filings.toolsItem 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
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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, 2023 ("2023 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 2023 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 or otherwise, except as and to the extent required by law.
Non-GAAP Measures
In addition to the required Generally Accepted Accounting Principles ("GAAP") presentations, we use 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:
Adjusted Funds From Operations ("AFFO") is an additional performance measure we use that reflects cash available to fund the Company’s business needs and distribution to shareholders. AFFO is calculated by adjusting Core Operating Earnings ("COE") for (i) capital expenditures necessary to maintain and lease our portfolio of properties, (ii) debt cost and derivative adjustments and (iii) stock-based compensation.
Core Operating Earnings is an additional performance measure we use because the computation of National Association of Real Estate Investment Trusts Funds from Operations ("Nareit FFO") includes certain non-comparable items that affect our period-over-period performance. Core Operating Earnings excludes from Nareit FFO: (i) transaction related income or expenses, (ii) gains or losses from the early extinguishment of debt, (iii) certain non-cash components of earnings derived from straight-line rents, above and below market rent amortization, and debt and derivative mark-to-market amortization, and (iv) other amounts as they occur. We provide reconciliations of both Net Income Attributable to Common Shareholders to Nareit FFO and Nareit FFO to Core Operating Earnings.
Development Completion is a Property in Development that is deemed complete upon the earlier of: (i) 90% of total estimated net development costs have been incurred and percent leased equals or exceeds 95%, or (ii) the property features at least two years of anchor operations. Once deemed complete, the property is termed a Retail Operating Property.
Nareit Funds from Operations ("Nareit FFO") is a commonly used measure of REIT performance, which Nareit defines as net income, computed in accordance with GAAP, excluding gains on sales and impairments of real estate, net of tax, plus depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures. We compute Nareit FFO for all periods presented in accordance with Nareit's definition.
Companies use different depreciable lives and methods, and real estate values historically fluctuate with market conditions. Since Nareit FFO excludes depreciation and amortization and gains on sale and impairments of real estate, it provides a performance measure that, when compared year over year, reflects the impact on operations from trends in 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.
Net Operating Income ("NOI") is the sum of base rent, percentage rent, recoveries from tenants, other lease income, and other property income, less operating and maintenance expenses, real estate taxes, ground rent, and uncollectible lease income. NOI excludes straight-line rental income and expense, above and below market rent and ground rent amortization, tenant lease inducement amortization, and other fees. We also provide disclosure of NOI excluding termination fees, which excludes both termination fee income and expenses.
A Non-Same Property is any property, during either calendar year period being compared, that was acquired, sold, a Property in Development, a Development Completion, or a property under, or being positioned for, significant redevelopment that distorts comparability between periods. Non-retail properties and corporate activities, including the captive insurance program, are part of Non-Same Property.
Pro-rata information includes 100% of our consolidated properties plus our economic share (based on our ownership interest) in our unconsolidated real estate investment partnerships.
We provide Pro-rata financial information because we believe it assists investors and analysts in estimating our economic interest in our consolidated and unconsolidated partnerships, when read in conjunction with our reported results under GAAP. We believe presenting our Pro-rata share of assets, liabilities, operating results, and other metrics, along with certain other non-GAAP measures, makes comparisons of 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 real estate partnerships, and the Pro-rata presentations of the assets and liabilities, and revenues and expenses do not represent our legal claim to such items. The partners are entitled to profit or loss allocations and distributions of cash flows according to the operating agreements, which generally provide for such allocations according to their invested capital. Our share of invested capital establishes the ownership interests we use to prepare our Pro-rata share.
The presentation of Pro-rata information has limitations which include, but are not limited to, the following:
o
The amounts shown on the individual line items were derived by applying our overall economic ownership interest percentage determined when applying the equity method of accounting and do not necessarily represent our legal claim to the assets and liabilities, or the revenues and expenses; and
o
Other companies in our industry may calculate their Pro-rata interest differently, limiting the comparability of Pro-rata information.
Because of these limitations, the Pro-rata financial information should not be considered independently or as a substitute for our financial statements as reported under GAAP. We compensate for these limitations by relying primarily on our GAAP financial statements, using the Pro-rata information as a supplement.
Property In Development includes properties in various stages of ground-up development.
Property In Redevelopment includes Retail Operating Properties under redevelopment or being positioned for redevelopment. Unless otherwise indicated, a Property in Redevelopment is included in the Same Property pool.
Redevelopment Completion is a Property in Redevelopment that is deemed complete upon the earlier of: (i) 90% of total estimated project costs have been incurred and percent leased equals or exceeds 95% for the Company owned GLA related to the project, or (ii) the property features at least two years of anchor operations, if applicable.
Retail Operating Property is any retail property not termed a Property in Development. A retail property is any property where the majority of the income is generated from retail uses.
Same Property is a Retail Operating Property that was owned and operated for the entirety of both calendar year periods being compared. This term excludes Properties in Development, prior year Development Completions, and Non-Same Properties. Properties in Redevelopment are included unless otherwise indicated.
Overview of Our Strategy
Regency Centers Corporation began 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 real estate partnerships. As of June 30, 2024, the Parent Company owned approximately 99.4% of the outstanding Common Units and 100% of the Preferred Units of the Operating Partnership.
We are a preeminent national owner, operator, and developer of neighborhood and community shopping centers predominantly located in suburban trade areas with compelling demographics. As of June 30, 2024, we had full or partial ownership interests in 481 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 56.9 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 with their neighborhoods, communities, and customers.
Our values:
We are our people: Our people are our greatest asset, and we believe that a talented team from diverse backgrounds and experiences makes us better.
We do what is right: We act with unwavering standards of honesty and integrity.
We connect with our communities: We promote philanthropic ideas and strive for the betterment of our neighborhoods by giving our time and financial support.
We are responsible: Our duty is to balance purpose and profit, being good stewards of capital and the environment for the benefit of all our stakeholders.
We strive for excellence: When we are passionate about what we do, it is reflected in our performance.
We are better together: When we listen to each other and our customers, we will succeed together.
Our goals are to:
Own and manage a portfolio of high-quality neighborhood and community shopping centers anchored primarily by market leading grocers and principally located in suburban trade areas in the most desirable metro areas in the United States. We believe that this strategy will result in highly desirable and attractive centers with best-in-class retailers. These centers should command higher rental and occupancy rates resulting in excellent prospects to grow NOI;
Create shareholder value by increasing earnings and dividends per share that generate total returns at or near the top of our shopping center peers;
Maintain an industry leading, disciplined development and redevelopment platform to create exceptional retail centers that deliver favorable returns;
Support our business activities with a conservative capital structure, including a strong balance sheet with sufficient liquidity to meet our capital needs together with a carefully constructed debt maturity profile;
Implement leading environmental, social, and governance ("ESG") practices through our Corporate Responsibility program to support and enhance our business goals and objectives; and
Engage and retain an exceptional and diverse team that is guided by our strong values, while fostering an environment of innovation and continuous improvement.
Risks and Uncertainties
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, 2023, and the Risk Factors described in Part II, Item 1A of this Form 10-Q.
Executing on our Strategy
During the six months ended June 30, 2024, we had Net income attributable to common shareholders of $205.6 million as compared to $184.1 million during the six months ended June 30, 2023.
During the six months ended June 30, 2024:
Our Pro-rata same property NOI, excluding termination fees, grew 2.1%, as compared to the six months ended June 30, 2023, primarily attributable to improvements in base rent from increases in year over year occupancy rates, contractual rent steps in existing leases, and positive rent spreads on comparable new and renewal leases.
