Regency Centers Corporation: FY2020 Form 10-K
Business context and reporting period. This annual report covers the year ended December 31, 2020; the filing also provides unaudited fourth-quarter results. Regency is a U.S. shopping-center REIT that owns, operates, develops and leases primarily grocery-anchored retail properties. At year-end, it held full or partial interests in 411 properties totaling 51.9 million square feet of gross leasable area (42.2 million square feet on a pro-rata basis). The Operating Partnership conducts substantially all operations and held substantially all assets.
Financial and operating results
- FY2020 revenue: $1.016 billion, down $117.0 million (10.3%) from $1.133 billion in 2019. Lease income fell $114.1 million, principally due to pandemic-related rent collectibility reserves.
- Profit: Net income attributable to common stockholders was $44.9 million, versus $239.4 million in 2019; diluted EPS was $0.26 versus $1.43. Results included a $132.1 million goodwill impairment and $117.0 million of higher uncollectible lease income. Real-estate impairment was $18.5 million; gains on real-estate sales were $67.5 million.
- Fourth quarter: Revenue was $258.5 million and net income attributable to common stockholders was $38.5 million, or $0.23 per diluted share. For Q4 2019, the corresponding figures were $288.7 million, $40.3 million and $0.24.
- FFO and property performance: Nareit FFO, a non-GAAP measure, was $502.0 million versus $654.4 million in 2019. Pro-rata same-property NOI excluding termination fees and expenses declined 11.6% to $705.4 million, primarily from uncollectible lease income. Management reported 2.2% trailing 12-month rent spreads on comparable new and renewal leases, down from 8.5% in 2019.
- Occupancy and collections: The total portfolio was 92.3% leased at year-end, compared with 94.8% a year earlier; same-property occupancy was 92.9% versus 95.1%. Pro-rata base-rent collections improved sequentially to 79% for Q2, 89% for Q3 and 92% for Q4, measured as of February 8, 2021.
- Cash flow and distributions: Operating cash flow was $499.1 million, down from $621.3 million. Investing activities used $25.6 million and financing activities used $210.6 million; cash, cash equivalents and restricted cash ended the year at $378.5 million. Common dividends declared were $2.34 per share for 2020. The filing says $403.3 million of dividends and distributions were paid during the year, including the fourth-quarter payment made in January 2021.
- Debt and liquidity: Year-end debt was $3.923 billion, versus $3.920 billion in 2019. Pro-rata net debt to trailing-twelve-month Operating EBITDAre was 6.0x, up from 5.4x; fixed-charge coverage was 3.6x versus 4.3x. Regency reported $376.1 million of unrestricted cash and $1.240 billion of available capacity on its $1.25 billion credit line. Less than 1% of outstanding debt was unhedged variable-rate debt. The company was in compliance with debt covenants.
Material changes versus 2019
- Pandemic-driven tenant closures, bankruptcies, rent concessions and collectibility concerns reduced revenue, NOI, occupancy and operating cash flow. The company recorded $117.0 million of higher uncollectible lease income.
- Goodwill impairment of $132.1 million was recorded in 2020; real-estate impairment fell to $18.5 million from $54.2 million in 2019. Gains on real-estate sales rose to $67.5 million from $24.2 million.
- Regency completed fewer acquisitions: one operating property for $16.9 million in 2020 versus four properties for $222.4 million in 2019. It sold six shopping centers and 11 land parcels, receiving $189.4 million in proceeds.
- Development, redevelopment and capital-improvement spending was $180.8 million, down from $200.0 million. At year-end, 14 projects were in process with estimated pro-rata costs of $319.3 million, compared with 22 projects and $350.8 million in 2019.
- Regency issued $600 million of 10-year senior unsecured notes at 3.7%, redeemed $300 million of 3.75% notes due 2022, and settled prior ATM forward sales for $125.8 million net proceeds. It repaid its $265 million term loan in January 2021.
Outlook, commentary and risks
- Management said the pandemic’s future effect on operations and financial performance remained uncertain. It expected rent collections to remain below pre-pandemic averages for the foreseeable future and leasing activity to remain below 2019 levels into 2021. No clear numeric 2021 earnings or FFO guidance is provided in the supplied filing text.
- Regency estimated approximately $353.6 million of capital needs over the next 12 months after the January 2021 term-loan repayment and dividend payment. It said available resources were sufficient for expected needs for at least 12 months, while noting that further project starts, acquisitions, debt prepayments or share repurchases would increase cash requirements.
- The company may delay, phase or curtail projects and capital spending. It expected leverage and coverage ratios could worsen in 2021. A February 2021 credit-line amendment extended maturity to March 2025, with two optional six-month extensions; management reported no unsecured debt maturities until 2024 after the term-loan repayment.
- Approximately 1,600 rent-deferral agreements covered $40.8 million of pro-rata base rent, or 4.6% of annual base rent. The average deferral period was 3.3 months, with repayment periods averaging 9.7 months. Regency cautioned that deferred rent may not be collected on schedule or in full, and that cash flow may not sustain the current dividend without other capital or a dividend change. The board declared a $0.595-per-share dividend in February 2021, payable in April.
- Key risks include tenant bankruptcies and lease rejections, weaker retail-space demand and rental rates, e-commerce, geographic concentration, natural disasters and climate change, construction delays and costs, environmental liabilities, access to external capital, debt covenants and interest-rate or LIBOR-transition risk. California, Florida, Texas, New York and Georgia together represented 67.1% of 2020 NOI. Grocers anchored over 80% of operating centers; about 63% of pro-rata average base rent came from businesses classified as essential.
- Known environmental matters included an $8.3 million pro-rata accrued remediation liability; management did not expect currently known matters to have a material financial effect. The filing said ordinary-course litigation was not expected to materially affect financial position or results. KPMG issued unqualified opinions on the financial statements and internal controls; internal control over financial reporting was effective at year-end.
Important facts for investors to verify
- Whether rent collections, tenant reopenings, bankruptcies and deferred-rent repayments improved after the February 8, 2021 measurement date.
- How occupancy, leasing spreads, same-property NOI and bad-debt reserves develop as concessions expire and leases are renewed.
- Whether operating cash flow covers dividends, committed project spending and debt maturities, and whether the board maintains the dividend.
- Debt and liquidity after the term-loan repayment and credit-line extension, including covenant headroom, joint-venture obligations and future refinancing costs.
- The assumptions underlying goodwill and real-estate valuations, including the potential for additional impairment charges.