REGENCY CENTERS CORPORATION 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 ourSEC 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 theSEC . 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.
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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.
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Nareit EBITDAre is a measure of REIT performance, which theNational 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.
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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.
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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.
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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.
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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.
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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:
o
The 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
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o
Other 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.
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Property In Redevelopment includes
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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.
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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
Overview of Our Strategy
Regency Centers Corporation began its operations as a publicly-traded REIT in 1993, and as ofJune 30, 2022 , had full or partial ownership interests in 404 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 51.1 million square feet ("SF") of gross leasable area ("GLA"). All of our operating, investing, and financing activities are performed through ourOperating Partnership ,Regency Centers, L.P. and its wholly-owned subsidiaries, and through our co-investment partnerships. As ofJune 30, 2022 , the Parent Company owns approximately 99.6% of the outstanding common partnership units of theOperating 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:
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We are our people: Our people are our greatest asset, and we believe a talented team from differing backgrounds and experiences make us better.
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We do what is right: We act with unwavering standards of honesty and integrity.
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We connect with our communities: We promote philanthropic ideas and strive for the betterment of our neighborhoods by giving our time and financial support.
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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.
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We strive for excellence: When we are passionate about what we do, it is reflected in our performance.
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We are better together: When we listen to each other and our customers, we will succeed together.
Our goals are to:
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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");
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Maintain an industry leading and disciplined development and redevelopment platform to create exceptional retail centers that deliver higher returns as compared to acquisitions;
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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;
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Implement leading environmental, social, and governance practices through our Corporate Responsibility Program;
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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
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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
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. Additionally, macroeconomic and geopolitical risks create challenges that may exacerbate current market conditions inthe United States . The policies utilized to address these issues, including raising interest rates, could result in adverse impacts on theU.S. economy, including a slowing of growth and potentially a recession, thereby impacting our tenants' businesses and/or decreasing future demand for space in our shopping centers. 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 endedDecember 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 six months endedJune 30, 2022 , we had Net income attributable to common stockholders of$300.0 million , which includes gains on sale of real estate of$106.2 million , as compared to$176.1 million during the six months endedJune 30, 2021 .
During the six months ended
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Our Pro-rata same property NOI, excluding termination fees, increased 4.1%, as compared to the six months endedJune 30, 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.
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We executed 934 new and renewal leasing transactions representing 3.2 million Pro-rata SF during the six months endedJune 30, 2022 as compared to 986 leasing transactions representing 3.0 million Pro-rata SF during the six months endedJune 30, 2021 . Rent spreads for the trailing twelve months endedJune 30, 2022 were positive 8.3%. Rent spreads are calculated on all executed leasing transactions for comparable Retail Operating Property space, including spaces vacant greater than twelve months.
•
At
We continued our development and redevelopment of high quality shopping centers:
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Estimated Pro-rata project costs of our current in process development and
redevelopment projects total
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Redevelopment projects completed during 2022 represent
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--------------------------------------------------------------------------------We maintain a conservative balance sheet in order to provide liquidity and financial flexibility to cost effectively fund investment opportunities and debt maturities:
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DuringApril 2022 , we settled and issued 984,618 common shares under forward sale agreements at a weighted average price of$64.59 , before any underwriting discount and offering expenses. Net proceeds received at settlement were approximately$61.3 million and were used to fund acquisitions.
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DuringJune 2022 , we executed multiple trades to repurchase 1,294,201 common shares under the Authorized Repurchase Program for a total of$75.4 million at a weighted average price of$58.25 per share. Due to the trade plus two business day settlement requirements, theJune 30, 2022 trades representing 59,784 of these common shares repurchased for$3.5 million , did not settle untilJuly 5, 2022 and remained in our outstanding shares as ofJune 30, 2022 . All repurchased shares were retired on the respective settlement dates.
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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.
