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| REG > SEC Filings for REG > Form 10-Q on 8-May-2009 | All Recent SEC Filings |
8-May-2009
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 timing and pricing of acquisitions and sales of properties and out-parcels; changes in expected leasing activity and market rents; timing of 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, 2008. 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 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" or "Partnership"), 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 March 31, 2009, we directly owned 226 shopping centers (the "Consolidated Properties") located in 24 states representing 24.5 million square feet of gross leasable area ("GLA"). Our cost of these shopping centers and those under development is $4.1 billion before depreciation. Through co-investment partnerships, we own partial ownership interests in 187 shopping centers (the "Unconsolidated Properties") located in 26 states and the District of Columbia representing 22.3 million square feet of GLA. Our investment in the partnerships that own the Unconsolidated Properties is $368.3 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 indirectly own through entities we do not control, 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 413 shopping centers located in 29 states and the District of Columbia and contains 46.8 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 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.
The current economic recession is resulting in a higher level of retail store closings and is limiting 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.
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 can require three to five 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.
In the near term, reduced new store openings amongst retailers is resulting in reduced demand for new retail space and is causing corresponding reductions in new leasing rental rates and development pre-leasing. As a result, we are significantly reducing 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. Although our development program will continue to be a significant part of our long term business strategy, new development projects will always be rigorously evaluated in regard to availability of capital, visibility of tenant demand to achieve 95% occupancy, and sufficient investment returns.
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 sales proceeds are re-deployed into new, high-quality developments and acquisitions that are expected to generate sustainable revenue growth and attractive returns. To the extent that we are unable to execute our capital recycling program to generate adequate sources of capital, we will significantly reduce and even stop new investment activity until there is adequate visibility to and reliability of sources of capital for Regency.
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 direct ownership interest, we continue to share, to the extent of our ownership interest, in the risks and rewards of shopping centers that meet our high quality standards and long-term investment strategy.
The current lack of liquidity in the capital markets is having a corresponding effect on new investment activity in our co-investment partnerships. Our co-investment partnerships have significant levels of debt, 66.3% of which will mature through 2012, and are subject to significant refinancing risks. We anticipate that as real estate values decline, the refinancing of maturing loans, including those maturing in our joint ventures, will 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. While we have been successful refinancing maturing loans, the longer-term impact of the current economic 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. While we believe that our partners have sufficient capital or access thereto for these future capital requirements, we can provide no assurance that the constrained capital markets will not inhibit their ability to access capital and meet their future funding requirements. The impact to Regency of a co-investment partner defaulting on their share of a capital call is discussed below under "Liquidity and Capital Resources".
