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, those listed below. When considering an investment in our securities, you should carefully read and consider these risks, together with all other information in our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and our other filings and submissions to theSEC , which provide much more information and detail on the risks described below. If any of the events described in the following 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 required by law. These risks and events include, without limitation:
Risk Factors Related to the COVID-19 Pandemic
• Pandemics or other health crises, such as the COVID-19 pandemic, may
adversely affect our tenants' financial condition, the profitability of our
properties, our access to the capital markets and could have a material
adverse effect on our business, results of operations, cash flows and
financial condition.
Risk Factors Related to the Retail Industry
• Economic and market conditions may adversely affect the retail industry and
consequently reduce our revenues and cash flow, and increase our operating
expenses.
• Shifts in retail sales and delivery methods between brick and mortar stores,
e-commerce, home delivery, and curbside pick-up may adversely impact our
revenues and cash flows.
• Changing economic and detail market conditions in geographic areas where our
properties are concentrated may reduce our revenues and cash flow.
• Our success depends on the success and continued presence of our "anchor"
tenants.
• A significant percentage of our revenues are derived from smaller "shop
space" tenants and our net income may be adversely impacted if our smaller
shop tenants are not successful.
• We may be unable to collect balances due from tenants in bankruptcy.
Risk Factors Related to Real Estate Investments and Operations
• We are subject to numerous laws and regulations that may adversely affect
our operations or expose us to liability.
• Our real estate assets may decline in value and be subject to impairment
losses which may reduce our net income.
• We face risks associated with development, redevelopment and expansion of
properties.
• We face risks associated with the development of mixed-use commercial
properties.
• We face risks associated with the acquisition of properties.
• We face risks if we expand into new markets.
• We may be unable to sell properties when desired because of market
conditions.
• Certain of the properties in our portfolio are subject to ground leases; if
we are unable to renew a ground lease, purchase the fee simple interest, or
are found to be in breach of a ground lease, we may be adversely affected.
• Climate change may adversely impact our properties directly and may lead to
additional compliance obligations and costs as well as additional taxes and
fees.
• Geographic concentration of our properties makes our business morevulnerable to natural disasters, severe weather conditions and climate
change.
• An uninsured loss or a loss that exceeds the insurance coverage on our
properties may subject us to loss of capital and revenue on those properties
• Loss of our key personnel may adversely affect our business and operations.
• We face competition from numerous sources, including other REITs and other
real estate owners.
• Costs of environmental remediation may reduce our cash flow available for
distribution to stock and unit holders.
• Compliance with the Americans with Disabilities Act and fire, safety and
other regulations may require us to make unexpected expenditures.
30
--------------------------------------------------------------------------------
• The unauthorized access, use, theft or destruction of tenant or employee
personal, financial or other data or of Regency's proprietary or
confidential information stored in our information systems or by third
parties on our behalf could impact our reputation and brand and expose us to
potential liability and loss of revenues.
Risk Factors Related to Our Partnership and Joint Ventures
• We do not have voting control over all of the properties owned in our
co-investment partnerships and joint ventures, so we are unable to ensure
that our objectives will be pursued.
• The termination of our partnerships may adversely affect our cash flow,
operating results, and our ability to make distributions to stock and unit
holders.
Risk Factors Related to Funding Strategies and Capital Structure
• Our ability to sell properties and fund acquisitions and developments may be
adversely impacted by higher market capitalization rates and lower NOI at
our properties which may dilute earnings.
• We may acquire properties or portfolios of properties through tax-deferred
contribution transactions, which may result in stockholder dilution and
limit our ability to sell such assets.
• We depend on external sources of capital, which may not be available in the
future on favorable terms or at all.
• Our debt financing may adversely affect our business and financial condition.
• Covenants in our debt agreements may restrict our operating activities and
adversely affect our financial condition.
• Increases in interest rates would cause our borrowing costs to rise and
negatively impact our results of operations.
• Hedging activity may expose us to risks, including the risks that a
counterparty will not perform and that the hedge will not perform and that
the hedge will not yield the economic benefits we anticipate, which may
adversely affect us.
• The interest rates on our Unsecured Credit facilities as well as on our
variable rate mortgages and interest rate swaps might change based on
changes to the method in which LIBOR or its replacement rate is determined.
Risk Factors Related to our Company and the Market Price for Our Securities
• Changes in economic and market conditions may adversely affect the market
price of our securities.
• There is no assurance that we will continue to pay dividends at historical
rates.
• Enhanced focus on corporate responsibility and sustainability, specifically
related to environmental, social and governance matters, may impose
additional costs and expose us to new risks.
Risk Factors Related to Laws and Regulations
• If the Parent Company fails to qualify as a REIT for federal income tax
purposes, it would be subject to federal income tax at regular corporate
rates.
• Recent changes to the
on the overall economy, our tenants, our investors, and our business.
• Dividends paid by REITs generally do not qualify for reduced tax rates. • Certain foreign stockholders may be subject toU.S. federal income tax on
gain recognized on a disposition of our common stock if we do not qualify as
a "domestically controlled" REIT.
• Legislative or other actions affecting REITs may have a negative effect on
us.
• Complying with REIT requirements may limit our ability to hedge effectively
and may cause us to incur tax liabilities.
• Restrictions on the ownership of the Parent Company's capital stock to
preserve its REIT status may delay or prevent a change in control.
• The issuance of the Parent Company's capital stock may delay or prevent a
change in control.
31
--------------------------------------------------------------------------------
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 the Company's 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. 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.
The following terms, as defined, are commonly used by management and the investing public to understand and evaluate our operational results:
• Development Completion is a property in development that is deemed complete
upon the earliest 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, or (iii) three years have
passed since the start of construction. Once deemed complete, the property
is termed a Retail Operating Property the following calendar year.
• 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
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 ("NAREIT FFO") 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 occupancy rates, 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 andexpense, 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.
32
--------------------------------------------------------------------------------
• 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 the Company's reported results under GAAP. We believe presenting our Pro-rata share of assets, liabilities, operating results, and certain metrics, along with 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 or allocating
noncontrolling interests, and do not necessarily represent our legal
claim to the assets and liabilities, or the revenues andexpenses; and
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.
•
development.
• Property In Redevelopment includes
redevelopment or being positioned for redevelopment. Unless otherwise
indicated, a Property in Redevelopment is included in the Same Property
pool.
• 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. 33
--------------------------------------------------------------------------------
Overview of Our Strategy
Regency Centers Corporation began its operations as a publicly-traded REIT in 1993, and as ofJune 30, 2020 , had full or partial ownership interests in 415 retail properties primarily anchored by market leading grocery stores. Our properties are principally located in affluent and infill trade areas ofthe United States , and contain 52.2 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. , our wholly-owned subsidiaries, and through our co-investment partnerships.
