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 June 30, 2023
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 171,003,217 as of August 3, 2023.
EXPLANATORY NOTE
This Quarterly Report on Form 10-Q (this "Report") combines the quarterly reports on Form 10-Q for the quarter ended June 30, 2023, 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 terms "the Company," "Regency Centers," "Regency," "we," "our," and "us" as used in this Report mean 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 June 30, 2023, the Parent Company owned approximately 99.4% 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 Units 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.
Shareholders' 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 shareholders' 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 shareholders' 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 June 30, 2023 and December 31, 2022
1
Consolidated Statements of Operations for the periods ended June 30, 2023 and 2022
2
Consolidated Statements of Comprehensive Income for the periods ended June 30, 2023 and 2022
3
Consolidated Statements of Equity for the periods ended June 30, 2023 and 2022
4
Consolidated Statements of Cash Flows for the periods ended June 30, 2023 and 2022
6
8
9
10
Consolidated Statements of Capital for the periods ended June 30, 2023 and 2022
11
13
Notes to Consolidated Financial Statements
15
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations
28
Item 3.
Quantitative and Qualitative Disclosures about Market Risk
49
Item 4.
Controls and Procedures
50
PART II - OTHER INFORMATION
Legal Proceedings
Item 1A.
Risk Factors
51
Unregistered Sales of Equity Securities and Use of Proceeds
Defaults Upon Senior Securities
Mine Safety Disclosures
Item 5.
Other Information
52
Item 6.
Exhibits
SIGNATURES
54
Item 1. Financial Statements
Consolidated Balance Sheets
June 30, 2023 and December 31, 2022
(in thousands, except share data)
2023
2022
Assets
(unaudited)
Net real estate investments:
Real estate assets, at cost
$
11,953,086
11,858,064
Less: accumulated depreciation
2,549,937
2,415,860
Real estate assets, net
9,403,149
9,442,204
Investments in real estate partnerships
342,439
350,377
Net real estate investments
9,745,588
9,792,581
Cash, cash equivalents, and restricted cash, including $3,259 and $2,310 of restricted cash at June 30, 2023 and December 31, 2022, respectively
43,108
68,776
Tenant and other receivables
206,053
188,863
Deferred leasing costs, less accumulated amortization of $120,436 and $117,137 at June 30, 2023 and December 31, 2022, respectively
69,788
68,945
Acquired lease intangible assets, less accumulated amortization of $345,131 and $338,053 at June 30, 2023 and December 31, 2022, respectively
178,849
197,745
Right of use assets, net
303,716
275,513
Other assets
280,843
267,797
Total assets
10,827,945
10,860,220
Liabilities and Equity
Liabilities:
Notes payable
3,709,074
3,726,754
Accounts payable and other liabilities
317,894
317,259
Acquired lease intangible liabilities, less accumulated amortization of $201,440 and $193,315 at June 30, 2023 and December 31, 2022, respectively
336,636
354,204
Lease liabilities
243,462
213,722
Tenants' security, escrow deposits and prepaid rent
77,093
70,242
Total liabilities
4,684,159
4,682,181
Commitments and contingencies
—
Equity:
Shareholders' equity:
Common stock; $0.01 par value per share, 220,000,000 shares authorized; 170,998,004 and 171,124,593 shares issued at June 30, 2023 and December 31, 2022, respectively
1,710
1,711
Treasury stock at cost; 442,449 and 465,415 shares held at June 30, 2023 and December 31, 2022, respectively
(24,676
)
(24,461
Additional paid-in-capital
7,859,249
7,877,152
Accumulated other comprehensive income
7,336
7,560
Distributions in excess of net income
(1,803,406
(1,764,977
Total shareholders' equity
6,040,213
6,096,985
Noncontrolling interests:
Exchangeable operating partnership units, aggregate redemption value of $66,720 and $46,340 at June 30, 2023 and December 31, 2022, respectively
54,281
34,489
Limited partners' interests in consolidated partnerships
49,292
46,565
Total noncontrolling interests
103,573
81,054
Total equity
6,143,786
6,178,039
Total liabilities and equity
See accompanying notes to consolidated financial statements.
Consolidated Statements of Operations
(in thousands, except per share data)
Three months ended June 30,
Six months ended June 30,
Revenues:
Lease income
304,458
292,864
613,259
586,509
Other property income
2,683
2,720
5,821
5,824
Management, transaction, and other fees
7,106
6,499
13,144
13,183
Total revenues
314,247
302,083
632,224
605,516
Operating expenses:
Depreciation and amortization
83,161
79,350
165,868
157,192
Property operating expense
54,394
47,750
105,416
94,211
Real estate taxes
38,509
36,700
76,986
73,569
General and administrative
25,065
17,645
50,345
36,437
Other operating expenses
1,682
617
1,185
2,790
Total operating expenses
202,811
182,062
399,800
364,199
Other expense (income):
Interest expense, net
36,956
36,699
73,349
73,437
Gain on sale of real estate, net of tax
(81
(4,291
(331
(106,239
Net investment (income) loss
(1,742
5,468
(3,469
7,962
Total other expense (income)
35,133
37,876
69,549
(24,840
Income from operations before equity in income of investments in real estate partnerships
76,303
82,145
162,875
266,157
Equity in income of investments in real estate partnerships
11,869
23,842
23,785
36,646
Net income
88,172
105,987
186,660
302,803
Exchangeable operating partnership units
(550
(452
(970
(1,315
(840
(739
(1,627
(1,464
Income attributable to noncontrolling interests
(1,390
(1,191
(2,597
(2,779
Net income attributable to common shareholders
86,782
104,796
184,063
300,024
Income per common share - basic
0.51
0.61
1.08
1.75
Income per common share - diluted
1.07
1.74
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
5,457
4,436
2,721
13,404
Reclassification adjustment of derivative instruments included in net income
(1,649
481
(3,141
1,491
Unrealized (loss) gain on available-for-sale debt securities
(115
(223
77
(977
Other comprehensive income (loss)
3,693
4,694
(343
13,918
Comprehensive income
91,865
110,681
186,317
316,721
Less: comprehensive income attributable to noncontrolling interests:
Net income attributable to noncontrolling interests
1,390
1,191
2,597
2,779
Other comprehensive income (loss) attributable to noncontrolling interests
284
542
(119
1,303
Comprehensive income attributable to noncontrolling interests
1,674
1,733
2,478
4,082
Comprehensive income attributable to the Company
90,191
108,948
183,839
312,639
Consolidated Statements of Equity
For the three months ended June 30, 2023 and 2022
Noncontrolling Interests
CommonStock
TreasuryStock
AdditionalPaid InCapital
AccumulatedOtherComprehensiveIncome (Loss)
Distributionsin Excess ofNet Income
TotalShareholders'Equity
ExchangeableOperatingPartnershipUnits
LimitedPartners'Interest inConsolidatedPartnerships
TotalNoncontrollingInterests
TotalEquity
Balance at March 31, 2022
1,714
(23,831
7,882,764
(1,764
(1,726,556
6,132,327
35,876
37,489
73,365
6,205,692
452
739
Other comprehensive income
