Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements
Certain statements in this document regarding anticipated financial, business, legal or other outcomes including business and market conditions, outlook and other similar statements relating to Regency’s future events, developments, or financial or operational performance or results, are “forward-looking statements” made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and other federal securities laws. These forward-looking statements are identified by the use of words such as “may,” “will,” “should,” “expect,” “estimate,” “believe,” “intend,” “forecast,” “anticipate,” “guidance,” and other similar language. However, the absence of these or similar words or expressions does not mean a statement is not forward-looking. While we believe these forward-looking statements are reasonable when made, forward-looking statements are not guarantees of future performance or events and undue reliance should not be placed on these statements. Although we believe the expectations reflected in any forward-looking statements are based on reasonable assumptions, we can give no assurance these expectations will be attained, and it is possible actual results may differ materially from those indicated by these forward-looking statements due to a variety of risks and uncertainties.
Our operations are subject to a number of risks and uncertainties including, but not limited to, risk factors described in our SEC filings. When considering an investment in our securities, you should carefully read and consider these risks, together with all other information in our most recent Annual Report on Form 10-K, subsequent Quarterly Reports on Form 10-Q and our other filings with and submissions to the SEC. If any of the events described in the risk factors actually occur, our business, financial condition or operating results, as well as the market price of our securities, could be materially adversely affected. Forward-looking statements are only as of the date they are made, and Regency undertakes no duty to update its forward-looking statements except as and to the extent required by law.
Non-GAAP Measures
In addition to the required Generally Accepted Accounting Principles (“GAAP”) presentations, we use certain non-GAAP performance measures as we believe these measures improve the understanding of our operational results. We believe these non-GAAP measures provide useful information to our Board of Directors, management and investors regarding certain trends relating to our financial condition and results of operations. Our management uses these non-GAAP measures to compare our performance to that of prior periods for trend analyses, purposes of determining management incentive compensation and budgeting, forecasting and planning purposes. 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.
We do not consider non-GAAP measures an alternative to financial measures determined in accordance with GAAP, rather they supplement GAAP measures by providing additional information we believe to be useful to our shareholders. The principal limitation of these non-GAAP financial measures is they may exclude significant expense and income items that are required by GAAP to be recognized in our consolidated financial statements. In addition, they reflect the exercise of management’s judgment about which expense and income items are excluded or included in determining these non-GAAP financial measures. In order to compensate for these limitations, reconciliations of the non-GAAP financial measures we use to their most directly comparable GAAP measures are provided. Non-GAAP financial measures should not be relied upon in evaluating the financial condition, results of operations or future prospects of the Company.
Defined Terms
The following terms, as defined, are commonly used by management and the investing public to understand and evaluate our operational results:
•Core Operating Earnings is an additional performance measure we use because the computation of Nareit Funds from Operations (“Nareit FFO”) includes certain non-comparable items that affect our period-over-period performance. Core Operating Earnings 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 debt adjustments, and (iv) other amounts as they occur. We provide reconciliations of both Net income attributable to common stockholders to Nareit FFO and Nareit FFO to Core Operating Earnings.
•Development Completion is a property in development that is deemed complete upon the earlier of: (i) 90% of total estimated net development costs have been incurred and percent leased equals or exceeds 95%, or (ii) the property features at least two years of anchor operations. Once deemed complete, the property is termed a Retail Operating Property the following calendar year.
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•Fixed Charge Coverage Ratio is defined as Operating EBITDAre divided by the sum of the gross interest and scheduled mortgage principal paid to our lenders.
•Nareit EBITDAre is a measure of REIT performance, which the National Association of Real Estate Investment Trusts (“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.
•Nareit Funds from Operations is a commonly used measure of REIT performance, which Nareit defines as net income, computed in accordance with GAAP, excluding gains on sales and impairments of real estate, net of tax, plus depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures. We compute Nareit FFO for all periods presented in accordance with Nareit's definition.
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 sale and impairments of real estate, it provides a performance measure that, when compared year over year, reflects the impact on operations from trends in percent leased, rental rates, operating costs, acquisition and development activities, and financing costs. This provides a perspective of our financial performance not immediately apparent from net income determined in accordance with GAAP. Thus, Nareit FFO is a supplemental non-GAAP financial measure of our 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. We provide a reconciliation of Net Income Attributable to Common Stockholders to Nareit FFO.
•Net Operating Income (“NOI”) is the sum of base rent, percentage rent, recoveries from tenants, other lease income, and other property income, less operating and maintenance expenses, real estate taxes, ground rent, and uncollectible lease income. NOI excludes straight-line rental income and expense, above and below market rent and ground rent amortization, tenant lease inducement amortization, and other fees. We also provide disclosure of NOI excluding termination fees, which excludes both termination fee income and expenses.
•A Non-Same Property is any property, during either calendar year period being compared, that was acquired, sold, a Property in Development, a Development Completion, or a property under, or being positioned for, significant redevelopment that distorts comparability between periods. Non-retail properties and corporate activities, including the captive insurance program, are part of Non-Same Property.
•Operating EBITDAre begins with Nareit EBITDAre and excludes certain non-cash components of earnings derived from above and below market rent amortization and straight-line rents. We provide a reconciliation of Net income to Nareit EBITDAre to Operating EBITDAre.
•Pro-rata information includes 100% of our consolidated properties plus our economic share (based on our ownership interest) in our unconsolidated real estate investment partnerships.
We provide Pro-rata financial information because we believe it assists investors and analysts in estimating our economic interest in our consolidated and unconsolidated partnerships, when read in conjunction with our reported results under GAAP. We believe presenting our Pro-rata share of assets, liabilities, operating results, and other metrics, along with certain other non-GAAP measures, makes comparisons of other REITs’ operating results to ours more meaningful. The Pro-rata information provided is not, nor is it intended to be, presented in accordance with GAAP. The Pro-rata supplemental details of assets and liabilities and supplemental details of operations reflect our proportionate economic ownership of the assets, liabilities, and operating results of the properties in our portfolio.
