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Boston Properties (BXP) Ratings Affirmed with Stable Outlook

Zacks Equity Research

The ratings of Boston Properties Inc. (BXP) and its limited partnership unit has been affirmed by Moody's Investors Service, the rating arm of Moody's Corporation (MCO). The outlook for the rating was stable.

In particular, for Boston Properties Inc. Baa2 senior unsecured shelf, Baa3 preferred stock; Baa3 subordinate shelf; Baa3 preferred stock shelf  ratings have been confirmed, while for Boston Properties Limited Partnership, Baa2 senior unsecured debt ratings has been affirmed.

The rating agency has acknowledged the company’s high quality office portfolio and its steady performance. However, it raised concerns regarding Boston Properties’ credit profile, development, leverage as well as geographic concentration.

Nevertheless, the stable outlook reflects the rating agency’s expectation that this REIT would effectively manage its development pipeline and lease up the properties. Moreover, Moody's believes that the company would not only be able to sustain sufficient liquidity, but also maintain leverage ratios at or near current levels.  

Rating affirmation plays a critical role in maintaining the company’s creditworthiness in the market as well as investors’ confidence on the stock.

Moreover, going forward, we believe that Boston Properties’ endeavors to maintain a dominant position in the high barrier-to-entry geographic markets would help it to enhance its top line. Strategic deals, like that of Salesforce, are expected to boost the company’s strong diversified tenant base comprising several U.S. bellwethers.

Yet, we would like to see an improvement in its credit profile before becoming too positive on the stock. Also, the geographic concentration of Boston Properties’ assets as well as increased supply in its markets may temper its growth momentum.

Notably, late July, Boston Properties came up with encouraging results for the second-quarter 2014 helped by better-than-expected growth in revenues. FFO (funds from operations) per share came in at $1.35, beating the Zacks Consensus Estimate by 2 cents and the prior-year quarter figure by 7 cents.

Boston Properties currently holds a Zacks Rank #3 (Hold). Investors interested in REITs may consider better-ranked stocks like, DCT Industrial Trust Inc. (DCT) and Extra Space Storage Inc. (EXR). Both these stocks have a Zacks Rank #2 (Buy).

Note: FFO, a widely used metric to gauge the performance of REITs, is obtained after adding depreciation and amortization and other non-cash expenses to net income.

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