Other comprehensive income before reclassification
3,743
17
453
470
4,213
Amounts reclassified from accumulated other comprehensive income
409
69
72
Deferred compensation plan, net
(51
Restricted stock issued, net of amortization
4,366
Common stock repurchased for taxes withheld for stock based compensation, net
Common stock repurchased and retired
(13
(75,406
(75,419
Common stock issued under dividend reinvestment plan
134
Common stock issued for partnership units exchanged
1,275
(1,275
Common stock issued, net of issuance costs
61,274
61,284
Contributions from partners
10,446
Distributions to partners
(2,705
Cash dividends declared:
Common stock/unit ($0.625 per share)
(107,885
(462
(108,347
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
Balance at March 31, 2023
(25,699
7,856,426
3,927
(1,779,043
6,057,321
34,411
47,703
82,114
6,139,435
550
840
4,886
32
424
456
5,342
(1,477
(10
(162
(172
1,023
(1,023
4,105
(406
157
1,428
Issuance of exchangeable operating partnership units
20,000
(941
Common stock/unit ($0.650 per share)
(111,145
(702
(111,847
Balance at June 30, 2023
For the six months ended June 30, 2023 and 2022
Balance at December 31, 2021
1,712
(22,758
7,883,458
(10,227
(1,814,814
6,037,371
35,447
37,114
72,561
6,109,932
1,315
1,464
11,280
1,093
1,147
12,427
1,335
7
149
156
(1,124
1,124
8,572
8,574
(6,088
252
(3,775
Common stock/unit ($1.250 per share)
(214,855
(937
(215,792
Balance at December 31, 2022
970
1,627
2,570
21
207
228
2,798
(2,794
(15
(332
(347
(215
215
8,922
8,924
(7,326
(3
(20,003
(20,006
299
3,205
(1,980
Common stock/unit ($1.300 per share)
(222,492
(1,184
(223,676
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
2,983
2,821
(Accretion) and amortization of above and below market lease intangibles, net
(13,842
(10,528
Stock-based compensation, net of capitalization
8,854
8,501
(23,785
(36,646
Distribution of earnings from investments in real estate partnerships
31,869
29,207
Deferred compensation expense (income)
2,940
(7,007
Realized and unrealized (gain) loss on investments
(3,376
8,033
Changes in assets and liabilities:
(14,549
(8,252
Deferred leasing costs
(3,591
(4,263
(17,951
(8,353
6,091
6,837
660
Net cash provided by operating activities
334,677
327,757
Cash flows from investing activities:
Acquisition of operating real estate, net of cash acquired of $3,061 in 2022
(139,775
Real estate development and capital improvements
(100,114
(99,470
Proceeds from sale of real estate and FF&E
3,745
136,421
Issuance of notes receivable
(4,000
(3,109
(11,549
Return of capital from investments in real estate partnerships
3,644
48,473
Dividends on investment securities
420
214
Acquisition of investment securities
(2,748
(8,313
Proceeds from sale of investment securities
10,751
8,737
Net cash used in investing activities
(91,411
(65,262
Cash flows from financing activities:
Net proceeds from common stock issuance
Repurchase of common shares in conjunction with equity award plans
(7,621
(6,388
Common shares repurchased through share repurchase program
(71,898
Proceeds from sale of treasury stock
64
Contributions from limited partners in consolidated partnerships, net
1,225
1,234
Distributions to exchangeable operating partnership unit holders
(964
(950
Dividends paid to common shareholders
(222,275
(213,868
Proceeds from unsecured credit facilities
235,000
75,000
Repayment of unsecured credit facilities
(235,000
(75,000
Proceeds from notes payable
15,500
Repayment of notes payable
(29,616
Scheduled principal payments
(5,054
(5,728
Payment of loan costs
(141
(82
Net cash used in financing activities
(268,934
(236,332
Net (decrease) increase in cash and cash equivalents and restricted cash
(25,668
26,163
Cash and cash equivalents and restricted cash at beginning of the period
95,027
Cash and cash equivalents and restricted cash at end of the period
121,190
Supplemental disclosure of cash flow information:
Cash paid for interest (net of capitalized interest of $2,534 and $1,815 in 2023 and 2022, respectively)
71,091
70,876
Cash paid for income taxes, net of refunds
573
370
Supplemental disclosure of non-cash transactions:
Common stock and exchangeable operating partnership dividends declaredbut not paid
111,847
108,215
Acquisition of real estate previously held within investments in real estate partnerships
17,179
Mortgage loans assumed by Company with the acquisition of real estate
22,779
Accrued common stock repurchase in Accounts payable and other liabilities
3,521
Exchangeable operating partnership units issued for acquisition of real estate
Change in accrued capital expenditures
9,011
5,050
Stock-based compensation capitalized
366
373
Contributions from limited partners in consolidated partnerships
5,436
Common stock issued for dividend reinvestment in trust
555
Contribution of stock awards into trust
1,844
2,022
Distribution of stock held in trust
2,245
566
Change in fair value of securities
98
1,236
(in thousands, except unit data)
Liabilities and Capital
Capital:
Partners' capital:
General partner; 170,998,004 and 171,124,593 units outstanding at June 30, 2023 and December 31, 2022, respectively
6,032,877
6,089,425
Limited partners; 1,080,137 and 741,433 units outstanding at June 30, 2023 and December 31, 2022 respectively
Total partners' capital
6,094,494
6,131,474
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
87,332
105,248
185,033
301,339
262
522
(125
1,242
1,102
1,261
1,502
2,706
Comprehensive income attributable to the Partnership
90,763
109,420
184,815
314,015
Consolidated Statements of Capital
General Partner Preferredand Common Units
LimitedPartners
TotalPartners’Capital
Noncontrolling Interests inLimited Partners’ Interest inConsolidated Partnerships
TotalCapital
6,134,091
6,168,203
3,760
412
(111,052
Restricted units issued as a result of restricted stock issued by Parent Company, net of amortization
Common units repurchased and retired as a result of common stock repurchased and retired by Parent Company
Common units issued as a result of common stock issued by Parent Company, net of issuance costs
Common units repurchased as a result of common stock repurchased by Parent Company, net of issuances
137
Common units exchanged for common stock of Parent Company
6,122,645
6,159,644
6,053,394
6,091,732
4,918
Amounts reclassified from accumulated other comprehensive loss
(1,487
(112,788
(249
TotalPartners'Capital
Noncontrolling Interests inLimited Partners' Interest inConsolidated Partnerships
6,047,598
6,072,818
11,334
1,342
(219,567
(5,836
2,591
(2,809
(225,656
(7,027
12
Common units repurchased through share repurchase program
(223,239
(214,818
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
June 30, 2023
1.
Organization and Significant Accounting Policies
General
Regency Centers Corporation (the "Parent Company") began its operations as a 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, 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 June 30, 2023, the Parent Company, the Operating Partnership, and their controlled subsidiaries on a consolidated basis owned 310 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.
Pending Acquisition of Urstadt Biddle Properties Inc.