The Pro-rata information is prepared on a basis consistent with the comparable consolidated amounts and is intended to more accurately reflect our proportionate economic interest in the assets, liabilities, and operating results of properties in our portfolio. We do not control the unconsolidated investment partnerships, and the Pro-rata presentations of the assets and liabilities, and revenues and expenses do not represent our legal claim to such items. The partners are entitled to profit or loss allocations and distributions of cash flows according to the operating agreements, which generally provide for such allocations according to their invested capital. Our share of invested capital establishes the ownership interests we use to prepare our Pro-rata share.
The presentation of Pro-rata information has limitations which include, but are not limited to, the following:
oThe amounts shown on the individual line items were derived by applying our overall economic ownership interest percentage determined when applying the equity method of accounting and do not necessarily represent our legal claim to the assets and liabilities, or the revenues and expenses; and
25
oOther companies in our industry may calculate their Pro-rata interest differently, limiting the comparability of Pro-rata information.
Because of these limitations, the Pro-rata financial information should not be considered independently or as a substitute for our financial statements as reported under GAAP. We compensate for these limitations by relying primarily on our GAAP financial statements, using the Pro-rata information as a supplement.
•Property In Development includes properties in various stages of ground-up development.
•Property In Redevelopment includes Retail Operating Properties under redevelopment or being positioned for redevelopment. Unless otherwise indicated, a Property in Redevelopment is included in the Same Property pool.
•Redevelopment Completion is a property in redevelopment that is deemed complete upon the earlier of: (i) 90% of total estimated project costs have been incurred and percent leased equals or exceeds 95% for the Company owned GLA related to the project, or (ii) the property features at least two years of anchor operations, if applicable.
•Retail Operating Property is any retail property not termed a Property in Development. A retail property is any property where the majority of the income is generated from retail uses.
•Same Property is a Retail Operating Property that was owned and operated for the entirety of both calendar year periods being compared. This term excludes Properties in Development, prior year Development Completions, and Non-Same Properties. Properties in Redevelopment are included unless otherwise indicated.
Overview of Our Strategy
Regency Centers Corporation began its operations as a publicly-traded REIT in 1993, and as of March 31, 2022, had full or partial ownership interests in 406 retail properties. Our properties are high-quality neighborhood and community shopping centers primarily anchored by market leading grocers and principally located in suburban markets within the country's most desirable metro areas and contain 51.3 million square feet (“SF”) of gross leasable area (“GLA”). All of our operating, investing, and financing activities are performed through our Operating Partnership, Regency Centers, L.P. and its wholly-owned subsidiaries, and through our co-investment partnerships. As of March 31, 2022, the Parent Company owns approximately 99.6% of the outstanding common partnership units of the Operating Partnership.
Our mission is to create thriving environments for retailers and service providers to connect with surrounding neighborhoods and communities. Our vision is to elevate quality of life as an integral thread in the fabric of our communities. Our portfolio includes thriving properties merchandised with highly productive grocers, restaurants, service providers, and best-in-class retailers that connect to their neighborhoods, communities, and customers.
Our values:
•We are our people: Our people are our greatest asset, and we believe a talented team from differing backgrounds and experiences make us better.
•We do what is right: We act with unwavering standards of honesty and integrity.
•We connect with our communities: We promote philanthropic ideas and strive for the betterment of our neighborhoods by giving our time and financial support.
•We are responsible: Our duty is to balance purpose and profit, being good stewards of capital and the environment for the benefit of all our stakeholders.
•We strive for excellence: When we are passionate about what we do, it is reflected in our performance.
•We are better together: When we listen to each other and our customers, we will succeed together.
26
Our goals are to:
•Own and manage a portfolio of high-quality neighborhood and community shopping centers primarily anchored by market leading grocers and principally located in suburban trade areas in the country’s most desirable metro areas. We expect that this strategy will result in highly desirable and attractive centers with best-in-class retailers. These centers should command higher rental and occupancy rates resulting in excellent prospects to grow net operating income (“NOI”);
•Maintain an industry leading and disciplined development and redevelopment platform to create exceptional retail centers that deliver higher returns as compared to acquisitions;
•Support our business activities with a conservative capital structure, including a strong balance sheet with sufficient liquidity to meet our capital needs together with a carefully constructed debt maturity profile;
•Implement leading environmental, social, and governance practices through our Corporate Responsibility Program;
•Engage and retain an exceptional and diverse team that is guided by our strong values, while fostering an environment of innovation and continuous improvement; and
•Create shareholder value by increasing earnings and dividends per share that generate total returns at or near the top of our shopping center peers.
Risks and Uncertainties
Changes in economic conditions and supply chain constraints have spurred a rise in wages and increased costs for materials. Current high levels of inflation may be negatively impacting some of our tenants while increasing our operating costs and construction costs. Additionally, macroeconomic and geopolitical risks create challenges that may exacerbate current market conditions in the United States. The policies utilized to address these issues, including raising interest rates, could result in adverse impacts on the U.S. economy, including a slowing of growth or potentially a recession. Refer to Item 1, Note 1 to Unaudited Consolidated Financial Statements.
Please also refer to the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, for additional discussion of the impact of the COVID-19 pandemic on the Company’s business including, without limitation, refer to the Risk Factors discussed in Item 1A of Part I thereof.
Executing on our Strategy
During the three months ended March 31, 2022, we had Net income attributable to common stockholders of $195.2 million, which includes gains on sale of real estate of $101.9 million, as compared to $80.7 million during the three months ended March 31, 2021.
During the three months ended March 31, 2022:
•Our Pro-rata same property NOI, excluding termination fees, increased 7.8%, as compared to the three months ended March 31, 2021, primarily attributable to continued improvement in collections of lease income from cash basis tenants, combined with improvements in base rent from increases in year over year occupancy rates, contractual rent steps in existing leases, and positive rent spreads on new and renewal leases.
