Regency Centers Corporation (“Regency” or the “Company”) today
reported financial and operating results for the period ended June
30, 2019.
Second Quarter 2019
Highlights
- For the three months ended June 30, 2019, Net Income
Attributable to Common Stockholders (“Net Income”) of $0.31 per
diluted share.
- Second quarter NAREIT Funds From Operations (“NAREIT FFO”) of
$0.95 per diluted share, which includes a $0.02 per share charge
from one-time non-cash expenses.
- Year-to-date same property Net Operating Income (“NOI”),
excluding termination fees, increased 2.1%, as compared to the same
period in 2018, driven by Base Rent growth of 2.5%.
- As of June 30, 2019, the same property portfolio was 95.1%
leased.
- On a trailing twelve months basis, rent spreads on comparable
new and renewal leases were 19.8% and 6.9%, respectively, with
total rent spreads of 8.9%.
- For the three months ended June 30, 2019, total leasing volume
of approximately 1.9 million square feet of new and renewal leases,
at blended rent spreads of 7.0%.
- As of June 30, 2019, a total of 23 properties were in
development or redevelopment representing a total investment of
approximately $474 million.
- Subsequent to the quarter, Regency acquired The Pruneyard in
Silicon Valley for a purchase price of approximately $212.5
million.
- During the second quarter, Regency issued its annual Corporate
Responsibility Report, highlighting the Company’s accomplishments
in key areas of environmental, social, and governance initiatives.
The Company was also recently included in the S&P 500 ESG index
and received a rating upgrade to A from MSCI.
- On August 1, 2019, Regency announced the transition of Martin
E. “Hap” Stein, Jr. from Chairman and Chief Executive Officer to
Executive Chairman, to be succeeded by Lisa Palmer as President and
Chief Executive Officer effective January 1, 2020. As part of
the Company’s succession plan, Ms. Palmer will vacate her role as
Chief Financial Officer, retaining her position as President,
effective August 12, 2019, with Mike Mas assuming the position of
Executive Vice President, Chief Financial Officer, at that
time.
- On July 31, 2019, Regency’s Board declared a quarterly cash
dividend on the Company’s common stock of $0.585 per share.
“I am deeply gratified to work with the best
professionals in the business who have been the cornerstone to
Regency’s ongoing success in building a wonderful company,” said
Martin E. “Hap” Stein, Jr., Chairman and Chief Executive Officer.
“Through this seamless transition, I have no doubt that Lisa and
the team will continue to execute on our strategic objectives and
make even more progress on Regency’s journey from good to great,
while generating total returns of 8% to 10%.”
Financial Results
Regency reported Net Income for the second
quarter of $51.7 million, or $0.31 per diluted share compared to
the Net Income Attributable to Common Stockholders of $47.8
million, or $0.28 per diluted share, for the same period in 2018.
The Company reported NAREIT FFO for the second quarter of $160.0
million, or $0.95 per diluted share, compared to $157.3 million, or
$0.93 per diluted share, for the same period in 2018. For the three
months ended June 30, 2019, the Company’s results included a
negative impact of $3.0 million, or $0.02 per diluted share, from
one-time non-cash expenses related to straight-line rent reserves
for tenants where it is no longer probable that those tenants will
remain in occupancy for the duration of their current lease.
The Company reported Core Operating Earnings for
the second quarter of $152.4 million, or $0.91 per diluted share,
compared to $150.5 million, or $0.89 per diluted share, for the
same period in 2018. Core operating earnings per share growth was
4.6% for the second quarter, when adjusted for the adoption of
Accounting Standard Codification 842, Leases. The Company views
Core Operating Earnings, which excludes certain non-recurring items
as well as non-cash components of earnings derived from above and
below market rent amortization, straight-line rents, and
amortization of debt mark-to-market, as a better measure of
business performance as it more closely reflects cash earnings and
the Company’s ability to grow the dividend.