We executed 984 new and renewal leasing transactions representing 4.1 million Pro-rata SF with positive rent spreads of 8.9% during the six months ended June 30, 2024, compared to 842 leasing transactions representing 3.0 million Pro-rata SF with positive rent spreads of 9.2% during the six months ended June 30, 2023. Rent spreads are calculated on all executed leasing transactions for comparable Retail Operating Property spaces, including spaces vacant greater than 12 months.
At June 30, 2024, December 31, 2023, and June 30, 2023 our total property portfolio was 95.0%, 95.1%, and 94.6% leased, respectively. At June 30, 2024, December 31, 2023, and June 30, 2023 our same property portfolio was 95.8%, 95.7%, and 95.2% leased, respectively.
We continued our development and redevelopment of high quality shopping centers:
Estimated Pro-rata project costs of our current in process development and redevelopment projects totaled $577.6 million at June 30, 2024, compared to $468.1 million at December 31, 2023.
Development and redevelopment projects completed during 2024 represented $14.8 million of estimated net project costs, with an average stabilized yield of 10.6%.
We maintained liquidity and financial flexibility to cost effectively fund investment opportunities and debt maturities:
Regency received a credit rating upgrade to A3 with a stable outlook from Moody's Investors Service.
On January 8, 2024, Regency priced a public offering of $400 million of senior unsecured notes due in 2034, with a coupon of 5.250% . The Company used a portion of the net proceeds to reduce the outstanding balance on its line of credit and invested the remaining net proceeds in certificates of deposit and short-term U.S. Treasury mutual funds until required for general corporate purposes including the repayment of outstanding debt, as further described below.
On June 17, 2024, Regency repaid $250 million of maturing senior unsecured notes.
We have $230.7 million of secured loans which are to mature during the next 12 months, including maturities within our unconsolidated real estate partnerships, which we intend to refinance or pay-off as they mature.
At June 30, 2024, we had $1.18 billion available on the Line, which expires March 23, 2028 unless we exercise the available options to extend the maturity for two additional six-month periods, in which case the term will be extended in accordance with any such option exercise.
Property Portfolio
The following table summarizes general information related to the consolidated properties in our portfolio:
| (GLA in thousands) | June 30, 2024 | December 31, 2023 | |||||
| Number of Properties | 380 | 381 | |||||
| GLA | 43,815 | 43,758 | |||||
| % Leased – Operating and Development | 94.9 | % | 94.9 | % | |||
| % Leased – Operating | 95.3 | % | 95.4 | % | |||
| Weighted average annual effective rent per square foot ("PSF"), net of tenant concessions. | $25.15 | $24.67 |
The following table summarizes general information related to the unconsolidated properties owned in real estate investment partnerships in our portfolio:
| (GLA in thousands) | June 30, 2024 | December 31, 2023 | |||||
| Number of Properties | 101 | 101 | |||||
| GLA | 13,065 | 13,067 | |||||
| % Leased – Operating and Development | 96.4 | % | 96.6 | % | |||
| % Leased –Operating | 96.4 | % | 96.6 | % | |||
| Weighted average annual effective rent PSF, net of tenant concessions | $24.20 | $24.04 |
The following table summarizes Pro-rata occupancy rates of our combined consolidated and unconsolidated shopping center portfolio:
| June 30, 2024 | December 31, 2023 | ||||||
| Percent Leased – All Properties | 95.0 | % | 95.1 | % | |||
| Anchor Space (spaces ≥ 10,000 SF) | 96.9 | % | 96.7 | % | |||
| Shop Space (spaces < 10,000 SF) | 92.1 | % | 92.4 | % |
The following table summarizes leasing activity, including our Pro-rata share of activity within the portfolio of our real estate partnerships (totals as a weighted average PSF):
| Six months ended June 30, 2024 | ||||||||||||||||||||
| Leasing Transactions | SF (in thousands) | Base Rent PSF | Tenant Allowance and Landlord Work PSF | Leasing Commissions PSF | ||||||||||||||||
| Anchor Space Leases | ||||||||||||||||||||
| New | 16 | 307 | $ | 21.76 | $ | 69.01 | $ | 8.09 | ||||||||||||
| Renewal | 62 | 1,911 | 19.56 | 0.13 | 0.09 | |||||||||||||||
| Total Anchor Space Leases | 78 | 2,218 | $ | 19.86 | $ | 9.65 | $ | 1.20 | ||||||||||||
| Shop Space Leases | ||||||||||||||||||||
| New | 282 | 592 | $ | 39.42 | $ | 39.95 | $ | 13.69 | ||||||||||||
| Renewal | 624 | 1,258 | 36.89 | 2.65 | 0.57 | |||||||||||||||
| Total Shop Space Leases | 906 | 1,850 | $ | 37.70 | $ | 14.59 | $ | 4.77 | ||||||||||||
| Total Leases | 984 | 4,068 | $ | 27.98 | $ | 11.90 | $ | 2.82 |
| Six months ended June 30, 2023 | ||||||||||||||||||||
| Leasing Transactions | SF (in thousands) | Base Rent PSF | Tenant Allowance and Landlord Work PSF | Leasing Commissions PSF | ||||||||||||||||
| Anchor Space Leases | ||||||||||||||||||||
| New | 13 | 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 | ||||||||||||||||||||
| New | 272 | 577 | $ | 39.42 | $ | 41.38 | $ | 13.18 | ||||||||||||
| Renewal | 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 |
The weighted-average base rent PSF on signed Shop Space leases during 2024 was $37.70 PSF, which is higher than the weighted average annual base rent PSF of all Shop Space leases due to expire during the next 12 months of $35.05 PSF. New and renewal rent spreads, compared to prior rents on these same spaces leased, were positive at 8.9% for the six months ended June 30, 2024, compared to 9.2% for the six months ended June 30, 2023.
Significant Tenants
We seek to reduce our operating and leasing risks by avoiding dependence on any single 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:
| June 30, 2024 | ||||||||
| Tenant | Number of Stores | Percentage of Company- owned GLA (1) | Percentage of Annual Base Rent (1) | |||||
| Publix | 67 | 6.0% | 3.0% | |||||
| TJX Companies, Inc. | 74 | 3.6% | 2.8% | |||||
| Albertsons Companies, Inc.(2) | 52 | 4.3% | 2.7% | |||||
| Amazon/Whole Foods | 39 | 2.7% | 2.7% | |||||
| Kroger Co.(2) | 52 | 6.0% | 2.6% |
(1)
Includes Regency's Pro-rata share of unconsolidated properties and excludes those owned by anchors.
(2)
In October 2022, Kroger Co. and Albertsons Companies, Inc. announced a proposed merger, and in September 2023 an agreement for a separate transaction was announced to divest certain assets of each company to a third party, C&S Wholesale Grocers ("C&S"). The transaction with C&S, as later amended in April 2024, calls for the sale of 579 stores to C&S. Lawsuits have been filed by federal and state regulators to enjoin the merger on antitrust grounds. Regency has a combined 104 Kroger and Albertson's stores, and 11 of them are among the 579 locations proposed to be sold to C&S. These 11 locations comprise 0.9% of GLA and 0.5% of Annual Base Rent, including our Pro-rata share of our real estate partnerships . The expected outcome of the lawsuits to enjoin the transactions is uncertain at this time. Based on information currently available to the Company, we do not believe that these transactions (if they are consummated), or the termination of these transactions (if they are legally enjoined or otherwise fail to close), will have a material adverse effect on our results of operations or the financial condition of the Company.