•We executed 459 new and renewal leasing transactions representing 1.9 million Pro-rata SF during the three months ended March 31, 2022 as compared to 450 leasing transactions representing 1.4 million Pro-rata SF during the three months ended March 31, 2021. Rent spreads for the trailing twelve months ended three months ended March 31, 2022 were positive 6.8%. Rent spreads are calculated on all executed leasing transactions for comparable Retail Operating Property space, including spaces vacant greater than twelve months.
•At March 31, 2022, December 31, 2021, and March 31, 2021 our total property portfolio was 93.9%, 94.1%, and 92.2% leased, respectively. At March 31, 2022, December 31, 2021, and March 31, 2021 our Same Property portfolio was 94.3%, 94.3%, and 92.6% leased, respectively.
27
We continued our development and redevelopment of high quality shopping centers:
•Estimated Pro-rata project costs of our current in process development and redevelopment projects total $348.3 million at March 31, 2022 as compared to $307.3 million at December 31, 2021.
•Redevelopment projects completed during 2022 represent $8.9 million of estimated net project cost with a weighted average incremental stabilized yield of 7%.
We maintain a conservative balance sheet providing liquidity and financial flexibility to cost effectively fund investment opportunities and debt maturities:
•We have no unsecured debt maturities until 2024 and a manageable level of secured mortgage maturities during the next twelve months, including mortgages within our real estate partnerships.
•At March 31, 2022, our Pro-rata net debt-to-operating EBITDAre ratio on a trailing twelve month basis was 4.9x as compared to 5.1x at December 31, 2021.
Property Portfolio
The following table summarizes general information related to the Consolidated Properties in our portfolio:
|
|
|
|
(GLA in thousands) |
March 31, 2022 |
|
December 31, 2021 |
Number of Properties |
303 |
|
302 |
GLA |
38,087 |
|
37,864 |
% Leased – Operating and Development |
94.0% |
|
94.0% |
% Leased – Operating |
94.4% |
|
94.1% |
Weighted average annual effective rent per square foot ("PSF"), net of tenant concessions. |
$23.32 |
|
$23.17 |
The following table summarizes general information related to the Unconsolidated Properties owned in co-investment partnerships in our portfolio:
|
|
|
|
(GLA in thousands) |
March 31, 2022 |
|
December 31, 2021 |
Number of Properties |
103 |
|
103 |
GLA |
13,196 |
|
13,300 |
% Leased – Operating and Development |
93.5% |
|
93.9% |
% Leased –Operating |
93.5% |
|
93.9% |
Weighted average annual effective rent PSF, net of tenant concessions |
$22.47 |
|
$22.37 |
For the purpose of the following disclosures of occupancy and leasing activity, “anchor space” is considered space greater than or equal to 10,000 SF and “shop space” is less than 10,000 SF. The following table summarizes Pro-rata occupancy rates of our combined Consolidated and Unconsolidated shopping center portfolio:
|
|
|
|
|
March 31, 2022 |
|
December 31, 2021 |
% Leased – All Properties |
93.9% |
|
94.1% |
Anchor space |
96.5% |
|
97.0% |
Shop space |
89.7% |
|
89.2% |
28
The following table summarizes leasing activity, including our Pro-rata share of activity within the portfolio of our co-investment partnerships:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, 2022 |
|
|
|
Leasing Transactions |
|
|
SF (in thousands) |
|
|
Base Rent PSF |
|
|
Tenant Allowance and Landlord Work PSF |
|
|
Leasing Commissions PSF |
|
Anchor Leases |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New |
|
|
6 |
|
|
|
280 |
|
|
$ |
9.50 |
|
|
$ |
8.76 |
|
|
$ |
6.70 |
|
Renewal |
|
|
34 |
|
|
|
851 |
|
|
|
16.18 |
|
|
|
0.54 |
|
|
|
0.08 |
|
Total Anchor Leases |
|
|
40 |
|
|
|
1,131 |
|
|
$ |
14.53 |
|
|
$ |
2.57 |
|
|
$ |
1.71 |
|
Shop Space |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New |
|
|
133 |
|
|
|
243 |
|
|
$ |
38.90 |
|
|
$ |
39.24 |
|
|
$ |
11.51 |
|
Renewal |
|
|
286 |
|
|
|
537 |
|
|
|
36.52 |
|
|
|
2.34 |
|
|
|
0.73 |
|
Total Shop Space Leases |
|
|
419 |
|
|
|
780 |
|
|
$ |
37.26 |
|
|
$ |
13.85 |
|
|
$ |
4.09 |
|
Total Leases |
|
|
459 |
|
|
|
1,911 |
|
|
$ |
23.81 |
|
|
$ |
7.17 |
|
|
$ |
2.68 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, 2021 |
|
|
|
Leasing Transactions |
|
|
SF (in thousands) |
|
|
Base Rent PSF |
|
|
Tenant Allowance and Landlord Work PSF |
|
|
Leasing Commissions PSF |
|
Anchor Leases |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New |
|
|
6 |
|
|
|
95 |
|
|
$ |
12.12 |
|
|
$ |
45.66 |
|
|
$ |
5.09 |
|
Renewal |
|
|
27 |
|
|
|
589 |
|
|
|
13.44 |
|
|
|
0.29 |
|
|
|
0.10 |
|
Total Anchor Leases |
|
|
33 |
|
|
|
684 |
|
|
$ |
13.25 |
|
|
$ |
6.59 |
|
|
$ |
0.79 |
|
Shop Space |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New |
|
|
107 |
|
|
|
158 |
|
|
$ |
31.19 |
|
|
$ |
21.04 |
|
|
$ |
7.90 |
|
Renewal |
|
|
310 |
|
|
|
570 |
|
|
|
32.78 |
|
|
|
1.86 |
|
|
|
0.42 |
|
Total Shop Space Leases |
|
|
417 |
|
|
|
728 |
|
|
$ |
32.44 |
|
|
$ |
6.02 |
|
|
$ |
2.04 |
|
Total Leases |
|
|
450 |
|
|
|
1,412 |
|
|
$ |
23.14 |
|
|
$ |
6.30 |
|
|
$ |
1.44 |
|
The weighted average annual base rent ("ABR") per square foot on signed shop space leases during 2022 was $37.26 PSF, which is higher than the ABR rent per square foot of all shop space leases due to expire during the next 12 months of $32.86 PSF. While new and renewal rent spreads were positive at 6.8% as compared to prior rents on those same spaces, future rent spreads could be negatively impacted by oversupply of vacant retail in markets in which we operate. This may result in decreased demand for retail space in our centers, which could result in pricing pressure on rents. Further, we may experience higher rates for tenant buildouts as costs of materials are increasing as labor and supply availability are decreasing.