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At
Property Portfolio
The following table summarizes general information related to theConsolidated Properties in our portfolio: (GLA in thousands) June 30, 2022 December 31, 2021 Number of Properties 308 302 GLA 38,639 37,864 % Leased - Operating and Development 94.3% 94.0% % Leased - Operating 94.6% 94.1% Weighted average annual effective rent per square foot ("PSF"), net of tenant concessions.$23.52 $23.17
The following table summarizes general information related to the
(GLA in thousands) June 30, 2022 December 31,
2021
Number of Properties 96 103 GLA 12,463 13,300 % Leased - Operating and Development 93.3% 93.9% % Leased -Operating 93.4% 93.9% Weighted average annual effective rent PSF, net of tenant concessions$22.85 $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: June 30, 2022 December 31, 2021 % Leased - All Properties 94.2% 94.1% Anchor space 96.5% 97.0% Shop space 90.3% 89.2% 30
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The following table summarizes leasing activity, including our Pro-rata share of activity within the portfolio of our co-investment partnerships:
Six months ended June 30, 2022
Tenant
Allowance Leasing
Leasing SF (in Base Rent and Landlord Commissions
Transactions thousands) PSF Work PSF PSF
Anchor Leases
New 11 372 $ 12.94 $ 10.42 $ 5.65
Renewal 49 1,227 18.85 1.50 0.11
Total Anchor Leases 60 1,599 $ 17.47 $ 3.57 $ 1.40
Shop Space
New 278 510 $ 38.71 $ 37.70 $ 11.61
Renewal 596 1,103 36.52 1.75 0.82
Total Shop Space Leases 874 1,613 $ 37.21 $ 13.12 $ 4.24
Total Leases 934 3,212 $ 27.39 $ 8.37 $ 2.83
Six months ended June 30, 2021
Tenant
Allowance Leasing
Leasing SF (in Base Rent and Landlord Commissions
Transactions thousands) PSF Work PSF PSF
Anchor Leases
New 13 188 $ 14.61 $ 40.97 $ 6.03
Renewal 55 1,214 14.23 0.22 0.21
Total Anchor Leases 68 1,402 $ 14.28 $ 5.69 $ 0.99
Shop Space
New 272 447 $ 32.78 $ 24.87 $ 9.62
Renewal 646 1,180 33.28 1.89 0.56
Total Shop Space Leases 918 1,627 $ 33.14 $ 8.20 $ 3.05
Total Leases 986 3,029 $ 24.41 $ 7.04 $ 2.10
The weighted average annual base rent ("ABR") per square foot on signed shop
space leases during 2022 was $37.21 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
$33.50 PSF. New and renewal rent spreads on a trailing twelve month basis were
positive at 8.3% as compared to prior rents on those same spaces; however, the
United States economy, as well as specific geographic markets in which we
operate, could face a challenging economic environment should pressures such as
high inflation, labor shortages, and supply chain constraints persist long term.
In addition, measures intended to contain or reduce inflation, such as
increasing interest rates, could also adversely impact our volume of leasing
activity, leasing spreads and financial results generally, and the business and
financial results of our tenants. The aggregate impacts of these challenges,
including a slowing of growth and potentially a recession, could have an adverse
effect on our tenants and may also negatively affect the overall market for
retail space, including decreased demand for space in our centers. This, in
turn, could result in pricing pressure on rents that we are able to charge to
new or renewing tenants, such that future rent spreads could be negatively
impacted. Further, we may experience higher costs for tenant buildouts, as costs
of materials and labor are increasing and supply and availability of both have
tightened.
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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 with ABR greater
than 2%, of which four of the top five are grocers:
June 30, 2022
Percentage of
Number of Company- Percentage of
Tenant Stores owned GLA (1) ABR (1)
Publix 67 7.1% 3.3%
Kroger Co. 53 7.3% 3.2%
Albertsons Companies, Inc. 46 4.7% 3.0%
Amazon/Whole Foods 36 2.9% 2.7%
TJX Companies, Inc. 63 3.6% 2.6%
(1)
Includes Regency's Pro-rata share of
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. 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.
