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Fitch Rates Reopening of Regency Centers' Sr. Unsecured Notes due 2027 & 2047 'BBB+'; Outlook Stable
June 27, 2017 / 9:14 PM / 6 months ago

Fitch Rates Reopening of Regency Centers' Sr. Unsecured Notes due 2027 & 2047 'BBB+'; Outlook Stable

(The following statement was released by the rating agency) NEW YORK, June 27 (Fitch) Fitch Ratings rates the reopening of Regency Centers, L.P.'s 3.6% and 4.4% senior unsecured notes due 2027 and 2047 'BBB+'. The $175 million 2027 and $125 million 2047 notes were priced at 100.379% and 100.784% of the principal amounts to yields 3.552% and 4.352% or a 135 and 160 basis point spread over the benchmark rate, respectively. Regency Centers, L.P. is the operating partnership of Regency Centers Corp. (collectively, REG or the company). KEY RATING DRIVERS Fitch views the recent merger transaction between REG and Equity One, Inc. (EQY) positively given the quality of EQY's portfolio, its geographic overlap with REG in higher barrier to entry markets and the potential for improved access to debt and equity capital as the largest shopping center REIT. These positive elements are unlikely to result in a materially stronger credit at the onset but could over time as leverage is largely consistent with Fitch's projections when it upgraded REG in August 2016. Further positive rating momentum is supported by REG's demonstration of sector-leading access to capital markets across the broader REIT universe. POSITIVE MOVEMENT IN CREDIT METRICS Fitch expects leverage will settle around 5.0x going forward, an improvement over previous periods. This improvement will be offset slightly given the company's anticipated use of bond offering proceeds to redeem its perpetual preferred shares. Fitch projects REG's pro rata fixed charge coverage will sustain in the low 3x range through 2018. STABLE FUNDAMENTALS Operating fundamentals for shopping centers remain favorable, driven in large part by limited new supply. Pro rata same-store property net operating income (NOI) has grown 3.7% during 1Q17, a slight deceleration from the approximately 4% average growth between 2012-2016. Rent growth has been strong for both new leases and renewals in recent years and is the primary factor driving NOI growth given relatively stable occupancies. Fitch expects that same-property NOI will continue to grow in the low single digits through 2018 with the company maintaining its current occupancy rate. STRONG UA / UD REG's unencumbered asset (UA) pool provides ample contingent liquidity to unsecured bondholders. Fitch expects REG's UA coverage of unsecured debt to sustain around 3.0x during the projection period. This ratio is good for the 'BBB+' rating category, and Fitch does not envision it deteriorating materially. MODERATE GEOGRAPHIC CONCENTRATION REG's community and neighborhood shopping center portfolio has moderate geographic and anchor tenant concentrations. About 75% of REG's annualized base rent is derived from its top 25 markets with the highest concentration in California, although many of the assets REG acquired are of solid quality. REG's three largest tenants by annual base rent (ABR) represent 9.2% of 1Q'17 ABR down from 11.2% at 1Q'16. The company's three largest tenants are Publix Super Markets Inc. (3.2%), The Kroger Co. (3.1%, IDR 'BBB'), and Safeway (2.9%). PRO RATA RATIONALE Fitch looks at REG's property portfolio profile, credit statistics, debt maturities, and liquidity position based on combining its wholly-owned properties and its pro rata share of co-investment partnerships, to analyze the company as if each of the co-investment partnerships was dissolved via distribution in kind. Several of REG's co-investment partnerships provide for unilateral dissolution. Most of these co-investment partnerships provide for a distribution in kind in the event of a dissolution, whereby REG and its limited partner unwind the partnership by distributing the underlying properties (and related property-level debt, if any) to each partner based on each partner's respective ownership percentage in the partnership. Further, the company has supported its co-investment partnerships in the past by raising common equity to repay or refinance its share of secured debt, demonstrating its willingness to de-lever these partnerships. Fitch views REG's partnership platform positively as it provides REG with broader market insights and incremental fee and property income. Via follow-on common equity offerings, the company has also reduced leverage in its partnerships to levels consistent with leverage on the wholly-owned consolidated portfolio. STABLE OUTLOOK The Stable Outlook reflects Fitch's view that REG's operating fundamentals will remain favorable over the next 12 to 24 months and that the issuer will maintain credit metrics consistent with the 'BBB+' rating. DERIVATION SUMMARY REG's rating reflects its superior position as the largest shopping center REIT in higher barrier to entry markets relative to peers. Fitch forecasts that leverage will sustain around 5x, which is good for the rating. The company's portfolio is focused on strong markets with good demographics. The company's access to capital is good, albeit not as strong as higher-rated issuers. KEY ASSUMPTIONS Fitch's key assumptions within the rating case for REG include: --Same-store revenue growth in the mid 2% range for 2017-2018; --Acquisitions of $100 million in both 2017 and 2018, all at a 4.5% yield; --Dispositions of $100 million in both 2017 and 2018, all at a 6.5% yield; --Additional (re)development spending of $175 in 2017 and $200 million in 2018; --All secured debt is refinanced dollar for dollar at fixed rates starting at 4.75% in 2017 and rising to 5% by 2018. RATING SENSITIVITIES The following factors may have a positive impact on REG's ratings: --Demonstrated market-leading capital markets access across the broader REIT universe; --Fitch's expectation of pro rata leverage sustaining below 4.5x for several quarters; --Fitch's expectation of fixed charge coverage sustaining above 3.0x for several quarters. The following factors may have a negative impact on REG's ratings and/or Outlook: --Fitch's expectation of leverage sustaining above 5.5x for several quarters; --Fitch's expectation of fixed charge coverage sustaining below 2.5x for several quarters. FULL LIST OF RATING ACTIONS Fitch currently rates the company as follows: Regency Centers Corporation --Issuer Default Rating (IDR) 'BBB+'; --Preferred Stock 'BBB-'. Regency Centers, L.P. --IDR 'BBB+'; --Unsecured Revolving Facility 'BBB+'; --Senior Unsecured Term Loan 'BBB+'; --Senior Unsecured Notes 'BBB+'. The Rating Outlook is Stable. Contact: Primary Analyst Steven Marks Managing Director +1-212-908-9161 Fitch Ratings, Inc. 33 Whitehall Street New York, NY 10004 Secondary Analyst Christopher Pappas Director +1-646-582-4784 Committee Chairperson Michael Paladino, CFA Managing Director +1-212-908-9113 Date of Relevant Rating Committee: Nov. 15, 2016 Summary of Financial Statement Adjustments - A summary of financial adjustments includes combining the financial results of REG's wholly-owned properties and its pro-rata share of co-investment partnerships, Fitch's exclusion of non-cash stock-based compensation in G&A expense, and exclusion of noncontrolling interest associated with the operating partnership in calculating leverage and coverage. Media Relations: Sandro Scenga, New York, Tel: +1 212-908-0278, Email: Additional information is available on ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. 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Reproduction or retransmission in whole or in part is prohibited except by permission. All rights reserved. In issuing and maintaining its ratings and in making other reports (including forecast information), Fitch relies on factual information it receives from issuers and underwriters and from other sources Fitch believes to be credible. Fitch conducts a reasonable investigation of the factual information relied upon by it in accordance with its ratings methodology, and obtains reasonable verification of that information from independent sources, to the extent such sources are available for a given security or in a given jurisdiction. 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