As of
Our mission is to be the preeminent national owner, operator, and developer of shopping centers, creating places that provide a thriving environment for outstanding retailers and service providers to connect with the surrounding neighborhoods and communities.
Our goals are to:
• Own and manage a portfolio of high-quality neighborhood and community
shopping centers anchored by market leading grocers and located in affluent
suburban and near urban trade areas in the country's most desirable metro
areas. We expect that this combination will produce 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 NOI;
• Maintain an industry leading and disciplined development and redevelopment
platform to deliver exceptional retail centers at higher returns as compared
to acquisitions;
• Support our business activities with a conservative capital structure,
including a strong balance sheet;
• Attain best-in-class environmental, social, and governance practices;
• Engage an exceptional and diverse team that is guided by our strong values
and special culture, while fostering an environment of innovation and
continuous improvement; and
• Increase earnings per share and dividends and generate total returns at or
near the top of our shopping center peers.
COVID-19 Pandemic
OnMarch 11, 2020 , a novel coronavirus disease ("COVID-19") was declared a pandemic ("COVID-19 pandemic") by theWorld Health Organization as the disease spread throughout the world. DuringMarch 2020 , COVID-19 began to appear in and spread throughoutthe United States resulting in federal, state and local government agencies issuing regulatory orders enforcing social distancing and limiting group gatherings in order to further prevent the spread. While restrictions vary by state, generally, businesses deemed essential to the public are able to operate while non-essential businesses are not. Grocer tenants that anchor over 80% of our operating centers are considered essential businesses and the majority have remained open and operational to serve the residents of their communities. Many restaurants are also considered essential, although the social distancing and group gathering limitations can significantly reduce, or in some cases, prevent dine-in activity. Many non-restaurant retailers have been, likewise, restricted by these limitations, especially to the extent they were not determined to be essential business. As a result, many retailers have had to evaluate alternate means of providing their goods and services to the public or, in the case of non-essential tenants, to close as a result of this pandemic. We have long had a business continuity and disaster recovery plan which has been successfully implemented in the past. This experience enabled us to continue operating productively during the COVID-19 pandemic while our employees work safely from home, as their roles permit, during the early stages of the COVID-19 pandemic. We have maintained, and expect to continue to maintain, our financial reporting systems as well as our internal controls over our financial reporting and disclosure controls and procedures. We have since developed and executed our office reopening plan allowing employees, in our current stage, the option to work from home or the office. We have implementedCDC -approved protocols and developed detailed plans to prioritize the well-being of our employees, and encourage our tenants to similarly follow all rules and guidelines. All employees are required to complete training before returning to the office and are subject to a daily health check in order to work in the office. In addition, to maximize social distancing, we have implemented split scheduling allowing for greater distance between employee work stations. We will continue to make necessary adjustments to our plans as facts and circumstances change and evolve. Our financial results for the six months endedJune 30, 2020 have been significantly impacted by the COVID-19 pandemic resulting in a Net loss attributable to common stockholders, including aGoodwill impairment charge and changes in our expected collectibility of Lease income which also reduces our non-GAAP measures. OnMarch 30, 2020 , we withdrew our fiscal 2020 guidance previously provided onFebruary 12, 2020 . During March, we strengthened our liquidity position through the settlement of our 2019 forward equity sales under our then-current ATM program at a weighted average sales price of$67.99 per share generating$125.8 million in net proceeds. Additionally, during May, we issued$600 million of 10 year senior unsecured public notes at 3.70%, which priced at 34
-------------------------------------------------------------------------------- 99.805%. The proceeds of the offering were used to increase liquidity, including repaying the outstanding balance on our Line, and we expect to use the remaining proceeds for general corporate purposes, including the repayment inSeptember 2020 of our$300 million 3.75% Notes due 2022. As ofJune 30, 2020 , we have a remaining borrowing capacity of$1.2 billion on our Line. The profitability of our properties depends, in part, on the willingness of customers to visit our tenants' businesses. Although our tenant base includes essential businesses, such as grocery stores, which have been able to continue to operate and serve their customers, many non-essential businesses are experiencing significant declines in customer traffic or have temporarily closed their stores in reaction to government regulatory orders or efforts to support social distancing. The effects from store closures and social distancing practices have had a significant adverse financial impact to certain of our non-essential business tenants, including their ability to pay their rent obligations. Many retail businesses, both essential and non-essential, are taking additional measures to ensure the health and safety of their customers, the cost of which further impacts their profitability. The COVID-19 pandemic is still evolving, making the broader implications on our future results of operations and overall financial performance uncertain at this time. Although much of our lease income is derived from contractual rent payments, our tenants' ability to meet their lease obligations has been negatively impacted by the disruptions and uncertainties of the COVID-19 pandemic. During the three months endedJune 30, 2020 , state and local governments began to ease restrictions, allowing many retailers to reopen or increase occupancy of their stores from previously imposed limits. Although many retailers have reported initially strong sales results upon reopening, the risk of diminished sales and future closures may occur as the virus remains active and continues to spread, which may negatively impact customers' willingness to shop and dine at retail centers. In many areas of the country, increased numbers of cases have been reported resulting in some states and municipalities re-imposing previously-lifted restrictions in an attempt to control the further spread of the virus, and may introduce further restrictions in the future which would have an unfavorable impact on the economy and the businesses of many of our tenants. In addition, government support programs designed to assist businesses, including certain of our tenants, may not be continued or renewed. To the extent such tenants used funds from these programs to pay rent, a discontinuance or non-renewal of such programs could impact the ability of such tenants to pay rent, which could adversely impact us. If tenants are unable to sustain their businesses, we may lose existing tenants which will result in reduced lease income and occupancy. Further, suitable replacement tenants may also be difficult to find for an extended period and the terms of our leases with those replacement tenants may not be as favorable to us as the terms of our agreements with our existing tenants. Since the COVID-19 pandemic and resulting restrictions began, the Company has been closely monitoring its cash collections which have significantly declined, most notably from tenants whose businesses are classified as non-essential. Approximately 72% of the base rent billed for the three months endedJune 30, 2020 has been collected throughJuly 31, 2020 . The COVID-19 pandemic has resulted in certain tenants requesting concessions from rent obligations, including deferrals, abatements, and requests to renegotiate future rents, while some tenants have been unable to reopen or have not honored the terms of their existing lease agreements. Since the COVID-19 pandemic began, we have entered into over 600 mutually acceptable agreements with tenants, representing$16.4 million of rent or 1.8% of annual base rent, within our consolidated real estate portfolio and our unconsolidated real estate investment partnerships, to enable them to defer a portion of their rental payments and repay them over future periods. We expect to continue to work with other tenants, which may result in further rent concessions, as determined to be necessary and appropriate. While we believe the deferred rent will be paid by the tenants in accordance with the terms of their agreements, due to the uncertainty surrounding the COVID-19 pandemic, there can be no assurances that all such deferred rent will ultimately be paid, or paid within the timeframes negotiated and agreed upon. The duration and severity of the health crisis inthe United States and the speed at which the country, states and localities are able to safely reopen and remain open, will significantly impact the overall economy, our retail tenants, and therefore our results of operations. As such, the effects of the COVID-19 pandemic may not be fully reflected in our results of operations and overall financial position until future periods and could result in a further materially adverse impact to our financial condition and results of operations. See also Part II, Item 1A. Risk Factors for further discussion.
