REGENCY CENTERS CORP quarterly report, Q2 FY2023

Business context and reporting period

Regency Centers Corporation and Regency Centers, L.P. filed a combined unaudited Form 10-Q for the quarter and six months ended June 30, 2023. Regency is a REIT focused on grocery-anchored neighborhood and community shopping centers. At quarter-end, it owned 310 consolidated properties and held partial interests in 96 additional properties through unconsolidated partnerships; its combined portfolio had approximately 51.3 million square feet of gross leasable area.

Financial and operating performance

Amounts below are in millions of dollars except per-share data, percentages, and ratios.

• Q2 revenue rose 4.0%, while net income attributable to common shareholders fell 17.2%. Six-month revenue rose 4.4%; six-month net income attributable to common shareholders fell 38.7%.
• Pro-rata same-property NOI excluding termination fees grew 1.5% in Q2 and 2.0% for the first half. Management cited higher occupancy, contractual rent increases, and positive leasing spreads, partly offset by increased property costs.
• Six-month leasing activity comprised 842 new and renewal transactions covering 3.0 million pro-rata square feet, with 9.2% positive rent spreads, versus 934 transactions, 3.2 million square feet, and 7.6% spreads in the prior-year period. Overall portfolio occupancy was 94.6% at June 30; same-property occupancy was 95.2%.
• Core Operating Earnings, a company-defined non-GAAP measure, were $164.7 million in Q2 versus $163.1 million and $342.5 million for the first half versus $329.9 million. These measures are supplemental and should be considered alongside GAAP results.

Debt, cash and liquidity

• Notes payable totaled $3.709 billion at June 30, down from $3.727 billion at December 31, 2022. Cash, cash equivalents, and restricted cash were $43.1 million, including $39.8 million unrestricted cash.
• The $1.25 billion unsecured credit line had $1.242 billion available after letters of credit; it matures in March 2025, with two optional six-month extensions. The company reported no unsecured debt maturities in 2023 and $250 million due in 2024, in addition to scheduled mortgage maturities.
• Pro-rata net debt to trailing-twelve-month Operating EBITDAre was 4.9x, compared with 5.0x at year-end 2022; fixed-charge coverage was 4.8x versus 4.7x. Management reported covenant compliance and that 90.4% of wholly owned real estate assets were unencumbered.
• For the first half, investing activities used $91.4 million and financing activities used $268.9 million. Development and capital improvements totaled $100.1 million. Dividends paid to common shareholders were $222.3 million.

Material changes versus the prior comparable period

• The decline in first-half GAAP earnings largely reflects the comparison with $106.2 million of real estate sale gains in the first half of 2022; first-half 2023 gains were $0.3 million. Q2 2023 sale gains were also much lower than in Q2 2022.
• First-half operating expenses increased $35.6 million, including increases in property operating expense, depreciation and amortization, real estate taxes, and general and administrative expense. Management attributed much of the G&A increase to changes in deferred-compensation plan values, professional and travel costs, compensation, and lower development-cost capitalization.
• Same-property lease revenue benefited from rent steps, occupancy, and new and renewal leasing. Higher recoveries from tenants reflected increased operating costs; property operating costs and real estate taxes also increased.
• Six-month cash from operations increased $6.9 million year over year. Cash declined by $25.7 million during the first half, compared with a $26.2 million increase in the prior-year period, reflecting investing and financing outflows.

Outlook, risks, contingencies and unusual items

• The filing provides no clear numerical full-year earnings or NOI guidance. Management estimated approximately $589.5 million of cash requirements over the next 12 months for leasing costs, development and redevelopment, partnership contributions, and debt maturities, and said available capital resources should be sufficient to meet expected needs, while noting there can be no assurance.
• Management expects the pending Urstadt Biddle Properties acquisition to close in mid-to-late August 2023, subject to UBP stockholder approval, tax opinions, and other conditions. Common shareholders of UBP are generally to receive 0.347 Regency share per share, subject to agreement terms; specified UBP preferred shares are to convert into new Regency preferred shares.
• A purported UBP stockholder filed a lawsuit alleging fiduciary-duty and disclosure claims related to the acquisition and seeking, among other remedies, an injunction. UBP stockholders also sent demand letters. Regency considers the matters without merit; the outcome is uncertain.
• Management cited inflation, labor availability and cost, energy prices, interest rates, credit access, and macroeconomic and geopolitical conditions as risks to tenants, leasing, construction costs, and financing. The filing added risks from potential instability in the banking and financial-services industry.
• Tenants currently in bankruptcy represented 0.6% of pro-rata annual base rent, including 0.3% from Bed Bath & Beyond. Pro-rata environmental remediation accruals were $10.7 million; management does not expect currently known matters to have a material effect but cautioned that estimates and exposures could change.
• Unusual comparisons include deferred-compensation investment gains recorded in net investment income with related participant-obligation costs in G&A. The filing also reports lower 2023 COVID-19-related reserve collections than in 2022, reducing the year-over-year benefit to lease income.

Important facts for investors to verify

1. Check completion conditions, timing, exchange terms, financing impact, and any updates to the Urstadt Biddle merger litigation and disclosures.
2. Review the debt maturity schedule, interest-rate exposure, refinancing terms, credit-line availability, and covenant headroom as rates and credit markets change.
3. Track occupancy, rent spreads, same-property NOI growth, tenant collections and bankruptcies, and the pace of increases in operating expenses and real estate taxes.
4. Assess the $589.5 million estimated next-12-month cash requirement against operating cash flow, development commitments, dividends, and other financing needs.
5. Compare GAAP earnings with Core Operating Earnings and FFO, including the impact of sale gains, deferred-compensation items, and other adjustments.
6. Monitor environmental remediation estimates and developments in the UBP-related claims; management’s assessments of materiality are not assurances of outcome.