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 grocers that drive customer traffic, and investing 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 for 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, in a tenant bankruptcy situation 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 for bankruptcy and rejects its leases, we could experience a significant reduction in our revenues. At June 30, 2024, tenants currently in bankruptcy and which continue to occupy space in our shopping centers represent an aggregate of 0.5% of our Pro-rata annual base rent, which is primarily related to the Rite Aid bankruptcy, which was filed in October 2023.
Results from Operations
Comparison of the three months ended June 30, 2024 and 2023:
Revenues changed as summarized in the following table:
| Three months ended June 30, | ||||||||||||
| (in thousands) | 2024 | 2023 | Change | |||||||||
| Lease income | ||||||||||||
| Base rent | $ | 245,476 | 213,977 | 31,499 | ||||||||
| Recoveries from tenants | 84,805 | 74,748 | 10,057 | |||||||||
| Percentage rent | 1,996 | 1,380 | 616 | |||||||||
| Uncollectible lease income | (1,858 | ) | (343 | ) | (1,515 | ) | ||||||
| Other lease income | 5,865 | 3,066 | 2,799 | |||||||||
| Straight-line rent | 4,120 | 2,879 | 1,241 | |||||||||
| Above/below market rent and tenant rent inducement amortization, net | 7,441 | 8,751 | (1,310 | ) | ||||||||
| Total lease income | $ | 347,845 | 304,458 | 43,387 | ||||||||
| Other property income | 2,670 | 2,683 | (13 | ) | ||||||||
| Management, transaction, and other fees | 6,735 | 7,106 | (371 | ) | ||||||||
| Total revenues | $ | 357,250 | 314,247 | 43,003 |
Total lease income increased $43.4 million primarily driven by the following contractually billable components of rent to the tenants per the lease agreements:
$31.5 million increase from billable Base rent, mainly from the following:
o
$24.8 million increase from the acquisition of UBP;
o
$5.5 million net increase from same properties, including:
▪
$3.7 million net increase due to increases from occupancy, rent steps in existing leases, and positive rental spreads on new and renewal leases; and
▪
$1.8 million increase due to redevelopment projects becoming operational;
o
$1.8 million increase from acquisitions of other operating properties; and
o
$1.0 million decrease from disposition of properties.
$10.1 million increase from contractual Recoveries from tenants, which represents the tenants' proportionate share of the operating, maintenance, insurance, and real estate tax expenses that we incur to operate our shopping centers. Recoveries from tenants increased, mainly from the following:
o
$8.2 million increase from the acquisition of UBP; and
o
$1.6 million net increase from same properties primarily due to higher expense recovery rates in the current year.
$1.5 million change in Uncollectible lease income primarily driven by elevated collections in 2023 of previously reserved amounts, reducing our expense in the comparative period.
$2.8 million increase in Other lease income primarily due to:
o
$1.8 million increase driven by the acquisition of UBP; and
o
$1.0 million increase in lease termination fee income.
$1.2 million increase in Straight-line rent mainly due to $1.3 million increase driven by the acquisition of UBP.
There were no significant changes in Other property income and Management, transaction, and other fees.
Changes in our operating expenses are summarized in the following table:
| Three months ended June 30, | ||||||||||||
| (in thousands) | 2024 | 2023 | Change | |||||||||
| Depreciation and amortization | $ | 100,968 | 83,161 | 17,807 | ||||||||
| Property operating expense | 59,491 | 54,394 | 5,097 | |||||||||
| Real estate taxes | 45,478 | 38,509 | 6,969 | |||||||||
| General and administrative | 24,238 | 25,065 | (827 | ) | ||||||||
| Other operating expenses | 3,066 | 1,682 | 1,384 | |||||||||
| Total operating expenses | $ | 233,241 | 202,811 | 30,430 |
Depreciation and amortization costs increased $17.8 million, mainly due to the following:
$14.6 million increase from the acquisition of UBP;
$1.3 million increase from acquisitions of operating properties; and
$1.5 million increase from redevelopment projects becoming operational.
Property operating expense increased $5.1 million, mainly due to the acquisition of UBP.
Real estate taxes increased $7.0 million, mainly due to the acquisition of UBP.
There were no significant changes in General and administrative expenses.
Other operating expenses increased $1.4 million, mainly due to the acquisition of UBP.
The following table presents the components of other expense, net:
| Three months ended June 30, | ||||||||||||
| (in thousands) | 2024 | 2023 | Change | |||||||||
| Interest expense, net | ||||||||||||
| Interest on notes payable | $ | 46,864 | 37,177 | 9,687 | ||||||||
| Interest on unsecured credit facilities | 1,704 | 1,342 | 362 | |||||||||
| Capitalized interest | (1,520 | ) | (1,284 | ) | (236 | ) | ||||||
| Hedge expense | 148 | 109 | 39 | |||||||||
| Interest income | (4,018 | ) | (388 | ) | (3,630 | ) | ||||||
| Interest expense, net | $ | 43,178 | 36,956 | 6,222 | ||||||||
| Gain on sale of real estate, net of tax | (11,081 | ) | (81 | ) | (11,000 | ) | ||||||
| Net investment income | (703 | ) | (1,742 | ) | 1,039 | |||||||
| Total other expense | $ | 31,394 | 35,133 | (3,739 | ) |
Interest expense, net increased $6.2 million primarily due to the following:
$5.3 million increase related to increased outstanding balance of Notes Payable mainly due to the issued public debt in January 2024;
$4.3 million increase primarily related to loans assumed with the UBP acquisition; partially offset by
$3.6 million increase in interest income due to the short term investments of excess cash into commercial deposits and U.S. treasury mutual funds.
During the three months ended June 30, 2024, we recognized gains on sale of $11.1 million mainly from the sale of two operating properties and recognition of one sales type lease.
Net investment income decreased $1.0 million primarily driven by lower gains on investments held in the non-qualified deferred compensation plan and our captive insurance company.
There were no significant changes in Equity in income of investments in real estate partnerships.
The following represents the remaining components that comprise Net income attributable to common shareholders and unit holders:
| Three months ended June 30, | ||||||||||||
| (in thousands) | 2024 | 2023 | Change | |||||||||
| Net income | $ | 104,929 | 88,172 | 16,757 | ||||||||
| Income attributable to noncontrolling interests | (2,261 | ) | (1,390 | ) | (871 | ) | ||||||
| Net income attributable to the Company | 102,668 | 86,782 | 15,886 | |||||||||
| Preferred stock dividends | (3,413 | ) | — | (3,413 | ) | |||||||
| Net income attributable to common shareholders | $ | 99,255 | $ | 86,782 | $ | 12,473 | ||||||
| Net income attributable to exchangeable operating partnership units | (601 | ) | (550 | ) | (51 | ) | ||||||
| Net income attributable to common unit holders | $ | 99,856 | 87,332 | 12,524 |
Income attributable to noncontrolling interests increased $0.9 million, mainly due to the acquisition of UBP.
The $3.4 million increase in Preferred stock dividends is related to the preferred stock issued in connection with UBP acquisition.
