S&P Affirms Ratings on JP Realty Inc

S&P Affirms Ratings on JP Realty Inc

Business Editors


Standard & Poor’s– Standard & Poor’s today affirmed its triple-‘B’-minus corporate credit rating on JP Realty Inc.

In addition, ratings on the company’s senior notes were affirmed. The outlook is stable.

The ratings reflect the portfolio’s dominant position in smaller markets, consistent occupancy, manageable lease expirations, and good tenant diversification, which combine to provide stability to the income stream. These positive credit characteristics are somewhat mitigated by the portfolio’s geographic concentration and limited financial flexibility.

Salt Lake City-based JP Realty is a fully integrated umbrella partnership REIT that owns, manages, acquires, and develops retail properties in the western U.S. JP Realty is one of the largest owners of retail properties within the intermountain region of the U.S., and the company generally dominates the comparatively smaller, tertiary markets in which it operates. The trust’s 15 million square foot portfolio consists of 18 regional malls, 25 anchored community shopping centers, one free-standing retail asset, and six mixed-use commercial properties. The retail properties are smaller than average, but appear appropriately positioned for their respective markets. In addition, management has acquired additional land with many of the properties, providing it with the option to expand a center if the market demands or as a defensive measure should potential new competition enter its markets. In part due to the smaller size of its markets, JP Realty’s mall properties have not faced much competition, which has helped to contribute to its above-average profitability measures, with return on investment of 9.9% for the first nine months of 2000.

The portfolio’s dominant position in smaller markets, consistent occupancy rates in the mid-90% area, manageable lease expirations, and good tenant diversification should continue to provide stability to the income stream. However, the portfolio is concentrated geographically and by individual asset. About 54% of net operating income (NOI) is derived from the states of Utah and Idaho, and 42% of NOI comes from the cities of Boise, Idaho; Salt Lake City; and Spokane, Wash. The largest asset, Boise Town Square, contributes 11% of NOI. Tenant diversity does help to somewhat balance this geographic and individual asset concentration. The largest tenant, J.C. Penney Co. Inc. (triple-‘B’-minus), contributes less than 5% of base rents and the top 10 overall account for less than 15% of base rents. Lease expirations are very manageable with an average of just 7.6% of rents expiring in any year and the average rents for those expiring leases are estimated to be below current market rates.

Leverage and debt service coverage measures are sound and remain appropriate for the rating category. Debt-to-book capitalization (59% on September 30) is expected to remain in the mid-50% to low-60% range in the future. Debt service coverage of 2.6 times (x) and fixed-charge coverage of 2.0x are above average when compared to like-rated peers (both coverage ratios include capitalized interest and regularly scheduled principal payments). Although these measures are somewhat subsidized by a low average borrowing cost (7.3%) stemming in part from its shorter (4.3 years average) debt tenor, the stable nature of the income stream is expected to support cash flow coverage despite the prospect of higher refinancing costs in the future. Financial flexibility is limited but appears sufficient. About 46% of the company’s NOI is derived from encumbered properties. However, refinancing capability is enhanced by a low 45% average estimated loan-to-value ratio on the mortgage debt and the fact that most mortgages can be paid off individually. In addition, JP Realty presently has about $85 million in unused capacity on its $200 million unsecured credit facility. This should enable the company to meet its near-term refinancing obligations.


Management’s long and successful track record in these western markets combined with their strong relationships with national and regional retailers is expected to allow the company to continue its modest growth while maintaining moderate financial measures. Implicit in this outlook is the understanding that property encumbrance will remain at the current level or improve, Standard & Poor’s said. — CreditWire

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