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Standard & Poor's Revises Outlook on Franchise Finance Corp. <b></b>

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New York-Standard & Poor's today revised itsoutlook on Franchise Finance Corp. of America from positive tostable. In addition, the triple-B-minus corporate credit rating andsenior unsecured debt ratings were affirmed.

The rating affirmation acknowledges the company's dominantmarket position as a financier of primarily chain restaurantproperties with a seasoned management team and strong debt servicecoverage measures. The outlook revision reflects concerns regardingthe current health of a number of restaurant chain concepts, thelong-term generally negative outlook for the sector, and a modestincrease in the amount of income generated from FranchiseFinance's less-predictable loan origination business.

Phoenix-based Franchise Finance is unlike other rated REITs inthat it more closely resembles a specialty lending business than atypical real estate operating company. Franchise Finance is focusedon leasing fee-owned properties to operators of quick servicerestaurants (75 percent of total lease revenue), convenience stores(18 percent) and automotive parts and service centers (6 percent),and originating and securitizing mortgages for operators in thesesame sectors.

While a majority of the company's revenue is generated fromlease income, the growth emphasis during recent years has been onmortgage origination and securitization. Furthermore, the ownedportfolio shows some concentration on quick service concepts, withthe top five concepts representing 38 percent of total revenue.These concepts are Burger King (13 percent of revenue), Arby's(9 percent), Wendy's (6 percent), Long John Silver's (5percent) and Hardee's (5 percent).

Franchise Finance's historically favorable delinquency andcollection statistics are the combined result of the company'sasset-based lending and investing approach, its success to date infinancing higher credit risk operators and currently solid economicconditions. However, the maturing of the U.S. restaurant industryand a potential slowing of the U.S. economy could lead to somewhatweakened financial profiles for Franchise Finance's tenants andborrowers. While the company has demonstrated an ability toeffectively work with delinquent tenants, the re-leasing processcan often lead to a temporary disruption to cash flow, as exhibitedby the recently announced Quincy's restaurant properties.Quincy's (not rated), which accounted for roughly 4 percent ofFranchise Finance's revenues, defaulted on its leaseobligations in April. While it appears the company will ultimatelyre-lease these properties to another operator, likely at a lowerrent, it has taken Franchise Finance longer than anticipated toresolve this issue. -PRNewswire

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