REG

Business Context and Reporting Period

Company: Regency Centers Corporation (REIT)
Filing Type: Form 10-Q (Unaudited)
Period Ended: March 31, 2004
Business Overview: Regency owns and operates grocery-anchored shopping centers. As of March 31, 2004, the portfolio consisted of 260 properties with 29.8 million square feet of Gross Leasable Area (GLA), 92.8% leased. The company operates through Regency Centers, L.P. (RCLP), in which it holds a 98% interest.

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Growth: Total revenues increased 5% to $95.8 million, driven by a 5% increase in minimum rent ($70.6 million) and higher percentage rent ($0.45 million) due to increased tenant sales.
• Expense Increases: Total operating expenses rose 12% to $50.5 million. General and administrative expenses increased 42% primarily due to higher incentive compensation accruals. Depreciation and amortization increased $2.2 million due to new developments placed in service.
• Profitability: Net income for common stockholders increased 20% to $21.4 million. Diluted EPS rose 17% to $0.35, aided by higher net income and a reduction in weighted average shares outstanding.
• Discontinued Operations: The company sold three operating properties in Q1 2004 for net proceeds of $21.3 million, resulting in a gain included in discontinued operations. This contrasts with Q1 2003, where sales resulted in a loss.
• Debt Structure: On April 1, 2004 (post-period), the company issued $150 million in senior unsecured notes to refinance maturing debt. During the quarter, the unsecured line of credit was amended, reducing the commitment from $600 million to $500 million and lowering the interest rate spread by 10 basis points.

Guidance, Outlook, and Risks

• Development Pipeline: As of March 31, 2004, 33 projects were under construction or renovation with an expected total investment of $613.7 million. Costs to complete are estimated at $241.7 million, funded primarily by the line of credit. Projects are 61% complete and 78% pre-leased.
• Strategic Focus: Management continues to pursue a "recycling" strategy, selling lower-performing properties to fund higher-quality developments. The portfolio is focused on grocery-anchored centers to mitigate economic downturns.
• Interest Rate Risk: 82% of total debt is fixed-rate. The company utilizes interest rate swaps to manage variable rate exposure. A 1% increase in variable rates would increase annual interest expense by approximately $2.7 million.
• Contingencies: The company is involved in routine litigation and environmental matters (primarily dry cleaning plants), which management does not expect to have a material adverse effect. No single tenant represents more than 10% of annual base rental revenues.

Investor Verification Checklist

• Debt Refinancing: Verify the terms and impact of the $150 million senior unsecured notes issued on April 1, 2004, and the settlement of the $5.7 million interest rate swap.
• Development Costs: Monitor the $241.7 million required to complete current developments and the utilization of the $500 million line of credit.
• Occupancy Trends: Track the 92.8% overall occupancy rate and the 8.5% base rent growth on re-leasing to ensure sustainability of revenue growth.
• Joint Venture Performance: Review the performance of unconsolidated partnerships (Columbia and MCWR), which held $101.4 million in assets and contributed $2.7 million to equity income.
• Preferred Unit Redemptions: Note that $229 million of Preferred Units are outstanding with average rates of 8.88%; some series become callable in 2004 and 2005.