Item 1. Business
Regency Centers Corporation is a fully integrated real estate company and self-administered and self-managed real estate investment trust that began its operations as a publicly-traded REIT in 1993. Regency Centers L.P. is the entity through which Regency Centers Corporation conducts substantially all of its operations and owns substantially all of its assets. Our business consists of acquiring, developing, owning and operating income-producing retail real estate principally located in many of the top markets in the United States. We generate revenues by leasing space to retail tenants such as highly productive grocers, restaurants, service providers, and best-in-class retailers. Regency has been an S&P 500 Index member since 2017.
As of December 31, 2020, we had full or partial ownership interests in 411 properties, primarily anchored by market leading grocery stores, encompassing 51.9 million square feet (“SF”) of gross leasable area (“GLA”). Our Pro-rata share of this GLA is 42.2 million square feet, including our share of the partially owned properties.
Our mission is to be the preeminent national owner, operator, and developer of shopping centers, creating places that provide a thriving environment for outstanding retailers and service providers to connect with the surrounding neighborhoods and communities.
Our goals are to:
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Own and manage a portfolio of high-quality neighborhood and community shopping centers primarily anchored by market leading grocers and located in affluent suburban and near urban trade areas in the country’s most desirable metro areas. We expect that this combination will produce 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 net operating income (“NOI”);
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Maintain an industry leading and disciplined development and redevelopment platform to deliver exceptional retail centers at higher returns as compared to acquisitions;
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Support our business activities with a conservative capital structure, including a strong balance sheet;
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Implement leading environmental, social, and governance practices through our Corporate Responsibility Program;
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Engage an exceptional and diverse team that is guided by our strong values and special culture, while fostering an environment of innovation and continuous improvement; and
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Create shareholder value by increasing earnings and dividends per share and generate total returns at or near the top of our shopping center peers.
Key strategies to achieve our goals are to:
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Sustain same property NOI growth that over the long-term consistently ranks at or near the top of our shopping center peers;
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Develop and redevelop high quality shopping centers at attractive returns on investment;
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Maintain a conservative balance sheet that provides liquidity, financial flexibility and cost effective funding of investment opportunities, while also managing debt maturities that enable us to weather economic downturns;
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Maintain high standards for corporate governance and act as good stewards of our communities and the environment; and
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Attract and motivate an exceptional team of diverse employees who operate efficiently and are recognized as industry leaders.
COVID-19 Pandemic
On March 11, 2020, the novel coronavirus disease (“COVID-19”) was declared a pandemic (“COVID-19 pandemic” or the “pandemic”) by the World Health Organization as the disease spread throughout the world. The pandemic continues to evolve, making the broader implications on our future results of operations and overall financial performance uncertain at this time. While much of our lease income is derived from contractual rent payments, our tenants’ ability to meet their lease obligations has been negatively impacted by the disruptions and uncertainties of the pandemic. Certain of our tenants’ ability to respond to these disruptions, including adapting to governmental orders, recommendations, and changes in their customers’ shopping habits and behaviors, could influence their ability to survive and ultimately fulfill their lease obligations. While the announcement of vaccine approvals by the U.S. Food and Drug Administration (“FDA”) in early December 2020 was a positive development, at about the same time, several states and many localities reinstituted mandatory business limitations and closures as infection rates increased, in advance of full scale vaccine deployment. Forced closures may continue to occur as infection rates increase or additional strains of the virus emerge, while the speed of vaccine rollout remains uncertain.
Due to the pandemic, certain tenants have requested rent concessions or have sought to renegotiate future rents based on changes to the economic environment. Other tenants have chosen not to reopen or honor the terms of their existing lease agreements. In addition, in 2020 we saw a meaningful increase in the number of bankruptcy filings by our tenants versus prior years, which in certain cases can lead to a tenant “rejecting” (terminating) one or more of our leases as permitted by applicable bankruptcy law, or seeking to negotiate reduced rent as part of the bankruptcy reorganization process.
We are closely monitoring our rent collections from our tenants, which significantly declined from historic levels at the start of the pandemic, but have since gradually improved. As of February 8, 2021, we experienced sequential improvement in our collection rates of Pro-rata base rent billed by quarter in 2020 as follows:
Since the pandemic began, we have executed approximately 1,600 rent deferral agreements within our consolidated and unconsolidated real estate portfolios. The weighted average deferral period of these agreements is approximately 3.3 months, with repayment periods of approximately 9.7 months beginning on average in December 2020. In some cases, we expect to continue to work with tenants to address the adverse impacts of the pandemic, which may result in further rent deferrals, concessions or abatements. As a result, there can be no assurance that our future base rent collection percentages will continue at or above Q4 2020 levels, or that cash flows from operations will be sufficient to sustain and fund our dividend payments without the benefit of other sources of capital or changes to our current dividend levels. In the event of a surge in COVID-19 cases or new governmental restrictions causing our tenants to reduce their operations or close, our base rent collection percentages and percent leased could decline from current levels.
New leasing activity declined in 2020 and is expected to remain below 2019 levels into 2021 as businesses delay executing leases amidst the immediate and uncertain future economic impacts of the pandemic. This, coupled with tenant failures and bankruptcies, may result in decreased demand for retail space in our centers, which could result in difficulty attracting new tenants resulting in pricing pressure on rents. Additionally, if construction of tenant improvements are delayed due to the impacts of the pandemic, it may take longer before new tenants are able to open and commence rent payments.
The pandemic has significantly slowed and in certain situations delayed tenant buildouts, new ground up developments or redevelopment of existing properties. The pandemic has also limited our ability to timely source materials for construction and has caused labor shortages, which have impacted our ability to complete construction projects on anticipated schedules. In the event a surge in new cases resulting in additional lockdowns occurs, similar impacts to our supply chain may arise which could have a material adverse effect on our business, financial condition and results of operations. We continue to closely monitor our projects, which has resulted in prudently delaying, phasing or curtailing certain of our development, redevelopment and capital expenditure projects.
The duration and severity of the pandemic across the United States will continue to negatively impact many of our tenants and their ability to meet their rent obligations under their lease agreements. As such, the pandemic could continue to negatively impact our results of operations and overall financial condition in the future. See also Part I, Item 1A, Risk Factors for further discussion.
Our business continuity and disaster recovery plan enabled us to continue operating productively during the pandemic. We have maintained, and expect to continue to maintain, without interruption, our financial reporting systems as well as our internal controls over our financial reporting and disclosure controls and procedures.
Competition
We are among the largest owners of shopping centers in the nation based on revenues, number of properties, GLA, and market capitalization. There are numerous companies and individuals engaged in the ownership, development, acquisition, and operation of shopping centers that compete with us in our targeted markets, including grocery store chains that also anchor some of our shopping centers. This results in competition for attracting tenants, as well as the acquisition of existing shopping centers and new development sites. In addition, brick and mortar shopping centers, in general, face continued competition from alternative shopping and delivery methods, including e-commerce and home delivery. We believe that our competitive advantages are driven by:
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our locations within our market areas;
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the design of our shopping centers including our practice of maintaining and renovating these centers to our high standards of quality;
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the strong demographics surrounding our shopping centers;
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our relationships with our anchor, shop, and out-parcel tenants;
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our management experience and expertise; and
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our ability to source and develop new shopping centers.
Corporate Responsibility
Our vision is to be the preeminent national owner, operator and developer of shopping centers, connecting outstanding retailers and service providers with their neighborhoods and communities while striving to achieve best-in-class corporate responsibility. To integrate corporate responsibility into our vision, we focus on three key overarching concepts: long-term value creation, our Regency brand and reputation, and the importance of maintaining our culture.
We have established four pillars for our corporate responsibility program that we believe enable us to support our vision and implement these concepts:
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Our People;
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Our Communities;
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Ethics and Governance; and
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Environmental Stewardship.
Our People - Our people are our most important asset and we strive to ensure that they are engaged, passionate about their work, connected to their teams, and supported to deliver their best performance. We recognize and value the importance of attracting and retaining talented individuals to Regency’s performance and growth. We strive to maintain a safe and healthy workspace, promote employee well-being, and empower our employees by focusing on their training and education. Another key element of our focus on people is our understanding and appreciation of the value of an inclusive and diverse workforce. In 2020, we began developing and implementing a comprehensive three-year diversity, equity, and inclusion (“DEI”) strategy, which includes training, recruitment, and engagement. Our employees have been directly engaged in the development of our DEI strategy to ensure they are connected to and actively involved in its implementation across the entirety of our business.
Our Communities - Our predominately grocery-anchored neighborhood centers provide many benefits to the communities in which we live and work, including significant local economic impacts in the form of investment, jobs and taxes. Our local teams are also passionate about investing in and engaging with our communities, as they customize and cultivate our centers to create a distinctive environment to bring our tenants and shoppers together for the best retail experience. Further, philanthropy and giving back are cornerstones of what we do and who Regency is. In addition, charitable contributions are made directly by the Company, and the vast majority of our employees donate their time and money to local non-profits serving their communities.
Ethics and Governance - As long-term stewards of our investors’ capital, we are committed to best-in-class corporate governance. To create long-term value for our stakeholders, we place great emphasis on our culture and core values, the integrity and transparency of our reporting practices, and our overall governance structure in respect of oversight and shareholder rights.
Environmental Stewardship - We believe sustainability is in the best interest of our investors, tenants, employees, and the communities in which we operate, and we strive to integrate sustainable practices throughout our business. We have six strategic priorities when it comes to identifying and implementing sustainable business practices and minimizing our environmental impact: green building, energy efficiency, greenhouse gas emissions reduction, water conservation, waste minimization and management, and climate resilience. We believe these commitments are not only the right thing to do to address material environmental topics such as air pollution, climate change, and resource scarcity, but also support us in achieving key strategic objectives in our operations and development projects.
More information about our corporate responsibility strategy, goals, performance, and reporting is available on our website at www.regencycenters.com. The content of our website, including information relating to corporate responsibility, is not incorporated by reference into this Annual Report on Form 10-K or in any other report or document we file with the SEC, and any references to our website are intended to be inactive textual references only.
Employees
Our corporate headquarters are located at One Independent Drive, Suite 114, Jacksonville, Florida. We presently maintain 22 market offices nationwide, including our corporate headquarters, where we conduct management, leasing, construction, and investment activities. We have 431 employees throughout the United States and we believe that our relations with our employees are good.
Compliance with Governmental Regulations
We are subject to various regulatory and tax-related requirements within the jurisdictions in which we operate. Changes to such requirements may result in unanticipated financial impacts or adverse tax consequences, and could affect our operating results and financial condition. Significant regulatory requirements include the laws and regulations described below.
REIT Laws and Regulations
We have elected to be taxed as a REIT under the federal income tax laws. As a REIT, we are generally not subject to federal income tax on taxable income that we distribute to our stockholders. Under the Internal Revenue Code (the “Code”), REITs are subject to numerous regulatory requirements, including the requirement to generally distribute at least 90% of taxable income each year. We will be subject to federal income tax on our taxable income at regular corporate rates if we fail to qualify as a REIT for tax purposes in any taxable year, or to the extent we distribute less than 100% of our taxable income. We will also generally not qualify for treatment as a REIT for federal income tax purposes for four years following the year during which qualification is lost. Even if we qualify as a REIT for federal income tax purposes, we may be subject to certain state and local income and franchise taxes and to federal income and excise taxes on our undistributed taxable income.