On May 17, 2023, the Parent Company entered into an Agreement and Plan of Merger (the “merger agreement”) by and among the Parent Company, Hercules Merger Sub, LLC, a wholly owned subsidiary of the Parent Company (“Merger Sub”), Urstadt Biddle Properties Inc. (“UBP” or “Urstadt Biddle”), UB Maryland I, Inc., a wholly owned subsidiary of Urstadt Biddle (“UB Sub I”), and UB Maryland II, Inc., a wholly owned subsidiary of UB Sub I (“UB Sub II”), pursuant to which, subject to the satisfaction or waiver of certain conditions, (a) UB Sub II will be merged with and into Urstadt Biddle (the “first merger”), with Urstadt Biddle surviving the first merger as a wholly owned subsidiary of UB Sub I, and (b) following the first merger, UB Sub I will be merged with and into Merger Sub (the “second merger” and together with the first merger, the “mergers”), with Merger Sub being the surviving entity in the second merger. The combined company will retain the Regency name and continue to trade under the ticker symbol “REG” on the National Association of Securities Dealers Automated Quotations (the “NASDAQ”). On the terms and subject to the conditions set forth in the merger agreement, which has been approved by the boards of directors of Regency Centers Corporation and UBP, at the effective time of the first merger (the “first merger effective time”), each share of Urstadt Biddle’s common stock, par value $0.01 per share (“Urstadt Biddle common stock”), class A common stock, par value $0.01 per share (“Urstadt Biddle Class A common stock” and, together with Urstadt Biddle common stock, the “Urstadt Biddle common shares”), 6.25% Series H Cumulative Redeemable Preferred Stock and 5.875% Series K Cumulative Redeemable Preferred Stock will be converted into one equivalent share in UB Sub I, with respect to each class, subject to limited exceptions set forth in the merger agreement. Immediately thereafter, at the effective time of the second merger (the “second merger effective time”), each share of UB Sub I’s common stock, par value $0.01 per share, and class A common stock, par value $0.01 per share, will be converted into 0.347 of a share of common stock, par value $0.01 per share, of common stock of the Parent Company, without interest and subject to certain adjustments, subject to limited exceptions set forth in the merger agreement, and each share of UB Sub I’s 6.25% Series H Cumulative Redeemable Preferred Stock and 5.875% Series K Cumulative Redeemable Preferred Stock will be converted into one share of newly issued Parent Company 6.25% Series A Cumulative Redeemable Preferred Stock (“Parent Company Series A preferred stock”) and 5.875% Series B Cumulative Redeemable Preferred Stock (“Parent Company Series B preferred stock”), respectively. The closing of the mergers is subject to certain conditions, including the requisite approval from the stockholders of UBP (a special meeting of the stockholders of UBP to vote on the mergers is scheduled to be held on August 16, 2023), the receipt of certain tax opinions by Regency Centers Corporation and UBP, and other customary closing conditions. The mergers are expected to close mid-to-late August, 2023. However, the Company cannot predict with certainty when, or if, the mergers will be completed because completion of the mergers is subject to conditions beyond the control of the Company. In connection with the proposed transaction, on July 12, 2023, Regency Centers Corporation filed with the Securities and Exchange Commission a registration statement on Form S-4 that included a proxy statement of UBP and constituted a prospectus of Regency.
Risks and Uncertainties
The success of the Company's tenants in operating their businesses and their corresponding ability to pay rent continue to be influenced by current economic challenges, which impact their cost of doing business, including but not limited to the impact of inflation, the cost and availability of labor, increasing energy prices and interest rates, and access to credit. Additionally, macroeconomic and geopolitical risks create challenges that may exacerbate current market conditions in the United States of America ("U.S.", "USA" or "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 June 30, 2023, the Parent Company owned approximately 99.4% 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 (i.e. registered shares of the Parent). The Parent Company has evaluated the conditions as specified under Accounting Standards Codification ("ASC") Topic 480, Distinguishing Liabilities from Equity, as it relates to EOP units outstanding and concluded that the Parent Company 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.
16
Real Estate Partnerships
As of June 30, 2023, Regency had a partial ownership interest in 108 properties through partnerships, of which 12 are consolidated. 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, 2022
132,744
107,725
Cash, cash equivalents and restricted cash
2,794
2,420
Liabilities
3,702
4,188
Equity
24,478
24,364
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. Income within Management, transaction, and other fees on the Consolidated Statements of Operations is primarily from contracts with the Company's real estate partnerships. 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
3,487
3,310
6,945
6,928
Asset management services
1,648
1,669
3,277
3,425
Leasing services
Point in time
1,096
1,171
1,814
2,167
Other transaction fees
875
349
1,108
663
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 $17.1 million and $16.4 million, as of June 30, 2023 and December 31, 2022, 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 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting
In March 2020, the Financial Accounting Standards Board ("FASB") issued ASU 2020-04, Reference Rate Reform (Topic 848). ASU 2020-04 contains practical expedients for reference rate reform related to activities that impact debt, leases, derivatives, and other contracts. The guidance in ASU 2020-04 is optional and may be elected over time as reference rate reform activities occur.
The amendments in this update provide exceptions to the guidance in Topic 815 related to changes to the critical terms of a hedging relationship due to reference rate reform, which if criteria are met, provide such changes should not result in the dedesignation and redesignation of the hedging relationship.
March 2020 through March 31, 2023
The Company has elected to apply the hedge accounting expedients and exceptions related to changes to the reference rate from LIBOR to SOFR in the Company's interest rate swaps, which it completed during the three months ended March 31, 2023. Application of these exceptions preserves the hedge designation of interest rate swaps and the related accounting and presentation consistent with past presentation.
18
2.
Real Estate Investments
The following tables detail the properties acquired for the periods set forth below:
Six months ended June 30, 2023
Date Purchased
Property Name
City/State
PropertyType
Regency Ownership
PurchasePrice (1)
DebtAssumed,Net ofDiscounts (1)
IntangibleAssets (1)
IntangibleLiabilities (1)
Consolidated
5/1/2023
Sienna Phase 1
Houston, TX
Development
100%
2,695
5/18/2023
SunVet
Holbrook, NY
99%
24,140
Total property acquisitions
26,835
Six months ended June 30, 2022
3/1/2022
Glenwood Green
Old Bridge, NJ
70%
11,000
3/31/2022
Island Village
Bainbridge Island, WA
Operating
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
50%
5,540
Total unconsolidated
57,920
269,173
44,853
26,473
9,518
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
142
11,497
3,065
81
4,291
331
106,239
Number of operating properties sold
Number of land parcels sold
Percent interest sold
19
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
167,062
Investments
49,616
54,581
Prepaid and other
49,287
28,615
Derivative assets
5,915
6,575
Furniture, fixtures, and equipment, net ("FF&E")
4,953
5,808
Deferred financing costs, net
4,010
5,156
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%
3.4%
326,471
342,135
Variable rate mortgage loans (1)
3.8%
132,039
136,246
Fixed rate unsecured debt
4.0%
3,250,564
3,248,373
Total notes payable
Unsecured credit facilities:
$1.25 Billion Line of Credit (the "Line") (2)
6.0%
6.4%
Total debt outstanding
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
2023 (2)
4,490
30,592
35,082
2024
5,044
90,742
250,000
345,786
2025
3,942
43,750
297,692
2026
4,127
127,096
200,000
331,223
2027
3,788
137,915
525,000
666,703
Beyond 5 Years
2,873
319
2,050,000
2,053,192
Unamortized debt premium/(discount) and issuance costs
3,832
(24,436
(20,604
24,264
434,246
The Company was in compliance as of June 30, 2023, 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.
