Retail REIT, Regency Centers Corporation’s (REG - Free Report) Baa1 senior unsecured rating and Equity One, Inc.’s (EQY - Free Report) Baa2 senior unsecured rating have been affirmed by Moody's Investors Service.
The move comes after the declaration that Regency will buy Equity One in an all-stock deal. Regency’s rating outlook has been kept stable, while Equity One’s outlook has been revised to positive from stable.
This transaction, which was revealed last week, would create a national portfolio of 429 properties, covering over 57 million square feet, including co-investment partnerships. Per the terms of the all-stock deal, each share of Equity One common stock would be converted into 0.45 shares of newly issued shares of Regency common stock. (Read more: Regency to House 429 Properties with $5B Equity One Buyout)
According to the rating agency, the completion of the deal as proposed, would result in creating a shopping center focused REIT, with gross assets of $9.4 billion. The combined entity would have high quality assets, with modest leverage and solid fixed charge coverage metrics.
On the other hand, gross asset base of Regency would grow by 70%, while there would be reasonable overlap in geographic concentrations, particularly in California and South Florida. Also, the proportion of grocery-anchored assets would reduce to 79% for the combined entity compared to 86% of Regency’s standalone.
Notably, rating affirmation reinstalls the company’s creditworthiness in the market and is likely to boost investors’ confidence in the stock.
To pay back Equity One's outstanding bank debt and financing merger transaction costs, the combined entity plans to issue $700 million of unsecured debt. In addition, as of Sep 30, 2016, Regency had full availability under its $800 million credit facility.
Regency has over 50 years of experience and has developed 223 shopping centers since 2000, marking an investment at completion of over $3 billion. On the other hand, Equity One has a solid portfolio and its retail occupancy, excluding developments and redevelopments, was 95.4% and included national, regional and local tenants as of Sep 30, 2016. Therefore, their merger would aid in creating a prominent grocery-anchored shopping center REIT, with enhanced concentration in higher density, in-fill metro areas.
Moreover, the combined entity would enjoy greater diversity of high-quality tenants and include reputed grocers and retailers, like Publix, The Kroger Co. (KR - Free Report) and Whole Foods Market, Inc. (WFM - Free Report) .
Regency currently has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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