We have elected to treat certain of our subsidiaries as taxable REIT subsidiaries (“TRS”). In general, a TRS may engage in any real estate business and certain non-real estate businesses, subject to certain limitations under the Code. A TRS is subject to federal and state income taxes which, to date, have not been material to us.
Environmental Laws and Regulations
Under various federal, state and local laws, ordinances and regulations, we may be liable for the cost to assess and remediate certain hazardous substances at our shopping centers that generally arise from dry cleaners, gas stations, asbestos, and historic land use practices. These requirements often impose liability without regard to whether the owner knew of, or committed the acts or omissions that caused, the presence of the hazardous substances. The presence of such substances, or the failure to properly address contamination caused by such substances, may adversely affect our ability to sell or lease the property or borrow using the property as collateral. Although we have a number of properties that could require or are currently undergoing varying levels of assessment and remediation, known environmental liabilities are not currently expected to have a material financial impact.
Executive Officers
Our executive officers are appointed each year by our Board of Directors. Each of our executive officers has been employed by us for more than five years and, as of December 31, 2020, included the following:
(1)
Mr. Stein was appointed Executive Chairman of the Board of Directors effective January 1, 2020. Prior to this appointment, Mr. Stein served as Chief Executive Officer from 1993 through December 31, 2019 and Chairman of the Board since 1999.
(2)
Ms. Palmer was named Chief Executive Officer effective January 1, 2020, in addition to her responsibilities as President, which position she has held since January 2016. Prior to this appointment, Ms. Palmer served as Chief Financial Officer since January 2013. Prior to that, Ms. Palmer served as Senior Vice President of Capital Markets since 2003 and has been with the Company since 1996.
(3)
Mr. Mas assumed the responsibilities of Executive Vice President, Chief Financial Officer effective August 2019. Prior to this appointment, Mr. Mas served as Managing Director, Finance, since February 2017, and Senior Vice President, Capital Markets, since 2013.
(4)
Mr. Chandler assumed the role of Executive Vice President, Chief Investment Officer, effective August 2019, and Executive Vice President of Investments in 2016. Mr. Chandler previously served as Managing Director since 2006. Prior to that, Mr. Chandler served in various investment officer positions since 1999.
(5)
Mr. Thompson assumed the role of Executive Vice President, Chief Operating Officer, effective August 2019, and Executive Vice President of Operations in 2016. Mr. Thompson previously served as our Managing Director - East since 1993.
Company Website Access and SEC Filings
Our website may be accessed at www.regencycenters.com. All of our filings with the Securities and Exchange Commission (“SEC”) can be accessed free of charge through our website promptly after filing; however, in the event that the website is inaccessible, we will provide paper copies of our most recent annual report on Form 10-K, the most recent quarterly report on Form 10-Q, current reports filed or furnished on Form 8-K, and all related amendments, excluding exhibits, free of charge upon request. These filings are also accessible on the SEC’s website at www.sec.gov. The content of our website is not incorporated by reference into this Annual Report on Form 10-K or in any other report or document we file with the SEC, and any references to our website are intended to be inactive textual references only.
General Information
Our registrar and stock transfer agent is Broadridge Corporate Issuer Solutions, Inc. (“Broadridge”), Philadelphia, PA. We offer a dividend reinvestment plan (“DRIP”) that enables our shareholders to reinvest dividends automatically, as well as to make voluntary cash payments toward the purchase of additional shares. For more information, contact Broadridge toll free at (855) 449-0975 or our Shareholder Relations Department at (904) 598-7000.
The Company’s common stock is listed on the NASDAQ Global Select Market and trades under the stock symbol “REG”.
Our independent registered public accounting firm is KPMG LLP, Jacksonville, Florida. Our legal counsel is Foley & Lardner LLP, Jacksonville, Florida.
Annual Meeting of Shareholders
Our 2021 annual meeting of shareholders is currently expected to be held on Wednesday, May 5, 2021. In light of public health concerns related to the COVID-19 pandemic, and to help protect the safety of our shareholders, directors, employees, and other participants, the Company’s annual meeting will be conducted in a virtual-only format.
Defined Terms
In addition to the required Generally Accepted Accounting Principles (“GAAP”) presentations, we use certain non-GAAP performance measures as we believe these measures improve the understanding of the Company's operational results. We believe these non-GAAP measures provide useful information to our Board of Directors, management and investors regarding certain trends relating to our financial condition and results of operations. Our management uses these non-GAAP measures to compare our performance to that of prior periods for trend analyses, purposes of determining management incentive compensation and budgeting, forecasting and planning
purposes. We continually evaluate the usefulness, relevance, limitations, and calculation of our reported non-GAAP performance measures to determine how best to provide relevant information to the public, and thus such reported measures could change.
We do not consider non-GAAP measures an alternative to financial measures determined in accordance with GAAP, rather they supplement GAAP measures by providing additional information we believe to be useful to our shareholders. The principal limitation of these non-GAAP financial measures is they may exclude significant expense and income items that are required by GAAP to be recognized in our consolidated financial statements. In addition, they reflect the exercise of management’s judgment about which expense and income items are excluded or included in determining these non-GAAP financial measures. In order to compensate for these limitations, reconciliations of the non-GAAP financial measures we use to their most directly comparable GAAP measures are provided. Non-GAAP financial measures should not be relied upon in evaluating the financial condition, results of operations or future prospects of the Company.
The following terms, as defined, are commonly used by management and the investing public to understand and evaluate our operational results:
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Development Completion is a property in development that is deemed complete upon the earliest 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, or (iii) three years have passed since the start of construction. Once deemed complete, the property is termed a Retail Operating Property the following calendar year.
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Fixed Charge Coverage Ratio is defined as Operating EBITDAre divided by the sum of the gross interest and scheduled mortgage principal paid to our lenders.
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Nareit EBITDAre is a measure of REIT performance, which the National Association of Real Estate Investment Trusts (“Nareit”) defines as net income, computed in accordance with GAAP, excluding (i) interest expense, (ii) income tax expense, (iii) depreciation and amortization, (iv) gains on sales of real estate, (v) impairments of real estate, and (vi) adjustments to reflect the Company’s share of unconsolidated partnerships and joint ventures.
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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 Stockholders to Nareit FFO.
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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.
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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.
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Operating EBITDAre begins with the Nareit EBITDAre and excludes certain non-cash components of earnings derived from above and below market rent amortization and straight-line rents. We provide a reconciliation of Net Income to Nareit EBITDAre to Operating EBITDAre.
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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 the Company’s reported results under GAAP. We believe presenting our Pro-rata share of assets, liabilities, operating results, and other metrics, along with certain other non-GAAP measures, makes comparisons of other REITs’ operating results to ours more meaningful. The Pro-rata information provided is not, nor is it intended to be, presented in accordance with GAAP. The Pro-rata supplemental details of assets and liabilities and supplemental details of operations reflect our proportionate economic ownership of the assets, liabilities, and operating results of the properties in our portfolio
The Pro-rata information is prepared on a basis consistent with the comparable consolidated amounts and is intended to more accurately reflect our proportionate economic interest in the assets, liabilities, and operating results of properties in our portfolio. We do not control the unconsolidated investment partnerships, and the Pro-rata presentations of the assets and liabilities, and revenues and expenses do not represent our legal claim to such items. The partners are entitled to profit or loss allocations and distributions of cash flows according to the operating agreements, which generally provide for such allocations according to their invested capital. Our share of invested capital establishes the ownership interests we use to prepare our Pro-rata share.
The presentation of Pro-rata information has limitations which include, but are not limited to, the following:
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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
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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.
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Property In Development includes properties in various stages of ground-up development.
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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.
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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.
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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.
Item 1A.
Item 1A. Risk Factors
Our operations are subject to a number of risks and uncertainties including, but not limited to, those listed below. When considering an investment in our securities, carefully read and consider these risks, together with all other information in our other filings and submissions to the SEC, which provide much more information and detail. If any of the events described in the following risk factors actually occur, our business, financial condition and/ or operating results, as well as the market price of our securities, could be materially adversely affected.
Risk Factors Related to the COVID-19 Pandemic
Pandemics or other health crises, such as the pandemic, may adversely affect our tenants’ financial condition, the profitability of our properties, and our access to the capital markets and could have a material adverse effect on our business, results of operations, cash flows and financial condition.
During the ongoing pandemic, U.S. federal, state, and local governments have continued to mandate or recommend various actions to reduce or prevent the spread of COVID-19 which continues to directly impact many of our tenants, and in particular those whose businesses may be considered non-essential. Grocery stores, which anchor over 80% of our operating centers, have generally been able to continue operating and serving their customers. However, non-essential businesses such as dine-in restaurants, fitness facilities and movie theaters in many states continue to experience significant declines in customer traffic when compared to previous years, or have temporarily closed their locations (in some cases multiple times) in response to governmental orders or voluntary efforts to support social distancing.
Due to the pandemic, certain tenants have requested rent concessions or have sought to renegotiate future rents based on changes to the economic environment. Other tenants have chosen not to reopen or honor the terms of their existing lease agreements. In addition, moratoria and other temporary legal restrictions in certain states on our ability to bring legal action to enforce our leases have impacted our ability to collect rent and may continue to do so into 2021.
New leasing activity has declined and is expected to remain at lower levels than pre-pandemic into 2021 as businesses delay executing leases amidst the immediate and uncertain future economic impacts of the pandemic. This, coupled with tenant failures, may result in decreased demand for retail space in our centers, which could result in downward pressure on rents. Additionally, due to delays in construction of tenant improvements due to the impacts of the pandemic, it may take longer before new tenants are able to open and commence rent payments.
The pandemic has adversely impacted our ability to start or complete tenant buildouts, new ground up development and redevelopment of existing properties. The pandemic has also impacted our ability to timely source materials for construction and caused labor shortages, which have impacted our ability to complete construction projects on anticipated schedules. New or extended government orders to combat the further spread of the virus could result in similar impacts to our development and redevelopment projects and supply chain, which could have a material adverse effect on our business, financial condition and results of operation.
The full impacts of the pandemic on our future results of operations and overall financial performance remain uncertain. While the vast majority of our lease income is derived from contractual rent payments, the ability of certain of our tenants to meet their lease obligations have been negatively impacted by the disruptions and uncertainties of the pandemic. Our tenants’ ability to respond to these disruptions and uncertainties, including adjusting to governmental orders and changes in their customers’ shopping habits and behaviors, will impact their businesses’ ability to survive, and ultimately, their ability to comply with their lease obligations. The risk of diminished sales and future closures exists so long as the virus remains active and continues to spread. Ultimately, the duration and severity of the health crisis in the United States and the speed at which the country, states and localities are able to safely reopen and remain open, will continue to materially impact the overall economy, our retail tenants, and therefore our results of operations, financial condition and cash flows. Until the virus is contained or eradicated, or effective and reliable treatments and/or vaccines are widely available and accepted by the public, commerce and employment may not return to pre-pandemic levels and we may experience material reductions in our cash flows, NOI and financial performance compared to pre-pandemic periods.