Executing on our Strategy
During the six months ended
We had Net (loss) attributable to common stockholders of
Our same property NOI:
• Our pro-rata same property NOI, excluding termination fees, declined 10.3%,
primarily attributable to uncollectible Lease income in this current
COVID-19 pandemic environment. Approximately 72% of pro-rata base rent
billed for the three months ended
• We executed 602 new and renewal leasing transactions representing 2.6
million pro-rata SF, with trailing twelve month rent spreads of 7.0% on
comparable retail operating property spaces.
35
--------------------------------------------------------------------------------
• At
same property portfolio was 94.5% leased.
We continued our development and redevelopment of high quality shopping centers:
• We currently have a total of 17 properties in process of development or
redevelopment.
• Due to the impacts of the COVID-19 pandemic, in-process projects in certain
markets have stopped or have slowed significantly due to municipal orders
requiring persons not engaged in essential business to remain at home, due
to health concerns and labor limitations, or while we evaluate current
market conditions. We are continuing to assess the impact of these delays to
our in-process projects as well as the feasibility of our pipeline projects
and non-essential capital expenditures in order to prioritize cash flow,
increase liquidity, and preserve financial flexibility.
We maintained a conservative balance sheet providing liquidity and financial flexibility to respond to these uncertain economic times and to cost effectively fund investment opportunities and debt maturities:
• During March, we settled our forward equity sales under our ATM program that
we entered into during 2019 by delivering 1,894,845 shares of common stock
and receiving
working capital and general corporate purposes. Under our current ATM equity
offering program, we may sell up to
determined by the market at the time of sale.
• In order to further strengthen our financial position and balance sheet, to
enhance our financial liquidity, and to provide financial flexibility to
continue our business initiatives amid the evolving effects of the COVID-19
pandemic, in
public notes at 3.70%, which priced at 99.805%. The proceeds of the offering
were used to increase liquidity, including repaying the outstanding balance
on our Line, and we expect the remaining proceeds will be used for general
corporate purposes, including early repayment of a portion of our
outstanding debt.
• On
Association, as trustee, of its intent to redeem on
entire
price will be determined in accordance with the applicable indenture and is
expected to be approximately
interest through the proposed redemption date and a make-whole amount as
defined in such indenture.
• As of
Line.
• At
trailing twelve month basis was 5.6x.
Property Portfolio
The following table summarizes general information related to the
(GLA in thousands) June 30, 2020 December 31, 2019 Number of Properties 300 303 Properties in Development and Redevelopment 13
16
GLA 37,229
37,556
% Leased - Operating and Development 93.9%
94.7%
% Leased - Operating 94.1%
94.9%
Weighted average annual effective rent
per square foot ("PSF"), net of tenant
concessions. $22.73 $22.38 The following table summarizes general information related to the
(GLA in thousands) June 30, 2020 December 31, 2019 Number of Properties 115 116 Properties in Development and Redevelopment 4 6 GLA 14,952 15,050 % Leased - Operating and Development 94.2%
95.2%
% Leased -Operating 94.2%
95.2%
Weighted average annual effective rent PSF, net of tenant concessions$21.78 $21.69 36
--------------------------------------------------------------------------------
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, 2020 December 31, 2019 % Leased - All Properties 93.9% 94.8% Anchor space 96.6% 97.3% Shop space 89.4% 90.6% During the COVID-19 pandemic, a number of tenants at our properties either were required or elected to temporarily close. Some of these tenants may be unable to sustain their business models in this environment and may fail in the presence of COVID-19 restrictions and concerns. As such, our occupancy rates could decline in future periods as the pandemic continues to impact our tenants. If conditions do not sufficiently and sustainably improve for these tenants, they may be unable to pay deferred or future contractual base rent and recoveries owed to us when due or otherwise. Given the decline in employment and gross domestic product, many retail tenants will experience economic challenges beyond those caused by COVID-19 pandemic restrictions that may leave them unable to pay rent or renew leases. In addition, if any of our tenants are unable to continue as going concerns as a result of the current economic conditions, we may lose existing tenants which will result in reduced lease income and occupancy at our centers. We may also be unable to find suitable replacement tenants for an extended period or at all and the terms of our leases with those replacement tenants may not be as favorable to us as the terms of our agreements with our existing tenants.
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, 2020
Tenant
Allowance Leasing
Leasing SF (in Base Rent and Landlord Commissions
Transactions thousands) PSF Work PSF PSF
Anchor Leases
New 5 130 $ 10.92 $ 4.68 $ 5.53
Renewal 52 1,489 13.04 0.62 0.36
Total Anchor Leases 57 1,619 $ 12.87 $ 0.95 $ 0.77
Shop Space
New 140 208 $ 39.59 $ 40.50 $ 13.33
Renewal 405 739 32.03 0.85 0.51
Total Shop Space Leases 545 947 $ 33.69 $ 9.56 $ 3.32
Total Leases 602 2,566 $ 20.55 $ 4.12 $ 1.71
Six months ended June 30, 2019
Tenant
Allowance Leasing
Leasing SF (in Base Rent and Landlord Commissions
Transactions thousands) PSF Work PSF PSF
Anchor Leases
New 12 220 $ 21.17 $ 47.71 $ 5.34
Renewal 52 1,460 12.69 0.90 0.10
Total Anchor Leases 64 1,680 $ 13.80 $ 7.04 $ 0.78
Shop Space
New 227 403 $ 32.64 $ 29.43 $ 8.89
Renewal 449 770 32.05 1.09 0.55
Total Shop Space Leases 676 1,173 $ 32.25 $ 10.82 $ 3.41
Total Leases 740 2,853 $ 21.39 $ 8.59 $ 1.86
The weighted average base rent per square foot on signed shop space leases
during 2020 was $33.69 , which is greater than the weighted average annual base
rent per square foot of all shop space leases due to expire during the next 12
months of $33.26 . As compared to prior rents on these same spaces, new and
renewal rent spreads were positive for anchor and shop space leases. However,
future rent spreads could be negatively impacted if the COVID-19 pandemic
results in oversupply of vacant retail in the markets in which we operate.