Significant Tenants and Concentrations of Risk
We seek to reduce our operating and leasing risks by avoiding dependence on any single property, market, or tenant. Based on percentage of annualized base rent, the following table summarizes our most significant tenants, of which four of the top five are grocers:
|
|
|
|
|
|
|
|
|
|
|
March 31, 2022 |
Tenant |
|
Number of Stores |
|
|
Percentage of Company- owned GLA (1) |
|
Percentage of ABR (1) |
Publix |
|
|
68 |
|
|
7.2% |
|
3.4% |
Kroger Co. |
|
|
54 |
|
|
7.4% |
|
3.2% |
Albertsons Companies, Inc. |
|
|
46 |
|
|
4.7% |
|
3.0% |
TJX Companies, Inc. |
|
|
63 |
|
|
3.6% |
|
2.6% |
Amazon/Whole Foods |
|
|
35 |
|
|
2.7% |
|
2.6% |
(1)Includes Regency's Pro-rata share of Unconsolidated Properties and excludes those owned by anchors.
29
Bankruptcies and Credit Concerns
Our management team devotes significant time to researching and monitoring consumer preferences and trends, customer shopping behaviors, changes in delivery methods, shifts to e-commerce, and changing demographics in order to anticipate the challenges and opportunities impacting our industry. The success of our tenants in operating their businesses and their ability to pay rent continue to be significantly influenced by many challenges, including the impact of inflation, labor shortages, and supply chain constraints on their cost of doing business. Additionally, macroeconomic and geopolitical risks create challenges that may exacerbate current market conditions in the United States. The policies utilized to address these issues, including raising interest rates, could result in adverse impacts on the U.S. economy, including a slowing of growth or potentially a recession, thereby impacting our tenants' businesses and/or decreasing future demand for space in our shopping centers. We seek to mitigate these potential impacts through maintaining a high quality portfolio, tenant diversification, replacing weaker tenants with stronger operators, anchoring our centers with market leading grocery stores that drive customer traffic, and maintaining a presence in suburban trade areas with compelling demographic populations benefiting from high levels of disposal income.
Although base rent is set forth in long-term lease contracts, tenants who file bankruptcy generally have the legal right to reject any or all of their leases and close related stores. Any unsecured claim we hold against a bankrupt tenant for unpaid rent might be paid only to the extent that funds are available and only in the same percentage as is paid to all other holders of unsecured claims. As a result, it is likely that we would recover substantially less than the full value of any unsecured claims we hold. Additionally, we may incur significant expense to adjudicate our claim and to re-lease the vacated space. In the event that a tenant with a significant number of leases in our shopping centers files bankruptcy and cancels its leases, we could experience a significant reduction in our revenues.
Results from Operations
Comparison of the three months ended March 31, 2022 and 2021:
Our revenues changed as summarized in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, |
|
|
|
|
(in thousands) |
|
2022 |
|
|
2021 |
|
|
Change |
|
Lease income |
|
|
|
|
|
|
|
|
|
Base rent |
|
$ |
199,252 |
|
|
|
188,480 |
|
|
|
10,772 |
|
Recoveries from tenants |
|
|
67,774 |
|
|
|
62,597 |
|
|
|
5,177 |
|
Percentage rent |
|
|
4,948 |
|
|
|
3,366 |
|
|
|
1,582 |
|
Uncollectible lease income |
|
|
6,146 |
|
|
|
2,275 |
|
|
|
3,871 |
|
Other lease income |
|
|
3,825 |
|
|
|
2,762 |
|
|
|
1,063 |
|
Straight line rent |
|
|
6,011 |
|
|
|
881 |
|
|
|
5,130 |
|
Above / below market rent amortization |
|
|
5,689 |
|
|
|
5,996 |
|
|
|
(307 |
) |
Total lease income |
|
$ |
293,645 |
|
|
|
266,357 |
|
|
|
27,288 |
|
Other property income |
|
|
3,104 |
|
|
|
1,953 |
|
|
|
1,151 |
|
Management, transaction, and other fees |
|
|
6,684 |
|
|
|
6,393 |
|
|
|
291 |
|
Total revenues |
|
$ |
303,433 |
|
|
|
274,703 |
|
|
|
28,730 |
|
Lease income increased $27.3 million, on a net basis, driven by the following contractually billable components of rent to the tenants per the lease agreements:
•$10.8 million increase from billable Base rent, as follows:
o$940,000 net increase from rent commencements at development properties;
o$4.1 million increase from acquisitions of operating properties; and
o$8.4 million net increase from same properties, particularly from a $3.3 million increase related to our consolidation of the seven properties previously held in the USAA partnership and a $5.1 million net increase in the remaining same properties due to increases from occupancy, rent steps in existing leases, and positive rental spreads on new and renewal leases; offset by
o$2.6 million decrease from the sale of operating properties.
30
•$5.2 million increase from contractual Recoveries from tenants, which represents the tenants’ Pro-rata share of the operating, maintenance, insurance and real estate tax expenses that we incur to operate our shopping centers. Recoveries from tenants increased, on a net basis, primarily from the following:
o$1.7 million increase from acquisition of operating properties and rent commencing at development properties; and
o$4.2 million net increase from same properties due to higher operating costs in the current year and greater recovery of those expenses from tenants; offset by
o$787,000 decrease from the sale of operating properties.
