Business Context and Reporting Period
Company: Regency Centers Corporation (Parent Company) and Regency Centers, L.P. (Operating Partnership).
Reporting Period: Quarter and six months ended June 30, 2010.
Business Overview: The Company is a Real Estate Investment Trust (REIT) that owns, manages, leases, acquires, and develops retail shopping centers. As of June 30, 2010, the Company directly owned 214 shopping centers (Consolidated Properties) and held partial interests in 184 additional centers through co-investment partnerships (Unconsolidated Properties). The combined portfolio consists of 398 centers with 45.1 million square feet of gross leasable area (GLA), 93.0% leased on an operating basis.
Key Financial Metrics
| Metric (Six Months Ended June 30, 2010) | Amount (in thousands) |
|---|---|
| Total Revenues | $245,968 |
| Net Income | $31,117 |
| Net Income Attributable to Common Stockholders | $19,121 |
| Diluted EPS (Common Stockholders) | $0.23 |
| Net Cash Provided by Operating Activities | $85,824 |
| Total Assets | $4,023,126 |
| Total Liabilities | $2,157,960 |
| Total Notes Payable | $2,015,247 |
| Cash and Cash Equivalents | $106,433 |
Material Changes Versus Prior Period
- Revenue Growth: Total revenues increased by $11.0 million (4.7%) to $246.0 million for the six months ended June 30, 2010, compared to $235.0 million in 2009. This was driven by recently completed developments and improved tenant collection rates.
- Profitability Improvement: Net income attributable to common stockholders increased significantly to $19.1 million ($0.23 diluted EPS) from $2.4 million ($0.03 diluted EPS) in the prior year period. The primary driver was a substantial reduction in impairment provisions recorded by the GRI-Regency joint venture (GRIR).
- Impairment Reduction: In 2009, GRIR recorded a $99.8 million impairment provision. In the first six months of 2010, GRIR recorded only $12.3 million in impairments. The Company's pro-rata share of this loss dropped from $24.9 million in 2009 to $4.9 million in 2010.
- Expense Management: The provision for doubtful accounts decreased by $2.8 million to $2.4 million, reflecting improved tenant credit quality and lower default rates.
- Debt Structure: On June 2, 2010, the Company issued $150 million of ten-year senior unsecured notes at 6.0% interest. Proceeds were used to repay the unsecured line of credit utilized for joint venture debt repayments.
Guidance, Outlook, and Risks
- Outlook: Management anticipates a modest economic recovery in 2010, evidenced by strengthening retail fundamentals and higher new leasing activity. The Company aims to return occupancy levels to historical averages of 95% over several years.
- Development Strategy: The Company has scaled back its development program due to reduced demand for new retail space and tighter capital markets. New projects are being rigorously evaluated for cost, capital availability, and tenant demand.
- Liquidity: The Company maintains $713.8 million in total unsecured credit facility capacity with no outstanding balance as of June 30, 2010. Management expects to successfully refinance maturing debt, including $607.0 million maturing through 2012.
- Risks:
- Tenant Bankruptcies: The Company monitors tenants facing financial distress, specifically noting Blockbuster Video (65 stores, 1.2% of annualized base rent) and Movie Gallery/Hollywood Video (all stores closed). No single tenant represents more than 5% of annual base rent.
- Refinancing Risk: Joint venture partners must contribute capital to repay maturing debt. While partners are currently financially sound, a weak economy could hinder their ability to access capital.
- Interest Rate Risk: The Company utilizes interest rate swaps to hedge variable rate exposure. A liability of $28.3 million related to these swaps is recorded on the balance sheet.
Investor Verification Checklist
- Joint Venture Impairments: Verify the sustainability of the reduced impairment charges from the GRIR joint venture compared to the significant charges in 2009.
- Debt Maturities: Review the schedule of $607.0 million in debt maturing through 2012 and the Company's plan to refinance via new unsecured issuances or secured mortgage financing.
- Tenant Concentration: Confirm the impact of potential lease rejections by major tenants like Blockbuster Video on future rental revenue.
- Development Pipeline: Assess the status of the 34 properties in development and the estimated $19.7 million required to complete them, given the scaled-back development strategy.
- Derivative Liability: Monitor the $28.3 million liability associated with interest rate swaps and the Company's ability to issue the forecasted debt to settle these hedges.