Fitch Revises Regency Centers' Outlook to Positive; Affirms IDR at 'BBB'

Fitch Ratings has revised the Rating Outlook for Regency Centers Corp. (NYSE: REG) and its operating partnership, Regency Centers, L.P., (collectively REG, or the company) to Positive from Stable, and affirmed the credit ratings as follows:

Regency Centers Corporation

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

--Preferred stock at BB+.

Regency Centers, L.P.

--IDR at 'BBB';

--Unsecured revolving facilities at 'BBB';

--Senior unsecured term loan at 'BBB';

--Senior unsecured notes at 'BBB'.

KEY RATING DRIVERS

The affirmation and Outlook revision are based on consistent operating fundamentals, the improvement in leverage and fixed charge coverage metrics and Fitch's expectations that metrics will continue to improve from current levels, surpassing both positive sensitivities as early as 2015. The Outlook revision as opposed to an upgrade endeavors to avoid a procyclical rating action and allow for REG to demonstrate its willingness and ability to operate with leverage in the 5.0x-5.5x range as compared to 5.5x-6.8x (2008-2014).

POSITIVE MOMENTUM FOR CREDIT METRICS

REG's pro-rata leverage (defined as net debt divided by recurring operating EBITDA) was 5.6x for the year ended Dec. 31, 2014, same as in 2013, and down from 6.1x at year-end 2012. Fitch projects the company's leverage will decline to the low 5.0x's and sustain at that level through 2017.

REG's pro-rata fixed-charge coverage ratio (defined as recurring operating EBITDA less straight-line rents, leasing commissions and tenant and building improvements, divided by total interest incurred and preferred stock dividends) was 2.2x for the year ended Dec. 31, 2014, up from 2.1x in 2013 and 1.9x 2012. Fitch projects REG's fixed-charge coverage will reach 2.5x and sustain in the high 2x's through 2017.

STABLE FUNDAMENTALS

Pro-rata same-store property net operating income (SSNOI) grew 4% in 2014, as it did in both 2013 and 2012, driven in part by increasing occupancy to almost 96% at Dec. 31, 2014, up from 95.1% as of Dec. 31, 2013. Rent growth has been strong across both new leases and renewals in recent years and was especially strong in 2014. Fitch expects that SSNOI will continue to grow in the low single digits through 2017 with the company maintaining its current occupancy rate. Additionally, the company's lease expiration schedule is manageable, with no year representing more than 14.1% of expiring pro-rata minimum base rent, further improving the durability of rental cash flows.

STRONG UA / NET UD; UNEVEN DEBT MATURITY PROFILE

REG's implied unencumbered asset value covered its net unsecured debt by 2.6x for the year ended Dec. 31, 2014 when applying an 8% stressed capitalization rate to unencumbered NOI. This ratio is strong for the 'BBB' rating. REG has some unevenness in its debt maturity schedule with large unsecured bond maturities contributing to 18.1% of pro-rata debt maturing in 2015 and 21.7% maturing in 2017. However, refinancing risk is mitigated by the company's strong unencumbered asset pool and demonstrated access to the unsecured debt and equity markets.

LIMITED DEVELOPMENT RISK

Although REG was a prolific developer during the last real estate cycle, the company is now taking a more measured approach. REG's development pipeline increased in 2014 over the previous year to $232 million from $158 million, but well below the $1.05 billion invested in 2007. The company's net cost to complete in-progress developments was 2.3% of its gross undepreciated assets as of Dec. 31, 2014, compared with 12.7% in 2007. The size of the overall development pipeline has decreased materially since that time, reflective of an overall de-risking of the company's strategy. Fitch expects the company to gradually increase its development pipeline by starting approximately $150 million of annual developments and redevelopments in 2015 and 2016, a level that should not place pressure on the company's metrics.

APPROPRIATE LIQUIDITY

For the period Jan. 1, 2015 to Dec. 31, 2016, REG's sources of liquidity (cash, availability under its unsecured revolving credit facility and projected retained cash flows from operating activities after dividends) exceed uses of liquidity (pro-rata debt maturities, amortization, projected recurring capital expenditures and development) by 1.5x. The base case assumes development costs of $116.1 million which is the cost-to-complete of on-going development projects and assumes no new development starts.

