Boston Properties Seals $71M Buyout

Last week, Boston Properties Inc (BXP - Analyst Report) announced that it has completed the acquisition of a development site – 535 Mission Street – in San Francisco, Calif. from Beacon Capital Partners. The $71.0 million deal will facilitate Boston Properties to boost its presence in the San Francisco region. Notably, the acquisition price includes the cost of curtain wall and other buildings materials that Beacon Capital purchased 5 years ago.

The real estate investment trust (REIT) expects to commence working on the project in the middle of this month. The project, which is anticipated to be finished by fall 2014, will carry an anticipated total cost of roughly $215 million.

Boston Properties expects to construct a 27-story, 378 foot tall Class A office tower at 535 Mission Street. The property, which will comprise approximately 307,000 square feet of rentable office and retail space, is expected to attain a LEED Gold label. The property will be positioned in one of the most attractive submarkets of San Francisco, which boasts a cluster of office and technology occupant.

According to CBRE Group Inc. (CBG - Analyst Report), San Francisco remained one of the top office markets among the 30 most desirable office markets in the U.S. during the fourth quarter of 2012. Strong demand from the technology sector resulted in strong leasing activity and represented 55% of the downtown market’s 10.9 million square feet of leasing activity.

Also, the occupancy at downtown the San Francisco market and suburbs dipped 170 bps (basis points) and 20 bps, respectively. Thus, San Francisco office rents jumped 27.2% year over year during the quarter. These factors justify Boston Properties’ decision to expand its reach in the San Francisco market.

In addition to the abovementioned transaction, Boston Properties stated that it has inked a deal to buy the last remaining parcel of land in center of Reston Town Center in Va. for around $27 million. The land parcel is commercially zoned for office space, spanning 250,000 square feet.

However, Boston Properties is planning to use the land for mixed-use development plan, which may possibly include residential as well as commercial properties. The transaction is expected to close within the first quarter of 2013, subject to customary closing conditions.

The company mainly concentrates on a few selected high-rent, high barrier-to-entry geographic markets for acquisition and development purposes. We expect both the transactions to help the company maintain a strong grip on the vibrant markets and provide an upside potential for growth going forward.

Last month, Boston Properties reported strong fourth quarter 2012 results with FFO (funds from operations) per share of $1.27, beating the Zacks Consensus Estimate by 3 cents. The impressive results was consistent with its strong leasing activity and joint venture deals.

Boston Properties currently holds a Zacks Rank #3 (Hold). Other REITs that are performing better than the company include Ventas Inc. (VTR - Analyst Report) and Simon Property Group Inc. (SPG - Analyst Report). Both of these stocks carry a Zacks Rank #2 (Buy).

Note: Fund from operations, a widely used metric to gauge the performance of REITs, is obtained after adding depreciation and amortization and other non-cash expenses to net income.