REGENCY CENTERS CORP quarterly report, Q2 FY2021

Regency Centers Corporation (REG) — Q2 2021 Form 10-Q

Reporting period: Quarter and six months ended June 30, 2021. Regency is a retail-property REIT focused primarily on grocery-anchored shopping centers. Unless noted, dollar figures below are in millions. The filing combines the parent company and operating partnership; their consolidated assets and liabilities are the same.

Financial performance

Metric	Q2 2021	Q2 2020	Six months 2021	Six months 2020
Total revenue	$287.2	$231.1	$561.9	$514.8
Net income (loss) attributable to common stockholders	$95.5	$19.0	$176.1	$(6.3)
Diluted EPS	$0.56	$0.11	$1.04	$(0.04)
Net cash from operating activities	Not presented by quarter	$325.3	$217.4

Q2 revenue rose about 24% year over year; six-month revenue rose about 9%. Q2 lease income increased $54.2 million, principally reflecting improved collections and lower uncollectible-rent charges versus the pandemic-affected 2020 period.
Pro-rata same-property NOI, excluding termination fees, increased 30.8% in Q2 and 12.8% for the first half. The improvement was chiefly driven by collections of previously reserved rent; it is not solely an indicator of underlying rent growth.
Q2 net income included a $19.8 million gain on real estate sales and other proceeds. First-half gains on sales were $31.5 million. A $9.7 million impairment in an equity-method property partnership reduced first-half partnership income.
Operating cash flow increased $107.9 million year over year, primarily due to higher rent collections. Investing activities provided $73.0 million, including $107.6 million of real-estate sale proceeds; financing activities used $490.2 million, including debt repayment and dividends/distributions. Cash and restricted cash fell $91.8 million to $286.6 million; unrestricted cash was approximately $284.0 million.

Balance sheet, debt and liquidity

At June 30, total assets were $10.64 billion, total liabilities $4.60 billion, and total equity/capital $6.04 billion. Notes payable were $3.65 billion; there was no balance outstanding on the unsecured credit facilities, after repayment of the $265 million term loan in January.
Debt’s weighted-average effective rates were 3.9% for fixed-rate mortgages, 2.9% for variable-rate mortgages, and 4.0% for fixed-rate unsecured debt. Reported notes payable fair value was $4.07 billion versus a $3.65 billion carrying amount.
The renewed $1.25 billion credit line matures March 2025, with two six-month extension options. Remaining capacity was about $1.24 billion, net of letters of credit. The company reported no unsecured debt maturities until 2024 and said it was in compliance with its debt covenants.
Pro-rata net debt to trailing-twelve-month Operating EBITDAre was 5.3x, down from 6.0x at year-end 2020; fixed-charge coverage was 3.9x, up from 3.6x. Management stated available resources were sufficient for expected needs over the next 12 months.
Management estimated approximately $371.7 million of capital needs over the next 12 months for secured debt not expected to be refinanced, committed tenant improvements, in-process development/redevelopment, and partnership contributions. This estimate preceded the subsequent USAA partnership acquisition.

Operating trends and changes from the prior period

The combined portfolio was 92.5% leased at June 30, compared with 92.3% at December 31, 2020; same-property occupancy was 92.9% at both dates. Weighted-average annual effective rent per square foot for consolidated properties was $23.10, versus $22.90 at year-end.
During the first half, Regency completed 986 new and renewal leasing transactions covering 3.0 million pro-rata square feet, versus 602 transactions and 2.6 million square feet in 2020. Trailing-twelve-month rent spreads were 1.2%, compared with 7.0% in the prior-year first half.
Operating and maintenance expense increased $9.7 million for the first half, including higher costs associated with tenant defaults/bankruptcies and insurance. General and administrative expense rose $5.6 million; depreciation and amortization fell $22.9 million.
First-half 2020 results included a $132.1 million goodwill impairment and $39.8 million of uncollectible lease income; Regency reported no goodwill impairment in the first half of 2021 and a positive $8.9 million lease-income impact from uncollectible amounts, reflecting collection of prior reserves net of new reserves. The 2020 impairment was a major reason for the year-over-year shift from loss to profit.

Outlook, risks and notable items

COVID-19 continued to create uncertainty around tenant operations, collections, move-outs, leasing and rents. Approximately 96% of base rent billed for Q2 had been collected through August 2, 2021. Management expected collections to remain below pre-pandemic averages for the foreseeable future and noted potential effects from variants, restrictions and vaccine effectiveness.
Tenants continued to seek rent concessions; the company warned that deferred rent may not be collected in full or on schedule. Tenant bankruptcies, store closures, e-commerce shifts, supply-chain constraints and labor shortages could also pressure rent and occupancy.
Management cited inflation-related increases in building-material and wage costs, which could affect tenants, operating expenses and construction costs. Lease expense-recovery provisions and periodic lease renewals may mitigate some inflation exposure.
After quarter-end, Regency acquired its partner’s 80% interest in seven USAA partnership properties for $178 million, including assumption of $84 million of the partner’s mortgage debt. The company expected to recognize approximately $13 million of promote income.
Forward equity sale agreements covered 2,316,760 shares at a weighted-average $64.59 per share, expected to generate approximately $149.6 million before offering costs when settled in 2022. No shares had been settled by June 30. The board also declared a $0.595-per-share dividend payable October 5, 2021.
Management reported no pending legal matter expected to have a material adverse effect, while noting outcomes cannot be assured. Pro-rata environmental remediation liabilities were $7.5 million; estimates could change as information develops. No material changes to previously disclosed risk factors were reported.

Important facts for investors to verify

Whether rent collections and same-property NOI growth persist after the sizable benefit from collecting previously reserved rents.
Tenant credit quality, concessions and deferred-rent recoverability, particularly if COVID-19 variants or restrictions worsen.
Execution, cost and stabilization of development/redevelopment projects, and the related estimated $346.1 million of pro-rata project costs in process.
Funding and integration of the post-quarter USAA acquisition, including assumed mortgage debt and expected promote income.
Debt maturities, covenant headroom, the $1.24 billion credit-line availability, and settlement of forward equity sales and their dilution.
How the reported non-GAAP pro-rata NOI, EBITDAre and leverage measures reconcile to GAAP results; these measures are supplemental and have limitations.