Risk Factors Related to Operating Retail-Based Shopping Centers
Economic and market conditions may adversely affect the retail industry and consequently reduce our revenues and cash flow, and increase our operating expenses.
Our properties are leased primarily to retail tenants from whom we derive most of our revenue in the form of base rent, expense recoveries and other income. Therefore, our performance and operating results are directly linked to the economic and market conditions occurring in the retail industry. We are subject to the risks that, upon expiration, leases for space in our properties are not renewed by existing tenants, vacant space is not leased to new tenants, and/or tenants demand modified lease terms, including costs for renovations or concessions. Moreover, pandemics, such as the pandemic, may exacerbate the effects of these risks. The economic and market conditions potentially affecting the retail industry and our properties specifically include the following:
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changes in national, regional and local economic conditions;
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changes in population and migration patterns to/from the markets in which we operate;
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deterioration in the competitiveness and creditworthiness of our retail tenants;
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increased competition from the use of e-commerce by retailers and consumers as well as other concepts such as super-stores and warehouse clubs;
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tenant bankruptcies and subsequent rejections of our leases;
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reductions in consumer spending and retail sales;
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reduced tenant demand for retail space;
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oversupply of retail space;
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reduced consumer demand for certain retail categories;
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consolidation within the retail sector;
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increased operating costs attendant to owning and operating retail shopping centers;
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perceptions by retailers and shoppers of the safety, convenience and attractiveness of our properties; and
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acts of terrorism and war, natural disasters and other physical and weather-related damages to our properties.
To the extent that any or a combination of these conditions occur they are likely to impact the retail industry, our retail tenants, the demand and market rents for retail space, the percent leased levels of our properties, our ability to sell, acquire or develop properties, our operating results and our cash available for distributions to stock and unit holders.
Shifts in retail trends, sales, and delivery methods between brick and mortar stores, e-commerce, home delivery, and curbside pick-up may adversely impact our revenues and cash flows.
Retailers are increasingly impacted by e-commerce and changes in customer buying habits, including the delivery or curbside pick-up of items ordered online. The pandemic has likely accelerated these trends and their potential impacts. Retailers are considering these e-commerce trends when making decisions regarding their bricks and mortar stores and how they will compete and innovate in a rapidly changing retail environment. Many retailers in our shopping centers provide services or sell goods, which have historically been less likely to be purchased online; however, the continuing increase in e-commerce sales in all retail categories may cause retailers to adjust the size or number of their retail locations in the future or close stores. Our grocer tenants are incorporating e-commerce concepts through home delivery and curbside pick-up, which could reduce foot traffic at our centers. In certain higher-income markets, foot traffic at our centers may be impacted more meaningfully by these alternative delivery methods if consumers are willing to pay premiums for such services. Changes in shopping trends as a result of the growth in e-commerce may also impact the profitability of retailers that do not adapt to changes in market conditions, including their financial condition and ability to pay rent. This shift may adversely impact our percent leased and rental rates, which would impact our results of operations and cash flows.
Changing economic and retail market conditions in geographic areas where our properties are concentrated may reduce our revenues and cash flow.
Economic conditions in markets where our properties are concentrated can greatly influence our financial performance. During the year ended December 31, 2020, our properties in California, Florida, Texas, New York and Georgia accounted for 27.2%, 22.1%, 7.5%, 5.2%, and 5.1% respectively, of our NOI from Consolidated Properties plus our Pro-rata share from Unconsolidated Properties. Our revenues and cash flow may be adversely affected by this geographic concentration if market conditions, such as supply of or demand for retail space, deteriorate more significantly in these states compared to other geographic areas. For example, with respect to the pandemic, California has imposed very stringent restrictions on re-opening and has implemented stringent eviction moratoria, making it more difficult in certain circumstances to collect rent and enforce our leases. Additionally, there is a risk that many businesses and residents in major metropolitan cities may desire to relocate to different states or suburban markets as a result of the pandemic, following the impact of state regulations on businesses and residents coupled with the shift to remote work.
Our success depends on the continued presence and success of our “anchor” tenants.
“Anchor Tenants” (tenants occupying 10,000 square feet or more) operate large stores in our shopping centers, pay a significant portion of the total rent at a property and contribute to the success of other tenants by attracting shoppers to the property. Our net income and cash flow may be adversely affected by the loss of revenues and incurrence of additional costs in the event a significant Anchor Tenant:
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becomes bankrupt or insolvent;
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experiences a downturn in its business;
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materially defaults on its leases;
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does not renew its leases as they expire;
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renews at lower rental rates and/or requires a tenant improvement allowance; or
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renews but reduces its store size, which results in down-time and additional tenant improvement costs to the landlord to re-lease the vacated space.
Some anchors have the right to vacate their space and may prevent us from re-tenanting by continuing to comply and pay rent in accordance with their lease agreement. Vacated anchor space, including space that may be owned by the anchor (as discussed below), can reduce rental revenues generated by the shopping center in other spaces because of the loss of the departed anchor's customer drawing power. In addition, if a significant tenant vacates a property, co-tenancy clauses in select lease contracts may allow other tenants to modify or terminate their rent or lease obligations. Co-tenancy clauses have several variants: they may allow a tenant to postpone a store opening if certain other tenants fail to open their stores; they may allow a tenant to close its store prior to lease expiration if another tenant closes its store prior to lease expiration; or more commonly, they may allow a tenant to pay reduced levels of rent until a certain number of tenants open their stores within the same shopping center.
Additionally, some of our shopping centers are anchored by retailers who own their space whose location is within or immediately adjacent to our shopping center (“shadow anchors”). In those cases, the shadow anchors appear to the consumer as a retail tenant of the shopping center and, as a result, attract additional consumer traffic to the center. In the event that a shadow anchor were to close, it could negatively impact our center as consumer traffic would likely be reduced.
A significant percentage of our revenues are derived from smaller “shop space” tenants and our net income may be adversely impacted if our smaller shop tenants are not successful.
At December 31, 2020, tenants occupying less than 10,000 square feet (“Shop Space Tenants”) represent approximately 35.6% of our GLA, with approximately 14.3% of those considered local tenants. These tenants may be more vulnerable to negative economic conditions, including the impacts from pandemics, as they may have more limited resources and access to capital than Anchor Tenants. Shop Space Tenants may be facing reduced sales as a result of an increase in competition including from e-commerce retailers. The types of Shop Space Tenants vary from retail shops and restaurants to service providers. If we are unable to attract the right type or mix of Shop Space Tenants into our centers, our revenues and cash flow may be adversely impacted.
During times of economic downturns or uncertainties, including during pandemics such as COVID-19, some tenants may suffer disproportionally greater impacts and be at greater risk of default on their lease obligations or request lease concessions from us. If we are unable to attract the right type or mix of low or non-credit tenants into our centers, our revenues and cash flow may be adversely impacted.
We may be unable to collect balances due from tenants in bankruptcy.
Although lease income is supported by long-term lease contracts, tenants who file for bankruptcy 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 may be paid only to the extent that funds are available and only in the same percentage as is paid to all other holders of unsecured claims. As a result, it is likely that we would recover substantially less than the full value of any unsecured claims we hold. Moreover, in the year ended December 31, 2020, we saw meaningfully higher levels of tenant bankruptcies than in recent years as a result of the pandemic, and we expect this trend to continue into at least the first half of 2021. Additionally, we may incur significant expense to recover our claim and to re-lease the vacated space. In the event that a tenant with a significant number of leases in our shopping centers files for bankruptcy and rejects its leases, we may experience a significant reduction in our revenues and may not be able to collect all pre-petition amounts owed by the bankrupt tenant.
Many of our costs and expenses associated with operating our properties may remain constant or increase, even if our lease income decreases.
Certain costs and expenses associated with our operating our properties, such as real estate taxes, insurance, utilities and common area expenses, generally do not decrease in the event of reduced occupancy or rental rates, non-payment of rents by tenants, general economic downturns, pandemics or other similar circumstances. In fact, in some cases, such as real estate taxes and insurance, they may actually increase despite such events. As such, we may not be able to lower the operating expenses of our properties sufficiently to fully offset such circumstances, and may not be able to fully recoup these costs from our tenants. In such cases, our cash flows, operating results and financial performance may be adversely impacted.
Compliance with the Americans with Disabilities Act and fire, safety and other regulations may have a negative effect on us.
All of our properties are required to comply with the Americans with Disabilities Act (“ADA”), which generally requires that buildings be made accessible to people with disabilities. Compliance with ADA requirements may require removal of access barriers, and noncompliance may result in imposition of fines by the U.S. government or an award of damages to private litigants, or both. While the tenants to whom we lease space in our properties are obligated by law to comply with the ADA provisions, and typically under tenant leases are obligated to cover costs associated with compliance, if required changes involve greater expenditures than anticipated, or if the changes must be made on a more accelerated basis than anticipated, the ability of these tenants to cover costs may be adversely affected. In addition, we are required to operate the properties in compliance with fire and safety regulations, building codes and other land use regulations, as they may be adopted by governmental entities and become applicable to the properties. Costs to be in compliance with the ADA or any other building regulations could be material and have a negative impact on our results of operations.
Risk Factors Related to Real Estate Investments
Our real estate assets may decline in value and be subject to impairment losses which may reduce our net income.
Our real estate properties are carried at cost unless circumstances indicate that the carrying value of these assets may not be recoverable. We evaluate whether there are any indicators, including property operating performance and general market conditions, such that the value of the real estate properties (including any related tangible or intangible assets or liabilities, including goodwill) may not be recoverable. Through the evaluation, we compare the current carrying value of the asset to the estimated undiscounted cash flows that are directly associated with the use and ultimate disposition of the asset. Our estimated cash flows are based on several key assumptions, including rental rates, costs of tenant improvements, leasing commissions, anticipated holding periods, and assumptions regarding the residual value upon disposition, including the exit capitalization rate. These key assumptions are subjective in nature and may differ materially from actual results. Changes in our disposition strategy or changes in the marketplace may alter the holding period of an asset or asset group, which may result in an impairment loss and such loss may be material to the Company's financial condition or operating performance. To the extent that the carrying value of the asset exceeds the estimated undiscounted cash flows, an impairment loss is recognized equal to the excess of carrying value over fair value.
The fair value of real estate assets is subjective and is determined through the use of comparable sales information and other market data if available, or through use of an income approach such as the direct capitalization method or the discounted cash flow approach. Such cash flow projections take into account expected future operating income, trends and prospects, as well as the effects of demand, competition and other relevant criteria, and therefore are subject to management judgment. The impacts of the pandemic to future income, trends and prospects is uncertain and continues to evolve, therefore any assumptions impacting real estate values may be subject to change in the future, which may impact the determination of fair value. In estimating the fair value of undeveloped land, we generally use market data and comparable sales information.
These subjective assessments have a direct impact on our net income because recording an impairment charge results in an immediate negative adjustment to net income, which may be material. There can be no assurance that we will not record impairment charges in the future related to our assets.
We face risks associated with development, redevelopment and expansion of properties.