•$1.6 million increase in percentage rent primarily due to improvements in tenant sales.
•$3.9 million increase from favorable changes in Uncollectible lease income.
oDuring 2022, Uncollectible lease income was a positive $6.2 million driven by $8.6 million collection of prior period reserves on cash basis tenants and the $1.0 million positive impact of lease modification agreements offset by the $3.4 million reserve recognized on current period billings.
oDuring 2021, Uncollectible lease income was a positive $2.3 million driven by $19.1 million collection of prior period reserves on cash basis tenants exceeding $16.8 million reserve recognized on current period billings.
•$1.1 million increase in Other lease income due to an increase in lease termination fees.
•$5.1 million increase in straight-line rent from a reduction in cash basis tenants identified in 2022 as compared to 2021, as well as re-establishing $3.7 million of straight-line rent receivables related to converting previously identified cash basis tenants back to accrual basis as we now consider collections from these tenants as probable.
Other property income increased $1.2 million primarily due to an increase in tenant settlements and parking income.
Changes in our operating expenses are summarized in the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, |
|
|
|
|
(in thousands) |
|
2022 |
|
|
2021 |
|
|
Change |
|
Depreciation and amortization |
|
$ |
77,842 |
|
|
|
77,259 |
|
|
|
583 |
|
Operating and maintenance |
|
|
46,461 |
|
|
|
45,582 |
|
|
|
879 |
|
General and administrative |
|
|
18,792 |
|
|
|
21,287 |
|
|
|
(2,495 |
) |
Real estate taxes |
|
|
36,869 |
|
|
|
36,166 |
|
|
|
703 |
|
Other operating expenses |
|
|
2,173 |
|
|
|
698 |
|
|
|
1,475 |
|
Total operating expenses |
|
$ |
182,137 |
|
|
|
180,992 |
|
|
|
1,145 |
|
Depreciation and amortization costs increased $583,000, on a net basis, as follows:
•$3.2 million increase from acquisitions of operating properties, as well as from development properties where tenant spaces became available for occupancy; offset by
•$610,000 decrease from same properties, primarily related to various acquired lease intangibles becoming fully amortized; and
•$2.0 million decrease from the sale of operating properties.
Operating and maintenance costs increased $879,000, on a net basis, as follows:
•$1.3 million net increase from acquisitions of operating properties and from development properties; and
•$2.0 million increase from same properties primarily attributable to higher insurance premiums, as well as an increase in costs associated with general property maintenance and tenant utilities as our centers return to normal operating levels; offset by
•$2.5 million decrease from the sale of operating properties.
31
General and administrative costs decreased $2.5 million, on a net basis, as follows:
•$3.4 million net decrease due to changes in the value of participant obligations within the deferred compensation plan, attributable to changes in market values of those investments, reflected within Net investment income; offset by
•$590,000 net increase in compensation costs primarily driven by incentive compensation; and
•$311,000 net increase in other corporate overhead costs primarily driven by travel and entertainment costs.
Real estate taxes increased $703,000, on a net basis, as follows:
•$1.1 million increase from acquisitions of operating properties, as well as from developments where capitalization ceased and spaces became available for occupancy; and
•$55,000 net increase at same properties as real estate tax assessments overall remained flat; offset by
•$481,000 decrease from the sale of operating properties.
Other operating expenses increased $1.5 million primarily attributable to additional accrued environmental liabilities.
The following table presents the components of other expense (income):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, |
|
|
|
|
(in thousands) |
|
2022 |
|
|
2021 |
|
|
Change |
|
Interest expense, net |
|
|
|
|
|
|
|
|
|
Interest on notes payable |
|
$ |
37,087 |
|
|
|
37,235 |
|
|
|
(148 |
) |
Interest on unsecured credit facilities |
|
|
480 |
|
|
|
599 |
|
|
|
(119 |
) |
Capitalized interest |
|
|
(795 |
) |
|
|
(849 |
) |
|
|
54 |
|
Hedge expense |
|
|
109 |
|
|
|
109 |
|
|
|
— |
|
Interest income |
|
|
(143 |
) |
|
|
(158 |
) |
|
|
15 |
|
Interest expense, net |
|
$ |
36,738 |
|
|
|
36,936 |
|
|
|
(198 |
) |
Gain on sale of real estate, net of tax |
|
|
(101,948 |
) |
|
|
(11,698 |
) |
|
|
(90,250 |
) |
Net investment income |
|
|
2,494 |
|
|
|
(1,486 |
) |
|
|
3,980 |
|
Total other expense (income) |
|
$ |
(62,716 |
) |
|
|
23,752 |
|
|
|
(86,468 |
) |
During the three months ended March 31, 2022, we recognized gains on sale of $101.9 million for one land parcel and one operating property. During the three months ended March 31, 2021, we recognized gains on sale of $11.7 million from one land parcel, four operating properties, and additional receipts from prior year sales.
Net investment income decreased $4.0 million primarily driven by a $3.4 million change in unrealized gains and losses of plan assets held in the non-qualified deferred compensation plan. There is an offsetting charge in General and administrative costs related to participant obligations within the deferred compensation plans.
