Regency Centers Corporation / Regency Centers, L.P. — Q1 2018 10-Q
Reporting period: Three months ended March 31, 2018; unaudited. Amounts below are in millions unless otherwise stated. The combined filing reports a retail shopping-center REIT with 311 consolidated centers and partial interests in 118 additional centers, totaling 429 properties and 54.2 million square feet. Comparisons are affected by the March 2017 Equity One merger.
Key financial metrics
| Metric | Q1 2018 | Q1 2017 |
|---|---|---|
| Total revenue | $276.7 | $196.1 |
| Operating income (loss) | $53.4 | $(21.1) |
| Net income (loss) attributable to common stockholders | $52.7 | $(33.2) |
| Diluted earnings (loss) per share | $0.31 | $(0.26) |
| NAREIT FFO attributable to common stock and unit holders | $164.9 | $34.2 |
| Cash provided by operating activities | $149.9 | $32.7 |
| Cash and restricted cash at quarter-end | $93.6 | $44.8 |
- Revenue rose $80.6 million, primarily reflecting the larger portfolio following the Equity One merger. Same-property NOI, adjusted and excluding termination fees, increased 4.0% to $203.1 million on a pro-rata basis.
- Total assets were $11.23 billion and total liabilities were $4.63 billion at March 31, 2018. Total debt was $3.84 billion, comprising $3.28 billion of notes payable and $563.4 million of unsecured credit facilities.
- Interest expense, net, was $36.8 million, up $9.6 million year over year. The filing reports a 5.6x annualized pro-rata net debt-to-Operating EBITDAre ratio and 4.1x annualized fixed-charge coverage.
- Operating cash flow exceeded investing cash outflow of $107.2 million; financing activities provided $1.6 million. Development and capital improvements used $52.0 million. The company repurchased $125.0 million of common shares and paid $95.0 million in common dividends and distributions.
Material changes and unusual items
- Revenue growth and improved reported earnings largely reflect the Equity One merger, which closed March 1, 2017; Q1 2017 included only one month of Equity One results. The prior-year common-stockholder loss also included substantial merger costs and preferred-stock dividends. The periods are not directly comparable.
- Q1 2018 included a $16.1 million impairment provision related to two operating properties, including $1.7 million of goodwill impairment. One property was sold; the other was classified as held and used.
- Effective January 1, 2018, the company adopted new revenue and real-estate-sale accounting standards. The real-estate-sale standard led to a $30.9 million opening retained-earnings adjustment for previously deferred gains; it was not Q1 operating revenue. Revenue-standard adoption did not materially change recognition for partnership services.
- The board authorized a $250 million share-repurchase program in February. By quarter-end, 2.15 million shares had been repurchased for $125.0 million, at an average $58.24 per share.
Outlook, liquidity, and risks
- Management said available capital resources were sufficient for expected needs and reported compliance with debt covenants. At quarter-end, the company had $87.9 million of unrestricted cash, $1.24 billion of available capacity under its $1.25 billion revolving line, and $500 million available under its at-the-market equity program.
- Management estimated approximately $493.1 million of cash requirements over the next 12 months, including $215.1 million to complete in-process developments and redevelopments, $263.7 million for maturing debt, and $14.3 million for its pro-rata share of partnership debt maturities. It cited operating cash, asset-sale proceeds, credit-line borrowings, and potential capital-market issuance as funding sources.
- In March, the company issued $300 million of 4.125% senior unsecured notes due 2028. After quarter-end, it redeemed $150 million of 6% notes due 2020 for $163.2 million, including accrued interest and a make-whole amount. Management intended to use remaining offering proceeds toward 2018 mortgage maturities and general corporate purposes.
- The filing gives inconsistent revolving-line maturity dates: the debt note says March 23, 2022, while the liquidity discussion says May 23, 2022. Both describe two six-month extension options; investors should verify the governing credit agreement.
- Management highlighted risks from economic and retail conditions, e-commerce, tenant financial distress or bankruptcy, leasing and occupancy changes, development execution, interest rates, environmental matters, and reliance on co-investment partners. Pro-rata occupancy was 95.6%, down from 96.2% at year-end; management attributed part of the decline to anticipated anchor move-outs and seasonal shop-space move-outs. Bankrupt tenants still occupying space represented 0.3% of pro-rata annual base rent.
- Environmental remediation liabilities accrued for the company’s pro-rata share were $9.8 million. Management did not expect known environmental matters or ordinary-course litigation to have a material adverse effect, while cautioning that additional environmental liabilities could emerge. No formal earnings-per-share guidance is provided in the supplied filing text.
Most important facts for investors to verify
- How much of reported revenue, earnings, and cash-flow growth reflects Equity One consolidation versus underlying same-property performance.
- The status and expected cash cost of 2018 debt maturities, the April note redemption, and the revolving-line maturity date discrepancy.
- Whether the 4.0% same-property NOI growth and 95.6% operating occupancy can be sustained amid anchor move-outs, seasonal leasing patterns, and retail-sector pressures.
- Potential additional impairment or environmental charges, and the company’s funding needs for development, partnership commitments, acquisitions, dividends, and share repurchases.