Reuters logo
Fitch Rates Reopening of Regency Centers' Sr. Unsecured Notes due 2027 & 2047 'BBB+'; Outlook Stable
June 27, 2017 / 9:18 PM / 3 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: sandro.scenga@fitchratings.com. Additional information is available on www.fitchratings.com ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE CODE OF CONDUCT SECTION OF THIS SITE. DIRECTORS AND SHAREHOLDERS RELEVANT INTERESTS ARE AVAILABLE here. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE. Copyright © 2017 by Fitch Ratings, Inc., Fitch Ratings Ltd. and its subsidiaries. 33 Whitehall Street, NY, NY 10004. Telephone: 1-800-753-4824, (212) 908-0500. Fax: (212) 480-4435. 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. The manner of Fitch’s factual investigation and the scope of the third-party verification it obtains will vary depending on the nature of the rated security and its issuer, the requirements and practices in the jurisdiction in which the rated security is offered and sold and/or the issuer is located, the availability and nature of relevant public information, access to the management of the issuer and its advisers, the availability of pre-existing third-party verifications such as audit reports, agreed-upon procedures letters, appraisals, actuarial reports, engineering reports, legal opinions and other reports provided by third parties, the availability of independent and competent third- party verification sources with respect to the particular security or in the particular jurisdiction of the issuer, and a variety of other factors. Users of Fitch’s ratings and reports should understand that neither an enhanced factual investigation nor any third-party verification can ensure that all of the information Fitch relies on in connection with a rating or a report will be accurate and complete. Ultimately, the issuer and its advisers are responsible for the accuracy of the information they provide to Fitch and to the market in offering documents and other reports. In issuing its ratings and its reports, Fitch must rely on the work of experts, including independent auditors with respect to financial statements and attorneys with respect to legal and tax matters. Further, ratings and forecasts of financial and other information are inherently forward-looking and embody assumptions and predictions about future events that by their nature cannot be verified as facts. As a result, despite any verification of current facts, ratings and forecasts can be affected by future events or conditions that were not anticipated at the time a rating or forecast was issued or affirmed. The information in this report is provided “as is” without any representation or warranty of any kind, and Fitch does not represent or warrant that the report or any of its contents will meet any of the requirements of a recipient of the report. A Fitch rating is an opinion as to the creditworthiness of a security. This opinion and reports made by Fitch are based on established criteria and methodologies that Fitch is continuously evaluating and updating. Therefore, ratings and reports are the collective work product of Fitch and no individual, or group of individuals, is solely responsible for a rating or a report. The rating does not address the risk of loss due to risks other than credit risk, unless such risk is specifically mentioned. Fitch is not engaged in the offer or sale of any security. All Fitch reports have shared authorship. Individuals identified in a Fitch report were involved in, but are not solely responsible for, the opinions stated therein. The individuals are named for contact purposes only. A report providing a Fitch rating is neither a prospectus nor a substitute for the information assembled, verified and presented to investors by the issuer and its agents in connection with the sale of the securities. Ratings may be changed or withdrawn at any time for any reason in the sole discretion of Fitch. Fitch does not provide investment advice of any sort. Ratings are not a recommendation to buy, sell, or hold any security. Ratings do not comment on the adequacy of market price, the suitability of any security for a particular investor, or the tax-exempt nature or taxability of payments made in respect to any security. Fitch receives fees from issuers, insurers, guarantors, other obligors, and underwriters for rating securities. Such fees generally vary from US$1,000 to US$750,000 (or the applicable currency equivalent) per issue. In certain cases, Fitch will rate all or a number of issues issued by a particular issuer, or insured or guaranteed by a particular insurer or guarantor, for a single annual fee. Such fees are expected to vary from US$10,000 to US$1,500,000 (or the applicable currency equivalent). The assignment, publication, or dissemination of a rating by Fitch shall not constitute a consent by Fitch to use its name as an expert in connection with any registration statement filed under the United States securities laws, the Financial Services and Markets Act of 2000 of the United Kingdom, or the securities laws of any particular jurisdiction. Due to the relative efficiency of electronic publishing and distribution, Fitch research may be available to electronic subscribers up to three days earlier than to print subscribers. For Australia, New Zealand, Taiwan and South Korea only: Fitch Australia Pty Ltd holds an Australian financial services license (AFS license no. 337123) which authorizes it to provide credit ratings to wholesale clients only. Credit ratings information published by Fitch is not intended to be used by persons who are retail clients within the meaning of the Corporations Act 2001

Our Standards:The Thomson Reuters Trust Principles.
0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below