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Results from Operations
Comparison of the three months ended
Our revenues changed as summarized in the following table:
Three months ended June 30,
(in thousands) 2022 2021 Change
Lease income
Base rent $ 204,353 189,689 14,664
Recoveries from tenants 68,464 68,248 216
Percentage rent 751 749 2
Uncollectible lease income 4,900 6,620 (1,720 )
Other lease income 3,310 4,265 (955 )
Straight line rent 5,473 1,152 4,321
Above / below market rent amortization 5,613 6,007 (394 )
Total lease income $ 292,864 276,730 16,134
Other property income 2,720 3,074 (354 )
Management, transaction, and other fees 6,499 7,355 (856 )
Total revenues $ 302,083 287,159 14,924
Lease income increased
•
o
o$11.1 million net increase from same properties, particularly from a$5.3 million increase related to our acquisition and resulting consolidation of the eleven properties previously held in theUSAA and RegCal partnerships, and a$5.8 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
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o During 2022, Uncollectible lease income was a net positive$4.9 million driven by$5.5 million collection of prior period reserves on cash basis tenants and the$845,000 positive impact of lease modification agreements offset by the$1.4 million reserve recognized on current period billings. o
During 2021, Uncollectible lease income was a net positive
•
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Management, transaction, and other fees decreased$856,000 primarily from reductions in management fees due to sales and buyouts of properties within our NYC,USAA and RegCal unconsolidated partnerships, as well as a reduction in debt placement fees. 33
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Changes in our operating expenses are summarized in the following table:
Three months ended June 30,
(in thousands) 2022 2021 Change
Depreciation and amortization$ 79,350 74,217 5,133 Operating and maintenance 47,750 46,566 1,184 General and administrative 17,645 19,187 (1,542 ) Real estate taxes 36,700 35,447 1,253 Other operating expenses 617 1,177 (560 ) Total operating expenses$ 182,062 176,594 5,468
Depreciation and amortization costs increased
•
•
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Operating and maintenance costs increased
•
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$1.2 million increase from same properties primarily attributable to an increase in costs associated with general property maintenance, tenant utilities, and association fees as our centers return to customary operating levels, as well as additional security costs; offset by
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General and administrative costs decreased
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$6.5 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
•
•
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Real estate taxes increased$1.3 million , on a net basis, from acquisitions of operating properties, as well as from developments where capitalization ceased and spaces became available for occupancy.
Other operating expenses decreased
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--------------------------------------------------------------------------------The following table presents the components of other expense (income):
Three months ended June 30,
(in thousands) 2022 2021 Change
Interest expense, net
Interest on notes payable $ 37,274 36,390 884
Interest on unsecured credit facilities 495 479 16
Capitalized interest (1,019 ) (1,016 ) (3 )
Hedge expense 109 109 -
Interest income (160 ) (150 ) (10 )
Interest expense, net $ 36,699 35,812 887
Provision for impairment of real
estate, net of tax - 135 (135 )
Gain on sale of real estate, net of tax (4,291 ) (19,781 ) 15,490
Net investment income 5,468 (1,998 ) 7,466
Total other expense (income) $ 37,876 14,168 23,708
The
During the three months endedJune 30, 2022 , we recognized gains on sale of$4.3 million for two land parcels. During the three months endedJune 30, 2021 , we recognized gains on sale of$19.8 million from one operating property and the receipt of property insurance proceeds. Net investment income decreased$7.5 million primarily driven by realized and unrealized losses during 2022 on investments held in the non-qualified deferred compensation plan and our captive insurance company. There is an offsetting charge in General and administrative costs related to participant obligations within the deferred compensation plans. Our equity in income of investments in real estate partnerships increased as follows: Three months ended June 30, Regency's (in thousands) Ownership 2022 2021 Change GRI - Regency, LLC (GRIR) 40.00%$ 9,031 8,313 718New York Common Retirement Fund (NYC) 30.00% 8,945 (923 ) 9,868Columbia Regency Retail Partners , LLC (Columbia I) 20.00% 422 500 (78 )Columbia Regency Partners II, LLC (Columbia II) 20.00% 361 490 (129 ) Columbia Village District, LLC 30.00% 434 382 52 RegCal, LLC (RegCal) (1) 25.00% 3,625 431 3,194US Regency Retail I, LLC (USAA) (2) 20.01% - 316 (316 ) Other investments in real estate partnerships 31.00% - 50.00% 1,024 (9,074 ) 10,098 Total equity in income of investments in real estate partnerships$ 23,842
435 23,407
(1)
OnApril 1, 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 ; therefore, results following the date of acquisition are included in consolidated results. A single operating property remains withinRegCal, LLC , atJune 30, 2022 .