Results from Operations
Comparison of the six months ended June 30, 2024 and 2023:
Revenues changed as summarized in the following table:
| Six months ended June 30, | ||||||||||||
| (in thousands) | 2024 | 2023 | Change | |||||||||
| Lease income | ||||||||||||
| Base rent | $ | 489,611 | 426,907 | 62,704 | ||||||||
| Recoveries from tenants | 169,828 | 145,974 | 23,854 | |||||||||
| Percentage rent | 9,803 | 8,410 | 1,393 | |||||||||
| Uncollectible lease income | (3,091 | ) | 1,594 | (4,685 | ) | |||||||
| Other lease income | 11,822 | 10,282 | 1,540 | |||||||||
| Straight-line rent | 9,714 | 5,476 | 4,238 | |||||||||
| Above / below market rent and tenant rent inducement amortization, net | 13,264 | 14,616 | (1,352 | ) | ||||||||
| Total lease income | $ | 700,951 | 613,259 | 87,692 | ||||||||
| Other property income | 7,020 | 5,821 | 1,199 | |||||||||
| Management, transaction, and other fees | 13,131 | 13,144 | (13 | ) | ||||||||
| Total revenues | $ | 721,102 | 632,224 | 88,878 |
Total lease income increased $87.7 million primarily driven by the following contractually billable components of rent to the tenants per the lease agreements:
$62.7 million increase from billable Base rent, mainly from the following:
o
$49.6 million increase from the acquisition of UBP;
o
$11.0 million net increase from same properties, including:
▪
$7.6 million net increase due to increases from occupancy, rent steps in existing leases, and positive rental spreads on new and renewal leases; and
▪
$3.4 million increase due to redevelopment projects that commenced operations; and
o
$2.9 million increase from acquisitions of other operating properties; partially offset by $1.4 million from disposition of operating properties.
$23.9 million increase from contractual Recoveries from tenants, which represents the tenants' proportionate share of the operating, maintenance, insurance, and real estate tax expenses that we incur to operate our shopping centers. Recoveries from tenants increased, mainly from the following:
o
$18.0 million increase from the acquisition of UBP; mainly
o
$5.3 million increase primarily due to higher operating costs in the current year coupled with higher expense recovery rates.
$4.7 million change in Uncollectible lease income primarily driven by elevated collections in 2023 of previously reserved amounts, reducing our expense in the comparative period.
$1.5 million increase in Other lease income primarily due to:
o
$3.7 million increase driven by acquisition of UBP; partially offset by $2.1 million decrease in lease termination fee income.
$4.2 million increase in Straight-line rent mainly due to:
o
$2.5 million increase driven by acquisition of UBP;
o
$2.4 million increase related to development properties that commenced operations; partially offset by $0.7 million decrease in same properties.
$1.4 million decrease in Above and below market rent primarily due to:
o
$3.3 million decrease from same properties driven by an early tenant move-out in 2023; partially offset by $2.0 million increase from the acquisition of UBP and other operating properties.
Other property income increased $1.2 million primarily due to an increase in settlements in 2024.
There were no significant changes in Management, transaction, and other fees.
Changes in our operating expenses are summarized in the following table:
| Six months ended June 30, | ||||||||||||
| (in thousands) | 2024 | 2023 | Change | |||||||||
| Depreciation and amortization | $ | 198,553 | 165,868 | 32,685 | ||||||||
| Property operating expense | 122,765 | 105,416 | 17,349 | |||||||||
| Real estate taxes | 89,785 | 76,986 | 12,799 | |||||||||
| General and administrative | 50,370 | 50,345 | 25 | |||||||||
| Other operating expenses | 5,709 | 1,185 | 4,524 | |||||||||
| Total operating expenses | $ | 467,182 | 399,800 | 67,382 |
Depreciation and amortization costs increased $32.7 million, mainly due to the following:
$30.5 million increase from the acquisition of UBP; and
$2.1 million increase from acquisitions of operating properties.
Property operating expense increased $17.3 million, mainly due to the following:
$13.0 million increase from the acquisition of UBP;
$3.5 million increase from same properties primarily attributable to increase in recoverable common area maintenance and tenant related costs.
Real estate taxes increased $12.8 million, mainly due to the acquisition of UBP.
There were no significant changes in General and administrative expenses.
Other operating expenses increased $4.5 million, mainly due to the following:
$3.4 million increase from the acquisition of UBP; and
$1.1 million increase driven by fee income received in 2023 for the cancelation of a land contract related to a development pursuit.
The following table presents the components of other expense, net:
| Six months ended June 30, | ||||||||||||
| (in thousands) | 2024 | 2023 | Change | |||||||||
| Interest expense, net | ||||||||||||
| Interest on notes payable | $ | 92,465 | 74,087 | 18,378 | ||||||||
| Interest on unsecured credit facilities | 3,143 | 2,329 | 814 | |||||||||
| Capitalized interest | (3,176 | ) | (2,534 | ) | (642 | ) | ||||||
| Hedge expense | 258 | 219 | 39 | |||||||||
| Interest income | (6,644 | ) | (752 | ) | (5,892 | ) | ||||||
| Interest expense, net | $ | 86,046 | 73,349 | 12,697 | ||||||||
| Gain on sale of real estate, net of tax | (22,484 | ) | (331 | ) | (22,153 | ) | ||||||
| Loss on early extinguishment of debt | 180 | — | 180 | |||||||||
| Net investment income | (3,134 | ) | (3,469 | ) | 335 | |||||||
| Total other expense, net | $ | 60,608 | 69,549 | (8,941 | ) |
Interest expense, net increased $12.7 million primarily due to the following:
$9.9 million increase related to increased outstanding balance of Notes Payable mainly due to the issued public debt in January 2024;
$8.4 million increase primarily related to loans assumed with the UBP acquisition; partially offset by
$5.9 million increase in interest income due to the short term investments of excess cash.
During the six months ended June 30, 2024, we recognized gains on sale of $22.5 million mainly from the sale of three operating properties and recognition of two sales type leases.
There were no significant changes in Equity in income of investments in real estate partnerships.
The following represents the remaining components that comprise Net income attributable to common shareholders and unit holders:
| Six months ended June 30, | ||||||||||||
| (in thousands) | 2024 | 2023 | Change | |||||||||
| Net income | $ | 217,587 | 186,660 | 30,927 | ||||||||
| Income attributable to noncontrolling interests | (5,145 | ) | (2,597 | ) | (2,548 | ) | ||||||
| Net income attributable to the Company | 212,442 | 184,063 | 28,379 | |||||||||
| Preferred stock dividends | (6,826 | ) | — | (6,826 | ) | |||||||
| Net income attributable to common shareholders | $ | 205,616 | $ | 184,063 | $ | 21,553 | ||||||
| Net income attributable to exchangeable operating partnership units | (1,243 | ) | (970 | ) | (273 | ) | ||||||
| Net income attributable to common unit holders | $ | 206,859 | 185,033 | 21,826 |
Income attributable to noncontrolling interests increased $2.5 million, mainly due to the acquisition of UBP.
The $6.8 million increase in Preferred stock dividends is related to the preferred stock issued in connection with UBP acquisition.
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 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 real estate 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.
