Standard & Poor's Ratings Services today assigned its 'A-' rating to the $1 billion of 3.85% senior notes due Feb. 1, 2023, issued by Boston Properties L.P. (Boston Properties), a subsidiary of Boston Properties Inc. The company plans to use proceeds from the offering for general corporate purposes, which could include the repayment of debt maturities (which total $759 million in 2013) and investment opportunities such as property acquisitions and development.
Boston Properties is one of the nation's largest REITs and an S&P 500 Index constituent, with a market capitalization of roughly $25.7 billion at March 31, 2012. Currently its portfolio consists of 153 (primarily office) properties aggregating roughly 43.3 million sq. ft., including eight properties under construction totaling approximately 2.8 million sq. ft. In addition, the REIT owns 15.2 million sq. ft. of structured parking.
The portfolio is concentrated in five markets, Midtown Manhattan (38.5% of total portfolio net operating income {NOI}), Boston, (27.4%), Washington, D.C. (22%), San Francisco, (9.8%) and Princeton, N.J. (2.3%). Our ratings on Boston Properties primarily reflect the stable and predictable cash flow provided by the REIT's portfolio of high-quality office properties. Our "strong" business risk profile assessment further acknowledges management's investment discipline, including its demonstrated ability to manage acquisition and development risk through real estate cycles.
Our "intermediate" financial risk assessment balances Boston Properties' strong liquidity profile against steady, but somewhat below-average debt coverage measures.
Our stable outlook reflects our expectation that high barrier-to-entry urban real estate markets will continue to recover more quickly relative to most suburban markets. However, we still expect the recovery to be gradual, which will limit rent increases and any ratings upgrade momentum in the next two years.
We would lower our rating if market conditions worsen, particularly in the Boston-to-Washington, D.C. corridor, and if tenant defaults and lower rents cause FCC to fall below 2.3x on a sustained basis. We would also lower our rating if leveraged acquisitions or large and dilutive development projects caused coverage to fall below this threshold.
RELATED CRITERIA AND RESEARCH
-- Issuer Ranking: North American REITs And Real Estate Operating
Companies, Strongest To Weakest, published April 30, 2012.
-- Top 10 Investor Questions: What's Developing For North American REITs
And Homebuilders In 2012?, published March 28, 2012.
-- Industry Economic And Ratings Outlook: Gradual Improvements In
Operating Fundamentals Continue To Support North American REITs, published
Feb. 3, 2012.
-- Key Credit Factors: Global Criteria For Rating Real Estate Companies,
published June 21, 2011.
