Regency Centers Corporation (“Regency” or the “Company”) today
reported financial and operating results for the period ended
September 30, 2019.
Third Quarter 2019
Highlights
- For the three months ended September 30, 2019, Net Income
Attributable to Common Stockholders (“Net Income”) of $0.34 per
diluted share.
- Third quarter NAREIT Funds From Operations (“NAREIT FFO”) of
$0.99 per diluted share.
- Year-to-date same property Net Operating Income (“NOI”),
excluding termination fees, increased 2.1%, as compared to the same
period in 2018.
- As of September 30, 2019, the same property portfolio was 95.2%
leased.
- On a trailing twelve months basis, rent spreads on comparable
new and renewal leases were 12.8% and 6.9%, respectively, with
total rent spreads of 7.9%.
- During the third quarter, Regency acquired two shopping centers
for a total of approximately $262.5 million.
- As of September 30, 2019, 24 properties were in development or
redevelopment representing a total investment of approximately $470
million.
- The Company completed a public offering of $425 million 2.95%
unsecured notes due 2029 (the “Notes”).
- The Company executed on its at-the-market equity (the “ATM”)
program selling approximately $128.8 million in common stock on a
forward basis at a weighted average share price of $67.99 per
share.
- On October 29, 2019, Regency’s Board declared a quarterly cash
dividend on the Company’s common stock of $0.585 per share.
Financial Results
Regency reported Net Income for the third
quarter of $57.0 million, or $0.34 per diluted share, compared to
the Net Income Attributable to Common Stockholders of $69.7
million, or $0.41 per diluted share, for the same period in
2018.
The Company reported NAREIT FFO for the third
quarter of $166.1 million, or $0.99 per diluted share, compared to
$163.5 million, or $0.96 per diluted share, for the same period in
2018. For the three months ended September 30, 2019, the Company’s
results included a positive impact of $4.7 million, or $0.03 per
diluted share, from non-cash income related to the acceleration of
below market rent associated with a proactive anchor lease
termination and a one-time negative impact of $1.4 million, or
$0.01 per diluted share, from a swap breakage fee and loan cost
amortization associated with the August bond offering and term loan
repayment.
The Company reported Core Operating Earnings for
the third quarter of $153.8 million, or $0.91 per diluted share,
compared to $151.2 million, or $0.89 per diluted share, for the
same period in 2018. Core operating earnings per share growth was
3.4% for the third quarter and 3.8% year-to-date when adjusted for
the adoption of Accounting Standard Codification 842, Leases. The
Company views Core Operating Earnings, which excludes from NAREIT
FFO 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 preeminent portfolio along with its
national platform and 22 local market offices offers critical
strategic advantages and positions the Company to achieve its
objective to average 3% same property NOI growth over the long
term.
Third quarter same property NOI, excluding
termination fees, increased 2.1% compared to the same period in
2018. Year-to-date same property NOI, excluding termination fees,
increased 2.1%, as compared to the same period in 2018.
As of September 30, 2019, Regency’s wholly-owned
portfolio plus its pro-rata share of co-investment partnerships was
94.8% leased. The same property portfolio was 95.2% leased, which
is an increase of 10 basis points sequentially and a decrease of 80
basis points from the same period in 2018, primarily driven by the
Sears bankruptcy.
For the three months ended September 30, 2019,
Regency executed approximately 1.7 million square feet of
comparable new and renewal leases at blended rent spreads of 6.6%.
Rent spreads on new and renewal leases were 10.0% and 5.7%,
respectively. For the trailing twelve months, the Company executed
approximately 6.6 million square feet of comparable new and renewal
leases at blended rent spreads of 7.9%.
Portfolio Enhancement and Capital
Allocation
Regency’s self-funding model enables the Company
to benefit from its capital allocation strategy. Free cash flow
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 24 properties in
development or redevelopment with estimated net project costs of
approximately $470 million. In-process developments and
redevelopments were 89% leased and committed as of September 30,
2019, and are expected to yield an average return of 7.7%.
