BXP Completes Hancock Acquisition - Analyst Blog

Boston Properties Inc. (BXP), a real estate investment trust (REIT), has recently completed the acquisition of ‘John Hancock Tower', the tallest building in Boston, Massachusetts, for $930 million. The company acquired the property from an affiliate of Normandy Real Estate Partners and an affiliate of Five Mile Capital Partners, both real estate private equity firms.

The purchase price included approximately $289.5 million in cash and the assumption of $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. Boston Properties anticipates incurring about $3 million of acquisition-related costs, approximately $1 million of which will be borne in 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, the Charles River, Cambridge, the Public Gardens, Boston Harbor and the Financial District. Consequently, the property is expected to 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 1–3 months. We also have a ‘Neutral' rating and a Zacks #3 Rank for Vornado Realty Trust (VNO), a competitor of Boston Properties.

 
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