We actively pursue opportunities for new retail development and existing property redevelopment or expansion. Development and redevelopment activities require various government and other approvals for entitlements and any delay in such approvals may significantly delay development and redevelopment projects. We may not recover our investment in our projects for which approvals are not received, and delays may adversely impact our expected returns. Additionally, changes in political elections and policies may impact our ability to obtain favorable land use and zoning for in-process and future developments and redevelopment projects. We are subject to other risks associated with these activities, including the following:
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we may be unable to lease developments or redevelopments to full occupancy on a timely basis;
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the occupancy rates and rents of a completed project may not be sufficient to make the project profitable;
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actual costs of a project may exceed original estimates, possibly making the project unprofitable;
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delays in the development or construction process may increase our costs;
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construction cost increases may reduce investment returns on development and redevelopment opportunities;
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we may abandon development or redevelopment opportunities and lose our investment due to adverse market conditions;
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the size of our development and redevelopment pipeline may strain our labor or capital capacity to complete the development and redevelopment projects within targeted timelines and may reduce our investment returns;
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a reduction in the demand for new retail space may reduce our future development and redevelopment activities, which in turn may reduce our net operating income; and
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changes in the level of future development and redevelopment activity may adversely impact our results from operations by reducing the amount of internal overhead costs that may be capitalized.
We face risks associated with the development of mixed-use commercial properties.
We have expanded our investment focus to include a limited number of more complex acquisitions and mixed-use development and redevelopment projects in dense urban locations, which pose unique risks to our return on investment. Mixed-use projects refer to real estate projects that, in addition to retail space, may also include space for residential, office, hotel or other commercial purposes. We have less experience in developing and managing non-retail real estate than we do retail real estate. As a result, if a development or redevelopment project includes a non-retail use, we may seek to develop that component ourselves, sell the rights to that component to a third-party developer, or partner with a developer.
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If we decide to develop the non-retail components ourselves, we would be exposed not only to those risks typically associated with the development of commercial real estate, but also to risks associated with developing, owning, operating or selling non-retail real estate, including but not limited to more complex entitlement processes and multiple-story buildings. These unique risks may adversely impact our return on investment in these mixed-use development projects.
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If we sell the non-retail components, our retail component will be impacted by the decisions made by the other owners, and actions of those occupying the non-retail spaces in these mixed-use properties.
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If we partner with a developer, it makes us dependent upon the partner's ability to perform and to agree on major decisions that impact our investment returns of the project. In addition, there is a risk that the non-retail developer may default on its obligations necessitating that we complete the other components ourselves, including providing necessary financing.
In addition, redevelopment of existing shopping centers into mixed-use projects generally includes tenant vacancies before and during the redevelopment, which could result in volatility in NOI.
We face risks associated with the acquisition of properties.
Our investment strategy includes investing in high-quality shopping centers that are leased to market-leading grocers, category-leading anchors, specialty retailers, or restaurants located in areas with high barriers to entry and above average household incomes and population densities. The acquisition of properties and/or real estate entities entails risks that include, but are not limited to, the following, any of which may adversely affect our results of operations and cash flows:
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properties we acquire may fail to achieve the occupancy or rental rates we project, within the time frames we estimate, which may result in the properties' failure to achieve the investment returns we project;
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our investigation of an entity, property or building prior to our acquisition, and any representation we may have received from such seller, may fail to reveal various liabilities including defects, necessary repairs or environmental matters requiring corrective action, which may increase our costs;
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our estimate of the costs to improve, reposition or redevelop a property may prove to be too low, or the time we estimate to complete the improvement, repositioning or redevelopment may be too short, either of which may result in the property failing to achieve our projected return, either temporarily or permanently;
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we may not recover our costs from an unsuccessful acquisition;
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our acquisition activities may distract or strain our management capacity; and
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we may not be able to successfully integrate an acquisition into our existing operations platform.
We may be unable to sell properties when desired because of market conditions.
Our properties, including their related tangible and intangible assets, represent the majority of our total consolidated assets and they may not be readily convertible to cash. Moreover, pandemics such as COVID-19 may impact our ability to sell properties on our preferred timing and at prices and returns we deem acceptable. As a result, our ability to sell one or more of our properties, including properties held in joint ventures, in response to changes in economic, industry, or other conditions may be limited. The real estate market is affected by many factors, such as general economic conditions, availability and terms of financing, interest rates and other factors, including supply and demand for space, that are beyond our control. There may be less demand for lower quality properties that we have identified for ultimate disposition in markets with uncertain economic or retail environments, and where buyers are more reliant on the availability of third party mortgage financing. If we want to sell a property, we can provide no assurance that we will be able to dispose of it in the desired time period or at all or that the sales price of a property will be attractive at the relevant time or even exceed the carrying value of our investment.
Changes in tax laws could impact our acquisition or disposition of real estate.
Certain properties we own have a low tax basis, which may result in a taxable gain on sale. We intend to utilize Internal Revenue Code Section 1031 like-kind exchanges to mitigate taxable income; however, there can be no assurance that we will identify properties that meet our investment objectives for acquisitions or that changes to the tax laws do not eliminate or significantly change 1031 exchanges. In the event that we do not utilize 1031 exchanges, we may be required to distribute the gain proceeds to shareholders or pay income tax, which may reduce our cash flow available to fund our commitments.
Risk Factors Related to the Environment Affecting Our Properties
Climate change may adversely impact our properties directly, and may lead to additional compliance obligations and costs as well as additional taxes and fees.
We cannot reliably predict the extent, rate, or impact of climate change. To the extent climate change causes adverse changes in weather patterns, our properties in certain markets, especially those nearer to the coasts, may experience increases in storm intensity and rising sea-levels. Further, population migration may occur in response to these or other factors and negatively impact our centers. Climate and other environmental changes may result in volatile or decreased demand for retail space at certain of our properties or, in extreme cases, our inability to operate certain properties at all. Climate change may also have indirect effects on our business by increasing the cost of insurance, or making insurance unavailable. Moreover, while the federal government has not yet enacted comprehensive legislation to address climate change, certain states in which we own and operate shopping centers, including California and New York, have done so. Compliance with these and future new laws or regulations related to climate change may require us to make improvements to our existing properties, resulting in increased capital expenditures, or pay additional taxes and fees assessed on us or our properties. Although we strive to identify, analyze, and respond to the risk and opportunities that climate change presents, at this time, there can be no assurance that climate change will not have an adverse effect on the value of our properties and our financial performance.
Geographic concentration of our properties makes our business more vulnerable to natural disasters, severe weather conditions and climate change.
A significant number of our properties are located in areas that are susceptible to earthquakes, tropical storms, hurricanes, tornadoes, wildfires, sea-level rise due to climate change, and other natural disasters. At December 31, 2020, 22% of the GLA of our portfolio is located in the state of California, including a number of properties in the San Francisco Bay and Los Angeles areas. Additionally, 23% and 8% of the GLA of our portfolio is located in the states of Florida and Texas, respectively. Insurance costs for properties in these areas have increased, and recent intense weather conditions may cause property insurance premiums to increase significantly in the future. We recognize that the frequency and / or intensity of extreme weather events, sea-level rise, and other climatic changes may continue to increase, and as a result, our exposure to these events may increase. These weather conditions may disrupt our business and the business of our tenants, which may affect the ability of some tenants to pay rent and may reduce the willingness of tenants or residents to remain in or move to these affected areas. Therefore, as a result of the geographic concentration of our properties, we face risks, including disruptions to our business and the businesses of our tenants and higher costs, such as uninsured property losses, higher insurance premiums, and potential additional regulatory requirements by government agencies in response to perceived risks.
Costs of environmental remediation may impact our financial performance and reduce our cash flow.
Under various federal, state, and local laws, an owner or manager of real property may be liable for the costs to assess and remediate the presence of hazardous substances on the property, which in our case generally arise from former dry cleaners, gas stations, asbestos usage, and historic land use practices. These laws often impose liability without regard to whether the owner knew of, or was responsible for, the presence of hazardous substances. The presence of, or the failure to properly address the presence of, hazardous substances may adversely affect our ability to sell or lease the property or borrow using the property as collateral. We can provide no assurance that we are aware of all potential environmental liabilities or their ultimate cost to address; that our properties will not be affected by tenants or nearby properties or other unrelated third parties; and that future uses or conditions, or changes in environmental laws and regulations, or their interpretation, will not result in additional material environmental liabilities to us.
Risk Factors Related to Corporate Matters
An uninsured loss or a loss that exceeds the insurance coverage on our properties may subject us to loss of capital and revenue on those properties.
We carry comprehensive liability, fire, flood, terrorism, business interruption, and environmental insurance for our properties with policy specifications and insured limits customarily carried for similar properties. Some types of losses, such as losses from named windstorms, earthquakes, terrorism, or wars may have more limited coverage, or in some cases, can be excluded from insurance coverage. In addition, it is possible that the availability of insurance coverage in certain areas may decrease in the future, and the cost to procure such insurance may increase due to factors beyond our control. We may reduce the insurance we procure as a result of the foregoing or other factors. While we believe our coverage is appropriate and adequate to cover our insurable risks, should a loss occur at any of our properties that is in excess of the property or casualty insurance limits of our policies, we may lose part or all of our invested capital and revenues from such property, which may have a material adverse impact on our operating results, financial condition, and our ability to make distributions to stock and unit holders.
Terrorist activities or violence occurring at our properties also may directly affect the value of our properties through damage, destruction or loss. Insurance for such acts may be unavailable or cost more resulting in an increase to our operating expenses and adversely affect our results of operations. To the extent that our tenants are affected by such attacks and threats of attacks, their businesses may be adversely affected, including their ability to continue to meet obligations under their existing leases.
Failure to attract and retain key personnel may adversely affect our business and operations.
The success of our business depends, in part, on the leadership and performance of our executive management team and key employees, and our ability to attract, retain and motivate talented employees may significantly impact our future performance. Competition for these individuals is intense, and we cannot be assured that we will retain all of our executive management team and other key employees or that we will be able to attract and retain other highly qualified individuals for these positions in the future. Losing any one or more of these persons may have an adverse effect on us.
The unauthorized access, use, theft or destruction of tenant or employee personal, financial or other data or of Regency’s proprietary or confidential information stored in our information systems or by third parties on our behalf could impact our reputation and brand and expose us to potential liability and loss of revenues.
Many of our information technology systems (including those we use for administration, accounting, and communications, as well as the systems of our co-investment partners and other third-party business partners and service providers, whether cloud-based or hosted in proprietary servers) contain personal, financial or other information that is entrusted to us by our tenants and employees. Many of our information technology systems also contain our proprietary information and other confidential information related to our business. We are frequently subject to attempts to compromise our information technology systems. To the extent we or a third party were to experience a material breach of our or such third party’s information technology systems that result in the unauthorized access, theft, use, destruction or other compromises of tenants’ or employees' data or our confidential information stored in such systems, including through cyber-attacks or other external or internal methods, such a breach may damage our reputation and cause us to lose tenants and revenues, incur third party claims and cause disruption to our business and plans. Such security breaches also could result in a violation of applicable U.S. privacy and other laws, and subject us to private consumer, business partner, or securities litigation and governmental investigations and proceedings, any of which could result in our exposure to material civil or criminal liability, and we may not be able to recover these expenses from our service providers, responsible parties, or insurance carriers. Despite the ongoing significant investments in technology and training we make in cybersecurity, we can provide no assurance that we will avoid or prevent such breaches or attacks.