During the quarter, Regency started three
redevelopment projects with combined pro-rata costs of
approximately $21.5 million. The Company also completed one
development and one redevelopment project. The recently completed
ground-up development project, Midtown East, is a 159,000 square
foot neighborhood shopping center located inside the Raleigh
Beltline. This 97% leased center is anchored by a 105,000 square
foot Wegmans grocery store, the first Wegmans to open in North
Carolina. Regency’s share of the total project cost was
approximately $23 million at a projected 7.7% stabilized yield.
Property Transactions
As previously disclosed, on July 1, 2019, the
Company acquired The Pruneyard, a 258,000 square foot retail center
located in Silicon Valley for $212.5 million. The center is
anchored by Trader Joe’s and Marshalls and sits in close proximity
to the most affluent neighborhoods and technology employers on the
Westside of Silicon Valley. 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.
During the quarter, the Company also acquired
Circle Marina Center, an off-market acquisition of 118,000 square
feet of premier retail located on Pacific Coast Highway in the
heart of Long Beach, CA, for $50 million. Circle Marina offers
Regency a unique value-add opportunity through a redevelopment of
the center in the near future that will include façade upgrades,
placemaking enhancements and the addition of a specialty grocer.
The acquisition was funded with a secured mortgage loan of $24
million and $25.9 million of operating partnership units issued at
$65.24 per share.
In the third quarter, Regency sold one
wholly-owned center, Bluebonnet Village, located in Baton Rouge, LA
for a gross sales price of $14.2 million. Subsequent to quarter
end, the Company sold two wholly-owned properties, Bluffs Square
Shoppes, located in Jupiter, FL, and Elmwood Oaks Shopping Center,
located in Harahan, LA, for a combined gross sales price of $40.9
million.
On a year-to-date basis including transactions
closed subsequent to quarter end, the Company has closed on $281.6
million of acquisitions and $191.6 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
5.5x. This positions Regency to weather potential challenges and
potentially profit from investment opportunities in the future.
Regency has a BBB+ rating and positive outlook from S&P Global
Ratings. During the quarter, Moody’s Investors Service
affirmed the Company’s Baa1 rating and upgraded its outlook to
positive from stable.
Debt Offering
As previously disclosed, on August 13, 2019, the
Company’s operating partnership, Regency Centers, L.P., priced a
public offering of $425 million 2.95% notes due 2029 (the “Notes”).
The Notes are due September 15, 2029 and were priced at 99.903%.
Interest on the Notes is payable semiannually on March 15 and
September 15 of each year, with the first payment on March 15,
2020. Net proceeds of the offering were used to repay in full the
$300 million term loan with an original maturity date of December
2, 2020, including an interest rate swap breakage fee and loan
amortization costs of approximately $1.4 million. The balance of
the net proceeds of the offering were used to reduce the
outstanding balance on the corporate line of credit.
ATM Equity Offering
In September, the Company sold approximately
$128.8 million through its ATM program at a weighted average price
per share of $67.99. The sales were executed on a forward basis
with settlement to occur within 12 months.
Dividend
On October 29, 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 November 22, 2019, to
shareholders of record as of November 12, 2019.
2019 Guidance
The Company has updated certain components of its 2019 earnings
guidance. Net Income and NAREIT FFO guidance has been updated to
reflect certain non-recurring items:
- In the third quarter, a $10.9 million, or $0.06 per diluted
share, impairment charge was recognized within our New York Common
Retirement Fund partnership associated with changes in the expected
hold periods of various properties.
- Third quarter results also include a one-time swap breakage
charge and loan amortization costs of $1.4 million, or $0.01 per
diluted share, associated with the repayment of a term loan
following our August unsecured bond offering.
- A proactive lease termination of an anchor tenant was executed
in the third quarter, requiring the acceleration of non-cash below
market rent income recognized between the execution of the
termination agreement and the termination date of May 2020. Third
quarter results include non-cash below market rental income of $4.7
million, or $0.03 per diluted share, associated with the
aforementioned termination agreement. For the full year 2019, the
non-cash below market rental income related to the acceleration of
below market rent caused by the lease termination agreement is
expected to be $9.4 million, or $0.06 per diluted share.
