Regency Centers Corporation and Regency Centers, L.P. — Q3 2019 Form 10-Q
Business context and reporting period
For the quarter and nine months ended September 30, 2019. Regency is a shopping-center REIT focused on grocery-anchored neighborhood and community centers. At quarter-end, it had full or partial interests in 422 retail properties, with 53.0 million square feet of gross leasable area. The filing combines the Parent Company and Operating Partnership; their consolidated assets and liabilities are the same.
Financial and operating metrics
| Metric | Q3 2019 | Q3 2018 | Nine months 2019 | Nine months 2018 |
|---|---|---|---|---|
| Revenue | $282.3 million | $278.3 million | $844.4 million | $836.4 million |
| Net income attributable to common stockholders | $57.0 million | $69.7 million | $199.1 million | $170.2 million |
| Diluted EPS | $0.34 | $0.41 | $1.19 | $1.00 |
| NAREIT FFO attributable to common stock and unit holders | $166.1 million | $163.5 million | $485.9 million | $485.7 million |
| Cash from operating activities | Not stated by quarter | $469.4 million | $464.8 million |
At September 30, 2019, total debt was $3.89 billion, up from $3.72 billion at year-end 2018; cash, cash equivalents and restricted cash were $47.5 million. The company reported $1.05 billion of available capacity on its $1.25 billion revolving line, net of letters of credit, and 88.7% of wholly owned real estate assets were unencumbered. Annualized net debt to Operating EBITDAre was 5.5x; fixed-charge coverage was 4.3x. The company said it was in compliance with debt covenants.
Pro-rata same-property NOI, excluding termination fees, grew 2.1% for the nine-month period. Portfolio leased occupancy was 94.8%, versus 95.6% at December 31, 2018; same-property occupancy was 95.2%. Trailing 12-month rent spreads on comparable retail leases were 7.9%.
Material changes versus comparable periods
- Q3 revenue increased 1.4%, while net income attributable to common stockholders fell 18.3% and diluted EPS declined from $0.41 to $0.34. A $10.9 million impairment in the New York Common Retirement Fund partnership drove much of the quarter’s decline in equity-method income.
- For the first nine months, revenue rose 1.0%, attributable net income rose 17.0%, and diluted EPS increased from $1.00 to $1.19. Lower impairment expense and higher real estate sale gains contributed to the improvement; FFO was essentially flat year over year.
- Debt increased by about $172 million from year-end. Regency issued $300 million of 4.65% notes due 2049 and $425 million of 2.95% notes due 2029, while repaying or refinancing debt, including a $300 million term loan and $250 million of 4.8% notes. Nine-month early debt extinguishment costs were $12.0 million.
- Investing cash outflow rose to $266.3 million from $147.2 million, largely reflecting higher acquisitions of operating real estate. Financing cash outflow declined to $200.8 million from $322.5 million, mainly because share repurchases were lower.
Outlook, commentary, risks and unusual items
- No specific earnings or FFO guidance is provided in the supplied filing text. Management estimated approximately $383.4 million of capital needs over the next 12 months for development and redevelopment, debt maturities and partnership contributions, to be funded through operating cash after dividends, borrowing capacity, property sales and possible capital-market issuance.
- At September 30, 24 properties were in development or redevelopment, representing a pro-rata investment of $470.3 million upon completion. Management reported projected returns of 6.0% for a new development started and a weighted average 8.8% for nine redevelopments started during the period.
- The board declared a quarterly dividend of $0.585 per share, payable November 22, 2019. Future dividends remain subject to board discretion and capital requirements.
- After quarter-end, an October 20 tornado severely damaged the Preston Oaks property, leaving it non-operational. Regency estimated reconstruction could take up to 18 months and expected insurance to substantially cover restoration costs and lost income, but cautioned that claim timing and settlement are uncertain. A fourth-quarter impairment may be recorded if the property’s book value exceeds anticipated insurance proceeds.
- Other disclosed exposures include tenant bankruptcies and retail disruption from e-commerce; tenants in bankruptcy represented 0.9% of pro-rata annual base rent. Environmental remediation liabilities were $9.7 million on a pro-rata basis. Management also identified uncertainty in the transition from LIBOR, which affected credit facilities, loans and derivatives.
- During September, Regency entered forward sale agreements for 1,894,845 shares at an average $67.99 per share, with settlement permitted through September 12, 2020. No shares had been settled at quarter-end. The Town and Country Center seller could require an additional purchase; Regency expected to acquire a 16.63% interest for about $17.1 million by December 2019.
Important facts for investors to verify
- Whether the Preston Oaks insurance claim covers the expected repair costs and lost income, and the timing of any recovery or impairment.
- Debt maturities, borrowing availability, leverage and the terms and eventual settlement of the forward equity agreements.
- Drivers of Q3’s lower earnings, especially the joint-venture impairment, and whether same-property NOI and occupancy trends persist.
- Execution, cost and projected returns for the development and redevelopment pipeline, alongside the stated 12-month capital requirement.
- Tenant credit and occupancy risks, environmental obligations, and the company’s preparation for the LIBOR transition.