Shopping Center Portfolio
The following tables summarize general information related to our shopping
center portfolio, which we use to evaluate and monitor our performance.
March 31, December 31,
2009 2008
Number of Properties (a) 413 440
Number of Properties (b) 226 224
Number of Properties (c) 187 216
Properties in Development (a) 45 45
Properties in Development (b) 44 44
Properties in Development (c) 1 1
Gross Leasable Area (a) 46,786,906 49,644,545
Gross Leasable Area (b) 24,481,165 24,176,536
Gross Leasable Area (c) 22,305,741 25,468,009
Percent Leased (a) 91.8 % 92.3 %
Percent Leased (b) 90.0 % 90.2 %
Percent Leased (c) 93.8 % 94.3 %
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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):
March 31, 2009 December 31, 2008
# % of Total % # % of Total %
Location Properties GLA GLA Leased Properties GLA GLA Leased
California 73 9,224,423 19.7 % 91.4 % 76 9,597,194 19.3 % 91.9 %
Florida 55 5,554,848 11.9 % 93.5 % 60 6,050,697 12.2 % 93.9 %
Texas 36 4,403,998 9.4 % 90.1 % 36 4,404,025 8.9 % 90.5 %
Virginia 29 3,735,926 8.0 % 95.2 % 30 3,799,919 7.6 % 95.6 %
Illinois 23 2,773,048 5.9 % 89.0 % 24 2,901,919 5.8 % 90.0 %
Ohio 16 2,522,447 5.5 % 86.6 % 17 2,631,530 5.3 % 86.7 %
Missouri 23 2,265,422 4.8 % 96.8 % 23 2,265,422 4.6 % 96.8 %
Colorado 20 2,047,458 4.4 % 89.9 % 22 2,285,926 4.6 % 91.4 %
Georgia 24 2,044,724 4.4 % 92.2 % 30 2,648,555 5.3 % 92.7 %
North Carolina 14 2,027,939 4.3 % 90.6 % 15 2,107,442 4.2 % 91.9 %
Maryland 16 1,873,759 4.0 % 93.6 % 16 1,873,759 3.8 % 94.0 %
Pennsylvania 12 1,420,725 3.0 % 90.7 % 12 1,441,791 2.9 % 90.1 %
Washington 11 1,038,568 2.2 % 96.1 % 13 1,255,836 2.5 % 97.0 %
Oregon 10 976,678 2.1 % 97.1 % 11 1,087,738 2.2 % 97.1 %
Tennessee 8 570,235 1.2 % 91.4 % 8 574,114 1.2 % 92.0 %
Massachusetts 3 561,186 1.2 % 93.4 % 3 561,186 1.1 % 93.4 %
Nevada 3 531,068 1.1 % 81.2 % 3 528,368 1.1 % 83.4 %
Arizona 4 496,073 1.1 % 89.1 % 4 496,073 1.0 % 94.3 %
Minnesota 3 483,938 1.0 % 96.5 % 3 483,938 1.0 % 92.9 %
Delaware 4 472,005 1.0 % 94.0 % 4 472,005 0.9 % 95.2 %
South Carolina 7 414,607 0.9 % 96.3 % 8 451,494 0.9 % 96.7 %
Indiana 6 273,257 0.6 % 80.3 % 6 273,279 0.6 % 76.4 %
Wisconsin 2 269,128 0.6 % 97.7 % 2 269,128 0.5 % 97.7 %
Alabama 2 203,207 0.4 % 71.0 % 3 278,299 0.6 % 78.3 %
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 % 96.2 %
Michigan 2 118,273 0.3 % 83.7 % 2 118,273 0.2 % 84.9 %
New Hampshire 1 84,793 0.2 % 79.0 % 1 84,793 0.2 % 80.4 %
Dist. of Columbia 2 39,647 0.1 % 100.0 % 2 39,647 0.1 % 100.0 %
Kentucky 1 23,184 - 51.7 % 3 325,853 0.7 % 90.2 %
Total 413 46,786,906 100.0 % 91.8 % 440 49,644,545 100.0 % 92.3 %
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The Combined Properties include the consolidated and unconsolidated properties encumbered by mortgage loans of $295.0 million and $2.5 billion, respectively.
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):
March 31, 2009 December 31, 2008
# % of Total % # % of Total %
Location Properties GLA GLA Leased Properties GLA GLA Leased
California 48 5,980,902 24.4 % 90.3 % 46 5,668,350 23.5 % 89.7 %
Florida 41 4,189,136 17.1 % 93.6 % 41 4,198,414 17.4 % 94.4 %
Texas 28 3,371,353 13.8 % 89.3 % 28 3,371,380 13.9 % 89.9 %