(2)
On
The
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•
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$10.1 million increase within Other investments in real estate partnerships, primarily from the impairment of a single property partnership that occurred during 2021. 35
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The following represents the remaining components that comprised net income attributable to common stockholders and unit holders:
Three months ended June 30,
(in thousands) 2022 2021 Change
Net income $ 105,987 96,832 9,155
Income attributable to noncontrolling
interests (1,191 ) (1,342 ) 151
Net income attributable to common
stockholders $ 104,796 95,490 9,306
Net income attributable to exchangeable
operating partnership units (452 ) (432 ) (20 )
Net income attributable to common unit
holders $ 105,248 95,922 9,326
Results from Operations
Comparison of the six months ended
Our revenues changed as summarized in the following table:
Six months ended June 30,
(in thousands) 2022 2021 Change
Lease income
Base rent $ 403,605 378,169 25,436
Recoveries from tenants 136,238 130,845 5,393
Percentage rent 5,699 4,115 1,584
Uncollectible lease income 11,046 8,895 2,151
Other lease income 7,135 7,027 108
Straight line rent 11,484 2,033 9,451
Above / below market rent amortization 11,302 12,003 (701 )
Total lease income $ 586,509 543,087 43,422
Other property income 5,824 5,027 797
Management, transaction, and other fees 13,183 13,748 (565 )
Total revenues $ 605,516 561,862 43,654
Lease income increased
•
o
o
o$19.5 million net increase from same properties, particularly from a$8.6 million increase related to our acquisition and resulting consolidation of the eleven properties previously held in theUSAA and RegCal partnerships, and a$10.9 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 lease; offset by o
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$5.4 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
o
o
•
•
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o
During 2022, Uncollectible lease income was a net positive $11.0 million driven
by $14.1 million collection of prior period reserves on cash basis tenants and
the $1.8 million positive impact of lease modification agreements offset by the
$4.9 million reserve recognized on current period billings.
o
During 2021, Uncollectible lease income was a net positive
•
Changes in our operating expenses are summarized in the following table:
Six months ended June 30,
(in thousands) 2022 2021 Change
Depreciation and amortization $ 157,192 151,476 5,716
Operating and maintenance 94,211 92,148 2,063
General and administrative 36,437 40,474 (4,037 )
Real estate taxes 73,569 71,613 1,956
Other operating expenses 2,790 1,875 915
Total operating expenses $ 364,199 357,586 6,613
Depreciation and amortization costs increased
•
•
•
Operating and maintenance costs increased
•
•
•
General and administrative costs decreased
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$9.9 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
•
•
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Real estate taxes increased
•
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$364,000 net increase at same properties including$1.4 million increase related to our acquisition and resulting consolidation of the eleven properties previously held in theUSAA and RegCal partnerships, offset by$1.0 million decrease at various properties within the portfolio from lower assessed values; offset by
•
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--------------------------------------------------------------------------------The following table presents the components of other expense (income):
Six months ended June 30,
(in thousands) 2022 2021 Change
Interest expense, net
Interest on notes payable $ 74,361 73,625 736
Interest on unsecured credit facilities 975 1,077 (102 )
Capitalized interest (1,815 ) (1,865 ) 50
Hedge expense 219 219 -
Interest income (303 ) (308 ) 5
Interest expense, net $ 73,437 72,748 689
Provision for impairment of real
estate, net of tax - 135 (135 )
Gain on sale of real estate, net of tax (106,239 ) (31,479 ) (74,760 )
Net investment loss (income) 7,962 (3,484 ) 11,446
Total other expense (income) $ (24,840 ) 37,920 (62,760 )
During the six months ended June 30, 2022 , we recognized gains on sale of $106.2
million for three land parcel and one operating property. During the six months
ended June 30, 2021 , we recognized gains on sale of $31.5 million from one land
parcel and five operating properties.
