(The following statement was released by the rating agency)
NEW YORK, March 19 (Fitch) Fitch Ratings has assigned a credit
rating of 'BB+'
to the $200 million 5.25% series B cumulative redeemable
preferred stock issued
by Boston Properties, Inc. (NYSE: BXP).
Net proceeds from the offering of $193.7 million, before the
exercise of the
over-allotment option, will be used for general corporate
investment opportunities and debt reduction. The last time the
preferred stock outstanding was in 2002.
Fitch currently rates the company as follows:
Boston Properties, Inc.
--Issuer Default Rating (IDR) 'BBB';
--$200 million preferred stock 'BB+'.
Boston Properties, L.P.
--$750 million unsecured revolving credit facility 'BBB';
--$4.7 billion senior unsecured notes 'BBB';
--$1.2 billion exchangeable senior unsecured notes 'BBB'.
The Rating Outlook is Stable.
KEY RATING DRIVERS
The 'BB+' rating of the preferred stock (a two-notch
differential from the
Issuer Default Rating ) is consistent with Fitch's criteria
entities with an IDR of 'BBB'. Based on Fitch's research on
Notching of Hybrids in Nonfinancial Corporate and REIT Credit
preferred securities are deeply subordinated and have loss
that would likely result in poor recoveries in the event of a
The ratings are supported by a high-quality portfolio of
business district (CBD), class A office properties, appropriate
coverage for the 'BBB' rating level, solid leasing profile,
expirations, strong liquidity, manageable debt maturities, a
asset pool which provides solid coverage of unsecured debt, and
access to a range of capital sources. The ratings are balanced
by a fairly
concentrated operational footprint, sizable exposure to tenants
in the financial
and legal community, and a propensity to maintain a large
The company's CBD properties compete for the highest profile
tenants in their
regions, and many of these properties serve as flagship
locations for the
largest tenants. BXP's net operating income (NOI) is skewed
that have been acquired, developed, or redeveloped by the
company in recent
years. Many are leading properties in their submarkets, and
attract significant investor and lender interest, providing
to the company.
On March 11, 2013, BXP announced that Owen Thomas will succeed
Zuckerman as CEO and join the Board of Directors, effective
April 2, 2013. Mr.
Zuckerman will remain Executive Chairman of the Board. Mr.
Thomas has an
extensive background in senior executive and real estate roles,
serving as Chairman of the Board of Lehman Brothers Holding,
Inc. (the successor
company to Lehman Brothers), and previously in various roles at
including serving as Head of Morgan Stanley Real Estate and as
CEO of Morgan
Stanley Asia Ltd. Fitch did not anticipate that the company
would fill the CEO
role from outside the firm; however, it makes sense to deepen an
bench given management changes over the past few years.
views the separation of the CEO and Chairman roles favorably
from a corporate
APPROPRIATE LEVERAGE AND COVERAGE
BXP's net debt to recurring operating EBITDA for the trailing 12
was 6.8x as of Dec. 31, 2012. Leverage was 6.3x in 2011, 7.7x in
2010 and 5.8x
in 2009. Fixed-charge coverage was 2.1x for the TTM ended Dec.
compared to 2.1x in 2011, 1.8x in 2010 and 2.2x in 2009. The
and fixed-charge coverage are appropriate for a 'BBB' rated
office REIT with
BXP's large size and high asset quality.
