New York, February 15, 2019 -- Moody's Investors Service ("Moody's") downgraded
all of Washington Prime Group Inc. (Washington Prime)'s ratings,
including the ratings of its operating subsidiary, Washington Prime
Group, L.P.'s senior unsecured debt to Ba2 from
Baa3. In the same rating action, Moody's withdrew Washington
Prime Group, L.P.'s issuer rating and assigned
a Ba2 corporate family rating and a speculative grade liquidity rating
of SGL-3 to the same entity. Rating outlook was revised
to stable from negative.
The following ratings were downgraded:
Washington Prime Group, L.P. - Senior unsecured
debt to Ba2 from Baa3; Senior unsecured debt shelf to (P)Ba2 from
(P)Baa3
Washington Prime Group Inc. - Preferred stock to B1 from
Ba1; Preferred stock shelf to (P)B1 from (P)Ba1; Preferred stock
shelf non-cumulative to (P)B1 from (P)Ba1
The following ratings were assigned:
Washington Prime Group, L.P. - Corporate Family
Rating of Ba2; Speculative Grade Liquidity Rating of SGL-3
The following rating was withdrawn:
Washington Prime Group, L.P. - Long-term
issuer rating at Baa3
Outlook Actions:
Issuers: Washington Prime Group, L.P.,
Washington Prime Group Inc.
Rating Outlook changed to stable from negative
RATINGS RATIONALE
The multi-notch ratings downgrade reflects Washington Prime's
high leverage and continued weak operating performance from its mall portfolio.
The retail environment remains challenging, especially for mall
owners such as Washington Prime that own portfolios with relatively low
sales per square foot (below $400). Given the macro operating
risks, it will be difficult for the REIT to reduce leverage and
improve key credit metrics, which are more commensurate with a Ba2
rating.
Washington Prime's total portfolio comp NOI declined 1.5%
for 3Q18, with a 2.6% decline in mall NOI partially
offset by 1.7% growth in its open air community centers.
The REIT's community centers contribute 27% of NOI and are
viewed as good quality assets that provide a stable source of growing
cash flows, a key credit strength supporting Washington Prime's
ratings.
Washington Prime has decreased its exposure to "Tier 2" malls,
which comprised 10% of 3Q18 NOI (down from 19% in 2017),
but these properties still posted a 10% decline in comp NOI for
3Q18. Moody's is concerned about the potential for accelerated
declines in these malls, as well as some "Tier 1" assets
with relatively low sales per square foot, as these malls are more
vulnerable to vacating tenants amidst the challenging retail climate.
Washington Prime has been combatting these challenges through redevelopment,
adding more dining and experiential tenants to improve the mix at its
centers. However, risks remain as the REIT works to revitalize
its weaker malls. Furthermore, Washington Prime's leverage
remains high, particularly when considering the operating risks.
Washington Prime's SGL-3 liquidity rating reflects its adequate
liquidity position as Moody's considers its funding needs over the
next twelve months. Sources of capital include access to its $650
million unsecured line of credit ($334 million available as of
3Q18), $73 million cash, and operating cash flows.
The REIT's sizable unencumbered asset pool also enhances its financial
flexibility. Washington Prime will need external financing to address
its upcoming debt maturities and fund its redevelopment pipeline.
For 2019, the REIT has less than $50 million of mortgages
coming due -- these loans have high debt yields that provide flexibility
for it to repay or refinance these loans. Washington Prime will
face larger maturities in 2020 when $357 million (including $250
million of 3.85% senior notes) comes due.
The stable outlook reflects Moody's expectations that the operating
environment will remain challenging for Washington Prime, but the
REIT's financial position is strong enough to withstand the risks
at the current rating level.
Upward ratings movement would reflect sustained positive growth in comp
NOI, Net Debt/EBITDA below 6.5x, fixed charge coverage
above 2.7x, and unencumbered assets greater than 65%
of gross assets -- all metrics include pro rata share of JVs and
treating 75% of preferred stock as debt.
A downgrade would reflect Net Debt/EBITDA above 7.5x, secured
debt approaching 30% of gross assets, or fixed charge coverage
below 2.3x -- all metrics include pro rata share of JVs and
treating 75% of preferred stock as debt. Decreased liquidity
cushion, as evidenced by less than 50% line capacity available
on an ongoing basis, would also cause ratings pressure.
Washington Prime Group Inc. (NYSE: WPG) is a retail REIT
that owns and manages a mix of enclosed malls and open air community centers
across the United States. Gross assets totaled $7.6
billion (including pro rata share of JVs) as of 3Q18.
The principal methodology used in these ratings was REITs and Other Commercial
Real Estate Firms published in September 2018. Please see the Rating
Methodologies page on www.moodys.com for a copy of this
methodology.
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt,
this announcement provides certain regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt or pursuant to a program for which the ratings
are derived exclusively from existing ratings in accordance with Moody's
rating practices. For ratings issued on a support provider,
this announcement provides certain regulatory disclosures in relation
to the credit rating action on the support provider and in relation to
each particular credit rating action for securities that derive their
credit ratings from the support provider's credit rating.
For provisional ratings, this announcement provides certain regulatory
disclosures in relation to the provisional rating assigned, and
in relation to a definitive rating that may be assigned subsequent to
the final issuance of the debt, in each case where the transaction
structure and terms have not changed prior to the assignment of the definitive
rating in a manner that would have affected the rating. For further
information please see the ratings tab on the issuer/entity page for the
respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this credit rating action,
and whose ratings may change as a result of this credit rating action,
the associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
With reference to the withdrawal of the rating of Washington Prime Group,
L.P.: The rating has been disclosed to the rated entity
or its designated agent(s) and issued with no amendment resulting from
that disclosure.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Lori Marks
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
Philip Kibel
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653
