Regency Centers Corporation / Regency Centers, L.P. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; balance-sheet figures are as of March 31, 2024, compared with December 31, 2023. Regency is a REIT owning, operating, leasing, acquiring, and developing predominantly grocery-anchored neighborhood and community shopping centers. Its portfolio included interests in 482 retail properties and approximately 57.0 million square feet of GLA. The figures below are consolidated unless noted; dollars are in millions.
Financial and operating performance
| Metric | Q1 2024 | Q1 2023 / prior date | Change |
|---|---|---|---|
| Total revenue | $363.9 | $318.0 | +$45.9; 14.4% |
| Net income | $112.7 | $98.5 | +$14.2 |
| Net income attributable to common shareholders | $106.4 | $97.3 | +$9.1 |
| Diluted EPS | $0.58 | $0.57 | +$0.01 |
| Nareit FFO | $200.0 | $186.5 | +$13.5 |
| Core Operating Earnings | $193.1 | $177.8 | +$15.3 |
| AFFO | $179.0 | $166.8 | +$12.2 |
| Net cash from operating activities | $167.8 | $162.1 | +$5.7 |
| Cash, cash equivalents, and restricted cash | $230.1 | $91.4 at Dec. 31, 2023 | +$138.7 |
| Total debt outstanding | $4,417.2 | $4,153.9 at Dec. 31, 2023 | +$263.2 |
Revenue growth primarily reflected the 2023 Urstadt Biddle Properties acquisition, which added 74 properties, as well as higher same-property base rent and tenant recoveries. Operating expenses rose $37.0 million to $233.9 million, including increases in depreciation, property operating costs, and real estate taxes, largely associated with the acquisition and higher property costs. Net interest expense increased $6.5 million to $42.9 million, mainly due to new and assumed debt, partly offset by higher interest income. A $11.4 million real estate sale gain also supported reported results.
Same-property NOI excluding termination fees increased 1.4% to $235.1 million. The combined pro-rata portfolio was 95.0% leased at quarter-end; same-property occupancy was 95.8%. Regency completed 461 new and renewal leases covering about 2.0 million pro-rata square feet, with positive rent spreads of 8.5%, compared with 5.5% in Q1 2023. Management reported pro-rata net debt and preferred stock to trailing-twelve-month Operating EBITDAre of 5.4x and fixed-charge coverage of 4.5x.
Balance sheet, liquidity, and capital allocation
- Total assets were $12.65 billion and total liabilities were $5.47 billion. Cash and restricted cash totaled $230.1 million, of which $224.7 million was unrestricted.
- Debt comprised $4.387 billion of notes payable and $30.0 million drawn on the unsecured credit facility. The notes payable balance rose from $4.002 billion at year-end; debt fair value was estimated at $4.144 billion versus its $4.387 billion carrying amount.
- In January, Regency issued $400 million of 5.250% senior unsecured notes due 2034. It reported $1.462 billion of availability under its $1.5 billion revolving facility, which matures in 2028 and has two six-month extension options. The company was in compliance with debt covenants at quarter-end.
- Management expects to use proceeds from the 2024 notes toward $250 million of unsecured debt maturing in June 2024. It also expects to refinance or repay $196.1 million of secured loan maturities during the next 12 months.
- Operating cash flow was $167.8 million; investing used $142.3 million and financing provided $113.3 million. Investing included $60.9 million for development, redevelopment, and capital improvements; $92.5 million for investment securities; and a $29.8 million note receivable issued at 6.9%, due January 2027. Financing included the notes issuance and $127.7 million of common and preferred dividends and unit distributions.
- Estimated capital needs for the next 12 months were approximately $715.5 million, including leasing costs, projects, partnership contributions, and debt repayments. Management said available capital resources were sufficient for expected needs over the next year, while noting no assurance for the longer term.
Material changes and notable items
- The UBP acquisition materially increased the portfolio and affected revenue, expenses, debt, and preferred dividends. Q1 2024 comparisons therefore include acquisition-related growth.
- The company sold one operating property for $30.0 million of proceeds and recognized a $11.4 million gain, versus a $0.3 million gain in Q1 2023. It acquired one development property for $8.0 million.
- Development and redevelopment projects in process had estimated pro-rata costs of $547.1 million, up from $468.1 million at year-end. Regency reported $3.1 million of completed project costs in Q1, with a 9.8% average stabilized yield.
- Preferred stock dividends of $3.4 million began following the UBP acquisition. The common dividend declared for July 2024 was $0.67 per share; the Board also declared Series A and B preferred dividends.
- Moody’s upgraded Regency to A3 with a stable outlook in February 2024. No shares were repurchased under the public repurchase program during Q1; employee tax-withholding share repurchases occurred.
Outlook, risks, and contingencies
The filing provides no specific earnings, FFO, or occupancy guidance. Management expects to continue funding operations and investments through operating cash flow, credit facilities, asset sales, and debt or equity markets as appropriate. It plans to continue paying distributions at a level that meets REIT requirements, subject to Board discretion.
Management cited inflation in construction materials, labor, and services, permitting delays, and labor shortages as factors that may raise costs or extend project timelines. Other identified risks include higher interest rates and capital-market volatility, tenant weakness or bankruptcies, reduced consumer spending, geopolitical and macroeconomic uncertainty, and refinancing costs. Tenants in bankruptcy represented 0.6% of pro-rata annual base rent, primarily Rite Aid.
Management said pending ordinary-course litigation and currently known environmental matters are not expected to materially affect the company. Environmental remediation liabilities accrued were $15.9 million at March 31, 2024. The filing cautions that environmental assessments and liability estimates may not capture all conditions or future obligations. Disclosure controls were assessed as effective, with no reported material change in internal controls.
Important facts for investors to verify
- Whether the June 2024 $250 million debt maturity is repaid as planned, and how the $196.1 million of near-term secured maturities are refinanced or funded.
- Progress on the $715.5 million estimated next-12-month capital requirement, including development costs, schedules, and expected stabilized returns.
- Whether same-property NOI growth, rent spreads, and occupancy remain resilient as property operating costs and tenant recoveries change.
- The effect of acquisition-related debt and preferred dividends on recurring per-share results; assess GAAP earnings alongside the company’s non-GAAP FFO, Core Operating Earnings, and AFFO measures.
- Potential changes in tenant credit quality, interest rates, construction costs, environmental remediation estimates, and other disclosed contingencies.