Additionally, federal, state and local authorities continue to develop laws to address data privacy protection. Monitoring such changes, and taking steps to comply, involves significant costs and effort by management, which may adversely affect our operating results and cash flows.
Despite the implementation of security measures for our disaster recovery and business continuity plans, our systems are vulnerable to damages from multiple sources, including computer viruses, unauthorized access, energy blackouts, natural disasters, terrorism, war, and telecommunication failure. Any system failure or accident that causes interruptions in our operations could result in a material disruption to our business and cause us to incur additional costs to remedy such damages.
Risk Factors Related to Our Partnerships and Joint Ventures
We do not have voting control over all of the properties owned in our co-investment partnerships and joint ventures, so we are unable to ensure that our objectives will be pursued.
We have invested substantial capital as a partner in a number of partnerships and joint ventures to acquire, own, lease, develop or redevelop properties. These activities are subject to the same risks as our investments in our wholly-owned properties. These investments, and other future similar investments may involve risks that would not be present were a third party not involved, including the possibility that partners or other owners might become bankrupt, suffer a deterioration in their creditworthiness, or fail to fund their share of required capital contributions. Partners or other owners may have economic or other business interests or goals that are inconsistent with our own business interests or goals, and may be in a position to take actions contrary to our policies or objectives.
These investments, and other future similar investments, also have the potential risk of creating impasses on decisions, such as a sale or financing, because neither we nor our partner or other owner has full control over the partnership or joint venture. Disputes between us and partners or other owners might result in litigation or arbitration that may increase our expenses and prevent management from focusing their time and efforts on our business. Consequently, actions by, or disputes with, partners or other owners might result in subjecting properties owned by the partnership or joint venture to additional risk. In addition, we risk the possibility of being liable for the actions of our partners or other owners. These factors may limit the return that we receive from such investments or cause our cash flows to be lower than our estimates.
The termination of our partnerships may adversely affect our cash flow, operating results, and our ability to make distributions to stock and unit holders.
If partnerships owning a significant number of properties were dissolved for any reason, we could lose the asset, property management, leasing and construction management fees from these partnerships as well as the operating income of the properties, which may adversely affect our operating results and our cash available for distribution to stock and unit holders. Certain of our partnership operating agreements provide either member the ability to elect buy/sell clauses. The election of these dissolution provisions could require us to invest additional capital to acquire the partners’ interest or to sell our share of the property thereby losing the operating income and cash flow.
Risk Factors Related to Funding Strategies and Capital Structure
Our ability to sell properties and fund acquisitions and developments may be adversely impacted by higher market capitalization rates and lower NOI at our properties which may dilute earnings.
As part of our funding strategy, we sell operating properties that no longer meet our investment standards or those with a limited future growth profile. These sales proceeds are used to fund debt repayment, acquisition of operating properties, and the construction of new developments and redevelopments. An increase in market capitalization rates or a decline in NOI may cause a reduction in the value of centers identified for sale, which would have an adverse impact on the amount of cash generated. Additionally, the sale of properties resulting in significant tax gains may require higher distributions to our stockholders or payment of additional income taxes in order to maintain our REIT status.
We depend on external sources of capital, which may not be available in the future on favorable terms or at all.
To qualify as a REIT, the Parent Company must, among other things, distribute to its stockholders each year at least 90% of its REIT taxable income (excluding any net capital gains). Because of these distribution requirements, we may not be able to fund all future capital needs with income from operations. In such instances, we would rely on third-party sources of capital, which may or may not be available on favorable terms or at all. Our access to third-party sources of capital depends on a number of things, including the market's perception of our growth potential and our current and potential future earnings. Our access to debt depends on our credit rating, the willingness of creditors to lend to us and conditions in the capital markets. In addition to finding creditors willing to lend to us, we are dependent upon our joint venture partners to contribute their pro rata share of any amount needed to repay or refinance existing debt when lenders reduce the amount of debt our partnerships and joint ventures are eligible to refinance.
In addition, our existing debt arrangements also impose covenants that limit our flexibility in obtaining other financing. Additional equity offerings may result in substantial dilution of stockholders' interests and additional debt financing may substantially increase our degree of leverage.
Without access to external sources of capital, we would be required to pay outstanding debt with our operating cash flows and proceeds from property sales. Our operating cash flows may not be sufficient to pay our outstanding debt as it comes due and real estate investments generally cannot be sold quickly at a return we believe is appropriate. If we are required to deleverage our business with operating cash flows and proceeds from property sales, we may be forced to reduce the amount of, or eliminate altogether, our distributions to stock and unit holders or refrain from making investments in our business.
Our debt financing may adversely affect our business and financial condition.
Our ability to make scheduled payments or to refinance our indebtedness will depend primarily on our future performance, which to a certain extent is subject to economic, financial, competitive and other factors beyond our control. In addition, we do not expect to generate sufficient operating cash flow to make balloon principal payments on our debt when due. If we are unable to refinance our debt on acceptable terms, we may be forced (i) to dispose of properties, which might result in losses, or (ii) to obtain financing at unfavorable terms, either of which may reduce the cash flow available for distributions to stock and unit holders. If we cannot make required mortgage payments, the mortgagee may foreclose on the property securing the mortgage.
Covenants in our debt agreements may restrict our operating activities and adversely affect our financial condition.
Our unsecured notes, unsecured term loans, and unsecured line of credit (the “Line”) contain customary covenants, including compliance with financial ratios, such as ratio of indebtedness to total asset value and fixed charge coverage ratio. These covenants may limit our operational flexibility and our investment activities. Moreover, if we breach any of the covenants in our debt agreements, and do not cure the breach within the applicable cure period, our lenders may require us to repay the debt immediately, even in the absence of a payment default. Many of our debt arrangements, including our unsecured notes, unsecured term loan, and unsecured line of credit are cross-defaulted, which means that the lenders under those debt arrangements can require immediate repayment of their debt if we breach and fail to cure a default under certain of our other material debt obligations. As a result, any default under our debt covenants may have an adverse effect on our financial condition, our results of operations, our ability to meet our obligations, and the market value of our stock.
Increases in interest rates would cause our borrowing costs to rise and negatively impact our results of operations.
Although a significant amount of our outstanding debt has fixed interest rates, we do borrow funds at variable interest rates under our credit facility, term loan, and certain secured borrowings. As of December 31, 2020, less than 1.0% of our outstanding debt was variable rate debt not hedged to fixed rate debt. Increases in interest rates would increase our interest expense on any variable rate debt to the extent we have not hedged our exposure to changes in interest rates. In addition, increases in interest rates will affect the terms under which we refinance our existing debt as it matures, to the extent we have not hedged our exposure to changes in interest rates. This would reduce our future earnings and cash flows, which may adversely affect our ability to service our debt and meet our other obligations and also may reduce the amount we are able to distribute to our stock and unit holders.
Hedging activity may expose us to risks, including the risks that a counterparty will not perform and that the hedge will not yield the economic benefits we anticipate, which may adversely affect us.
We manage our exposure to interest rate volatility by using interest rate hedging arrangements. These arrangements involve risk, such as the risk that counterparties may fail to honor their obligations under these arrangements, and that these arrangements may not be effective in reducing our exposure to interest rate changes. There can be no assurance that our hedging arrangements will qualify for hedge accounting or that our hedging activities will have the desired beneficial impact on our results of operations. Should we desire to terminate a hedging arrangement, there may be significant costs and cash requirements involved to fulfill our obligations under the hedging arrangement. In addition, failure to effectively hedge against interest rate changes may adversely affect our results of operations.
The interest rates on our Unsecured Credit facilities as well as on our variable rate mortgages and interest rate swaps might change based on changes to the method in which LIBOR or its replacement rate is determined.
In July 2017, the Financial Conduct Authority (“FCA”) that regulates the London Inter-bank Offered Rate (“LIBOR”) announced it intends to stop compelling banks to submit rates for the calculation of LIBOR after 2021. As a result, the Federal Reserve Board and the Federal Reserve Bank of New York organized the Alternative Reference Rates Committee (“ARRC”) which identified the Secured Overnight Financing Rate (“SOFR”) as its preferred alternative to USD-LIBOR in derivatives and other financial contracts. We are not able to predict when LIBOR will cease to be available or when there will be sufficient liquidity in the SOFR markets. Any changes adopted by FCA or other governing bodies in the method used for determining LIBOR may result in a sudden or prolonged increase or decrease in reported LIBOR. If that were to occur, our interest payments could change. In addition, uncertainty about the extent and manner of future changes may result in interest rates and/or payments that are higher or lower than if LIBOR were to remain available in its current form.
We have contracts that are indexed to LIBOR, including our $1.25 billion unsecured revolving credit facility and fifteen mortgages within our consolidated and unconsolidated portfolios totaling $225.5 million on a Pro-rata basis, as well as interest rate swaps to fix these variable cash flows with notional amounts totaling $177.0 million on a Pro-rata basis. These LIBOR based instruments mature between 2020 and 2028. We are monitoring and evaluating the related risks, which include interest on loans or amounts received and paid on derivative instruments. These risks arise in connection with transitioning contracts to a new alternative rate, including any resulting value transfer that may occur. The value of loans, securities, or derivative instruments tied to LIBOR could also be impacted if LIBOR is limited or discontinued. For some instruments, the method of transitioning to an alternative rate may be challenging, as they may require negotiation with the respective counterparty.
If a contract is not transitioned to an alternative rate and LIBOR is discontinued, the impact is likely to vary by contract. If LIBOR is discontinued or if the methods of calculating LIBOR change from their current form, interest rates on our current or future indebtedness and related interest rate swaps may be adversely affected.
While we expect LIBOR to be available in substantially its current form through June 2023, it is possible that LIBOR will become nonrepresentative prior to that point. This could result, for example, if sufficient banks decline to make submissions to the LIBOR administrator. In that case, the risks associated with the transition to an alternative reference rate will be accelerated and magnified.
Risk Factors Related to the Market Price for Our Securities
Changes in economic and market conditions may adversely affect the market price of our securities.
The market price of our debt and equity securities may fluctuate significantly in response to many factors, many of which are out of our control, including:
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actual or anticipated variations in our operating results;
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changes in our funds from operations or earnings estimates;
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publication of research reports about us or the real estate industry in general and recommendations by financial analysts or actions taken by rating agencies with respect to our securities or those of other REITs;
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the ability of our tenants to pay rent and meet their other obligations to us under current lease terms and our ability to re-lease space as leases expire;
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increases in market interest rates that drive purchasers of our stock to demand a higher dividend yield;
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changes in market valuations of similar companies;
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adverse market reaction to any additional debt we incur in the future;
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any future issuances of equity securities;
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additions or departures of key management personnel;
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strategic actions by us or our competitors, such as acquisitions or restructurings;
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actions by institutional stockholders;
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reports by corporate governance rating companies;
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increased investor focus on sustainability-related risks, including climate change;
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changes in our dividend payments;
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potential tax law changes on REITs;
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speculation in the press or investment community; and
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general market and economic conditions.