20
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 manage its exposure to interest rate movements. To accomplish this objective, 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
Bank PaysVariable Rate of
Regency PaysFixed Rate of
12/1/16
11/1/23
30,806
SOFR
1.490%
407
883
9/17/19
3/17/25
24,000
1.443%
1,357
1,443
12/20/19
12/19/26
24,365
1.684%
1,938
1,939
2/24/23
12/31/26
15,435
4.229%
(25
152
6/2/17
6/2/27
35,160
2.261%
2,213
2,158
5,890
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 June 30, 2023, does not have any derivatives that are not designated as hedges.
The changes in the fair value of derivatives designated and qualifying as cash flow hedges are recorded in Accumulated other comprehensive income ("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 June 30, 2023, the Company expects approximately $5.8 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
220,191
211,838
439,831
419,340
Variable lease income
74,337
67,890
155,118
139,916
Other lease related income, net:
Above/below market rent and tenant rent inducement amortization, net
8,751
5,613
14,616
11,302
Uncollectible straight-line rent
1,522
2,623
2,100
4,905
Uncollectible amounts billable in lease income
4,900
1,594
11,046
Total lease income
22
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 worthiness 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 not 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 ASC 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, net of amounts considered uncollectible, in the accompanying Consolidated Balance Sheets:
Tenant receivables
28,239
31,486
Straight-line rent receivables
133,690
128,214
Other receivables (1)
44,124
29,163
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:
3,367,758
3,333,378
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 June 30, 2023, and December 31, 2022, 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.
23
(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 (income) loss in the accompanying Consolidated Statements of Operations, and include unrealized gains of $1.4 million and unrealized losses of $5.5 million during the three months ended June 30, 2023 and 2022, respectively, and unrealized gains of $3.0 million and unrealized losses of $8.5 million during the six months ended June 30, 2023 and 2022, respectively.
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.
24
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 June 30, 2023
Quoted Prices in Active Markets for Identical Assets
Significant Other Observable Inputs
Significant Unobservable Inputs
Balance
(Level 1)
(Level 2)
(Level 3)
Assets:
34,471
Available-for-sale debt securities
15,145
Interest rate derivatives
55,531
21,060
Fair Value Measurements as of December 31, 2022
40,089
14,492
61,156
21,067
9.
Equity and Capital
Common Stock of the Parent Company
Dividends Declared
On August 1, 2023, our Board of Directors declared a common stock dividend of $0.65 per share, payable on October 4, 2023, to shareholders of record as of September 14, 2023.
Share Repurchase Program
The Company has a common share repurchase program under which it may purchase, from time to time, up to a maximum of $250 million of its outstanding common stock through open market purchases, and/or in privately negotiated transactions (referred to as the "Repurchase Program"). The timing and price of share repurchases, if any will be dependent upon market conditions and other factors. The shares repurchased, if not retired, would be treated as treasury shares. The authorization for this repurchase program will expire on February 7, 2025, unless modified or earlier terminated by the Board.
During the six months ended June 30, 2023, the Company executed multiple trades to repurchase 349,519 common shares under the Repurchase Program for a total of $20.0 million at a weighted average price of $57.22 per share. All repurchased shares were retired on the respective settlement dates. At June 30, 2023, $230.0 million remained available under the 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 shares issued or repurchased, as described above.
In May 2023, the Operating Partnership issued 338,704 exchangeable operating partnership units, valued at $20.0 million, as partial purchase price consideration for a development property.
25
10.
Stock-Based Compensation
During the six months ended June 30, 2023, the Company granted 301,099 shares of restricted stock with a weighted-average grant-date fair value of $68.29 per share. The Company records stock-based compensation expense within General and administrative expenses in the accompanying Consolidated Statements of Operations, and recognizes 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 shareholders - basic
Income attributable to common shareholders - diluted
Denominator:
Weighted average common shares outstanding for basic EPS
170,990
172,064
171,100
171,692
Weighted average common shares outstanding for diluted EPS (1)
171,275
172,424
171,369
172,036
Income per common share – basic
Income per common share – diluted
Income attributable to noncontrolling interests of the Operating Partnership has been excluded from the numerator and EOP 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 EOP units outstanding were 901,480 and 741,433 for the three months ended June 30, 2023 and 2022, respectively, and were 822,346 and 755,393 for the six months ended June 30, 2023 and 2022, respectively.
Operating Partnership Earnings per Unit
The following summarizes the calculation of basic and diluted earnings per unit ("EPU"):
Income attributable to common unit holders - basic
Income attributable to common unit holders - diluted
Weighted average common units outstanding for basic EPU
171,891
172,805
171,922
172,448
Weighted average common units outstanding for diluted EPU (1)
172,176
173,165
172,192
172,791
Income per common unit – basic
Income per common unit – diluted
12.
Commitments and Contingencies
Litigation
The Company is involved in litigation on a number of matters, and is subject to other disputes, in each case 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.
26
On May 17, 2023, Regency Centers Corporation (“Regency”) entered into an agreement to acquire Urstadt Biddle Properties Inc. (“Urstadt Biddle”). In connection with the proposed acquisition, Regency filed a registration statement (the “Registration Statement”) with the SEC containing a proxy statement/prospectus that will be used in connection with obtaining approval of the proposed acquisition by the Urstadt Biddle stockholders. One complaint has been filed in Connecticut state court in connection with the proposed acquisition by a purported Urstadt Biddle stockholder, captioned Snitkoff v. Bannon et al., FBT-CV23-6125690-S (Superior Court, Fairfield County, Connecticut, July 19, 2023) (the “Complaint”). The Complaint alleges that the Urstadt Biddle board of directors breached its fiduciary duties under Maryland law in connection with the proposed acquisition and that the Registration Statement fails to disclose allegedly material information. The Complaint also alleges that Regency aided and abetted breaches of fiduciary duty by the Urstadt Biddle board of directors, and that all defendants engaged in negligent misrepresentation and concealment under Connecticut law in connection with the Registration Statement. The complaint seeks various remedies, including, among other things, injunctive relief to prevent the consummation of the proposed acquisition, requiring defendants to file a proxy statement/prospectus that does not contain allegedly false and misleading statements, a declaration that defendants have negligently misrepresented and omitted material facts in the proxy statement/prospectus, and awards of damages and attorney’s fees.
In addition to the Complaint, certain purported stockholders of Urstadt Biddle have sent demand letters (the “Demands,” and together with the Complaint, the “Matters”) alleging deficiencies and/or omissions regarding the disclosures made in the proxy statement/prospectus.
Regency believes that the Matters are without merit and that no supplemental disclosure is required to the Registration Statement or proxy statement/prospectus under any applicable rule, statute, regulation or law.
Environmental
The Company is subject to numerous environmental laws and regulations. With respect to impact on the Company, these pertain 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 uses. 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 aggregate amount not to exceed $50.0 million, which reduces the credit availability under the Line. These letters of credit are primarily issued as collateral on behalf of its captive insurance subsidiary and to facilitate the construction of development projects. The Company had $8.4 million and $9.4 million in letters of credit outstanding as of June 30, 2023 and December 31, 2022, respectively.
