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A Nod to Boston Properties’ Key Growth Drivers, Acquisitions and Dispositions

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Recycling capital

Boston Properties’ (BXP) focus on property acquisitions and dispositions has been fueling the company’s healthy growth. The average rental income of the company has improved significantly over the past several years, mainly due to acquisitions of many high-quality properties and dispositions of older assets that generated lower returns.

Other major office REITs (real estate investment trusts), such as Alexandria Real Estate Equities (ARE), Kilroy Realty Corporation (KRC), and SL Green Realty Corporation (SLG), are also active in property development and redevelopment projects. We should note here that the SPDR DJ Wilshire Global Real Estate ETF (RWO) invests ~1.9% of its total portfolio in Boston Properties.

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Boston Properties’ property acquisitions

Since 1997, the company acquired properties worth $13.2 billion, all of which have since added tremendous value to the company’s property portfolio. In fiscal 2014, Boston Properties did not acquire any property. This was mainly due to the higher property prices, which make property acquisition not so appealing at certain prevalent market rates. The company believes that property acquisitions at higher rates may not create long-term value to the shareholders.

What about land acquisitions?

Boston Properties acquired four land parcels in 2014 with development capacity of 1.2 million square feet. Meanwhile, the company has entered into additional option agreements, which together have the potential to create a development capacity of 2.2 million square feet.

Boston Properties’ dispositions

Since 1997, the company has disposed of properties worth $10 billion. During this period, the company disposed of some of the core properties that attracted premium pricing. In addition, the company sold some properties that generated comparatively lower cash flows.

In fiscal 2014, Boston Properties raised $2.3 billion by selling nine properties at an average capitalization rate of 4.3%. The company disposed of properties such as Patriots Park in Reston, Virginia, and Mountain View Technology Park in Mountain View, California. The company distributed 40% of the proceeds from property dispositions to its shareholders, with a special dividend of $4.50 per share.

Continue to the next part of this series for a discussion on Boston Properties strategy.

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