Since the COVID-19 pandemic impacted the United States , new leasing activity has
significantly declined as businesses delay executing leases amidst the immediate
and uncertain future economic impacts. This, coupled with potential retail
failures, may result in decreased demand for retail space in our centers, which
could result in pricing pressure on base rent. Additionally, delays in
37
--------------------------------------------------------------------------------
construction of tenant improvements due to shelter-in-place orders continues in
certain markets, and it may take longer before new tenants are able to open and
commence rent payments.
Significant Tenants and Concentrations of Risk
We seek to reduce our operating and leasing risks through geographic
diversification and 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 the top four are grocers and
considered essential businesses in this current COVID-19 pandemic environment:
June 30, 2020
Percentage of Percentage of
Number of Company- Annualized
Tenant Stores owned GLA (1) Base Rent (1)
Publix 68 6.6% 3.3%
Kroger 55 6.7% 3.0%
Albertsons Companies 46 4.3% 2.8%
Whole Foods 34 2.5% 2.5%
TJX Companies 63 3.2% 2.5%
(1) Includes Regency's pro-rata share of Unconsolidated
Properties and excludes those owned by anchors.
Bankruptcies and Credit Concerns
The impact of bankruptcies may increase significantly if tenants occupying our centers are unable to withstand and recover from the disruptions caused by the COVID-19 pandemic, which could materially adversely impact Lease income and could result in greater legal expenses within General and administrative expenses. Since the pandemic began, we have seen an increase in the number of tenants filing for bankruptcy. Our management team devotes significant time to researching and monitoring retail trends, consumer preferences, customer shopping behaviors, changes in retail delivery methods, shifts to e-commerce, and changing demographics in order to anticipate the challenges and opportunities impacting the retail industry. Amidst the COVID-19 pandemic there is a greater focus on whether tenants are considered essential or non-essential retail, which for now directly impacts the retailer's ability to operate and generate sufficient cash flows to meet their operating expenses, including lease payments. Tight credit markets could negatively impact consumer spending and, along with large-scale business failures, have an adverse effect on our results from operations. We seek to mitigate these potential impacts through 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 affluent suburbs and dense infill trade areas. During the COVID-19 pandemic, we have and may continue to agree to defer rent or grant other concessions for certain tenants impacted by temporary closures. We closely monitor the operating performance and rent collections of tenants in our shopping centers as well as those retailers experiencing significant changes to their business models as a result of reduced customer traffic in their stores and increased competition from e-commerce sales. Retailerswho are unable to withstand these and other business pressures, such as significant cash flow declines or debt maturities, may file for bankruptcy. As a result of our research and findings, we may reduce new leasing, suspend leasing, or curtail allowances for construction of leasehold improvements within certain retail categories or to a specific retailer in order to reduce our risk from bankruptcies and store closings. Although base rent is supported by long-term lease contracts, tenantswho 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 release 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. As ofJune 30, 2020 , tenantswho are currently in bankruptcy and continue to occupy space in our shopping centers represent an aggregate of 2.0% of our annual base rent on a pro-rata basis. We anticipate tenant bankruptcies will continue to increase in future periods depending on the length and severity of the COVID-19 pandemic impacts. 38 --------------------------------------------------------------------------------
Results from Operations
COVID-19 Pandemic: three months ended
The health crisis caused by the COVID-19 pandemic inthe United States , and resulting economic disruption, began during the first quarter of 2020 and continues to be an evolving situation. Our country's efforts have been focused on addressing the health crisis and encouraging or requiring social distancing to prevent the spread of the virus, through various forms of federal, state, and local government actions. While restrictions vary by state, generally, businesses deemed essential to the public were able to operate while non-essential businesses were not. Grocer tenants that anchor over 80% of our operating centers are considered essential businesses and the majority have remained open and operational to serve the residents of their communities. Many restaurants are also considered essential, although the social distancing and group gathering limitations may prevent in-store or dine-in activity, forcing some of these retailers to evaluate alternate means of providing essential goods and services to the public or, like non-essential tenants, closing during this pandemic. During the three months endedJune 30, 2020 , governments began to ease restrictions, allowing many retailers to reopen or increase occupancy of their stores from previously imposed limits. Although many retailers have reported initially strong sales results upon reopening, the risk of diminished sales and future closures exists as the virus remains active and continues to spread. The broader and longer-term implications of COVID-19 on our future results of operations and overall financial performance are uncertain at this time as efforts to develop a vaccine and more broadly reopen the country and economy continue. The impact of this COVID-19 pandemic has been significant to many of our tenants and their ability to pay rent, thereby directly impacting our results of operations and cash flows during 2020. This has resulted in certain tenants requesting concessions from rent obligations, including deferrals, abatements and requests to negotiate future rents, while some tenants have been unable to reopen or have not honored the terms of their existing lease agreements. Since the COVID-19 pandemic began, we have entered into over 600 mutually acceptable agreements with tenants, representing$16.4 million of rent or 1.8% of annual base rent, in our consolidated real estate portfolio and our unconsolidated real estate investment partnerships, to enable them to defer a portion of their rental payments and repay them over future periods. We expect to continue to work with other tenants, which may result in further rent concessions as we determine to be necessary and appropriate. Our results of operations may further deteriorate or improve based on efforts to contain this virus, our tenants' ability to sustain their businesses, or our ability to find replacement tenants. All adjustments considered necessary to reflect the current estimated economic impact of this COVID-19 pandemic to our results of operations have been reflected herein.
Comparison of the three months ended
Our revenues changed as summarized in the following table:
Three months ended June 30,
(in thousands) 2020 2019 Change
Lease income $ 222,552 266,236 (43,684 )
Other property income 2,435 2,194 241
Management, transaction, and other fees 6,126 7,442 (1,316 )
Total revenues $ 231,113 275,872 (44,759 )
Lease income decreased
$48.0 million decrease from increased Uncollectible lease income, consisting of$12.8 million increase from uncollectible Straight-line rent receivables and$35.2 million increase from uncollectible tenant receivables. The COVID-19 pandemic has been most impactful to those tenants considered non-essential, even more so to those struggling before the pandemic. The current economic environment has resulted in changes in our expectations of collecting certain tenant receivables and their related future rent steps previously recognized through straight-line rent.