Net investment income decreased $11.4 million primarily driven by realized and
unrealized losses during 2022 of investments held in the non-qualified deferred
compensation plan and our captive insurance company. 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:
Six months ended June 30,
Regency's
(in thousands) Ownership 2022 2021 Change
GRI - Regency, LLC (GRIR) 40.00% $ 18,404 15,933 2,471
New York Common Retirement Fund
(NYC) 30.00% 9,211 (139 ) 9,350
Columbia Regency Retail Partners ,
LLC (Columbia I) 20.00% 943 932 11
Columbia Regency Partners II, LLC
(Columbia II) 20.00% 918 1,001 (83 )
Columbia Village District, LLC 30.00% 700 686 14
RegCal, LLC (RegCal) (1) 25.00% 4,251 956 3,295
US Regency Retail I, LLC
(USAA) (2) 20.01% - 550 (550 )
Other investments in real estate
partnerships 35.00% - 50.00% 2,219 (7,818 ) 10,037
Total equity in income of
investments in real estate
partnerships $ 36,646 12,101 24,545
(1)
We acquired our partner's 75% share in four properties held in the RegCal
partnership for a total purchase price of $88.5 million on April 1, 2022 ;
therefore results following the date of acquisition are included in consolidated
results. A single operating property remains within RegCal, LLC , at June 30,
2022 .
(2)
We acquired our partner's 80% interest in the seven properties held in the
The
•
$2.5 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;
•
•
•
$10.0 million increase within Other investments in real estate partnerships, primarily from the impairment of a single property partnership that occurred during 2021 and has since been sold. 38 --------------------------------------------------------------------------------
The following represents the remaining components that comprised net income attributable to common stockholders and unit holders:
Six months ended June 30,
(in thousands) 2022 2021 Change
Net income $ 302,803 178,457 124,346
Income attributable to noncontrolling
interests (2,779 ) (2,311 ) (468 )
Net income attributable to common
stockholders $ 300,024 176,146 123,878
Net income attributable to exchangeable operating partnership units (1,315 ) (796 ) (519 ) Net income attributable to common unit holders$ 301,339 176,942 124,397
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 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.
Pro-Rata Same Property NOI:
Our Pro-rata same property NOI, with and without termination fees, changed from the following major components:
Six months ended
Three months ended June 30, June 30,
(in thousands) 2022 2021 Change 2022 2021 Change
Base rent $ 221,717 215,203 6,514 $ 440,930 428,658 12,272
Recoveries from tenants 73,794 77,948 (4,154 ) 148,354 149,124 (770 )
Percentage rent 1,015 1,086 (71 ) 6,511 4,897 1,614
Termination fees 940 2,250 (1,310 ) 2,888 2,666 222
Uncollectible lease income 5,282 7,239 (1,957 ) 12,095 9,046 3,049
Other lease income 2,866 2,894 (28 ) 5,473 5,602 (129 )
Other property income 2,196 2,435 (239 ) 4,589 3,728 861
Total real estate revenue 307,810 309,055 (1,245 ) 620,840 603,721 17,119
Operating and maintenance 48,120 47,918 202 95,881 94,148 1,733
Real estate taxes 39,518 40,884 (1,366 ) 79,597 81,419 (1,822 )
Ground rent 2,952 2,953 (1 ) 5,864 5,893 (29 )
Total real estate
operating expenses 90,590 91,755 (1,165 ) 181,342 181,460 (118 )
Pro-rata same property NOI $ 217,220 217,300 (80 ) $ 439,498 422,261 17,237
Less: Termination fees 940 2,250 (1,310 ) 2,888 2,666 222
Pro-rata same property
NOI, excluding termination
fees $ 216,280 215,050 1,230 $ 436,610 419,595 17,015
Pro-rata same property NOI
growth, excluding
termination fees 0.6 % 4.1 %
39-------------------------------------------------------------------------------- Billable Base rent increased$6.5 million and$12.3 million during the three and six months endedJune 30, 2022 , due to rent steps in existing leases, positive rental spreads on new and renewal leases, increases in occupancy.