27
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," "could," "should," "would," "expect," "estimate," "believe," "intend," "forecast," "project," "plan," "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 Securities and Exchange Commission ("SEC") filings, our Annual Report on Form 10-K for the year ended December 31, 2022 ("2022 Form 10-K") under Item 1A. "Risk Factors" and in Part II, Item 1A. "Risk Factors" in this Report. When considering an investment in our securities, you should carefully read and consider these risks, together with all other information in our most recent 2022 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, whether as a result of new information, future events, or developments otherwise, except as and to the extent required by law.
On May 17, 2023, the Parent Company entered into a merger agreement by and among the Parent Company, Hercules Merger Sub UBP, UB Sub I, and UB Sub II, pursuant to which, subject to the satisfaction or waiver of certain conditions, (a) UB Sub II will be merged with and into Urstadt Biddle, with Urstadt Biddle surviving the first merger as a wholly owned subsidiary of UB Sub I, and (b) following the first merger, UB Sub I will be merged with and into Merger Sub, with Merger Sub being the surviving entity in the second merger. The combined company will retain the Regency name and continue to trade under the ticker symbol “REG” on the NASDAQ. On the terms and subject to the conditions set forth in the merger agreement, which has been approved by the boards of directors of Regency Centers Corporation and UBP, at the first merger effective time, each Urstadt Biddle common share and each share of 6.25% Series H Cumulative Redeemable Preferred Stock and 5.875% Series K Cumulative Redeemable Preferred Stock will be converted into one equivalent share in UB Sub I, with respect to each class, subject to limited exceptions set forth in the merger agreement. Immediately thereafter, at second merger effective time, each share of UB Sub I’s common stock, par value $0.01 per share, and class A common stock, par value $0.01 per share, will be converted into 0.347 of a share of common stock, par value $0.01 per share, of common stock of the Parent Company, without interest and subject to certain adjustments, subject to limited exceptions set forth in the merger agreement, and each share of UB Sub I’s 6.25% Series H Cumulative Redeemable Preferred Stock and 5.875% Series K Cumulative Redeemable Preferred Stock will be converted into one share of newly issued Parent Company Series A preferred stock and Parent Company Series B preferred stock, respectively. The closing of the mergers is subject to certain conditions, including the requisite approval from the stockholders of UBP (a special meeting of the stockholders of UBP to vote on the mergers is scheduled to be held on August 16, 2023), the receipt of certain tax opinions by Regency Centers Corporation and UBP, and other customary closing conditions. The mergers are expected to close mid-to-late August, 2023. However, the Company cannot predict with certainty when, or if, the mergers will be completed because completion of the mergers is subject to conditions beyond the control of the Company. In connection with the proposed transaction, on July 12, 2023, Regency Centers Corporation filed with the Securities and Exchange Commission a registration statement on Form S-4 that included a proxy statement of UBP and constituted a prospectus of Regency.
Non-GAAP Measures
In addition to the required Generally Accepted Accounting Principles ("GAAP") presentations, we use and report certain non-GAAP 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 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 measures is that 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 measures. In order to compensate for these limitations, reconciliations of the non-GAAP measures we use to their most directly comparable GAAP measures are provided. Non-GAAP 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, and are included in this document:
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 Shareholders to Nareit FFO.
29
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 our operating results to those of other REITs 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:
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.
30
Overview of Our Strategy
Regency Centers Corporation began operations as a publicly-traded REIT in 1993. 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 June 30, 2023, the Parent Company owned approximately 99.4% of the outstanding common partnership units of the Operating Partnership.
We are a preeminent national owner, operator, and developer of shopping centers located in suburban trade areas with compelling demographics. As of June 30, 2023, we had full or partial ownership interests in 406 retail properties. Our properties are high-quality neighborhood and community shopping centers primarily anchored by market leading grocers and principally located in suburban markets within the country's most desirable metro areas and contain approximately 51.3 million square feet ("SF") of gross leasable area ("GLA"). 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:
Refer to Item 1, Note 1 to Unaudited Consolidated Financial Statements.
Please also refer to the Risk Factors discussed in Item 1A of Part I of our Annual Report on Form 10-K for the year ended December 31, 2022, and the Risk Factors described in Part II, Item 1A of this Form 10-Q.
31
Executing on our Strategy
During the six months ended June 30, 2023, we had Net income attributable to common shareholders of $184.1 million as compared to $300.0 million during the six months ended June 30, 2022, which included gains on sale of real estate of $106.2 million.
During the six months ended June 30, 2023:
We continued our development and redevelopment of high quality shopping centers:
We maintained 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
310
308
GLA
39,009
38,834
% Leased – Operating and Development
94.5%
94.8%
% Leased – Operating
95.0%
94.9%
Weighted average annual effective rent per square foot ("PSF"), net of tenant concessions.
$24.21
$23.95
The following table summarizes general information related to the unconsolidated properties owned in co-investment partnerships in our portfolio:
96
12,316
12,311
95.2%
% Leased –Operating
95.3%
Weighted average annual effective rent PSF, net of tenant concessions
$23.54
$23.15
The following table summarizes Pro-rata occupancy rates of our combined consolidated and unconsolidated shopping center portfolio:
Percent Leased – All Properties
94.6%
Anchor Space (spaces ≥ 10,000 SF)
96.0%
96.8%
Shop Space (spaces < 10,000 SF)
92.3%
91.5%
The following table summarizes leasing activity, including our Pro-rata share of activity within the portfolio of our co-investment partnerships (totals as a weighted average PSF):
LeasingTransactions
SF (inthousands)
Base RentPSF
TenantAllowanceand LandlordWork PSF
LeasingCommissionsPSF
Anchor Space Leases
New
251
19.44
47.72
5.42
Renewal
47
1,300
16.50
0.48
0.08
Total Anchor Space Leases
60
1,551
16.97
8.14
0.94
Shop Space Leases
272
577
39.42
41.38
13.18
510
873
36.92
1.62
0.60
Total Shop Space Leases
782
1,450
37.92
17.44
5.60
Total Leases
842
3,001
27.09
12.63
3.19
372
12.94
10.42
5.65
1,227
18.85
1.50
0.11
1,599
17.47
3.57
1.40
278
38.71
37.70
11.61
596
1,103
36.52
0.82
874
1,613
37.21
13.12
4.24
934
3,212
27.39
8.37
2.83
The weighted-average base rent on signed Shop Space leases during 2023 was $37.92 PSF, which is higher than the $35.86 PSF weighted average annual base rent of all Shop Space leases due to expire during the next 12 months. New and renewal rent spreads, compared to prior rents on these same spaces leased, were positive at 9.2% for the six months ended June 30, 2023, compared to 7.6% for the six months ended June 30, 2022.
The success of our tenants in operating their businesses and their corresponding ability to pay us rent continue to be impacted by current economic challenges, which increase their cost of doing business, including, but not limited to, inflation, labor shortages, increasing energy prices, and interest rates. Additionally, macroeconomic and geopolitical risks may create challenges that 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 adversely 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 downward pressure on rents that we are able to charge to new or renewing tenants, such that future new and renewal rent spreads could be adversely impacted as tenants look to manage total occupancy costs. Further, we may experience higher costs for tenant buildouts, as costs of materials and labor may continue to increase and supply and availability of both may become more limited.
