Regency Centers Corporation and Regency Centers, L.P. — Q3 2011 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2011. Regency is a REIT focused primarily on grocery-anchored shopping centers. At quarter-end it directly owned 219 centers and held partial interests in 148 centers through co-investment partnerships. The Parent Company owned approximately 99.8% of the Operating Partnership.
Key financial metrics
Amounts below are consolidated and in millions, except per-share data and percentages.
| Metric | Q3 2011 | Q3 2010 | Nine months 2011 | Nine months 2010 |
|---|---|---|---|---|
| Revenue | $125.7 | $120.8 | $379.7 | $364.5 |
| Net income | $14.5 | $13.9 | $41.6 | $45.0 |
| Net income attributable to common stockholders | $8.5 | $7.9 | $23.6 | $27.0 |
| Diluted EPS | $0.09 | $0.09 | $0.26 | $0.32 |
| Operating cash flow | Not presented separately | Not presented separately | $184.8 | $130.5 |
- Balance sheet and debt: Total assets were $4.10 billion and total liabilities $2.20 billion at September 30, 2011. Notes payable were $1.97 billion, plus $85 million drawn on the unsecured line, for total reported debt of $2.05 billion. Debt was $2.09 billion at December 31, 2010.
- Liquidity: Cash was $21.2 million. The $600 million unsecured line had $85 million outstanding and matured in September 2015, with a one-year extension option. Management reported covenant compliance. 79.9% of real estate assets were unencumbered.
- Leverage and coverage: Debt to assets, including Regency’s pro-rata share of joint ventures and before accumulated depreciation, was 45.3%, down from 48.1% at year-end 2010. The reported coverage ratio was 2.3x for the first nine months of 2011, versus 2.1x for full-year 2010; the periods are not directly comparable.
- Property operations: Consolidated operating centers were 92.6% leased, unchanged from year-end 2010. Operating and development properties were 92.2% leased, versus 91.6% at year-end.
- Distributions: The Board declared a quarterly dividend of $0.4625 per share, payable November 30, 2011; the dividend had been unchanged since May 2009.
Changes versus prior comparable periods
- Q3 revenue rose 4.1%; nine-month revenue rose 4.2%. Management attributed much of the increase to acquired properties and assets received in the DESCO partnership liquidation. Nine-month management, transaction and other fees also benefited from a $5.0 million disposition fee and recognized transition-service fees.
- Q3 common-stockholder income increased to $8.5 million from $7.9 million, while diluted EPS remained $0.09. Higher partnership income and lower general and administrative expense contributed; a $6.4 million impairment charge partially offset gains.
- Nine-month common-stockholder income fell to $23.6 million from $27.0 million, and diluted EPS declined to $0.26 from $0.32. The prior-year period included larger gains on property sales; 2011 also included higher disposition fees.
- Nine-month operating cash flow increased to $184.8 million from $130.5 million. Investing cash outflow was $155.7 million, and financing cash outflow was $30.4 million.
- General and administrative expense declined year over year, partly due to lower incentive compensation and employee benefits. Depreciation and amortization increased with property additions. Nine-month interest expense was broadly flat at $92.3 million: lower note interest was largely offset by increased hedge interest and reduced capitalized interest.
Outlook, risks and unusual items
- Management expected moderate rent declines in isolated markets when renewing above-market leases, and anticipated further move-outs by weaker tenants during the remainder of 2011 and 2012. It cited potential rent and occupancy effects from tenants exercising co-tenancy clauses.
- Through 2014, Regency estimated approximately $470.3 million of funding needs, primarily for debt maturities, development completion and its share of joint-venture debt requirements. Planned sources included the existing credit line, additional bank financing under negotiation, and debt or equity issuance when market conditions were favorable.
- Current development projects were estimated to require a net investment of $378.9 million when completed, with an estimated average return of 6.6% when fully leased. Regency also reported $280 million of joint-venture secured loan and credit-line maturities through 2013; refinancing and partner capital contributions were expected to be key repayment sources.
- Joint-venture refinancing and partner funding remain risks, particularly if capital markets weaken. Regency stated that its partners appeared financially sound, but noted it could have to consider lending to a defaulting partner or liquidating a partnership.
- A $6.4 million impairment was recorded for one operating property after economic deterioration in its trade area and competition from nearby centers. The valuation used significant unobservable inputs.
- Environmental remediation obligations were estimated at $2.8 million and accrued. Management did not expect known litigation or environmental matters to materially affect results, but noted environmental assessments may not identify all potential liabilities.
- Subsequent to quarter-end, Regency reported sales of an office portion of a property for approximately $4.8 million, a 50% partnership interest for approximately $8.3 million, and an operating property for approximately $7.3 million.
- Management described economic conditions as challenging. Forward-looking results remain subject to economic and tenant conditions, leasing and development execution, competition, financing access and governmental approvals. The filing provided no numerical earnings or revenue guidance.
Important facts for investors to verify
- Debt maturities, refinancing plans and available capacity under the $600 million credit line, including the effect of borrowing needs through 2014.
- Joint-venture debt maturities and whether partners can provide expected refinancing or capital contributions.
- Leasing trends, tenant credit quality, co-tenancy exposure and management’s assumptions about weaker tenants and rent renewals.
- The execution, cost, lease-up and expected returns of the development pipeline, as well as the assumptions behind the single-property impairment.
- How much of reported revenue growth and earnings reflects recurring property operations versus acquisition, partnership-liquidation and disposition-related fees or gains.