Regency Centers Corporation and Regency Centers, L.P. — Q3 2020 Form 10-Q
Business context and reporting period. This combined filing covers the quarter and nine months ended September 30, 2020. Regency is a retail shopping-center REIT; at quarter-end it owned 299 consolidated properties and held partial interests in 115 properties through unconsolidated partnerships. More than 80% of its operating centers are anchored by grocery stores. Unless noted, financial amounts below are consolidated and in millions of dollars.
Financial performance and position
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Total revenue | $242.9 | $282.3 | $757.7 | $844.4 |
| Net income attributable to common stockholders | $12.7 | $57.0 | $6.4 | $199.1 |
| Diluted earnings per share | $0.07 | $0.34 | $0.04 | $1.19 |
| Nareit FFO attributable to common stock and unit holders | $101.7 | $166.1 | $372.5 | $485.9 |
| Pro-rata same-property NOI, excluding termination fees | $169.6 | $200.1 | $530.9 | $602.9 |
- Q3 revenue fell 13.9% year over year, principally as lease income declined $37.6 million. The company recorded $30.3 million more uncollectible lease income than in Q3 2019.
- Nine-month GAAP net income was sharply lower, primarily reflecting a $132.1 million goodwill impairment recognized in Q1. The charge followed COVID-related valuation reviews; 87 of 269 reporting units with goodwill had fair values below carrying value. No further goodwill impairment was recorded after March 31.
- Same-property NOI excluding termination fees declined 15.2% in Q3 and 11.9% for the nine-month period. Uncollectible lease income was the main pressure; higher real estate taxes also weighed on results. Nine-month property-sale gains were $48.7 million, versus $17.8 million in 2019.
- Operating cash flow for the first nine months was $374.6 million, down from $469.4 million. Investing activities used $65.5 million and financing activities used $143.8 million. Dividends and distributions paid to common stock and unit holders were $301.9 million.
- At September 30, cash, cash equivalents and restricted cash totaled $280.9 million, including $4.3 million restricted; management reported $276.6 million of unrestricted cash. Total debt was $4.0 billion, up from $3.92 billion at year-end 2019. Total assets were $11.0 billion and total liabilities $4.9 billion.
- Management reported a 5.9x pro-rata net-debt-to-trailing-12-month Operating EBITDAre ratio, up from 5.4x at December 31, 2019, and fixed-charge coverage of 3.7x, down from 4.3x. Regency remained in compliance with debt covenants at quarter-end.
Material changes, outlook and risks
- COVID-19 disrupted tenants, collections, leasing and construction. Through October 31, Regency had collected approximately 86% of pro-rata base rent billed for Q3, compared with 77% for Q2. It had executed about 1,300 rent-deferral agreements representing $30.6 million, or 3.5% of annual base rent; repayment periods average approximately 9.2 months and begin in December 2020. Collection of deferred rent is not assured.
- Portfolio occupancy was 92.9% at September 30, compared with 94.8% at December 31, 2019; shop-space occupancy was 88.2%, versus 90.6%. Management cited bankruptcies and pandemic-related tenant move-outs. Tenants in bankruptcy that still occupied space represented 1.6% of pro-rata annual base rent.
- Management withdrew its 2020 guidance on March 30 and provided no replacement guidance in the filing. It expected leasing activity to remain lower into 2021 and warned that tenant failures and weaker demand could pressure occupancy and rents. Development and redevelopment work was delayed, phased or curtailed.
- Management estimated approximately $373.3 million of capital needs over the next 12 months for debt repayments, committed tenant improvements, projects and partnership contributions. It said available resources were sufficient for expected needs over that period, citing unrestricted cash, approximately $1.24 billion of available credit-line capacity and access to capital markets, while cautioning that financing availability and terms were not assured.
- In May, Regency issued $600 million of 3.70% senior unsecured notes due 2030. In September, it redeemed $300 million of 3.75% notes due 2022, paying $325.1 million including accrued interest and a make-whole premium; the redemption contributed to $19.4 million of early debt-extinguishment expense. The board declared a $0.595-per-share dividend payable January 5, 2021, but management warned operating cash flow might not support the current dividend level and a reduction or stock payment could be necessary.
- Known contingencies include ordinary-course litigation, which management did not expect to materially affect the company, and environmental remediation. Accrued environmental liabilities were $8.2 million on a pro-rata basis; actual exposure could change as further information becomes available.
Key facts for investors to verify
- Subsequent rent collections, delinquency trends and actual repayment of deferred rents, particularly among non-essential and smaller tenants.
- Occupancy, bankruptcies and leasing spreads, with attention to shop-space performance and the impact on future rents and NOI.
- Liquidity, debt maturities, leverage and covenant headroom if cash flows weaken or financing markets become less favorable.
- Whether operating cash flow can sustain the dividend and fund the stated capital requirements without additional borrowing, asset sales or equity issuance.
- Assumptions underlying goodwill and real-estate valuations, and the possibility of further impairments as pandemic effects evolve.