Portfolio Performance
Regency’s portfolio is differentiated in its
overall outstanding quality, breadth and scale. The strength of the
Company’s merchandising mix, combined with placemaking elements and
connection to its communities further differentiate Regency’s high
quality portfolio. Regency’s national platform with 22 local market
offices offers critical strategic advantages and positions the
Company to achieve its strategic objective to average 3% same
property NOI growth over the long term.
Second quarter same property NOI, excluding
termination fees, increased 1.4% compared to the same period in
2018, which was primarily impacted by the Sears bankruptcy and
timing of reconciliations. Year-to-date same property NOI,
excluding termination fees, increased 2.1%, as compared to the same
period in 2018, driven by Base Rent growth of 2.5%.
As of June 30, 2019, Regency’s wholly-owned
portfolio plus its pro-rata share of co-investment partnerships was
94.7% leased. The same property portfolio was 95.1% leased, which
is an increase of 10 basis points sequentially and a decrease of 60
basis points from the same period in 2018, primarily driven by the
Sears bankruptcy.
For the three months ended June 30, 2019,
Regency executed approximately 1.9 million square feet of
comparable new and renewal leases at blended rent spreads of 7.0%.
Rent spreads on new and renewal leases were 6.9% and 7.0%,
respectively. For the trailing twelve months, the Company executed
approximately 6.9 million square feet of comparable new and renewal
leases at blended rent spreads of 8.9%.
Portfolio Enhancement and Capital
Allocation
Regency’s capital allocation strategy enables
the Company to benefit from a self-funding model, in which free
cash flow is the source of funding, and supports the development
and redevelopment program on a leverage neutral basis. Regency’s
development and redevelopment platform is a critical strategic
advantage for creating significant value for shareholders. Together
with the sales of lower growth assets and equity when priced
attractively, free cash flow also enables the Company to invest in
high-growth acquisitions and share repurchases when pricing is
compelling. This capital allocation strategy preserves Regency’s
pristine balance sheet and allows the Company to add value and
enhance the quality of the portfolio on a net accretive basis.
Developments and
Redevelopments
At quarter end, the Company had 23 properties in
development or redevelopment with, estimated net project costs of
approximately $474 million. In-process developments and
redevelopments were 89% leased and committed as of June 30, 2019,
and are expected to yield an average return of 7.6%.
During the quarter, Regency started one
ground-up development project and four redevelopment projects. The
ground-up development project, Culver Public Market, is a 27,000 -
square foot urban retail project located in the dynamic
high-barrier-to-entry Culver City submarket of Los Angeles,
California. The total project cost is approximately $27 million at
a projected 6.0% stabilized yield.
As previously reported, Regency started the
generational redevelopment of The Abbot, located in the heart of
Harvard Square in Cambridge, MA. The project will modernize and
expand the iconic property offering flagship retail and office
uses. The total project cost is approximately $52 million at a
projected incremental 9.3% stabilized yield.
Property Transactions
During the quarter the Company acquired 6401
Roosevelt in Seattle, WA for $3.6 million. This multi-tenant retail
building is adjacent to the Company’s Whole Foods anchored
operating property, Roosevelt Square.
Subsequent to quarter end, the Company acquired
The Pruneyard, a 258,000 square foot center located in Silicon
Valley for $212.5 million at a 4.3% cap rate. The center is
anchored by Trader Joe’s and Marshalls and sits in close proximity
to the West Valley’s most affluent neighborhoods and technology
employers. In addition to the retail portion, The Pruneyard also
benefits from three adjacent office towers totaling 360,000 square
feet and an adjacent 171-key hotel, which were not part of the
transaction.
On a year-to-date basis, including The Pruneyard
acquisition subsequent to the quarter end, the Company has closed
on $231.6 million of acquisitions and $136.5 million of
dispositions.
