BXP Acquires Premium Asset – Analyst Blog

Boston Properties Inc. (BXP), a real estate investment trust (REIT), has recently announced its plans to acquire the John Hancock Tower, the tallest building in New England, for approximately $930 million. The company entered into an agreement with an affiliate of Normandy Real Estate Partners and an affiliate of Five Mile Capital Partners for the acquisition of the property.

 

Under the terms of the agreement, Boston Properties would pay approximately $289.5 million in cash and assume $640.5 million in a senior mortgage loan that bears interest at a fixed rate of 5.68% per annum and matures in January 2017. The transaction is expected to close by fourth quarter 2010.

 

The 62-storeyed property, spanning 1.7 million rentable square feet of office space, is located in the heart of Boston’s Back Bay neighborhood and features a 360-degree panoramic view of the Back Bay, Charles River, Cambridge, the Public Gardens, Boston Harbor and Financial District. Consequently, the property would attract the highest quality tenants at a premium rent.

 

Boston Properties owns and develops one of the largest Class-A office, industrial, and hotel properties in the U.S. The company has one of the best balance sheets in the sector with manageable near-term debt maturities and adequate liquidity to take advantage of distressed selling as asset values of office and retail properties continue to drop.

 

However, fundamentals are declining in many of the company’s office markets as corporate expansion continues to slow. In addition, Boston Properties has a large development pipeline, which increases operational risks in the current credit-constrained market, exposing it to rising construction costs, entitlement delays and lease-up risk.

 

We currently have a Neutral recommendation on Boston Properties with a Zacks #3 Rank, which translates into a short-term Hold rating and indicates that the stock is expected to perform in line with the overall U.S. equity market for the next 13 months.