Pro-rata Same Property NOI:
Pro-rata same property NOI, excluding termination fees/expenses, changed from the following major components:
| Three months ended June 30, | Six months ended June 30, | |||||||||||||||||||||||
| (in thousands) | 2024 | 2023 | Change | 2024 | 2023 | Change | ||||||||||||||||||
| Base rent | $ | 242,916 | 236,506 | 6,410 | $ | 484,674 | 471,981 | 12,693 | ||||||||||||||||
| Recoveries from tenants | 84,453 | 82,706 | 1,747 | 167,423 | 161,583 | 5,840 | ||||||||||||||||||
| Percentage rent | 2,302 | 1,759 | 543 | 10,189 | 9,346 | 843 | ||||||||||||||||||
| Termination fees | 1,121 | 686 | 435 | 2,562 | 5,403 | (2,841 | ) | |||||||||||||||||
| Uncollectible lease income | (2,204 | ) | (389 | ) | (1,815 | ) | (3,270 | ) | 1,494 | (4,764 | ) | |||||||||||||
| Other lease income | 3,409 | 2,946 | 463 | 6,537 | 5,811 | 726 | ||||||||||||||||||
| Other property income | 2,000 | 2,117 | (117 | ) | 4,562 | 4,779 | (217 | ) | ||||||||||||||||
| Total real estate revenue | 333,997 | 326,331 | 7,666 | 672,677 | 660,397 | 12,280 | ||||||||||||||||||
| Operating and maintenance | 55,464 | 55,626 | (162 | ) | 112,013 | 108,239 | 3,774 | |||||||||||||||||
| Termination expense | (65 | ) | — | (65 | ) | 5 | — | 5 | ||||||||||||||||
| Real estate taxes | 43,379 | 42,248 | 1,131 | 86,044 | 84,736 | 1,308 | ||||||||||||||||||
| Ground rent | 3,301 | 3,201 | 100 | 7,250 | 6,637 | 613 | ||||||||||||||||||
| Total real estate operating expenses | 102,079 | 101,075 | 1,004 | 205,312 | 199,612 | 5,700 | ||||||||||||||||||
| Pro-rata same property NOI | $ | 231,918 | 225,256 | 6,662 | $ | 467,365 | 460,785 | 6,580 | ||||||||||||||||
| Less: Termination fees | 1,186 | 686 | 500 | 2,557 | 5,403 | (2,846 | ) | |||||||||||||||||
| Pro-rata same property NOI, excluding termination fees | $ | 230,732 | 224,570 | 6,162 | $ | 464,808 | 455,382 | 9,426 | ||||||||||||||||
| Pro-rata same property NOI growth, excluding termination fees | 2.7 | % | 2.1 | % |
Real estate revenue increased $7.7 million and $12.3 million, on a net basis, during the three and six months ended June 30, 2024 and 2023, respectively, as follows:
Base rent increased $6.4 million and $12.7 million during the three and six months ended June 30, 2024 and 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 $1.7 million and $5.8 million during the three and six months ended June 30, 2024 and 2023, respectively, due to increases in recoverable expenses and expense recovery rates.
Termination fees decreased $2.8 million during the six months ended June 30, 2024 driven by terminations that were recognized in 2023.
Uncollectible lease income changed by $1.8 million and $4.8 million during the three and six months ended June 30, 2024 and 2023, respectively, primarily driven by elevated collections in 2023 of previously reserved amounts, reducing our expense in the comparable period.
Total real estate operating expense increased $1.0 million and $5.7 million, on a net basis, during the three and six months ended June 30, 2024 and 2023, respectively, as follows:
Operating and maintenance decreased $3.8 million during six months ended June 30, 2024 and 2023, primarily due to increases in common area maintenance and other tenant-recoverable costs.
Real estate taxes increased $1.1 million and $1.3 million during the three and six months ended June 30, 2024 and 2023, respectively, due to an increase in real estate assessments across the portfolio.
Reconciliation of Same Property NOI to Most Directly Comparable GAAP Measure:
Our reconciliation of Net income attributable to common shareholders to Same Property NOI, on a Pro-rata basis, is as follows:
| Three months ended June 30, | Six months ended June 30, | |||||||||||||||
| (in thousands) | 2024 | 2023 | 2024 | 2023 | ||||||||||||
| Net income attributable to common shareholders | $ | 99,255 | 86,782 | $ | 205,616 | 184,063 | ||||||||||
| Less: | ||||||||||||||||
| Management, transaction, and other fees | 6,735 | 7,106 | 13,131 | 13,144 | ||||||||||||
| Other (1) | 12,726 | 12,799 | 25,313 | 22,301 | ||||||||||||
| Plus: | ||||||||||||||||
| Depreciation and amortization | 100,968 | 83,161 | 198,553 | 165,868 | ||||||||||||
| General and administrative | 24,238 | 25,065 | 50,370 | 50,345 | ||||||||||||
| Other operating expense | 3,066 | 1,682 | 5,709 | 1,185 | ||||||||||||
| Other expense, net | 31,394 | 35,133 | 60,608 | 69,549 | ||||||||||||
| Equity in income of investments in real estate excluded from NOI (2) | 13,258 | 11,813 | 26,947 | 23,598 | ||||||||||||
| Net income attributable to noncontrolling interests | 2,261 | 1,390 | 5,145 | 2,597 | ||||||||||||
| Preferred stock dividends and issuance costs | 3,413 | — | 6,826 | — | ||||||||||||
| Pro-rata NOI | $ | 258,392 | 225,121 | $ | 521,330 | 461,760 | ||||||||||
| Less non-same property NOI | 26,474 | (135 | ) | 53,965 | 975 | |||||||||||
| Pro-rata same property NOI | $ | 231,918 | 225,256 | $ | 467,365 | 460,785 |
(1)
Includes straight-line rental income and expense, net of reserves, above and below market rent amortization, other fees, and noncontrolling interests.
(2)
Includes non-NOI income earned and expenses incurred at our unconsolidated real estate partnerships, including those separated out above for our consolidated properties.
Nareit FFO, Core Operating Earnings and AFFO:
Our reconciliation of net income attributable to common shareholders to Nareit FFO, to Core Operating Earnings, and to AFFO is as follows:
| Three months ended June 30, | Six months ended June 30, | |||||||||||||||
| (in thousands, except share information) | 2024 | 2023 | 2024 | 2023 | ||||||||||||
| Reconciliation of Net income attributable to common shareholders to Nareit FFO | ||||||||||||||||
| Net income attributable to common shareholders | $ | 99,255 | 86,782 | $ | 205,616 | 184,063 | ||||||||||
| Adjustments to reconcile to Nareit FFO: (1) | ||||||||||||||||
| Depreciation and amortization (excluding FF&E) | 107,592 | 89,505 | 211,964 | 178,540 | ||||||||||||
| Gain on sale of real estate, net of tax | (11,080 | ) | (64 | ) | (22,488 | ) | (305 | ) | ||||||||
| Exchangeable operating partnership units | 601 | 550 | 1,243 | 970 | ||||||||||||
| Nareit FFO attributable to common stock and unit holders | $ | 196,368 | 176,773 | $ | 396,335 | 363,268 | ||||||||||
| Reconciliation of Nareit FFO to Core Operating Earnings | ||||||||||||||||
| Nareit Funds From Operations | $ | 196,368 | 176,773 | $ | 396,335 | 363,268 | ||||||||||
| Adjustments to reconcile to Core Operating Earnings: (1) | ||||||||||||||||
| Not Comparable Items | ||||||||||||||||
| Merger transition costs | 2,133 | — | 4,694 | — | ||||||||||||
| Loss on early extinguishment of debt | — | — | 180 | — | ||||||||||||
| Certain Non Cash Items | ||||||||||||||||
| Straight-line rent | (5,283 | ) | (1,784 | ) | (11,021 | ) | (4,173 | ) | ||||||||
| Uncollectible straight-line rent | 1,377 | (1,755 | ) | 2,033 | (2,390 | ) | ||||||||||
| Above/below market rent amortization, net | (7,073 | ) | (8,554 | ) | (12,540 | ) | (14,219 | ) | ||||||||
| Debt and derivative mark-to-market amortization | 1,731 | 8 | 2,640 | — | ||||||||||||
| Core Operating Earnings | $ | 189,253 | 164,688 | $ | 382,321 | 342,486 | ||||||||||
| Reconciliation of Core Operating Earnings to AFFO: | ||||||||||||||||
| Core Operating Earnings | $ | 189,253 | 164,688 | $ | 382,321 | 342,486 | ||||||||||
| Adjustments to reconcile to AFFO (1): | ||||||||||||||||
| Operating capital expenditures | (33,886 | ) | (21,086 | ) | (54,738 | ) | (38,545 | ) | ||||||||
| Debt cost and derivative adjustments | 2,022 | 1,686 | 4,162 | 1,686 | ||||||||||||
| Stock-based compensation | 4,662 | 4,105 | 9,302 | 4,105 | ||||||||||||
| AFFO | $ | 162,051 | 149,393 | $ | 341,047 | 309,732 |
(1)
Includes Regency's Pro-rata share of unconsolidated investment partnerships, net of Pro-rata share attributable to noncontrolling interests.
