Regency Centers Corporation / Regency Centers, L.P. — Q3 2010 Form 10-Q
Business context and reporting period
Quarter ended September 30, 2010; financial statements are unaudited. Regency owns, operates, leases, and develops primarily grocery-anchored shopping centers through its Operating Partnership and joint ventures. At quarter-end, it managed 399 centers (215 consolidated and 184 in unconsolidated partnerships), totaling 45.1 million square feet. The Parent Company owned approximately 99.8% of the Operating Partnership.
Key financial metrics
Amounts below are in millions except per-share data and percentages.
| Metric | Q3 2010 | Q3 2009 | Nine months 2010 | Nine months 2009 |
|---|---|---|---|---|
| Total revenue | $121.4 | $132.3 | $366.7 | $366.7 |
| Net income (loss) | $15.9 | $(78.6) | $47.0 | $(64.2) |
| Net income (loss) attributable to common stockholders | $9.9 | $(84.1) | $29.0 | $(81.7) |
| Diluted earnings (loss) per share | $0.12 | $(1.05) | $0.35 | $(1.09) |
- For the nine months, operating cash flow was $131.4 versus $162.9 in 2009; investing cash use was $168.4 versus $90.2; financing cash use was $23.7 versus financing cash provided of $79.6. Cash declined $60.6 to $38.8.
- At September 30, total assets were $3.994 billion and total liabilities were $2.163 billion. Notes payable were $1.893 billion, with another $110 million drawn on unsecured credit facilities; total debt was $2.003 billion.
- Management reported pro-rata debt to assets, before accumulated depreciation and including joint ventures, of 46.6%, up from 45.9% at year-end 2009. Its coverage ratio was 2.0 times, unchanged. It reported 82.9% of consolidated real estate assets as unencumbered.
- Unsecured credit facilities totaled $713.8 million; $110 million was drawn at quarter-end. Cash and facility availability are not interchangeable measures of liquidity.
- The quarterly common dividend remained $0.4625 per share. Cash distributions to common stockholders and unit holders during the nine months were approximately $111.4 million, in addition to preferred and other partner distributions.
Material changes versus comparable periods
- Q3 revenue fell 8.2%, mainly because the prior-year quarter included a $7.8 million joint-venture disposition fee; rent and tenant recoveries also decreased modestly. Nine-month revenue was essentially unchanged: higher tenant recoveries offset lower management and transaction fees.
- Common earnings turned positive in both the quarter and year-to-date period, chiefly because 2010 had no impairment provision, compared with $95.2 million in Q3 2009 and $97.5 million in the first nine months of 2009 in continuing operations. Do not interpret the earnings rebound as solely recurring operating growth.
- Nine-month operating expenses rose 5.0% to $237.4 million, including higher depreciation, property costs, and G&A; lower doubtful-account provisions partly offset those increases. Net interest expense rose to $92.0 million from $80.1 million, partly as less interest was capitalized with reduced development activity.
- Operating centers were 93.2% leased, unchanged from December 2009. Including developments, the combined portfolio was 92.5% leased versus 92.1% at year-end. Year-to-date rental-rate growth was negative 2.3% on the combined portfolio.
- Investments in real estate partnerships increased to $462.8 million from $326.2 million, largely reflecting Regency’s increased ownership in GRIR and its capital contribution toward that venture’s debt repayment.
Outlook, management commentary, risks, and unusual items
- Management described a modest recovery, with higher new leasing activity and fewer tenant defaults than in 2009, but noted continued occupancy pressure, negative rental-rate growth, retailer closures, and uncertain demand for new retail space. It reduced or phased development activity and said future projects would be assessed against tenant demand, capital availability, and expected returns.
- Thirty development properties were under construction or in lease-up on a combined basis. Management estimated a $575.5 million net investment at completion, a 6.8% average return when fully leased, and $11.4 million of remaining costs net of expected reimbursements and land sales.
- Management estimated approximately $562.3 million of funding needs through 2012, primarily debt maturities, in-process developments, and Regency’s expected share of joint-venture capital needs. The credit line matured in February 2011, with a one-year extension option; management expected to negotiate an extension and believed it could access debt markets, but these are forward-looking expectations.
- Joint ventures had $730.6 million of scheduled debt maturities through 2012; their combined debt was approximately $2.1 billion, with Regency’s pro-rata share of $663.4 million. Management cautioned that refinancing or partner funding could be affected by weak markets. Most joint-venture debt was non-recourse, subject to a stated $8.7 million guarantee exposure in one venture.
- Blockbuster filed for Chapter 11 in September 2010; eight Regency leases had been rejected by the filing date, including two active locations. The company expected possible additional closures. Management said the associated rent exposure was about 1.1% of annualized base rent on a pro-rata basis. Other disclosed tenant bankruptcies were described as individually insignificant.
- After quarter-end, the Operating Partnership issued $250 million of 4.80% ten-year notes on October 7, using part of the proceeds to repay the $110 million credit-line balance and settle $36.7 million of interest-rate swaps. On October 29, it tendered for $69.4 million principal of 2011–2012 notes, paying $74.8 million and expecting to record about $4.2 million of extinguishment expense.
- Environmental remediation obligations of $3.0–$3.2 million were accrued. Management did not expect known litigation or environmental matters to have a material adverse effect, while acknowledging uncertainty over undiscovered conditions and future regulatory changes. Management reported compliance with credit-facility covenants.
Most important facts for investors to verify
- Whether the post-quarter bond proceeds and tender offer adequately address near-term maturities, and the status and terms of the credit-line extension.
- Joint-venture debt maturities, partner capacity to fund capital calls, and Regency’s actual exposure if refinancing or partner funding fails.
- Whether leasing, occupancy, tenant collections, and rental-rate trends improve; especially the ultimate impact of Blockbuster lease rejections and other retailer distress.
- Development completion costs, lease-up assumptions, and expected returns, as well as the sensitivity of property and joint-venture valuations to impairment assumptions.
- Recurring earnings and cash generation apart from prior-year impairment comparisons, property-sale gains, transaction fees, and other non-recurring items.