•$448,000 increase from rent commencing at development properties; •$2.2 million increase from acquisitions of operating properties; and
•
steps in existing leases and rental rate growth, reduced by the loss of
rents from bankruptcies, offset by
• $3.0 million decrease from the sale of operating properties.
39
--------------------------------------------------------------------------------
•
•
•$939,000 decrease from the sale of operating properties; and
•
real estate tax recoveries, driven by an increase in tax assessments,
offset by
decrease in recoverable costs.
Future lease income could be impacted by ongoing negotiations to assist tenants with their ability to remain operational as this pandemic subsides. These may impact the timing and collectibility of income and take the form of rent deferrals, concessions, or abatements, among other possible agreements. Approximately 72% of the base rent billed for the three months endedJune 30, 2020 has been collected throughJuly 31, 2020 . Management, transaction, and other fees decreased$1.3 million primarily from decreases in construction management, property management, and development fees from projects within our unconsolidated partnerships. Decreases in property receipts and leasing activity during this pandemic have negatively impacted our property management and leasing fee income earned from our unconsolidated partnerships, and are expected to continue while the depressed economic impact of the pandemic continues.
Changes in our operating expenses are summarized in the following table:
Three months ended June 30,
(in thousands) 2020 2019 Change
Depreciation and amortization $ 85,058 93,589 (8,531 )
Operating and maintenance 40,032 42,759 (2,727 )
General and administrative 21,202 18,717 2,485
Real estate taxes 36,793 33,506 3,287
Other operating expenses 2,480 1,533 947
Total operating expenses $ 185,565 190,104 (4,539 )
Depreciation and amortization costs decreased, on a net basis, as follows:
•
properties, and corporate assets; offset by
•
additional 2019 depreciation and amortization at redevelopment properties
and for early tenant move-outs; and
• $1.2 million decrease from the sale of operating properties.
Operating and maintenance costs decreased, on a net basis, as follows:
•
•
•
area maintenance costs during the shutdowns, offset by increases in
insurance premiums; and
• $592,000 decrease from the sale of operating properties.
General and administrative costs increased, on a net basis, as follows:
•
deferred compensation plan, attributable to changes in market values of
those investments, reflected within Net investment income; and
•
on the status and progress on development and redevelopment projects during
the year coupled with delays in new developments during the pandemic; offset
by
40
--------------------------------------------------------------------------------
•
compensation; and
• $1.3 million decrease in other expenses related to lower travel and
conference costs amidst the pandemic.
Real estate taxes increased, on a net basis, as follows:
•
development properties where capitalization ceased as tenant spaces became
available for occupancy; and
•
assessed values across our portfolio; offset by
• $469,000 decrease from the sale of operating properties.
Other operating expenses increased
The following table presents the components of other expense (income):
Three months ended June 30,
(in thousands) 2020 2019 Change
Interest expense, net
Interest on notes payable $ 37,493 31,473 6,020
Interest on unsecured credit facilities 3,185 4,775 (1,590 )
Capitalized interest (1,274 ) (980 ) (294 )
Hedge expense 1,546 2,149 (603 )
Interest income (575 ) (244 ) (331 )
Interest expense, net $ 40,375 37,173 3,202
Provision for impairment of real estate,
net of tax 230 10,441 (10,211 )
Gain on sale of real estate, net of tax (7,448 ) (442 ) (7,006 )
Net investment income (4,359 ) (966 ) (3,393 )
Total other expense (income) $ 28,798 46,206 (17,408 )
The
•
•
related to the 2019 repayment of a
interest in 2020 on short-term borrowings on the Line in advance of the new
senior unsecured note issued in May.
The$10.2 million decrease in Provision for impairment of real estate is due to the timing of specific transactions. During the three months endedJune 30, 2020 , we recognized$230,000 loss on sale of one land parcel. During the three months endedJune 30, 2019 , we recognized$10.4 million of impairment losses on two operating properties. During the three months endedJune 30, 2020 , we recognized gains on sale of$7.4 million for two land parcels, one operating property, and the receipt of property insurance proceeds. During the three months endedJune 30, 2019 , we recognized gains on sale of$442,000 from one land parcel and the receipt of property insurance proceeds.
Net investment income increased
41
--------------------------------------------------------------------------------
Our equity in income of investments in real estate partnerships decreased as
follows:
Three months ended June 30,
Regency's
(in thousands) Ownership 2020 2019 Change
GRI - Regency, LLC (GRIR) 40.00% $ 1,430 10,297 (8,867 )
New York Common Retirement Fund
(NYC) 30.00% 74 365 (291 )
Columbia Regency Retail Partners ,
LLC (Columbia I) 20.00% 73 328 (255 )
Columbia Regency Partners II, LLC
(Columbia II) 20.00% 75 357 (282 )
Cameron Village, LLC (Cameron) 30.00% 211 304 (93 )
RegCal, LLC (RegCal) 25.00% 200 345 (145 )
US Regency Retail I, LLC (USAA) 20.01% 114 224 (110 )
Other investments in real estate
partnerships (1) 35.00% - 50.00% 647 908 (261 )
Total equity in income of investments in real estate partnerships
$ 2,824 13,128 (10,304 ) (1) Includes our investment in the Town and Country shopping center,
which we owned 18.38% during 2019. In January 2020 , we purchased an
additional 16.62% interest, bringing our total ownership interest to
35%.
The
•$8.9 million decrease within GRI primarily due to the following: o$5.9 million decrease from higher uncollectible lease income attributable to the impact of the COVID-19 pandemic on tenants; and o$2.0 million decrease driven by additional gains recognized during 2019 on the sale of operating real estate. • All of our investments in real estate partnerships experienced higher
amounts of uncollectible lease income, negatively impacting our equity in
income.
The following represents the remaining components that comprised net income attributable to the common stockholders and unit holders:
Three months ended June 30,
(in thousands) 2020 2019 Change
Net income $ 19,574 52,690 (33,116 )
Income attributable to noncontrolling
interests (528 ) (962 ) 434
Net income attributable to common
stockholders $ 19,046 51,728 (32,682 )
Net income attributable to exchangeable
operating partnership units (87 ) (109 ) 22
Net income attributable to common unit
holders $ 19,133 51,837 (32,704 )
42
--------------------------------------------------------------------------------
Comparison of the six months ended
Our revenues changed as summarized in the following table:
Six months ended June 30,
(in thousands) 2020 2019 Change
Lease income $ 497,089 543,539 (46,450 )
Other property income 4,740 4,176 564
Management, transaction, and other fees 12,942 14,415 (1,473 )
Total revenues $ 514,771 562,130 (47,359 )
Lease income decreased
$54.8 million decrease from increased Uncollectible lease income consisting of$16.4 million increase from uncollectible Straight-line rent receivables and$38.4 million increase from uncollectible tenant receivables. The COVID-19 pandemic has been most impactful to those tenants considered non-essential, even more so to those struggling before the pandemic. The current economic environment has resulted in changes in our expectations of collecting certain tenant receivables and their related future rent steps previously recognized through straight-line rent.