Liquidity and Capital Resources
General
We use cash flows generated from operating, investing, and financing activities to strengthen our balance sheet, finance our development and redevelopment projects, fund our investment activities, and maintain financial flexibility. A significant portion of our cash from operations is distributed to our common shareholders in the form of dividends in order to maintain our status as a REIT.
Except for $200 million of private placement debt, our Parent Company has no capital commitments other than its guarantees of the commitments of our Operating Partnership. All remaining debt is held by our Operating Partnership, its subsidiaries, or by our real estate 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 common stock and preferred stock dividends, borrowings from our Line, proceeds from the sale of real estate, mortgage loan and unsecured bank financing, distributions received from our real estate 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, due to the current interest rate environment.
On January 8, 2024, Regency priced a public offering of $400 million of senior unsecured notes due in 2034 (the “2024 Notes”) under our existing shelf registration filed with the SEC. The Notes were issued at 99.617% of par value with a coupon of 5.25%, and mature on January 15, 2034. We paid off $250 million of senior unsecured notes that matured in June 2024, and our next maturity of senior unsecured notes occurs in November 2025. We have $230.7 million of secured loan maturities during the next 12 months, including maturities within our unconsolidated real estate partnerships, which we intend to refinance or pay-off as they mature. 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, although, in the longer term, we can provide no assurances.
In addition to our $73.8 million of unrestricted cash, we have the following additional sources of capital available:
| (in thousands) | June 30, 2024 | ||
| ATM program | |||
| Original offering amount | $ | 500,000 | |
| Available capacity | $ | 500,000 | |
| Line of credit | |||
| Total commitment amount | $ | 1,500,000 | |
| Available capacity (1) | $ | 1,179,885 | |
| Maturity (2) | March 23, 2028 |
(1)
Net of letters of credit issued against our Line.
(2)
The Company has the option to extend the maturity for two additional six-month periods.
The declaration of dividends is determined quarterly by, and in the discretion of, our Board of Directors. On July 31, 2024, our Board of Directors:
Declared a common stock dividend of $0.67 per share, payable on October 3, 2024, to shareholders of record as of September 12, 2024;
Declared a dividend on the Series A Preferred Stock, which will be paid at a rate of $0.390625 per share on October 31, 2024. The dividend will be payable to holders of record of the Series A Preferred Stock as of the close of business on October 16, 2024; and
Declared a dividend on the Series B Preferred Stock, which will be paid at a rate of $0.367200 per share on October 31, 2024. The dividend will be payable to holders of record of the Series B Preferred Stock as of the close of business on October 16, 2024.
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, 2024 and 2023, we generated cash flow from operations of $371.2 million and $334.7 million, respectively, and paid $255.4 million in dividends to our common and preferred stock and unit holders, and $223.2 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 planning, design and construction, along with a pipeline of potential projects for future development or redevelopment. After funding our common and preferred stock dividend payments in July of 2024, we estimate that we will require capital during the next 12 months of approximately $530.6 million related to leasing commissions, tenant improvements, in-process developments and redevelopments, capital contributions to our real estate partnerships, and repaying maturing debt. These capital requirements are being impacted by 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.
We endeavor to maintain a high percentage of unencumbered assets. As of June 30, 2024, 88.1% of our wholly-owned real estate assets were unencumbered. Our low level of encumbered assets allows us to more readily access the secured and unsecured debt markets and to maintain borrowing capacity on the Line.
Our Line and unsecured debt require that we remain in compliance with various customary financial covenants, which are described in the Notes to Consolidated Financial Statements included in our 2023 Form 10-K. We were in compliance with these covenants at June 30, 2024, 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:
| Six months ended June 30, | ||||||||||||
| (in thousands) | 2024 | 2023 | Change | |||||||||
| Net cash provided by operating activities | $ | 371,214 | 334,677 | 36,537 | ||||||||
| Net cash used in investing activities | (114,143 | ) | (91,411 | ) | (22,732 | ) | ||||||
| Net cash used in financing activities | (268,502 | ) | (268,934 | ) | 432 | |||||||
| Net change in cash, cash equivalents, and restricted cash | $ | (11,431 | ) | (25,668 | ) | 14,237 | ||||||
| Total cash, cash equivalents, and restricted cash | $ | 79,923 | 43,108 | 36,815 |
Net cash provided by operating activities:
Net cash provided by operating activities increased $36.5 million due to:
$35.9 million increase in cash from operations due to the acquisition of UBP, and timing of receipts and payments
$0.6 million increase in operating cash flow distributions from Investments in real estate partnerships.
Net cash used in investing activities:
Net cash used in investing activities changed by $22.7 million as follows:
| Six months ended June 30, | ||||||||||||
| (in thousands) | 2024 | 2023 | Change | |||||||||
| Cash flows from investing activities: | ||||||||||||
| Acquisition of operating real estate | $ | (45,208 | ) | — | (45,208 | ) | ||||||
| Real estate development and capital improvements | (141,775 | ) | (100,114 | ) | (41,661 | ) | ||||||
| Proceeds from sale of real estate | 92,159 | 3,745 | 88,414 | |||||||||
| Proceeds from property insurance casualty claims | 4,638 | — | 4,638 | |||||||||
| Issuance of notes receivable | (32,651 | ) | (4,000 | ) | (28,651 | ) | ||||||
| Collection of notes receivable | 3,004 | — | 3,004 | |||||||||
| Investments in real estate partnerships | (8,582 | ) | (3,109 | ) | (5,473 | ) | ||||||
| Return of capital from investments in real estate partnerships | 10,038 | 3,644 | 6,394 | |||||||||
| Dividends on investment securities | 263 | 420 | (157 | ) | ||||||||
| Acquisition of investment securities | (95,519 | ) | (2,748 | ) | (92,771 | ) | ||||||
| Proceeds from sale of investment securities | 99,490 | 10,751 | 88,739 | |||||||||
| Net cash used in investing activities | $ | (114,143 | ) | (91,411 | ) | (22,732 | ) |
Significant changes in investing activities include:
We paid $45.2 million in 2024 to purchase one operating property.
We invested $41.7 million more on real estate development, redevelopment, and capital improvements, as further detailed in a table below.
We sold three operating properties in 2024 for proceeds of $92.2 million compared to one land parcel in 2023 for proceeds of $3.7 million.
We received additional property insurance claim proceeds of $4.6 million in 2024 attributable to a single property that was impacted by a weather event in 2019.
During 2024, in connection with a secured lending transaction entered into by the Company, we issued a note receivable in the amount of $29.8 million at an interest rate of 6.9% maturing in January 2027, secured by a grocery-anchored shopping center. In addition, we issued $2.9 million short-term notes receivable to real estate partners in 2024, as compared to the issuance of a $4.0 million in 2023.
We collected $3.0 million in short-term note receivables from real estate partners in 2024.
