REG

Business Context and Reporting Period

Company: Regency Centers Corporation (REIT)
Filing Type: Form 10-Q (Unaudited)
Reporting Period: Quarter and nine months ended September 30, 2003
Business Overview: Regency is a national owner, operator, and developer of grocery-anchored neighborhood retail shopping centers. As of September 30, 2003, the portfolio consisted of 262 shopping centers with a total gross leasable area of approximately 29.9 million square feet, 92.9% of which was leased.

Key Financial Metrics

Material Changes vs. Prior Period

• Revenue Growth: Total revenues increased 11.1% to $304.6 million, driven by a full year of revenue from 2002 developments and a 10% growth in rental rates on stabilized properties. Service operations revenue surged 113.9% to $26.6 million, primarily due to $10.8 million in development profits from sales to the Macquarie CountryWide-Regency (MCWR) joint venture.
• Profitability: Net income for common stockholders remained relatively flat, decreasing 0.2% to $73.3 million. This stability was achieved despite higher operating expenses and interest costs, offset by increased rental income and development gains.
• Debt and Liquidity: Total debt increased to $1.478 billion, largely due to an increase in the unsecured line of credit utilization from $80 million to $196 million to fund acquisitions and development. Cash and cash equivalents decreased by $10.6 million.
• Discontinued Operations: Income from discontinued operations dropped significantly to $7.3 million from $20.8 million in the prior year, reflecting fewer property sales to unrelated third parties and reclassifications under SFAS No. 144.

Guidance, Outlook, and Risks

• Development Pipeline: The company has 34 projects under construction or renovation, representing an expected investment of $590.5 million. These projects are approximately 65% complete and 81% pre-leased.
• Capital Strategy: Management expects to meet long-term capital requirements through operating cash flow, property sales, joint venturing, debt refinancing, and equity offerings. A $75 million Series 3 preferred stock offering was completed in April 2003, and a $129.5 million common stock offering occurred in August 2003.
• Interest Rate Risk: The company has entered into interest rate swaps totaling $144.2 million to hedge against rate increases on debt maturing in April 2004. The weighted average interest rate on outstanding debt declined to 6.6% from 7.1% in the prior year.
• Key Risks:
  • Tenant Bankruptcy: Significant revenue reduction could occur if a major tenant files for bankruptcy and cancels leases, though no single tenant represents more than 10% of base rental revenue.
  • Environmental Liabilities: Exposure to environmental laws, particularly regarding dry cleaning plants, though the company maintains insurance and believes current matters will not have a material effect.
  • Market Conditions: Risks include changes in national/local economic conditions, competitive pricing for acquisitions, and the ability to obtain governmental approvals for development.

Investor Verification Checklist

• Joint Venture Transactions: Verify the accounting treatment and future cash flow implications of the $158.7 million sale of eight shopping centers to the MCWR joint venture, including the $69.3 million note receivable maturing December 31, 2003.
• Debt Maturities: Review the $418.6 million in term loan maturities scheduled for 2004 (including the line of credit) and the company's refinancing plans.
• Preferred Unit Redemptions: Confirm the impact of the $155.75 million redemption of preferred partnership units on future distribution obligations and minority interest.
• Security Capital Position: Monitor the forward sales contracts held by Security Capital, which currently owns approximately 20.4% of common stock, as these contracts settle in the first half of 2004.
• Impairment Provisions: Assess the $2 million provision for loss recorded on three operating properties and the methodology used to determine fair value.