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Boston Properties to Sell NYC Tower Stake - Analyst Blog

Posted: 9/10/2013 10:57:00 AM
Referenced Stocks: ANN;BXP;HIW;SLG

Boston Properties Inc. ( BXP ) finally inked a deal to sell its 45% stake in the Times Square Tower in Manhattan for $684 million in cash to The Norwegian Government Pension Fund Global. The tower was put up for sale in June by Boston Properties.

The Pension Fund, which is the world's largest oil-backed sovereign wealth fund, will form a joint venture (JV) upon closure with Boston Properties, whereby the latter will retain 55% stake and property and leasing management on behalf of the JV. Signed on Sep 6, the deal is expected to close within 90 days.

Mostly occupied, the Times Square Tower, a 47-story, 1.2 million-square-foot, Class A office tower including associated retail space and signage, enjoys an enviable location in the popular shopping district. With Times Square being New York's greatest transportation hub with easy access to several bus, subway, and rail lines, the property is valued at $1.52 billion. Its tenant roaster includes several law firms, restaurant chains and clothing retailer, ANN Inc. ( ANN ).

Developed in 2004, the tower is built on a ground that is leased from The City of New York and has a remaining term of 76 years. Notably, the JV enjoys the right to purchase the fee interest in the property beginning July 2024.

Currently, there is sufficient impetus for such prized properties in this region. This is well evident from the June sale of 40% stake in New York's General Motors Building, to the families of Chinese property developer Zhang Xin and Brazil's banking tycoon Safra, in a deal that valued the property at around $3.4 billion.

Also, in June, Carlyle Group agreed to dispose an office and retail tower at 650 Madison Avenue for $1.3 billion, nearly double the amount paid for it five years back. Such deals reflect the demand for these premium retail and office properties in the region.

A Strategic Fit

Rise in rents and the value of such properties in the area are attractive and, hence, the value recognition of its asset through the sale by Boston Properties is a strategic fit. Moreover, the company plans to distribute at least the amount of proceeds required to escape the payment of a corporate level tax on any gain recognized from the sale, thereby keeping the investors upbeat on this deal.

On the other hand, for Norway's oil-backed sovereign wealth fund, which already forayed into the U.S. real-estate market earlier this year, the deal will help extend its presence further. The fund, which committed 5% for real-estate buyouts, also grabbed opportunistic property purchases in Europe and other markets.

Boston Properties moved up 0.94% in yesterday's regular trading session on the New York Stock Exchange. The stock currently holds a Zacks Rank #3 (Hold). Other REITs that are performing better and deserve a look include Highwoods Properties Inc. ( HIW ) and SL Green Realty Corp. ( SLG ), both carrying a Zacks Rank #2 (Buy).

ANN INC (ANN): Free Stock Analysis Report

BOSTON PPTYS (BXP): Free Stock Analysis Report

HIGHWOODS PPTYS (HIW): Free Stock Analysis Report

SL GREEN REALTY (SLG): Free Stock Analysis Report

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