Investments in real estate partnerships:
o
In 2024, we invested $8.6 million to fund our share of development and redevelopment activities,
o
In 2023, we invested $3.1 million to fund our share of development and redevelopment activities.
Return of capital from our unconsolidated investments in real estate partnerships includes sales or financing proceeds.
o
During the six months ended June 30, 2024 we received $10.0 million from our share of proceeds from debt financing activities.
o
During the same period in 2023, we received $3.6 million from our share of proceeds from debt financing activities.
Acquisition of securities and proceeds from sale of securities pertain to investment activities held in our captive insurance company and our deferred compensation plan. Additionally, we invested approximately $90 million in commercial deposits from the proceeds received from the January 2024 public offering of senior unsecured notes. The commercial deposits were subsequently settled at maturity during the second quarter of 2024.
We plan to continue developing and redeveloping shopping centers for long-term investment. During the six months ended June 30, 2024, we deployed capital of $141.8 million for the development, redevelopment, and improvement of our real estate properties, comprised of the following:
| Six months ended June 30, | ||||||||||||
| (in thousands) | 2024 | 2023 | Change | |||||||||
| Capital expenditures: | ||||||||||||
| Land acquisitions | $ | 11,650 | 2,580 | 9,070 | ||||||||
| Building and tenant improvements | 43,918 | 30,963 | 12,955 | |||||||||
| Redevelopment costs | 48,364 | 42,745 | 5,619 | |||||||||
| Development costs | 27,584 | 17,705 | 9,879 | |||||||||
| Capitalized interest | 3,107 | 2,476 | 631 | |||||||||
| Capitalized direct compensation | 7,152 | 3,645 | 3,507 | |||||||||
| Real estate development and capital improvements | $ | 141,775 | 100,114 | 41,661 |
We acquired one land parcel for development, and two outparcels in 2024, and one land parcel for development in 2023.
Building and tenant improvements increased $13.0 million in 2024, primarily related to the timing and volume of capital projects.
Redevelopment costs are higher than prior year. We intend to continuously improve our portfolio of shopping centers through redevelopment which can include adjacent land acquisition, existing building expansion, facade renovation, new out-parcel building construction, and redevelopment related tenant improvement costs. The size and magnitude of each redevelopment project varies with each redevelopment plan. The timing and duration of these projects could also result in volatility in NOI. See the tables below for more details about our redevelopment projects.
Development costs are higher in 2024 due to the progress towards completion of our development projects in process. See the tables below for more details about our development projects.
Interest is capitalized on our development and redevelopment projects and is based on cumulative actual costs expended. We cease interest capitalization when the property is no longer being developed or is available for occupancy upon substantial completion of tenant improvements, but in no event would we capitalize interest on the project beyond 12 months after the anchor tenant opens for business. If we reduce our development and redevelopment activity, the amount of interest that we capitalize may be lower than historical averages.
We have a staff of employees who directly support our development program, which includes redevelopment of our existing properties. Internal compensation costs directly attributable to these activities are capitalized as part of each project.
The following table summarizes our development projects in-process and completed:
| (in thousands, except cost PSF) | June 30, 2024 | |||||||||||||||||||||||
| Property Name | Market | Ownership (3) | Start Date | Estimated Stabilization Year (1) | Estimated / Actual Net Development Costs (2) (3) | GLA (3) | Cost PSF of GLA (2) (3) | % of Costs Incurred | ||||||||||||||||
| Developments In-Process | ||||||||||||||||||||||||
| Glenwood Green | Metro NYC | 70% | Q1-22 | 2025 | 46,172 | 247 | 187 | 92 | % | |||||||||||||||
| Baybrook East - Phase 1B | Houston, TX | 50% | Q2-22 | 2026 | 9,792 | 77 | 127 | 85 | % | |||||||||||||||
| Sienna - Phase 1 | Houston, TX | 75% | Q2-23 | 2027 | 9,409 | 23 | 409 | 56 | % | |||||||||||||||
| The Shops at SunVet | Long Island, NY | 100% | Q2-23 | 2027 | 86,872 | 170 | 511 | 47 | % | |||||||||||||||
| The Shops at Stone Bridge | Cheshire, CT | 100% | Q1-24 | 2027 | 68,277 | 155 | 440 | 16 | % | |||||||||||||||
| Total Developments In-Process | $ | 220,522 | 672 | 328 | 49 | % |
(1)
Estimated Stabilization Year represents the estimated first full calendar year that the project will reach our expected stabilized yield.
(2)
Includes leasing costs and is net of tenant reimbursements.
(3)
Estimated Net Development Costs and GLA are reported based on Regency’s ownership interest in the real estate partnership at completion.
The following table summarizes our redevelopment projects in process and completed:
| (in thousands, except cost PSF) | June 30, 2024 | |||||||||||||||||||
| Property Name | Market | Ownership (3) | Start Date | Estimated Stabilization Year (1) | Estimated Net Project Costs (2) (3) | GLA (3) | % of Costs Incurred | |||||||||||||
| Redevelopments In-Process | ||||||||||||||||||||
| The Abbot | Boston, MA | 100% | Q2-19 | 2026 | $ | 59,854 | 64 | 94 | % | |||||||||||
| Westbard Square Phase I | Bethesda, MD | 100% | Q2-21 | 2025 | 39,500 | 126 | 79 | % | ||||||||||||
| Buckhead Landing | Atlanta, GA | 100% | Q2-22 | 2025 | 30,859 | 152 | 73 | % | ||||||||||||
| Bloom on Third (fka Town and Country Center) | Los Angeles, CA | 35% | Q4-22 | 2027 | 24,525 | 51 | 41 | % | ||||||||||||
| Mandarin Landing | Jacksonville, FL | 100% | Q2-23 | 2025 | 16,422 | 140 | 45 | % | ||||||||||||
| Serramonte Center - Phase 3 | San Francisco, CA | 100% | Q2-23 | 2025 | 36,989 | 1,072 | 13 | % | ||||||||||||
| Circle Marina Center | Los Angeles, CA | 100% | Q3-23 | 2025 | 14,986 | 118 | 40 | % | ||||||||||||
| Avenida Biscayne | Miami, FL | 100% | Q4-23 | 2026 | 22,743 | 29 | 18 | % | ||||||||||||
| Cambridge Square | Atlanta, GA | 100% | Q4-23 | 2026 | 15,002 | 70 | 10 | % | ||||||||||||
| Various Redevelopments | Various | 83% - 100% | Various | Various | 96,192 | 3,097 | 34 | % | ||||||||||||
| Total Redevelopments In-Process | $ | 357,072 | 4,919 | 49 | % | |||||||||||||||
| Redevelopments Completed | ||||||||||||||||||||
| Various Properties | Various | 100% | Various | Various | 14,773 | 588 | 98 | % | ||||||||||||
| Total Redevelopments Completed | $ | 14,773 | 588 | 98 | % |
(1)
Estimated Stabilization Year represents the estimated first full calendar year that the project will reach our expected stabilized yield.
(2)
Includes leasing costs and is net of tenant reimbursements.
(3)
Estimated Net Development Costs and GLA are reported based on Regency’s ownership interest in the real estate partnership at completion.
