Regency Centers Corporation — Q1 2015 Form 10-Q
Reporting period: Three months ended March 31, 2015. Regency is a grocery-anchored shopping-center REIT operating through Regency Centers, L.P.; the parent owned approximately 99.8% of the partnership. Unless noted, amounts below are in U.S. dollars.
Business context and operating performance
At quarter-end, Regency directly owned 201 shopping centers and held interests in 120 more through co-investment partnerships. Its consolidated portfolio had 23.2 million square feet of gross leasable area; the combined portfolio spanned 27 states and the District of Columbia.
- Pro-rata operating occupancy was 95.8%, versus 95.9% at year-end 2014. Management attributed the small decline primarily to seasonal move-outs in smaller shop space.
- Pro-rata same-property NOI increased 4.2% year over year to $111.6 million, supported by rent growth and improved rent-paying occupancy; lower one-time other income partly offset the increase.
Financial results and liquidity
| Metric | Q1 2015 | Q1 2014 |
|---|---|---|
| Total revenue | $140.4 million | $133.3 million |
| Income from operations | $30.2 million | $24.3 million |
| Net income attributable to Regency common stockholders | $25.2 million | $19.4 million |
| Diluted earnings per common share | $0.27 | $0.21 |
| FFO | $69.6 million | $65.5 million |
| Core FFO | $69.5 million | $64.1 million |
| Net cash provided by operating activities | $54.5 million | $52.3 million |
- Revenue rose 5.3%. Minimum rent increased $6.8 million, including same-property growth, contributions from acquired and newly operating development properties, partly offset by property sales.
- Net income improved despite equity income from real estate partnerships falling to $5.6 million from $7.8 million, primarily because a partnership land-sale gain boosted the prior-year comparison.
- Operating cash flow exceeded common and preferred distributions of $50.6 million by approximately $3.9 million. Investing outflows were $55.1 million, mainly development and capital improvements; financing outflows were $76.7 million. Cash declined $77.3 million to $36.5 million.
- Total debt was $1.995 billion, down from $2.021 billion at December 31, 2014. Notes payable were $1.890 billion and unsecured credit facilities were $105 million. The weighted-average contractual rates were 5.2% on fixed-rate debt and 1.3% on variable-rate debt.
- Available capacity at quarter-end included $764.1 million on the $800 million revolving line, net of letters of credit, $90 million under the term-loan option, and $95 million remaining under the $200 million ATM equity program. Regency reported compliance with debt covenants.
Material changes and notable items
- Development and capital-improvement spending increased to $55.0 million from $46.6 million. Seven development projects were underway or in lease-up; estimated remaining costs for listed projects totaled $234.2 million.
- Regency repaid $55.8 million of mortgages scheduled to mature in 2015 and borrowed $30 million net under its revolving line. No shopping centers were acquired in the quarter; a $4 million deposit was paid toward an operating property acquisition.
- In January, Regency arranged a forward sale and underwritten offering of 2.875 million shares at $67.40 per share, expected to produce approximately $193.8 million gross. Settlement may occur up to approximately 12 months after the offering.
- Derivative fair-value losses contributed to $11.6 million of other comprehensive loss; derivative liabilities were $32.5 million at quarter-end. The company expects $9.1 million of deferred derivative losses to be reclassified into earnings over the next 12 months.
Outlook, risks and contingencies
- No specific earnings or FFO guidance was provided. Management estimated cash needs for the remainder of 2015 of approximately $522 million, including $370.4 million for maturing debt and $134.5 million to complete in-process developments and redevelopments.
- A $350 million unsecured debt maturity was due August 1, 2015. Management expected to fund it with partial settlement of the forward equity sale and new long-term debt. Forward-starting swaps partially hedge anticipated 2015 and 2017 debt issuance; final borrowing costs will also depend on Regency’s credit spread.
- Management identified operating and financing risks including economic and tenant weakness, leasing and rent conditions, development schedules and costs, natural disasters, environmental remediation, partnership governance, and access to capital markets. It reported $10.0 million accrued for its pro-rata share of environmental remediation.
- Co-investment partnerships had $1.5 billion of debt, of which Regency’s pro-rata share was $507.3 million. These loans were described as non-recourse, but Regency may need to contribute its share if maturities are not refinanced.
- Management stated that known litigation and environmental matters were not expected to have a material adverse effect, while cautioning that undiscovered or future environmental liabilities could arise. No material changes to previously reported risk factors were disclosed.
Important facts for investors to verify
- Progress and final cost of the seven development projects, and whether their planned openings and leasing assumptions are met.
- Funding and refinancing of the $350 million August 2015 maturity, including timing and proceeds from the forward equity sale and resulting debt costs.
- Whether operating cash flow can continue to support distributions alongside development spending and debt repayment.
- Trends in occupancy and same-property NOI, particularly smaller-shop occupancy and rent growth.
- Potential changes in environmental remediation obligations and the refinancing or contribution requirements of co-investment partnerships.