Balance Sheet
Regency benefits from favorable access to
capital through the strength of its balance sheet, supported by
conservative leverage levels with a Net Debt to EBITDAre ratio of
5.3x. This positions Regency to weather potential challenges and
potentially profit from investment opportunities in the future.
Dividend
On July 31, 2019, Regency’s Board declared a
quarterly cash dividend on the Company’s common stock of $0.585 per
share. The dividend is payable on August 22, 2019, to shareholders
of record as of August 12, 2019.
Executive Leadership
Changes
As reported concurrently with this release, Regency has
announced the transition of Martin E. “Hap” Stein, Jr. from
Chairman and Chief Executive Officer to Executive Chairman,
effective January 1, 2020. Concurrent with this transition,
Regency’s Board of Directors is pleased to announce that Lisa
Palmer will become President and Chief Executive Officer. As part
of the Company’s succession plan, Ms. Palmer will vacate her role
as Chief Financial Officer, retaining her position as President,
effective August 12, 2019, with Mike Mas assuming the position of
Executive Vice President, Chief Financial Officer, at that
time.
Additionally, to more accurately reflect their roles within the
Company, Jim Thompson will become Executive Vice President, Chief
Operating Officer, and Mac Chandler will become Executive Vice
President, Chief Investment Officer, effective August 12, 2019.
2019 Guidance
The Company has updated certain components of its 2019 earnings
guidance. Guidance for NAREIT FFO is unchanged at the midpoint. The
NAREIT FFO range has been updated to reflect the one-time charge of
$3.0 million, or $0.02 per diluted share, related to the one-time
non-cash straight-line rent charge. Please refer to the Company’s
second quarter 2019 supplemental information package for a complete
list of updates.
2019 Guidance |
|
All figures pro-rata and in thousands, except per share data |
|
|
Current Guidance |
Previous Guidance |
|
Net
Income Attributable to Common Stockholders (“Net Income”) |
$1.56 - $1.60 |
$1.41 - $1.47 |
|
NAREIT
Funds From Operations (“NAREIT FFO”) per diluted share |
$3.81 - $3.85 |
$3.80 - $3.86 |
|
Same
Property Net Operating Income (“SPNOI”) Growth excluding
termination fees (pro-rata) |
2.0% - 2.5% |
2.0% - 2.5% |
|
Conference Call Information
To discuss Regency’s second quarter results,
Management will host a conference call on Friday, August 2, 2019,
at 11:00 a.m. EDT. Dial-in and webcast information is listed
below.
Second Quarter 2019 Earnings Conference Call |
Date: |
Friday, August 2, 2019 |
Time: |
11:00 a.m. ET |
Dial#: |
877-407-0789 or
201-689-8563 |
Webcast: |
investors.regencycenters.com |
Replay
Webcast Archive: Investor Relations page
under Events & Webcasts
Non-GAAP Disclosure
The Company uses certain non-GAAP performance
measures, in addition to the required GAAP presentations, as we
believe these measures improve the understanding of the Company's
operational results. We manage our entire real estate
portfolio without regard to ownership structure, although certain
decisions impacting properties owned through partnerships require
partner approval. Therefore, we believe presenting our
pro-rata share of operating results regardless of ownership
structure, along with other non-GAAP measures, makes
comparisons of other REITs' operating results to the Company's more
meaningful. We continually evaluate the usefulness, relevance,
limitations, and calculation of our reported non-GAAP performance
measures to determine how best to provide relevant information to
the public, and thus such reported measures could change.
