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| REG > SEC Filings for REG > Form 10-Q on 10-Nov-2008 | All Recent SEC Filings |
10-Nov-2008
Quarterly Report
Forward-Looking Statements
In addition to historical information, the following information contains forward-looking statements as defined under federal securities laws. These forward-looking statements include statements about anticipated changes in our revenues, the size of our development program, earnings per share, returns and portfolio value and expectations about our liquidity. These statements are based on current expectations, estimates and projections about the industry and markets in which Regency Centers Corporation ("Regency" or "Company") operates, and management's beliefs and assumptions. Forward-looking statements are not guarantees of future performance and involve certain known and unknown risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements. Such risks and uncertainties include, but are not limited to, changes in national and local economic conditions including the impact of a slowing economy; financial difficulties of tenants; competitive market conditions, including pricing of acquisitions and sales of properties and out-parcels; changes in expected leasing activity and market rents; timing of acquisitions, development starts and sales of properties and out-parcels; meeting development schedules; our inability to exercise voting control over the co-investment partnerships through which we own or develop many of our properties; weather; consequences of any armed conflict or terrorist attack against the United States; and the ability to obtain governmental approvals. For additional information, see "Risk Factors" in our annual report on Form 10-K for the year ended December 31, 2007 and Part II Item 1A. The following discussion should be read in conjunction with the accompanying Consolidated Financial Statements and Notes thereto of Regency Centers Corporation appearing elsewhere within.
Overview of Our Operating Strategy
Regency is a qualified real estate investment trust ("REIT"), which began operations in 1993. Our primary operating and investment goal is long-term growth in earnings per share and total shareholder return, which we work to achieve by focusing on a strategy of owning, operating and developing high-quality community and neighborhood shopping centers that are tenanted by market-dominant grocers, category-leading anchors, specialty retailers and restaurants located in areas with above average household incomes and population densities. All of our operating, investing and financing activities are performed through our operating partnership, Regency Centers, L.P. ("RCLP"), RCLP's wholly owned subsidiaries, and through its investments in real estate partnerships with third parties (also referred to as co-investment partnerships or joint ventures). Regency currently owns 99% of the outstanding operating partnership units of RCLP.
At September 30, 2008, we directly owned 227 shopping centers (the "Consolidated Properties") located in 24 states representing 25.3 million square feet of gross leasable area ("GLA"). Our cost of these shopping centers is $4.1 billion before depreciation. Through co-investment partnerships, we own partial interests in 216 shopping centers (the "Unconsolidated Properties") located in 27 states and the District of Columbia representing 25.5 million square feet of GLA. Our investment in the partnerships that own the Unconsolidated Properties is $428.7 million. Certain portfolio information described below is presented (a) on a Combined Basis, which is a total of the Consolidated Properties and the Unconsolidated Properties, (b) for our Consolidated Properties only and (c) for the Unconsolidated Properties that we own through co-investment partnerships. We believe that presenting the information under these methods provides a more complete understanding of the properties that we wholly-own versus those that we partially-own, but for which we provide asset management, property management, leasing, investing and financing services. The shopping center portfolio that we manage, on a Combined Basis, represents 443 shopping centers located in 29 states and the District of Columbia and contains 50.8 million square feet of GLA.
We earn revenues and generate cash flow by leasing space in our shopping centers to market-leading grocers, major retail anchors, specialty side-shop retailers, and restaurants, including ground leasing or selling building pads (out-parcels) to these potential tenants. We experience growth in
revenues by increasing occupancy and rental rates at currently owned shopping centers, and by acquiring and developing new shopping centers. Community and neighborhood shopping centers generate substantial daily traffic by conveniently offering daily necessities and services. This high traffic generates increased sales, thereby driving higher occupancy and rental-rate growth, which we expect will sustain our growth in earnings per share and increase the value of our portfolio over the long term.