Ohio 14 1,985,374 8.1 % 85.4 % 14 1,985,392 8.2 % 85.3 %
Georgia 17 1,507,612 6.2 % 91.3 % 16 1,409,622 5.8 % 92.0 %
Colorado 14 1,130,771 4.6 % 85.7 % 14 1,130,771 4.7 % 86.2 %
Virginia 7 958,497 3.9 % 91.3 % 7 958,825 4.0 % 90.8 %
North Carolina 9 951,177 3.9 % 94.1 % 9 951,177 3.9 % 94.6 %
Oregon 8 735,526 3.0 % 97.7 % 8 733,068 3.0 % 98.4 %
Tennessee 7 484,170 2.0 % 90.6 % 7 488,049 2.0 % 91.2 %
Washington 6 461,127 1.9 % 93.8 % 7 538,155 2.2 % 95.9 %
Nevada 2 432,004 1.8 % 78.4 % 2 429,304 1.8 % 81.1 %
Illinois 3 414,996 1.7 % 83.4 % 3 414,996 1.7 % 84.7 %
Arizona 3 388,440 1.6 % 87.3 % 3 388,440 1.6 % 93.0 %
Massachusetts 2 375,907 1.5 % 90.5 % 2 375,907 1.6 % 90.5 %
Pennsylvania 4 326,939 1.3 % 83.6 % 4 347,430 1.4 % 77.6 %
Delaware 2 240,418 1.0 % 99.2 % 2 240,418 1.0 % 99.2 %
Michigan 2 118,273 0.5 % 83.7 % 2 118,273 0.5 % 84.9 %
Maryland 1 106,915 0.4 % 77.8 % 1 106,915 0.4 % 77.8 %
New Hampshire 1 84,793 0.4 % 79.0 % 1 84,793 0.4 % 80.4 %
Alabama 1 84,741 0.3 % 70.4 % 1 84,741 0.4 % 68.7 %
South Carolina 2 74,422 0.3 % 90.6 % 2 74,422 0.3 % 90.6 %
Indiana 3 54,488 0.2 % 48.7 % 3 54,510 0.2 % 34.1 %
Kentucky 1 23,184 0.1 % 51.7 % 1 23,184 0.1 % 33.6 %
Total 226 24,481,165 100.0 % 90.0 % 224 24,176,536 100.0 % 90.2 %
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The Consolidated Properties are encumbered by mortgage loans of $295.0 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):
March 31, 2009 December 31, 2008
# % of Total % # % of Total %
Location Properties GLA GLA Leased Properties GLA GLA Leased
California 25 3,243,521 14.5 % 93.4 % 30 3,928,844 15.4 % 94.9 %
Virginia 22 2,777,429 12.5 % 96.6 % 23 2,841,094 11.2 % 97.2 %
Illinois 20 2,358,052 10.6 % 89.9 % 21 2,486,923 9.8 % 90.9 %
Missouri 23 2,265,422 10.2 % 96.8 % 23 2,265,422 8.9 % 96.8 %
Maryland 15 1,766,844 7.9 % 94.5 % 15 1,766,844 6.9 % 95.0 %
Florida 14 1,365,712 6.1 % 93.3 % 19 1,852,283 7.3 % 92.6 %
Pennsylvania 8 1,093,786 4.9 % 92.9 % 8 1,094,361 4.3 % 94.1 %
North Carolina 5 1,076,762 4.8 % 87.5 % 6 1,156,265 4.5 % 89.7 %
Texas 8 1,032,645 4.6 % 92.6 % 8 1,032,645 4.0 % 92.6 %
Colorado 6 916,687 4.1 % 95.1 % 8 1,155,155 4.5 % 96.4 %
Washington 5 577,441 2.6 % 97.9 % 6 717,681 2.8 % 97.8 %
Georgia 7 537,112 2.4 % 94.5 % 14 1,238,933 4.9 % 93.6 %
Ohio 2 537,073 2.4 % 91.1 % 3 646,138 2.5 % 91.0 %
Minnesota 3 483,938 2.2 % 96.5 % 3 483,938 1.9 % 92.9 %
South Carolina 5 340,185 1.5 % 97.5 % 6 377,072 1.5 % 98.0 %
Wisconsin 2 269,128 1.2 % 97.7 % 2 269,128 1.1 % 97.7 %
Oregon 2 241,152 1.1 % 95.6 % 3 354,670 1.4 % 94.3 %
Delaware 2 231,587 1.0 % 88.5 % 2 231,587 0.9 % 91.1 %
Indiana 3 218,769 1.0 % 88.2 % 3 218,769 0.9 % 87.0 %
Massachusetts 1 185,279 0.8 % 99.4 % 1 185,279 0.7 % 99.4 %
Connecticut 1 179,860 0.8 % 100.0 % 1 179,860 0.7 % 100.0 %
New Jersey 2 156,482 0.7 % 96.2 % 2 156,482 0.6 % 96.2 %
Alabama 1 118,466 0.5 % 71.4 % 2 193,558 0.8 % 82.5 %
Arizona 1 107,633 0.5 % 95.5 % 1 107,633 0.4 % 98.9 %
Nevada 1 99,064 0.4 % 93.4 % 1 99,064 0.4 % 93.0 %
Tennessee 1 86,065 0.5 % 96.2 % 1 86,065 0.3 % 96.2 %
Dist. of Columbia 2 39,647 0.2 % 100.0 % 2 39,647 0.2 % 100.0 %
Kentucky - - - - 2 302,669 1.2 % 94.6 %
Total 187 22,305,741 100.0 % 93.8 % 216 25,468,009 100.0 % 94.3 %
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The Unconsolidated Properties are encumbered by mortgage loans of $2.5 billion.
The following table summarizes our four largest tenants, each of which is a grocery tenant, occupying the shopping centers at March 31, 2009:
Percentage of Percentage of
Number of Company- Annualized
Grocery Anchor Stores (a) owned GLA (b) Base Rent (b)
Kroger 57 8.6 % 5.5 %
Publix 57 6.5 % 4.0 %
Safeway 63 5.7 % 3.7 %
Super Valu 34 3.3 % 2.6 %
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