33
Significant Tenants and Concentrations of Risk
We seek to reduce our operating and leasing risks through geographic diversification of our properties and by avoiding dependence on any single property, market, or tenant. Based on percentage of annualized base rent, the following table summarizes our most significant tenants, of which four of the top five are grocers:
Tenant
Number ofStores
Percentage ofCompany-owned GLA (1)
Percentage ofAnnual Base Rent (1)
Publix
67
7.1%
3.3%
Kroger Co.
3.0%
Albertsons Companies, Inc.
46
4.7%
2.9%
Amazon/Whole Foods
37
2.8%
TJX Companies, Inc.
3.6%
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, diversifying our tenant mix, replacing less successful 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.
Although base rent is derived from long-term lease contracts, tenants that 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 significant downtime 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 rejects 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 0.6% of our Pro-rata annual base rent, including 0.3% of our Pro-rata annual base rent related to Bed Bath and Beyond.
Results from Operations
Comparison of the three months ended June 30, 2023 and 2022:
Our revenues changed as summarized in the following table:
Change
Base rent
213,977
204,353
9,624
Recoveries from tenants
74,748
68,464
6,284
Percentage rent
1,380
751
629
Uncollectible lease income
(5,243
Other lease income
3,066
(244
Straight-line rent
2,879
5,473
(2,594
Above / below market rent amortization
3,138
11,594
(37
607
12,164
34
Lease income increased by $11.6 million, on a net basis, primarily driven by the following contractually billable components of rent to the tenants per the lease agreements:
Management, transaction, and other fees increased $607,000 primarily due to an increase in debt placement fees.
Changes in our operating expenses are summarized in the following table:
3,811
6,644
1,809
7,420
1,065
20,749
Depreciation and amortization costs increased by $3.8 million, on a net basis, as follows:
Property operating expense increased $6.6 million, on a net basis, as follows:
35
Real estate taxes increased $1.8 million, on a net basis, as follows:
General and administrative costs increased $7.4 million on a net basis, as follows:
Other operating expenses increased $1.1 million attributable to an increase in development pursuit costs and other professional services.
The following table presents the components of other expense (income):
Interest on notes payable
37,177
37,274
(97
Interest on unsecured credit facilities
495
847
Capitalized interest
(1,284
(1,019
(265
Hedge expense
109
Interest income
(388
(160
(228
257
4,210
(7,210
(2,743
Gain on sale of real estate, net of tax, decreased $4.2 million driven by the two land parcel sales during the three months ended June 30, 2022.
Net investment income increased $7.2 million primarily driven by gains on investments held in the non-qualified deferred compensation plan and our captive insurance company. This is partially offset by $6.2 million of greater expense 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%
9,111
9,031
80
New York Common Retirement Fund (NYC) (1)
30.00%
8,945
(8,913
Columbia Regency Retail Partners, LLC (Columbia I)
20.00%
419
422
Columbia Regency Partners II, LLC (Columbia II)
385
361
Columbia Village District, LLC
304
434
(130
RegCal, LLC (RegCal) (2)
25.00%
124
3,625
(3,501
Other investments in real estate partnerships
31.00% - 50.00%
1,494
1,024
Total equity in income of investments in real estate partnerships
(11,973
36
The $12.0 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:
(17,815
(199
(18,014
Net income attributable to exchangeable operating partnership units
(98
(17,916
Comparison of the six months ended June 30, 2023 and 2022:
426,907
403,605
23,302
145,974
136,238
9,736
8,410
5,699
2,711
(9,452
10,282
7,135
3,147
5,476
11,484
(6,008
3,314
26,750
(39
26,708
Total lease income increased $26.8 million primarily driven by the following contractually billable components of rent to the tenants per the lease agreements:
8,676
11,205
3,417
13,908
(1,605
35,601
Depreciation and amortization costs increased $8.7 million, on a net basis, as follows:
Property operating expense increased $11.2 million, on a net basis, as follows:
Real estate taxes increased $3.4 million, on a net basis, mainly due to the following:
General and administrative costs increased $13.9 million, on a net basis, mainly due to the following:
38
Other operating expenses had a favorable change of $1.6 million, primarily due to a $1.2 million fee for the cancelation of a land contract related to a development pursuit, as well as higher 2022 expenses for environmental remediation costs at one of our operating properties.
The following table presents the components of Other expense (income):
74,087
74,361
(274
2,329
975
1,354
(2,534
(1,815
(719
219
(752
(303
(449
(88
105,908
(11,431
94,389
During the six months ended June 30, 2023, we recognized gains on sale of $331,000 from one land parcel. During the six months ended June 30, 2022, we recognized gains on sale of $106.2 million from one operating property and three land parcels.
Net investment income increased $11.4 million primarily driven by gains on investments held in the non-qualified deferred compensation plan and our captive insurance company. This is partially offset by $9.9 million of greater expense in General and administrative costs related to participant obligations within the deferred compensation plans.
Total equity in income of investments in real estate partnerships changed as follows:
18,241
18,404
(163
9,211
(9,186
878
943
(65
913
918
(5
757
700
57
241
4,251
(4,010
35.00% - 50.00%
2,730
2,219
511
(12,861
The $12.9 million decrease in our equity in income of investments in real estate partnerships is largely attributable to the following changes:
39
The following represents the remaining components that comprise Net income attributable to common shareholders and unit holders:
(116,143
182
(115,961
345
(116,306
Supplemental Earnings Information
We use certain non-GAAP 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 measures to determine how best to provide relevant information to the public, and thus such reported non-GAAP 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 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 measures. In order to compensate for these limitations, reconciliations of the non-GAAP measures we use to their most directly comparable GAAP are provided, including as set forth below. Non-GAAP financial measures should not be relied upon in evaluating the financial condition, results of operations, or future prospects.
Pro-Rata Same Property NOI:
Pro-rata same property NOI, excluding termination fees/expenses, changed as follows:
234,199
225,891
8,308
467,119
449,156
17,963
82,213
75,332
6,881
160,544
151,556
8,988
1,721
1,015
706
9,392
6,530
2,862
Termination fees
651
940
(289
5,369
2,888
2,481
(353
5,257
(5,610
1,506
11,891
(10,385
2,931
2,895
5,780
5,524
256
2,117
2,221
(104
4,780
4,750
Total real estate revenue
323,479
313,551
9,928
654,490
632,295
22,195
Operating and maintenance
55,044
49,349
5,695
106,838
98,181
8,657
41,631
40,288
1,343
83,406
81,358
2,048
Ground rent
2,928
2,951
(23
5,972
5,864
108
Total real estate operating expenses
99,603
92,588
7,015
196,216
185,403
10,813
Pro-rata same property NOI
223,876
220,963
2,913
458,274
446,892
11,382
Less: Termination fees
Pro-rata same property NOI, excluding termination fees
223,225
220,023
3,202
452,905
444,004
8,901
Pro-rata same property NOI growth, excluding termination fees
1.5
%
2.0
40
Real estate revenue increased $9.9 million and $22.2 million, on a net basis, during the three and six months ended June 30, 2023 and 2022, respectively, as follows:
Base rent increased $8.3 million and $18.0 million during the three and six months ended June 30, 2023, respectively, due to rent steps in existing leases, positive rental spreads on new and renewal leases, and increases in occupancy, as well as redevelopment projects completing and operating.
