Regency Centers Corporation — Q3 2022 Form 10-Q
Reporting period: Three and nine months ended September 30, 2022; filed November 4, 2022. Regency is a REIT focused on owning, leasing, managing, acquiring, and developing grocery-anchored neighborhood and community shopping centers. Its portfolio included interests in 404 properties with approximately 51.1 million square feet. The Parent Company owned approximately 99.6% of the Operating Partnership.
Key financial results
Amounts below are in millions, except per-share data. Comparative periods are 2021.
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Total revenue | $304.0 | $307.4 | $909.5 | $869.2 |
| Net income | $88.8 | $118.8 | $391.7 | $297.3 |
| Net income attributable to common stockholders | $87.6 | $117.4 | $387.6 | $293.6 |
| Diluted earnings per share | $0.51 | $0.69 | $2.26 | $1.72 |
| Interest expense, net | $36.4 | $36.0 | $109.8 | $108.7 |
- Revenue mix and earnings: Q3 lease income rose $12.5 million to $295.8 million, but total revenue declined, chiefly because 2021 included $13.6 million of one-time promote income. Nine-month revenue increased 4.6%. Nine-month net income included $106.5 million of real estate sale gains, versus $38.2 million in 2021; Q3 net income was lower year over year.
- Operating performance: Pro-rata same-property NOI excluding termination fees increased 2.5% for the first nine months, but declined 0.4% in Q3. Management cited improved occupancy, contractual rent increases, positive leasing spreads, and better tenant collections, partly offset by higher property costs. This is a non-GAAP measure; the filing does not present a single conventional consolidated operating-margin figure.
- Leasing and occupancy: The combined portfolio was 94.6% leased at September 30, versus 94.1% at December 31, 2021. Trailing 12-month rent spreads on comparable leasing transactions were positive 8.8%. Regency completed 1,474 new and renewal leases covering 5.6 million pro-rata square feet in the first nine months.
- Cash flow: Nine-month operating cash flow was $528.2 million, up from $508.5 million. Investing activities used $111.9 million, including $141.3 million for operating property acquisitions and $143.7 million for development, redevelopment, and capital improvements. Financing activities used $356.4 million, including $322.9 million in dividends and partnership distributions.
Balance sheet, debt, and liquidity
- At September 30, total assets were $10.90 billion, notes payable were $3.73 billion, and total equity/capital was $6.20 billion. Debt was nearly unchanged from year-end 2021.
- Cash, cash equivalents, and restricted cash totaled $155.0 million, including $3.8 million restricted; management reported $151.2 million of unrestricted cash. The $1.25 billion credit line had $1.24 billion of available capacity, net of letters of credit. An additional $350.4 million remained under the ATM equity program.
- Debt consisted primarily of fixed-rate unsecured debt. Weighted average contractual rates were 3.8% on fixed-rate unsecured debt, 3.9% on fixed-rate mortgages, and 3.3% on variable-rate mortgages. Five of six variable-rate mortgage loans, totaling $132.4 million, had interest-rate swaps.
- Management reported a pro-rata net debt-to-operating EBITDAre ratio of 5.0x and fixed-charge coverage of 4.6x on a trailing-12-month basis. It reported covenant compliance. The company had no unsecured debt maturities in 2023; $250 million matures in 2024. Management stated that 89.4% of wholly owned real estate assets were unencumbered.
Material changes, outlook, and risks
- During the nine months, Regency acquired six operating properties, including four previously held through an unconsolidated partnership; sold one operating property, three land parcels, and one development-project interest; issued $61.3 million of net equity proceeds; and repurchased and retired 1.29 million shares for $75.4 million.
- Management estimated approximately $361.8 million of capital needs for the next 12 months after the October dividend payment, covering leasing, tenant improvements, projects, partnership contributions, and debt maturities. It expected to fund needs through operations, credit facilities, property sales, debt financing, partnership distributions, and potentially equity or unsecured debt issuance.
- Current development and redevelopment projects had estimated pro-rata costs of $398.4 million. Management noted that inflation has increased construction, labor, and service costs; fixed-cost contracts, advance material orders, and other planning are among its mitigation efforts. Labor shortages and supply-chain disruptions could delay projects.
- Risks highlighted include inflation, higher interest rates, energy costs, labor and supply constraints, geopolitical and macroeconomic uncertainty, and a possible recession. These could weaken tenant finances and consumer spending, reduce demand for retail space, pressure leasing spreads, increase tenant-improvement costs, and raise refinancing or borrowing costs. Management cautioned that higher rates could also weigh on real estate valuations and the share price.
- Management said available capital resources should cover expected needs for the next year, while noting that future borrowing or refinancing could carry higher rates. The Board declared a $0.65-per-share dividend on November 2, payable January 4, 2023. This is a declared dividend, not a longer-term earnings or dividend forecast.
- Contingencies include ordinary-course litigation, which management did not expect to have a material adverse effect, and environmental remediation. Regency reported $10.7 million of pro-rata accrued environmental liabilities and cautioned that additional issues or cost changes cannot be ruled out.
Most important facts for investors to verify
- Whether same-property NOI growth, occupancy, tenant collections, and positive rent spreads persist, particularly given Q3’s 0.4% NOI decline excluding termination fees.
- How much reported earnings growth reflects recurring operations versus property-sale gains and other nonrecurring partnership items; compare GAAP results with the filing’s reconciliations of FFO and Core Operating Earnings.
- Whether leasing, construction, and redevelopment costs or timelines are affected by inflation, labor shortages, and supply-chain constraints, and how the estimated $361.8 million of near-term capital needs are funded.
- Debt maturities, refinancing rates, variable-rate exposure, covenant compliance, and the effect of higher interest rates on interest expense and property values.
- Potential tenant credit deterioration, environmental remediation exposure, and whether the declared dividend remains supported by operating cash flow.