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Fitch Affirms Regency Centers Corp.'s IDR at 'BBB+'; Outlook Stable

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^{Published in Business and Finance on Thursday, February 26th 2009 at 9:48 GMT, Last Modified on 2009-02-26 09:50:43 by Market Wire}  

NEW YORK--([ BUSINESS WIRE ])--Fitch Ratings has affirmed the following ratings for Regency Centers Corporation (NYSE: REG):

Regency Centers Corp.

--Issuer Default Rating (IDR) at 'BBB+';

--Preferred stock at 'BBB'.

Regency Centers, L.P.

--IDR at 'BBB+';

--Senior unsecured debt at 'BBB+';

--Revolving and term loan facilities at 'BBB+'.

The Rating Outlook is Stable.

The affirmations evidence the quality of REG's retail shopping center portfolio, the extent to which REG covers its fixed charges, sizeable unencumbered asset pool and its solid, albeit slowing operating property fundamentals.

Fitch calculates REG's fixed-charge coverage ratio (defined as recurring EBITDA less straight-line rents, leasing commissions and tenant and building improvements, divided by total interest cost and preferred dividends) at between 1.7x times (x) and 2.0x over the last four quarters, a level appropriate for REG's 'BBB+' senior debt ratings. Net operating income (NOI) from unencumbered assets is also adequate for the rating category, covering unsecured interest expense by 3.6x for the quarter ended Dec. 31, 2008.

Furthermore, the affirmation reflects REG's moderate, albeit increasing usage of leverage. As of Dec. 31, 2008, including REG's pro-rata share of co-investment partnerships, total debt to undepreciated book capital was 52.8% and total debt plus preferred stock to undepreciated book capital was 57.9%, an increase from 51% and 56.3%, respectively, as of Dec. 31, 2007. REG's debt/annualized EBITDA metric has remained consistent over the past four years, and stood at 7.1x as of Dec. 31, 2008.

Stabilized operating property fundamentals continue to be strong for the 12 months ended Dec. 31, 2008 due to releasing spreads nearing 11% and occupancy of 93.8%, resulting in same-property year-over-year NOI growth of 2.6%. Over the past five years, REG has consistently generated releasing spreads in excess of 10%, over 94% operating portfolio occupancy, and annual same-property NOI growth averaging over 2.5%.

The ratings also reflect REG's positive liquidity position, which features significant borrowing capacity under REG's $600 million unsecured line of credit, a $114 million revolving credit facility, as well as retained cash flows from operations after dividend payments. Fitch calculates that REG has a liquidity surplus of approximately $34 million, after taking into account 2009 and 2010 debt maturities, future development funding obligations and potential REG equity investments into certain co-investment partnerships to refinance maturing mortgage debt. In addition, approximately 87% of REG's assets are unencumbered, providing financial flexibility and a contingent source of liquidity.

Some offsetting factors do exist. Despite historically strong operating results, given the weakening economy and reduced consumer spending, Fitch expects REG's operating performance to slow over the next several years, placing pressure on REG's same-property NOI performance and coverage metrics. In addition, REG's unencumbered real estate asset coverage of unsecured debt has declined to 1.9x as of Dec. 31, 2008 from 2.2x as of Dec. 31, 2006 and will likely decrease further if REG utilizes secured debt to repay maturing unsecured debt, due to the unattractive yields at which REG's existing unsecured bonds trade.

While REG has established itself as a developer with a national platform, the company's development activities contain certain inherent risks. REG's properties in development comprise nearly 23% of its gross undepreciated assets as of Dec. 31, 2008, up from 20% a year ago. REG's risk-adjusted capitalization ratio stood at 0.9x as of Dec. 31, 2008, consistent with the ratio as of Dec. 31, 2007, driven primarily by the sizeable portfolio of properties in development. REG is not engaged in land banking and speculative development, which mitigates development risk and inadequate capitalization at the BBB level. REG typically has an executed lease with the anchor tenant prior to commencing development, and 75% of company-owned development was pre-leased as of Dec. 31, 2008.

REG's community and neighborhood shopping center portfolio reflects moderate geographic and anchor tenant concentrations. Although roughly 60% of REG's annualized base rent is derived from properties located within the states of California, Texas, Florida and Virginia, the company's centers are located in markets which reflect solid demographics. Additionally, even though REG's five largest tenants, Kroger (5.7% of annual base rents), Publix (4.2%), Safeway (3.8%), Supervalu (2.4%), and CVS (1.6%) represent in aggregate nearly 18% of annual base rents, this is offset by the fact that Fitch rates three of the top five tenants investment grade and that the grocery category has historically performed well during periods of economic slowdowns.

Any of the following factors may result in Fitch revising REG's Outlook to Negative from Stable:

--If same-property NOI declines by more than 3% for several quarters or if same-property occupancy falls below 92% for several quarters (same-property NOI grew 2.6% in 2008 and operating property portfolio occupancy was 93.8% as of Dec. 31, 2008);

--If the unencumbered pool decreases in size to the point where real estate unencumbered assets to unsecured debt falls below 1.7x for several quarters (as of Dec. 31, 2008, unencumbered real estate assets to unsecured debt was 1.9x).

The following factors may result in Fitch revising REG's Outlook to Positive from Stable:

--Same-property NOI remains positive for several quarters and fixed-charge coverage ratio exceeds 2.2x (for the year ended Dec. 31, 2008, fixed-charge coverage was 1.9x);

--REG's risk-adjusted capital ratio exceeds 1.2x or higher for several consecutive quarters (as of Dec. 31, 2008, REG's risk-adjusted capital ratio was 0.9x);

--Unencumbered real estate assets cover unsecured debt by 2.2x for several quarters (as of Dec. 31, 2008, coverage was 1.9x).

Headquartered in Jacksonville, FL, REG is a retail shopping center REIT with interests in 440 retail shopping centers. REG manages 58.4 million square feet of space in 29 states and the District of Columbia.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, [ 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.