UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2022
or
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 1-12298 (Regency Centers Corporation)
Commission File Number 0-24763 (Regency Centers, L.P.)
REGENCY CENTERS CORPORATION
REGENCY CENTERS, L.P.
(Exact name of registrant as specified in its charter)
florida (REGENCY CENTERS CORPORATION)
59-3191743
Delaware (REGENCY CENTERS, L.P)
59-3429602
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
One Independent Drive, Suite 114
Jacksonville, Florida 32202
(904) 598-7000
(Address of principal executive offices) (zip code)
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Regency Centers Corporation
Title of each class
Trading Symbol
Name of each exchange on which registered
Common Stock, $.01 par value
REG
The Nasdaq Stock Market LLC
Regency Centers, L.P.
None
N/A
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Regency Centers Corporation Yes ☒ No ☐ Regency Centers, L.P. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
Regency Centers Corporation:
Large accelerated filer
☒
Accelerated filer
☐
Emerging growth company
Non-accelerated filer
Smaller reporting company
Regency Centers, L.P.:
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Regency Centers Corporation Yes ☐ No ☐ Regency Centers, L.P. Yes ☐ No ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Regency Centers Corporation Yes ☐ No ☒ Regency Centers, L.P. Yes ☐ No ☒
The number of shares outstanding of Regency Centers Corporation’s common stock was 171,122,720 as of November 3, 2022.
EXPLANATORY NOTE
This report combines the quarterly reports on Form 10-Q for the quarter ended September 30, 2022, of Regency Centers Corporation and Regency Centers, L.P. Unless stated otherwise or the context otherwise requires, references to "Regency Centers Corporation" or the "Parent Company" mean Regency Centers Corporation and its controlled subsidiaries; and references to "Regency Centers, L.P." or the "Operating Partnership" mean Regency Centers, L.P. and its controlled subsidiaries. The term "the Company", "Regency Centers" or "Regency" means the Parent Company and the Operating Partnership, collectively.
The Parent Company is a real estate investment trust ("REIT") and the general partner of the Operating Partnership. The Operating Partnership's capital includes general and limited common Partnership Units ("Units"). As of September 30, 2022, the Parent Company owned approximately 99.6% of the Units in the Operating Partnership. The remaining limited Units are owned by third party investors. As the sole general partner of the Operating Partnership, the Parent Company has exclusive control of the Operating Partnership’s day-to-day management.
The Company believes combining the quarterly reports on Form 10-Q of the Parent Company and the Operating Partnership into this single report provides the following benefits:
Management operates the Parent Company and the Operating Partnership as one business. The management of the Parent Company consists of the same individuals as the management of the Operating Partnership. These individuals are officers of the Parent Company and employees of the Operating Partnership.
The Company believes it is important to understand the key differences between the Parent Company and the Operating Partnership in the context of how the Parent Company and the Operating Partnership operate as a consolidated company. The Parent Company is a REIT, whose only material asset is its ownership of partnership interests of the Operating Partnership. As a result, the Parent Company does not conduct business itself, other than acting as the sole general partner of the Operating Partnership, issuing public equity from time to time and guaranteeing certain debt of the Operating Partnership. Except for $200 million of unsecured private placement debt, the Parent Company does not hold any indebtedness, but guarantees all of the unsecured debt of the Operating Partnership. The Operating Partnership is also the co-issuer and guarantees the $200 million of Parent Company debt. The Operating Partnership holds all the assets of the Company and retains the ownership interests in the Company’s joint ventures. Except for net proceeds from public equity issuances by the Parent Company, which are contributed to the Operating Partnership in exchange for partnership units, the Operating Partnership generates all remaining capital required by the Company’s business. These sources include the Operating Partnership's operations, its direct or indirect incurrence of indebtedness, and the issuance of partnership units.
Stockholders' equity, partners' capital, and noncontrolling interests are the main areas of difference between the consolidated financial statements of the Parent Company and those of the Operating Partnership. The Operating Partnership's capital includes general and limited common Partnership Units. The limited partners' units in the Operating Partnership owned by third parties are accounted for in partners' capital in the Operating Partnership's financial statements and outside of stockholders' equity in noncontrolling interests in the Parent Company's financial statements.
In order to highlight the differences between the Parent Company and the Operating Partnership, there are sections in this report that separately discuss the Parent Company and the Operating Partnership, including separate financial statements, controls and procedures sections, and separate Exhibit 31 and 32 certifications. In the sections that combine disclosure for the Parent Company and the Operating Partnership, this report refers to actions or holdings as being actions or holdings of the Company.
As general partner with control of the Operating Partnership, the Parent Company consolidates the Operating Partnership for financial reporting purposes, and the Parent Company does not have assets other than its investment in the Operating Partnership. Therefore, while stockholders' equity and partners' capital differ as discussed above, the assets and liabilities of the Parent Company and the Operating Partnership are the same on their respective financial statements.
TABLE OF CONTENTS
Form 10-Q
Report Page
PART I - FINANCIAL INFORMATION
Item 1.
Financial Statements (Unaudited)
Consolidated Balance Sheets as of September 30, 2022 and December 31, 2021
1
Consolidated Statements of Operations for the periods ended September 30, 2022 and 2021
2
Consolidated Statements of Comprehensive Income for the periods ended September 30, 2022 and 2021
3
Consolidated Statements of Equity for the periods ended September 30, 2022 and 2021
4
Consolidated Statements of Cash Flows for the periods ended September 30, 2022 and 2021
6
8
9
10
Consolidated Statements of Capital for the periods ended September 30, 2022 and 2021
11
13
Notes to Consolidated Financial Statements
15
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations
27
Item 3.
Quantitative and Qualitative Disclosures about Market Risk
50
Item 4.
Controls and Procedures
51
PART II - OTHER INFORMATION
Legal Proceedings
Item 1A.
Risk Factors
Unregistered Sales of Equity Securities and Use of Proceeds
52
Defaults Upon Senior Securities
Mine Safety Disclosures
Item 5.
Other Information
53
Item 6.
Exhibits
SIGNATURES
55
Item 1. Financial Statements
Consolidated Balance Sheets
September 30, 2022 and December 31, 2021
(in thousands, except share data)
2022
2021
Assets
(unaudited)
Real estate assets, at cost
$
11,769,796
11,495,581
Less: accumulated depreciation
2,360,663
2,174,963
Real estate assets, net
9,409,133
9,320,618
Investments in real estate partnerships
332,248
372,591
Properties held for sale
2,354
25,574
Cash, cash equivalents, and restricted cash, including $3,752 and $1,930 of restricted cash at September 30, 2022 and December 31, 2021, respectively
154,984
95,027
Tenant and other receivables
173,572
153,091
Deferred leasing costs, less accumulated amortization of $122,690 and $117,878 at September 30, 2022 and December 31, 2021, respectively
69,091
65,741
Acquired lease intangible assets, less accumulated amortization of $332,866 and $312,186 at September 30, 2022 and December 31, 2021, respectively
204,097
212,707
Right of use assets, net
277,656
280,783
Other assets
275,702
266,431
Total assets
10,898,837
10,792,563
Liabilities and Equity
Liabilities:
Notes payable
3,729,404
3,718,944
Accounts payable and other liabilities
328,285
322,271
Acquired lease intangible liabilities, less accumulated amortization of $186,515 and $172,293 at September 30, 2022 and December 31, 2021, respectively
350,531
363,276
Lease liabilities
215,100
215,788
Tenants' security, escrow deposits and prepaid rent
76,777
62,352
Total liabilities
4,700,097
4,682,631
Commitments and contingencies
—
Equity:
Stockholders' equity:
Common stock, $0.01 par value per share, 220,000,000 shares authorized; 171,119,166 and 171,213,008 shares issued at September 30, 2022 and December 31, 2021, respectively
1,711
1,712
Treasury stock at cost, 458,325 and 427,901 shares held at September 30, 2022 and December 31, 2021, respectively
(24,061
)
(22,758
Additional paid-in-capital
7,878,993
7,883,458
Accumulated other comprehensive income (loss)
8,253
(10,227
Distributions in excess of net income
(1,749,013
(1,814,814
Total stockholders' equity
6,115,883
6,037,371
Noncontrolling interests:
Exchangeable operating partnership units, aggregate redemption value of $39,926 and $56,844 at September 30, 2022 and December 31, 2021, respectively
34,554
35,447
Limited partners' interests in consolidated partnerships
48,303
37,114
Total noncontrolling interests
82,857
72,561
Total equity
6,198,740
6,109,932
Total liabilities and equity
See accompanying notes to consolidated financial statements.
