Regency Centers Corporation — 2014 Form 10-K
Reporting period: Fiscal year ended December 31, 2014; the filing also reports fourth-quarter results. Regency is a REIT whose business is primarily conducted through Regency Centers, L.P. The portfolio comprised interests in 322 grocery-anchored shopping centers across 23 states and Washington, D.C.; the company’s pro-rata portfolio covered 28.4 million square feet.
Financial and operating performance
| Metric | 2014 | 2013 |
|---|---|---|
| Revenue | $537.9 million | $489.0 million |
| Net income | $188.8 million | $151.3 million |
| Net income attributable to common stockholders | $166.3 million; diluted EPS $1.80 | $128.7 million; diluted EPS $1.40 |
| FFO / Core FFO (non-GAAP) | $269.1 million / $261.5 million | $240.6 million / $241.6 million |
| Cash from operating activities | $277.7 million | $250.7 million |
| Cash and cash equivalents at year-end | $113.8 million | $80.7 million |
| Total debt at year-end | $2.02 billion | $1.85 billion |
| Common dividends declared per share | $1.88 | $1.85 |
Revenue grew 10.0%. Same-property NOI on a pro-rata basis rose 4.2% to $415.5 million. Pro-rata operating occupancy increased to 95.9% from 95.2%; effective rent per square foot also increased across consolidated and unconsolidated portfolios. The filing does not provide a directly comparable consolidated operating-margin measure.
Fourth-quarter revenue was $136.2 million, versus $126.0 million in fourth-quarter 2013. Net income attributable to common stockholders was $73.5 million, or $0.79 per diluted share, compared with $46.3 million, or $0.50, in the prior-year quarter.
Material changes and unusual items
- Net income included $55.1 million of after-tax gains on real estate sales and an $18.3 million non-cash gain from remeasuring a previously held interest when Regency obtained control of a property. These items materially contributed to GAAP earnings; Core FFO was lower than FFO in 2014.
- Regency acquired four shopping centers and sold 11 centers and six out-parcels during 2014. Development and capital-improvement spending increased to $238.2 million from $213.3 million; investing cash outflow was $210.3 million, compared with $9.8 million in 2013, mainly reflecting lower sale proceeds and higher investment activity.
- Debt increased by $166.7 million year over year. Regency issued $250 million of 3.75% ten-year unsecured bonds and repaid $150 million of maturing notes; the bond’s effective rate was reported as 3.59% after hedge settlement proceeds.
- The company adopted updated discontinued-operations guidance prospectively in 2014; no 2014 property disposals qualified as discontinued operations. Prior-period presentation therefore is not fully comparable on that basis.
Liquidity, outlook, and risks
At year-end, the $800 million revolving line had $794.1 million of remaining availability, net of letters of credit; the $165 million term loan had $90 million of remaining capacity. Regency also reported $96 million remaining under its ATM equity program. Management said it expected to remain within debt covenants and anticipated accessing debt markets to refinance maturities. The filing estimates approximately $622.7 million of 2015 cash requirements, including $179.2 million for in-process developments and redevelopments, $426.2 million for debt repayment, and $17.3 million for Regency’s estimated share of partnership debt contributions. Sources identified include operating cash flow, credit facilities, property-sale proceeds, and equity or debt issuance.
Management expected overall rental rates on new and renewal leases to increase in 2015, based on economic trends, 95.4% pro-rata leased occupancy, and leasing conditions; it cautioned that results may vary by market and property. The board declared a quarterly common dividend of $0.485 per share, payable March 5, 2015. A January 2015 underwritten forward equity offering of 2.875 million shares at $67.40 per share was expected to generate approximately $193.8 million gross, subject to settlement.
- Key risks: retail weakness and e-commerce effects on tenants, anchor or small-shop tenant failures and lease rollover, and geographic concentration (California represented 30.6% of pro-rata NOI; Florida 11.3%; Texas 10.0%).
- Development execution, leasing, cost overruns, and the ability to sell assets or refinance debt are significant exposures. $350 million of unsecured debt matured in August 2015 and $400 million was due in June 2017; interest-rate swaps partially hedged anticipated refinancing.
- Natural disasters and severe weather, insurance limits and costs, environmental remediation, joint-venture partner funding or decision rights, REIT qualification, and debt covenants could affect cash flow and distributions.
- Environmental remediation accruals were $10.2 million on a pro-rata basis. Management did not expect known environmental matters or ordinary-course litigation to have a material effect, while noting that additional liabilities may emerge.
Most important facts for investors to verify
- Reconcile GAAP net income and EPS to FFO/Core FFO and assess how much of the earnings increase came from property-sale and remeasurement gains.
- Review 2015 debt maturities against available liquidity, planned refinancing, the forward equity settlement, and the stated $622.7 million cash requirement.
- Track same-property NOI, occupancy, renewal spreads, and the 2015 lease expirations: 909 leases covering 1.8 million square feet, with $40.3 million of minimum rent scheduled to expire.
- Assess portfolio concentration and anchor exposure, including the 2015 Safeway-Albertsons merger and the six affected stores under contract for divestiture.
- Consider that FFO and Core FFO are non-GAAP measures and that the audited statements use estimates for property valuations and impairment testing. KPMG issued unqualified opinions on the financial statements and internal controls.