UBS cites weak demand for office space in steep price cut of Boston Properties

By Steve Gelsi

Pressure from lackluster office-space sector weighs on real-estate investment trust

Boston Properties Inc. on Monday drew a sizeable price-target cut of $17 a share from UBS, partly due to the impact of downward pressure from the office-space market, although analysts said the real-estate investment trust remains resilient.

UBS analysts slashed their price target for Boston Properties (BXP) to $52 a share from $69 a share and reiterated a neutral rating on the stock.

"Our new price target reflects our cautious outlook for office and reduced [Boston Properties] estimates," UBS analyst Michael Goldsmith said. "While office has been under considerable pressure, [Boston Properties] has done a respectable job of minimizing the impact to its operating metrics."

UBS's new price target for the stock reflects a 50% subsector discount for office REITs, well below the average 20% subsector discount.

"We believe this is warranted due to the lack of visibility on a recovery of tenant demand for office space, a difficult macro environment with continued layoffs expected, and rising cap rates on office properties," Goldsmith said. "Further, the financing environment for office properties remains difficult."

UBS is projecting a sequential occupancy decline of 20 basis points, to 88.4%, in the first quarter for Boston Properties. The company provides its quarterly update on Tuesday. This is less than the drop of 30 basis point in the fourth quarter, in a sign of moderation in declines, analysts said.

"Portfolio occupancy may have bottomed in 2021 at 88.6% (five-year high of 93.0% in 2019)," UBS said. "However, we think the recovery from here will be choppy given the slow return to office and tech layoffs which likely impact [Boston Properties'] West Coast properties."

Year-to-date office utilization has stabilized, with average year-to-date occupancy at 46.3% an April 12, according to data provider Kastle, cited by UBS.

Boston Properties' stock is down 0.3% on Monday. The stock has fallen 23.1% in 2023, compared with a 7.7% increase by the S&P 500 .

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-Steve Gelsi

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04-25-23 0817ET

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