Regency Centers Corporation and Regency Centers, L.P. — Q3 2014 Form 10-Q
Reporting period: Three and nine months ended September 30, 2014; comparison with the corresponding 2013 periods. Regency is a REIT focused on owning, operating, acquiring, and developing grocery-anchored shopping centers. At quarter-end, it directly owned 205 centers and held interests in 121 centers through co-investment partnerships. The parent owned approximately 99.8% of the Operating Partnership.
Financial performance and position
Amounts below are in millions of dollars except per-share data, percentages, and ratios.
| Metric | Q3 2014 | Q3 2013 | Nine months 2014 | Nine months 2013 |
|---|---|---|---|---|
| Total revenue | $133.6 | $120.3 | $401.7 | $363.0 |
| Income from continuing operations | $25.9 | $23.0 | $80.1 | $63.2 |
| Net income attributable to common stockholders | $47.9 | $35.0 | $92.8 | $82.4 |
| Basic and diluted EPS | $0.52 | $0.38 | $1.00 | $0.90 |
| FFO | $64.8 | $60.4 | $196.1 | $180.4 |
| Core FFO | $65.5 | $60.2 | $195.5 | $180.3 |
| Same-property NOI growth, pro rata | 4.5% | — | 3.8% | — |
- Revenue rose 11.0% in Q3 and 10.7% year to date. Management attributed growth mainly to acquisitions, development openings, higher occupancy, contractual rent increases, and rental-rate growth.
- Common-stockholder net income and EPS included real-estate sale gains of $27.6 million in Q3 and $29.6 million year to date. Continuing-operations income and FFO/Core FFO provide additional context for underlying performance.
- Q3 operating expenses were $85.9 million, up from $78.8 million; nine-month expenses were $262.6 million, up from $238.6 million. Nine-month depreciation and amortization increased $15.4 million, while general and administrative expense fell $4.1 million, partly due to greater capitalization of development and leasing costs.
- Net interest expense was $27.6 million in Q3 and $82.1 million year to date. Nine-month interest expense was nearly unchanged year over year; increased capitalized interest offset higher interest on notes payable.
- Net cash provided by operations was $217.8 million for nine months, versus $200.6 million. Investing used $186.3 million, versus $30.4 million, reflecting higher property acquisitions and lower sale proceeds. Financing used $11.5 million, versus $129.8 million. Cash increased $20.0 million to $100.7 million.
- Total debt was $2.023 billion at September 30, 2014, compared with $1.855 billion at year-end 2013. Notes payable were $1.948 billion and unsecured credit facilities were $75 million. Total assets were $4.128 billion and total equity was $1.874 billion.
- Liquidity included $100.7 million cash, $794.1 million remaining on the $800 million revolving line (net of letters of credit), $90 million available under the term loan, and $150 million remaining under the ATM equity program. The company reported a 2.5x trailing-four-quarter coverage ratio and 76.0% of wholly owned real estate assets unencumbered.
Changes and significant activity
- Consolidated operating-property occupancy was 95.2%, versus 94.5% at December 31, 2013; combined pro-rata operating occupancy was 95.9%, versus 95.2%. Regency reported pro-rata same-property NOI growth of 4.5% for Q3 and 3.8% for the first nine months.
- Regency acquired properties and interests, including an 80% controlling interest in a three-center Connecticut portfolio, and spent $160.6 million on development, redevelopment, improvements, and leasing. Eight development projects were under construction or in lease-up, versus six at year-end.
- It sold six operating properties and five land out-parcels during the first nine months, receiving $62.8 million in net proceeds. The company adopted a revised discontinued-operations standard: 2014 property sales were not considered strategic shifts, so their results were not presented as discontinued operations.
- Regency issued $250 million of 3.75% ten-year unsecured bonds and repaid $150 million of 4.95% debt. Settled treasury hedges reduced the new bonds’ stated effective interest rate to 3.59%. Debt increased partly due to assumed acquisition mortgages.
- For nine months, the company declared $1.41 per common share/unit, compared with $1.3875 in the prior-year period; preferred distributions were $15.8 million in both periods.
Outlook, risks, and contingencies
- No specific earnings or FFO guidance is stated in the provided filing text. Management said operating cash flow is expected to fund distributions, and declared a $0.47 common dividend per share payable December 3, 2014. Future dividends remain at the board’s discretion.
- Management estimated cash requirements through 2015 of approximately $702.4 million: $238.5 million for projects in process, $425.9 million for maturing debt, and $37.9 million for Regency’s estimated share of partnership debt contributions. Refinancing could reduce, and new development could increase, requirements. Funding sources include operating cash, borrowing, property sales, and potential equity or debt issuance.
- Unsecured debt maturities include $350 million in August 2015 and $400 million in June 2017. Forward-starting swaps partially hedge expected replacement debt. The company reported compliance with debt covenants and expected to remain in compliance.
- Co-investment partnerships had approximately $1.5 billion of debt, with Regency’s pro-rata share about $525.2 million. The loans are non-recourse, but Regency may need to contribute its share of partnership debt maturities if refinancing or partner funding is unavailable.
- Risks identified include economic and tenant financial weakness, leasing and market-rent changes, competition, development timing and costs, natural disasters, environmental liabilities, and limited voting control in co-investment partnerships. No tenant represented more than 5% of annual base rent on a pro-rata basis; Kroger, Publix, and Safeway were the largest named grocery anchors.
- Management said known litigation and environmental matters were not expected to have a material adverse effect, while noting that undiscovered or changing environmental liabilities could arise. The filing reported a $225,000 land impairment year to date, versus a $6 million property impairment in the prior-year period.
Important facts for investors to verify
- Reconcile reported net income growth with property-sale gains and compare it with FFO/Core FFO and same-property NOI trends.
- Review the timing and funding plan for the 2015 and 2017 debt maturities, and the assumptions behind the estimated $702.4 million of cash needs through 2015.
- Assess development execution, lease-up, project costs, and returns across the eight active projects.
- Monitor occupancy, leasing spreads, tenant health, and the ability to sustain rent and recovery growth while controlling property expenses.
- Assess liquidity and potential capital calls or refinancing needs at co-investment partnerships, together with environmental exposures and other contingencies.