Boston Properties: Elite REIT

10/27/2015 7:00 am EST

Focus: REITS

Ian Wyatt

Publisher & Chief Investment Strategist, Wyatt Investment Research

No company is better at drawing forth value though development acumen in commercial real estate than our latest recommend REIT, explains Ian Wyatt, High Yield Wealth.

Boston Properties (BXP) focuses on a few select geographic markets characterized by limited new supply and high barriers to entry.

The REIT focuses on developing grade-A commercial real estate in four of the most tony, most desirous commercial office markets in the United States: Boston, New York, San Francisco, and Washington, DC.

Boston Properties owns or holds an interest in 170 properties that comprise 46.3 million square feet. Trophy properties include the General Motors Building in New York City and the John Hancock Tower in Boston.

Elite properties with top-tier tenants in the choicest locations give Boston Properties an $18 billion equity market cap, making it the largest REIT in the industry.

The investment thesis centers on exceptional management and intelligent growth. The two go hand in glove.

The value of Boston Properties' real estate holdings have more than doubled to $19.4 billion from $9.2 billion over the past ten years.

The company currently has 14 construction projects in progress, worth $2.4 billion. High-profile developments include the $1.1 billion Salesforce Tower in San Francisco and the $205 million Dock 72 at the Brooklyn Navy Yard.

Boston Properties stated quarterly dividend is $0.65 a share. That's $2.60 annually. But that doesn't tell the whole dividend story.

Boston Properties has paid $20.63 in special dividends over the past ten years. Last year alone, it paid $4.50 in special dividends.

Therefore, Boston Properties paid $7.10 in dividends per share in 2014. That means its trailing 12-month yield is actually 5.9%, not the reported 2.2%. 

We calculate NAV at $141 a share, suggesting an 18.5% discount.  Given its leading position in four of the most important metro office markets in the country, the shares should be trading at least on par with NAV.

When price appreciation is added to dividend yield, investors are looking at 20% to 25% potential return from the best commercial REIT over the next 12 months. 

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