•$1.1 million increase from rent commencing at development properties; •$5.6 million increase from acquisitions of operating properties; and
•
steps in existing leases and rental rate growth, reduced by the loss of
rents from bankruptcies, offset by
• $6.2 million decrease from the sale of operating properties.
$2.5 million net increase from billable Recoveries from tenants, which represent
amounts contractually billable to tenants per the terms of the lease for their
reimbursements to us for 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, as follows:
• $1.2 million increase from rent commencing at development properties;
• $2.1 million increase from acquisitions of operating properties; and
•
real estate tax recoveries, driven by an increase in tax assessments,
offset by $1.8 million decrease in CAM recoveries driven by a net
decrease in recoverable costs; offset by
• $1.7 million decrease from the sale of operating properties.
Future lease income could be impacted by ongoing negotiations to assist tenants
with their ability to remain operational as this pandemic subsides. These may
impact the timing of collection and the collectibility of tenant receivables and
take the form of additional rent deferrals or rent abatements. Approximately 72%
of the base rent billed for the three months ended June 30, 2020 , has been
collected through July 31, 2020 . Further, tenants that cannot sustain their
business may be unable to pay rent or renew leases, which may not be as readily
replaceable as the pool of potential future tenants also deteriorates in this
economic environment. Future declines in occupancy would result in reduced lease
income from both lower base rent and recoveries from tenants of CAM, real estate
taxes and insurance costs at our centers.
Management, transaction, and other fees decreased $1.5 million primarily from
decreases in development, construction management, and property management fees
from projects within our unconsolidated partnerships. Decreases in property
receipts and leasing activity during this pandemic have negatively impacted our
property management and leasing fee income earned from our unconsolidated
partnerships, and are expected to continue while the depressed economic impact
of the pandemic continues.
43
--------------------------------------------------------------------------------
Changes in our operating expenses are summarized in the following table:
Six months ended June 30,
(in thousands) 2020 2019 Change
Depreciation and amortization $ 174,353 190,783 (16,430 )
Operating and maintenance 82,401 83,397 (996 )
General and administrative 34,907 40,017 (5,110 )
Real estate taxes 72,680 67,661 5,019
Other operating expenses 3,817 2,667 1,150
Total operating expenses $ 368,158 384,525 (16,367 )
Depreciation and amortization costs decreased, on a net basis, as follows:
•
properties where tenant spaces were completed and became available for
occupancy; and
• $2.6 million increase from acquisitions of operating properties and
corporate assets; offset by
•
additional 2019 depreciation and amortization at redevelopment properties
and for early tenant move-outs; and
• $3.6 million decrease from the sale of operating properties.
Operating and maintenance costs decreased, on a net basis, as follows:
•
•
•
in common area maintenance costs incurred during the pandemic shutdowns,
coupled with a decrease in lease termination expense, offset by increases in
insurance premiums; and
• $1.1 million decrease from the sale of operating properties.
General and administrative costs decreased, on a net basis, as follows:
•
deferred compensation plan, attributable to changes in market values of
those investments, reflected within Net investment income;
•
incentive compensation; and
• $1.7 million decrease in other expenses related to lower travel and
conference costs amidst the pandemic; offset by
•
on the status and progress on development and redevelopment projects during
the year coupled with delays in new developments during the pandemic.Real estate taxes increased, on a net basis, as follows:
•
tenant spaces became available for occupancy;
• $1.1 million increase from acquisitions of operating properties; and
•
assessed values across our portfolio; offset by
• $887,000 decrease from the sale of operating properties.
44
--------------------------------------------------------------------------------
Other operating expenses increased
The following table presents the components of other expense (income):
Six months ended June 30,
(in thousands) 2020 2019 Change
Interest expense, net
Interest on notes payable $ 72,058 63,986 8,072
Interest on unsecured credit facilities 6,122 9,318 (3,196 )
Capitalized interest (2,449 ) (1,996 ) (453 )
Hedge expense 3,196 4,264 (1,068 )
Interest income (1,116 ) (647 ) (469 )
Interest expense, net $ 77,811 74,925 2,886
Goodwill impairment 132,128 - 132,128
Provision for impairment, net of tax 1,014 12,113 (11,099 )
Gain on sale of real estate, net of tax (45,453 ) (16,932 ) (28,521 )
Early extinguishment of debt - 10,591 (10,591 )
Net investment loss (income) 564 (3,320 ) 3,884
Total other expense (income)$ 166,064 77,377 88,687
Interest expense, net, changed
• The
issuance of
redemption of the $250 million senior unsecured notes in April 2019 , and
mortgage payoffs at several properties during 2019; partially offset by,
• The
from the 2019 repayment of a
• The
forward swap in 2019.
During the six months endedJune 30, 2020 , we recognized$132.1 million ofGoodwill impairment, due to the significant market and economic impacts of the COVID-19 pandemic. The market disruptions triggered evaluation of reporting unit fair values for goodwill impairment. Of our 269 reporting units with goodwill, 87 reporting units were determined to have fair values lower than carrying value. As such, goodwill impairment losses totaling$132.1 million were recognized for the amount that the carrying amount of the reporting unit, including goodwill, exceeded its fair value, limited to the total amount of goodwill allocated to that reporting unit. During the six months endedJune 30, 2020 , we recognized$1.0 million resulting from impairment of one operating property and the sale of one land parcel. During the six months endedJune 30, 2019 , we recognized$12.1 million of impairment losses on four operating properties, based on actual or expected sales price. During the six months endedJune 30, 2020 , we recognized gains of$45.4 million from the sale of three land parcels, three operating properties, receipt of property insurance proceeds, and the re-measurement gain from the acquisition of controlling interest in a previously held equity investment. During the three months endedJune 30, 2019 , we recognized gains of$16.9 million from the sale of two operating properties and three land parcels.