The company's revenue is supported by long-term leases. The
portfolio was 91.4% leased at Dec. 31, 2012 and fewer than 10%
of rents are
scheduled to come due on an annual basis through 2016, which is
to the broader office REIT sector. This lease expiration profile
the company is not overly exposed to leasing risk at any given
The company maintains an adequate liquidity position pro forma
the $200 million
preferred issuance. For the period Jan. 1, 2013 to Dec. 31,
2014, the company's
base case liquidity coverage ratio is 1.0x. BXP's liquidity
improve to 1.2x assuming the company refinances maturing
mortgages at 80% of
current balances. Additionally, the largest funding requirement
expenditure, which it can suspend in a more challenging economic
BXP's liquidity coverage ratio would improve to 1.4x absent said
Fitch defines liquidity coverage as sources of liquidity
availability under the company's unsecured credit facility and
cash flows from operating activities after dividends) divided by
liquidity (pro rata debt maturities, expected recurring capital
BXP maintains a large unencumbered asset pool to support its
borrowings. As of Dec. 31, 2012, there were 123 assets in the
generated approximately 64% of company NOI. Capitalizing
quarter 2012 (4Q'12) cash NOI generated by the unencumbered pool
at a stressed
capitalization rate of 7% yields unencumbered asset coverage of
2.1x, which is adequate for the 'BBB' IDR.
LADDERED DEBT MATURITIES
The company also has manageable debt maturities, with fewer than
9% of total
debt maturing in any given year through 2016. However, there are
mortgage maturities in 2017, totaling $2.5 billion or
approximately 25% of total
pro rata debt. While significant in magnitude, Fitch views
these as manageable
given the quality of the properties securing these mortgages
Lexington and the GM Building in Manhattan, and the John Hancock
Boston). Further, Fitch anticipates that the company will
substantial portion of the total prior to 2017.
SIGNIFICANT EXPOSURE TO FINANCIAL AND LEGAL TENANTS
The company has elevated exposure to financial and legal tenants
portfolio. As of Dec. 31, 2012, tenants in these segments
approximately 28% and 26% respectively of gross rent, for a
combined total of
54%. The financial sector is facing several challenges, most
trading volumes and increased regulatory burden which has driven
needs and delayed leasing decisions. Meanwhile, many of BXP's
legal tenants are
working towards optimizing their space needs and could seek to
office footprints when leases expire.
Finally, the company has a propensity to grow the development
pipeline to become
a large portion of the balance sheet. The total pipeline grew
to 20.3% of total
assets in 2Q'08, with remaining equity needed to complete the
representing 11% of total assets. The current pipeline
represents 9.6% of total
assets, with 3.3% of remaining funding. Fitch would view
cautiously a pipeline
that grows close to 20% of total assets or approaching 10% of
absent significant pre-leasing.
The Stable Outlook reflects Fitch's expectations that
fixed-charge coverage and
leverage will remain at similar levels over the next 12-24
The following factors could result in positive momentum in the
--Fitch's expectation of fixed-charge coverage sustaining above
2.5x for several
consecutive quarters (coverage was 2.1x in 2012);
--Fitch's expectation of net debt to recurring operating EBITDA
5.5x (leverage was 6.8x as of Dec 31, 2012).
Conversely, the following factors may result in negative
momentum in the ratings
--Fitch's expectation of fixed-charge coverage sustaining below
--Fitch's expectation of net debt to recurring operating EBITDA
--A liquidity shortfall.
George Hoglund, CFA
Fitch Ratings, Inc.
One State Street Plaza
New York, NY 10004
Media Relations: Sandro Scenga, New York, Tel: +1 212-908-0278,
Additional information is available at 'www.fitchratings.com'.
The ratings above
were solicited by, or on behalf of, the issuer, and therefore,
Fitch has been
compensated for the provision of the ratings.
Applicable Criteria and Related Research:
--Criteria for Rating U.S. Equity REITs and REOCs, Feb. 26,
--Treatment and Notching of Hybrids in Nonfinancial Corporate
and REIT Credit
Analysis, Dec. 13, 2012
--Recovery Rating and Notching Criteria for REITs, Nov. 12, 2012
--Corporate Rating Methodology, Aug. 8, 2012
--Parent and Subsidiary Rating Linkage, Aug. 8, 2012
Applicable Criteria and Related Research
Parent and Subsidiary Rating Linkage
Corporate Rating Methodology
Recovery Ratings and Notching Criteria for Equity REITs
Treatment and Notching of Hybrids in Nonfinancial Corporate and
Criteria for Rating U.S. Equity REITs and REOCs
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