Regency Centers Corporation — FY2022 Form 10-K
Business context and reporting period. This annual filing covers the fiscal year ended December 31, 2022, with comparisons primarily to FY2021; it is not a standalone fourth-quarter report. Regency is a U.S. REIT that owns, operates, acquires, develops and redevelops predominantly grocery-anchored shopping centers. At year-end, it held full or partial interests in 404 properties totaling 51.1 million square feet of GLA (43.3 million square feet on a pro-rata basis). Regency Centers Corporation is the REIT parent and owns approximately 99.6% of Regency Centers, L.P., which holds substantially all operating assets and liabilities.
Financial and operating performance
| Metric | FY2022 | FY2021 / comparison |
|---|---|---|
| Total revenue | $1.224 billion | $1.166 billion; up $57.9 million |
| Net income attributable to common stockholders | $482.9 million; $2.82 basic EPS and $2.81 diluted EPS | $361.4 million; $2.12 basic and diluted EPS |
| Nareit FFO attributable to common stock and unit holders | $707.8 million | $688.7 million |
| Core Operating Earnings | $660.8 million | $631.2 million |
| Pro-rata same-property NOI, excluding termination fees | Up 2.9% | Growth attributed to occupancy, contractual rent steps, positive leasing spreads and improved collections |
| Operating cash flow | $655.8 million | $659.4 million |
| Capital spending on development, redevelopment and improvements | $195.4 million | $177.6 million |
Revenue, earnings and unusual items. Lease income increased $74.1 million, principally from acquisitions, higher occupancy and rents, and tenant recoveries. Total operating expenses rose $37.7 million to $751.7 million, including higher depreciation, property costs and real estate taxes. FY2022 net income included $109.0 million of gains on real estate sales; FY2021 included $91.1 million of gains and $84.4 million of real estate impairment charges. FY2022 also included a $6.9 million net investment loss, primarily from unrealized investment losses. The prior year included $13.6 million of one-time promote income from the USAA partnership.
Leasing and occupancy. The combined pro-rata portfolio was 94.8% leased at year-end, up from 94.1%; same-property occupancy was 95.1%, up from 94.3%. Regency completed 1,981 new and renewal leases covering 7.3 million pro-rata square feet. Trailing 12-month rent spreads were positive 7.4%, compared with 5.5% in FY2021. Weighted-average effective rent was $23.77 per square foot for the combined portfolio, versus $23.15 in 2021.
Debt and liquidity. Year-end notes payable were $3.727 billion, compared with $3.719 billion in 2021; weighted-average contractual rates were 3.9% on fixed-rate mortgages, 3.4% on variable-rate mortgages and 3.8% on fixed-rate unsecured debt. Less than 1% of outstanding debt was unhedged variable-rate debt. Pro-rata net debt to trailing 12-month Operating EBITDAre was 5.0x, versus 5.1x; fixed-charge coverage was 4.6x, versus 4.5x. Regency reported $66.5 million of unrestricted cash, $1.241 billion available on its $1.25 billion credit line, and $350.4 million of remaining capacity under its $500 million ATM equity program. It stated that available capital resources were sufficient for expected needs over the next year and that it was in compliance with debt covenants.
Regency reported no unsecured debt maturity in 2023 and $250 million maturing in 2024. It identified approximately $59.4 million of consolidated mortgage maturities over the next 12 months, plus its pro-rata share of partnership maturities. At year-end, 89.5% of wholly owned real estate assets were unencumbered. Management estimated approximately $351.4 million of capital needs over the following 12 months for leasing costs, projects, partnership contributions and maturing debt.
Dividends and capital allocation. Regency paid $430.1 million in dividends and operating partnership distributions in FY2022, compared with $404.9 million in FY2021. The annual dividend declared was $2.525 per share; in February 2023, the Board declared a quarterly dividend of $0.65 per share. Regency repurchased and retired 1.29 million shares for $75.4 million during 2022. It acquired seven operating properties for $169.6 million in cash, including properties previously held through a partnership, and sold two operating properties, four land parcels and a development-project interest for $143.1 million in proceeds.
Material changes, outlook and risks
- Operating trends: Occupancy, same-property NOI and rent spreads improved year over year. Collections from cash-basis tenants continued to improve, although the year’s collection benefit was lower than in 2021.
- Development and redevelopment: In-process projects had estimated pro-rata costs of $300.9 million at year-end. Projects completed during 2022 had estimated net project costs of $122.0 million and an average stabilized yield of 7%. Inflation, labor shortages, permitting delays and supply-chain disruption may raise costs or delay completion.
- Management commentary: Management cited inflation, higher labor and construction costs, supply constraints and rising interest rates as pressures on tenants and Regency. It expects refinancing or new variable-rate borrowing in the prevailing rate environment could increase future interest expense. The filing provides no numerical earnings or FFO guidance.
- Key risks: Recession or weaker consumer spending could affect tenant health, rent collection, leasing demand and rental growth. Additional risks include e-commerce and changing shopping patterns, anchor or local tenant failures, concentrated exposure to California and Florida, higher interest rates and refinancing costs, property valuation and impairment, natural disasters and climate impacts, insurance availability and cost, environmental liabilities, joint-venture partner risks, and access to capital.
- Contingencies and environmental matters: Management did not expect pending ordinary-course litigation or currently known environmental matters to have a material adverse effect. Regency accrued $12.1 million for its pro-rata share of environmental remediation at year-end; it cautioned that additional issues or cost changes may emerge.
- Other notable items: The credit line reference rate was amended from LIBOR to SOFR in January 2023. The prior share repurchase authorization expired in February 2023 and a new authorization of up to $250 million was approved. The COO retired at year-end 2022, with successor leadership effective January 2023.
Important facts for investors to verify
- Reconcile GAAP net income with Nareit FFO and Core Operating Earnings, particularly the effects of property-sale gains, investment losses and non-cash adjustments.
- Review debt maturity schedules, refinancing assumptions, credit-line availability, covenant headroom and the sensitivity of interest expense to higher rates.
- Track tenant collections, occupancy, renewal and new-lease spreads, and upcoming expirations; 2023 expirations represented 7.6% of pro-rata in-place annual base rent.
- Assess whether planned development and redevelopment spending, estimated capital needs and expected yields remain achievable amid cost and schedule pressures.
- Evaluate dividend coverage against operating cash flow, required REIT distributions, capital commitments and future borrowing needs.
- Review geographic and tenant concentration, climate and insurance exposure, environmental remediation estimates, and risks involving unconsolidated partnerships.
KPMG issued unqualified opinions on the consolidated financial statements and internal control over financial reporting; management also concluded disclosure controls and internal controls were effective as of December 31, 2022.