Owen Thomas, CEO of Boston Properties (NYSE: BXP), joined REIT.com for a video interview at NAREIT’s 2016 Washington Leadership Forum at the St. Regis Hotel in Washington, D.C.
Boston Properties’ portfolio is concentrated in four markets: Boston, New York, San Francisco and Washington, D.C. Thomas offered his assessment of each market.
According to Thomas, most of the net absorption of office space in the country is being driven by creative industries such as technology and life sciences. Thomas pointed to San Francisco, which has experienced double-digit rental growth and a decline in the office vacancy rate, as an example. While investors have expressed some concerns about rents topping out in the San Francisco market, leasing has remained strong there in Boston Properties' assets, Thomas said.
Meanwhile, Cambridge, Massachusetts, has also experienced double-digit rental growth as a result of life sciences tenant demand, Thomas added.
In New York, Thomas pointed out that growth in technology and life sciences sectors has led to the development of the Midtown South market.
At the same time, new supply is impacting how far the company can push rents in New York, according to Thomas.
As for Washington, Thomas acknowledged that the city has fewer technology and life sciences tenants. Furthermore, the government’s footprint has not grown for several years. Thomas noted, however, that most of Boston Properties' business in the Washington area comes from the Reston Town Center mixed-use property in the Northern Virginia suburbs, and that property continues to perform well.
Turning to balance sheet matters, Thomas stressed that Boston Properties has maintained its investment-grade ratings and decreased leverage. The decline in the company’s ratio of net debt to earnings before interest, taxes, depreciation and amortization (EBITDA) reflects cash flow from new developments and the sale of assets, he explained.
Meanwhile, Thomas pointed out that Boston Properties’ current development pipeline is about $2.5 billion, with projects underway in all major markets. The company expects to generate a 7 percent unleveraged yield on all of its new developments, Thomas said.
“That’s going to be an important growth driver over the next three to four years,” he said.