We seek a range of strong national, regional and local specialty retailers, for the same reason that we choose to anchor our centers with leading grocers and major retailers who provide a mix of goods and services that meet consumer needs. We have created a formal partnering process - the Premier Customer Initiative ("PCI") - to promote mutually beneficial relationships with our specialty retailers. The objective of PCI is for us to build a base of specialty tenants who represent the "best-in-class" operators in their respective merchandising categories. Such retailers reinforce the consumer appeal and other strengths of a center's anchor, help stabilize a center's occupancy, reduce re-leasing downtime, reduce tenant turnover and yield higher sustainable rents.
We grow our shopping center portfolio through acquisitions of operating centers and new shopping center development, where we acquire the land and construct the building. Development is customer driven, meaning we generally have an executed lease from the anchor before we start construction. Developments serve the growth needs of our anchors and specialty retailers, resulting in modern shopping centers with long-term anchor leases that produce attractive returns on our invested capital. This development process generally requires three to four years from initial land or redevelopment acquisition through construction, lease-up and stabilization of rental income, but can take longer depending upon the size of the project. Generally, anchor tenants begin operating their stores prior to the completion of construction of the entire center, resulting in rental income during the development phase.
We intend to maintain a conservative capital structure to fund our growth program, which should preserve our investment-grade ratings. Our approach is founded on our self-funding capital strategy to fund our growth. The culling of non-strategic assets and our industry-leading co-investment partnership program are integral components of this strategy. We also develop certain retail centers because of their attractive profit margins with the intent of selling them to third parties upon completion. These sale proceeds are re-deployed into new, higher-quality developments and acquisitions that are expected to generate sustainable revenue growth and more attractive returns.
Joint venturing of shopping centers provides us with a capital source for new developments and acquisitions, as well as the opportunity to earn fees for asset and property management services. As asset manager, we are engaged by our partners to apply similar operating, investment, and capital strategies to the portfolios owned by the co-investment partnerships. Co-investment partnerships grow their shopping center investments through acquisitions from third parties or direct purchases from us. Although selling properties to co-investment partnerships reduces our ownership interest, we continue to share in the risks and rewards of shopping centers that meet our high quality standards and long-term investment strategy. We currently have no obligations or liabilities of the co-investment partnerships beyond our economic ownership interest.
Our Current Operating Outlook
The current turmoil in our economy could result in a higher level of retail store closings and limit the demand for leasing space in our shopping centers resulting in a decline in our occupancy percentages and rental revenues. Additionally, certain national tenants negotiate co-tenancy clauses into their lease agreements, which allow them to reduce their rents or close their stores in the event that a co-tenant closes their store. We believe that our investment focus on neighborhood and community shopping centers that conveniently provide daily necessities will help lessen the current economy's negative impact to our shopping centers, although the negative impact could still be significant. We are closely monitoring the operating performance and tenants' sales in our shopping centers including those tenants operating retail formats that are experiencing significant changes in competition, business practice, or reductions in sales.
In the near term, reduced store demand or failures amongst national anchor
retailers may result in reduced demand for new retail space and may cause
corresponding reductions in new leasing rental rates and development
pre-leasing. As a result, we would expect to scale back our development program
by reducing the number of new projects started, phasing existing developments
that lack retail demand, and reducing related general and administrative
expense. A significant reduction in our development program and future
development pipeline could reduce our future net income as a result of
(i) higher write-offs of pre-development costs, (ii) lower capitalized costs
from not converting land currently owned into active developments, and
(iii) potential impairments of real estate values if we decide to sell
properties at prices below our costs.
The lack of available credit is causing a decline in the sale of shopping centers and their values thereby reducing capital availability for new developments or other new investments, which is a key part of our capital recycling strategy. The lack of liquidity in the capital markets has also resulted in a significant increase in the cost to refinance maturing loans and a significant increase in refinancing risks. We anticipate that as real estate values decline, refinancing maturing secured loans, including those maturing in our joint ventures, may require us and our joint venture partners to contribute our respective pro-rata shares of capital in order to reduce refinancing requirements to acceptable loan to value levels required for new financings. At this time, it is unclear whether and to what extent the actions taken by the U.S. government, including, without limitation, the passage of the Emergency Economic Stabilization Act of 2008 and other measures currently being implemented or contemplated, will mitigate the effects of the crisis. While we currently have no immediate need to access the credit markets, the impact of the current crisis on our ability to access capital, including access by our joint venture partners, or to obtain future financing to fund maturing debt is unclear.