During the six months ended
Net investment loss (income) changed by$3.9 million primarily driven by changes in unrealized gains and losses of plan assets held in the non-qualified deferred compensation plan. There is an offsetting adjustment in General and administrative costs related to participant obligations within the deferred compensation plans. 45 --------------------------------------------------------------------------------
The following table presents the components of other expense (income):
Six months ended June 30,
Regency's
(in thousands) Ownership 2020 2019 Change
GRI - Regency, LLC (GRIR) 40.00% $ 10,199 21,032 (10,833 )
New York Common Retirement Fund
(NYC) 30.00% 248 636 (388 )
Columbia Regency Retail
Partners, LLC (Columbia I) 20.00% 479 731 (252 )
Columbia Regency Partners II,
LLC (Columbia II) 20.00% 531 840 (309 )
Cameron Village, LLC (Cameron) 30.00% 522 560 (38 )
RegCal, LLC (RegCal) 25.00% 538 2,964 (2,426 )
US Regency Retail I, LLC (USAA) 20.01% 396 479 (83 )
Other investments in real estate
partnerships 35.00% - 50.00% 1,329 16,713 (15,384 )
Total equity in income of
investments in real estate
partnerships $ 14,242 43,955 (29,713 )
(1) Includes our investment in the Town and Country shopping center,
which we owned 18.38% during 2019. In January 2020 , we purchased an
additional 16.62% interest, bringing our total ownership interest to
35%.
The
•
o $5.0 million decrease driven by additional gains recognized during
2019 on the sale of operating real estate;
o $6.7 million decrease from higher uncollectible lease income
attributable to the expected impact of the COVID-19 pandemic on
tenants.
• $2.4 million decrease within RegCal primarily due to a $2.3 million gain
recognized during 2019 on the sale of an operating property within the
partnership; and
•
primarily due to a
a single operating property.
The following represents the remaining components that comprised net income attributable to the common stockholders and unit holders:
Six months ended June 30,
(in thousands) 2020 2019 Change
Net (loss) income $ (5,209 ) 144,183 (149,392 )
Income attributable to noncontrolling
interests (1,077 ) (2,009 ) 932
Net (loss) income attributable to common
stockholders $ (6,286 ) 142,174 (148,460 )
Net loss (income) attributable to
exchangeable operating partnership units 28 (299 ) 327
Net (loss) income attributable to common
unit holders $ (6,314 ) 142,473 (148,787 )
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 Company's 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 the
Company's 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 Company's 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. The principal limitation of these non-GAAP
financial measures is they may exclude significant expense and income items that
are required by
46
--------------------------------------------------------------------------------
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, excluding termination fees, changed from the
following major components:
Six months ended
Three months ended June 30, June 30,
(in thousands) 2020 2019 Change 2020 2019 Change
Base rent (1) $ 209,613 208,876 737 $ 420,703 417,808 2,895
Recoveries from tenants (1) 66,606 67,599 (993 ) 135,011 134,508 503
Percentage rent (1) 1,035 1,622 (587 ) 4,811 5,411 (600 )
Termination fees (1) 2,012 1,504 508 4,150 1,961 2,189
Uncollectible lease income (39,205 ) (766 ) (38,439 ) (42,718 ) (1,384 ) (41,334 )
Other lease income (1) 2,169 2,479 (310 ) 4,673 4,675 (2 )
Other property income 1,567 1,814 (247 ) 3,154 3,358 (204 )
Total real estate revenue 243,797 283,128 (39,331 ) 529,784 566,337 (36,553 ) Operating and maintenance
39,876 41,937 (2,061 ) 81,867 82,615 (748 )
Termination expense 25 500 (475 ) 25 500 (475 )
Real estate taxes 39,036 36,447 2,589 77,311 73,501 3,810
Ground rent 2,533 2,646 (113 ) 5,132 5,393 (261 )
Total real estate operating
expenses 81,470 81,530 (60 ) 164,335 162,009 2,326
Pro-rata same property NOI $ 162,327 201,598
(39,271 )
1,987 1,004 983 4,125 1,461 2,664
Pro-rata same property NOI,
excluding termination fees $ 160,340 200,594 (40,254 ) $ 361,324 402,867 (41,543 )
Pro-rata same property NOI
growth, excluding
termination fees -20.1 % -10.3 %
(1) Represents amounts included within Lease income in the accompanying
Consolidated Statements of Operations that are contractually billable to the
tenants per the terms of the lease agreements.
Billable Base rent increased$736,000 and$2.9 million during the three and six months endedJune 30, 2020 , driven by increases in rent spreads and contractual rent steps, offset by decreases from bankruptcy impacts.
Termination fees increased
Uncollectible lease income increased$38.4 million and$41.3 million during the three and six months endedJune 30, 2020 , due to changes in collection expectations of our lease income due to the impact of the COVID-19 pandemic on our tenants. Operating and maintenance expenses decreased$2.1 million and$748,000 during the three and six months endedJune 30, 2020 , due to decreases in recoverable operating costs attributable to the pandemic shut-downs, offset by increases in insurance costs. Real estate taxes increased$2.6 million and$3.8 million during the three and six months endedJune 30, 2020 , due to changes in assessed values at properties across our portfolio. 47
--------------------------------------------------------------------------------
Same Property Rollforward:
Our same property pool includes the following property count, pro-rata GLA, and
changes therein:
Three months ended June 30,
2020 2019
Property Property
(GLA in thousands) Count GLA Count GLA
Beginning same property count 399 40,568 401 40,904
Disposed properties (1 ) (48 ) - -
SF adjustments (1) - 2 - 62
Ending same property count 398 40,522 401 40,966
Six months ended June 30,
2020 2019
Property Property
(GLA in thousands) Count GLA Count GLA
Beginning same property count 396 40,525 399 40,866
Acquired properties owned for
entirety of comparable periods 5 315 6 415
Developments that reached completion
by beginning of earliest comparable
period presented 3 553 3 358
Disposed properties (3 ) (427 ) (7 ) (766 )
SF adjustments (1) - 1 - 93
Properties under or being
repositioned for redevelopment (3 ) (445 ) - -
Ending same property count 398 40,522 401 40,966
(1) SF adjustments arise from remeasurements or redevelopments.
NAREIT FFO:
Our reconciliation of net income attributable to common stock and unit holders
to NAREIT FFO is as follows:
Three months ended June 30, Six months ended June 30,
(in thousands, except share
information) 2020 2019 2020 2019
Reconciliation of Net income (loss)
to NAREIT FFO
Net income (loss) attributable to
common stockholders $ 19,046 51,728 $ (6,286 ) 142,174
Adjustments to reconcile to NAREIT
FFO: (1)
Depreciation and amortization
(excluding FF&E) 92,756 100,168 189,388 204,665
Goodwill impairment - - 132,128 -
Provision for impairment of real
estate 230 10,441 1,014 12,113
Gain on sale of real estate, net of
tax (7,464 ) (2,410 ) (45,416 ) (39,462 )
Exchangeable operating partnership
units 87 109 (28 ) 299
NAREIT FFO attributable to common
stock and unit holders $ 104,655 160,036 $ 270,800 319,789
(1) Includes Regency's pro-rata share of unconsolidated investment
partnerships, net of pro-rata share attributable to noncontrolling
interest.
