Regency Centers Corporation and Regency Centers, L.P. — Q1 2023 10-Q
Reporting period: Three months ended March 31, 2023. Regency is a REIT focused on owning, operating, leasing, acquiring, developing, and redeveloping grocery-anchored neighborhood and community shopping centers. It had interests in 404 properties: 308 consolidated properties and partial interests in 96 unconsolidated properties.
Financial performance and position
| Metric | Q1 2023 | Prior-year comparison |
|---|---|---|
| Total revenue | $318.0 million | $303.4 million; up 4.8% |
| Net income | $98.5 million | $196.8 million |
| Net income attributable to common shareholders | $97.3 million; $0.57 per diluted share | $195.2 million; $1.14 per diluted share |
| Nareit FFO attributable to common stock and unit holders | $186.5 million | $178.2 million |
| Core Operating Earnings | $177.8 million | $166.9 million |
| Cash from operations | $162.1 million | $142.9 million |
| Cash, cash equivalents, and restricted cash at quarter-end | $68.1 million | $68.8 million at December 31, 2022 |
Lease income increased to $308.8 million from $293.6 million, principally due to higher base rent, tenant recoveries, and percentage rent. Pro-rata same-property NOI excluding termination fees grew 2.5% year over year. The portfolio was 94.9% leased at March 31, 2023, versus 93.9% a year earlier; same-property occupancy was 95.1%, versus 94.3%.
Q1 GAAP net income fell sharply largely because Q1 2022 included a $101.9 million net gain on real estate sales; Q1 2023 recorded only $0.25 million. The 2023 increase in FFO and Core Operating Earnings provides a different view of operating performance. Leasing activity comprised 405 new and renewal transactions covering 1.13 million pro-rata square feet, with positive rent spreads of 5.5%, compared with 6.5% in Q1 2022.
At March 31, 2023, total debt was $3.74 billion, including $3.71 billion of notes payable and $30 million drawn on the unsecured credit facility. Weighted-average contractual rates were 3.9% for fixed-rate mortgages, 3.8% for variable-rate mortgages, 3.8% for fixed-rate unsecured debt, and 5.8% for the credit line. Regency reported a 4.9x pro-rata net debt-to-operating EBITDAre ratio and 4.7x fixed-charge coverage. It was in compliance with debt covenants. The filing reports $1.21 billion available under its $1.25 billion credit line, net of letters of credit.
Net cash used in investing was $39.1 million, versus $58.4 million provided in Q1 2022, when property-sale proceeds were substantially higher. Financing used $123.7 million, including dividends and debt repayments; Regency paid $111.6 million in dividends and distributions. The Board declared a $0.65-per-share dividend payable July 6, 2023.
Outlook, risks, and notable items
- Liquidity and capital needs: Management said available capital resources were sufficient for expected needs over the next year and longer term, while cautioning there can be no assurance. It estimated approximately $296.1 million of cash requirements over the next 12 months for leasing costs, projects, partnership contributions, and debt repayment, after the common dividend and refinancing maturing partnership debt in April 2023.
- Debt maturities: No unsecured debt maturities were due in 2023; $250 million was scheduled for 2024. The company described secured mortgage maturities over the next 12 months as manageable. Refinancing in the prevailing rate environment could increase future interest expense.
- Development: In-process development and redevelopment projects had estimated pro-rata costs of $302.5 million. Management cited inflation, higher construction costs, permitting delays, labor shortages, and supply-chain disruption; it is using measures such as fixed-cost contracts and advance material orders to mitigate cost and schedule risks.
- Tenant and economic exposure: Inflation, labor costs, supply constraints, energy prices, rising interest rates, weaker consumer spending, and a possible recession could affect tenants’ ability to pay rent, leasing demand, rents, and occupancy. Tenants in bankruptcy represented 1.1% of pro-rata annual base rent, including 0.5% related to Bed Bath & Beyond.
- Newly identified risk: The filing added that banking and financial-services disruption could restrict access to deposits, capital, or credit, worsen financing terms, and affect tenants and business partners.
- Contingencies: Management did not expect pending ordinary-course litigation or currently known environmental matters to materially affect the company. Pro-rata environmental remediation liabilities were accrued at $11.4 million; the company cautioned that further contamination or regulatory developments could increase exposure.
- Other notable items: Regency repurchased and retired 349,519 shares for $20.0 million under its repurchase program, with $230.0 million remaining authorized at quarter-end. It completed no shopping-center acquisitions in Q1 2023 and sold one land parcel. The filing provides no specific earnings or operating guidance for future periods.
Important facts for investors to verify
- Whether same-property NOI growth, leasing spreads, and high occupancy persist as tenant costs and economic conditions evolve.
- How much of the year-over-year GAAP earnings decline reflects the prior-year property-sale gain, and how operating measures such as FFO and Core Operating Earnings develop.
- The cost and timing of debt refinancing, particularly partnership mortgage maturities and the company’s 2024 unsecured maturity.
- Whether the $296.1 million estimated next-12-month cash requirement and development budget change with construction costs, project timing, and capital-market access.
- Whether tenant bankruptcies, environmental remediation, or banking-sector disruption create material costs, rent losses, or liquidity pressure.