MarketWatch  Sep 18  Comment 
Boston Properties Inc. said Tuesday it will raise its quarterly dividend by 19% to 95 cents a share from 80 cents a share, which the real estate investment trust said was the biggest quarterly increase in its history. The new dividend will be...
Benzinga  Feb 15  Comment 
Boston Properties, Inc. (NYSE: BXP) is likely to be a beneficiary of leasing progress in New York City and San Francisco, development leasing and new development starts and above-average 2019 growth, a Bank of America Merrill Lynch said in a...


Boston Properties is a Real estate investment trust or REIT that develops, owns, and manages office buildings. The firm makes money by reselling office properties that it acquires and develops. While its properties appreciate, BXP rents them to a diverse group of companies, largely concentrated in the Legal and Financial Services industries.

BXP owns 138 properties in just five areas of the United States: Midtown Manhattan, Boston, Washington D.C., San Francisco, and Princeton, N.J. These are dense business centers with high barriers to entry for other firms, and Boston Properties has generated stable returns and a faster-than-average growth rate focusing on high-end properties in these markets. Office space makes up the vast majority of BXP's portfolio, but the company also owns two hotels, an industrial center, and a land bank in the Northeast with 10 million square feet of space for development.[1]

Boston Properties, like other firms in the commercial real estate industry, has thus far avoided fallout from the subprime lending crisis that has decimated the residential housing market. However, the company's position in a few key economic centers ties it to the fiscal health of these cities, and an economic downturn could adversely affect BXP as there would be less demand for new office space and difficulties in developing and selling existing properties. Boston Properties' high-end clientele, however, would be among those best suited to weather a potential economic storm, and the firm's performance might remain strong despite a recession.

Business Overview

Boston Properties operates solely in five highly competitive real estate markets that have traditionally provided stronger returns and proved more resistant to recession than other real estate markets. These properties attract tenants with strong credit records, such as the United States Government, Citigroup, Lockheed Martin, or Ernst and Young. These tenants tend to sign long term contracts several years in advance of the lease commencement. As a result of these two factors, BXP experiences strong demand for its office space in spite of short term economic fluctuations. Furthermore, Boston Properties' tenant base is highly diversified. The largest tenant is the United States Government, which rents 5.43% of BXP's office space. Overall the top twenty tenants account for 36.13% of Boston Properties' leased square footage. [2]

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Change to Development

Traditionally, Boston Properties both acquired and developed commercial real estate. However, due to high property prices in its five core markets BXP decided to change its focus to development over acquisition. BXP argues that development offers better returns than strategic acquisition and divestment. From 2008 to 2011, BXP expects to place over $2 billion of new commercial real estate in service. However, it should be noted that much of this new development is outside of BXP's five traditional markets.[6]

Planned Development Delivery 2008-2011

Name of Project Initial Occupancy Estimated Stabilization Occupancy Location Square Feet Estimated Total Investment
909 5th St. (50% ownership) Q4 2007 Q4 2008 Washington D.C. 323,000 $65,000,000
77 City Point Q1 2008 Q1 2009 Waltham, MA 210,000 79,707,173
South of Market Q1 2008 Q3 2009 Reston, VA 652,000 $213,800,000
One Preserve Parkway Q2 2008 Q4 2009 Rockville, MD 183,000 $60,536,931
Annapolis Junction (50% ownership) Q2 2008 Q4 2009 Annapolis, MD 117,600 $29,800,000
Wisconsin Place (66.67% ownership) Q1 2009 Q4 2010 Chevy Chase, MD 290,000 $93,500,000
701 Carnegie Center Q3 2009 Q3 2009 Princeton, NJ 120,000 $34,000,000
South of Market Q3 2009 Q3 2010 Reston, VA 225,000 $87,200,000
250 West 55th St. Q4 2009 Q4 2010 New York, NY 1,000,000 $910,000,000
Russia Wharf Q1 2011 Q3 2011 Boston, MA 815,000 $525,000,000

Trends and Forces

  • The liquidity crunch resulting from the Subprime lending crisis could inhibit BXP's ability to finance expansion. Lending is especially important to Real Estate Investment Trusts since Federal Tax law requires that they return at least 90% of earnings to their shareholders. As a result, they cannot simply finance expansion by retaining a larger portion of their earnings, and they must borrow this money instead. Traditionally, 60% to 70% of the financing for the development of new office space came from loans from pension funds or insurance companies. These loans were sized so that rent payments from the building they were used to buy could cover the amortization costs. This baseline was neglected over the past few years as loans were made on the assumption of increasing rents due to rapidly rising real estate values. Also, it became commonplace for different kinds of investors to furnish a greater percentage of the financing, replacing insurance companies and pension funds. But following the liquidity crunch of 2007, real estate developers have turned back to more traditional sources of financing, with lower appreciation expectations for their properties. Unlike some other REITs, Boston Properties appears to have made this adjustment with ease, as demonstrated by its relatively light debt load, medium risk investment grade credit rating, and consistent rental revenue.[8]
  • Any potential liquidity crunch resulting from the Subprime lending crisis could directly affect the business of BXP's tenants. BXP is especially vulnerable since financial services account for 22% of BXP's rental revenue, meaning that a significant number of bankruptcies, or even layoffs, in that industry could adversely affect BXP. This continues to be a risk (especially in the New York and Boston markets). However, BXP reports that demand for its properties remains strong since firms sign contracts for office space several years in advance with contracts that last several years with penalties for early termination. In addition, any wider economic slowdown precipitated by a liquidity squeeze would obviously reduce demand for BXP's office property.[9]
  • Concentrated holdings in five competitive real estate markets presents challenges and opportunities. The five markets that BXP focuses on all have strong and dynamic economies, resulting in increasing property valuations and rents. In fact, the value of office properties in Northern California, Washington D.C., and New York have outperformed the national average due to diverse economies and a heavy cluster of companies from the defense and legal services industries. However, at the same time this means that BXP often has difficulty acquiring reasonably priced buildings or land in these areas. As a result, much of BXP's planned future development is in fact outside of its five traditional markets. This may be a necessary change of strategy for BXP to remain profitable, but leaving its traditional markets and owning less attractive properties means that BXP could be more sensitive to economic difficulties in the future.