48
--------------------------------------------------------------------------------
Same Property NOI Reconciliation:
Our reconciliation of Net income (loss) 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) 2020 2019 2020 2019
Net income (loss) attributable to
common stockholders $ 19,046 51,728 $ (6,286 ) 142,174
Less:
Management, transaction, and other
fees 6,126 7,442 12,942 14,415
Other (1) (1,424 ) 8,355 12,386 27,325
Plus:
Depreciation and amortization 85,058 93,589 174,353 190,783
General and administrative 21,202 18,717 34,907 40,017
Other operating expense 2,480 1,533 3,817 2,667
Other expense (income) 28,798 46,206 166,064 77,377
Equity in income (loss) of
investments in real estate excluded
from NOI (2) 16,878 11,976 32,361 6,347
Net income attributable to
noncontrolling interests 528 962 1,077 2,009
Pro-rata NOI $ 169,288 208,914 $ 380,965 419,634
Less non-same property NOI (3) 6,961 7,316 15,516 15,306
Pro-rata same property NOI $ 162,327 201,598 $ 365,449 404,328
(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. We continuously monitor the capital markets and evaluate our ability to issue new debt or equity, to repay maturing debt, or to fund our capital commitments. Except for$500 million of unsecured public and 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$500 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.
As the COVID-19 pandemic and its related impacts continue to evolve, we have taken the following steps to ensure sufficient liquidity and financial flexibility:
• We settled our forward equity sales under our previous ATM program and
received proceeds of approximately
• We renewed our ATM equity offering program in May which provides for the
sale of
of common stock remained available for issuance.
• We issued
and received proceeds of $598.8 . A portion of the proceeds were used to
repay the outstanding balance on our Line, and the remaining proceeds will
be used for general corporate purposes, including the redemption in
September 2020 of our $300 million 3.75% unsecured Notes due 2022.
• We have a borrowing capacity on our Line of
of unrestricted cash available to us as of
We also continue to closely monitor and assess the capital requirements of all
in process and planned developments, redevelopments, and capital expenditures.
We are carefully proceeding in a targeted manner on a project-by-project basis,
resulting in the delay, phasing or curtailment of certain in-process and planned
development, redevelopment and capital expenditure projects. We have no
unsecured debt maturities until 2022 and a manageable level of secured mortgage
maturities during 2020 and 2021, including those mortgages within our joint
ventures.
49
--------------------------------------------------------------------------------
We continually evaluate alternative financing options, and we believe we can
obtain financing on reasonable terms; however, there can be no assurance that
additional financing or capital will be available, or that the terms will be
acceptable or advantageous to us. Based upon our available cash balance, sources
of capital, our current credit ratings, and the number of high quality,
unencumbered properties we own, we believe our available capital resources are
sufficient to meet our expected capital needs for the next 12 months.
In addition to our
(in thousands) June 30, 2020 ATM equity program Original offering amount$ 500,000 Available capacity$ 500,000 Line of Credit Total commitment amount$ 1,250,000 Available capacity (1)$ 1,240,237 Maturity (2) March 23, 2022 (1) Net of letters of credit. (2) The Company has the option to extend the maturity for two additional six-month periods. Dividends are determined by our Board of Directors. OnJuly 29, 2020 , our Board of Directors declared a common stock dividend of$0.595 per share, payable onAugust 24, 2020 , to shareholders of record as ofAugust 14, 2020 . 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, 2020 and 2019, we generated cash flow from operations of$217.4 million and$289.3 million , respectively, and paid$200.9 million and$195.7 million in dividends to our common stock and unit holders, respectively. We are closely monitoring our tenant cash collections which, for many businesses classified as non-essential, have significantly declined since the start of the COVID-19 pandemic and resulting restrictions. Approximately 72% of pro-rata base rent billed for the three months endedJune 30, 2020 has been collected throughJuly 31, 2020 . We currently expect this trend to continue through 2020, although we expect collections to improve through the year as restrictions lift and businesses reopen. However, there can be no assurance that our cash flow from operations will be sufficient to fund our dividend without the benefit of other sources of capital or changes to our historic dividend levels, including the potential payment of dividends with Regency stock, while remaining in compliance with minimum REIT distributions. We currently have 17 development and redevelopment projects in various stages of construction, along with a pipeline of potential projects for future development or redevelopment. Due to the impacts of the COVID-19 pandemic, in-process projects in certain markets have stopped or slowed significantly due to government restrictions, health concerns, or labor limitations. As the effects of the COVID-19 pandemic remain uncertain, we continue to evaluate the pandemic's impacts to our in-process projects as well as the feasibility of our pipeline projects and non-essential capital expenditures, including project scope, investment, tenancy, timing and return on investment. In order to maximize positive cash flow, increase liquidity, and preserve financial flexibility, we have curtailed certain projects, delayed some to a future period when retail space demand returns to a more favorable level, and, where practicable, activated targeted phasing of development and redevelopments. We estimate that we will require capital during the next twelve months of approximately$290 million to fund construction and related costs for committed tenant improvements and in-process development and redevelopment, to repay maturing debt, and to make capital contributions to our co-investment partnerships. The$600 million unsecured public bond offering in May, coupled with proceeds from settling our forward ATM sales and available$1.2 billion on our Line, strengthen our financial position to be able to fund our expected operating and capital expenditures amid the uncertainty of operating cash flows during this pandemic and recovery period. We expect to generate the necessary cash to fund our 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 start new developments or redevelopments, commit to new acquisitions, prepay debt prior to maturity, or repurchase shares of our common stock, our cash requirements will increase. We endeavor to maintain a high percentage of unencumbered assets. As ofJune 30, 2020 , 88.8% 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 4.0 times and 4.3 times for the periods endedJune 30, 2020 andDecember 31, 2019 , respectively, and our pro-rata net debt-to-operating EBITDAre ratio on a trailing twelve month basis was 5.6x and 5.4x, respectively, for the same periods. We expect that these ratios may worsen during 2020 as a result of the impacts from the COVID-19 pandemic. 50
--------------------------------------------------------------------------------
Our Line, Term Loan, 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 endedDecember 31, 2019 . We are in compliance with these covenants atJune 30, 2020 , and expect to remain in compliance.
© Edgar Online, source