Consolidated Statements of Operations
(in thousands, except per share data)
Three months ended September 30,
Nine months ended September 30,
Revenues:
Lease income
295,756
283,303
882,265
826,390
Other property income
2,466
4,401
8,290
9,428
Management, transaction, and other fees
5,767
19,671
18,950
33,419
Total revenues
303,989
307,375
909,505
869,237
Operating expenses:
Depreciation and amortization
80,270
75,459
237,462
226,935
Operating and maintenance
49,577
43,468
143,788
135,616
General and administrative
20,273
17,789
56,710
58,263
Real estate taxes
37,926
35,779
111,495
107,392
Other operating expenses
949
812
3,739
2,687
Total operating expenses
188,995
173,307
553,194
530,893
Other expense (income):
Interest expense, net
36,361
35,993
109,798
108,741
Provision for impairment of real estate
(20
115
Gain on sale of real estate, net of tax
(220
(6,719
(106,459
(38,198
Net investment loss (income)
1,215
209
9,177
(3,275
Total other expense (income)
37,356
29,463
12,516
67,383
Income from operations before equity in income of investments in real estate partnerships
77,638
104,605
343,795
270,961
Equity in income of investments in real estate partnerships
11,209
14,243
47,855
26,344
Net income
88,847
118,848
391,650
297,305
Exchangeable operating partnership units
(379
(519
(1,694
(1,315
(890
(923
(2,354
(2,438
Income attributable to noncontrolling interests
(1,269
(1,442
(4,048
(3,753
Net income attributable to common stockholders
87,578
117,406
387,602
293,552
Income per common share - basic
0.51
0.69
2.26
1.73
Income per common share - diluted
1.72
Consolidated Statements of Comprehensive Income
(in thousands)
Other comprehensive income:
Effective portion of change in fair value of derivative instruments:
Effective portion of change in fair value of derivative instruments
7,069
138
20,473
3,646
Reclassification adjustment of derivative instruments included in net income
72
1,040
1,563
3,109
Unrealized loss on available-for-sale debt securities
(659
(49
(1,636
(263
Other comprehensive income
6,482
1,129
20,400
6,492
Comprehensive income
95,329
119,977
412,050
303,797
Less: comprehensive income attributable to noncontrolling interests:
Net income attributable to noncontrolling interests
1,269
1,442
4,048
3,753
Other comprehensive income attributable to noncontrolling interests
617
89
1,920
485
Comprehensive income attributable to noncontrolling interests
1,886
1,531
5,968
4,238
Comprehensive income attributable to the Company
93,443
118,446
406,082
299,559
Consolidated Statements of Equity
For the three months ended September 30, 2022 and 2021
Noncontrolling Interests
CommonStock
TreasuryStock
AdditionalPaid InCapital
AccumulatedOtherComprehensiveIncome (Loss)
Distributionsin Excess ofNet Income
TotalStockholders’Equity
ExchangeableOperatingPartnershipUnits
LimitedPartners’Interest inConsolidatedPartnerships
TotalNoncontrollingInterests
TotalEquity
Balance at June 30, 2021
1,699
(25,887
7,796,699
(13,658
(1,791,773
5,967,080
35,544
37,407
72,951
6,040,031
519
923
Other comprehensive loss
Other comprehensive loss before reclassification
88
Amounts reclassified from accumulated other comprehensive income
952
84
Deferred compensation plan, net
569
(492
77
Restricted stock issued, net of amortization
3,425
Common stock issued for stock based compensation, net
80
Common stock issued under dividend reinvestment plan
404
Common stock issued, net of issuance costs
82,497
82,510
Distributions to partners
(1,283
Cash dividends declared:
Common stock/unit ($0.595 per share)
(101,301
(456
(101,757
Balance at September 30, 2021
(25,318
7,882,613
(12,618
(1,775,668
6,070,721
35,612
37,131
72,743
6,143,464
Balance at June 30, 2022
(23,882
7,874,461
2,388
(1,729,645
6,125,033
34,611
46,491
81,102
6,206,135
379
890
Other comprehensive income before reclassification
5,787
596
623
6,410
78
(7
(6
(179
179
4,125
Common stock repurchased for taxes withheld for stock based compensation, net
92
136
Contributions from partners
1,457
(1,124
Common stock/unit ($0.625 per share)
(106,946
(464
(107,410
Balance at September 30, 2022
For the nine months ended September 30, 2022 and 2021
Balance at December 31, 2020
1,697
(24,436
7,792,082
(18,625
(1,765,806
5,984,912
35,727
37,508
73,235
6,058,147
1,315
2,438
3,157
16
210
226
3,383
2,850
12
247
259
(882
959
9,466
9,468
(3,662
1,172
Common stock issued for partnership units exchanged
99
(99
(3,272
Common stock/unit ($1.785 per share)
(303,414
(1,359
(304,773
Balance at December 31, 2021
1,694
17,067
81
1,689
1,770
18,837
1,413
142
150
(1,303
1,303
12,697
12,699
(5,996
Common stock repurchased and retired
(13
(75,406
(75,419
388
1,275
(1,275
61,274
61,284
11,903
(4,899
Common stock/unit ($1.875 per share)
(321,801
(1,401
(323,202
5
Consolidated Statements of Cash Flows
Cash flows from operating activities:
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization of deferred loan costs and debt premiums
4,297
4,608
(Accretion) and amortization of above and below market lease intangibles, net
(15,625
(17,244
Stock-based compensation, net of capitalization
12,592
9,272
(47,855
(26,344
Provision for impairment of real estate, net of tax
Distribution of earnings from investments in real estate partnerships
45,238
54,310
Settlement of derivative instruments
(2,472
Deferred compensation expense
(8,016
2,707
Realized and unrealized loss (gain) on investments
9,253
(3,177
Changes in assets and liabilities:
(18,544
(8,659
Deferred leasing costs
(7,022
(7,103
(4,312
(6,932
21,656
25,879
13,927
(2,524
Net cash provided by operating activities
528,242
508,478
Cash flows from investing activities:
Acquisition of operating real estate, net of cash acquired of $3,061 in 2022 and $2,991 in 2021
(141,275
(78,111
Real estate development and capital improvements
(143,724
(120,827
Proceeds from sale of real estate
137,280
131,861
Issuance of notes receivable
(13,573
(21,788
Return of capital from investments in real estate partnerships
48,473
86,449
Dividends on investment securities
336
125
Acquisition of investment securities
(15,205
(22,422
Proceeds from sale of investment securities
15,821
23,162
Net cash used in investing activities
(111,867
(1,571
Cash flows from financing activities:
Net proceeds from common stock issuance
Repurchase of common shares in conjunction with equity award plans
(6,438
(4,066
Common shares repurchased through share repurchase program
Proceeds from sale of treasury stock
64
96
Contributions from (distributions to) limited partners in consolidated partnerships, net
1,568
Distributions to exchangeable operating partnership unit holders
(1,413
(1,363
Dividends paid to common stockholders
(321,484
(301,897
Proceeds from unsecured credit facilities
95,000
Repayment of unsecured credit facilities
(95,000
(265,000
Repayment of notes payable
(5,995
(13,764
Scheduled principal payments
(8,503
(8,448
Payment of loan costs
(82
(7,468
Net cash used in financing activities
(356,418
(522,672
Net increase (decrease) in cash and cash equivalents and restricted cash
59,957
(15,765
Cash and cash equivalents and restricted cash at beginning of the period
378,450
Cash and cash equivalents and restricted cash at end of the period
362,685
Supplemental disclosure of cash flow information:
Cash paid for interest (net of capitalized interest of $2,985 and $3,012 in 2022 and 2021, respectively)
115,011
113,647
Cash paid for income taxes, net of refunds
488
358
Supplemental disclosure of non-cash transactions:
Common stock and exchangeable operating partnership dividends declaredbut not paid
107,410
101,753
Acquisition of real estate previously held within investments in real estate partnerships
17,179
(4,609
Mortgage loans assumed by Company with the acquisition of real estate
22,779
111,090
Real estate received in lieu of promote interest
13,589
Change in accrued capital expenditures
10,230
5,830
Stock-based compensation capitalized
550
600
Contributions from limited partners in consolidated partnerships
5,434
Common stock issued for dividend reinvestment in trust
840
826
Contribution of stock awards into trust
2,136
1,416
Distribution of stock held in trust
786
966
Change in fair value of securities
1,896
334
7
(in thousands, except unit data)
Liabilities and Capital
Capital:
Partners' capital:
General partner; 171,119,166 and 171,213,008 units outstanding at September 30, 2022 and December 31, 2021, respectively
6,107,630
6,047,598
Limited partners; 741,433 and 760,046 units outstanding at September 30, 2022 and December 31, 2021, respectively
Total partners' capital
6,150,437
6,072,818
Noncontrolling interest: Limited partners' interests in consolidated partnerships
Total capital
Total liabilities and capital
(in thousands, except per unit data)
Net income attributable to common unit holders
87,957
117,925
389,296
294,867
589
1,831
457
1,479
1,007
4,185
2,895
Comprehensive income attributable to the Partnership
93,850
118,970
407,865
300,902
Consolidated Statements of Capital
General Partner Preferredand Common Units
LimitedPartners
TotalPartners’Capital
Noncontrolling Interests inLimited Partners’ Interest inConsolidated Partnerships
TotalCapital
5,980,738
6,002,624
Amounts reclassified from accumulated other comprehensive loss
956
(103,040
Restricted units issued as a result of restricted stock issued by Parent Company, net of amortization
Common units issued as a result of common stock issued by Parent Company, net of redemptions
Common units repurchased as a result of common stock repurchased by Parent Company, net of issuances
484
6,083,339
6,106,333
6,122,645
6,159,644
5,814
79
(108,534
228
6,003,537
6,020,639
3,173
2,862
(308,045
Common units issued as a result of common stock issued by Parent Company, net of issuance costs
(2,490
Common units exchanged for common stock of Parent Company
17,148
1,421
(328,101
Common units repurchased and retired as a result of common stock repurchased and retired by Parent Company
(5,608
Common unit exchanged for common stock of Parent Company
Common units repurchased through share repurchase program
(322,897
(303,260
Common stock issued by Parent Company for partnership units exchanged
Common stock issued by Parent Company for dividend reinvestment plan
14
REGENCY CENTERS CORPORATION AND REGENCY CENTERS, L.P.
Notes to Unaudited Consolidated Financial Statements
September 30, 2022
1.
Organization and Significant Accounting Policies
General
Regency Centers Corporation (the "Parent Company") began its operations as a Real Estate Investment Trust ("REIT") in 1993 and is the general partner of Regency Centers, L.P. (the "Operating Partnership"). The Parent Company primarily engages in the ownership, management, leasing, acquisition, and development and redevelopment of shopping centers through the Operating Partnership, and has no other assets other than through its investment in the Operating Partnership, and its only liabilities are $200 million of unsecured private placement notes, which are co-issued and guaranteed by the Operating Partnership. The Parent Company guarantees all of the unsecured debt of the Operating Partnership.
As of September 30, 2022, the Parent Company, the Operating Partnership, and their controlled subsidiaries on a consolidated basis owned 308 properties and held partial interests in an additional 96 properties through unconsolidated Investments in real estate partnerships (also referred to as "joint ventures" or "investment partnerships").
The consolidated financial statements reflect all adjustments which are, in the opinion of management, necessary to fairly state the results for the interim periods presented. These adjustments are considered to be of a normal recurring nature.