Recoveries from tenants increased $6.9 million and $9.0 million during the three and six months ended June 30, 2023, respectively, due to increases in recoverable expenses.
Percentage rent increased $706,000 and $2.9 million during the three and six months ended June 30, 2023, respectively, due to increases in tenant sales.
Termination fees increased $2.5 million during the six months ended June 30, 2023, driven by two anchor terminations that were recognized in 2023.
Uncollectible lease income decreased $5.6 million and $10.4 million during the three and six months ended June 30, 2023, respectively, primarily driven by the 2022 collection of previously reserved amounts, which have continued to be favorable in 2023, but to a lesser degree.
Total real estate operating expense increased $7.0 million and $10.8 million, on a net basis, during the three and six months ended June 30, 2023, respectively, as follows:
Operating and maintenance increased $5.7 million and $8.7 million during the three and six months ended June 30, 2023, respectively, due to increases in recoverable costs.
Real estate taxes increased $1.3 million and $2.0 million during the three and six months ended June 30, 2023, respectively, due to an increase in real estate assessments across the portfolio.
Same Property Rollforward:
Our Same Property pool includes the following property count, Pro-rata GLA, and changes therein:
PropertyCount
Beginning same property count
395
42,147
393
41,220
Acquired properties owned for entirety of comparable periods (1)
327
Disposed properties
(103
SF adjustments (2)
(4
Ending same property count
42,143
390
41,446
389
41,382
41,294
Acquired properties owned for entirety of comparable periods presented (1)
771
Developments that reached completion by the beginning of earliest comparable period presented
(191
(56
Change in intended property use
41
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)
89,505
85,738
178,540
169,868
(64
(17,089
(305
(119,099
Nareit FFO attributable to common stock and unit holders
176,773
173,897
363,268
352,108
Reconciliation of Nareit FFO to Core Operating Earnings
Nareit Funds From Operations
Adjustments to reconcile to Core Operating Earnings (1):
Certain Non Cash Items
176
(1,784
(4,173
(6,012
(1,755
(3,071
(2,390
(5,454
Above/below market rent amortization, net
(8,554
(5,323
(14,219
(10,715
Debt premium/discount amortization
(157
Core Operating Earnings
164,688
163,094
342,486
329,946
Reconciliation of Same Property NOI to Nearest GAAP Measure:
Our reconciliation of Net income attributable to common shareholders to Same Property NOI, on a Pro-rata basis, is as follows:
Less:
Other (1)
12,799
12,110
22,301
24,731
Plus:
Other operating expense
Other expense (income)
Equity in income of investments in real estate excluded from NOI (2)
11,813
(375
23,598
12,013
Pro-rata NOI
225,121
222,491
461,760
448,481
Less non-same property NOI (3)
1,245
1,528
3,486
1,589
42
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, including monitoring our tenant rent collections. We have access to and draw on multiple financing sources to fund our operations and our long-term capital needs, including the requirements of our in process and planned developments, redevelopments, other 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 securities 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, in the current interest rate environment.
We have no unsecured debt maturities in 2023, $250 million of unsecured debt maturing in 2024, and what we believe is 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, and in the longer term, although we can give no assurances.
In addition to our $39.8 million of unrestricted cash, we have the following additional sources of capital available:
Line of Credit
Total commitment amount
1,250,000
Available capacity (1)
1,241,558
Maturity (2)
March 23, 2025
The declaration of dividends is determined quarterly by our Board of Directors. On August 1, 2023, our Board of Directors declared a common stock dividend of $0.65 per share, payable on October 4, 2023, to shareholders of record as of September 14, 2023. While future dividends will be determined at the discretion of our Board of Directors, we plan to continue paying an aggregate amount of distributions to our stock and unit holders that, at a minimum, meet the requirements to continue qualifying as a REIT for federal income tax purposes. We have historically generated sufficient cash flow from operations to fund our dividend distributions. During the six months ended June 30, 2023 and 2022, we generated cash flow from operations of $334.7 million and $327.8 million, respectively, and paid $223.2 million and $214.8 million in dividends to our common stock and unit holders, in the same respective periods.
We currently have development and redevelopment projects in various stages of construction, along with a pipeline of potential projects for future development or redevelopment. We estimate that we will require cash during the next 12 months of approximately $589.5 million related to leasing commissions, 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 permitting delays and labor shortages 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.
43
We endeavor to maintain a high percentage of unencumbered assets. As of June 30, 2023, 90.4% of our wholly-owned real estate assets were unencumbered. Our low level of encumbered assets allow us to more readily access the secured and unsecured debt markets and to maintain availability on the Line. Our trailing 12 month fixed charge coverage ratio, including our Pro-rata share of our partnerships, was 4.8x and 4.7x for the periods ended June 30, 2023, and December 31, 2022, respectively, and our Pro-rata net debt-to-operating EBITDAre ratio on a trailing 12 month basis was 4.9x and 5.0x, respectively, for the same periods.
Our Line and unsecured debt require that we remain in compliance with various covenants, which are described in the Notes to Consolidated Financial Statements included in our 2022 Form 10-K. We were in compliance with these covenants at June 30, 2023, and expect to remain in compliance.
