Regency Centers Corporation — Q1 2012 Form 10-Q
Business context and reporting period
Quarter ended March 31, 2012. Regency is a REIT whose operating partnership holds the company’s assets and conducts its business; the combined filing presents both entities. Regency focuses on grocery-anchored shopping centers. It directly owned 217 centers and held partial interests in 148 centers through co-investment partnerships.
Financial results and liquidity
| Metric | Q1 2012 | Q1 2011 |
|---|---|---|
| Revenue | $127.4 million | $124.3 million |
| Operating expenses | $84.4 million | $84.5 million |
| Net income | $26.7 million | $8.1 million |
| Net income attributable to common stockholders | $13.2 million | $2.2 million |
| Diluted earnings per share | $0.14 | $0.02 |
| Cash provided by operating activities | $43.2 million | $49.3 million |
Revenue increased 2.5%, led by higher minimum rent, including improved occupancy and acquired properties. Net income benefited from property-sale gains and improved equity income from real estate partnerships; Q1 2012 included $6.3 million of gains in discontinued operations and a $1.8 million gain on out-parcel sales. Interest expense declined to $29.0 million from $30.9 million. Operating expenses were essentially flat. The filing does not provide a standalone profit-margin measure.
At March 31, cash was $27.1 million. Notes payable were $1.748 billion and unsecured credit facilities were $275 million, for total debt of $2.023 billion. Including Regency’s pro-rata share of joint-venture debt and assets, debt to assets was 45.4%, versus 45.0% at year-end 2011; the coverage ratio was 2.4 times, versus 2.3 times for 2011. The company reported $600 million of availability under its unsecured line; $125 million was drawn, and $150 million was outstanding on a separate term loan. Management said the company was in compliance with debt covenants.
Operating cash flow was below the quarter’s $46.4 million combined total of scheduled principal payments, maintenance capital expenditures, and common and preferred distributions. The quarterly common dividend remained $0.4625 per share, unchanged since May 2009, and is subject to board discretion and capital availability.
Material changes versus the prior comparable period
- Consolidated operating centers were 93.4% leased, up from 90.9% a year earlier. Minimum rent rose $5.2 million.
- Net income attributable to common stockholders rose by $11.0 million; results included property-sale gains and a swing in partnership income from a $2.7 million loss to $3.0 million of income.
- Operating cash flow fell $6.1 million, which management attributed to timing of receipts and payments. Investing cash use increased, primarily due to a $14.4 million contribution to the partnership that acquired Lake Grove Commons.
- In January, Regency repaid $192.4 million of 6.75% unsecured notes using term-loan and credit-line borrowings. Total debt increased from $1.982 billion at December 31, 2011 to $2.023 billion.
- Regency issued $241.5 million of Series 6 preferred stock net of costs and redeemed Series 3 and 4 preferred stock and Series D preferred units. The transactions included a $7.0 million non-cash charge for original issuance costs and an approximately $1.0 million benefit from the discounted preferred-unit redemption.
Outlook, commentary, and risks
- No formal earnings or revenue guidance is provided. Management said it expects operating cash flow to fund scheduled mortgage principal, maintenance capital expenditures, and distributions, while also identifying additional funding needs.
- For the remainder of 2012, Regency estimated approximately $102.1 million of cash requirements, including $73.5 million for in-process development and $28.6 million of contributions to partnerships for debt repayment. It planned to use its line and term loan and, when markets are favorable, issue fixed-rate debt or common equity.
- Nine developments were under construction or in lease-up, with an expected net investment of $217.7 million after projected land and out-parcel sales. Estimated completion costs were $92.7 million; management estimated a 7.6% average return when completed and fully leased.
- Co-investment partnerships had $255.6 million of debt maturities in 2012. Management expected repayment through refinancing and partner contributions; partnerships refinanced $120.7 million in April 2012. Refinancing and partner funding remain execution risks.
- Key business risks include tenant financial distress or bankruptcies, co-tenancy clauses that may reduce rents, economic and leasing conditions, development schedules and approvals, and the ability to sell assets and refinance debt. Management said no known tenant bankruptcy or announced closures were expected individually to cause a material revenue reduction; no tenant accounted for more than 5% of pro-rata annual base rent.
- Management did not expect known litigation or environmental matters to materially affect financial position, liquidity, or operations, but noted that undiscovered contamination and future regulatory changes could create additional liabilities. Disclosure controls were reported effective, with no material changes to internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether occupancy gains translate into sustained rent growth and cash generation.
- Debt maturities, borrowing capacity, covenant compliance, and the cost and availability of refinancing, including partnership-level maturities.
- Actual development spending, leasing progress, and realized returns compared with management’s estimates.
- How preferred-stock costs and distributions, asset-sale gains, and partnership results affect recurring earnings available to common stockholders.
- Whether operating cash flow can support distributions, maintenance needs, and investment commitments without increased borrowing or asset sales.