Sovran Self Storage Inc. today reported that the recent action taken by Fitch Ratings to adjust the credit rating of its unsecured term notes and revolving line of credit to BB+ from BBB- will result in higher interest costs and have an impact on its second quarter and full year 2009 net income and funds from operations.
As of March 31, the company had $500 million of unsecured term notes outstanding. The blended interest rate on these notes will increase from 6.14 percent to 6.93 percent as a result of the ratings adjustment. The interest rate on Sovran’s $125 million revolving line of credit will increase from LIBOR plus 1.375 percent to LIBOR plus 1.75 percent.
As a result of these rate increases, Sovran expects to incur additional interest costs of approximately $2.6 million for the balance of 2009, and further expects to report a second-quarter charge of up to $1 million in waiver, amendment and legal fees associated with its various unsecured notes. Accordingly, FFO guidance for the second quarter has been reduced by $0.08 per share to a projected range of $0.65 to $0.67, and by $0.17 per share for the year to between $2.83 and $2.91.
“We are obviously disappointed in this unexpected action taken by Fitch. We believe this abrupt change is unwarranted based on our long corporate history of conservatively managing our balance sheet and operations,” said David Rogers chief financial officer. “We employ modest leverage, have no significant debt maturing for at least three years, and maintain a strong debt-coverage ratio. We will be working in the coming weeks to re-achieve the favorable interest rates we feel our capital structure warrants.”
Sovran is a self-storage real estate investment trust that operates 385 facilities in 24 states under the name Uncle Bob's Self Storage.