Regency Centers Corporation and Regency Centers, L.P. — Q1 2020 Form 10-Q
Business context and reporting period. The combined filing covers the three months ended March 31, 2020. Regency is a retail shopping-center REIT focused primarily on grocery-anchored centers; at quarter-end it owned 301 properties and held partial interests in 115 additional properties through unconsolidated partnerships. The Parent Company owned approximately 99.6% of the Operating Partnership.
Financial and operating performance
| Metric | Q1 2020 | Q1 2019 / prior period |
|---|---|---|
| Total revenue | $283.7 million | $286.3 million; down $2.6 million |
| Net income attributable to common stockholders | Loss of $25.3 million; loss of $0.15 per diluted share | Income of $90.4 million; $0.54 per diluted share |
| Goodwill impairment | $132.1 million | None |
| Operating cash flow | $125.7 million | $131.4 million |
| Cash, cash equivalents and restricted cash | $736.8 million, including $733.2 million unrestricted cash | $115.6 million at December 31, 2019 |
| Total debt | $4.415 billion | $3.920 billion at December 31, 2019 |
| NAREIT FFO attributable to common stock and unit holders | $166.1 million | $159.8 million |
| Pro-rata same-property NOI, excluding termination fees | $201.2 million; down 0.7% | $202.5 million |
- Debt comprised $3.445 billion of notes payable and $969.5 million drawn on unsecured credit facilities. Regency drew an additional $500 million on its $1.25 billion credit line during March; $535.2 million of capacity remained available at quarter-end.
- Management reported a 5.3x annualized pro-rata net debt-to-Operating EBITDAre ratio and 4.3x fixed-charge coverage ratio. The company was in compliance with debt covenants at March 31 and expected to remain compliant.
- At quarter-end, 94.5% of the combined property portfolio was leased; same-property occupancy was 95.0%. Grocery tenants anchor more than 80% of operating centers, and most remained open as essential businesses.
- Common dividends paid during the quarter were approximately $99.4 million. The board declared a $0.595-per-share dividend on May 4, payable May 26, 2020.
Material changes versus the prior comparable period
- The company moved from Q1 2019 net income to a Q1 2020 net loss, primarily reflecting the $132.1 million goodwill impairment recorded following COVID-19-related market disruption. The impairment covered 87 of 269 reporting units with goodwill; management reported no resulting long-lived-asset impairment from the initial recoverability testing.
- Lease income declined $2.8 million. Management cited increased expected uncollectible rent, including a $3.9 million charge for uncollectible straight-line rent, partly offset by base-rent and tenant-recovery growth.
- Revenue was lower, but total operating expenses declined $11.8 million, including lower depreciation and general and administrative expenses. Gains on real estate sales increased to $38.0 million from $16.5 million in Q1 2019.
- Equity income from real estate partnerships fell to $11.4 million from $30.8 million, largely because the prior-year period included significant property-sale gains.
- Cash from operations decreased $5.7 million. Financing cash flow was $498.2 million, primarily reflecting $125.8 million of net equity proceeds and increased credit-line borrowing.
Outlook, risks and unusual items
- Regency withdrew its previously issued fiscal 2020 guidance on March 30, 2020. Management said the pandemic’s duration and financial effects were uncertain and expected a greater impact in subsequent 2020 quarters.
- By May 5, approximately 62% of April base rent billed had been collected; collections had declined significantly after March 31. Management expected the trend to continue through 2020, with possible improvement as restrictions eased and businesses reopened. Rent deferrals, abatements, tenant failures and lower occupancy could further affect cash flow.
- Management said cash and available capital resources were expected to cover anticipated needs for the next 12 months. Estimated capital needs for that period were approximately $304.3 million, including committed tenant improvements, in-process development and redevelopment, debt repayment and partnership contributions. Some projects were stopped, slowed or under review; management expected to curtail or defer certain projects and non-essential capital expenditures.
- The filing identifies COVID-19-related risks to tenant solvency, rent collection, leasing demand, property values, construction schedules, capital-market access and liquidity. Other disclosed exposures include retail-sector weakness, interest-rate and LIBOR-transition risk, joint-venture and environmental risks, and geographic and property-related risks.
- Unsecured debt maturities were not scheduled before 2022; the debt table shows $1.270 billion of unsecured maturities in 2022. Environmental remediation liabilities were accrued at $9.0 million for Regency’s pro-rata share. Management stated ordinary-course litigation and currently known environmental matters were not expected to have a material adverse effect.
Most important facts for investors to verify
- Subsequent rent collections, tenant relief granted, tenant bankruptcies and resulting occupancy and same-property NOI trends.
- Whether the $733.2 million unrestricted cash balance and remaining credit-line capacity are sufficient as operating cash flow and capital needs evolve.
- Actual development and redevelopment spending, project delays or cancellations, and the timing and scale of any resulting cost or return changes.
- Debt maturities, refinancing terms, covenant headroom and the reported 5.3x leverage and 4.3x fixed-charge coverage metrics.
- The assumptions supporting the goodwill impairment and any further impairment, dividend-policy, or guidance updates.