OREANDA-NEWS. Fitch Ratings has assigned a 'BBB' credit rating to the \\$250 million unsecured notes issued by Regency Centers L.P., a subsidiary of Regency Centers Corp. (NYSE: REG). The 2025 notes were priced at 99.264% of par, or at 3.989%, a 175 basis point spread to the benchmark treasury.

REG expects to use the net proceeds to pay amounts outstanding on the Company's line of credit.

KEY RATING DRIVERS
The rating is based on consistent operating fundamentals, the improvement in leverage and fixed charge coverage metrics and Fitch's expectations that metrics will continue to improve, surpassing both positive sensitivities as early as late 2015. The Positive Outlook as opposed to an upgrade endeavors to avoid a pro-cyclical 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 trailing 12 months (TTM) ended June 30, 2015, level from year-end 2014 and 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 2.3x for the TTM ended June 30, 2015, up from 2.2x in 2014 and 2.1x 2013. 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) has grown 4.4% YTD 2015, after growth of 4% in each full year during 2012-2014, driven in part by consistently increasing occupancy levels with total percent leased at 95.8% as of June 30, 2015, an 80-basis point (bps) increase from a year prior. 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 13.8% 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 TTM ended June 30, 2015 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, prior to considering use of proceeds for the issuance, with large unsecured bond maturities contributing to 15% of debt maturing in 2015 and 21.9% 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. At June 30, 2015, the total development pipeline cost was at \\$178 million. The company's net cost to complete in-progress developments was 1.3% of its gross undepreciated assets as of June 30, 2015, 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 July 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), including expected net proceeds of \\$248 million from the unsecured issuance, exceed uses of liquidity (pro-rata debt maturities, amortization, projected recurring capital expenditures and development) by 1.6x. The base case assumes development costs of \\$64.2 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 1.5x. Under the assumption that REG refinances 80% of pro-rata secured debt with new secured debt, liquidity coverage would improve to 1.9x. 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 first-half 2015 was 75% due to the strong rent growth but Fitch believes the company's dividend coverage will sustain in the upper 80% range over the next three years.

MODERATE GEOGRAPHIC CONCENTRATION
REG's community and neighborhood shopping center portfolio has moderate geographic and anchor tenant concentrations. REG's top 10 core-based statistical areas (CBSAs) by annualized base rent (ABR) account for 54.3% of total ABR. However, the company is exposed to various markets within the U.S. Although REG's three largest tenants by ABR represent 11.2% (10.6% in 2014) of YTD 2015 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. (3.7%) and Safeway Inc. (3%).

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. 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 June 30, 2015);
--Fitch's expectation of pro-rata fixed-charge coverage sustaining above 2.3x for several quarters (pro-rata coverage was 2.3x for TTM ended June 30, 2015).

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

--Fitch's expectation of leverage sustaining above 7x for several quarters;
--Fitch's expectation of fixed-charge coverage sustaining below 1.8x for several quarters.

Fitch currently rates Regency as follows:

Regency Centers Corporation
--Issuer Default Rating (IDR) 'BBB';
--Preferred stock 'BB+'.

Regency Centers, L.P.
--IDR 'BBB';
--Unsecured revolving facilities 'BBB';
--Senior unsecured term loan 'BBB';
--Senior unsecured notes 'BBB'.

The Rating Outlook is Positive.