Recoveries from tenants decreased
Percentage rent increased
Termination fees decreased$1.3 million during the three months endedJune 30, 2022 , due to termination fees from several tenants at various properties during 2021, both wholly owned and within our partnerships. Uncollectible lease income decreased$2.0 million during the three months endedJune 30, 2022 , primarily driven by higher collection in 2021 of previously reserved amounts. Uncollectible lease income increased$3.0 million during the six months endedJune 30, 2022 , primarily driven by improvements in current period collection rates and collection of previously reserved amounts. Operating and maintenance increased$1.7 million during the six months endedJune 30, 2022 , due primarily to increases in insurance premiums and other tenant reimbursable costs. Real estate taxes decreased$1.4 million and$1.8 million during the three and six months endedJune 30, 2022 , due to changes in assessed values at properties across our portfolio. Same Property Rollforward: Our same property pool includes the following property count, Pro-rata GLA, and changes therein: Three months ended June 30, 2022 2021 Property Property (GLA in thousands) Count GLA Count GLA Beginning same property count 393 41,220 397 41,212 Acquired properties owned for entirety of comparable periods (1) - 327 - - Disposed properties (3 ) (103 ) (3 ) (297 ) SF adjustments (2) - 2 - 3 Ending same property count 390 41,446 394 40,918 Six months ended June 30, 2022 2021 Property Property (GLA in thousands) Count GLA Count GLA Beginning same property count 393 41,294 393 40,228 Acquired properties owned for entirety of comparable periods presented (1) - 327 2 378 Developments that reached completion by the beginning of earliest comparable period presented 1 72 6 683 Disposed properties (4 ) (191 ) (7 ) (407 ) SF adjustments (2) - (56 ) - 36 Ending same property count 390 41,446
394 40,918
(1)
Includes an adjustment to GLA arising from the acquisition of our partner's share of the four properties previously held in the RegCal partnership, of which our previous 25% ownership share was already included in our same property pool.
(2)
SF adjustments arise from remeasurements or redevelopments.
40
--------------------------------------------------------------------------------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 June 30, Six months ended June 30,
(in thousands, except share
information) 2022 2021 2022 2021
Reconciliation of Net income to
Nareit FFO
Net income attributable to common
stockholders $ 104,796 95,490 $ 300,024 176,146
Adjustments to reconcile to Nareit
FFO: (1)
Depreciation and amortization
(excluding FF&E) 85,738 81,177 169,868 165,671
Provision for impairment of real
estate - 11,091 - 11,091
Gain on sale of real estate, net of
tax (17,089 ) (19,777 ) (119,099 ) (31,847 )
Exchangeable operating partnership
units 452 432 1,315 796
Nareit FFO attributable to common
stock and unit holders $ 173,897 168,413 $ 352,108 321,857
Reconciliation of Nareit FFO to
Core Operating Earnings
Nareit Funds From Operations $ 173,897 168,413 352,108 321,857
Adjustments to reconcile to Core
Operating Earnings (1):
Early extinguishment of debt 176 - 176 -
Certain Non Cash Items
Straight line rent (2,534 ) (2,861 ) (6,012 ) (6,290 )
Uncollectible straight line rent (3,071 ) 1,962 (5,454 ) 4,535
Above/below market rent
amortization, net (5,323 ) (5,728 ) (10,715 ) (11,708 )
Debt premium/discount amortization (51 ) (183 ) (157 ) (92 )
Core Operating Earnings $ 163,094 161,603 $ 329,946 308,302
(1)Includes Regency's Pro-rata share of unconsolidated investment partnerships, net of Pro-rata share attributable to noncontrolling interest.
