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TEXT-Fitch rates Boston Properties notes 'BBB'
June 5, 2012 / 5:02 PM / 5 years ago

TEXT-Fitch rates Boston Properties notes 'BBB'

 (The following statement was released by the rating agency)	
 June 5 - Fitch Ratings has assigned a 'BBB' rating to the $1 billion
aggregate principal amount of 3.85% senior unsecured notes due Feb. 1, 2023
issued by Boston Properties Limited Partnership, the operating partnership of
Boston Properties, Inc. (NYSE: BXP). The notes were priced at 99.779% of
the principal amount to yield 3.876% to maturity.	
	
Net proceeds from the offering are estimated to be approximately $989.4 million
and are intended for general corporate purposes, which may include investment
opportunities and debt reduction. Fitch views the issuance positively as it
demonstrates BXP's solid access to capital at attractive rates and commitment to
maintaining a healthy liquidity profile.	
	
Fitch currently rates Boston Properties, Inc. and Boston Properties, L.P.
(together, BXP or the company) as follows:	
	
Boston Properties, Inc.	
--Issuer Default Rating (IDR) at 'BBB'.	
	
Boston Properties, L.P.	
--IDR at 'BBB';	
--Unsecured revolving credit facility at 'BBB';	
--Senior unsecured notes at 'BBB';	
--Exchangeable senior unsecured notes at 'BBB'.	
	
The Rating Outlook is Stable.	
	
The ratings are supported by a high-quality portfolio of predominantly central
business district (CBD), class A office properties, solid leasing profile,
manageable lease expirations, strong liquidity, manageable debt maturities, a
large unencumbered asset pool which provides solid coverage of unsecured debt,
and demonstrated access to a range of capital sources. The ratings are balanced
by a fairly concentrated operational footprint, sizable exposure to tenants in
the legal community, and moderately weak leverage and fixed-charge coverage for
the rating category.	
	
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 toward properties
that have been acquired, developed, or redeveloped by the company in recent
years. Many of these assets are leading properties in their submarkets, and
would likely attract significant investor and lender interest, providing
contingent liquidity to the company.	
	
Additionally, the company's revenue is supported by long-term leases. The
company's in-service portfolio was 92.1% leased at March 31, 2012 and fewer than
10% of rents are scheduled to come due on an annual basis through 2015, which is
strong relative to the broader office real estate investment trust (REIT)
sector. This lease expiration profile ensures that the company is not overly
exposed to leasing risk at any given time, absent tenant bankruptcies.	
	
The company maintains a strong liquidity position pro forma the $1 billion note
issuance. For the period April 1, 2012 to Dec. 31, 2013, the company's sources
of liquidity (unrestricted cash, availability under the company's unsecured
credit facility and expected retained cash flows from operating activities after
dividends) divided by uses of liquidity (pro rata debt maturities, expected
recurring capital expenditures and development costs) result in a base case
liquidity coverage ratio of 2.1x. BXP's liquidity coverage ratio would improve
to 2.5x, assuming the company refinances maturing mortgages at 80% of current
balances.	
	
BXP maintains a large unencumbered asset pool to support its unsecured
borrowings. As of March 31, 2012, there were 122 assets in the company's
unencumbered pool which generated approximately 66% of company NOI. Capitalizing
annualized first quarter 2012 cash NOI generated by the unencumbered pool at a
stressed capitalization rate of 7% yields unencumbered asset coverage of
approximately 2.3x, which is adequate for the 'BBB' IDR.	
	
The company also has manageable debt maturities, with fewer than 11% of total
debt maturing in any given year through 2016. In addition, the $1 billion note
issuance reinforces BXP's ability to raise capital in size.	
	
The company has elevated exposure to legal tenants in its portfolio. As of March
31, 2012, tenants in this segment represented approximately 26% of total
portfolio square footage. While many of the company's legal tenants are large,
high-profile firms, employment within these firms has generally declined over
the past three years, increasing the risk that they could seek to reduce their
space footprints when leases expire.	
	
The combination of high capital expenditures, an elevated level of leased space
under free-rent periods, and earnings dilution from idle cash balances has
pressured fixed-charge coverage (defined as recurring operating EBITDA less the
sum of capital expenditures and straight line rents, divided by total interest
incurred). The company's fixed-charge coverage was 2.1x for the trailing 12
months ended March 31, 2012, compared to 2.1x in 2011, 1.8x in 2010 and 2.2x in
2009. The company's fixed-charge coverage is moderately weak for the 'BBB'
rating and is expected to decline temporarily due to the incurrence of
additional interest related to the note issuance, combined with no EBITDA
generation from the use of proceeds.	
	
Similarly, the company's leverage is toward the high end for the 'BBB' rating.
The company's net debt to recurring operating EBITDA for the trailing 12 months
was 6.6x as of March 31, 2012. Leverage was 6.3x in 2011, 7.7x in 2010 and 5.8x
in 2009.	
	
The Stable Outlook reflects Fitch's expectations that fixed-charge coverage and
leverage will remain at similar levels over the next 12 months.	
	
The following factors could result in positive momentum in the ratings and/or
Outlook:	
	
--Fixed-charge coverage sustaining above 2.5x for several consecutive quarters
(coverage was 2.1x for the 12 months ended March 31, 2012);	
	
--Net debt to recurring operating EBITDA sustaining below 5.5x (leverage was
6.6x as of end March 31, 2012).	
	
Conversely, the following factors may result in negative momentum in the ratings
and/or Outlook:	
	
--Fixed-charge coverage sustaining below 1.7x;	
	
--Net debt to recurring operating EBITDA sustaining above 7.0x;	
	
--A liquidity shortfall.	
	
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:	
--'Recovery Rating and Notching Criteria for Equity REITs' (May 3, 2012).	
--'Criteria for Rating U.S. Equity REITs and REOCs' (Feb 27, 2012);	
--Treatment and Notching of Hybrids in Nonfinancial Corporate and REIT Credit
Analysis, Dec. 15, 2011;	
--'Corporate Rating Methodology' (Aug. 12, 2011);	
--'Parent and Subsidiary Rating Linkage' (Aug. 12, 2011).	
	
Applicable Criteria and Related Research:	
Parent and Subsidiary Rating Linkage	
Corporate Rating Methodology	
Treatment and Notching of Hybrids in Nonfinancial Corporate and REIT Credit
Analysis	
Criteria for Rating U.S. Equity REITs and REOCs	
Recovery Ratings and Notching Criteria for Equity REITs	
	
 (New York Ratings Team)	
 

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