Shopping Center Portfolio
The following tables summarize general operating statistics related to our
shopping center portfolio, which we use to evaluate and monitor our performance.
September 30, December 31,
2008 2007
Number of Properties (a) 443 451
Number of Properties (b) 227 232
Number of Properties (c) 216 219
Properties in Development (a) 45 49
Properties in Development (b) 44 48
Properties in Development (c) 1 1
Gross Leasable Area (a) 50,775,179 51,106,824
Gross Leasable Area (b) 25,305,212 25,722,665
Gross Leasable Area (c) 25,469,967 25,384,159
Percent Leased (a) 91.7 % 91.7 %
Percent Leased (b) 88.1 % 88.1 %
Percent Leased (c) 95.2 % 95.2 %
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(a) Combined Basis
(b) Consolidated Properties
(c) Unconsolidated Properties
We seek to reduce our operating and leasing risks through diversification which we achieve by geographically diversifying our shopping centers; avoiding dependence on any single property, market, or tenant, and owning a portion of our shopping centers through co-investment partnerships.
The following table is a list of the shopping centers summarized by state and in order of largest holdings presented on a Combined Basis (includes properties owned by unconsolidated co-investment partnerships):
September 30, 2008 December 31, 2007
# % of Total # % of Total
Location Properties GLA GLA % Leased Properties GLA GLA % Leased
California 76 9,955,802 19.6 % 90.0 % 73 9,615,484 18.8 % 89.9 %
Florida 60 6,246,504 12.3 % 91.4 % 60 6,137,127 12.0 % 94.2 %
Texas 37 4,441,748 8.8 % 91.9 % 38 4,524,621 8.9 % 90.7 %
Virginia 31 3,906,735 7.7 % 94.5 % 34 4,153,392 8.1 % 93.8 %
Illinois 24 2,901,919 5.7 % 92.5 % 24 2,901,849 5.7 % 94.5 %
Georgia 30 2,648,555 5.2 % 93.4 % 30 2,628,658 5.1 % 94.0 %
Ohio 17 2,628,123 5.2 % 87.9 % 16 2,270,932 4.4 % 86.7 %
Colorado 21 2,277,674 4.5 % 91.5 % 22 2,424,813 4.8 % 91.4 %
Missouri 23 2,265,422 4.5 % 97.6 % 23 2,265,472 4.4 % 97.9 %
North Carolina 16 2,180,032 4.3 % 92.2 % 16 2,180,033 4.3 % 92.7 %
Maryland 16 1,896,184 3.7 % 94.1 % 18 2,058,337 4.0 % 95.0 %
Pennsylvania 12 1,450,066 2.9 % 90.3 % 14 1,596,969 3.1 % 87.4 %
Washington 14 1,332,518 2.6 % 97.9 % 14 1,332,518 2.6 % 98.5 %
Oregon 11 1,087,746 2.1 % 97.4 % 11 1,088,697 2.1 % 96.9 %
Nevada 3 772,256 1.5 % 60.4 % 3 774,736 1.5 % 43.7 %
Tennessee 8 574,114 1.1 % 92.3 % 8 576,614 1.1 % 95.7 %
Massachusetts 3 561,186 1.1 % 93.2 % 3 561,176 1.1 % 86.2 %
Arizona 4 496,073 1.0 % 95.6 % 4 496,073 1.0 % 98.8 %
Minnesota 3 483,938 1.0 % 93.6 % 3 483,938 1.0 % 96.2 %
Delaware 4 472,005 0.9 % 95.2 % 5 654,779 1.3 % 89.7 %