Risks and Uncertainties
The success of the Company's tenants in operating their businesses and their corresponding ability to pay rent continue to be significantly influenced by many current economic challenges, which impact their cost of doing business, including but not limited to the impact of inflation, labor shortages, supply chain constraints, and increasing energy prices and interest rates. Additionally, macroeconomic and geopolitical risks create challenges that may exacerbate current market conditions in the United States. The policies implemented by the U.S. government to address these issues, including raising interest rates, could result in adverse impacts on the U.S. economy, including a slowing of growth and potentially a recession, thereby impacting consumer spending, tenants' businesses, and/or decreasing future demand for space in shopping centers. The potential impact of current economic challenges on the Company’s financial condition, results of operations, and cash flows is subject to change and continues to depend on the extent and duration of these risks and uncertainties.
Consolidation
The Company consolidates properties that are wholly-owned and properties where it owns less than 100%, but has control over the activities most important to the overall success of the partnership. Control is determined using an evaluation based on accounting standards related to the consolidation of Variable Interest Entities ("VIEs") and voting interest entities.
Ownership of the Operating Partnership
The Operating Partnership's capital includes general and limited common Partnership Units. As of September 30, 2022, the Parent Company owned approximately 99.6% of the outstanding common Partnership Units of the Operating Partnership, with the remaining limited common Partnership Units held by third parties ("Exchangeable operating partnership units" or "EOP units"). Each EOP unit is exchangeable for cash or one share of common stock of the Parent Company, at the discretion of the Parent Company, and the unit holder cannot require redemption in cash or other assets. The Parent Company has evaluated the conditions as specified under Accounting Standards Codification ("ASC") Topic 480, Distinguishing Liabilities from Equity as it relates to exchangeable operating partnership units outstanding and concluded that it has the right to satisfy the redemption requirements of the units by delivering shares of unregistered common stock. Accordingly, the Parent Company classifies EOP units as permanent equity in the accompanying Consolidated Balance Sheets and Consolidated Statements of Equity and Comprehensive Income. The Parent Company serves as general partner of the Operating Partnership. The EOP unit holders have limited rights over the Operating Partnership such that they do not have the power to direct the activities of the Operating Partnership. As such, the Operating Partnership is considered a VIE, and the Parent Company, which consolidates it, is the primary beneficiary. The Parent Company's only investment is the Operating Partnership. Net income and distributions of the Operating Partnership are allocable to the general and limited common Partnership Units in accordance with their ownership percentages.
Real Estate Partnerships
As of September 30, 2022, Regency had a partial ownership interest in 108 properties through partnerships, of which 12 are consolidated into the Company's financial statements. Regency's partners include institutional investors and other real estate developers and/or operators (the "Partners" or "limited partners"). Regency has a variable interest in these entities through its equity interests, with Regency the primary beneficiary in certain of these real estate partnerships. As such, Regency consolidates the partnerships into its financial statements for which it is the primary beneficiary and reports the limited partners’ interests as Noncontrolling interests. For those partnerships which Regency is not the primary beneficiary and does not control, but has significant influence, Regency recognizes its investment in them using the equity method of accounting.
The assets of these partnerships are restricted to the use of the partnerships and cannot be used by general creditors of the Company. Similarly, the obligations of the partnerships can only be settled by the assets of these partnerships or additional contributions by the partners.
The major classes of assets, liabilities, and non-controlling equity interests held by the Company's consolidated VIEs, exclusive of the Operating Partnership, are as follows:
December 31, 2021
Net real estate investments
112,909
379,075
Cash, cash equivalents and restricted cash
2,928
5,202
Liabilities
4,931
5,000
Equity
27,339
27,950
Revenues and Other Receivables
Other property income includes parking fees and other incidental income from the properties and is generally recognized at the point in time that the performance obligation is met. All income from contracts with the Company's real estate partnerships is included within Management, transaction and other fees on the Consolidated Statements of Operations. The primary components of these revenue streams, the timing of satisfying the performance obligations, and amounts are as follows:
Timing of satisfaction of performance obligations
Management, transaction and other fees:
Property management services
Over time
3,224
3,450
10,152
10,974
Asset management services
1,680
1,709
5,105
5,143
Leasing services
Point in time
729
879
3,066
Other transaction fees
134
13,633
(1)
798
14,236
Total management, transaction, and other fees
The accounts receivable for management services, which are included within Tenant and other receivables in the accompanying Consolidated Balance Sheets, are $14.5 million and $13.2 million, as of September 30, 2022 and December 31, 2021, respectively.
Recent Accounting Pronouncements
The following table provides a brief description of recently adopted accounting pronouncements and impact on our financial statements:
Standard
Description
Date of adoption
Effect on the financial statements or other significant matters
Recently adopted:
ASU 2021-05, Leases (Topic 842): Lessors - Certain Leases with Variable Lease Payments
The amendments in this update affect lessor lease classification. Lessors should classify and account for a lease as an operating lease if both of the following criteria are met: (1) have variable lease payments that do not depend on a reference index or a rate and (2) would have resulted in the recognition of a selling loss at lease commencement if classified as sales-type or direct financing. This update results in similar treatment under the current Topic 842 as under the previous Topic 840.
January 2022
The adoption of this standard did not have a material impact to the Company's financial condition, results of operations, cash flows or related footnote disclosures as the Company's customary lease terms do not result in sales-type or direct financing classification, although future leases may.
17
2.
Real Estate Investments
The following tables detail the shopping centers acquired or land acquired for development during the periods set forth below:
Nine months ended September 30, 2022
Date Purchased
Property Name
City/State
PropertyType
Regency Ownership
PurchasePrice (1)
DebtAssumed,Net ofDiscounts (1)
IntangibleAssets (1)
IntangibleLiabilities (1)
Consolidated
3/1/2022
Glenwood Green
Old Bridge, NJ
Development
70%
11,000
3/31/2022
Island Village
Bainbridge Island, WA
Operating
100%
30,650
2,900
6,839
4/1/2022
Apple Valley (2)
Apple Valley, MN
34,070
4,773
490
Cedar Commons (2)
Minneapolis, MN
29,330
4,369
58
Corral Hollow (2)
Tracy, CA
40,600
3,410
74
Shops at the Columbia (2)
Washington, DC
14,000
889
181
5/6/2022
Baederwood Shoppes
Jenkintown, PA
80%
51,603
5,796
1,062
Total consolidated
211,253
22,137
8,704
Unconsolidated
3/25/2022
Naperville Plaza
Naperville, IL
20%
52,380
22,074
4,336
814
6/24/2022
Baybrook East 1B
Houston, TX
50%
5,540
Total unconsolidated
57,920
Total property acquisitions
269,173
44,853
26,473
9,518
Nine months ended September 30, 2021
7/30/2021
Willa Springs (2)
Winter Springs, FL
34,500
17,682
1,562
643
8/1/2021
Dunwoody Hall (2)
Dunwoody, GA
32,000
14,612
2,255
973
Alden Bridge (2)
Woodlands, TX
43,000
27,529
3,198
2,308
Hasley Canyon Village (2)
Castaic, CA
31,000
16,941
2,037
Shiloh Springs (2)
Garland, TX
19,500
1,825
1,079
Bethany Park Place (2)
Allen, TX
18,000
10,800
996
1,732
Blossom Valley (2)
Mountain View, CA
44,000
23,611
732
222,000
111,175
14,768
7,467
18
3.
Property Dispositions
The following table provides a summary of consolidated shopping centers and land parcels sold during the periods set forth below:
(in thousands, except number sold data)
Net proceeds from sale of real estate investments
859
24,284
220
6,719
106,459
38,198
Provision for impairment of real estate sold
Number of operating properties sold
Number of land parcels and development project interests sold
Percent interest sold
At September 30, 2022, the Company also had one land parcel classified within Properties held for sale on the Consolidated Balance Sheets.
4.
Other Assets
The following table represents the components of Other assets in the accompanying Consolidated Balance Sheets as of the dates set forth below:
Goodwill, net
167,095
Investments
52,977
65,112
Prepaid and other
37,023
21,332
Deferred financing costs, net
5,729
7,448
Furniture, fixtures, and equipment, net
5,732
5,444
Derivative assets
7,146
Total other assets
5.
Notes Payable and Unsecured Credit Facilities
The Company's outstanding debt, net of unamortized debt premium (discount) and debt issuance costs, consisted of the following as of the dates set forth below:
WeightedAverageContractualRate
WeightedAverageEffectiveRate
Notes payable:
Fixed rate mortgage loans
3.9%
3.5%
344,843
359,414
Variable rate mortgage loans (1)
3.3%
3.6%
137,284
115,539
Fixed rate unsecured debt
3.8%
4.0%
3,247,277
3,243,991
Total notes payable
Unsecured credit facilities:
$1.25 Billion Line of Credit (the "Line") (2)
3.4%
Total debt outstanding
19
Scheduled principal payments and maturities on notes payable and unsecured credit facilities were as follows:
Scheduled Principal Payments and Maturities by Year:
ScheduledPrincipalPayments
MortgageLoanMaturities
UnsecuredMaturities (1)
Total
2022 (2)
2,738
2023
9,695
59,376
69,071
2024
4,849
90,742
250,000
345,591
2025
3,732
45,000
298,732
2026
3,922
112,365
200,000
316,287
Beyond 5 Years
6,661
138,234
2,575,000
2,719,895
Unamortized debt premium/(discount) and issuance costs
4,813
(27,723
(22,910
31,597
450,530
The Company was in compliance as of September 30, 2022, with all financial and other covenants under its unsecured public and private placement debt and unsecured credit facilities and expects to remain in compliance thereafter.
6.
