Regency Centers Corporation / Regency Centers, L.P. — Q3 2021 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2021; unaudited. Regency is a grocery-anchored shopping-center REIT. At quarter-end it owned 298 consolidated properties and partial interests in 104 additional properties, representing 50.6 million square feet in total. The Parent Company owned approximately 99.6% of the Operating Partnership.
Financial performance
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Total revenue | $307.4 million | $242.9 million | $869.2 million | $757.7 million |
| Net income | $118.8 million | $13.3 million | $297.3 million | $8.1 million |
| Net income attributable to common stockholders | $117.4 million | $12.7 million | $293.6 million | $6.4 million |
| Diluted earnings per share | $0.69 | $0.07 | $1.72 | $0.04 |
| Net cash from operating activities | Not separately stated for Q3 | $508.5 million | $374.6 million | |
| Net cash used in investing activities | Not separately stated for Q3 | $1.6 million | $65.5 million | |
| Net cash used in financing activities | Not separately stated for Q3 | $522.7 million | $143.8 million |
At September 30, debt was $3.75 billion, versus $3.92 billion at December 31, 2020; no unsecured credit-facility balance was outstanding. Cash, cash equivalents and restricted cash totaled $362.7 million, including $359.4 million unrestricted cash. The revolving credit line had $1.24 billion available capacity and matures in March 2025, with two six-month extension options. Regency reported a 5.0x pro-rata net debt-to-Operating EBITDAre ratio and 4.2x fixed-charge coverage, compared with 6.0x and 3.6x, respectively, at year-end 2020. It was in covenant compliance.
Operating expenses were $173.3 million in Q3, down from $182.9 million; net interest expense was $36.0 million, down from $40.8 million. Conventional operating or profit margin guidance is not provided. As an operating-performance measure, pro-rata same-property NOI excluding termination fees rose 24.4% in Q3 and 16.4% for the first nine months. These are non-GAAP measures and should be read with the filing’s reconciliations.
Changes versus comparable periods
- Revenue increased 26.5% in Q3 and 14.7% for the nine months. The filing attributes much of the improvement in lease income to lower uncollectible-rent charges and collection of amounts previously reserved during the pandemic.
- Nine-month net income improved substantially from 2020, which included a $132.1 million goodwill impairment and $66.0 million in uncollectible lease-income charges. The 2021 result also includes gains on real estate sales and a $13.6 million promote fee.
- Approximately 98% of base rent billed for Q3 had been collected through November 1, 2021. Portfolio occupancy was 93.4% at September 30, compared with 92.3% at December 31, 2020. Same-property occupancy was 93.8%, up from 92.9%.
- Nine-month leasing activity increased to 1,489 transactions covering 5.1 million pro-rata square feet, from 1,010 transactions covering 3.9 million square feet. Trailing 12-month rent spreads were positive 2.3%, versus 5.7% in the prior-year period.
- Operating cash flow rose $133.9 million year over year, primarily from improved rent collections. Financing cash outflow increased, including repayment of the $265 million term loan and distributions to shareholders and unit holders.
Liquidity, capital, outlook and risks
- Management said available capital resources should cover expected needs for the next 12 months. After the October 2021 dividend payment, estimated capital requirements for the next 12 months were approximately $363 million, including committed tenant improvements, in-process development and redevelopment, partnership contributions and debt maturities.
- Management expects to fund needs using operating cash flow after dividends, property-sale proceeds, mortgage and bank financing, partnership distributions, and potentially equity or unsecured debt. It reported no unsecured debt maturities until 2024 and described secured mortgage maturities over the next 12 months as manageable.
- The Board declared a $0.625-per-share dividend on November 3, 2021, payable January 5, 2022. No specific earnings or operating guidance is stated in the provided filing text.
- In August, Regency acquired its partner’s 80% interest in a seven-property USAA portfolio; it had previously owned 20%. The properties’ stated total purchase price was $222 million, and Regency assumed approximately $111.2 million of fixed-rate mortgage debt. The acquisition also generated a $13.6 million promote fee, paid in the form of a real estate asset. September ATM forward-sale settlements produced $82.5 million net proceeds; approximately $64 million of expected proceeds remained subject to future settlement.
- COVID-19 continues to affect tenant credit, collections and leasing. Management warned that variants, closures or capacity restrictions, labor shortages, supply constraints, rising costs and weaker in-store sales could impair tenants and increase concessions, vacancies or bankruptcies. Collections may remain below pre-pandemic levels.
- Management also cited higher inflation and construction costs as potential pressures on tenants, operating expenses and development costs. It noted that leases generally provide for tenant recovery of certain operating costs, but deflation or weak demand could pressure rents and occupancy.
- Known litigation is not expected by management to have a material adverse effect, though outcomes cannot be assured. Regency reported a $7.4 million pro-rata environmental remediation accrual and cautioned that additional conditions or liability may be identified. No material changes to previously disclosed risk factors were reported.
Important facts for investors to verify
- Whether stronger reported earnings and NOI reflect durable operating recovery or, materially, pandemic reserve releases, rent collections and the one-time promote fee.
- Subsequent rent collections, tenant concessions and receivable collectability, including whether collection rates remain below historical norms.
- Execution, costs, leasing and expected returns for the $327.3 million of in-process development and redevelopment projects, alongside the stated $363 million near-term capital requirement.
- Debt maturities and refinancing terms, credit-line availability, covenant headroom, and the assumed mortgage debt associated with the USAA acquisition.
- Cash proceeds and dilution from outstanding forward equity sales, and the effect of dividends and future capital needs on liquidity.