REGENCY CENTERS CORP quarterly report, Q3 FY2023

Regency Centers Corporation and Regency Centers, L.P. — Q3 2023 Form 10-Q

Business context and reporting period. This combined filing covers the quarter and nine months ended September 30, 2023; the comparative periods ended September 30, 2022. Regency is a publicly traded REIT owning, operating, leasing, acquiring, and developing grocery-anchored shopping centers. At quarter-end, it had interests in 481 properties and approximately 56.7 million square feet of gross leasable area. The Parent Company owns approximately 99.4% of the Operating Partnership’s common units.

Financial performance and position

Amounts below are in millions, except per-share data and percentages. Figures are GAAP unless identified as non-GAAP.

Metric	Q3 2023	Q3 2022	Nine months 2023	Nine months 2022
Total revenue	$330.6	$304.0	$962.9	$909.5
Net income	$92.2	$88.8	$278.8	$391.7
Net income attributable to common shareholders	$89.1	$87.6	$273.1	$387.6
Diluted EPS	$0.50	$0.51	$1.57	$2.26
Nareit FFO attributable to common stock and unit holders	$182.8	$174.2	$546.0	$526.3
Core Operating Earnings	$174.0	$161.6	$516.5	$491.6

Q3 revenue increased about 8.8% year over year; net income increased about 3.7%, while diluted EPS was $0.50 versus $0.51. Q3 FFO increased about 4.9% and Core Operating Earnings about 7.6%.
Nine-month revenue increased about 5.9%. Common-shareholder net income fell about 29.5%, primarily because 2022 included $106.5 million of real estate sale gains versus $0.5 million in 2023. Nine-month diluted EPS declined to $1.57 from $2.26. FFO rose about 3.8% and Core Operating Earnings about 5.1%.
Pro-rata same-property NOI, excluding termination fees, grew 2.1% in Q3 and 2.0% for the nine months. Management attributed growth mainly to rent steps, improved occupancy, positive leasing spreads, and completed redevelopments; higher recoverable property costs partly offset revenue gains.
At September 30, the combined portfolio was 94.6% leased; same-property occupancy was 95.4%. Comparable new and renewal leasing spreads were 9.2% for the nine months, versus 7.5% a year earlier. There were 1,310 leasing transactions covering 4.8 million pro-rata square feet.

Cash flow, debt, and liquidity

For the first nine months, operating cash flow was $547.7 million, compared with $528.2 million in 2022. Investing used $231.5 million and financing used $303.9 million; cash and restricted cash increased $12.3 million to $81.1 million.
At September 30, total debt outstanding was $4.07 billion: $3.99 billion of notes payable and $77 million drawn on the unsecured credit facility. Notes payable had weighted-average contractual rates of 3.9% for fixed-rate mortgages, 4.1% for variable-rate mortgages, and 3.8% for fixed-rate unsecured debt. The credit facility’s contractual rate was 6.3%.
Cash and cash equivalents excluding restricted cash were $74.4 million. The $1.25 billion credit line had approximately $1.165 billion available, net of letters of credit, and matures March 2025, with two six-month extension options. The company reported 85.7% of wholly owned real estate assets as unencumbered.
Pro-rata net debt and preferred stock to trailing-12-month Operating EBITDAre was 5.5x, versus 5.0x at December 31, 2022. Fixed-charge coverage was 5.0x, versus 4.7x. Management reported compliance with debt covenants and expected continued compliance.
The company reported no unsecured debt maturities in 2023 and $250 million due in 2024; it described secured mortgage maturities over the next 12 months as manageable. It estimated approximately $644.9 million of cash needs over the next 12 months for leasing costs, tenant improvements, developments and redevelopments, partnership contributions, and maturing debt.

Material changes and significant transactions

Regency completed its all-stock acquisition of Urstadt Biddle Properties (UBP) on August 18, 2023. The acquisition added 74 properties and 5.3 million square feet; UBP’s results are included only from the closing date. Total purchase price was reported as $1.14 billion, including approximately $818.5 million of common stock, $225 million of preferred stock, debt repaid, transaction costs, and other payments. Regency also assumed $284.7 million of notes payable at fair value.
The acquisition expanded the consolidated portfolio from 308 properties at December 31, 2022, to 379 at September 30, 2023. The company issued 9 million preferred shares in two series, with distribution rates of 6.250% and 5.875% and aggregate liquidation preference of $225 million.
Q3 revenue benefited from UBP, including $11.8 million of additional base rent and $3.8 million of tenant recoveries. Q3 operating expenses included $1.5 million of UBP transition costs; the filing also cites increased property costs and $1.3 million of captive-insurance hail-claim expense. Interest expense increased $2.4 million year over year, in part from assumed UBP loans and higher average credit-line borrowings.
Development and redevelopment projects in process had estimated pro-rata costs of $440.0 million at quarter-end. Completed 2023 projects represented $74.0 million of estimated net project costs and an average stabilized yield of 8.2%.

Outlook, risks, and contingencies

The filing does not provide a clear numeric full-year earnings or FFO guidance range. Management said available capital resources should be sufficient for expected needs over the next year and longer term, while noting there can be no assurance. It expects to fund needs through operating cash flow, credit facilities, debt and mortgage financing, property sales, partnership distributions, and potentially equity issuance.
Management cited inflation, labor and materials costs, elevated interest rates, permitting delays, and labor shortages as risks to tenant performance and construction schedules. It has used fixed-cost construction contracts, early material orders, and other planning measures to manage construction-cost exposure.
Risks also include weaker consumer spending or recession, reduced tenant demand, rent pressure, tenant bankruptcies, refinancing at higher rates, market volatility, and disruption in banking and financial services. Tenants currently in bankruptcy represent 0.6% of pro-rata annual base rent, including 0.5% related to Rite Aid.
Environmental remediation liabilities were accrued at $19.9 million on a pro-rata basis, including partnership interests. Management does not expect currently known environmental matters to materially affect financial position, liquidity, or operations, but cautions that additional conditions or regulatory changes could increase exposure.
Ordinary-course litigation and disputes were not expected by management to have a material adverse effect. A UBP acquisition-related shareholder complaint and demand letters were resolved during the quarter; payments to claimants and their attorneys were described as immaterial.
The board declared a $0.67 common dividend per share for payment in January 2024. The filing also reports quarterly preferred dividends and states that future dividends remain subject to board discretion.

Important facts for investors to verify

Assess how much reported growth reflects the UBP acquisition versus same-property performance, and review the definitions and reconciliations for FFO, Core Operating Earnings, NOI, and pro-rata measures.
Review debt maturities, refinancing exposure, interest-rate hedges, and the effect of higher borrowing costs on leverage and coverage ratios.
Monitor the $644.9 million estimated next-12-month cash requirement, project completion and leasing assumptions, and whether construction costs or delays change expected returns.
Track tenant collections, occupancy, leasing spreads, and bankruptcy exposure, including whether economic pressures affect grocery-anchored tenants and smaller shop tenants differently.
Review UBP integration costs and performance, the acquired debt and preferred-stock obligations, and any changes in environmental remediation estimates or other contingencies.