Our equity in income of investments in real estate partnerships increased as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, |
|
|
|
|
(in thousands) |
|
Regency's Ownership |
|
2022 |
|
|
2021 |
|
|
Change |
|
GRI - Regency, LLC (GRIR) |
|
40.00% |
|
$ |
9,373 |
|
|
|
7,620 |
|
|
|
1,753 |
|
New York Common Retirement Fund (NYC) |
|
30.00% |
|
|
266 |
|
|
|
784 |
|
|
|
(518 |
) |
Columbia Regency Retail Partners, LLC (Columbia I) |
|
20.00% |
|
|
521 |
|
|
|
432 |
|
|
|
89 |
|
Columbia Regency Partners II, LLC (Columbia II) |
|
20.00% |
|
|
557 |
|
|
|
510 |
|
|
|
47 |
|
Columbia Village District, LLC |
|
30.00% |
|
|
266 |
|
|
|
304 |
|
|
|
(38 |
) |
RegCal, LLC (RegCal) (1) |
|
25.00% |
|
|
626 |
|
|
|
525 |
|
|
|
101 |
|
US Regency Retail I, LLC (USAA) (2) |
|
20.01% |
|
|
— |
|
|
|
234 |
|
|
|
(234 |
) |
Other investments in real estate partnerships |
|
31.00% - 50.00% |
|
|
1,195 |
|
|
|
1,257 |
|
|
|
(62 |
) |
Total equity in income of investments in real estate partnerships |
|
$ |
12,804 |
|
|
|
11,666 |
|
|
|
1,138 |
|
(1)Subsequent to March 31, 2022, we acquired our partner's 75% share in four properties held in the RegCal partnership for a total purchase price of $88.5 million.
(2)We acquired our partner’s 80% interest in the seven properties held in the USAA partnership on August 1, 2021; therefore results following the date of acquisition are included in consolidated results.
32
The $1.1 million increase in our equity in income of investments in real estate partnerships is largely attributable to the following changes:
•$1.8 million increase within GRIR primarily due to continued improvements in tenant rent collections and re-instating straight-line rent on certain tenants returning to accrual basis; offset by
•$518,000 decrease within NYC, primarily due to a gain on the sale of one operating property during the three months ended March 31, 2021, as well as the sale of another operating property later in 2021.
The following represents the remaining components that comprised net income attributable to common stockholders and unit holders:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, |
|
|
|
|
(in thousands) |
|
2022 |
|
|
2021 |
|
|
Change |
|
Net income |
|
$ |
196,816 |
|
|
|
81,625 |
|
|
|
115,191 |
|
Income attributable to noncontrolling interests |
|
|
(1,588 |
) |
|
|
(969 |
) |
|
|
(619 |
) |
Net income attributable to common stockholders |
|
$ |
195,228 |
|
|
|
80,656 |
|
|
|
114,572 |
|
Net income attributable to exchangeable operating partnership units |
|
|
(863 |
) |
|
|
(364 |
) |
|
|
(499 |
) |
Net income attributable to common unit holders |
|
$ |
196,091 |
|
|
|
81,020 |
|
|
|
115,071 |
|
Supplemental Earnings Information
We use certain non-GAAP performance measures, in addition to certain performance metrics determined under GAAP, as we believe these measures improve the understanding of the our operating results. We believe these non-GAAP measures provide useful information to our Board of Directors, management and investors regarding certain trends relating to our financial condition and results of operations. Our management uses these non-GAAP measures to compare our performance to that of prior periods for trend analyses, purposes of determining management incentive compensation and budgeting, forecasting and planning purposes. We provide Pro-rata financial information because we believe it assists investors and analysts in estimating our economic interest in our consolidated and unconsolidated partnerships, when read in conjunction with our reported results under GAAP. We believe presenting our Pro-rata share of operating results, along with other non-GAAP measures, may assist in comparing the our operating results to other REITs. 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. See “Non-GAAP Measures” at the beginning of this Management's Discussion and Analysis.
We do not consider non-GAAP measures an alternative to financial measures determined in accordance with GAAP, rather they supplement GAAP measures by providing additional information we believe to be useful to shareholders. The principal limitation of these non-GAAP financial measures is they may exclude significant expense and income items that are required by GAAP to be recognized in our consolidated financial statements. In addition, they reflect the exercise of management’s judgment about which expense and income items are excluded or included in determining these non-GAAP financial measures. In order to compensate for these limitations, reconciliations of the non-GAAP financial measures we use to their most directly comparable GAAP measures are provided. Non-GAAP financial measures should not be relied upon in evaluating the financial condition, results of operations or future prospects of the Company.
33
Pro-Rata Same Property NOI:
Our Pro-rata same property NOI, excluding termination fees, changed from the following major components:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, |
|
|
|
|
(in thousands) |
|
2022 |
|
|
2021 |
|
|
Change |
|
Base rent |
|
$ |
218,187 |
|
|
|
212,428 |
|
|
|
5,759 |
|
Recoveries from tenants |
|
|
74,257 |
|
|
|
70,757 |
|
|
|
3,500 |
|
Percentage rent |
|
|
5,498 |
|
|
|
3,814 |
|
|
|
1,684 |
|
Termination fees |
|
|
1,949 |
|
|
|
417 |
|
|
|
1,532 |
|
Uncollectible lease income |
|
|
6,757 |
|
|
|
1,731 |
|
|
|
5,026 |
|
Other lease income |
|
|
2,602 |
|
|
|
2,693 |
|
|
|
(91 |
) |
Other property income |
|
|
2,396 |
|
|
|
1,293 |
|
|
|
1,103 |
|
Total real estate revenue |
|
|
311,646 |
|
|
|
293,133 |
|
|
|
18,513 |
|
Operating and maintenance |
|
|
47,520 |
|
|
|
46,015 |
|
|
|
1,505 |
|
Real estate taxes |
|
|
39,953 |
|
|
|
40,362 |
|
|
|
(409 |
) |
Ground rent |
|
|
2,913 |
|
|
|
2,939 |
|
|
|
(26 |
) |
Total real estate operating expenses |
|
|
90,386 |
|
|
|
89,316 |
|
|
|
1,070 |
|
Pro-rata same property NOI |
|
$ |
221,260 |
|
|
|
203,817 |
|
|
|
17,443 |
|
Less: Termination fees |
|
|
1,949 |
|
|
|
417 |
|
|
|
1,532 |
|
Pro-rata same property NOI, excluding termination fees |
|
$ |
219,311 |
|
|
|
203,400 |
|
|
|
15,911 |
|
Pro-rata same property NOI growth, excluding termination fees |
|
|
|
|
|
|
|
|
7.8 |
% |
Billable Base rent increased $5.8 million during the three months ended March 31, 2022, due to rent steps in existing leases, positive rental spreads on new and renewal leases, and increases in occupancy.