These factors may cause the market price of our securities to decline, regardless of our financial condition, results of operations, business or prospects. It is impossible to ensure that the market price of our securities, including our common stock, will not fall in the future. A decrease in the market price of our common stock may reduce our ability to raise additional equity in the public markets. Selling common stock at a decreased market price would have a dilutive impact on existing stockholders.
There is no assurance that we will continue to pay dividends at historical rates.
Our ability to continue to pay dividends at historical rates or to increase our dividend rate will depend on a number of factors, including, among others, the following:
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our financial condition and results of future operations;
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the terms of our loan covenants; and
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our ability to acquire, finance, develop or redevelop and lease additional properties at attractive rates.
If we do not maintain or periodically increase the dividend on our common stock, it may have an adverse effect on the market price of our common stock and other securities.
Risk Factors Relating to the Company’s Qualification as a REIT
If the Parent Company fails to qualify as a REIT for federal income tax purposes, it would be subject to federal income tax at regular corporate rates.
We believe that the Parent Company qualifies for taxation as a REIT for federal income tax purposes, and we plan to operate so that we can continue to meet the requirements for taxation as a REIT. If the Parent Company continues to qualify as a REIT, it generally will not be subject to federal income tax on income that we distribute to our stockholders. Many REIT requirements, however, are highly technical and complex. The determination that the Parent Company is a REIT requires an analysis of various factual matters and circumstances, some of which may not be totally within our control and some of which involve questions of interpretation. For example, to qualify as a REIT, at least 95% of our gross income must come from specific passive sources, like rent, that are itemized in the REIT tax laws. There can be no assurance that the Internal Revenue Service (“IRS”) or a court would agree with the positions we have taken in interpreting the REIT requirements. We are also required to distribute to our stockholders at least 90% of our REIT taxable income, excluding net capital gains. We will be subject to U.S. federal income tax on our undistributed taxable income and net capital gain and to a 4% nondeductible excise tax on any amount by which distributions we pay with respect to any calendar year are less than the sum of 85% of our ordinary income, 95% of our capital gain net income and 100% of our undistributed income from prior years. The fact that we hold many of our assets through co-investment partnerships and their subsidiaries further complicates the application of the REIT requirements. Furthermore, Congress and the IRS might make changes to the tax laws and regulations, and the courts might issue new rulings, that make it more difficult for the Parent Company to remain qualified as a REIT.
Also, unless the IRS granted relief under certain statutory provisions, the Parent Company would remain disqualified as a REIT for four years following the year it first failed to qualify. If the Parent Company failed to qualify as a REIT (currently and/or with respect to any tax years for which the statute of limitations has not expired), we would have to pay significant income taxes, reducing cash available to pay dividends, which would likely have a significant adverse effect on the value of our securities. In addition, we would no longer be required to pay any dividends to stockholders in order to maintain our REIT status. Although we believe that the Parent Company qualifies as a REIT, we cannot be assured that the Parent Company will continue to qualify or remain qualified as a REIT for tax purposes.
Even if the Parent Company qualifies as a REIT for federal income tax purposes, we are required to pay certain federal, state, and local taxes on our income and property. For example, if we have net income from “prohibited transactions,” that income will be subject to a 100% tax. In general, prohibited transactions include sales or other dispositions of property held primarily for sale to customers in the ordinary course of business. The determination as to whether a particular sale is a prohibited transaction depends on the facts and circumstances related to that sale. While we have undertaken a significant number of asset sales in recent years, we do not believe that those sales should be considered prohibited transactions, but there can be no assurance that the IRS would not contend otherwise.
New legislation, as well as new regulations, administrative interpretations, or court decisions may be introduced, enacted, or promulgated from time to time, that may change the tax laws or interpretations of the tax laws regarding qualification as a REIT, or the federal income tax consequences of that qualification, in a manner that is adverse to our stockholders.
Dividends paid by REITs generally do not qualify for reduced tax rates.
Subject to limited exceptions, dividends paid by REITs (other than distributions designated as capital gain dividends, qualified dividends or returns of capital) are not eligible for reduced rates for qualified dividends paid by “C” corporations and are taxable at ordinary income tax rates. The more favorable tax rates applicable to regular corporate qualified dividends may cause investors who are individuals, trusts and estates to perceive investments in REITs to be relatively less attractive than investments in the stocks of non-REIT corporations that pay dividends, which may adversely affect the value of the shares of REITs, including the shares of our capital stock.
Certain foreign stockholders may be subject to U.S. federal income tax on gain recognized on a disposition of our common stock if we do not qualify as a “domestically controlled” REIT.
A foreign person disposing of a U.S. real property interest, including shares of a U.S. corporation whose assets consist principally of U.S. real property interests is generally subject to U.S. federal income tax on any gain recognized on the disposition. This tax does not apply, however, to the disposition of stock in a REIT if the REIT is “domestically controlled.” In general, we will be a domestically controlled REIT if at all times during the five-year period ending on the applicable stockholder’s disposition of our stock, less than 50% in value of our stock was held directly or indirectly by non-U.S. persons. If we were to fail to qualify as a domestically controlled REIT, gain recognized by a foreign stockholder on a disposition of our common stock would be subject to U.S. federal income tax unless our common stock was traded on an established securities market and the foreign stockholder did not at any time during a specified testing period directly or indirectly own more than 10% of our outstanding common stock.
Legislative or other actions affecting REITs may have a negative effect on us.
The rules dealing with federal income taxation are constantly under review by persons involved in the legislative process and by the IRS and the U.S. Department of the Treasury. Changes to the tax laws, with or without retroactive application, may adversely affect Regency or our investors. We cannot predict how changes in the tax laws might affect Regency or our investors. New legislation, Treasury Regulations, administrative interpretations or court decisions may significantly and negatively affect our ability to qualify as a REIT or the federal income tax consequences of such qualification, or the federal income tax consequences of an investment in us. There is also a risk that REIT status may be adversely impacted by a change in tax or other laws. Also, the law relating to the tax treatment of other entities, or an investment in other entities, may change, making an investment in such other entities more attractive relative to an investment in a REIT.
Complying with REIT requirements may limit our ability to hedge effectively and may cause us to incur tax liabilities.
The REIT provisions of the Code limit our ability to hedge our liabilities. Generally, income from a hedging transaction that constitutes “qualifying income” for purposes of the 75% or 95% gross income tests applicable to REITs, does not constitute “gross income” for purposes of the 75% or 95% gross income tests, provided that we properly identify the hedging transaction pursuant to the applicable sections of the Code and Treasury Regulations. To the extent that we enter into other types of hedging transactions, or fail to make the proper tax identifications, the income from those transactions is likely to be treated as non-qualifying income for purposes of both gross income tests. As a result of these rules, we may need to limit our use of otherwise advantageous hedging techniques or implement those hedges through a taxable REIT subsidiary (“TRS”).
Risks Related to the Company’s Common Stock
Restrictions on the ownership of the Parent Company’s capital stock to preserve its REIT status may delay or prevent a change in control.
Ownership of more than 7% by value of our outstanding capital stock is prohibited, with certain exceptions, by the Parent Company's articles of incorporation, for the purpose of maintaining its qualification as a REIT. This 7% limitation may discourage a change in control and may also (i) deter tender offers for our capital stock, which offers may be attractive to our stockholders, or (ii) limit the opportunity for our stockholders to receive a premium for their capital stock that might otherwise exist if an investor attempted to assemble a block in excess of 7% of our outstanding capital stock or to affect a change in control.
The issuance of the Parent Company's capital stock may delay or prevent a change in control.
The Parent Company's articles of incorporation authorize our Board of Directors to issue up to 30,000,000 shares of preferred stock and 10,000,000 shares of special common stock and to establish the preferences and rights of any shares issued. The issuance of preferred stock or special common stock may have the effect of delaying or preventing a change in control. The provisions of the Florida Business Corporation Act regarding affiliated transactions may also deter potential acquisitions by preventing the acquiring party from consummating a merger or other extraordinary corporate transaction without the approval of our disinterested stockholders.
Ownership in the Parent Company may be diluted in the future.
In the future, a stockholder’s percentage ownership in the Company may be diluted because of equity issuances for acquisitions, capital market transactions or other corporate purposes, including equity awards we will grant to our directors, officers and employees. In the past we have issued equity in the secondary market and may do so again in the future, depending on the price of our stock and other factors.
In addition, our amended and restated certificate of incorporation authorizes us to issue, without the approval of our stockholders, one or more classes or series of preferred stock having such designation, powers, preferences and relative, participating, optional and other special rights, including preferences over our common stock respecting dividends and distributions, as our board of directors generally may determine. The terms of one or more classes or series of preferred stock could dilute the voting power or reduce the value of our common stock. For example, we could grant the holders of preferred stock the right to elect some number of our directors in all events or on the happening of specified events or the right to veto specified transactions. Similarly, the repurchase or redemption rights or liquidation preferences we could assign to holders of preferred stock could affect the residual value of the common stock.
Item 1B.
Item 1B. Unresolved Staff Comments
None.
Item 2.
Item 2. Properties
The following table is a list of the shopping centers, summarized by state and in order of largest holdings by number of properties, presented for Consolidated Properties (excludes properties owned by unconsolidated co-investment partnerships):
Certain Consolidated Properties are encumbered by mortgage loans of $415.7 million, excluding debt issuance costs and premiums and discounts, as of December 31, 2020.
The weighted average annual effective rent for the consolidated portfolio of properties, net of tenant concessions, is $22.90 and $22.38 PSF as of December 31, 2020 and 2019, respectively.
The following table is a list of the shopping centers, summarized by state and in order of largest holdings by number of properties, presented for Unconsolidated Properties (includes properties owned by unconsolidated co-investment partnerships):
Certain Unconsolidated Properties are encumbered by non-recourse mortgage loans of $1.6 billion, excluding debt issuance costs and premiums and discounts, as of December 31, 2020.
The weighted average annual effective rent for the unconsolidated portfolio of properties, net of tenant concessions, is $21.84 and $21.69 PSF as of December 31, 2020 and 2019, respectively.
The following table summarizes our top tenants occupying our shopping centers for Consolidated Properties plus our Pro-rata share of Unconsolidated Properties, as of December 31, 2020, based upon a percentage of total annualized base rent (GLA and dollars in thousands):
Our leases for tenant space under 10,000 square feet generally have initial terms ranging from three to seven years. Leases greater than 10,000 square feet (“Anchor Leases”) generally have initial lease terms in excess of five years and are mostly comprised of Anchor Tenants. Many of the leases contain provisions allowing the tenant the option of extending the term of the lease at expiration. Our leases typically provide for the payment of fixed base rent, the tenant’s Pro-rata share of real estate taxes, insurance, and common area maintenance (“CAM”) expenses, and reimbursement for utility costs if not directly metered.
The following table summarizes Pro-rata lease expirations for the next ten years and thereafter, for our Consolidated and Unconsolidated Properties, assuming no tenants renew their leases (GLA and dollars in thousands):
(1)
Leases currently under month-to-month rent or in process of renewal.
