Regency Centers Corporation and Regency Centers, L.P. — Q3 2012 Form 10-Q
Business context and period. The combined filing covers the quarter and nine months ended September 30, 2012. Regency is a REIT focused on primarily grocery-anchored shopping centers. At quarter-end it directly owned 203 centers and held partial interests in 144 centers through co-investment partnerships. The Parent Company owned approximately 99.8% of the Operating Partnership.
Financial performance and position
| Metric | Q3 2012 | Nine months 2012 | Comparison |
|---|---|---|---|
| Total revenue | $120.0 million | $376.5 million | Down 2.4% for the quarter; up 1.4% year to date |
| Net income | $19.8 million | $57.9 million | Compared with $14.5 million and $41.6 million, respectively, in 2011 |
| Net income attributable to common stockholders | $11.6 million; diluted EPS $0.13 | $30.5 million; diluted EPS $0.34 | EPS was $0.09 and $0.26 in the comparable 2011 periods |
| Same-property NOI | $97.1 million | $288.7 million | Compared with $93.2 million and $277.9 million in 2011 |
| FFO | $52.0 million | $163.2 million | Compared with $56.0 million and $163.8 million in 2011 |
| Core FFO | $55.6 million | $174.3 million | Compared with $54.9 million and $156.3 million in 2011 |
| Cash from operating activities | Not provided by quarter in the cited cash-flow statement | $196.1 million | Up $13.1 million from 2011 |
Amounts are in U.S. dollars; filing financial statements are generally presented in thousands. Same-property NOI, FFO, and Core FFO are non-GAAP measures defined by the company and should not be treated as substitutes for GAAP earnings or cash flow.
Balance sheet and liquidity
- At September 30, 2012, total assets were $3.80 billion, total liabilities $1.98 billion, and total equity $1.81 billion.
- Debt carrying value was $1.82 billion, including $1.76 billion of notes payable and $65 million drawn on unsecured credit facilities. Cash and cash equivalents were $21.4 million.
- The amended unsecured line of credit had an $800 million capacity, a September 2016 maturity, and $735 million of stated remaining availability at quarter-end. The company also reported $100 million remaining available under a term loan maturing in December 2016.
- Operating cash flow of $196.1 million exceeded reported scheduled principal payments, maintenance capital expenditures, and share/unit distributions totaling $157.2 million for the nine-month period.
- The company reported a 2.4x coverage ratio for the nine months ended September 30, 2012, versus 2.3x for full-year 2011. It stated that 77.5% of real estate assets were unencumbered and that it was in compliance with debt covenants.
Material changes versus comparable periods
- Consolidated operating centers were 94.0% leased at September 30, up from 92.6% a year earlier. Management attributed higher rental income and operating cash flow in part to improved occupancy and rent growth.
- Quarterly revenue fell largely because of the sale of a 15-property portfolio, partly offset by higher occupancy, rent per square foot, and acquisitions. Year-to-date revenue rose despite lower management and transaction fees.
- Interest expense declined year over year, reflecting the repayment of $192.4 million of 6.75% unsecured notes and replacement borrowing at lower rates. The company also repaid a $150 million term loan in July and recorded an $852,000 debt-extinguishment charge.
- Year-to-date impairment provisions increased to $24.7 million from $6.4 million in 2011. This included a $19.1 million net impairment related to the 15-property portfolio transaction and impairments on an operating property and land parcels.
- Investing cash flow was $115.4 million provided, versus $155.7 million used in 2011, primarily reflecting $315.2 million of real estate sale proceeds. Financing cash use increased to $301.5 million, including debt repayment, distributions, and preferred securities redemptions.
- The company issued $313.5 million net proceeds of preferred stock in 2012 and redeemed prior preferred issues; common stock issuance through its ATM program generated $21.7 million in Q3.
Outlook, commentary, and risks
- No formal earnings or FFO guidance is provided in the filing. Management expected to fund operations, maintenance capital expenditures, scheduled mortgage principal, and distributions primarily with operating cash flow.
- Through 2013, Regency estimated approximately $153.5 million of needs for maturing debt, completion of in-process developments and redevelopments, and its pro-rata share of partnership debt contributions. Planned funding sources included operating cash flow, credit facilities, asset sales, and potential long-term debt or common equity issuance.
- Seven development projects were under construction or in lease-up at quarter-end, with estimated net costs to complete of $128.5 million. Development spending rose substantially year over year; management noted that spending may fluctuate with retailer demand and economic conditions.
- The Board declared a quarterly dividend of $0.4625 per share, payable November 28, 2012. The dividend had been unchanged since May 2009; future distributions remain subject to Board discretion, capital needs, and availability.
- Key risks include tenant financial distress or bankruptcies, weaker retail demand and occupancy, development timing and cost, acquisition and disposition conditions, and the company’s limited voting control over some co-investment partnerships. Environmental liabilities may exist beyond those identified in current studies. Management said known litigation and environmental matters were not expected to have a material adverse effect, while noting uncertainty around environmental exposures.
- The 15-property portfolio was sold to a Blackstone affiliate, with Regency retaining a $47.5 million equity-method investment. The investment cannot be redeemed before the 12-month anniversary of closing; redemption rights arise later under specified terms.
Important facts for investors to verify
- Reconcile the portfolio sale’s stated $321 million total consideration with the $273.5 million proceeds reported net of Regency’s retained investment, and assess the terms and future redemption rights of that investment.
- Review the composition and potential recurrence of $24.7 million in year-to-date impairments and the effect of preferred-stock redemption charges on common earnings.
- Confirm debt maturities, credit-facility availability, partnership-level obligations, and the company’s funding plan for the estimated $153.5 million of needs through 2013.
- Assess whether leasing gains, rent growth, and the 94.0% consolidated occupancy rate can offset disposed assets and lower partnership-related fee revenue.
- Evaluate development cost-to-complete estimates, leasing and opening schedules, and exposure to changes in retailer demand and economic conditions.
- Consider that FFO and Core FFO are non-GAAP measures; compare them with GAAP results and operating cash flow, and review the company’s definitions and reconciliations.