Derivative Financial Instruments
The Company may use derivative financial instruments, including interest rate swaps, caps, options, floors, and other interest rate derivative contracts, to hedge all or a portion of the interest rate risk associated with its borrowings. The principal objective of such arrangements is to minimize the risks and/or costs associated with the Company's operating and financial structure as well as to hedge specific anticipated transactions. The Company does not intend to utilize derivatives for speculative transactions or purposes other than mitigation of interest rate risk. The use of derivative financial instruments carries certain risks, including the risk that the counterparties to these contractual arrangements are not able to perform under the agreements. To mitigate this risk, the Company only enters into derivative financial instruments with counterparties with quality credit ratings. The Company does not anticipate that any of the counterparties will fail to meet their obligations.
The Company's objectives in using interest rate derivatives are to attempt to stabilize interest expense where possible and to mitigate its exposure to interest rate movements. To accomplish these objectives, the Company primarily uses interest rate swaps as part of its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable-rate amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount.
The following table summarizes the terms and fair values of the Company's derivative financial instruments, as well as their classification on the Consolidated Balance Sheets:
Fair Value
Assets (Liabilities) (1)
EffectiveDate
MaturityDate
NotionalAmount
ReceiveVariable Rate of
PayFixed Rate of
4/7/16
4/1/23
18,736
1 Month LIBOR
1.303%
261
(175
12/1/16
11/1/23
31,291
1 Month LIBOR (2)
1.490%
948
(412
9/17/19
3/17/25
24,000
1.542%
1,495
(364
6/2/17
6/2/27
35,589
1 Month LIBOR with Floor
2.366%
2,362
(1,907
12/20/19 (3)
12/19/26
24,365
1.750%
2,080
(2,858
These derivative financial instruments are all interest rate swaps, which are designated and qualify as cash flow hedges. The Company does not use derivatives for trading or speculative purposes and, as of September 30, 2022, does not have any derivatives that are not designated as hedges.
20
The changes in the fair value of derivatives designated and qualifying as cash flow hedges are recorded in Accumulated Other Comprehensive Income (Loss) ("AOCI") and subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings.
The following table represents the effect of the derivative financial instruments on the accompanying consolidated financial statements:
Location and Amount of Gain (Loss) Recognized in OCI on Derivative
Location and Amount of Gain (Loss) Reclassified from AOCI into Income
Total amounts presented in the Consolidated Statements of Operations in which the effects of cash flow hedges are recorded
Interest rate swaps
Interest expense
As of September 30, 2022, the Company expects approximately $4.3 million of accumulated comprehensive income on derivative instruments in AOCI, including the Company's share from its Investments in real estate partnerships, to be reclassified into earnings during the next 12 months.
7.
Leases
All of the Company's leases are classified as operating leases. The Company's Lease income is comprised of both fixed and variable income. Fixed and in-substance fixed lease income includes stated amounts per the lease contract, which are primarily related to base rent, and in some cases stated amounts for common area maintenance ("CAM"), real estate taxes, and insurance ("Recoverable Costs"). Income for these amounts is recognized on a straight-line basis.
Variable lease income includes the following two main items in the lease contracts:
(i) Recoveries from tenants represents the tenants' contractual obligations to reimburse the Company for their portion of Recoverable Costs incurred. Generally the Company's leases provide for the tenants to reimburse the Company based on the tenants' share of the actual costs incurred in proportion to the tenants' share of leased space in the property.
(ii) Percentage rent represents amounts billable to tenants based on the tenants' actual sales volume in excess of levels specified in the lease contract.
The following table provides a disaggregation of lease income recognized as either fixed or variable lease income based on the criteria specified in ASC Topic 842:
Operating lease income
Fixed and in-substance fixed lease income
215,077
201,183
634,416
594,471
Variable lease income
70,473
62,810
210,390
195,538
Other lease related income, net:
Above/below market rent and tenant rent inducement amortization, net
5,484
6,457
16,786
18,460
Uncollectible straight-line rent
3,612
3,655
8,517
(172
Uncollectible amounts billable in lease income
1,110
9,198
12,156
18,093
Total lease income
21
Lease income for operating leases with fixed payment terms is recognized on a straight-line basis over the expected term of the lease for all leases in which collectibility is considered probable. At lease commencement, the Company generally expects that collectibility of substantially all payments due under the lease is probable due to the Company's credit checks on tenants and other credit analysis undertaken before entering into a new lease; therefore, income from most operating leases is initially recognized on a straight-line basis. For operating leases in which collectibility of Lease income is not considered probable, Lease income is recognized on a cash basis and all previously recognized straight-line rent receivables are reversed in the period in which the Lease income is determined no longer to be probable of collection. Should collectibility of Lease income become probable again, through evaluation of qualitative and quantitative measures on a tenant by tenant basis, accrual basis accounting resumes and all commencement-to-date straight-line rent is recognized in that period. In addition to the lease-specific collectibility assessment performed under Topic 842, the Company may also recognize a general reserve, as a reduction to Lease income, for its portfolio of operating lease receivables which are not expected to be fully collectible based on the Company's historical collection experience.
The following table represents the components of Tenant and other receivables in the accompanying Consolidated Balance Sheets:
Tenant receivables
25,802
27,354
Straight-line rent receivables
122,346
103,942
Other receivables (1)
25,424
21,795
Total tenant and other receivables
8.
Fair Value Measurements
(a) Disclosure of Fair Value of Financial Instruments
All financial instruments of the Company are reflected in the accompanying Consolidated Balance Sheets at amounts which, in management's estimation, reasonably approximate their fair values, except for the following:
CarryingAmount
Financial liabilities:
3,338,134
4,103,533
The above fair values represent management's estimate of the amounts that would be received from selling those assets or that would be paid to transfer those liabilities in an orderly transaction between market participants as of September 30, 2022, and December 31, 2021, respectively. These fair value measurements maximize the use of observable inputs which are classified within Level 2 of the fair value hierarchy. However, in situations where there is little, if any, market activity for the asset or liability at the measurement date, the fair value measurement reflects the Company's own judgments about the assumptions that market participants would use in pricing the asset or liability.
The Company develops its judgments based on the best information available at the measurement date, including expected cash flows, appropriate risk-adjusted discount rates, and available observable and unobservable inputs. Service providers involved in fair value measurements are evaluated for competency and qualifications on an ongoing basis. As considerable judgment is often necessary to estimate the fair value of these financial instruments, the fair values presented above are not necessarily indicative of amounts that will be realized upon disposition of the financial instruments.
22
(b) Fair Value Measurements
The following financial instruments are measured at fair value on a recurring basis:
Securities
The Company has investments in marketable securities that are included within Other assets on the accompanying Consolidated Balance Sheets. The fair value of the securities was determined using quoted prices in active markets, which are considered Level 1 inputs of the fair value hierarchy. Changes in the value of securities are recorded within Net investment loss (income) in the accompanying Consolidated Statements of Operations, and include unrealized losses of $1.0 million and $1.5 million during the three months ended September 30, 2022 and 2021, respectively, and unrealized losses of $9.5 million and unrealized gains of $217,000 during the nine months ended September 30, 2022 and 2021, respectively, on equity securities.
Available-for-Sale Debt Securities
Available-for-sale debt securities consist of investments in certificates of deposit and corporate bonds, and are recorded at fair value using either recent trade prices for the identical debt instrument or comparable instruments by issuers of similar industry sector, issuer rating, and size, to estimate fair value, which are considered Level 2 inputs of the fair value hierarchy. Unrealized gains or losses on these debt securities are recognized through other comprehensive income.
Interest Rate Derivatives
The fair value of the Company's interest rate derivatives is determined using widely accepted valuation techniques including discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves and implied volatilities. The Company incorporates credit valuation adjustments to appropriately reflect both its own nonperformance risk and the respective counterparty's nonperformance risk in the fair value measurements.
Although the Company has determined that the majority of the inputs used to value its derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with its derivatives utilize Level 3 inputs, such as estimates of current credit spreads, to evaluate the likelihood of default by the Company and its counterparties. The Company has assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and has determined that the credit valuation adjustments are not significant to the overall valuation of its interest rate swaps. As a result, the Company determined that its interest rate swaps valuation in its entirety is classified in Level 2 of the fair value hierarchy.
The following tables present the placement in the fair value hierarchy of assets and liabilities that are measured at fair value on a recurring basis:
Fair Value Measurements as of September 30, 2022
Quoted Prices in Active Markets for Identical Assets
Significant Other Observable Inputs
Significant Unobservable Inputs
Balance
(Level 1)
(Level 2)
(Level 3)
Assets:
38,848
Available-for-sale debt securities
14,129
Interest rate derivatives
60,123
21,275
23
Fair Value Measurements as of December 31, 2021
49,513
15,599
The following table presents the placement in the fair value hierarchy of assets and liabilities that are measured at fair value on a nonrecurring basis:
Total Gains
(Losses)
Operating properties
140,500
(84,277
During the nine months ended September 30, 2022, there were no real estate assets remeasured to estimated fair value on a nonrecurring basis. During the year ended December 31, 2021, the Company revalued two shopping centers to estimated fair value due to a change in expected hold period using a discounted cash flow model with a discount rate of 7.2% and a terminal capitalization rate of 5.25%.
9.
Equity and Capital
Common Stock of the Parent Company
Dividends Declared
On November 2, 2022, our Board of Directors declared a common stock dividend of $0.65 per share, payable on January 4, 2023, to shareholders of record as of December 16, 2022.
At the Market ("ATM") Program
Under the Parent Company's ATM equity offering program, the Parent Company may sell up to $500 million of common stock at prices determined by the market at the time of sale.
During 2021, the Company entered into forward sale agreements under its ATM program to issue shares of its common stock at a weighted average offering price of $64.59 before any underwriting discount and offering expenses. In April 2022, the Company settled 984,618 shares subject to forward sales agreements and received proceeds of approximately $61.3 million, after approximately $3.3 million in underwriting discounts and offering expenses. The proceeds were used to fund acquisitions. All shares are now settled under the forward sales agreements. No sales occurred under the ATM program during 2022.
As of September 30, 2022, $350.4 million of common stock remained available for issuance under this ATM equity program.