During 2021, we have a total of 1,086 leases expiring, representing 2.9 million square feet of GLA. These expiring leases have an average base rent of $25.24 PSF. The average base rent of new leases signed during 2020 was $26.22 PSF. During periods of economic weakness or when percent leased is low, tenants have more bargaining power, which may result in rental rate declines on new or renewal leases. In periods of recovery and/or when percent leased levels are high, landlords have more bargaining power, which generally results in rental rate growth on new and renewal leases. As a result of the pandemic, new leasing activity has declined as many businesses delay executing leases amidst its immediate and uncertain future economic impacts. This trend, coupled with additional potential retail failures resulting from the pandemic, may result in decreased demand for retail space in our centers, which could result in downward pressure on rents.
The following table lists information about our Consolidated and Unconsolidated Properties. For further information, see Item 7, Management's Discussion and Analysis.
(1)
CBSA refers to Core Based Statistical Area.
(2)
Represents our ownership interest in the property, if not wholly owned.
(3)
Includes properties where we have not yet incurred at least 90% of the expected costs to complete and 95% occupied or the anchor has not yet been open for at least two calendar years (“development properties” or “properties in development”). If development properties are excluded, the total percentage leased would be 92.6% for our Combined Portfolio of shopping centers.
(4)
Average base rent PSF is calculated based on annual minimum contractual base rent per the tenant lease, excluding percentage rent and recovery revenue.
(5)
Major tenants are the grocery anchor and any tenant 10,000 square feet or greater. Retailers in parenthesis are shadow anchors at our centers. We have no ownership or leasehold interest in their space, which is within or adjacent to our property.
(6)
The ground underlying the building and improvements is not owned by Regency or its unconsolidated real estate partnerships, but is subject to a ground lease.
(7)
Property in development.
Item 3.
Item 3. Legal Proceedings
We are a party to various legal proceedings that arise in the ordinary course of our business. We are not currently involved in any litigation, nor to our knowledge, is any litigation threatened against us, the outcome of which would, in our judgment based on information currently available to us, have a material adverse effect on our financial position or results of operations. However, no assurances can be given as to the outcome of any threatened or pending legal proceedings.
Item 4.
Item 4. Mine Safety Disclosures
N/A
PART II
Item 5.
Item 5. Market for the Registrant's Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities
Since November 13, 2018, our common stock has traded on the NASDAQ Global Select Market under the symbol “REG.” Before November 13, 2018, our common stock traded on the NYSE, also under the symbol “REG.”
As of February 5, 2021, there were 46,958 holders of common equity.
We intend to pay regular quarterly distributions to Regency Centers Corporation's common stockholders. Future distributions will be declared and paid at the discretion of our Board of Directors and will depend upon cash generated by operating activities, our financial condition, capital requirements, annual dividend requirements under the REIT provisions of the Internal Revenue Code of 1986, as amended, and such other factors as our Board of Directors deems relevant. In order to maintain Regency Centers Corporation’s qualification as a REIT for federal income tax purposes, we are generally required to make annual distributions at least equal to 90% of our real estate investment trust taxable income for the taxable year. Under certain circumstances we could be required to make distributions in excess of cash available for distributions in order to meet such requirements. We have a dividend reinvestment plan under which shareholders may elect to reinvest their dividends automatically in common stock. Under the plan, we may elect to purchase common stock in the open market on behalf of shareholders or may issue new common stock to such stockholders.
Under the revolving credit agreement of our line of credit, in the event of any monetary default, we may not make distributions to stockholders except to the extent necessary to maintain our REIT status.
There were no unregistered sales of equity securities during the quarter ended December 31, 2020.
The following table represents information with respect to purchases by the Parent Company of its common stock by months during the three month period ended December 31, 2020:
(1)
Represents shares repurchased to cover payment of withholding taxes in connection with restricted stock vesting by participants under Regency's Long-Term Omnibus Plan.
(2)
On February 4, 2020, the Company's Board authorized a common share repurchase program under which the Company may purchase, from time to time, up to a maximum of $250 million of its outstanding common stock through open market purchases and/or in privately negotiated transactions. Any shares purchased will be retired. This previously authorized program expired on February 5, 2021 and no shares were repurchased under this share repurchase program. On February 3, 2021, the Company’s Board of Directors authorized a new common share repurchase program under which the Company may purchase, from time to time, up to a maximum of $250 million of its outstanding common stock through open market purchases and/or in privately negotiated transactions. Any shares purchased will be retired. This new authorization will expire February 3, 2023, unless earlier terminated by the Board of Directors.
The performance graph furnished below shows Regency’s cumulative total stockholder return to the S&P 500 Index, the FTSE Nareit Equity REIT Index, and the FTSE Nareit Equity Shopping Centers index since December 31, 2015. The stock performance graph should not be deemed filed or incorporated by reference into any other filing made by us under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent that we specifically incorporate the stock performance graph by reference in another filing.
Item 6.
Item 6. Selected Financial Data
The following table sets forth Selected Financial Data for the Company on a historical basis for the five years ended December 31, 2020 (in thousands, except per share and unit data, number of properties, and ratio of earnings to fixed charges). This historical Selected Financial Data has been derived from the audited consolidated financial statements. This information should be read in conjunction with the consolidated financial statements of Regency Centers Corporation and Regency Centers, L.P. (including the related notes thereto) and Management's Discussion and Analysis of the Financial Condition and Results of Operations, each included elsewhere in this Form 10-K.
Parent Company
(1)
2020 Operating data includes the impact of the pandemic, including $117.0 million of higher uncollectible Lease income, which reduced Revenues and Net cash provided by operating activities, and a $132.1 million Goodwill impairment charge included in Other expense (income), as discussed further in Results from Operations.
(2)
2017 reflects the results of our merger with Equity One on March 1, 2017, and therefore only includes ten months of operating results for the Equity One portfolio, but also includes merger and integration related costs within Operating expenses.
(3)
See Item 1, Defined Terms, for the definition of Nareit FFO and Item 7, Supplemental Earnings Information, for a reconciliation to the nearest GAAP measure. Effective January 1, 2019, we prospectively adopted the Nareit FFO White Paper - 2018 Restatement (“2018 FFO White Paper”), and elected the option of excluding gains on sale and impairments of land, which are considered incidental to our main business. Prior period amounts were not restated to conform to the current year presentation.
(4)
Includes our Investments in real estate partnerships.
Operating Partnership
(1)
2020 Operating data includes the impact of the pandemic, including $117.0 million of higher uncollectible Lease income, which reduced Revenues and Net cash provided by operating activities, and a $132.1 million Goodwill impairment charge included in Other expense (income), as discussed further in Results from Operations.
(2)
2017 reflects the results of our merger with Equity One on March 1, 2017, and therefore only includes ten months of operating results for the Equity One portfolio, but also includes merger and integration related costs within Operating expenses.
(3)
See Item 1, Defined Terms, for the definition of Nareit FFO and Item 7, Supplemental Earnings Information, for a reconciliation to the nearest GAAP measure. Effective January 1, 2019, we prospectively adopted the Nareit FFO White Paper - 2018 Restatement (“2018 FFO White Paper”), and elected the option of excluding gains on sale and impairments of land, which are considered incidental to our main business. Prior period amounts were not restated to conform to the current year presentation.
(4)
Includes our Investments in real estate partnerships.
Item 7.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
COVID-19 Pandemic
For a discussion of the COVID-19 pandemic, refer to Part I Item 1. Business.
Executing on our Strategy
During the year ended December 31, 2020, we had Net income attributable to common stockholders of $44.9 million, which includes the impacts of a $132.1 million Goodwill impairment charge and $117.0 million of uncollectible Lease income, as compared to Net income attributable to common stockholders of $239.4 million during the year ended December 31, 2019.
During the year ended December 31, 2020:
•
Our Pro-rata same property NOI, excluding termination fees, declined 11.6%, primarily attributable to uncollectible Lease income; however, as of February 8, 2021, we experienced sequential improvement in our Pro-rata base collection rates billed by quarter as follows:
•
We executed 1,511 new and renewal leasing transactions representing 5.8 million Pro-rata SF with positive trailing twelve month rent spreads of 2.2%, as compared to 1,702 leasing transactions representing 6.1 million Pro-rata SF with positive trailing twelve month rent spreads of 8.5% in the prior year. Rent spreads are on comparable retail operating property spaces in each period.
•
At December 31, 2020, our total property portfolio was 92.3% leased while our same property portfolio was 92.9% leased, as compared to 94.8% leased and 95.1% leased, respectively, at December 31, 2019. Primarily as a result from the impacts of the pandemic, our percent leased declined during 2020 due to tenant closures and bankruptcies, combined with declines in new leasing activity.
We continued our development and redevelopment of high quality shopping centers in a targeted manner amidst the pandemic, although many in process projects have stopped or slowed while we evaluate current market conditions and assess the feasibility of these projects. As of December 31, 2020, we have a total of 14 properties in process of development or redevelopment with total estimated Pro-rata project costs of $319.3 million as compared to 22 properties and $350.8 million at December 31, 2019.
We maintained a conservative balance sheet providing liquidity and financial flexibility to respond to these uncertain economic times and to cost effectively fund investment commitments, opportunities, and debt maturities:
•
During March of 2020, we settled forward sales agreements under our ATM program that we entered into during 2019 by delivering 1,894,845 shares of common stock and receiving $125.8 million in net proceeds. We used these proceeds for working capital and general corporate purposes. Under our current ATM equity offering program, we may sell up to $500 million of common stock at prices determined by the market at the time of sale.
•
On May 11, 2020, we issued $600 million of 10 year senior unsecured public notes at 3.7%, which priced at 99.805%. The proceeds of the offering were used to increase liquidity, including redeeming other outstanding public notes, repaying the outstanding balance on our Line, and for general working capital purposes.
•
On September 2, 2020, we redeemed the entire $300 million outstanding of 3.75% Notes due 2022 for a redemption price of $325.1 million, including accrued and unpaid interest through the redemption date and a make-whole amount.
•
As of December 31, 2020, we have a borrowing capacity of $1.2 billion on our Line of Credit (“Line”).
•
At December 31, 2020, our Pro-rata net debt-to-operating EBITDAre ratio on a trailing twelve month basis was 6.0x as compared to 5.4x at December 31, 2019.
•
Subsequent to December 31, 2020, we repaid our $265 million Term Loan, leaving us with no unsecured debt maturities until 2024.
•
Subsequent to December 31, 2020, we extended our Line maturity date to March 2025, retaining the same $1.25 billion borrowing commitment.
Leasing Activity and Significant Tenants
We believe our high-quality, grocery anchored shopping centers located in densely populated, desirable infill trade areas create attractive spaces for retail and service providers to operate their businesses.
Pro-rata Percent Leased
The following table summarizes Pro-rata percent leased of our combined Consolidated and Unconsolidated shopping center portfolio:
Our percent leased in both the Anchor and Shop space categories declined during 2020 due to tenant closures and bankruptcies primarily as a result from the impacts of the pandemic. Additionally, a number of tenants at our properties were either required or elected to temporarily close due to the pandemic. Some of these tenants may be unable to sustain their business models in this current pandemic environment and may fail. While the pandemic continues, we may be unable to find suitable replacement tenants for an extended period of time and the terms of the leases with replacement tenants may be less favorable to us. As such, our percent leased could decline further in future periods, resulting in reduced Lease income from both lower base rent and recoveries from tenants for CAM, real estate taxes, and insurance costs at our centers.
