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Boston Properties (BXP) to Break Ground for Oakland Project

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Boston Properties, Inc. BXP is slated to break ground on May 2 for its first residential project on the West Coast, per news from San Francisco Business Times. The move comes as part of the company’s effort to diversify its asset base.

Specifically, a 402-unit apartment tower will be developed adjacent to Oakland's MacArthur BART station. As a result, the tower is expected to enjoy decent accessibility to transportation. In fact, per the report, buses plied by AC Transit, Emeryville and major neighboring employers halt there. Therefore, residential units in the tower are likely to enjoy demand.

According to the company’s prior earnings call, excluding land, the tower is slated to cost $265 million. The project is planned to be fully financed with equity, rather than debt. Boston Properties has a ground lease with McGrath Properties, which is the long-time developer of MacArthur Transit Village, as well as the land’s owner.

Boston Properties is basically an office landlord having millions of office spaces in its portfolio. However, the company aims to diversify and add more residential spaces in its portfolio because such property types usually ensure steady cash flow. The company’s residential development project includes around 400 units in Reston, VA, and a mixed-use project having housing and a hotel in Boston.

The company’s assets are located in select high-rent, high barrier-to-entry geographic markets, and its diversified tenant and industry base are expected to steadily drive the company’s long-term growth. Its properties are concentrated in five core markets: Boston, Los Angeles, New York, San Francisco and Washington, DC. These regions comprise traditional tenants, like government, financial services and law firms, as well as businesses involving technology, advertising, media and information distribution, mobility, life sciences and medical devices.

Nevertheless, there is growth in supply of office space and this remains a concern because higher supply usually leads to lesser absorption, and also curtails landlords’ capability to demand more rents. Further, a few big financial players are resizing their business and trying to cut costs, which is affecting demand for office space. Rate hike is another concern.

Boston Properties has a Zacks Rank #3 (Hold). Over the past three months, its shares have lost 0.7%, which is narrower than the 4.9% loss incurred by its industry.

Stocks Worth a Look

A few better-ranked stocks from the same industry are Arbor Realty Trust ABR, Extra Space Storage Inc. EXR and Sotherly Hotels Inc. SOHO, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Arbor Realty Trust’s Zacks Consensus Estimate for 2018 FFO per share has been revised 2.3% upward to 90 cents over the past two months. Its share price has risen 1.4% in three months’ time.

Extra Space Storage’s FFO per share estimates for the current year inched up 0.9% to $4.59 in a month’s time. Its shares have gained 6.5% over the past three months.

Sotherly Hotels’ FFO per share estimates for 2018 have been revised approximately 1.9% upward to $1.05 over the past two months. The stock has climbed 10.8% during the past three months.

Note: Anything related to earnings presented in this write-up represents funds from operations (FFO) — a widely used metric to gauge the performance of REITs.

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