Fitch Ratings has assigned a ‘BBB-‘ rating to the $175 million 4.533% Series E senior unsecured term notes due 2024 jointly issued by Sovran Self Storage, Inc. and its operating partnership, Sovran Acquisition, L.P. (NYSE: SSS, collectively Sovran). Net proceeds will be used to repay amounts outstanding on Sovran’s line of credit and to fund future investment activity. Fitch currently rates Sovran as follows: Sovran Self Storage, Inc.
Issuer Default Rating (IDR) ‘BBB-‘;
Unsecured revolving credit facility ‘BBB-‘;
Unsecured term notes ‘BBB-‘.
Sovran Acquisition, L.P.
IDR ‘BBB-‘;
Unsecured revolving credit facility ‘BBB-‘;
Unsecured term notes ‘BBB-‘.
KEY RATING DRIVERS The ratings reflect the strength of Sovran’s credit metrics, driven in large part by the sustained robustness of operating fundamentals. Leverage and fixed-charge coverage are strong for the rating but expected to moderate along with fundamentals through 2015. These positive elements are balanced, in part, by a concentrated debt maturity schedule, the inherent cyclicality in fundamentals and a small, geographically concentrated portfolio.
ROBUST OPERATING FUNDAMENTALS Sovran’s portfolio continues to perform well with same-store NOI (SSNOI) growth of 9.9% for 2013 following growth of 10.3% and 6.2% in 2012 and 2011, respectively. Operating performance has been driven by a variety of factors including the traditional drivers (e.g. the single-family home market and economic growth), the implementation of sophisticated revenue management software and the long-anticipated consolidation of market share from smaller competitors. Since implementing its revenue management system and cutting rents during the downturn, same-store occupancy has improved to 89.1% at Dec. 31, 2013 as compared to 79% at March 31, 2010. In 2013, asking rents grew by +5.7% and average rent increases in 4Q’13 were +3.3% year-over-year. Fitch’s base case assumes SSNOI growth moderates through 2015 to the low-to-mid single digits and will be mostly rate driven as compared to the past few years when occupancy was the main supporter of growth.
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