NAREIT FFO is a commonly used measure of REIT
performance, which the National Association of Real Estate
Investment Trusts (“NAREIT”) defines as net income, computed in
accordance with GAAP, excluding gains on sale and impairments of
real estate, net of tax, plus depreciation and amortization, and
after adjustments for unconsolidated partnerships and joint
ventures. Regency computes NAREIT FFO for all periods presented in
accordance with NAREIT's definition in effect during that
period. Effective January 1, 2019, the Company prospectively
adopted the NAREIT FFO White Paper – 2018 Restatement (“2018 FFO
White Paper”), and elected the option of excluding gains on sale
and impairments of land, which are considered incidental to the
Company’s main business. Prior period amounts were not restated to
conform to the current year presentation, and therefore are
calculated as described above, but also include gains on sales and
impairments of land. Many companies use different depreciable lives
and methods, and real estate values historically fluctuate with
market conditions. Since NAREIT FFO excludes depreciation and
amortization and gains on sales and impairments of real estate, it
provides a performance measure that, when compared year over year,
reflects the impact on operations from trends in occupancy rates,
rental rates, operating costs, acquisition and development
activities, and financing costs. This provides a perspective of the
Company’s financial performance not immediately apparent from net
income determined in accordance with GAAP. Thus, NAREIT FFO is a
supplemental non-GAAP financial measure of the Company's operating
performance, which does not represent cash generated from operating
activities in accordance with GAAP; and, therefore, should not be
considered a substitute measure of cash flows from operations. The
Company provides a reconciliation of Net Income Attributable to
Common Stockholders to NAREIT FFO.
Core Operating Earnings is an additional
performance measure that excludes from NAREIT FFO: (i) transaction
related income or expenses; (ii) gains or losses from the early
extinguishment of debt; (iii) certain non-cash components of
earnings derived from above and below market rent amortization,
straight-line rents, and amortization of mark-to-market of debt
adjustments; and (iv) other amounts as they occur. The Company
provides a reconciliation of Net Income to NAREIT FFO to Core
Operating Earnings.
|
|
|
|
|
|
Reconciliation of Net Income Attributable to Common
Stockholders to NAREIT FFO and Core Operating Earnings - Actual (in
thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Periods Ended
June 30, 2019 and 2018 |
Three Months Ended |
|
Year to Date |
|
|
2019 |
|
2018 |
|
|
|
2019 |
|
2018 |
|
|
|
|
|
|
|
Reconciliation of Net
Income to NAREIT FFO: |
|
|
|
|
|
|
|
|
|
|
|
Net Income Attributable to
Common Stockholders |
$ |
51,728 |
|
47,841 |
|
|
$ |
142,174 |
|
100,500 |
|
Adjustments to reconcile to NAREIT Funds From Operations(1): |
|
|
|
|
|
Depreciation and amortization (excluding FF&E) |
|
100,168 |
|
97,189 |
|
|
|
204,665 |
|
193,386 |
|
Gain on sale of operating properties |
|
(2,393 |
) |
(246 |
) |
|
|
(39,463 |
) |
(348 |
) |
Provision for impairment to operating properties |
|
10,441 |
|
12,440 |
|
|
|
12,113 |
|
28,494 |
|
Gain (loss) on sale of land(2) |
|
(17 |
) |
- |
|
|
|
1 |
|
- |
|
Exchangeable operating partnership units |
|
109 |
|
100 |
|
|
|
299 |
|
212 |
|
|
|
|
|
|
|
|
|
|
|
|
|
NAREIT Funds From Operations |
$ |
160,036 |
|
157,324 |
|
|
$ |
319,789 |
|
322,244 |
|
|
|
|
|
|
|
Reconciliation of
NAREIT FFO to Core Operating Earnings: |
|
|
|
|
|
|
|
|
|
|
|
NAREIT Funds From
Operations |
$ |
160,036 |
|
157,324 |
|
|
$ |
319,789 |
|
322,244 |
|
Adjustments to reconcile to Core Operating Earnings(1): |
|
|
|
|
|
Gain on sale of land(2) |
|
- |
|
(869 |
) |
|
|
- |
|
(976 |
) |
Provision for impairment to land |
|
- |
|
93 |
|
|
|
- |
|
93 |
|
Early extinguishment of debt |
|
- |
|
11,010 |
|
|
|
10,591 |
|
11,172 |
|
