Regency Centers Corporation and Regency Centers, L.P. — Q1 2013 Form 10-Q
Reporting period: Three months ended March 31, 2013. Regency is a REIT operating grocery-anchored shopping centers through its Operating Partnership. At quarter-end it directly owned 205 centers and held partial interests in 140 centers through joint ventures. The Parent Company owned approximately 99.8% of the Operating Partnership.
Financial performance and condition
| Metric | Q1 2013 | Q1 2012 / comparison |
|---|---|---|
| Total revenue | $126.1 million | $126.2 million; down $0.2 million |
| Net income | $21.1 million | $26.7 million |
| Net income attributable to common stockholders | $15.6 million; diluted EPS $0.17 | $13.2 million; diluted EPS $0.14 |
| Same-property NOI | $102.7 million | $98.0 million; up about 4.8% |
| FFO / Core FFO | $57.9 million / $58.3 million | $49.9 million / $56.3 million |
| Operating cash flow | $39.3 million | $43.2 million |
| Cash and cash equivalents | $22.4 million | $22.3 million at December 31, 2012 |
| Total debt | $1.930 billion | $1.942 billion at December 31, 2012 |
Revenue was nearly unchanged. Common-stockholder earnings and EPS increased, while GAAP net income declined because Q1 2012 included discontinued-property income and gains on property sales. Higher equity earnings from real estate partnerships and lower interest expense supported Q1 2013 results. The filing does not present a single company-wide operating margin; same-property NOI is a supplemental, non-GAAP measure.
At March 31, 2013, Regency reported $1.785 billion of notes payable and $145.0 million of unsecured credit facilities. Management reported $45.0 million outstanding on its $800 million revolving line and $735.6 million available after letters of credit. These figures do not equal the balance-sheet facility amount; investors should review the underlying debt disclosures for the distinction. Regency reported 76.3% of wholly owned real estate assets unencumbered and a 2.3x coverage ratio.
Material changes and operating trends
- Consolidated operating and development properties were 93.9% leased, versus 92.2% a year earlier and 94.1% at year-end 2012. Average occupancy for the quarter was 94.0%, up from 91.4%.
- Minimum rent fell by $0.7 million year over year: the 2012 sale of a 15-property portfolio reduced rent by $7.8 million, partly offset by acquisitions, development openings, and improved occupancy and rents.
- Partnership income rose $2.9 million to $5.9 million, including a $1.2 million contribution from BRET and higher earnings from the GRIR investment.
- Operating cash flow decreased $3.9 million, primarily because of payment of 2012 incentive compensation accrued at year-end. Investing cash use increased to $28.1 million, including $30.4 million for development and capital improvements.
- Regency raised $51.6 million net through its at-the-market common-stock program. It had $75.6 million of remaining issuance capacity at quarter-end; a further $10.7 million of net proceeds from shares traded before quarter-end was settled afterward.
Outlook, risks, and unusual items
- Management said operating cash flows are expected to fund distribution requirements. The board declared a quarterly common dividend of $0.4625 per share; future dividends remain discretionary and subject to capital needs and availability.
- Management estimated approximately $149.7 million of remaining-2013 cash requirements: $16.4 million for maturing debt, $128.4 million to complete in-process developments and redevelopments, and $4.9 million for Regency’s share of estimated joint-venture capital contributions. Funding sources may include operating cash, the revolving line, property sales, equity, and debt.
- Four development projects were under construction or in lease-up at quarter-end, with estimated net costs of $193.6 million and $91.4 million remaining to complete. Management identified East Washington Place and Grand Ridge Plaza as progressing projects.
- On March 20, Regency dissolved its MCWR III joint venture through an in-kind distribution, taking Hilltop Village and assuming a $7.5 million mortgage. On May 3, 2013, it sold Deer Springs Town Center for $50.5 million gross proceeds and a reported $4.4 million net gain. Separately, the Regency Retail Partners fund’s portfolio was under contract for sale, with closing expected by the end of Q3 2013.
- Debt maturities include $22.1 million in 2013, $184.3 million in 2014, and $418.2 million in 2015. Regency used interest-rate swaps to hedge rates on anticipated future unsecured borrowings and expected $9.5 million of deferred derivative gains or losses to be reclassified into earnings over the next 12 months.
- Key risks include tenant financial distress or bankruptcy, changes in retail demand and rents, development schedules and costs, interest rates, and joint-venture exposures. Management did not expect known litigation or environmental matters to materially affect results, but noted that environmental liabilities may not be fully identified. It reported compliance with debt covenants and no material change in previously disclosed risk factors.
- No numerical earnings or FFO guidance is provided in the supplied filing text. Management’s forward-looking statements are subject to risks and actual results may differ.
Most important facts for investors to verify
- Reconcile the $145.0 million balance-sheet unsecured-credit-facility balance with the MD&A’s $45.0 million revolving-line balance and $735.6 million availability.
- Review the timing and funding of the stated $149.7 million remaining-2013 cash requirements and the $91.4 million remaining development costs.
- Assess whether improved occupancy and same-property NOI can be sustained, given the lower quarter-end occupancy than at year-end and the retail tenant risks described.
- Track the planned Regency Retail Partners portfolio sale, subsequent Deer Springs disposal, and their effects on recurring earnings, liquidity, and the property portfolio.
- Distinguish GAAP earnings from FFO and Core FFO, which are non-GAAP measures, and evaluate the effect of prior-year sale gains and preferred-stock items on comparisons.