Favorable factors that influenced the rating include goodportfolio diversity (226 properties in 21 states) moderatesingle-market concentration and manageable use of financialleverage at approximately 40% of book capital. The majority ofSovran's portfolio is not encumbered by mortgage debt, mitigatingrefinancing risk for unsecured lenders.
The company's primary rating concern is Sovran's reliance ofbank financing for most of its borrowed funds, which results inhigher refinancing and interest rate risk. The dependence reducesthe firm's flexibility compared with REITs that balance theircapital structures with a mix of short- and long-term debt. Inaddition, the firm's portfolio is largely situated in the East,which provides lower growth compared to similar operations in thewestern US.
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