Interest on bonds for period from notice to redemption |
|
- |
|
- |
|
|
|
367 |
|
600 |
|
Straight line rent, net |
|
(505 |
) |
(4,749 |
) |
|
|
(4,674 |
) |
(8,830 |
) |
Above/below market rent amortization, net |
|
(6,640 |
) |
(11,378 |
) |
|
|
(19,975 |
) |
(19,801 |
) |
Debt premium/discount amortization |
|
(459 |
) |
(897 |
) |
|
|
(986 |
) |
(1,795 |
) |
|
|
|
|
|
|
Core Operating Earnings |
$ |
152,432 |
|
150,534 |
|
|
$ |
305,112 |
|
302,707 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Shares For
Diluted Earnings per Share |
|
167,962 |
|
169,682 |
|
|
|
167,877 |
|
170,291 |
|
|
|
|
|
|
|
Weighted Average Shares For
Diluted FFO and Core Operating Earnings per Share |
|
168,312 |
|
170,032 |
|
|
|
168,227 |
|
170,641 |
|
|
|
|
|
|
|
(1) Includes Regency's consolidated entities and its pro-rata share
of unconsolidated co-investment partnerships, net of pro-rata share
attributable to noncontrolling interests. |
(2) Effective January 1, 2019, Regency prospectively adopted the
NAREIT FFO White Paper – 2018 Restatement, and elected the option
of excluding gains on sales and impairments of land, which are
considered incidental to the Company’s main business. Prior
period amounts were not restated to conform to the current year
presentation of NAREIT FFO, and therefore include gains on sales
and impairments of land. |
|
Same property NOI is a key non-GAAP measure used by management
in evaluating the operating performance of Regency’s properties.
The Company provides a reconciliation of net income to pro-rata
same property NOI.
|
|
|
|
|
|
|
Reconciliation of Net Income Attributable to Common
Stockholders to Pro-Rata Same Property NOI - Actual (in
thousands) |
|
|
|
For the Periods Ended
June 30, 2019 and 2018 |
Three Months Ended |
|
Year to Date |
|
|
|
2019 |
|
2018 |
|
|
|
2019 |
|
2018 |
|
|
|
|
|
|
|
|
|
Net Income Attributable to
Common Stockholders |
$ |
51,728 |
|
47,841 |
|
|
$ |
142,174 |
|
100,500 |
|
|
Less: |
|
|
|
|
|
|
Management, transaction, and other fees |
|
(7,442 |
) |
(6,887 |
) |
|
|
(14,415 |
) |
(14,045 |
) |
|
Other(1) |
|
(8,355 |
) |
(17,634 |
) |
|
|
(27,325 |
) |
(31,807 |
) |
|
Plus: |
|
|
|
|
|
|
Depreciation and amortization |
|
93,589 |
|
89,105 |
|
|
|
190,783 |
|
177,629 |
|
|
General and administrative |
|
18,717 |
|
16,776 |
|
|
|
40,017 |
|
34,382 |
|
|
Other operating expense, excluding provision for doubtful
accounts |
|
1,533 |
|
1,480 |
|
|
|
2,667 |
|
1,917 |
|
|
Other expense (income) |
|
46,206 |
|
59,925 |
|
|
|
77,377 |
|
112,797 |
|
|
Equity in income of investments in real estate excluded from NOI
(2) |
|
11,976 |
|
15,669 |
|
|
|
6,347 |
|
30,762 |
|
|
Net income attributable to noncontrolling interests |
|
962 |
|
748 |
|
|
|
2,009 |
|
1,554 |
|
|
NOI |
|
208,914 |
|
207,023 |
|
|
|
419,634 |
|
413,689 |
|
|
|
|
|
|
|
|
|
Less non-same property NOI (3) |
|
(4,870 |
) |
(7,998 |
) |
|
|
(9,969 |
) |
(14,153 |
) |
|
|
|
|
|
|
|
|
Same Property NOI |
$ |
204,044 |
|
199,025 |
|
|
$ |
409,665 |
|
399,536 |
|
|
|
|
|
|
|
|
|
Same Property NOI without Termination Fees |
$ |
203,045 |
|
200,287 |
|
|
$ |
408,181 |
|
399,618 |
|
|
|
|
|
|
|
|
|
Same Property NOI without Termination Fees or
Redevelopments |
$ |
191,867 |
|
188,943 |
|
|
$ |
385,072 |
|
377,224 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Includes
straight-line rental income and expense, net of reserves, above and
below market rent amortization, other fees, and noncontrolling
interests. |
|
|
(2) Includes
non-NOI expenses incurred at our unconsolidated real estate
partnerships, such as, but not limited to, straight-line rental
income, above and below market rent amortization, depreciation
and amortization, interest expense, and real estate gains and
impairments. |
|
(3) Includes
revenues and expenses attributable to Non-Same Property, Projects
in Development, corporate activities, and noncontrolling
interests. |
|
|
|
|
|
|
|
|
|
Reported results are preliminary and not final until the filing
of the Company’s Form 10-Q with the SEC and, therefore, remain
subject to adjustment.
