Regency Centers Corporation and Regency Centers, L.P. — Q3 2015 Form 10-Q
Business context and period. The combined filing covers the quarter and nine months ended September 30, 2015. Regency is a REIT focused primarily on grocery-anchored neighborhood and community shopping centers. At quarter-end, it owned 199 centers directly and held partial interests in 119 more through real estate partnerships. The parent owned approximately 99.8% of the Operating Partnership; the Operating Partnership holds the business’s assets and debt.
Financial performance
| Metric | Q3 2015 | Q3 2014 | Nine months 2015 | Nine months 2014 |
|---|---|---|---|---|
| Total revenue | $142.1 million | $133.6 million | $423.6 million | $401.7 million |
| Net income | $59.7 million | $53.4 million | $129.0 million | $109.7 million |
| Net income attributable to common stockholders | $53.7 million | $47.9 million | $111.4 million | $92.8 million |
| Diluted EPS | $0.57 | $0.52 | $1.18 | $1.00 |
| FFO | $71.6 million | $64.8 million | $212.3 million | $196.1 million |
| Core FFO | $72.2 million | $65.5 million | $212.9 million | $195.5 million |
| Cash from operating activities | — | — | $216.8 million | $217.8 million |
Revenue increased 6.4% in Q3 and 5.4% for the nine-month period. Nine-month same-property NOI grew 4.3%, driven by rent-paying occupancy, contractual rent increases and rental-rate growth. Combined portfolio operating occupancy was 96.1% at September 30, versus 95.9% at December 31, 2014; weighted average annual effective rent per square foot rose in both consolidated and partnership properties.
Reported net income includes real estate sale gains: $27.8 million in Q3 and $34.2 million year to date. FFO excludes gains on depreciable property sales and is a non-GAAP measure, not a substitute for cash flow or liquidity.
Balance sheet, debt and liquidity
- Total assets were $4.17 billion and total liabilities were $2.26 billion at September 30, 2015. Total debt was $2.02 billion, compared with $2.02 billion at year-end 2014.
- Cash and cash equivalents fell to $23.9 million from $113.8 million at year-end. Nine-month investing cash use was $108.4 million and financing cash use was $198.3 million.
- At quarter-end, the $800 million revolving line had $744.1 million of remaining availability, net of letters of credit. The company also had $95 million remaining under its $200 million ATM equity program. A $193.8 million forward equity offering was expected to settle by January 14, 2016.
- During 2015, Regency issued $250 million of 3.90% ten-year unsecured notes and used the proceeds, together with term-loan borrowings, to repay $350 million of 5.25% notes at maturity. It also repaid $76.0 million of mortgage debt. The line was amended to extend its maturity to May 2019 and reduce its pricing.
- 79.4% of wholly owned real estate assets were unencumbered. The trailing-four-quarter coverage ratio was 2.7 times, up from 2.5 times a year earlier. Regency reported compliance with its debt covenants.
Changes, outlook and risks
- Compared with 2014, operating revenue and EPS grew, while operating cash flow was nearly flat. The company attributed revenue gains primarily to same-property rent growth, improved occupancy, development completions and acquisitions. Operating and maintenance costs and real estate taxes also increased.
- Regency acquired one operating property in the first nine months of 2015, versus five shopping centers in the comparable 2014 period. It sold four operating properties, receiving $93.7 million in net proceeds. Development and capital-improvement spending was $151.0 million; five projects were under construction or in lease-up at quarter-end.
- Management estimated cash requirements through the end of 2016 of approximately $390.1 million, including $131.3 million to complete in-process developments and redevelopments, $149.7 million for maturing debt and partial early redemption of 2017 notes, and $109.1 million for its expected share of partnership contributions toward debt repayment. Planned funding sources include operating cash flow, property sales, the forward equity offering, available line borrowings, ATM equity and new debt.
- After quarter-end, Regency notified the trustee that it would redeem $100 million of its 2017 notes on November 27, 2015; it expected to issue new fixed-rate debt in 2017 to repay the remaining $300 million maturity. Forward-starting swaps partially hedge anticipated 2017 debt issuance.
- The board declared a quarterly common dividend of $0.485 per share, payable December 2, 2015. Future dividends remain subject to board discretion, capital needs and availability.
- Environmental remediation accruals were $9.1 million for Regency’s pro-rata share. Management did not expect known litigation or environmental matters to materially affect financial position, liquidity or results, but cautioned that undiscovered or future environmental liabilities cannot be ruled out.
- Key stated risks include economic conditions, tenant financial distress or bankruptcies, leasing and rent trends, acquisition and development execution, natural disasters, environmental remediation, and limited control over some co-investment partnerships. No formal earnings or NOI guidance was provided in the filing.
Important facts for investors to verify
- How much of reported earnings growth reflects recurring property operations versus real estate sale gains, and how FFO/Core FFO reconcile to GAAP results.
- Whether occupancy, rent growth and same-property NOI gains continue, and whether higher operating costs and taxes constrain margins.
- Whether projected 2016 funding needs can be met while maintaining liquidity, distributions and covenant compliance, particularly given low reported cash.
- Progress on development completions, leasing and returns, and the refinancing or repayment plan for Regency’s and its partnerships’ upcoming debt maturities.
- The potential scale and timing of environmental obligations beyond the recorded $9.1 million pro-rata accrual.