Fitch Affirms Regency Centers Corporation IDR at 'BBB+'; Outlook Stable.
Regency Centers, L.P.
--Issuer Default Rating (IDR) at 'BBB+';
--Senior unsecured debt at 'BBB+';
--Revolving and term loan facilities at 'BBB+'.
Regency Centers Corp.
--Issuer Default Rating (IDR) at 'BBB+'
--Preferred stock at 'BBB'.
The Rating Outlook is Stable.
Fitch's ratings evidence the quality of REG's retail shopping center portfolio, the strength of its property operations and the success of its development platform. Ratings further reflect the company's adequate level of capital and coverage metrics, particularly on a risk adjusted basis and moderate usage of leverage.
Regency's stabilized properties have remained 95% occupied (excluding developments) over the last five years. Strong occupancy has been accompanied by sustained earnings growth, with average rental rate increases hovering around 10% on expiring leases and 'same-store' net operating income increases averaging 3%. The company's property level operating success enhances REG's refinance prospects by broadening its access to debt and equity capital. The location of shopping centers in demographically appealing markets and its ability to set up long-term leases to market leading grocery-anchor tenants drives retail tenant sales and rental rates and helps to manage competition. REG's development business has also been successful, as over the last five years the company has productively completed 115 projects. Positively, REG is associated with partnerships, which augment demand for its completed shopping centers.
Coverage metrics, on a risk adjusted basis remain adequate, especially given the inherent volatility normally associated with development business cash flows. Nonetheless, as the development business grows, increased volatility of cash flows could dampen coverage ratios and pressure capital, particularly on a risk adjusted basis. Fitch's concerns about the size of REG's development pipeline at 18% of total assets continue to weigh on the ratings but Fitch takes comfort in the company's substantial pre-leasing (70% by gross leaseable area) and development successes to date. Fitch expects that any expansion of the development business would be matched by property operation growth, as additional recurrent earnings generated from its operating portfolio could limit the negative impact of outsized oscillations in development related gains.
REG's community and neighborhood shopping center portfolio reflects material geographic and moderate anchor tenant concentrations. Although roughly 50% of the company's portfolio is located within four states, Virginia, Florida, Texas and California, its centers are located in markets which reflect solid demographics. Additionally, even though REG's largest tenants, Kroger (6.7% of annual base rents), Safeway (4.0%), Publix (4.0%), Supervalu (3.0%), and Blockbuster (1.8%) represent in aggregate just under 20% of annual base rents, Fitch is comforted by the fact that it rates two of top five tenants, investment grade and the top three grocers have performed well in this competitive environment. Furthermore, recent history reflects the company's ability to raise rental rates and successfully re-tenant space, albeit during a period punctuated by economic prosperity.
Other measures of Regency's credit quality are in-line for the rating category, such as the ratio of debt to undepreciated book capital, including REG's share of joint venture (jv) debt of 47.6% and debt plus preferred stock to undepreciated book capital of 53.0% (includes shares of jv debt). Net operating income from unencumbered assets is also adequate for the rating category, covering unsecured interest expense by 2.6 times (x). While rising interest rates could further pressure coverage ratios, the company's exposure to variable interest debt is moderate with roughly 15% of its borrowings subject to interest rate fluctuations.
Headquartered in Jacksonville, Florida, REG is a retail shopping center REIT with interests in 399 retail shopping centers. The company manages 47.5 million square feet of space in 28 states and the District of Columbia.
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|Date:||Jan 22, 2007|
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