Under a scenario whereby development continues at its current trajectory, the company's liquidity coverage would decrease to 1.3x. Under the assumption that REG refinances 80% of pro-rata secured debt with new secured debt, liquidity coverage would improve to 1.7x. The company has demonstrated strong access to various forms of capital over the past few years, mitigating near-term refinance risk.

CONSISTENT AFFO PAYOUT RATIO

REG's dividend payout ratio ranged between 83% and 92% of adjusted funds from operations (AFFO) in the period of 2009-2013. The payout ratio in 2014 was 78% due to the strong rent growth but Fitch believes the company's dividend coverage will sustain in the upper 80%'s over the next three years.

MODERATE GEOGRAPHIC CONCENTRATION

REG's community and neighborhood shopping center portfolio has moderate geographic and anchor tenant concentrations. 52.2% of REG's annualized base rent is derived from properties located within the states of California, Florida and Texas. However, the company is exposed to various markets within the three largest states and has reduced the risk from 54% in 2013. Although REG's three largest tenants by annual base rents represent 10.6% (11.7% in 2013) of 2014 annual base rents, this tenant concentration is offset somewhat by the fact that Fitch rates REG's top tenant investment grade. The company's three largest tenants are The Kroger Co. (4.5%, IDR of 'BBB' by Fitch), Publix Super Markets Inc. (3.8%) and Safeway Inc. (2.3%).

PREFERRED STOCK NOTCHING

The two notch differential between REG's IDR and its preferred stock rating is consistent with Fitch's criteria for corporate entities with a 'BBB' IDR. Based on Fitch's criteria report, 'Treatment and Notching of Hybrids in Nonfinancial Corporate and REIT Credit Analysis' dated Nov. 25, 2014, available on Fitch's website at www.fitchratings.com, the company's cumulative redeemable preferred stock is deeply subordinated and has loss absorption elements that would likely result in poor recoveries in the event of a corporate default.

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 common equity follow-on offerings, the company has also reduced leverage in its partnerships to levels consistent with leverage on the wholly-owned consolidated portfolio.

POSITIVE OUTLOOK

The Positive Outlook centers on Fitch's expectation that REG's credit profile will remain consistent with a higher rating through the cycle, supported by management's commitment to maintaining credit metrics.

KEY ASSUMPTIONS

--Same-store revenue growth of 2.3% in 2015 and 2016, and 2.6% in 2017;

--Acquisitions of $45 million at a 5.5% yield in 2015 and none in 2016-2017;

--Dispositions of $90 million in 2015, and $60 million in both 2016 and 2017 all at a 7% yield;

--Additional (re)development spending of $200 million, $130 million, and $160 million in 2015 to 2017, respectively;

--AFFO payout ratio expected to remain stable within the 80%-90% range.

RATING SENSITIVITIES

The following factors may have a positive impact on Regency's rating and/or Outlook:

--Fitch's expectation of pro-rata leverage sustaining below 5.5x for several quarters (pro-rata leverage was 5.6x as of Dec. 31, 2014);

--Fitch's expectation of fixed-charge coverage sustaining above 2.3x for several quarters (pro-rata coverage was 2.2x for the year-ended Dec. 31, 2014).

The following factors may have a negative impact on REG's rating and/or Outlook:

--Fitch's expectation of leverage sustaining above 7.0x for several quarters;

--Fitch's expectation of fixed-charge coverage sustaining below 1.8x for several quarters.

Additional information is available at 'www.fitchratings.com.'

Applicable Criteria and Related Research:

--'Regency Centers Corp. - Ratings Navigator' Feb. 26, 2015;

--'Treatment and Notching of Hybrids in Nonfinancial Corporate and REIT Credit Analysis' Nov. 25, 2014;

--'Recovery Ratings and Notching Criteria for Equity REITs' Nov. 18, 2014;

--'Corporate Rating Methodology: Including Short-Term Ratings and Parent and Subsidiary Linkage' May 28, 2014.

Applicable Criteria and Related Research:

Regency Centers Corp. - Ratings Navigator
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=862134

Treatment and Notching of Hybrids in Non-Financial Corporate and REIT Credit Analysis
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=821568

Recovery Ratings and Notching Criteria for Equity REITs
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=813628

Corporate Rating Methodology - Including Short-Term Ratings and Parent and Subsidiary Linkage
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=749393

Additional Disclosure

Solicitation Status
http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=983133

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