Share Repurchase Program
On February 3, 2021, the Company's Board authorized a common share repurchase program under which the Company may purchase, from time to time, up to a maximum of $250 million of its outstanding common stock through open market purchases or in privately negotiated transactions (referred to as the "Authorized Repurchase Program"). Any shares purchased, if not retired, will be treated as treasury shares. Under the current authorization, the Authorized Repurchase Program is set to expire on February 3, 2023, but may be modified or terminated at any time at the discretion of the Board. The timing and actual number of shares purchased under the Authorized Repurchase Program depend upon marketplace conditions, liquidity needs, and other factors.
24
During the nine months ended September 30, 2022, the Company 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. All repurchased shares were retired on the respective settlement dates. At September 30, 2022, the Company has $174.6 million remaining available under the authorized common share repurchase program.
Common Units of the Operating Partnership
Common units of the operating partnership are issued or redeemed and retired for each of the shares of Parent Company common stock issued or repurchased and retired, as described above. During the nine months ended September 30, 2022, 18,613 Partnership Units were converted to Parent Company common stock.
10.
Stock-Based Compensation
During the nine months ended September 30, 2022, the Company granted 272,003 shares of restricted stock with a weighted-average grant-date fair value of $72.88 per share. The Company records stock-based compensation expense within General and administrative expenses in the accompanying Consolidated Statements of Operations, and records forfeitures as they occur.
11.
Earnings per Share and Unit
Parent Company Earnings per Share
The following summarizes the calculation of basic and diluted earnings per share:
Numerator:
Income attributable to common stockholders - basic
Income attributable to common stockholders - diluted
Denominator:
Weighted average common shares outstanding for basic EPS
171,121
170,090
171,499
169,906
Weighted average common shares outstanding for diluted EPS
171,525
170,589
171,870
170,314
Income per common share – basic
Income per common share – diluted
Income allocated to noncontrolling interests of the Operating Partnership has been excluded from the numerator and exchangeable Operating Partnership units have been omitted from the denominator for the purpose of computing diluted earnings per share since the effect of including these amounts in the numerator and denominator would be anti-dilutive. Weighted average exchangeable Operating Partnership units outstanding were 741,433 and 760,046 for the three months ended September 30, 2022 and 2021, respectively, and were 750,671 and 762,601 for the nine months ended September 30, 2022 and 2021, respectively.
Operating Partnership Earnings per Unit
The following summarizes the calculation of basic and diluted earnings per unit:
Income attributable to common unit holders - basic
Income attributable to common unit holders - diluted
Weighted average common units outstanding for basic EPU
171,862
170,850
172,249
170,668
Weighted average common units outstanding for diluted EPU
172,267
171,349
172,620
171,076
Income per common unit – basic
Income per common unit – diluted
25
12.
Commitments and Contingencies
Litigation
The Company is involved in litigation on a number of matters, and is subject to other disputes that arise in the ordinary course of business. While the outcome of any particular lawsuit or dispute cannot be predicted with certainty, in the opinion of management, the Company's currently pending litigation and disputes are not expected to have a material adverse effect on the Company's consolidated financial position, results of operations, or liquidity. Legal fees are expensed as incurred.
Environmental
The Company is subject to numerous environmental laws and regulations pertaining primarily to chemicals historically used by certain current and former dry cleaning tenants, the existence of asbestos in older shopping centers, older underground petroleum storage tanks and other historic land use. The Company believes that the ultimate disposition of currently known environmental matters will not have a material effect on its financial position, liquidity, or operations. The Company can give no assurance that existing environmental studies with respect to its shopping centers have revealed all potential environmental contaminants; that its estimate of liabilities will not change as more information becomes available; that any previous owner, occupant or tenant did not create any material environmental condition not known to the Company; that the current environmental condition of the shopping centers will not be affected by tenants and occupants, by the condition of nearby properties, or by unrelated third parties; and that changes in applicable environmental laws and regulations or their interpretation will not result in additional environmental liability to the Company.
Letters of Credit
The Company has the right to issue letters of credit under the Line up to an amount not to exceed $50.0 million, which reduces the credit availability under the Line. As of September 30, 2022 and December 31, 2021, the Company had $9.4 million in letters of credit outstanding. These letters of credit are primarily issued as collateral on behalf of its captive insurance program and to facilitate the construction of development projects.
26
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements
Certain statements in this document regarding anticipated financial, business, legal or other outcomes including business and market conditions, outlook and other similar statements relating to Regency's future events, developments, or financial or operational performance or results, are "forward-looking statements" made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and other federal securities laws. These forward-looking statements are identified by the use of words such as "may," "will," "should," "expect," "estimate," "believe," "intend," "forecast," "anticipate," "guidance," and other similar language. However, the absence of these or similar words or expressions does not mean a statement is not forward-looking. While we believe these forward-looking statements are reasonable when made, forward-looking statements are not guarantees of future performance or events and undue reliance should not be placed on these statements. Although we believe the expectations reflected in any forward-looking statements are based on reasonable assumptions, we can give no assurance these expectations will be attained, and it is possible actual results may differ materially from those indicated by these forward-looking statements due to a variety of risks and uncertainties.
Our operations are subject to a number of risks and uncertainties including, but not limited to, risk factors described in our SEC filings. When considering an investment in our securities, you should carefully read and consider these risks, together with all other information in our most recent Annual Report on Form 10-K, subsequent Quarterly Reports on Form 10-Q and our other filings with and submissions to the SEC. If any of the events described in the risk factors actually occur, our business, financial condition or operating results, as well as the market price of our securities, could be materially adversely affected. Forward-looking statements are only as of the date they are made, and Regency undertakes no duty to update its forward-looking statements except as and to the extent required by law.
Non-GAAP Measures
In addition to the required Generally Accepted Accounting Principles ("GAAP") presentations, we use certain non-GAAP performance measures as we believe these measures improve the understanding of our operational results. We believe these non-GAAP measures provide useful information to our Board of Directors, management and investors regarding certain trends relating to our financial condition and results of operations. Our management uses these non-GAAP measures to compare our performance to that of prior periods for trend analyses, purposes of determining management incentive compensation and budgeting, forecasting and planning purposes. We continually evaluate the usefulness, relevance, limitations, and calculation of our reported non-GAAP performance measures to determine how best to provide relevant information to the public, and thus such reported measures could change.
We do not consider non-GAAP measures an alternative to financial measures determined in accordance with GAAP, rather they supplement GAAP measures by providing additional information we believe to be useful to our shareholders. The principal limitation of these non-GAAP financial measures is they may exclude significant expense and income items that are required by GAAP to be recognized in our consolidated financial statements. In addition, they reflect the exercise of management’s judgment about which expense and income items are excluded or included in determining these non-GAAP financial measures. In order to compensate for these limitations, reconciliations of the non-GAAP financial measures we use to their most directly comparable GAAP measures are provided. Non-GAAP financial measures should not be relied upon in evaluating the financial condition, results of operations or future prospects of the Company.
Defined Terms
The following terms, as defined, are commonly used by management and the investing public to understand and evaluate our operational results:
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.
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:
28
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.
Overview of Our Strategy
Regency Centers Corporation began its operations as a publicly-traded REIT in 1993, and as of September 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 approximately 51.1 million square feet ("SF") of gross leasable area ("GLA"). All of our operating, investing, and financing activities are performed through our Operating Partnership, Regency Centers, L.P. and its wholly-owned subsidiaries, and through our co-investment partnerships. As of September 30, 2022, the Parent Company owns approximately 99.6% of the outstanding common partnership units of the Operating Partnership.
Our mission is to create thriving environments for retailers and service providers to connect with surrounding neighborhoods and communities. Our vision is to elevate quality of life as an integral thread in the fabric of our communities. Our portfolio includes thriving properties merchandised with highly productive grocers, restaurants, service providers, and best-in-class retailers that connect to their neighborhoods, communities, and customers.
Our values:
Our goals are to:
29
The success of our tenants in operating their businesses and their corresponding ability to pay rent continue to be significantly influenced by many current economic challenges, which impact their cost of doing business, including, but not limited to, the impact of inflation, labor shortages, supply chain constraints, and increasing energy prices and interest rates. Additionally, macroeconomic and geopolitical risks create challenges that may exacerbate current market conditions in the United States. The policies implemented by the U.S. government to address these issues, including raising interest rates, could result in adverse impacts on the U.S. economy, including a slowing of growth and potentially a recession, thereby impacting consumer spending, 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 ended December 31, 2021, including, without limitation, the Risk Factors discussed in Item 1A of Part I thereof, and the Risk Factors described in Part II, Item 1A of this Form 10-Q.
Executing on our Strategy
During the nine months ended September 30, 2022, we had Net income attributable to common stockholders of $387.6 million, which includes gains on sale of real estate of $106.5 million, as compared to $293.6 million during the nine months ended September 30, 2021.
During the nine months ended September 30, 2022:
We continued our development and redevelopment of high quality shopping centers:
30
We maintain a conservative balance sheet in order to provide liquidity and financial flexibility to cost effectively fund investment opportunities and debt maturities:
Property Portfolio
The following table summarizes general information related to the Consolidated Properties in our portfolio:
(GLA in thousands)
Number of Properties
308
302
GLA
38,647
37,864
% Leased – Operating and Development
94.7%
94.0%
% Leased – Operating
94.9%
94.1%
Weighted average annual effective rent per square foot ("PSF"), net of tenant concessions.