Recoveries from tenants increased $3.5 million during the three months ended March 31, 2022, due to higher operating expenses in the current year, higher recovery rates from our tenants, and increases in occupancy.
Percentage rent increased $1.7 million during the three months ended March 31, 2022, due to improvements in tenant sales.
Termination fees increased $1.5 million during the three months ended March 31, 2022, due to termination fees from several tenants at various properties, both wholly owned and within our partnerships.
Uncollectible lease income increased $5.0 million during the three months ended March 31, 2022, primarily driven by collection of previously reserved amounts and improvements in current period collection rates.
Other property income increased $1.1 million during the three months ended March 31, 2022, primarily due to an increase in settlements and parking income.
Operating and maintenance increased $1.5 million during the three months ended March 31, 2022, due primarily to an increase in insurance premiums, property maintenance, and tenant reimbursable costs.
34
Same Property Rollforward:
Our same property pool includes the following property count, Pro-rata GLA, and changes therein:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, |
|
|
|
2022 |
|
|
2021 |
|
(GLA in thousands) |
|
Property Count |
|
|
GLA |
|
|
Property Count |
|
|
GLA |
|
Beginning same property count |
|
|
393 |
|
|
|
41,294 |
|
|
|
393 |
|
|
|
40,228 |
|
Acquired properties owned for entirety of comparable periods presented (1) |
|
|
— |
|
|
|
— |
|
|
|
2 |
|
|
|
378 |
|
Developments that reached completion by the beginning of earliest comparable period presented |
|
|
1 |
|
|
|
72 |
|
|
|
6 |
|
|
|
683 |
|
Disposed properties |
|
|
(1 |
) |
|
|
(88 |
) |
|
|
(4 |
) |
|
|
(110 |
) |
SF adjustments (2) |
|
|
— |
|
|
|
(58 |
) |
|
|
— |
|
|
|
33 |
|
Ending same property count |
|
|
393 |
|
|
|
41,220 |
|
|
|
397 |
|
|
|
41,212 |
|
(1)2021 includes an adjustment arising from the acquisition of our partner's 80% share of the seven properties held in the USAA partnership, 20% of which was already included in our same property pool.
(2)SF adjustments arise from remeasurements or redevelopments.
Nareit FFO and Core Operating Earnings:
Our reconciliation of net income attributable to common stock and unit holders to Nareit FFO and to Core Operating Earnings is as follows:
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, |
|
(in thousands, except share information) |
|
2022 |
|
|
2021 |
|
Reconciliation of Net income to Nareit FFO |
|
|
|
|
|
|
Net income attributable to common stockholders |
|
$ |
195,228 |
|
|
|
80,656 |
|
Adjustments to reconcile to Nareit FFO: (1) |
|
|
|
|
|
|
Depreciation and amortization (excluding FF&E) |
|
|
84,130 |
|
|
|
84,494 |
|
Gain on sale of real estate, net of tax |
|
|
(102,010 |
) |
|
|
(12,070 |
) |
Exchangeable operating partnership units |
|
|
863 |
|
|
|
364 |
|
Nareit FFO attributable to common stock and unit holders |
|
$ |
178,211 |
|
|
|
153,444 |
|
Reconciliation of Nareit FFO to Core Operating Earnings |
|
|
|
|
|
|
Nareit Funds From Operations |
|
|
178,211 |
|
|
|
153,444 |
|
Adjustments to reconcile to Core Operating Earnings (1): |
|
|
|
|
|
|
Certain Non Cash Items |
|
|
|
|
|
|
Straight line rent |
|
|
(3,478 |
) |
|
|
(3,429 |
) |
Uncollectible straight line rent |
|
|
(2,383 |
) |
|
|
2,573 |
|
Above/below market rent amortization, net |
|
|
(5,392 |
) |
|
|
(5,980 |
) |
Debt premium/discount amortization |
|
|
(106 |
) |
|
|
91 |
|
Core Operating Earnings |
|
$ |
166,852 |
|
|
|
146,699 |
|
(1)Includes Regency's Pro-rata share of unconsolidated investment partnerships, net of Pro-rata share attributable to noncontrolling interest.
35
Same Property NOI Reconciliation:
Our reconciliation of Net income attributable to common stockholders to Same Property NOI, on a Pro-rata basis, is as follows:
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, |
|
(in thousands) |
|
2022 |
|
|
2021 |
|
Net income attributable to common stockholders |
|
$ |
195,228 |
|
|
|
80,656 |
|
Less: |
|
|
|
|
|
|
Management, transaction, and other fees |
|
|
6,684 |
|
|
|
6,393 |
|
Other (1) |
|
|
12,621 |
|
|
|
7,704 |
|
Plus: |
|
|
|
|
|
|
Depreciation and amortization |
|
|
77,842 |
|
|
|
77,259 |
|
General and administrative |
|
|
18,792 |
|
|
|
21,287 |
|
Other operating expense |
|
|
2,173 |
|
|
|
698 |
|
Other (income) expense |
|
|
(62,716 |
) |
|
|
23,752 |
|
Equity in income of investments in real estate excluded from NOI (2) |
|
|
12,388 |
|
|
|
13,301 |
|
Net income attributable to noncontrolling interests |
|
|
1,588 |
|
|
|
969 |
|
Pro-rata NOI |
|
$ |
225,990 |
|
|
|
203,825 |
|
Less non-same property NOI (3) |
|
|
4,730 |
|
|
|
8 |
|
Pro-rata same property NOI |
|
$ |
221,260 |
|
|
|
203,817 |
|
(1)Includes straight-line rental income and expense, net of reserves, above and below market rent amortization, other fees, and noncontrolling interest.
(2)Includes non-NOI income earned and expenses incurred at our unconsolidated real estate partnerships, including those separated out above for our consolidated properties.