Occupancy by Region as of June 30, 2007

Boston Washington D.C. New York City San Francisco Princeton-New Brunswick
91% 98% 99% 90% 87%

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Market Share

Market share is listed by 2007 revenues.[12] In 2007, BXP accounted for 14% of total U.S. office REIT market share, the second largest U.S. office REIT by revenues. There are 14 U.S. exchange traded REITs focusing on office properties.[13] Of those, the top three Boston Properties (BXP), Brookfield Properties (BPO) and SL Green Realty (SLG) accounted for just over half of Market Share by 2007 revenus.

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  • Brookfield Properties (BPO) BPO develops, owns and manages U.S. commercial office properties and develops residential land. The company's commercial property portfolio consists of interests in 109 properties totaling 73 million square feet, primarily located in New York, Boston, Washington D.C., Houston, L.A. and Toronto where its buildings can lease to a tenant base of government, energy and financial companies. As of May 21, 2008 BPO had a market cap of $8.25B.[15]
  • SL Green Realty (SLG) SLG owns and leases office space to corporations in Manhattan. The company owns more than 30 New York City office properties totaling over 22 million square feet.[16] In 2007, SL Green cemented its position as the Big Apple's largest landlord when it acquired Reckson Associates Realty Corp. The transaction added a total of 9 million square feet to its portfolio, including over 5 million square feet of suburban offices and 4 million additional square feet of prime Manhattan office space.[17] SLG faces a particular risk from the subprime crisis. By weakening the financial sector, the heart of the New York economy, it threatens to crimp demand for office space in the company's core market. As of May 21, 2008 SLG had a market cap of $5.71B.[18]


All of the following companies are REITs except for Brookfield Properties (BPO). While each company owns office properties, unlike BXP some own other types of property as well. For example, HRPT Properties Trust and Mack-Cali realty own considerable amounts of health care and industrial properties respectively.

Company Operating Cash Flow Total Debt Total Cash Shares OutStanding Dividend Yield Square Feet in Portfolio Markets Property Occupancy
HRPT Properties Trust (HRP) $298.96 m $2.71 B $25.64 m 225.43 m 11.40% 64,000,000 Five largest markets: Hawaii, Pennsylvania, New York, Texas, Massachusetts. But owns real estate through United States. 92.8%
Mack-Cali Realty (CLI) $250.17 m $2.13 B $29.98 m 67.91 m 8.60% 33,733,011 New Jersey, New York City, Pennsylvania, Connecticut, Washington D.C., Maryland, Massachusetts 92.2%
Brookfield Properties (BPO) $45 m $12.59 B $202 m 394.19 m 3.10% 73,200,000 New York City, Boston, Washington D.C., Houston, Los Angeles, Toronto, Calgary, Ottawa, Denver, Minneapolis 95%
SL Green Realty (SLG) $401.72 m $5.35 B $98.1 m 59.23 m 3.80% 30,220,700 Manhattan, Brooklyn N.Y., Westchester N.Y., Connecticut about 95.7%
Vornado Realty Trust (VNO) $824.92 m $12.58 B $834.27 152.26 m 4.40% about 64,000,000 New York City, Washington D.C., retail properties throughout United States 94.67%
Boston Properties (BXP) $598.07 m $5.41 B $1.89 B 119.27 m 3.10% 44,100,000 Midtown Manhattan, Boston, Washington D.C., Princeton N.J., San Francisco 94%


  1. BXP's Investor Relations Website
  2. BXP's Third Quarter 2007 Report
  3. BXP's 2006 Annual Report
  4. ibid.
  5. BXP Third Quarter 2007 Supplemental Information
  6. BXP's Third Quarter 2007 Report
  7. BXP's Third Quarter 2007 Report
  8. BXP's Third Quarter Earnings conference call
  9. BXP's Third Quarter Earnings conference call
  10. BXP's Third Quarter 2007 Report
  11. BXP 2006 Annual Report
  12. Google Finance
  13. InvestinREITs.com
  14. All Taken From Google Finance
  15. Google Finance
  16. http://slgreen.com/about/ SL Green- About Us
  17. http://slgreen.com/about/company-history/ SL Green- Company History
  18. Google Finance
  19. All data from third quarter reports of companies and yahoofinance.
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