MOODY'S UPGRADES RATINGS ON SENIOR DEBT OF CHELSEA GCA REALTY PARTNERSHIP, L.P. (SENIOR TO Ba1)
New York, 10-18-96 -- Moody's Investors Service raised the ratings of Chelsea GCA Realty Partnership, L.P.'s senior unsecured notes to Ba1 from Ba2. At the same time, Moody's raised the ratings of Chelsea GCA Realty, Inc.'s shelf registration. The debt securities of Chelsea GCA Realty Partnership, L.P are unconditionally and irrevocably guaranteed by Chelsea GCA Realty, Inc., a Real Estate Investment Trust (REIT) and the general operating partner of Chelsea GCA Realty Partnership, L.P. Chelsea GCA Realty, Inc. owns a 70.4% interest in Chelsea GCA Realty Partnership, L.P. Other primary investors in the Operating Partnership are management and directors of the company. Virtually all real estate properties and other assets are owned by or through Chelsea GCA Realty Partnership, L.P.
According to Moody's, these rating actions primarily reflect Chelsea's enhanced financial flexibility, overall healthy productivity of its centers, and progress toward geographic and revenue diversification. These ratings also incorporate Chelsea's emphasis on the factory outlet center business, a maturing segment of the retailing industry with vulnerability to more centrally located off-price, and discount, merchandisers, and its good track record in adding value to its real estate portfolio. The rating agency also noted Chelsea's dominant position with upscale manufacturers and fashion designers, its experienced management, and its modest leverage. Chelsea's lease rollover risk, the potential for more aggressive acquisition and development programs, as well as a risk of oversaturation of the outlet center industry, are further risk factors.
Chelsea has been public since November 1993, the result of the merger of The Chelsea Group and Ginsburg Craig Associates, two leading outlet center development companies; the rating agency noted that the company and its predecessor have a good track record in the manufacturer's outlet business.
The rating agency noted that, while Chelsea's outlet centers are currently producing strong cash flows, they are subject to high lease rollovers. Although Chelsea has done a good job renewing and extending its leases, approximately 60% of the company's scheduled leases still expire over the next five years, which is a significant credit risk factor. Moody's noted that the company's newer leases generally have longer terms than in prior years, and that most leases are with good tenants, with no single company or brand representing more than 3.1% of annualized base rental revenue, with the exception of Philipps-Van Heusen (7.9%).
Moody's said that Chelsea's current portfolio is primarily comprised of upscale, fashion-oriented manufacturers' outlet center properties located near major metropolitan areas, or near tourist destinations. The rating agency said that some of Chelsea's centers are among the most productive and profitable retail properties in the United States, whose reported average sales per square foot of $313 in 1995 were well above the average for comparable retail properties. Moody's also noted the good quality of Chelsea's tenants, and the group's strong relationship with both high-fashion, upscale, and national-brand manufacturers.
Chelsea's existing property portfolio consists of 18 fashion-oriented outlet centers containing approximately 3.5 million square feet of gross leasable area in ten states, with over 970 stores and 300 different tenants. The company recently opened two additional centers, in the Atlanta metropolitan area (May 1996) and in Clinton, Connecticut (August 1996). Moody's noted that the California and the New York areas still account for over sixty percent of the company's revenues. In addition, two outlet centers, Woodbury Common and Desert Hills, still continue to comprise a significant portion of the company's annual base rents (approximately 36%). These property concentrations are distinct risk factors. Furthermore, Chelsea's substantial exposure to apparel retailers is a concern.
The ratings raised are the following:
Chelsea GCA Realty Partnership, L.P. -- senior unsecured debt rating to Ba1 from Ba2; and prospective rating to (P)Ba1 from (P)Ba2 on the senior long-term debt issuable under Chelsea GCA Realty Partnership, L.P.'s shelf registration.
Chelsea GCA Realty, Inc. -- rating for cumulative preferred stock to (P)"ba3" from (P)"b2"; rating for noncumulative and junior preferred stock to (P)"b1" from (P)"b3" for preferred securities issuable under Chelsea GCA Realty, Inc.'s shelf registration.
Chelsea GCA Realty, Inc., headquartered in Roseland, New Jersey, had total assets of $460 million (book value) and stockholders' equity and minority interest of $264 million (book value) at June 30, 1996.
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