Boston Properties Completes Colorado Center Stake Buyout

Boston Properties Inc. (NYSE:BXP) has completed the previously announced acquisition of a 49.8% stake in the Colorado Center in Santa Monica, CA. This was made for an aggregate gross price of around $511.1 million.

This acquisition of the stake in an existing joint venture (JV) with Teachers Insurance and Annuity Association that owns the fee interest in Colorado Center marked the company’s foray into the Westside Los Angeles market. Boston Properties will be the managing partner of the JV.

Notably, Colorado Center is a 15-acre property in the Media and Entertainment District of Santa Monica. This six-building campus comprises nearly 1.2 million of rentable square feet. Presently, no debt is placed on the property.

With the Santa Monica office market having a solid concentration of technology, media, advertising and entertainment tenants in Los Angeles, the stake acquisition seems a strategic fit for Boston Properties. Further, there is significant upside potential imbedded in the asset with the company having scope to boost the property’s net operating income from the leasing-up of around 370,000 square feet of present vacant space, together with the roll-up of in-place, below-market rental rates to market rental rates with the expiration of leases.

Moreover, earlier, Boston Properties had estimated the buyout to result in an increase of around 5 cents in its projected 2016 diluted funds from operations (“FFO”) per share, given that the acquisition closes on Jul 1, 2016 and that no debt is placed on the property. On Apr 26, 2016 the company had projected FFO in the range of $5.85–$5.95 per share.

With properties in select high-rent, high barrier-to-entry geographic markets, diversified tenant and industry base, including several bellwethers, Boston Properties is poised to grow amid healthy labor-market conditions. Coupled with these, the entry into the Santa Monica market in Southern California is expected to open up more scope to capitalize on improving market fundamentals.

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Currently, Boston Properties carries a Zacks Rank #2 (Buy). Investors interested in the REIT industry can also consider stocks like DCT Industrial Trust Inc. (NYSE:DCT) , Mack-Cali Realty Corp. (NYSE:CLI) and PS Business Parks Inc. (NYSE:PSB) . Each of these stocks has the same Zacks Rank as Boston Properties.

Note: FFO, 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.