Reconciliation of Net Income Attributable to Common
Stockholders to NAREIT FFO — Guidance (per diluted
share)
|
|
|
|
|
|
Full Year |
|
|
NAREIT FFO Guidance: |
|
|
|
2019 |
|
|
|
|
|
|
|
|
Low |
High |
|
|
|
|
|
|
|
|
|
|
|
Net income
attributable to common stockholders |
|
$ |
1.56 |
|
1.60 |
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments to reconcile net income to NAREIT
FFO: |
|
|
|
|
Depreciation and
amortization |
|
|
2.41 |
|
2.41 |
|
|
|
Provision for
impairment |
|
|
|
0.07 |
|
0.07 |
|
|
|
Gain on sale of
operating properties |
|
|
(0.23 |
) |
(0.23 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NAREIT
Funds From Operations |
|
$ |
3.81 |
|
3.85 |
|
|
|
|
|
|
|
|
|
|
|
The Company has published forward-looking statements and
additional financial information in its second quarter 2019
supplemental information package that may help investors estimate
earnings for 2019. A copy of the Company’s second quarter 2019
supplemental information will be available on the Company's website
at www.RegencyCenters.com or by written request to: Investor
Relations, Regency Centers Corporation, One Independent Drive,
Suite 114, Jacksonville, Florida, 32202. The supplemental
information package contains more detailed financial and property
results including financial statements, an outstanding debt
summary, acquisition and development activity, investments in
partnerships, information pertaining to securities issued other
than common stock, property details, a significant tenant rent
report and a lease expiration table in addition to earnings and
valuation guidance assumptions. The information provided in the
supplemental package is unaudited and there can be no assurance
that the information will not vary from the final information in
the Company’s Form 10-Q for the quarter ended June 30, 2019.
Regency may, but assumes no obligation to, update information in
the supplemental package from time to time.
About Regency Centers Corporation
(NASDAQ: REG)
Regency Centers is the preeminent national
owner, operator, and developer of shopping centers located in
affluent and densely populated trade areas. Our portfolio includes
thriving properties merchandised with highly productive grocers,
restaurants, service providers, and best-in-class retailers that
connect to our neighborhoods, communities, and customers. Operating
as a fully integrated real estate company, Regency Centers is a
qualified real estate investment trust (REIT) that is
self-administered, self-managed, and an S&P 500 Index member.
For more information, please visit RegencyCenters.com.
Forward-looking statements involve risks and
uncertainties. Actual future performance, outcomes and results may
differ materially from those expressed in forward-looking
statements. Please refer to the documents filed by Regency Centers
Corporation with the SEC, specifically the most recent reports on
Forms 10-K and 10-Q, which identify important risk factors which
could cause actual results to differ from those contained in the
forward-looking statements.
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