Regency Centers Corporation — Q2 2020 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2020. Regency is a shopping-center REIT; its portfolio includes 300 consolidated properties and interests in 115 additional properties. Grocery stores anchor more than 80% of operating centers. Results were materially affected by COVID-19.
Key financial results
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Total revenue | $231.1m | $275.9m | $514.8m | $562.1m |
| Net income (loss) | $19.6m | $52.7m | $(5.2)m | $144.2m |
| Net income (loss) attributable to common stockholders | $19.0m | $51.7m | $(6.3)m | $142.2m |
| EPS, diluted | $0.11 | $0.31 | $(0.04) | $0.85 |
| NAREIT FFO attributable to common stock and unit holders | $104.7m | $160.0m | $270.8m | $319.8m |
- Q2 revenue fell 16.2% year over year; first-half revenue declined 8.4%. Lease income fell $43.7m in Q2 and $46.5m for the first half, primarily from higher expected uncollectible rents.
- Q2 same-property NOI, excluding termination fees, declined 20.1%; the six-month decline was 10.3%. Management attributed the deterioration chiefly to COVID-related uncollectible lease income.
- Operating cash flow for the first half was $217.4m, down from $289.3m. Investing used $28.1m; financing provided $282.5m. Cash, cash equivalents and restricted cash ended at $587.4m, including $3.9m restricted.
- Total debt was $4.29bn at June 30, versus $3.92bn at year-end 2019. Total liabilities were $5.19bn; total assets were $11.39bn. The filing reports $583.4m unrestricted cash and $1.24bn available under the credit line.
- Pro-rata net debt to trailing-twelve-month Operating EBITDAre was 5.6x, versus 5.4x at year-end; fixed-charge coverage was 4.0x, versus 4.3x.
Material changes and operating conditions
- Q2 lease income included $35.8m of uncollectible amounts and $16.3m of uncollectible straight-line rent. For the first half, the corresponding amounts were $39.8m and $20.2m.
- Approximately 72% of Q2 base rent billed had been collected through July 31. Regency had executed more than 600 rent-deferral agreements totaling $16.4m of pro-rata base rent, or 1.8% of annual base rent; average deferral and repayment periods were approximately three and ten months, respectively.
- Portfolio occupancy was 93.9% at June 30, down from 94.8% at December 31, 2019. Shop-space occupancy was 89.4%, compared with 90.6% at year-end.
- Regency completed 602 new and renewal leases covering 2.6m pro-rata square feet during the first half; trailing-twelve-month comparable rent spreads were 7.0%. Leasing activity and construction were nevertheless disrupted by the pandemic.
Outlook, risks and unusual items
- Regency withdrew its fiscal 2020 guidance on March 30 and did not provide replacement numerical guidance in the supplied filing text. Management said the pandemic’s duration and effects on tenants, collections and operations remained uncertain.
- A $132.1m goodwill impairment was recorded in Q1 after pandemic-related market disruption triggered valuation tests; 87 of 269 reporting units with goodwill had fair values below carrying value. No additional goodwill impairment was recorded in Q2.
- In May, Regency issued $600m of 3.70% ten-year unsecured notes. The proceeds enhanced liquidity, repaid the credit-line balance and were expected to support general corporate purposes, including debt repayment. On August 3, the Operating Partnership announced its intent to redeem $300m of 3.75% notes due 2022 on September 2, at an estimated total cost of $325.1m.
- Management estimated approximately $290m of capital needs over the next 12 months. Projects were being delayed, phased or curtailed to preserve liquidity. Management believed available capital was sufficient for expected needs over that period and reported covenant compliance.
- The board declared a $0.595-per-share dividend payable August 24, 2020. Management cautioned that operating cash flow might not cover dividends without other capital sources or changes to historic dividend levels.
- Principal risks include further tenant defaults or bankruptcies, renewed restrictions, weaker rent collections and occupancy, concessions not being repaid, reduced leasing demand, construction delays, and constrained or more costly access to capital. Tenants in bankruptcy that continued to occupy space represented 2.0% of pro-rata annual base rent.
Important facts for investors to verify
- Subsequent rent collections, tenant arrears, concessions and repayment performance on deferred rent.
- Whether tenant failures, occupancy declines or renewed restrictions produce further rent-income reductions or impairments.
- Completion, cost and timing of the announced $300m note redemption and the use of remaining bond proceeds.
- Liquidity, debt covenants, leverage and dividend coverage as operating cash flow and capital needs evolve.
- Any updated earnings outlook; this filing withdrew prior 2020 guidance and provided no replacement numerical forecast.