Regency Centers Corporation / Regency Centers, L.P. — Q2 2012 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2012; dollar amounts below are in millions unless noted. Regency is a REIT focused primarily on grocery-anchored shopping centers. At quarter-end, it directly owned 217 centers and held interests in 147 additional centers through joint ventures. Consolidated operating centers were 93.7% leased, versus 91.7% a year earlier. The Parent Company and Operating Partnership report substantially the same assets, liabilities, and operating results.
Financial performance
| Metric | Q2 2012 | Q2 2011 | Six months 2012 | Six months 2011 |
|---|---|---|---|---|
| Revenue | $129.8 | $124.6 | $256.5 | $248.3 |
| Net income | $11.3 | $18.9 | $38.1 | $27.1 |
| Net income attributable to common shareholders | $5.7 | $12.9 | $18.9 | $15.0 |
| Diluted earnings per share | $0.06 | $0.14 | $0.21 | $0.17 |
| Cash provided by operating activities | Not separately presented | Not separately presented | $111.3 | $101.7 |
- Q2 revenue rose 4.1%; first-half revenue rose 3.3%. Minimum rent grew with higher occupancy, rent per square foot, and acquisitions. Fee revenue fell, principally because the prior-year period included a $5.0 million transaction fee.
- Q2 common earnings declined year over year, primarily due to a $23.5 million impairment charge. First-half common earnings and diluted EPS increased despite that charge, supported by higher revenue, lower interest expense, property-sale gains, and increased earnings from real estate partnerships.
- Same-property NOI increased 3.4% in Q2 and 3.7% for the first half. The filing does not present a conventional consolidated profit-margin measure.
- First-half operating cash flow increased $9.6 million. Investing cash use was $72.8 million, including $79.8 million for development and land; financing cash use was $26.8 million. Cash increased $11.6 million to $23.0 million.
Balance sheet, debt, and liquidity
- Total assets were $4.03 billion at June 30, 2012, compared with $3.99 billion at year-end 2011. Net real estate investments were $3.73 billion.
- Consolidated debt was $2.06 billion: $1.76 billion of notes payable and $305 million drawn on unsecured credit facilities. Debt was $1.98 billion at year-end 2011. Regency also reported its pro-rata share of joint-venture debt at approximately $582 million; those loans are described as non-recourse.
- At quarter-end, the $600 million unsecured line had $155 million outstanding and the $250 million term loan had $150 million outstanding. Regency reported a 45.3% debt-to-asset ratio, including its pro-rata share of joint-venture debt and assets, and a 2.5x coverage ratio for the first half. It said it was in compliance with debt covenants.
- Regency reported 79.4% of real estate assets as unencumbered. Cash was $23.0 million; the filing also reports $6.1 million of restricted cash.
- Scheduled consolidated maturities include $185.5 million in 2014 and $557.1 million in 2015. The company repaid $192.4 million of 6.75% unsecured notes in January, using new borrowing; lower-cost debt contributed to lower interest expense.
Material changes, outlook, and risks
- In February, Regency issued $241.4 million net of costs of 6.625% Series 6 preferred stock and redeemed its Series 3 and 4 preferred stock for $200 million. It also repurchased Series D preferred units for $48.1 million. The preferred-stock redemption resulted in a $7.0 million non-cash charge to common earnings.
- Regency sold four operating properties in the first half for net proceeds of $39.2 million and recognized $8.6 million of net sale gains in discontinued operations. A separate 15-property portfolio sale to a Blackstone affiliate closed July 25 for $321 million. Regency retained a $47.5 million preferred equity investment with a 10.5% annual preferred return and no leasing or management role after closing.
- After that closing, Regency used proceeds to repay the $150 million funded term-loan balance and $120 million on its unsecured line. It retained the option to draw the remaining $100 million under the term loan, with the option extended to January 11, 2013.
- Management expected $417.7 million of dispositions and $187.1 million of acquisitions during the remainder of 2012, with proceeds also intended to repay $150 million of term debt. It estimated approximately $4.6 million of remaining-2012 funding needs, including $83.4 million of in-process development costs offset by disposition capital. These are management estimates, not earnings guidance.
- The development program expanded: 11 projects were under construction or in lease-up at June 30, with estimated net development costs of $282.3 million and $144.2 million remaining to complete. Development spending and returns depend on leasing, construction schedules, tenant demand, and access to capital.
- The Board declared a quarterly dividend of $0.4625 per share, payable August 29, 2012. The dividend had been unchanged since May 2009; future payments remain at the Board’s discretion and depend on capital needs and availability.
- Key risks include tenant financial distress or lease rejection in bankruptcy, economic weakness affecting occupancy, rents and expense recoveries, difficulty completing property sales or refinancing, development execution, joint-venture funding needs, and environmental liabilities. Management reported no known litigation expected to materially harm financial position or results; it cautioned that environmental reviews may not reveal all potential liabilities. No material changes to the risk factors in the 2011 Form 10-K were reported.
Important facts for investors to verify
- Whether the completed 15-property transaction and the expected $417.7 million of dispositions occur on the reported terms, and the resulting impact on recurring rent, fees, and debt.
- How the $23.5 million impairment, including the portfolio-related charge and other property impairments, affects reported earnings and the valuation assumptions behind the remaining properties.
- Whether occupancy, rent growth, and same-property NOI continue to improve, and how much growth depends on joint ventures or nonrecurring property-sale gains.
- Debt maturities, actual borrowing availability after letters of credit and other uses, covenant headroom, and refinancing needs at Regency and its joint ventures.
- Development costs to complete, leasing and opening schedules, and the cash available for development, acquisitions, and the dividend.
- Environmental exposures and any future tenant bankruptcies, lease terminations, or joint-venture capital calls.