Summary of Cash Flow Activity
The following table summarizes net cash flows related to operating, investing, and financing activities of the Company:
6,920
(26,149
(32,602
(51,831
Total cash and cash equivalents and restricted cash
(78,082
Net cash provided by operating activities:
Net cash provided by operating activities increased $6.9 million due to:
Net cash used in investing activities:
Net cash used in investing activities changed by $26.1 million as follows:
139,775
(644
(132,676
8,440
(44,829
206
5,565
2,014
Significant changes in investing activities include:
44
We plan to continue developing and redeveloping shopping centers for long-term investment. During 2023, we deployed capital of $100.1 million for the development, redevelopment, and improvement of our real estate properties, comprised of the following:
Capital expenditures:
Land acquisitions
2,580
11,545
(8,965
Building and tenant improvements
30,963
36,468
(5,505
Redevelopment costs
42,745
31,708
11,037
Development costs
17,705
14,075
3,630
2,476
1,789
687
Capitalized direct compensation
3,645
3,885
(240
100,114
99,470
644
45
The following table summarizes our development projects in-process and completed:
(in thousands, except cost PSF)
Market
Ownership (3)
StartDate
EstimatedStabilizationYear (1)
Estimated NetDevelopmentCosts (2) (3)
GLA (3)
Cost PSFof GLA (2) (3)
% of Costs Incurred
Developments In-Process
Metro NYC
Q1-22
46,172
247
187
59
Baybrook East - Phase 1B
Q2-22
10,384
78
133
Sienna - Phase 1
75%
Q2-23
9,291
404
Long Island, NY
86,722
168
516
Total Developments In-Process
152,569
296
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 Abbot
Boston, MA
Q2-19
58,979
90
Westbard Square Phase I
Bethesda, MD
Q2-21
37,000
123
68
Buckhead Landing
Atlanta, GA
28,033
Bloom on Third (fka Town and Country Center)
Los Angeles, CA
35%
Q4-22
24,525
Mandarin Landing
Jacksonville, FL
15,264
136
Serramonte Center - Phase 3
San Francisco, CA
36,989
1,072
Various Redevelopments
Various
20% - 100%
57,289
1,650
Total Redevelopments In-Process
258,079
3,248
Redevelopments Completed
The Crossing Clarendon
Metro DC
Q4-18
55,679
129
Various Properties
13,750
727
92
Total Redevelopments Completed
69,429
856
Net cash used in financing activities:
Net cash flows from financing activities changed by $32.6 million during 2023, as follows:
Net proceeds from common stock issuances
(61,294
(1,233
51,892
(9
Dividend payments and operating partnership distributions
(8,421
Proceeds from debt issuance
Debt repayment, including early redemption costs
(34,670
(28,942
(59
Proceeds from sale of treasury stock, net
(36
Significant financing activities during the six months ended June 30, 2023 and 2022, include the following:
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%
2,605,708
2,608,005
944,298
943,699
1,522,183
1,497,630
540,745
530,915
1,083,525
1,110,375
403,553
412,784
Basis difference
(61,114
(62,407
Our equity method investments in real estate partnerships consist of the following:
GRI-Regency, LLC (GRIR)
148,545
155,302
116
674
7,442
7,423
41,103
41,757
5,635
5,836
5,572
5,789
Individual Investors
Ballard Blocks
49.90%
61,894
62,624
35.00%
41,703
40,409
Others
50.00%
30,429
30,563
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
2023 (1)
1,037
340
2,205
33,690
35,895
14,298
4,506
143,636
148,142
46,314
5,728
223,608
25,800
255,136
82,563
5,829
32,800
38,629
13,231
9,894
939,728
949,622
352,818
Net unamortized loan costs, debt premium / (discount)
(11,485
(4,094
29,199
1,361,977
1,416,976
505,470
48
At June 30, 2023, our investments in real estate partnerships had notes payable of $1.4 billion maturing through 2034, of which 97.1% had a weighted average fixed interest rate of 3.7%. The remaining notes payable float with SOFR and had a weighted average variable interest rate of 7.0%, based on rates as of June 30, 2023. These fixed and variable rate notes payable are all non-recourse, and our Pro-rata share was $505.5 million as of June 30, 2023. As notes payable mature, they are expected to be repaid from proceeds from new 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 is 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 which would be secured by the partner's membership interest.
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
See Note 1 to Unaudited Financial Statements.
Environmental Matters
We are subject to numerous environmental laws and regulations that apply to our shopping centers, which primarily pertain to 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 June 30, 2023, 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, cash flows, 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. Please also refer to the Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2022, 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 periods 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 second quarter of 2023 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 periods 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 second quarter of 2023 which have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.
Item 1. Legal Proceedings
See Note 12 — Commitments and Contingencies in the Notes for discussion regarding material legal proceedings and contingencies. Except as set forth in such discussion, there have been no material developments in legal proceedings as reported in Item 3. “Legal Proceedings” of our 2022 Form 10-K.
Item 1A. Risk Factors
In addition to the information set forth in this report, you should carefully consider the risk factors discussed in Item 1A. of Part I of our Annual Report on Form 10-K for the year ended December 31, 2022 (“2022 Annual Report”). There have been no material changes in our risk factors from those described in our 2022 Annual Report except as disclosed in our 424(b)(3) prospectus, filed with the SEC on July 12, 2023, in connection with our pending acquisition of Urstadt Biddle, which contains, among other things, additional risk factors relating to such acquisition, and the additional risk factor identified during 2023 detailed below:
Unfavorable developments affecting the banking and financial services industry could adversely affect our business, liquidity and financial condition, and overall results of operations.
Actual events, concerns or speculation about disruption or instability in the banking and financial services industry, such as liquidity constraints, the failure of individual institutions, or the inability of individual institutions or the banking and financial service industry generally to meet their contractual obligations, could significantly impair our access to capital, delay access to deposits or other financial assets, or cause actual loss of funds subject to cash management arrangements. Similarly, these events, concerns or speculation could result in less favorable commercial financing terms, including higher interest rates or costs and tighter financial and operating covenants, or systemic limitations on access to credit and liquidity sources, thereby making it more difficult for us to acquire financing on acceptable terms or at all. Additionally, our tenants, critical vendors and business partners also could be adversely affected by these risks as described above, which in turn could result in their committing a breach or default under their contractual agreements with us, their insolvency or bankruptcy, or other adverse effects.
Any decline in available funding or access to our cash and liquidity resources, or non-compliance of banking and financial services counterparties with their contractual commitments to us could, among other risks, have material adverse impacts on our ability to meet our operating expenses and other financial needs, could result in breaches of our financial and/or contractual obligations, and could have material adverse impacts on our business, financial condition and results of operations.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
During the quarter ended June 30, 2023, the Operating Partnership issued 338,704 exchangeable operating partnership units to partially fund the acquisition of a development property. Such units were issued pursuant to the exemption from registration contained in Section 4(a)(2) of the Securities Act of 1933, as amended, as they were sold to accredited investors. No underwriting discounts or commissions were paid with respect to such sales.
The following table represents information with respect to purchases by the Parent Company of its common stock, by month, during the three months ended June 30, 2023:
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 (in thousands) (2)
April 1 through April 30, 2023
8,761
60.32
230,000
May 1 through May 31, 2023
60.21
June 1 through June 30, 2023
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
During the three months ended June 30, 2023, there were no modifications, adoptions or terminations by any directors or officers to any contract, instruction or written plan for the purchase or sale of securities of the Company that is intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) or non-Rule 10b5-1 trading agreements.
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 filings, 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 #
Plan of Acquisition, Reorganization, Arrangement, Liquidation or Succession
2.1
Agreement and Plan of Merger, dated as of May 17, 2023, by and among Regency Centers Corporation, Hercules Merger Sub, LLC, Urstadt Biddle Properties Inc., UB Maryland I, Inc. and UB Maryland II, Inc. (incorporated by reference to Exhibit 2.1 to the Company’s Form 8-K filed on May 18, 2023)
Material Contracts
10.1
Voting Agreement dated as of May 17, 2023, by and among Regency Centers Corporation, Urstadt Biddle Properties Inc., Urstadt Property Company, Inc., Elinor F. Urstadt, Urstadt Realty Associates Co LP, Urstadt Realty Shares II L.P., Willing L. Biddle and Catherine U. Biddle (incorporated by reference to Exhibit 99.1 to the Company’s Form 8-K filed on May 18, 2023)
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.
53
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.
August 4, 2023
By:
/s/ Michael J. Mas
Michael J. Mas, Executive Vice President and Chief Financial Officer (Principal Financial Officer)
/s/ Terah L. Devereaux
Terah L. Devereaux, Senior Vice President, Chief Accounting Officer (Principal Accounting Officer)
Regency Centers Corporation, General Partner