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Regency Centers Ratings Affirmed, Outlook Improved by Moody's

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Regency Centers Corporation’s (REG - Free Report) ratings have been affirmed by Moody’s Investors Service — the rating division of Moody’s Corporation (MCO - Free Report) . The rating agency upgraded its stable outlook to positive.

The company’s operating partnership, Regency Centers, L.P.'s senior unsecured debt and shelf rating has been affirmed to Baa1. Also, its affiliate Equity One Inc’s senior unsecured debt has been given a rating of Baa1. Further, Regency’s preferred shelf rating has been affirmed at Baa2.

Key Rating Drivers

Moody’s positive rating outlook reflects the REIT’s prudent-portfolio management, which will help maintain leverage ratios at about current levels. Also, its well-staggered debt-maturity schedule and secured leverage of less than 4% enhances the company’s credibility. Moreover, Regency enjoys a strong fixed charge coverage ratio of 4.8x on a TTM basis. With growth in earnings, this ratio is likely to witness modest improvement. A sound liquidity position, backed by adequate capacity on the revolver, is a growth driver. In addition, large unencumbered base and modest near-term debt maturities support its healthy credit rating.

However, the retail REIT environment is not in sound health due to shift in customers’ shopping preferences and patterns with online purchases growing by leaps and bounds. This is resulting in store closures and bankruptcies, leading to lesser demand for retail real estate space. Although the REIT has a brilliant record of releasing its vacant spaces, the move-outs and store closures have dampened its occupancy rates and same-store NOI performance in recent quarters. Nevertheless, “at the risk” tenants account for less than 5% of Regencys’ annual base rent (ABR).

Nevertheless, 80% of Regency’s portfolio consisted of grocery-driven shopping centers, which are usually necessity driven and boost a dependable traffic.  Also, the company has a cluster of industry-leading grocers, such as The Kroger Co. (KR - Free Report) , Safeway and Publix Super Markets Inc. as tenants, which help generate steady rental revenues. Further, larger grocery stores are investing in their product suites and assets to adapt to the changing dynamics.

Moreover, diversified geographic and tenant distribution are key strengths for Regency. The largest geographic market accounts for 11.7% of its ABR. Additionally, restaurants and other service-oriented tenants are less likely to be affected by e-commerce. This section accounts for 50% of ABR.

Regency anticipates to invest $1.25-$1.5 billion in development and redevelopment projects over the next five years. Out of the seven ground-up development projects, three have mixed-use components, and the retail part of these projects was 87% leased /committed at the end of second-quarter 2019. Moreover, its leverage neutral funding of development projects and acquisitions will also be conducive to the company’s growth. 

Conclusion

The rating agency’s latest move affirms Regency’s creditworthiness in the market and will likely boost investor confidence. In fact, such actions provide companies an opportunity to enjoy favorable costs on debts and solid access to capital.

Over the past six months, shares of this Zacks Rank #3 (Hold) company have rallied 2.4% compared with the industry’s growth of 2%. You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.



Note: Anything related to earnings presented in this write-up represent funds from operations (FFO) — a widely used metric to gauge the performance of REITs.

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