Commercial Net Lease Rated `BBB' By Fitch IBCA.NEW YORK--(BUSINESS WIRE)--June 16, 1999-- Commercial Net Lease Realty's (NNN NNN Triple Net (method of computing real estate costs among commercial rental properties; lease) NNN Nippon News Network (Japan) NNN Newspaper National Network LP NNN Novy-MacNeal-Nicolle ) $100 million 8.125% senior unsecured notes due 2004 are rated `BBB' by Fitch IBCA IBCA International Braille Chess Association IBCA Institute of Burial and Cremation Administration IBCA Integrated Business Communications Alliance IBCA International Barbeque Cookers Association IBCA Department of Interior Board of Contract Appeals . The rating is based on NNN's large unencumbered portfolio, experienced management team, resources available through the CNL CNL CityNightLine (German Rail) CNL Cancel CNL Clinical Nurse Leader Cnl Colonel CNL Center for Naval Leadership CNL Compensated Neutron Log (oil industry) Group, and high occupancy. Concerns focus on the untested nature of its freestanding retail properties, tenant concentration (top 5 account for nearly 40% of Fitch IBCA-adjusted income) and slightly increased leverage. NNN is a self-advised and self-managed real estate investment trust (REIT REIT See: Real Estate Investment Trust REIT See real estate investment trust (REIT). ) that acquires, develops, and manages free-standing triple net-leased retail properties. As of March 31, 1999, NNN had a portfolio of 281 properties aggregating approximately 6.2 million square feet located in 35 states. The company continues to strengthen its portfolio by increasing the number and credit quality of its tenants. Currently, NNN's properties are leased to 56 different retailers with approximately 50% of rental income derived from investment-grade or implied-investment-grade rated tenants. NNN's financial ratios, albeit sound, have declined somewhat. Using a GAAP-based analysis of EBITDA-to-interest expense, coverage is solid at 3.43 times (x) as of March 31, 1999, down from 4.54x as of March 31, 1998 mainly resulting from increased borrowing under the revolving credit facility. Fitch IBCA also calculated coverage by adjusting property operating income for recurring expenditures not traditionally captured in GAAP GAAP See: Generally Accepted Accounting Principles GAAP See generally accepted accounting principles (GAAP). analysis. Using this more conservative method, unsecured net operating income (NOI NOI Net Operating Income NOI Notice of Intent NOI Nation of Islam NOI Notice of Inquiry NOI Neuro Orthopaedic Institute NOI New Organizing Institute NOI Notice of Interest NOI No Offense Intended NOI National Olympiad in Informatics ) and total NOI was calculated at $52 million and $66 million, respectively. This results in an unencumbered debt service coverage (DSC (1) (Digital Signal Controller) A microcontroller and DSP combined on the same chip. It adds the interrupt-driven capabilities normally associated with a microcontroller to a DSP, which typically functions as a continuous process. See microcontroller and DSP. ) and total DSC of 2.71x and 2.73x, respectively, at current refinance rates. Additionally, Fitch IBCA stressed NNN's coverage ratios by applying a conservative 10.09% constant refinance rate to current debt outstanding and the recently issued $100 million senior notes in evaluating refinance risk, which decreases unencumbered DSC and total DSC to 1.95x and 1.96x, respectively. Using a conservative 10.5% discount factor to value the portfolio, leverage is 54%. |
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