(3)Includes revenues and expenses attributable to non-same property, sold property, development property, and corporate activities.
Liquidity and Capital Resources
General
We use cash flows generated from operating, investing, and financing activities to strengthen our balance sheet, finance our development and redevelopment projects, fund our investment activities, and maintain financial flexibility. A significant portion of our cash from operations is distributed to our common shareholders in the form of dividends in order to maintain our status as a REIT.
Except for $200 million of private placement debt, our Parent Company has no capital commitments other than its guarantees of the commitments of our Operating Partnership. All remaining debt is held by our Operating Partnership or by our co-investment partnerships. The Operating Partnership is a co-issuer and a guarantor of the $200 million of outstanding debt of our Parent Company. The Parent Company will from time to time access the capital markets for the purpose of issuing new equity and will simultaneously contribute all of the offering proceeds to the Operating Partnership in exchange for additional partnership units.
We continually assess our available liquidity and our expected cash requirements, which includes monitoring our tenant rent collections. The success of our tenants in operating their businesses and their ability to pay rent continue to be significantly influenced by many challenges including the impact of inflation, labor shortages, and supply chain constraints on their cost of doing business. Additionally, macroeconomic and geopolitical risks create challenges that may exacerbate current market conditions in the United States. The policies utilized to address these issues, including raising interest rates, could result in adverse impacts on the U.S. economy, including a slowing of growth or potentially a recession, thereby impacting our tenants' businesses and/or decreasing future demand for space in our shopping centers.
We draw on multiple financing sources to fund our long-term capital needs, including the capital requirements of our in process and planned developments, redevelopments, and capital expenditures, and the repayment of debt. We expect to meet these needs by using a combination of the following: cash flow from operations after funding our dividend, proceeds from the sale of real estate, mortgage loan and unsecured bank financing, distributions received from our co-investment partnerships, and when the capital markets are favorable, proceeds from the sale of equity or the issuance of new unsecured debt. We continually evaluate alternative financing options, and we believe we can obtain financing on reasonable terms, although likely at higher interest rates than that of debt currently outstanding.
We have no unsecured debt maturities until 2024 and a manageable level of secured mortgage maturities during the next 12 months, including those mortgages within our real estate partnerships. Based upon our available cash balance, sources of capital, our current credit ratings, and the number of high quality, unencumbered properties we own, we believe our available capital resources are sufficient to meet our expected capital needs for the next year.
36
In addition to our $176.0 million of unrestricted cash, we have the following additional sources of capital available:
|
|
|
|
(in thousands) |
March 31, 2022 |
|
ATM equity program |
|
|
Original offering amount |
$ |
500,000 |
|
Available capacity (1) |
$ |
350,363 |
|
Line of Credit |
|
|
Total commitment amount |
$ |
1,250,000 |
|
Available capacity (2) |
$ |
1,240,619 |
|
Maturity (3) |
March 23, 2025 |
|
(1)Subsequent to March 31, 2022, we settled 984,618 shares subject to forward sales agreements issued in 2021, receiving proceeds of $61.3 million which were used to fund acquisitions.
(2)Net of letters of credit.
(3)The Company has the option to extend the maturity for two additional six-month periods.
The declaration of dividends is determined quarterly by our Board of Directors. On April 29, 2022, our Board of Directors declared a common stock dividend of $0.625 per share, payable on July 6, 2022, to shareholders of record as of June 15, 2022. While future dividends will be determined at the discretion of our Board of Directors, we plan to continue paying an aggregate amount of distributions to our stock and unit holders that, at a minimum, meet the requirements to continue qualifying as a REIT for federal income tax purposes. We have historically generated sufficient cash flow from operations to fund our dividend distributions. During the three months ended March 31, 2022 and 2021, we generated cash flow from operations of $142.9 million and $139.4 million, respectively, and paid $107.4 million and $101.0 million in dividends to our common stock and unit holders, respectively.
We currently have development and redevelopment projects in various stages of construction, along with a pipeline of potential projects for future development or redevelopment. After funding our common stock dividend payment in April 2022, we estimate that we will require capital during the next twelve months of approximately $284.3 million. This required capital includes funding construction and related costs for leasing and committed tenant improvements, in-process developments and redevelopments, making capital contributions to our co-investment partnerships, and repaying maturing debt. These capital requirements may be impacted by current levels of high inflation resulting in increased costs of construction materials, labor, and services from third party contractors and suppliers. In response, we have implemented mitigation strategies such as entering into fixed cost construction contracts, pre-ordering materials, and other planning efforts. Further, continued challenges from labor shortages and supply chain disruptions may extend the time to completion of these projects.
If we start new developments or redevelopments, commit to property acquisitions, repay debt prior to maturity, declare future dividends, or repurchase shares of our common stock, our cash requirements will increase. If we refinance maturing debt, our cash requirements will decrease. We expect to generate the necessary cash to fund our long-term capital needs from cash flow from operations, borrowings from our Line, proceeds from the sale of real estate, mortgage loan and unsecured bank financing, and when the capital markets are favorable, proceeds from the sale of equity or the issuance of new unsecured debt. If we borrow on our variable rate Line, with rising interest rates, our cost of borrowing would increase.
We endeavor to maintain a high percentage of unencumbered assets. As of March 31, 2022, 89.5% of our wholly-owned real estate assets were unencumbered. Such assets allow us to access the secured and unsecured debt markets and to maintain availability on the Line. Our trailing twelve month Fixed charge coverage ratio, including our Pro-rata share of our partnerships, was 4.6x and 4.5x for the periods ended March 31, 2022, and December 31, 2021, respectively, and our Pro-rata net debt-to-operating EBITDAre ratio on a trailing twelve month basis was 4.9x and 5.1x, respectively, for the same periods.
Our Line and unsecured loans require that we remain in compliance with various covenants, which are described in the Notes to Consolidated Financial Statements included in our Annual Report on Form 10-K for the year ended December 31, 2021. We are in compliance with all covenants at March 31, 2022, and expect to remain in compliance.
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