 2020. Moreover, the number of Americans working from home rose by 173% between 2005 and 2018 before the coronavirus pandemic, Global Workplace Analytics estimates.
Will Coronavirus Kill Boston Properties?
Moreover, only 25% of American remote workers returned to the office by October 2020, The Wall Street Journal estimates. That number is worse in some areas. CBRE estimates only 12% of New York professionals have returned to the office. That’s bad news for Boston Properties which owns 10 office buildings in the Big Apple.
Return-to-work rates are low in other areas, for instance, only 33% of people have returned to the office in New York’s suburbs, Axios estimates. In addition, around 32% of Los Angeles professionals are back in the office.
Unfortunately, those numbers could fall again as coronavirus surges and authorities respond with new lockdowns and stay-at-home orders. Many states were rolling back reopenings as coronavirus cases rose, USA Today reports. For example, California was dealing with one million COVID-19 cases and a 4.2% positivity rate on 13 November 2020.
What Future Does Boston Properties Have?
Consequently, I think high rates of remote work will be a long-term phenomenon in many places. That could lower the demand for Class A space.
To explain, executives, and other headquarters professionals are the most apt to stay home. Executives have larger homes and the resources you need to work from home, such as fast internet and extra space for an office.
One danger for Boston Properties is that many organizations will reduce or eliminate their headquarters space. A large corporation could shrink its headquarters to a couple of offices and a conference room for example.
Other companies will reduce costs by using a WeWork or IWG plc (LON: IWG) facility. WeWork and IWG rent offices and conferences rooms on a short-term basis. Notably, IWG; formerly Regus, claims it is amid an expansion from 3,300 to 20,000 locations.
I think Boston Properties will have to convert some of its properties into co-working or flexible workspaces to make money. Cynics will wonder if IWG is a better investment.
Is Boston Properties a good Contrarian Investment?
Thus Boston Properties could be a good contrarian investment. For instance, Boston Properties Inc. (BPX) makes money, but its stock is relatively cheap.
Mr. Market paid $91.62 for Boston Properties’ shares on 13 November 2020 and $96.90 on 16 November 2020. Additionally, Boston Properties’ share price fell from $135.58 on 2 January 2020 to $91.62 on 13 November 2020.
Plus, Boston Properties pays an excellent dividend. BXP shares paid a 98₵ quarterly dividend on 30 October 2020. Overall, Boston Properties offered an annual dividend of $3.92 and a dividend yield of 4.5% on 13 November 2020.
Thus, I think Boston Properties (BPX) is a good income stock with a high margin of safety. However, Boston Properties is a company in a business with a questionable future. If you want high dividends, BPX is an excellent choice, however, those dividends could soon disappear because of coronavirus.