REGENCY CENTERS CORP annual report, FY2018

Regency Centers Corporation — 2018 Form 10-K

Reporting period: Fiscal year ended December 31, 2018. The filing also reports fourth-quarter results. Regency is a REIT that owns, operates, develops, and redevelops primarily grocery-anchored shopping centers. At year-end it had interests in 425 properties, with 53.6 million square feet of total GLA; the Parent Company owned approximately 99.8% of the Operating Partnership.

Financial and operating performance

Metric	2018	2017
Revenue	$1.121 billion	$984.3 million
Net income attributable to common stockholders	$249.1 million	$159.9 million
Diluted earnings per share	$1.46	$1.00
NAREIT FFO	$652.9 million	$494.8 million
Cash provided by operating activities	$610.3 million	$469.8 million
Cash used in investing activities	$106.0 million	$1.007 billion
Cash used in financing activities	$508.5 million	Cash provided: $568.9 million

• Revenue increased 13.9%; minimum rent was $818.5 million. Reported net income rose 55.8%, while diluted EPS increased 46%. NAREIT FFO, a non-GAAP measure, increased 31.9%.
• Comparisons are affected by the March 2017 Equity One merger: 2017 includes only ten months of its operations, and included $80.7 million of merger costs. Management reported 3.4% growth in pro-rata same-property NOI, adjusted to exclude termination fees and to make the merger comparison more comparable.
• Same-property occupancy was 96.1%; the combined portfolio was 95.6% leased, versus 95.5% in 2017. Shop-space occupancy was 90.9%, down from 91.1%, partly due to strategic vacancies for redevelopment. Comparable leasing rent spreads were 8.3% over the trailing twelve months.
• Common dividends declared were $2.22 per share, up from $2.10. Cash and restricted cash totaled $45.2 million at year-end; unrestricted cash was $42.5 million.
• Total debt was $3.715 billion, versus $3.595 billion in 2017. Annualized net debt to operating EBITDAre was 5.3x on a pro-rata basis; fixed-charge coverage was 4.2x. Management reported covenant compliance. Variable-rate debt was 4.9% of outstanding debt.

Material changes and unusual items

• Revenue increased partly because 2017 included only ten months of Equity One results, as well as development commencements, acquisitions, rent growth, and higher tenant recoveries. Total operating expenses decreased slightly to $740.8 million, primarily because 2017 included merger costs; depreciation, maintenance, and real estate taxes increased.
• Regency recorded $38.4 million of impairment losses in 2018, including $12.6 million of goodwill impairment, on operating properties and land parcels. It also recorded $11.2 million of early debt-extinguishment expense, including costs related to redeeming $150 million of 6% notes.
• In March 2018, Regency issued $300 million of 4.125% senior notes due 2028, used part of the proceeds to redeem the $150 million 6% notes early, and used the remainder for debt repayment and general purposes. It also expanded its revolving credit facility to $1.25 billion and extended maturity to March 2022, with two six-month extension options.
• The Company repurchased $246.5 million of shares during 2018. The board authorized a new $250 million repurchase program in February 2019.
• Property sales generated $250.4 million of proceeds in 2018; ten shopping centers and nine land parcels were sold. Four properties were classified as held for sale at year-end.
• Accounting adoption for real estate partial sales resulted in a $30.9 million opening-retained-earnings adjustment for previously deferred gains. The company adopted revenue-recognition guidance without a material change in timing or amount of relevant fee revenue.

Liquidity, outlook, and risks

• Available liquidity included $42.5 million unrestricted cash, $1.096 billion of unused capacity under the $1.25 billion credit line, and $500 million available under an at-the-market equity program. Management stated it believed resources were sufficient for expected capital needs.
• Management estimated approximately $171.8 million of cash needs over the next 12 months: $143.7 million for in-process development and redevelopment, $13.2 million for maturing debt, and $14.9 million for Regency’s share of partnership debt maturities. A further expected purchase of a 25.6% interest in a shopping center by December 2019 was estimated at $27.5 million.
• Management expected 2019 new and renewal rents to meet or exceed the $20.84 per-square-foot average rent on leases expiring in 2019, citing portfolio quality and 95.6% occupancy, while noting local market exceptions and economic uncertainty. It expected development activity around recent historical averages, with a likely near-term shift toward more redevelopment. No specific earnings or FFO guidance is provided in the supplied filing text.
• Key risks include retail tenant weakness, e-commerce and changing shopping patterns, tenant bankruptcies, lease rollover, development cost and lease-up risk, property-value impairments, geographic exposure to California, Florida, and Texas, and weather, climate, and insurance risks. The filing also discusses partner-control and capital-call risks, refinancing and interest-rate exposure, debt covenants, and uncertainty around replacing LIBOR.
• The company reported $8.7 million of its pro-rata environmental remediation accrual and stated known matters were not expected to have a material effect, while cautioning that undiscovered liabilities remain possible. Management reported no litigation expected to have a material adverse effect. KPMG issued unqualified opinions on the financial statements and internal controls.
• Topic 842 lease accounting was to be adopted January 1, 2019. Regency anticipated recognizing operating lease liabilities and right-of-use assets for office and ground leases of less than 5% of total assets; it also expected increased operating expenses because certain internal leasing and legal costs could no longer be capitalized.

Investor verification priorities

1. Review the full-year and quarterly financial statements and confirm how the Equity One merger, impairments, asset sales, and debt-extinguishment costs affect comparisons.
2. Reconcile GAAP net income to NAREIT FFO and pro-rata same-property NOI; assess these non-GAAP measures alongside operating cash flow.
3. Check the debt maturity schedule, variable-rate exposure, credit-line availability, covenants, and partnership debt obligations, including refinancing assumptions.
4. Monitor shop-space occupancy, 2019 lease renewals and spreads, tenant credit quality, and progress leasing and completing development projects.
5. Assess the return and funding implications of the share repurchase program, the planned property-interest purchase, dividends, and the 2019 lease-accounting adoption.