Net cash used in financing activities
Net cash flows from financing activities changed by $0.4 million during 2024, as follows:
| Six months ended June 30, | ||||||||||||
| (in thousands) | 2024 | 2023 | Change | |||||||||
| Cash flows from financing activities: | ||||||||||||
| Net proceeds from common stock issuances | $ | — | (10 | ) | 10 | |||||||
| Repurchase of common shares in conjunction with equity award plans | (8,776 | ) | (7,621 | ) | (1,155 | ) | ||||||
| Common shares repurchased through share repurchase program | (200,066 | ) | (20,006 | ) | (180,060 | ) | ||||||
| Contributions from non-controlling interests | 3,001 | 1,225 | 1,776 | |||||||||
| Distributions to and redemptions of non-controlling interests | (6,254 | ) | — | (6,254 | ) | |||||||
| Dividend payments and operating partnership distributions | (255,442 | ) | (223,239 | ) | (32,203 | ) | ||||||
| Proceeds from unsecured credit facilities, net | 158,000 | — | 158,000 | |||||||||
| Proceeds from issuance of fixed rate unsecured notes, net of debt discount | 398,468 | 15,500 | 382,968 | |||||||||
| Debt repayment | (344,190 | ) | (34,670 | ) | (309,520 | ) | ||||||
| Payment of loan costs | (13,453 | ) | (141 | ) | (13,312 | ) | ||||||
| Proceeds from sale of treasury stock | 210 | 28 | 182 | |||||||||
| Net cash used in financing activities | $ | (268,502 | ) | (268,934 | ) | 432 |
Significant financing activities during the six months ended June 30, 2024 and 2023, include the following:
We repurchased a portion of the common stock granted to employees for stock based compensation to satisfy employee tax withholding requirements, which totaled $8.8 million and $7.6 million during 2024 and 2023, respectively.
During 2024, we paid $200.0 million to repurchase 3,306,709 shares of our common stock under our Repurchase Program, as compared to $20.0 million to repurchase 349,519 shares of our common stock during 2023.
During 2024, we received $3.0 million in contributions for the limited partners' share of development funding. During 2023, received $1.2 million net from limited partners, including $3.1 million of contributions from limited partners for their share of debt repayments and development funding, partially offset by $1.9 million in distributions to limited partners.
During 2024, we distributed $6.3 million to limited partners, including proceeds to partially redeem a non-controlling interest in one real estate partnership.
We paid $32.2 million more in dividends as a result of an increase in our dividend rate per share and the number of shares of our common stock outstanding, as well as preferred dividends which commenced in late 2023 as a result of the UBP acquisition.
We had the following debt related activity during 2024:
o
We drew $158.0 million in net proceeds from our Line,
o
We received $398.5 million in proceeds from issuing unsecured public debt,
o
We paid $344.2 million for debt repayments, including:
▪
$250.0 million in unsecured public debt repayments,
▪
$88.1 million for repaying three mortgage loans at maturity, and
▪
$6.1 million in principal mortgage payments.
o
We paid $13.5 million in loan costs relating to the recast of the Line as well as the unsecured public debt offering.
We had the following debt related activity during 2023:
o
$15.5 million in proceeds from a mortgage refinancing,
o
We paid $34.7 million for debt repayments, including:
▪
$5.1 million in principal mortgage payments, and
▪
$29.6 million to repay four mortgage loans at maturity.
Investments in Real Estate Partnerships
The following table is a summary of the unconsolidated combined assets and liabilities of our real estate partnerships and our Pro-rata share:
| Combined | Regency's Share (1) | |||||||||||||||
| (dollars in thousands) | June 30, 2024 | December 31, 2023 | June 30, 2024 | December 31, 2023 | ||||||||||||
| Number of real estate partnerships | 19 | 18 | ||||||||||||||
| Regency's ownership | 12% - 83% | 12% - 67% | ||||||||||||||
| Number of properties | 101 | 101 | ||||||||||||||
| Assets | $ | 2,722,697 | 2,689,993 | $ | 1,007,387 | 984,027 | ||||||||||
| Liabilities | 1,624,520 | 1,595,271 | 582,847 | 565,822 | ||||||||||||
| Equity | 1,098,177 | 1,094,722 | 424,540 | 418,205 | ||||||||||||
| Basis difference | (46,449 | ) | (47,600 | ) | ||||||||||||
| Investments in real estate partnerships | $ | 378,091 | 370,605 |
(1)
Pro-rata financial information is not, and is not intended to be, a presentation in accordance with GAAP. However, management believes that providing such information is useful to investors in assessing the impact of its investments in real estate partnership activities on our operations, which includes such items on a single line presentation under the equity method in our Consolidated Financial Statements.
Our equity method investments in real estate partnerships consist of the following:
| (in thousands) | Regency's Ownership | June 30, 2024 | December 31, 2023 | |||||||
| GRI - Regency, LLC (GRIR) | 40% | $ | 141,659 | 144,371 | ||||||
| Columbia Regency Retail Partners, LLC (Columbia I) | 20% | 6,825 | 7,045 | |||||||
| Columbia Regency Partners II, LLC (Columbia II) | 20% | 43,091 | 42,994 | |||||||
| Columbia Village District, LLC | 30% | 6,192 | 6,123 | |||||||
| Individual Investors | ||||||||||
| Ballard Blocks | 50% | 60,739 | 62,140 | |||||||
| Bloom on Third | 35% | 44,040 | 42,074 | |||||||
| Others | 12% - 83% | 75,545 | 65,858 | |||||||
| Total Investment in real estate partnerships | $ | 378,091 | 370,605 |
Notes Payable - Investments in Real Estate Partnerships
Scheduled principal repayments on notes payable held by our investments in real estate partnerships were as follows:
| (in thousands) | June 30, 2024 | |||||||||||||||||||
| Scheduled Principal Payments and Maturities by Year: | Scheduled Principal Payments | Mortgage Loan Maturities | Unsecured Maturities | Total | Regency’s Pro-Rata Share | |||||||||||||||
| 2024 (1) | $ | 1,872 | 7,008 | — | 8,880 | 4,047 | ||||||||||||||
| 2025 | 6,094 | 148,461 | — | 154,555 | 49,157 | |||||||||||||||
| 2026 | 7,393 | 255,081 | 42,800 | 305,274 | 101,344 | |||||||||||||||
| 2027 | 7,576 | 32,800 | — | 40,376 | 13,669 | |||||||||||||||
| 2028 | 4,267 | 246,605 | — | 250,872 | 92,027 | |||||||||||||||
| Beyond 5 Years | 6,688 | 771,324 | — | 778,012 | 293,128 | |||||||||||||||
| Net unamortized loan costs, debt premium / (discount) | — | (9,736 | ) | — | (9,736 | ) | (3,564 | ) | ||||||||||||
| Total | $ | 33,890 | 1,451,543 | 42,800 | 1,528,233 | 549,808 |
(1)
Reflects scheduled principal payments and maturities for the remainder of the year.
At June 30, 2024, our investments in real estate partnerships had notes payable of $1.5 billion maturing through 2034, of which 93.8% had a weighted average fixed interest rate of 3.8%. The remaining notes payable float with SOFR and had a weighted average variable interest rate of 7.4%, based on rates as of June 30, 2024. These fixed and variable rate notes payable are all non-recourse, and our Pro-rata share was $549.8 million as of June 30, 2024. 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 real estate investment partner is unable to fund its share of the capital requirements of the real estate 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 real estate partnerships, we receive fees as shown below:
| Three months ended June 30, | Six months ended June 30, | |||||||||||||||
| (in thousands) | 2024 | 2023 | 2024 | 2023 | ||||||||||||
| Asset management, property management, leasing, and other transaction fees | $ | 6,735 | 7,106 | $ | 13,130 | 13,144 |
Critical Accounting Estimates
There have been no material changes in our Critical Accounting Estimates from the information provided in the "Critical Accounting Estimates" section of "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Form 10-K.
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