$23.71
$23.17
The following table summarizes general information related to the Unconsolidated Properties owned in co-investment partnerships in our portfolio:
103
12,468
13,300
93.3%
93.9%
% Leased –Operating
93.4%
Weighted average annual effective rent PSF, net of tenant concessions
$23.10
$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:
% Leased – All Properties
94.6%
Anchor space
96.9%
97.0%
Shop space
90.8%
89.2%
31
The following table summarizes leasing activity, including our Pro-rata share of activity within the portfolio of our co-investment partnerships:
LeasingTransactions
SF (inthousands)
Base RentPSF
TenantAllowanceand LandlordWork PSF
LeasingCommissionsPSF
Anchor Leases
New
498
14.74
15.12
5.57
Renewal
2,592
16.39
0.87
0.17
Total Anchor Leases
105
3,090
16.12
3.17
1.04
Shop Space
419
802
37.62
36.41
11.93
950
1,737
35.98
1.69
0.89
Total Shop Space Leases
1,369
2,539
36.50
12.66
4.37
Total Leases
1,474
5,629
25.31
7.45
2.55
366
12.02
35.69
4.93
2,219
14.64
0.65
0.19
111
2,585
14.27
5.61
0.86
415
726
34.01
26.58
8.79
963
1,763
1.81
0.78
1,378
2,489
9.04
3.11
1,489
5,074
23.95
7.29
1.96
The weighted average annual base rent ("ABR") per square foot on signed shop space leases during 2022 was $36.50 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 $34.42 PSF. New and renewal rent spreads on a trailing twelve month basis were positive at 8.8% as compared to prior rents on those same spaces.
The success of our tenants in operating their businesses and their corresponding ability to pay us rent continue to be significantly impacted by many current economic challenges, which impact their cost of doing business, including, but not limited to, inflation, labor shortages, supply chain constraints, and increasing energy prices and interest rates. Additionally, macroeconomic and geopolitical risks create challenges that may exacerbate current market conditions in the United States.
These economic conditions could adversely impact our volume of leasing activity, leasing spreads, and financial results generally, as well as negatively affect the business and financial results of our tenants. The aggregate impacts of these current economic challenges may also negatively affect the overall market for retail space, resulting in 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 adversely impacted. Further, we may experience higher costs for tenant buildouts, as costs of materials and labor may increase and supply and availability of both may become more limited.
32
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:
Tenant
Number ofStores
Percentage ofCompany-owned GLA (1)
Percentage ofABR (1)
Publix
67
7.1%
Kroger Co.
7.3%
3.1%
Albertsons Companies, Inc.
46
4.7%
3.0%
Amazon/Whole Foods
36
2.9%
2.7%
TJX Companies, Inc.
63
2.6%
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. The potential for a recession and the severity and duration of any economic downturn could negatively impact our existing tenants and their ability to continue to meet their lease obligations, which could result in increased bankruptcy filings.
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. Tenants who are currently in bankruptcy and continue to occupy space in our shopping centers represent an aggregate of 0.1% of our annual base rent on a pro-rata basis.
Results from Operations
Comparison of the three months ended September 30, 2022 and 2021:
Our revenues changed as summarized in the following table:
Change
Base rent
207,555
192,433
15,122
Recoveries from tenants
69,376
62,234
7,142
Percentage rent
1,884
1,271
613
Uncollectible lease income
(8,088
Other lease income
3,426
4,145
(719
Straight-line rent
6,921
7,565
(644
Above / below market rent amortization
(973
12,453
(1,935
(13,904
(3,386
33
Lease income increased $12.5 million, on a net basis, driven by the following contractually billable components of rent to the tenants per the lease agreements:
Other property income decreased $1.9 million primarily due to a decrease in settlements, which were higher during 2021.
Management, transaction, and other fees decreased $13.9 million primarily due to $13.6 million of promote income recognized during 2021 for our performance as managing member of the USAA partnership.
34
Changes in our operating expenses are summarized in the following table:
4,811
6,109
2,484
2,147
137
15,688
Depreciation and amortization costs increased $4.8 million, on a net basis, as follows:
Operating and maintenance costs increased $6.1 million, on a net basis, as follows:
General and administrative costs increased $2.5 million, on a net basis, as follows:
Real estate taxes increased $2.1 million, on a net basis, from acquisitions of operating properties, as well as from same properties, primarily from the consolidation of the properties previously held in the USAA and RegCal partnerships.
The following table presents the components of other expense (income):
Interest on notes payable
37,187
36,628
559
Interest on unsecured credit facilities
524
558
(34
Capitalized interest
(1,171
(1,147
(24
Hedge expense
109
Interest income
(288
(155
(133
368
6,499
1,006
7,893
35
During the three months ended September 30, 2022, we recognized a gain on sale of $220,000 for one land parcel. During the three months ended September 30, 2021, we recognized gains on sale of $6.7 million from two land parcels and a portion of an operating property.
Net investment loss increased $1.0 million primarily driven by changes in realized and unrealized gains and losses during 2022 on investments held in the non-qualified deferred compensation plan and our captive insurance company. There is an offsetting $860,000 benefit in General and administrative costs related to participant obligations within the deferred compensation plans.
Our equity in income of investments in real estate partnerships changed as follows:
Regency'sOwnership
GRI - Regency, LLC (GRIR)
40.00%
8,876
10,080
(1,204
New York Common Retirement Fund (NYC) (1)
30.00%
266
(315
Columbia Regency Retail Partners, LLC (Columbia I)
20.00%
452
562
(110
Columbia Regency Partners II, LLC (Columbia II)
702
(314
Columbia Village District, LLC
454
372
82
RegCal, LLC (RegCal) (2)
25.00%
124
530
(406
US Regency Retail I, LLC (USAA) (3)
20.01%
(81
Other investments in real estate partnerships
31.00% - 50.00%
964
1,650
(686
Total equity in income of investments in real estate partnerships
(3,034
The $3.0 million decrease in our equity in income of investments in real estate partnerships is largely attributable to the following changes:
The following represents the remaining components that comprised net income attributable to common stockholders and unit holders:
(30,001
173
(29,828
Net income attributable to exchangeable operating partnership units
140
(29,968
Comparison of the nine months ended September 30, 2022 and 2021:
611,160
570,602
40,558
205,614
193,079
12,535
7,583
5,386
2,197
(5,937
10,561
11,172
(611
18,405
9,598
8,807
(1,674
55,875
(1,138
(14,469
40,268
Lease income increased $55.9 million, on a net basis, driven by the following contractually billable components of rent to the tenants per the lease agreements:
37
Other property income decreased $1.1 million primarily due to a decrease in settlements, which were higher during 2021.
Management, transaction, and other fees decreased $14.5 million primarily due to $13.6 million of one-time promote income recognized during 2021 for our performance as managing member of the USAA partnership, as well as a decrease in property management fees resulting from a smaller portfolio of properties held within our co-investment partnerships following the sale of several properties to third parties or the purchase and consolidation by Regency.
10,527
8,172
(1,553
4,103
1,052
22,301
Depreciation and amortization costs increased $10.5 million, on a net basis, as follows:
Operating and maintenance costs increased $8.2 million, on a net basis, as follows:
General and administrative costs decreased $1.6 million, on a net basis, as follows:
38
Real estate taxes increased $4.1 million, on a net basis, as follows:
111,547
110,252
1,295
1,500
1,636
(136
(2,985
(3,012
328
(592
(463
(129
1,057
(115
(68,261
12,452
(54,867
The $1.1 million net increase in Interest expense is primarily driven by an increase in mortgage interest expense from assumed loans on recently acquired properties. We expect that refinancing our debt at maturity or borrowing on our variable rate Line, in the current interest rate environment, could result in higher interest expense in future periods if rates remain elevated.
During the nine months ended September 30, 2022, we recognized gains on sale of $106.5 million for four land parcels and one operating property. During the nine months ended September 30, 2021, we recognized gains on sale of $38.2 million from three land parcels, five operating properties, and a portion of an operating property.
Net investment income decreased $12.5 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 $10.7 million benefit 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:
27,280
26,014
1,266
9,162
127
9,035
1,396
1,494
(98
1,307
1,702
(395
1,154
1,058
4,374
1,486
2,888
631
(631
35.00% - 50.00%
3,182
(6,168
9,350
21,511
39
The $21.5 million increase in our equity in income of investments in real estate partnerships is largely attributable to the following changes:
94,345
(295
94,050
94,429
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.
40
Pro-Rata Same Property NOI:
Our Pro-rata same property NOI, with and without termination fees, changed from the following major components:
Nine months endedSeptember 30,
224,521
216,092
8,429
665,452
644,751
20,701
74,325
69,811
4,514
222,684
218,968
3,716
2,228
1,405
823
8,738
6,302
2,436
Termination fees
902
2,031
(1,129
3,790
4,697
(907
1,389
10,271
(8,882
13,484
19,317
(5,833
3,055
2,701
354
8,527
8,303
224
1,857
3,720
(1,863
6,447
7,447
(1,000
Total real estate revenue
308,277
306,031
2,246
929,122
909,785
19,337
48,556
45,070
3,486
144,437
139,218
5,219
40,401
39,801
119,998
121,220
(1,222
Ground rent
2,991
2,794
197
8,856
8,686
170
Total real estate operating expenses
91,948
87,665
4,283
273,291
269,124
4,167
Pro-rata same property NOI
216,329
218,366
(2,037
655,831
640,661
15,170
Less: Termination fees
Pro-rata same property NOI, excluding termination fees
215,427
216,335
(908
652,041
635,964
16,077
Pro-rata same property NOI growth, excluding termination fees
-0.4
%
2.5
Billable Base rent increased $8.4 million and $20.7 million, respectively, during the three and nine months ended September 30, 2022, due to rent steps in existing leases, positive rental spreads on new and renewal leases, and increases in occupancy.
Recoveries from tenants increased $4.5 million and $3.7 million, respectively, during the three and nine months ended September 30, 2022, due to increases in recoverable expenses and greater recovery rates from higher average occupancy.
Percentage rent increased $823,000 and $2.4 million, respectively, during the three and nine months ended September 30, 2022, due to improvements in tenant sales.
Termination fees decreased $1.1 million and $907,000 during the three and nine months ended September 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 $8.9 million and $5.8 million, respectively, during the three and nine months ended September 30, 2022, primarily driven by the 2021 collection of previously reserved amounts, which have continued but to a lesser degree in 2022.
Other property income decreased $1.9 million and $1.0 million, respectively, during the three and nine months ended September 30, 2022, primarily driven by a decrease in settlements compared to 2021.
