Regency Centers Corporation — FY 2015 Form 10-K
Reporting period: Fiscal year ended December 31, 2015. This combined filing covers Regency Centers Corporation and its operating partnership. Although the request refers to 2015 Q4, the filing reports full-year results; selected fourth-quarter figures are noted below. Regency is a REIT focused primarily on grocery-anchored shopping centers. At year-end, it owned or held partial interests in 318 centers across 27 states and Washington, D.C., with 38.0 million square feet of total GLA.
Financial and operating performance
| Metric | FY 2015 | FY 2014 | Change / context |
|---|---|---|---|
| Revenue | $569.8 million | $537.9 million | Up 5.9% |
| Net income attributable to common stockholders | $129.0 million | $166.3 million | Down 22.4% |
| Diluted EPS | $1.36 | $1.80 | Down 24.4% |
| NAREIT FFO | $276.5 million | $269.1 million | Up 2.7% |
| Core FFO | $288.9 million | $261.5 million | Up 10.5% |
| Cash from operations | $275.6 million | $277.7 million | Down $2.1 million |
| Cash and cash equivalents at year-end | $36.9 million | $113.8 million | Down $76.9 million |
| Total debt | $1.872 billion | $2.021 billion | Down $148.9 million |
| Net debt / Core EBITDA | 5.2x | 5.7x | Improved |
| Common dividend declared per share | $1.94 | $1.88 | Up; quarterly rate increased during 2015 |
FY 2015 property performance was strong: pro-rata same-property NOI grew 4.1% as presented in the supplemental reconciliation, while management reported 4.4% growth excluding termination fees. Pro-rata same-property occupancy was 95.8% at year-end; operating-portfolio occupancy was 95.9%. Comparable new and renewal lease rents increased 9.6%.
Revenue growth reflected higher minimum rent and tenant recoveries, including contributions from acquisitions, properties commencing operations, and same-property rent and occupancy growth. GAAP net income declined despite higher revenue and FFO. The comparison was affected by lower real estate sale gains ($35.6 million versus $55.1 million), reduced equity income from unconsolidated partnerships, the absence of a 2014 $18.3 million remeasurement gain, and an $8.2 million 2015 early-debt-extinguishment charge.
In the fourth quarter, revenue was $146.2 million versus $136.2 million a year earlier; net income attributable to common stockholders was $17.6 million versus $73.5 million, and diluted EPS was $0.18 versus $0.79. The filing’s quarterly table does not provide quarterly FFO.
Liquidity, debt, and investment activity
- The $800 million unsecured line of credit had no outstanding balance at year-end and approximately $794.1 million of remaining capacity, net of letters of credit. Cash was $36.9 million.
- Financing activity included approximately $198.5 million of net equity proceeds, $248.2 million of net proceeds from fixed-rate unsecured notes, and $532.0 million of debt repayments. The company repaid $350 million of notes that matured in 2015, redeemed $100 million of 2017 notes, and repaid three maturing mortgages.
- The $100 million early redemption generated an $8.2 million make-whole charge. Year-end debt included $165 million outstanding on the term loan. Management reported compliance with debt covenants.
- About 80.3% of wholly owned real estate assets were unencumbered. Coverage ratio, including the company’s pro-rata partnership share, was 2.8x versus 2.5x in 2014.
- Development and capital-improvement spending was $205.1 million, down from $238.2 million. Seven ground-up developments were in process with expected net costs of $163.9 million and were 83% leased; 13 redevelopments were also in process, with expected net costs of $81.8 million.
- Regency estimated approximately $198.7 million of cash needs through 2016, including $126.2 million to complete developments and redevelopments, $41.4 million for debt maturities, and $31.1 million for its expected share of partnership debt funding.
Outlook, risks, and notable matters
- Management’s stated strategy targets average annual NOI growth of 3%, disciplined development and redevelopment, and balance-sheet flexibility. This is a strategic target, not specific 2016 earnings guidance; the filing provides no clear numeric earnings or FFO forecast.
- Management expected 2016 new and renewal base rents to exceed rents on expiring leases, citing 95.6% pro-rata occupancy. There were 879 leases covering about 2.1 million square feet due to expire in 2016; expiring space averaged $19.77 per square foot versus $25.79 per square foot for 2015 new leases.
- Regency expected to issue new fixed-rate unsecured debt in 2017 to address $300 million of maturities. It had $220 million of forward-starting swaps intended to partially hedge that issuance, locking a 3.48% weighted-average rate component before the applicable credit spread.
- Principal business risks include retail tenant weakness and e-commerce, anchor or shop-tenant departures and bankruptcies, leasing and occupancy risk, development cost and lease-up risk, geographic concentration, severe weather and insurance costs, interest-rate and refinancing exposure, access to capital, joint-venture partner risk, and REIT qualification and distribution requirements.
- California, Florida, and Texas generated 30.4%, 12.1%, and 10.3% of pro-rata NOI, respectively. No tenant represented 5% or more of company revenue; Kroger was the largest tenant at 4.7% of annualized base rent.
- Environmental remediation liabilities accrued were $9.1 million on a pro-rata basis; management did not expect known matters to have a material effect, while noting that undiscovered or future liabilities cannot be ruled out. Management said ordinary-course litigation was not expected to have a material adverse effect.
- KPMG issued unqualified opinions on the financial statements and internal control over financial reporting. Management also concluded disclosure controls and internal controls were effective at year-end.
Important facts for investors to verify
- Reconcile the reported 4.1% same-property NOI growth with management’s 4.4% figure excluding termination fees, and confirm the definition used for comparisons.
- Review the drivers of the sharp year-over-year decline in fourth-quarter GAAP net income and the impact of property-sale gains and other nonrecurring items on annual earnings.
- Assess the 2016 lease-expiration schedule, renewal spreads, shop-space occupancy, and whether expected rent increases were achieved.
- Track 2016 liquidity needs, development and redevelopment completion costs, partnership debt contributions, and refinancing progress for 2017 maturities.
- Evaluate leverage and interest-rate exposure, including the effect of variable-rate debt, hedge settlements, and any changes to credit ratings or covenant headroom.
- Monitor tenant and market concentration, environmental exposures, and the company’s ability to sustain distributions while meeting REIT requirements.