Regency Centers Corporation and Regency Centers, L.P. — Q3 2013 Form 10-Q
Business context and period. This combined filing covers the quarter and nine months ended September 30, 2013. Regency is a REIT operating through its partnership and owns, directly or through co-investment partnerships, retail shopping centers. At quarter-end it directly owned 202 centers and held interests in 131 additional centers. Consolidated properties were 94.4% leased; same-store and portfolio figures are not interchangeable.
Financial performance and position
| Metric | Q3 2013 | Nine months 2013 | Comparable 2012 |
|---|---|---|---|
| Total revenue | $122.1 million | $368.5 million | $115.6 million; $363.1 million |
| Net income attributable to common shareholders | $35.0 million | $82.4 million | $11.6 million; $30.5 million |
| Diluted EPS | $0.38 | $0.90 | $0.13; $0.34 |
| FFO | $60.4 million | $180.4 million | $52.0 million; $163.2 million |
| Core FFO | $60.2 million | $180.3 million | $55.6 million; $174.3 million |
| Operating cash flow | Not presented separately | $200.6 million | $196.1 million |
Revenue increased 5.6% in Q3 and 1.5% for the nine-month period. Nine-month same-property NOI, on a pro-rata basis, was $297.0 million versus $284.6 million. Core FFO increased about 8% in Q3 and 3% year to date. Net income growth was substantially influenced by property-sale gains and partnership investment income, rather than recurring leasing results alone. The filing does not provide a single consolidated operating-margin measure.
For the nine months, investing activities used $30.4 million, compared with $115.4 million provided in 2012; financing activities used $129.8 million, versus $301.5 million used. Cash increased $40.4 million to $62.7 million. Common and preferred distributions paid totaled approximately $141.3 million. Management said operating cash flow is expected to fund distributions, subject to capital needs and Board discretion.
At September 30, total debt was $1.864 billion, comprising $1.764 billion of notes payable and $100.0 million of unsecured credit facilities, down from $1.942 billion at year-end 2012. The company reported $780.7 million of remaining availability on its $800 million credit line, net of letters of credit, and $198.4 million remaining under its $200 million ATM equity program. The Parent Company guarantees unsecured public debt and approximately 16% of secured Operating Partnership debt; it does not itself hold indebtedness. Regency reported a 2.4x coverage ratio and 77.2% of wholly owned real estate assets unencumbered.
Material changes and notable items
- Q3 common-stockholder income included $16.1 million of net gains from sales of four operating properties; nine-month discontinued operations included $27.5 million of net gains from sales of eight properties. Regency also recognized a $7.4 million pro-rata gain on the sale of the Regency Retail Partners fund portfolio.
- Q3 net income included a $6.0 million impairment on one operating property after an unoccupied anchor filed for bankruptcy and Regency had not been able to re-lease the space. The comparable 2012 nine-month period included $20.2 million of impairment expense.
- Development and redevelopment spending rose to $162.4 million for the first nine months, from $117.6 million. Seven projects were under construction or in lease-up at quarter-end; estimated net costs to complete were $76.3 million.
- Regency issued 1.9 million shares through its ATM program for net proceeds of $99.8 million. It repaid $70.0 million net on its credit line and $16.4 million of mortgage debt.
- In October, Regency sold its BRET partnership interest and received a $47.5 million capital distribution, its share of undistributed income, and a redemption premium. It also entered into additional forward-starting interest-rate swaps with $95 million notional value.
Outlook, risks, and contingencies
Management estimated approximately $312.1 million of cash requirements through 2014: $143.1 million to complete current developments and redevelopments, $167.8 million for maturing debt, and $1.2 million for Regency’s pro-rata share of partnership debt contributions. Planned funding sources include operating cash flow, refinancing, the credit line, property sales, and potentially equity or debt issuance. The company had $150 million of unsecured debt maturing in 2014 and $350 million in 2015. The filing does not provide formal earnings or FFO guidance.
Key risks include tenant financial distress and lease cancellations, changing retail demand and leasing conditions, development timing and costs, local and national economic conditions, interest-rate exposure, environmental liabilities, and limited voting control over co-investment partnerships. Kroger’s planned acquisition of Harris Teeter could lead to overlapping-store closures; Regency had nine Harris Teeter leases, equal to 0.7% of pro-rata annualized base rent. Safeway planned to exit the Chicago market; seven Dominick’s leases represented less than 0.5% of pro-rata annualized base rent. Management said neither situation was then expected to cause a material revenue reduction. Litigation and currently known environmental matters were not expected by management to have a material adverse effect, though environmental exposure is not assured to be fully identified. The company reported compliance with debt covenants and no material change in previously disclosed risk factors.
Important facts for investors to verify
- How much of reported net-income growth came from property dispositions and partnership gains, and how recurring operating performance is trending.
- The leasing, occupancy, and re-leasing outlook for the anchor-vacated property that triggered the $6.0 million impairment, and any effects from Kroger/Harris Teeter or Safeway/Dominick’s store changes.
- Whether forecast development spending and 2014 debt maturities can be funded on expected terms, including refinancing costs and remaining credit-line capacity.
- Development project schedules, remaining costs, leasing progress, and potential returns, particularly for the larger projects.
- The terms and accounting effects of subsequent BRET proceeds and interest-rate swaps, plus the status of environmental remediation and other contingencies.