Operating and maintenance increased $3.5 million and $5.2 million, respectively, during the three and nine months ended September 30, 2022, due primarily to increases in insurance and other reimbursable costs.
Real estate taxes increased $600,000 and decreased $1.2 million, respectively, during the three and nine months ended September 30, 2022, due to changes in assessed values at properties across our portfolio.
41
Same Property Rollforward:
Our same property pool includes the following property count, Pro-rata GLA, and changes therein:
PropertyCount
Beginning same property count
390
41,446
394
40,918
Acquired properties owned for entirety of comparable periods (1)
546
SF adjustments (2)
(152
Ending same property count
41,456
41,312
393
41,294
40,228
Acquired properties owned for entirety of comparable periods presented (1)
327
924
Developments that reached completion by the beginning of earliest comparable period presented
683
Disposed properties
(4
(191
(407
(46
(116
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:
(in thousands, except share information)
Reconciliation of Net income to Nareit FFO
Adjustments to reconcile to Nareit FFO: (1)
Depreciation and amortization (excluding FF&E)
86,405
81,928
256,273
247,599
(505
10,586
(202
(6,737
(119,301
(38,584
Nareit FFO attributable to common stock and unit holders
174,160
192,611
526,268
514,468
Reconciliation of Nareit FFO to Core Operating Earnings
Nareit Funds From Operations
Adjustments to reconcile to Core Operating Earnings (1):
Early extinguishment of debt
176
Promote income
(13,589
Certain Non Cash Items
(3,140
(4,004
(9,152
(10,294
(4,156
(4,376
(9,610
159
Above/below market rent amortization, net
(5,191
(6,390
(15,906
(18,098
Debt premium/discount amortization
(28
(368
(185
(460
Core Operating Earnings
161,645
163,884
491,591
472,186
42
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:
Less:
Other (1)
13,564
15,125
38,295
31,184
Plus:
Other operating expense
Other expense (income)
Equity in income of investments in real estate excluded from NOI (2)
11,754
11,023
23,767
49,267
Pro-rata NOI
220,118
218,598
668,599
637,237
Less non-same property NOI (3)
3,789
232
12,768
(3,424
Liquidity and Capital Resources
We use cash flows generated from operating, investing, and financing activities to strengthen our balance sheet, finance our development and redevelopment projects, fund our investment activities, and maintain financial flexibility. A significant portion of our cash from operations is distributed to our common shareholders in the form of dividends in order to maintain our status as a REIT.
Except for $200 million of private placement debt, our Parent Company has no capital commitments other than its guarantees of the commitments of our Operating Partnership. All remaining debt is held by our Operating Partnership or by our co-investment partnerships. The Operating Partnership is a co-issuer and a guarantor of the $200 million of outstanding debt of our Parent Company. The Parent Company will from time to time access the capital markets for the purpose of issuing new equity and will simultaneously contribute all of the offering proceeds to the Operating Partnership in exchange for additional partnership units.
We continually assess our available liquidity and our expected cash requirements, which includes monitoring our tenant rent collections. 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, borrowings from our Line, 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 new financing on reasonable terms, although likely at higher interest rates than that of our debt currently outstanding.
We have no unsecured debt maturities in 2023, $250 million of unsecured debt maturing in 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.
43
In addition to our $151.2 million of unrestricted cash, we have the following additional sources of capital available:
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
The declaration of dividends is determined quarterly by our Board of Directors. On November 2, 2022, our Board of Directors declared a common stock dividend of $0.65 per share, payable on January 4, 2023, to shareholders of record as of December 16, 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 nine months ended September 30, 2022 and 2021, we generated cash flow from operations of $528.2 million and $508.5 million, respectively, and paid $322.9 million and $303.3 million in dividends to our common stock and unit holders, respectively.
We currently have development and redevelopment projects in various stages of construction, along with a pipeline of potential projects for future development or redevelopment. After funding our common stock dividend payment in October 2022, we estimate that we will require capital during the next twelve months of approximately $361.8 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 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.
We endeavor to maintain a high percentage of unencumbered assets. As of September 30, 2022, 89.4% of our wholly-owned real estate assets were unencumbered. Such assets allow us to access the secured and unsecured debt markets and to maintain availability on the Line. Our trailing twelve month Fixed charge coverage ratio, including our Pro-rata share of our partnerships, was 4.6x and 4.5x for the periods ended September 30, 2022, and December 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 at September 30, 2022, and expect to remain in compliance. Please also refer to the Company's Annual Report on Form 10-K for the year ended December 31, 2021, including, without limitation, the Risk Factors discussed in Item 1A of Part I thereof, and the Risk Factors described in Part II, Item 1A of this Form 10-Q.
44
Summary of Cash Flow Activity
The following table summarizes net cash flows related to operating, investing, and financing activities of the Company:
19,764
(110,296
166,254
75,722
Total cash and cash equivalents and restricted cash
(207,701
Net cash provided by operating activities:
Net cash provided by operating activities increased $19.8 million due to:
Net cash used in investing activities:
Net cash (used in) provided by investing activities changed by $110.3 million as follows:
(63,164
(22,897
5,419
8,215
(37,976
211
7,217
(7,341
Significant changes in investing activities include:
45
During the same period in 2021, we invested $21.8 million, including:
We plan to continue developing and redeveloping shopping centers for long-term investment. During 2022, we deployed capital of $143.7 million for the development, redevelopment, and improvement of our real estate properties, comprised of the following:
Capital expenditures:
Land acquisitions
11,545
Building and tenant improvements
55,094
34,030
21,064
Redevelopment costs
48,641
61,176
(12,535
Development costs
20,252
14,897
5,355
2,922
2,963
(41
Capitalized direct compensation
5,270
7,761
(2,491
143,724
120,827
22,897
The following table summarizes our development projects in process:
(in thousands, except cost PSF)
Market
Ownership
StartDate
EstimatedStabilizationYear (1)
Estimated NetDevelopmentCosts (2) (3)
GLA (3)
% of Costs Incurred
Cost PSFof GLA (2) (3)
Developments In-Process
Carytown Exchange - Phase I & II
Richmond, VA
64%
Q4-18
29,268
86
396
East San Marco
Jacksonville, FL
Q4-20
19,085
59
85
323
Q1-22
45,530
249
183
Eastfield at Baybrook
Q2-22
10,384
The following table summarizes our redevelopment projects in process and completed:
Start Date
Estimated Stabilization Year (1)
Estimated NetProject Costs (2) (3)
Redevelopments In-Process
The Crossing Clarendon
Metro DC
56,950
129
68
The Abbot
Boston, MA
Q2-19
58,379
Preston Oaks
Dallas, TX
20,216
Serramonte Center
San Francisco, CA
55,000
1,072
Westbard Square Phase I
Bethesda, MD
Q2-21
37,269
123
Buckhead Landing
Atlanta, GA
25,853
152
Various Redevelopments
Various
20% - 100%
40,432
2,385
Redevelopments Completed
Sheridan Plaza
Hollywood, FL
Q3-19
11,915
507
95
Various Properties
8,916
243
94
47
Net cash used in financing activities:
Net cash flows from financing activities changed by $166.3 million during 2022, as follows:
Net proceeds from common stock issuances
(21,226
(2,372
4,840
Dividend payments and operating partnership distributions
(19,637
Repayment of unsecured credit facilities, net
265,000
Debt repayment, including early redemption costs
(14,498
(22,212
7,714
7,386
Proceeds from sale of treasury stock, net
(32
Significant financing activities during the nine months ended September 30, 2022 and 2021, include the following:
48
Investments in Real Estate Partnerships
The following table is a summary of the unconsolidated combined assets and liabilities of our co-investment partnerships and our Pro-rata share:
Combined
Regency's Share (1)
(dollars in thousands)
Number of Co-investment Partnerships
Regency's Ownership
20% - 50%
2,616,444
2,755,444
946,269
992,060
1,547,843
1,555,942
550,967
553,550
1,068,601
1,199,502
395,302
438,510
Basis difference
(63,054
(65,919
Our equity method investments in real estate partnerships consist of the following:
GRI-Regency, LLC (GRIR)
137,535
153,125
827
11,688
7,406
7,360
42,094
35,251
5,770
5,554
5,802
24,995
Individual Investors
Ballard Blocks
49.90%
62,883
63,783
Town & Country Center
35.00%
39,343
39,021
Others
50.00%
30,588
31,814
Total Investment in real estate partnerships
Notes Payable - Investments in Real Estate Partnerships
Scheduled principal repayments on notes payable held by our investments in real estate partnerships were as follows:
UnsecuredMaturities
Regency’sPro-RataShare
2022 (1)
1,629
64,843
66,472
23,666
3,194
216,931
220,125
83,325
2,205
33,690
35,895
14,298
3,433
137,000
140,433
42,567
3,807
125,255
7,300
136,362
43,671
12,995
842,450
855,445
312,925
Net unamortized loan costs, debt premium / (discount)
(9,768
(3,373
27,263
1,410,401
1,444,964
517,079
At September 30, 2022, our investments in real estate partnerships had notes payable of $1.4 billion maturing through 2034, of which 93.2% had a weighted average fixed interest rate of 3.5%. The remaining notes payable float with LIBOR or SOFR and had a weighted average variable interest rate of 4.7%. These fixed and variable rate notes payable are all non-recourse, and our Pro-rata share was $517.1 million as of September 30, 2022. As notes payable mature, we expect they will be repaid from proceeds from new
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borrowings and/or partner capital contributions. Refinancing debt at maturity in the current interest rate environment could result in higher interest expense in future periods if rates remain elevated.
We believe that our partners are financially sound and have sufficient capital or access thereto to fund future capital requirements. In the event that a co-investment partner was unable to fund its share of the capital requirements of the co-investment partnership, we would have the right, but not the obligation, to loan the defaulting partner the amount of its capital call.
Management fee income
In addition to earning our Pro-rata share of net income or loss in each of these co-investment partnerships, we receive fees, as shown below:
Asset management, property management, leasing, and other transaction fees
19,662
33,392
See Note 1 to Unaudited Financial Statements.