South Carolina 8 470,994 0.9 % 93.5 % 9 547,735 1.1 % 92.5 %
Kentucky 3 325,847 0.6 % 90.3 % 3 325,792 0.6 % 88.1 %
Alabama 3 278,299 0.6 % 77.9 % 2 193,558 0.4 % 83.5 %
Indiana 6 273,256 0.5 % 82.2 % 6 273,256 0.5 % 81.9 %
Wisconsin 2 269,128 0.5 % 97.7 % 2 269,128 0.5 % 97.7 %
Connecticut 1 179,860 0.4 % 100.0 % 1 179,860 0.4 % 100.0 %
New Jersey 2 156,482 0.3 % 96.2 % 2 156,482 0.3 % 95.2 %
Michigan 2 118,273 0.2 % 84.9 % 4 303,457 0.6 % 89.6 %
New Hampshire 1 84,793 0.2 % 80.4 % 1 91,692 0.2 % 74.8 %
Dist. of Columbia 2 39,647 0.1 % 100.0 % 2 39,646 0.1 % 79.4 %
Total 443 50,775,179 100.0 % 91.7 % 451 51,106,824 100.0 % 91.7 %
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The following table is a list of the shopping centers summarized by state and in order of largest holdings presented for Consolidated Properties (excludes properties owned by unconsolidated co-investment partnerships):
September 30, 2008 December 31, 2007
# % of Total # % of Total
Location Properties GLA GLA % Leased Properties GLA GLA % Leased
California 46 6,027,470 23.8 % 86.2 % 44 5,656,656 22.0 % 86.8 %
Florida 41 4,394,220 17.4 % 90.9 % 42 4,376,530 17.0 % 94.4 %
Texas 29 3,409,338 13.5 % 91.0 % 29 3,404,741 13.2 % 88.7 %
Ohio 14 1,981,985 7.8 % 85.2 % 14 2,015,751 7.8 % 85.5 %
Georgia 16 1,409,622 5.6 % 92.1 % 16 1,409,725 5.5 % 92.9 %
Colorado 13 1,123,631 4.4 % 86.2 % 14 1,277,505 5.0 % 88.3 %
Virginia 8 1,065,585 4.2 % 86.9 % 10 1,315,651 5.1 % 89.0 %
North Carolina 10 1,023,767 4.1 % 94.6 % 10 1,023,768 4.0 % 93.5 %
Oregon 8 733,076 2.9 % 98.6 % 8 734,027 2.8 % 97.4 %
Nevada 2 673,192 2.7 % 55.6 % 2 675,672 2.6 % 35.6 %
Washington 8 614,837 2.4 % 98.1 % 8 614,837 2.4 % 98.6 %
Tennessee 7 488,049 1.9 % 91.6 % 7 490,549 1.9 % 95.1 %
Illinois 3 414,996 1.6 % 85.1 % 3 414,996 1.6 % 92.2 %
Arizona 3 388,440 1.5 % 95.3 % 3 388,440 1.5 % 99.0 %
Massachusetts 2 375,907 1.5 % 90.1 % 2 375,897 1.5 % 79.4 %
Pennsylvania 4 351,945 1.4 % 76.5 % 5 534,741 2.1 % 72.9 %
Delaware 2 240,418 1.0 % 99.2 % 2 240,418 0.9 % 99.6 %
Maryland 1 129,340 0.5 % 76.2 % 1 129,340 0.5 % 77.3 %
Michigan 2 118,273 0.5 % 84.9 % 4 303,457 1.2 % 89.6 %
South Carolina 2 93,922 0.4 % 71.8 % 3 170,663 0.7 % 79.1 %
New Hampshire 1 84,793 0.3 % 80.4 % 1 91,692 0.4 % 74.8 %
Alabama 1 84,741 0.3 % 65.8 % - - - -
Indiana 3 54,487 0.2 % 51.9 % 3 54,487 0.2 % 44.5 %
Kentucky 1 23,178 0.1 % 33.6 % 1 23,122 0.1 % -
Total 227 25,305,212 100.0 % 88.1 % 232 25,722,665 100.0 % 88.1 %
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The Consolidated Properties are encumbered by notes payable of $241.8 million.
