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Business Context and Reporting Period

Company: Regency Centers Corporation (REIT)
Filing Type: Form 10-Q (Unaudited)
Reporting Period: Three months ended March 31, 2003
Business Overview: Regency is a national owner, operator, and developer of grocery-anchored neighborhood retail shopping centers. As of March 31, 2003, the portfolio consisted of 261 properties with 94.9% occupancy. The company operates through Regency Centers, L.P. (RCLP), in which it holds approximately 98% of the common units.

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Growth: Total revenues increased 11% to $97.5 million, driven by a full year of revenue from 2002 developments and a 9.7% increase in rental rates from renewals and new leases. Minimum rent rose 8% and tenant recoveries rose 11%.
• Profit Decline: Net income for common stockholders decreased 27% to $17.9 million. This decline was primarily due to a $1.5 million reduction in gains from the sale of operating properties, increased depreciation, and $2.7 million in costs associated with the redemption of preferred units.
• Discontinued Operations: The company reported a loss of $0.7 million from discontinued operations in Q1 2003, compared to income of $6.1 million in Q1 2002. This reflects the sale of three properties and the reclassification of prior period results under SFAS No. 144.
• Debt Expansion: Total debt increased by approximately $96 million, largely due to an increase in the unsecured line of credit utilization from $80 million to $178.8 million to fund acquisitions and development.

Guidance, Outlook, and Management Commentary

• Development Pipeline: As of March 31, 2003, 31 projects were under construction or major renovation with an expected total investment of $545.5 million. These projects are approximately 52% complete and 69% pre-leased. Costs to complete are estimated at $260 million.
• Liquidity Strategy: Management expects cash from operations, proceeds from property sales, and the unsecured line of credit to meet liquidity requirements. The company recently redeemed $75 million of preferred units and issued $75 million of new Series 3 Cumulative Preferred Stock (7.45% dividend) in April 2003 to reduce the line of credit balance.
• Market Risks: The company faces risks related to tenant bankruptcies (though no single tenant exceeds 10% of base rent), interest rate fluctuations on variable-rate debt, and the ability to obtain governmental approvals for developments.
• Environmental Matters: The company maintains environmental insurance for dry cleaning plants and known contamination sites, believing current matters will not materially affect financial position.

Investor Verification Checklist

• Preferred Unit Redemptions: Verify the impact of the $75 million redemption of Series C and E preferred units and the associated $750,000 premium on cash flow and minority interest.
• Discontinued Operations: Review the reclassification of prior year results under SFAS No. 144 to understand the true comparability of operating income.
• Debt Covenants: Confirm compliance with financial covenants on the unsecured line of credit, which is heavily utilized ($178.8 million) and dependent on investment-grade ratings.
• Development Costs: Monitor the $260 million in committed costs to complete current developments and the timeline for stabilization.
• Tenant Concentration: While no single tenant exceeds 10%, verify the stability of the top four grocery anchors (Kroger, Publix, Safeway, Albertsons) which represent a significant portion of GLA.