Environmental Matters
We are subject to numerous environmental laws and regulations as they apply to our shopping centers pertaining primarily to specific chemicals historically used by certain current and former dry cleaning and gas station tenants and the existence of asbestos in older shopping centers. We believe that the few tenants who currently operate dry cleaning plants or gas stations do so in accordance with current laws and regulations. Generally, we endeavor to require tenants to remove dry cleaning plants from our shopping centers or convert them to more environmentally friendly systems, in accordance with the terms of our leases. We carry an environmental insurance policy for certain third-party liabilities and remediation costs on shopping centers that currently have no known environmental contamination. We have also secured environmental insurance policies, where appropriate, on a relatively small number of specific properties with known contamination, in order to mitigate our environmental risk. We monitor the shopping centers containing environmental issues and in certain cases voluntarily remediate the sites. We also have legal obligations to remediate certain sites and we are in the process of doing so.
As of September 30, 2022, we had accrued liabilities of $10.7 million for our Pro-rata share of environmental remediation, including our Investments in real estate partnerships. We believe that the ultimate remediation of currently known environmental matters will not have a material effect on our financial position, liquidity, or results of operations. We can give no assurance that existing environmental studies on our shopping centers have revealed all potential environmental contamination; that our estimate of liabilities will not change as more information becomes available; that any previous owner, occupant or tenant did not create any material environmental condition not known to us; that the current environmental condition of the shopping centers will not be affected by tenants and occupants, by the condition of nearby properties, or by unrelated third parties; or that changes in applicable environmental laws and regulations or their interpretation will not result in additional environmental liability to us.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
We continuously monitor the capital markets and evaluate our ability to issue new debt, to repay maturing debt, or fund our commitments. We continue to believe, in light of our credit ratings, the available capacity under our unsecured credit facility, and the number of high quality, unencumbered properties that we own which could collateralize borrowings, we will be able to successfully issue new secured or unsecured debt to fund maturing debt obligations. It is uncertain the degree to which capital market volatility and rising interest rates will adversely impact the interest rates on any new debt that we may issue, which will impact future interest costs. Please also refer to the Company's Annual Report on Form 10-K for the year ended December 31, 2021, including, without limitation, the Risk Factors discussed in Item 1A of Part I thereof, and the Risk Factors described in Part II, Item 1A of this Form 10-Q.
Item 4. Controls and Procedures
Controls and Procedures (Regency Centers Corporation)
Under the supervision and with the participation of the Parent Company's management, including its chief executive officer and chief financial officer, the Parent Company conducted an evaluation of its disclosure controls and procedures, as such term is defined under Rule 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Based on this evaluation, the Parent Company's chief executive officer and chief financial officer concluded that its disclosure controls and procedures were effective as of the end of the period covered by this quarterly report on Form 10-Q to ensure information required to be disclosed in the reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported, within the time period specified in the SEC's rules and forms. These disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed by the Parent Company in the reports it files or submits is accumulated and communicated to management, including its chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure.
There have been no changes in the Parent Company's internal controls over financial reporting identified in connection with this evaluation that occurred during the third quarter of 2022 which have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.
Controls and Procedures (Regency Centers, L.P.)
Under the supervision and with the participation of the Operating Partnership's management, including the chief executive officer and chief financial officer of its general partner, the Operating Partnership conducted an evaluation of its disclosure controls and procedures, as such term is defined under Rule 13a-15(e) and 15d-15(e) promulgated under the Exchange Act. Based on this evaluation, the chief executive officer and chief financial officer of its general partner concluded that its disclosure controls and procedures were effective as of the end of the period covered by this quarterly report on Form 10-Q to ensure information required to be disclosed in the reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported, within the time period specified in the SEC's rules and forms. These disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed by the Operating Partnership in the reports it files or submits is accumulated and communicated to management, including the chief executive officer and chief financial officer of its general partner, as appropriate, to allow timely decisions regarding required disclosure.
There have been no changes in the Operating Partnership's internal controls over financial reporting identified in connection with this evaluation that occurred during the third quarter of 2022 which have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.
Item 1. Legal Proceedings
We are a party to various legal proceedings that arise in the ordinary course of our business. We are not currently involved in any litigation, nor to our knowledge, is any litigation threatened against us, the outcome of which would, in our judgment based on information currently available to us, have a material adverse effect on our financial position or results of operations. However, no assurances can be given as to the outcome of any threatened or pending legal proceedings.
Item 1A. Risk Factors
Please also refer to the discussion of the potential risks of inflation and rising interest rates on the Company and its tenants due to the challenges in the current macroenvironment and recent global events under note 1 in Item 1. Financial Statements and Item 2. Management's Discussion and Analysis for Financial Condition and Results of Operations, including but not limited to "Risks and Uncertainties."
Potential Impacts of Rising Interest Rates on Borrowing, Real Estate Valuation, and Stock Price
Primarily in response to concerns about inflation, during 2022 the Board of Governors of the Federal Reserve System ("the U.S. Federal Reserve") significantly raised its benchmark federal funds rate, which has led to increases in interest rates in the credit markets. The U.S. Federal Reserve may continue to raise the federal funds rate, which will likely lead to higher interest rates in the credit markets and the possibility of slowing economic growth and/or a recession. Additionally, U.S. government policies implemented to address inflation, including actions by the U.S. Federal Reserve to increase interest rates, could negatively impact consumer spending, our tenants' businesses, and/or future demand for space in our shopping centers.
Rising interest rates would adversely impact our cost of borrowing. Our exposure to increases in interest rates in the short term includes our variable-rate borrowings, which consist of borrowings under our unsecured senior line of credit and variable rate based secured notes payable. Increases in interest rates could increase our financing costs over time, either through near-term borrowings on our floating-rate line of credit or refinancing of our existing borrowings that may incur higher interest expenses related to the issuance of new debt. Historically, during periods of increasing interest rates, real estate valuations have generally decreased due to rising capitalization rates, which tend to move directionally with interest rates. Consequently, prolonged periods of higher interest rates may negatively impact the valuation of our real estate asset portfolio and could result in the decline of our stock price and market capitalization which may adversely impact our ability and willingness to raise equity capital on favorable terms through sales of our common shares, including through our ATM program.
Although the extent of any prolonged periods of higher interest rates remains unknown at this time, negative impacts to our cost of capital may adversely affect our future business plans and growth, at least in the near term.
Potential Impact of Current Economic Challenges on our Tenants and our Business
The success of our tenants in operating their businesses and their corresponding ability to pay us rent continue to be significantly impacted by many current economic challenges, which impact their cost of doing business, including, but not limited to, inflation, labor shortages, supply chain constraints and increasing energy prices and interest rates. Additionally, macroeconomic and geopolitical risks create challenges that may exacerbate current market conditions in the United States.
Other than these matters, there have been no material developments from the risk factors disclosed in item 1A. of Part I of our Form 10-K for the year ended December 31, 2021.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
There were no unregistered sales of equity securities during the three months ended September 30, 2022.
The following table represents information with respect to purchases by the Parent Company of its common stock, by month, during the three months ended September 30, 2022.
Period
Total number of shares purchased (1)
Average price paid per share (1)
Total number of shares purchased as part of publicly announced plans or programs (2)
Maximum number or approximate dollar value of shares that may yet be purchased under the plans or programs (2)
July 1 through July 31, 2022
174,607,162
August 1 through August 31, 2022
66.30
September 1 through September 30, 2022
453
61.75
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
Item 6. Exhibits
In reviewing any agreements included as exhibits to this report, please remember they are included to provide you with information regarding their terms and are not intended to provide any other factual or disclosure information about the Company, its subsidiaries or other parties to the agreements. Each agreement contains representations and warranties by each of the parties to the applicable agreement. These representations and warranties have been made solely for the benefit of the other parties to the applicable agreement and:
Accordingly, these representations and warranties may not describe the actual state of affairs as of the date they were made or at any other time. We acknowledge that, notwithstanding the inclusion of the foregoing cautionary statements, we are responsible for considering whether additional specific disclosures of material information regarding material contractual provisions are required to make the statements in this report not misleading. Additional information about the Company may be found elsewhere in this report and the Company's other public files, which are available without charge through the SEC's website at http://www.sec.gov. Unless otherwise indicated below, the Commission file number to the exhibit is No. 001-12298 (Regency Centers Corporation) and 000-24763 (Regency Centers, L.P.).
Ex #
31.
Rule 13a-14(a)/15d-14(a) Certifications.
31.1
Rule 13a-14 Certification of Chief Executive Officer for Regency Centers Corporation.
31.2
Rule 13a-14 Certification of Chief Financial Officer for Regency Centers Corporation.
31.3
Rule 13a-14 Certification of Chief Executive Officer for Regency Centers, L.P.
31.4
Rule 13a-14 Certification of Chief Financial Officer for Regency Centers, L.P.
32.
Section 1350 Certifications.
32.1 *
18 U.S.C. § 1350 Certification of Chief Executive Officer for Regency Centers Corporation.
32.2 *
18 U.S.C. § 1350 Certification of Chief Financial Officer for Regency Centers Corporation.
32.3 *
18 U.S.C. § 1350 Certification of Chief Executive Officer for Regency Centers, L.P.
32.4 *
18 U.S.C. § 1350 Certification of Chief Financial Officer for Regency Centers, L.P.
101.
Interactive Data Files
101.INS
Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
101.SCH
Inline XBRL Taxonomy Extension Schema Document
101.CAL
Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF
Inline XBRL Taxonomy Definition Linkbase Document
101.LAB
Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE
Inline XBRL Taxonomy Extension Presentation Linkbase Document
104.
Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)
*
Furnished, not filed.
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Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
November 4, 2022
By:
/s/ Michael J. Mas
Michael J. Mas, Executive Vice President and Chief Financial Officer (Principal Financial Officer)
/s/ J. Christian Leavitt
J. Christian Leavitt, Senior Vice President and Treasurer (Principal Accounting Officer)
Regency Centers Corporation, General Partner