The following table is a list of the shopping centers summarized by state and in order of largest holdings presented for Unconsolidated Properties (only properties owned by unconsolidated co-investment partnerships):
September 30, 2008 December 31, 2007
# % of Total # % of Total
Location Properties GLA GLA % Leased Properties GLA GLA % Leased
California 30 3,928,332 15.4 % 95.8 % 29 3,958,828 15.6 % 94.4 %
Virginia 23 2,841,150 11.2 % 97.3 % 24 2,837,741 11.2 % 96.0 %
Illinois 21 2,486,923 9.8 % 93.8 % 21 2,486,853 9.8 % 94.9 %
Missouri 23 2,265,422 8.9 % 97.6 % 23 2,265,472 8.9 % 97.9 %
Florida 19 1,852,284 7.3 % 92.5 % 18 1,760,597 6.9 % 93.6 %
Maryland 15 1,766,844 6.9 % 95.4 % 17 1,928,997 7.6 % 96.2 %
Georgia 14 1,238,933 4.9 % 94.8 % 14 1,218,933 4.8 % 95.3 %
North Carolina 6 1,156,265 4.5 % 90.0 % 6 1,156,265 4.6 % 92.0 %
Colorado 8 1,154,043 4.5 % 96.7 % 8 1,147,308 4.5 % 94.8 %
Pennsylvania 8 1,098,121 4.3 % 94.7 % 9 1,062,228 4.2 % 94.7 %
Texas 8 1,032,410 4.0 % 95.1 % 9 1,119,880 4.4 % 96.6 %
Washington 6 717,681 2.8 % 97.7 % 6 717,681 2.8 % 98.4 %
Ohio 3 646,138 2.5 % 96.1 % 2 255,181 1.0 % 96.5 %
Minnesota 3 483,938 1.9 % 93.6 % 3 483,938 1.9 % 96.2 %
South Carolina 6 377,072 1.5 % 98.9 % 6 377,072 1.5 % 98.5 %
Oregon 3 354,670 1.4 % 95.1 % 3 354,670 1.4 % 96.0 %
Kentucky 2 302,669 1.2 % 94.7 % 2 302,670 1.2 % 94.8 %
Wisconsin 2 269,128 1.1 % 97.7 % 2 269,128 1.1 % 97.7 %
Delaware 2 231,587 0.9 % 91.1 % 3 414,361 1.6 % 83.9 %
Indiana 3 218,769 0.9 % 89.7 % 3 218,769 0.9 % 91.2 %
Alabama 2 193,558 0.8 % 83.2 % 2 193,558 0.8 % 83.5 %
Massachusetts 1 185,279 0.7 % 99.4 % 1 185,279 0.7 % 100.0 %
Connecticut 1 179,860 0.7 % 100.0 % 1 179,860 0.7 % 100.0 %
New Jersey 2 156,482 0.6 % 96.2 % 2 156,482 0.6 % 95.2 %
Arizona 1 107,633 0.4 % 97.0 % 1 107,633 0.4 % 98.1 %
Nevada 1 99,064 0.4 % 93.3 % 1 99,064 0.4 % 98.9 %
Tennessee 1 86,065 0.3 % 96.2 % 1 86,065 0.3 % 98.8 %
Dist. of Columbia 2 39,647 0.2 % 100.0 % 2 39,646 0.2 % 79.4 %
Total 216 25,469,967 100.0 % 95.2 % 219 25,384,159 100.0 % 95.2 %
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The Unconsolidated Properties are encumbered by mortgage loans of $2.7 billion.
The following table summarizes our four largest grocery tenants occupying the shopping centers at September 30, 2008:
Percentage of Percentage of
Number of Company- Annualized
Grocery Anchor Stores (a) owned GLA (b) Base Rent (b)
Kroger 68 9.0 % 5.8 %
Publix 67 6.7 % 4.1 %
. . .
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