Fitch Ratings, the global credit rating firm, has reaffirmed the “BBB” credit rating for Boston Properties, Inc. (BXP - Analyst Report), a real estate investment trust (REIT). The BBB-rating denotes a relatively strong credit quality with low default risk, and adequate capacity to meet current financial commitments.
With a diverse portfolio of Class A office, industrial, and hotel properties, Boston Properties is a leading REIT in the U.S. The majority of the company’s income comes from office properties. Strategically, Boston Properties concentrates on a few select high-rent geographic markets located primarily in central business districts (CBDs). About 76.4% of the net operating income of the company during first quarter 2011 came from the CBDs and is anticipated to drive above-average organic growth over time.
While reaffirming Boston Properties’ credit rating, Fitch has considered its high quality asset portfolio, solid past operating performance, strong liquidity, adequate debt service coverage, manageable debt maturity schedule, and its ability to access capital from varied sources.
The company has one of the best balance sheets in the sector. Total debt to total market cap at the end of first quarter 2011 was 37.5%. Interest coverage at quarter-end was 2.9x and the company was adequately addressing all major debt compliance tests.
As of March 31, 2011, Boston Properties had $747.3 million of cash and cash equivalents, and $975.8 million available under its lines of credit. About $442.8 million of debt is maturing in the remainder of 2011, and another $1.1 billion debt matures in 2012. The company has a large unencumbered pool of 114 properties, which provides it with an opportunity to raise additional debt.
During first quarter 2011, Boston Properties utilized its “at the market” (ATM) stock offering program to issue approximately 3.7 million shares for gross proceeds of approximately $350.0 million. Subsequent to the quarter-end, the company issued an additional 0.5 million shares for gross proceeds of approximately $50.0 million. Boston Properties utilized the proceeds from the equity offering for investment opportunities and debt repayments.
Boston Properties has the ability to tap finances in the current credit-constrained market due to its strong relationships with lenders, high quality assets, and stable financial condition. This gives us enough confidence to continue our ‘Neutral’ rating of Boston Properties, which presently has a Zacks #2 Rank that translates into a short-term ‘Buy’ recommendation. We also have a ‘Neutral’ recommendation and a Zacks #3 Rank (short-term ‘Hold’) for Vornado Realty Trust (VNO - Analyst Report), a competitor of Boston Properties.