REGENCY CENTERS CORP annual report, FY2011

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Regency Centers Corporation — FY 2011 Form 10-K

Reporting period: Fiscal year ended December 31, 2011. This is an annual report, not a standalone fourth-quarter filing; fourth-quarter figures are identified below. The combined filing covers Regency Centers Corporation, a REIT, and its operating partnership, which holds the operating assets and debt.

Business context

Regency owns, operates, develops and invests in primarily grocery-anchored shopping centers. At year-end, it directly owned 217 centers in 24 states, with 23.8 million square feet of gross leasable area (GLA), and held partial interests in 147 additional centers through co-investment partnerships, with 18.4 million square feet. The company earns rent and tenant reimbursements, as well as management and transaction fees. Its strategy emphasizes high-quality properties, development and redevelopment, and recycling capital through property sales.

Financial and operating performance

  • Revenue: $500.4 million in 2011, up 5.1% from $476.2 million in 2010. Minimum rent rose to $356.1 million from $338.6 million; management, transaction and other fees increased to $34.0 million from $29.4 million.
  • Profit: Net income attributable to common stockholders was $31.7 million, or $0.35 diluted per share, compared with a $10.9 million loss, or $0.14 diluted loss per share, in 2010. Income from continuing operations was $48.6 million; discontinued operations contributed $7.1 million, including $5.9 million of net gains on property sales.
  • Fourth quarter: Adjusted revenue was $125.3 million and common-stockholder net income was $8.1 million, or $0.10 per diluted share. In Q4 2010, adjusted revenue was $117.6 million and the company reported a $37.9 million common-stockholder loss, or $0.46 diluted loss per share.
  • Cash flow: Operating cash flow was $217.6 million, versus $138.5 million in 2010. Investing activities used $77.7 million and financing activities used $145.6 million. Year-end cash and cash equivalents were $11.4 million.
  • Debt and leverage: Reported debt was $1.982 billion, down from $2.094 billion; total assets were $3.987 billion. Including Regency’s pro-rata share of joint-venture debt and assets, the debt-to-asset ratio was 45.0%, down from 48.1%. The company reported a 2.3x coverage ratio, up from 2.1x.
  • Liquidity: The $600 million unsecured line of credit had $40 million drawn at year-end; it matures in September 2015. A $250 million unsecured term loan maturing in December 2016 had no year-end balance. The company reported 79.7% of real estate assets were unencumbered.
  • Portfolio: Consolidated operating properties were 93.1% leased, compared with 92.6% at year-end 2010. The combined portfolio was 93.3% leased, or 93.9% excluding development properties.
  • Distributions: Common dividends were $1.85 per share for 2011, unchanged from 2010. The quarterly dividend was $0.4625 per share; the board retains discretion over future distributions.

Material changes versus 2010

  • Revenue increased by $24.3 million, while operating expenses rose by $15.8 million to $326.1 million. Depreciation and amortization increased; general and administrative expense and doubtful-account provision declined.
  • Equity income from real estate partnerships improved to $9.6 million from a $12.9 million loss. The company cited lower impairment and interest expense at partnerships, partly offset by lower partnership net operating income.
  • Impairment expense reported in continuing operations declined to $13.8 million from $26.6 million. The filing also reports $15.9 million of total impairment provisions on consolidated properties in its cash-flow and real-estate disclosures, including amounts classified in discontinued operations.
  • Operating cash flow increased, and the pro-rata debt-to-asset ratio declined, partly following settlement of the forward equity offering, which generated $215.4 million net proceeds in March 2011.
  • The portfolio became smaller on a combined basis: 364 properties and 42.1 million square feet at year-end, versus 396 properties and 45.1 million square feet in 2010. Consolidated properties increased from 215 to 217, while unconsolidated properties decreased from 181 to 147, including the 2011 liquidation of a joint venture.

Outlook, risks and unusual items

  • Management expected 2012 rental rates on new and renewal leases to range from a 1.0% decline to 2.5% growth. No specific earnings-per-share guidance is provided in the supplied filing text.
  • Management estimated approximately $302.2 million of 2012 cash requirements, primarily for $192.4 million of maturing company debt and $109.8 million for development and co-investment partnership commitments. The $192.4 million notes matured and were repaid in January 2012 using borrowings on the line and term loan.
  • Seven development properties were under construction or in lease-up at year-end, with an expected net investment of $161.3 million upon completion and an estimated average return of 7.6% when completed and fully leased. Estimated remaining costs, net of projected reimbursements and land sales, were $72.6 million.
  • Joint ventures had $255.6 million of scheduled secured loan and credit-line maturities in 2012. Management described committed refinancing and partner capital contributions as expected funding sources, but refinancing and partner funding remain risks. Regency’s stated pro-rata share of planned partner capital contributions was $44.6 million.
  • Key business risks include retail-sector weakness, tenant defaults or bankruptcies, lease expirations and co-tenancy provisions, geographic concentration, development execution and leasing, property-value impairment, access to capital, refinancing, interest-rate exposure, and lack of voting control over joint ventures. California, Florida and Texas accounted for 31.6%, 14.5% and 13.1% of consolidated NOI, respectively.
  • Environmental remediation costs of approximately $2.4 million were accrued. Management did not expect known environmental matters or ordinary-course litigation to materially affect financial position or results, while noting that unknown conditions or regulatory changes could create additional exposure.
  • Subsequent events included the announced redemption of Series 3 and Series 4 preferred stock, expected to cause a $7.0 million non-cash charge; repurchase of Series D preferred units at a discount, expected to increase income available to common holders by about $842,000; and issuance of 10 million shares of Series 6 preferred stock at a 6.625% distribution rate.
  • The filing notes an immaterial correction to prior accounting for the non-qualified deferred compensation plan. KPMG issued unqualified opinions on the financial statements and internal controls; management reported effective disclosure and internal controls.

Important facts for investors to verify

  • Confirm the 2012 debt and joint-venture maturity schedule, amounts refinanced, and actual funding terms after year-end.
  • Track occupancy, tenant credit quality, lease renewals and rental-rate spreads against management’s 2012 range.
  • Assess development completion, lease-up, remaining capital needs and the assumptions behind the estimated 7.6% return.
  • Review the pro-rata debt and coverage measures alongside GAAP debt, joint-venture obligations, covenants and available credit.
  • Verify the effects of the preferred-stock redemptions, Series D repurchase and Series 6 issuance on common earnings, distributions and capital structure.
  • Monitor impairment assumptions and environmental exposures, including whether additional property or joint-venture impairments arise.