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 June 30, Six months ended June 30,
(in thousands) 2022 2021 2022 2021
Net income attributable to common
stockholders $ 104,796 95,490 $ 300,024 176,146
Less:
Management, transaction, and other fees 6,499 7,355 13,183 13,748 Other (1) 12,110 8,355 24,731 16,059 Plus: Depreciation and amortization 79,350 74,217 157,192 151,476 General and administrative 17,645 19,187 36,437 40,474 Other operating expense 617 1,177 2,790 1,875 Other expense (income) 37,876 14,168 (24,840 ) 37,920 Equity in income of investments in real estate excluded from NOI (2) (375 ) 24,943 12,013 38,244 Net income attributable to noncontrolling interests 1,191 1,342 2,779 2,311 Pro-rata NOI$ 222,491 214,814$ 448,481 418,639 Less non-same property NOI (3) 5,271 (2,486 ) 8,983 (3,622 ) Pro-rata same property NOI$ 217,220 217,300$ 439,498 422,261
(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. Also includes adjustments for earnings at the four and seven properties we acquired from our former unconsolidated RegCal andUSAA partnerships in 2022 and 2021, respectively, in order to calculate growth on a comparable basis for the periods presented. 41 --------------------------------------------------------------------------------
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 ourOperating Partnership . All remaining debt is held by ourOperating Partnership or by our co-investment partnerships.The Operating Partnership is a co-issuer and a guarantor of the$200 million of outstanding debt of our Parent Company.The Parent Company will from time to time access the capital markets for the purpose of issuing new equity and will simultaneously contribute all of the offering proceeds to theOperating Partnership in exchange for additional partnership units. We continually assess our available liquidity and our expected cash requirements, which includes monitoring our tenant rent collections. We draw on multiple financing sources to fund our long-term capital needs, including the capital requirements of our in process and planned developments, redevelopments, and capital expenditures, and the repayment of debt. We expect to meet these needs by using a combination of the following: cash flow from operations after funding our dividend, proceeds from the sale of real estate, mortgage loan and unsecured bank financing, distributions received from our co-investment partnerships, and when the capital markets are favorable, proceeds from the sale of equity or the issuance of new unsecured debt. We continually evaluate alternative financing options, and we believe we can obtain financing on reasonable terms, although likely at higher interest rates than that of our debt currently outstanding. We have no unsecured debt maturities until 2024 and a manageable level of secured mortgage maturities during the next 12 months, including those mortgages within our real estate partnerships. Based upon our available cash balance, sources of capital, our current credit ratings, and the number of high quality, unencumbered properties we own, we believe our available capital resources are sufficient to meet our expected capital needs for the next year.
In addition to our
(in thousands) June 30, 2022 ATM equity program Original offering amount$ 500,000 Available capacity$ 350,363 Line of Credit Total commitment amount$ 1,250,000 Available capacity (1)$ 1,240,619 Maturity (2) March 23, 2025 (1) Net of letters of credit. (2)
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. OnAugust 2, 2022 , our Board of Directors declared a common stock dividend of$0.625 per share, payable onOctober 4, 2022 , to shareholders of record as ofSeptember 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 six months endedJune 30, 2022 and 2021, we generated cash flow from operations of$327.8 million and$325.3 million , respectively, and paid$214.8 million and$202.1 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 inJuly 2022 , we estimate that we will require capital during the next twelve months of approximately$382.5 million related to leasing, tenant improvements, in-process developments and redevelopments, capital contributions to our co-investment partnerships, and repaying maturing debt. These capital requirements are being 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 42
--------------------------------------------------------------------------------
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 ofJune 30, 2022 , 89.2% 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 endedJune 30, 2022 , andDecember 31, 2021 , respectively, and our Pro-rata net debt-to-operating EBITDAre ratio on a trailing twelve month basis was 5.0x 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 atJune 30, 2022 , and expect to remain in compliance.
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