Regency Centers Corporation — 2013 Form 10-K
Business context and reporting period. This combined filing covers Regency Centers Corporation, a REIT, and its operating partnership for the fiscal year ended December 31, 2013. Regency owns and operates grocery-anchored shopping centers and earns revenue primarily from rents and tenant expense recoveries. At year-end, it owned 202 consolidated centers (22.5 million square feet) and held interests in 126 unconsolidated centers (15.5 million square feet). Consolidated properties were 94.5% leased, up from 94.1% a year earlier; unconsolidated properties were 96.2% leased, versus 95.2%.
Financial performance and position
| Metric | 2013 | 2012 |
|---|---|---|
| Revenue | $489.0 million | $473.9 million |
| Net income attributable to common stockholders | $128.7 million | Loss of $6.7 million |
| Diluted earnings per common share | $1.40 | Loss of $0.08 |
| FFO | $240.6 million | $222.1 million |
| Core FFO | $241.6 million | $230.9 million |
| Net cash from operating activities | $250.7 million | $257.2 million |
| Cash and cash equivalents at year-end | $80.7 million | $22.3 million |
| Total debt | $1.855 billion | $1.942 billion |
- Revenue increased 3.2%, led by higher minimum rent. Same-property NOI on a pro-rata basis rose 3.9% to $388.9 million, reflecting rental-rate and occupancy growth and contractual rent steps.
- Core FFO increased 4.6%. Operating cash flow declined $6.5 million, which management attributed to timing of cash receipts and payments.
- Operating expenses increased to $324.7 million from $307.5 million, including higher depreciation, property operating costs and real estate taxes. Net interest expense declined to $109.0 million from $112.1 million.
- Common dividends were $1.85 per share for 2013, unchanged from 2012. Cash distributions to common and preferred stock and unit holders totaled $189.2 million. The reported coverage ratio, including Regency’s pro-rata share of partnerships, was 2.4 times, versus 2.5 times in 2012.
- Debt comprised $1.780 billion of notes payable and $75.0 million outstanding under the term loan; the line of credit had no borrowings at year-end. Regency reported $780.7 million of remaining line capacity and $198.4 million available under its $200 million ATM equity program. Approximately 77.3% of wholly owned real estate assets were unencumbered.
Material changes and unusual items
- Net income improvement was substantially affected by discontinued operations and property-sale gains: 2013 discontinued operations included $58.0 million of net gains from sales of 12 properties, compared with 2012’s $21.7 million discontinued-operations loss, which included $54.5 million in impairment charges. The 2013 FFO/Core FFO results provide a supplemental operating comparison; FFO and Core FFO are non-GAAP measures.
- Regency sold 12 shopping centers and 10 out-parcels in 2013, receiving $212.6 million in proceeds, and acquired three shopping centers for $107.8 million. It also received $87.1 million in distributions from real estate partnerships, including proceeds associated with portfolio dispositions and refinancing.
- Development and capital-improvement spending rose to $213.3 million from $164.6 million. Three major projects—East Washington Place, Grand Ridge Plaza and Southpark at Cinco Ranch—were completed in the fourth quarter. Six projects remained under construction or in lease-up at year-end.
- Fourth-quarter 2013 adjusted revenue was $126.0 million and net income attributable to common stockholders was $46.3 million, or $0.50 per diluted share. Fourth-quarter 2012 adjusted revenue was $116.2 million and common-stockholder net loss was $37.2 million, or $0.41 per diluted share.
Outlook, risks and contingencies
- Management expected overall rental-rate growth on new and renewal leases during 2014, based on economic trends and portfolio occupancy; it noted results could vary by market and property. New leases signed in 2013 averaged $21.56 per square foot versus $19.65 per square foot for leases expiring in 2014. Those expirations represented 7.7% of company GLA and 8.4% of minimum rent, assuming no renewals.
- Management estimated 2014 cash requirements of approximately $366.5 million, including $182.5 million to complete in-process developments and redevelopments, $165.8 million for debt repayment and $18.2 million for Regency’s pro-rata partnership debt contributions. It expected to meet requirements through operating cash, the credit line, property-sale proceeds and capital-market financing, and stated it expected to refinance maturing debt. The company was in covenant compliance at year-end.
- Regency had $150 million of unsecured debt maturing in April 2014 and $350 million in August 2015. It had entered into $395 million of forward-starting interest-rate swaps, locking the 10-year Treasury rate and swap spread at a weighted average 2.45%, before the credit spread on future debt issuance.
- Principal risks include retail weakness and e-commerce effects on tenants, lease renewals and occupancy; concentration in California, Florida and Texas; tenant bankruptcy or anchor departures; severe weather and insurance costs; development execution and lease-up; interest-rate and refinancing risk; dependence on external capital; and risks from joint ventures over which Regency lacks voting control. Kroger’s January 2014 merger with Harris Teeter could lead to overlapping store closures; Regency had nine Harris Teeter leases. Safeway’s exit from the Chicago market resulted in two Dominick’s closures, representing about 0.1% of pro-rata annualized base rent; Safeway remained responsible for contractual rent through lease expiry.
- Environmental remediation liabilities accrued were $11.9 million on a pro-rata basis. Management did not expect currently known environmental matters or ordinary-course litigation to have a material adverse effect, while cautioning that additional environmental liabilities could emerge. KPMG issued unqualified opinions on the financial statements and internal controls.
Important facts for investors to verify
- How much of the earnings increase reflects recurring property operations versus sales gains, discontinued operations and other nonrecurring items; review the FFO and Core FFO reconciliations.
- Progress on 2014 and 2015 debt refinancing, actual borrowing costs, covenant headroom and use of the credit facility or ATM program.
- Development completion, lease-up, remaining costs and returns on the active pipeline, alongside the impact of elevated capital spending on cash available for distributions.
- Renewal outcomes for 2014 lease expirations and whether occupancy and rental-rate growth meet management’s expectations.
- Tenant exposure following the Kroger–Harris Teeter merger and Safeway’s Chicago exit, as well as geographic, weather and environmental exposures.
- Whether operating cash generation continues to support distributions and capital commitments; future dividends remain subject to board discretion and cash needs.