The Net Income and NAREIT FFO guidance ranges have been updated
to reflect the aforementioned non-recurring items. Please refer to
the Company’s third 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”) |
$1.52 - $1.55 |
$1.56 - $1.60 |
NAREIT Funds From
Operations (“NAREIT FFO”) per diluted share |
$3.84 - $3.87 |
$3.81 - $3.85 |
Same Property Net
Operating Income (“SPNOI”) Growth excluding termination fees
(pro-rata) |
2% |
2.0% - 2.5% |
Conference Call Information
To discuss Regency’s second quarter results,
Management will host a conference call on Thursday, October 31,
2019, at 11:00 a.m. EDT. Dial-in and webcast information is listed
below.
Third Quarter 2019 Earnings Conference
Call |
Date: |
Thursday,
October 31, 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. Core Operating Earnings for the third quarter
and year-to-date periods ending September 30, 2018 included $2.1
million and $6.1 million, respectively, of capitalized leasing
costs which, upon the adoption of the new lease accounting standard
ASC 842 on January 1, 2019, are expensed.
NAREIT EBITDAre is a measure of REIT
performance, which NAREIT defines as net income, computed in
accordance with GAAP, excluding (i) interest expense; (ii) income
tax expense; (iii) depreciation and amortization; (iv) gains on
sales of real estate; (v) impairments of real estate; and (vi)
adjustments to reflect the Company’s share of unconsolidated
partnerships and joint ventures.
Reconciliation of Net Income
Attributable to Common Stockholders to NAREIT FFO and Core
Operating Earnings - Actual (in thousands)
For the Periods Ended
September 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 |
$ |
56,965 |
|
69,722 |
|
|
$ |
199,139 |
|
170,222 |
|
Adjustments to reconcile to NAREIT Funds From Operations(1): |
|
|
|
|
|
Depreciation and amortization (excluding FF&E) |
|
98,951 |
|
96,795 |
|
|
|
303,617 |
|
290,182 |
|
Gain on sale of operating properties |
|
(408 |
) |
(3,610 |
) |
|
|
(39,871 |
) |
(3,958 |
) |
Provision for impairment to operating properties |
|
10,886 |
|
407 |
|
|
|
22,999 |
|
28,901 |
|
Gain (loss) on sale of land(2) |
|
(461 |
) |
- |
|
|
|
(460 |
) |
- |
|
Exchangeable operating partnership units |
|
157 |
|
147 |
|
|
|
456 |
|
358 |
|
|
|
|
|
|
|
NAREIT Funds From Operations |
$ |
166,090 |
|
163,461 |
|
|
$ |
485,880 |
|
485,705 |
|
|
|
|
|
|
|
Reconciliation of
NAREIT FFO to Core Operating Earnings: |
|
|
|
|
|
|
|
|
|
|
|
NAREIT Funds From
Operations |
$ |
166,090 |
|
163,461 |
|
|
$ |
485,880 |
|
485,705 |
|
Adjustments to reconcile to Core Operating Earnings(1): |
|
|
|
|
|
Gain on sale of land(2) |
|
- |
|
(53 |
) |
|
|
- |
|
(1,030 |
) |
Provision for impairment to land |
|
- |
|
448 |
|
|
|
- |
|
542 |
|
Early extinguishment of debt |
|
1,391 |
|
- |
|
|
|
11,982 |
|
11,172 |
|
Interest on bonds for period from notice to redemption |
|
- |
|
- |
|
|
|
367 |
|
600 |
|
Straight line rent, net |
|
(2,465 |
) |
(4,811 |
) |
|
|
(7,140 |
) |
(13,641 |
) |
Above/below market rent amortization, net |
|
(10,858 |
) |
(6,931 |
) |
|
|
(30,833 |
) |
(26,732 |
) |
