Boston Properties Limited Partnership -- Moody's affirms Boston Properties' ratings, outlook stable

Rating Action: Moody's affirms Boston Properties' ratings, outlook stableGlobal Credit Research - 26 Feb 2021NOTE: On March 03, 2021, the press release was corrected as follows: In the debt list, under affirmations for Boston Properties, Inc., the affirmed rating on the subordinate shelf was changed to (P)Baa2. Revised release follows.New York, February 26, 2021 -- Moody's Investors Service, ("Moody's") has affirmed Boston Properties Limited Partnership's Baa1 senior unsecured debt rating and the Baa2 preferred stock rating of its parent REIT, Boston Properties, Inc(collectively 'Boston Properties' or the 'REIT'). The rating action reflects Boston Properties' high-quality office portfolio, its strong operating platform and excellent liquidity and while also considering the REIT's moderately elevated net debt to EBITDA and the challenging operating environment. The stable outlook incorporates the expectation that leasing volume will improve in the second half of the year and spreads on renewals and new lease pricing will remain healthy.The following ratings were affirmed:Issuer: Boston Properties Limited Partnership- Senior unsecured, Affirmed Baa1- Senior unsecured shelf, Affirmed (P)Baa1- Subordinate shelf, Affirmed (P)Baa2Issuer: Boston Properties, Inc.- Preferred Stock, Affirmed Baa2- Preferred shelf, Affirmed (P)Baa2- Preferred shelf Non-cumulative, Affirmed (P)Baa2- Backed Subordinate shelf, Affirmed (P)Baa2- Senior unsecured shelf, Affirmed (P)Baa1- Backed Senior unsecured shelf, Affirmed (P)Baa1- Subordinate shelf, Affirmed (P)Baa2Outlook Actions:Issuer: Boston Properties Limited Partnership,- Outlook, remains stableIssuer: Boston Properties, Inc.- Outlook, remains stableRATINGS RATIONALEThe Baa1 ratings reflect Boston Properties' large and high-quality portfolio of office assets in major CBD markets, diverse tenant/tenant sector base and well laddered lease maturity. The REIT's elevated aggregate leverage metrics, modest but adequate fixed charge coverage, strong debt capital access and large unencumbered asset base are some other important considerations.The challenging operating environment due to the pandemic mandated lockdowns and social distancing protocols impacted Boston Properties' operating performance in 2020 and would likely continue to pressure leasing volume and pricing through the first half of 2021. We expect the portfolio lease rate, revenues and income to stabilize in the second half of the year with recovery in leasing activity, stronger relative outcomes for better managed assets and income from Boston Properties' recently completed development and redevelopment projects. Increase in workplace flexibility, including remote working, would affect demand for office space but the impact is expected to be modest in most markets, because talent attraction and retention will likely continue to influence office location and space decisions. We also expect that densification, the trend of reducing of office space per employee, will reverse, which would also mitigate, to some extent, the decline in demand.We estimate that Boston Properties' net debt to EBITDA was about 7.5x at YE 2020 and would likely remain at about that level at YE 2021. The ratio would likely recover by almost half a turn in 2022 with more income from the development pipeline and improvement in the operating conditions. Adjusting for the preleased portion of the development would further strengthen the forecast of net debt to EBITDA metrics for 2021 and 2022. The fixed charge coverage ratio was in the 3.2-3.4x range at YE 2020 and is expected to recover 3.5x or higher over the next 12- 18 months. Given Boston Properties' strong preference for unsecured debt capital, secured leverage is modest at 10%.The REIT's liquidity position is strong, supported by its $1.5 billion undrawn credit facility, and a large unencumbered asset base. Upcoming capital needs would be primarily related to its development pipeline and dividends. The REIT has raised $2.8 billion of debt capital since YE 2018 including $850 million of green bonds and a $1.25 billion issue in May 2020.FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGSRatings upgrade is unlikely in the near term and would require net debt to EBITDA to be about 5.5x or lower, fixed charge coverage well above 4.0x and secured debt to be below 10%, all on a consistent basis. Strong fundamentals in the target markets and a modest and substantially de-risked development pipeline would be other important considerations.The ratings could be downgraded if net debt to EBITDA is above 6.5x after taking into consideration income from preleased development, fixed charge drops below 3.5x and secured leverage approaches 20%, all on a sustained basis. Large speculative development projects and sustained weakness in leasing, volume and demand, that leads to NOI decline of more than 2% would also create rating pressure.Boston Properties [NYSE: BXP] owns and manages primarily Class A office properties in Boston, New York City, San Francisco, Washington, DC and Los Angeles. The REIT's portfolio as of December 31, 2020, included 196 properties, including unconsolidated joint ventures, with 51.2 million square feet of space.The principal methodology used in these ratings was REITs and Other Commercial Real Estate Firms published in September 2018 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1095505. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.REGULATORY DISCLOSURESFor further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. 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Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.These ratings has been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1243406.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating. Ranjini Venkatesan Vice President - Senior Analyst Financial Institutions Group Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. 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