Debt premium/discount amortization |
|
(395 |
) |
(931 |
) |
|
|
(1,381 |
) |
(2,727 |
) |
|
|
|
|
|
|
Core Operating Earnings |
$ |
153,763 |
|
151,183 |
|
|
$ |
458,875 |
|
453,889 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average Shares For
Diluted Earnings per Share |
|
167,944 |
|
169,839 |
|
|
|
167,834 |
|
170,166 |
|
|
|
|
|
|
|
Weighted Average Shares For
Diluted FFO and Core Operating Earnings per Share |
|
168,350 |
|
170,188 |
|
|
|
168,203 |
|
170,516 |
|
|
|
|
|
|
|
(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
September 30, 2019 and 2018 |
Three Months Ended |
|
Year to Date |
|
|
2019 |
|
2018 |
|
|
|
2019 |
|
2018 |
|
|
|
|
|
|
|
Net Income Attributable to
Common Stockholders |
$ |
56,965 |
|
69,722 |
|
|
$ |
199,139 |
|
170,222 |
|
Less: |
|
|
|
|
|
Management, transaction, and other fees |
|
(7,353 |
) |
(6,954 |
) |
|
|
(21,768 |
) |
(20,999 |
) |
Other(1) |
|
(14,769 |
) |
(13,016 |
) |
|
|
(42,097 |
) |
(44,823 |
) |
Plus: |
|
|
|
|
|
Depreciation and amortization |
|
91,856 |
|
89,183 |
|
|
|
282,639 |
|
266,812 |
|
General and administrative |
|
16,705 |
|
17,564 |
|
|
|
56,722 |
|
51,947 |
|
Other operating expense, excluding provision for doubtful
accounts |
|
1,819 |
|
909 |
|
|
|
4,486 |
|
2,825 |
|
Other expense (income) |
|
38,373 |
|
33,322 |
|
|
|
115,750 |
|
146,120 |
|
Equity in income of investments in real estate excluded from NOI
(2) |
|
25,354 |
|
14,323 |
|
|
|
31,699 |
|
45,083 |
|
Net income attributable to noncontrolling interests |
|
979 |
|
812 |
|
|
|
2,988 |
|
2,366 |
|
NOI |
|
209,929 |
|
205,865 |
|
|
|
629,558 |
|
619,553 |
|
|
|
|
|
|
|
Less non-same property NOI (3) |
|
(6,789 |
) |
(6,438 |
) |
|
|
(17,318 |
) |
(21,172 |
) |
|
|
|
|
|
|
Same Property NOI |
$ |
203,140 |
|
199,427 |
|
|
$ |
612,240 |
|
598,381 |
|
|
|
|
|
|
|
Same Property NOI without Termination Fees |
$ |
202,754 |
|
198,562 |
|
|
$ |
610,370 |
|
597,598 |
|
|
|
|
|
|
|
Same Property NOI without Termination Fees or
Redevelopments |
$ |
191,436 |
|
187,725 |
|
|
$ |
576,182 |
|
564,870 |
|
|
|
|
|
|
|
|
|
|
|
|
|
(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 |
|
$ |
1.52 |
|
1.55 |
|
|
|
|
|
|
|
|
|
|
Adjustments to reconcile net income to NAREIT
FFO: |
|
|
|
Depreciation and
amortization |
|
|
2.42 |
|
2.42 |
|
|
Provision for impairment |
|
|
|
0.14 |
|
0.14 |
|
|
Gain on sale of
operating properties |
|
|
(0.24 |
) |
(0.24 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NAREIT
Funds From Operations |
|
$ |
3.84 |
|
3.87 |
|
|
|
|
|
|
|
|
|
The Company has published forward-looking
statements and additional financial information in its third
quarter 2019 supplemental information package that may help
investors estimate earnings for 2019. A copy of the Company’s third
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 September 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.
Laura Clark904 598
7831LauraClark@RegencyCenters.com
Regency Centers (NASDAQ:REG)
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Regency Centers (NASDAQ:REG)
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