Pro-rata Leasing Activity
The following table summarizes leasing activity, including our Pro-rata share of activity within the portfolio of our co-investment partnerships:
New leasing activity has declined as many businesses delay executing leases amidst the immediate and uncertain future economic impacts from the pandemic; however, renewal leasing activity has remained consistent with 2019 levels. New and renewal rent spreads, as compared to prior rents on these same spaces leased, remained positive at 2.2% for the twelve months ended December 31, 2020, although the spreads tightened throughout the year as compared to 5.7% for the twelve months ended December 31, 2019. With
the average annual base rent of all shop space leases due to expire during the next 12 months of $33.37 PSF, there is a possibility of negative rent spreads occurring as we execute new or renewal lease deals, considering the total weighted average base rent on signed shop space leases during 2020 was lower at $32.87 PSF.
Significant Tenants and Concentrations of Risk
We seek to reduce our operating and leasing risks through geographic diversification and by avoiding dependence on any single property, market, or tenant. Based on percentage of annualized base rent, the following table summarizes our most significant tenants, of which the top four are grocers:
(1)
Includes Regency's Pro-rata share of Unconsolidated Properties and excludes those owned by anchors.
Bankruptcies and Credit Concerns
The impact of bankruptcies may increase significantly if tenants occupying our centers are unable to withstand and recover from the disruptions caused by the pandemic, which could materially adversely impact our Lease income. Since the pandemic began, we have seen an increase in the number of tenants filing for bankruptcy. Due to the pandemic there has been and continues to be a greater focus on whether tenants’ businesses are considered essential or non-essential, which may directly impact the tenants’ ability to operate and generate sufficient cash flows to meet their operating expenses, including lease payments. Continued higher unemployment levels could also negatively impact consumer spending and, along with large-scale business failures, have an adverse effect on our results from operations. We seek to mitigate these potential impacts through tenant diversification, replacing weaker tenants with stronger operators, anchoring our centers with market leading grocery stores that drive customer traffic, and maintaining a presence in affluent suburbs and dense infill trade areas. As of December 31, 2020, approximately 63% of Pro-rata average base rent in our portfolio is derived from tenants’ businesses classified as essential.
Since the pandemic began, the Company has been closely monitoring its cash collections which significantly declined from historic levels in the initial months of the pandemic, most notably from tenants whose businesses are classified as non-essential. The pandemic has continued to result in certain tenants requesting concessions from rent obligations, including deferrals, abatements and requests to negotiate future rents, while some tenants have been unable to reopen or have not honored the terms of their existing lease agreements. The Company has entered into approximately 1,600 agreements, representing $40.8 million of Pro-rata base rent or 4.6% of our total annual base rent, with tenants within our consolidated real estate portfolio and our unconsolidated real estate investment partnerships, enabling them to defer a portion of their rental payments and repay them over future periods. The Company expects to continue to work with other tenants, which may result in further rent concessions or legal actions as determined to be necessary and appropriate. Due to the uncertainty surrounding the pandemic, there can be no assurances that all such deferred rent will ultimately be collected, or collected within the timeframes agreed upon.
We closely monitor the operating performance of tenants in our shopping centers as well as those experiencing significant changes to their business models, as can be seen through reduced customer traffic in their stores. Operators / tenants who are unable to withstand these and other business pressures, such as significant cash flow declines or debt maturities, may file for bankruptcy. As a result of our research and findings, we may reduce new leasing, suspend leasing, or curtail allowances for construction of leasehold improvements within certain retail categories or to a specific tenant in order to reduce our risk of loss from bankruptcies and store closings.
Although base rent is supported by long-term lease contracts, tenants who file bankruptcy generally have the legal right to reject any or all of their leases and close related stores. Any unsecured claim we hold against a bankrupt tenant for unpaid rent might be paid only to the extent that funds are available and only in the same percentage as is paid to all other holders of unsecured claims. As a result, it is likely that we would recover substantially less than the full value of any unsecured claims we hold. Additionally, we may incur significant expense to adjudicate our claim and to release the vacated space. In the event that a tenant with a significant number of leases in our shopping centers files bankruptcy and cancels its leases, we could experience a significant reduction in our revenues. As of December 31, 2020, tenants who are currently in bankruptcy and continue to occupy space in our shopping centers represent an aggregate of 0.4% of our annual base rent on a Pro-rata basis. We anticipate fewer tenant bankruptcies in 2021, but it is possible they could increase depending on the length and severity of the pandemic.
Results from Operations
Comparison of the years ended December 31, 2020 and 2019:
Our revenues changed as summarized in the following table:
Lease income decreased $114.1 million, driven by the following contractually billable components of rent to the tenants per the lease agreements:
$105.1 million decrease from recognizing additional Uncollectible lease income, consisting of $28.1 million increase in uncollectible Straight-line rent receivables and $77.0 million increase in uncollectible billable tenant receivables. The pandemic has been most impactful to those tenants considered non-essential by governmental authorities. The current economic environment has resulted in changes in our expectations of collecting certain tenant receivables and their related future contracted rent increases previously recognized through straight-line rent. Approximately 92% of Pro-rata base rent billed for the three months ended December 31, 2020, has been collected as of February 8, 2021.
$5.7 million decrease from billable Base rent, as follows:
•
$1.6 million increase from rent commencing at development properties; and
•
$6.2 million net increase primarily from acquisitions of operating properties; reduced by
•
$2.0 million net decrease from same properties due to the loss of rents from tenant move-outs and bankruptcies and rental rate declines, offset by increases from contracted rent increases in existing leases; and
•
$11.5 million decrease from the sale of operating properties.
$3.2 million decrease in Above and below market rent primarily from the sale of operating properties.
$1.6 million increase in Other lease income from higher lease termination fees.
$1.4 million decrease in Percentage rent due to lower sales in this pandemic environment by certain tenants.
$361,000 remaining net decrease driven primarily by a reduction in straight-line rent.
Management, transaction and other fees decreased $3.1 million primarily from decreases in development, construction management, and property management fees from projects within our unconsolidated partnerships. Two development projects within our unconsolidated partnerships completed during 2019, resulting in reduced development fees in 2020. Additionally, decreases in property rent collections during this pandemic have negatively impacted our property management income earned from our unconsolidated partnerships.
Changes in our operating expenses are summarized in the following table:
Depreciation and amortization costs changed as follows:
•
$2.0 million increase as we began depreciating costs at development properties where tenant spaces were completed and became available for occupancy; and
•
$1.9 million increase from acquisitions of operating properties and corporate assets; reduced by
•
$26.9 million net decrease at same properties, primarily attributable to additional 2019 depreciation and amortization due to both redevelopment properties and early tenant move-outs; and
•
$5.4 million decrease from the sale of operating properties.
Operating and maintenance costs remained steady even with increases in property insurance premiums as those increases were offset by decreases in common area maintenance costs during the pandemic and a decrease in lease termination expense.
General and administrative expenses remained constant although there was a $10.2 million increase from less development overhead capitalized as many development and redevelopment projects were delayed due to the pandemic, offset by $8.2 million decrease in incentive compensation costs, and $2.3 million decrease in other expenses related to lower travel and conference costs amidst the pandemic.
Real estate taxes changed as follows:
•
$1.7 million increase from development properties where capitalization ceased as tenant spaces became available for occupancy; and
•
$1.1 million increase from acquisitions of operating properties; and
•
$5.7 million increase within the same property portfolio from changes in assessed property values; reduced by
•
$1.7 million decrease from the sale of operating properties.
Other operating expenses increased $4.8 million primarily attributable to a $7.9 million increase in development pursuit costs charged to expense for abandoned projects, offset by a $2.9 million decrease in state and franchise taxes.
The following table presents the components of other expense (income):
The $5.4 million net increase in total interest expense is primarily due to:
•
$17.0 million net increase in Interest on notes payable, primarily related to the timing of issuing new unsecured notes of $600 million during 2020, whereby we held the proceeds in cash on our balance sheet as liquidity reserves related to the pandemic until we redeemed $300 million of unsecured debt in September 2020 and $265 million of Term Loan debt in January 2021; partially offset by
•
$7.7 million decrease in Interest on unsecured credit facilities resulting from the repayment of a term loan using proceeds from a senior unsecured note issuance; and
•
$3.2 million decrease in Hedge expense resulting from the maturity of a forward swap hedging ten-year senior unsecured notes.
During the year ended December 31, 2020, we recognized $132.1 million of Goodwill impairment, due to the significant market and economic impacts of the pandemic. The market disruptions triggered evaluation of reporting unit fair values for goodwill impairment. Of our 269 reporting units with goodwill, 87 reporting units were determined to have fair values lower than carrying value. As such, goodwill impairment losses were recognized for the amount that the carrying amount of the reporting unit, including goodwill, exceeded its fair value, limited to the total amount of goodwill allocated to that reporting unit.
The $35.6 million decrease in Provision for impairment of real estate is due to:
•
During 2019, we recognized $54.2 million of impairment losses, including $40.3 million for one operating property, classified as held and used, which was further impaired in 2020 as noted below.
•
During 2020, we recognized $18.5 million of impairment losses resulting from impairment of two operating properties and the sale of one land parcel. This includes an additional $17.5 million impairment of a single tenant property located in the Manhattan market of New York City that was previously impaired during 2019 as a result of its retail tenant declaring bankruptcy. As the pandemic continues to impact the leasing market, limiting visibility for replacement prospects for this property, our hold period probabilities have shifted triggering further evaluation of the current fair value resulting in the additional impairment charge in 2020.
During 2020, we recognized gains of $67.5 million from the sale of ten land parcels, five operating properties, receipt of property insurance proceeds, and the re-measurement gain from the acquisition of controlling interest in a previously held equity investment. During 2019, we sold five operating properties and six land parcels for gains totaling $24.2 million.
During 2020, we incurred $21.8 million of debt extinguishment costs of which $19.4 million related to the early redemption of our unsecured notes due to mature in 2022 and a $2.4 million charge for termination of an interest rate swap on our term loan that was repaid in January 2021. During 2019, we redeemed unsecured notes and repaid one mortgage, all prior to original maturity, resulting in $12 million of debt extinguishment costs.
Our equity in income (losses) of investments in real estate partnerships changed as follows:
(1)
Includes our investment in the Town and Country shopping center, which we owned 18.38% during 2019. In January 2020, we purchased an additional 16.62%, bringing our total ownership interest to 35%.
The $26.8 million decrease in total Equity in income in investments in real estate partnerships is attributed to:
•
$18.1 million decrease within GRIR primarily due to the following:
o
$9.9 million decrease from higher uncollectible lease income attributable to the impact of the pandemic on tenants; and
o
$9.4 million decrease driven by gains recognized during 2019 on the sale of operating real estate; reduced by
o
$1.6 million increase from additional termination fee income in 2020.
•
$10.5 million increase within NYC primarily due to the $10.9 million provision for impairment of real estate recognized in 2019; offset by
•
$2.5 million decrease within RegCal primarily due to a $2.5 million gain recognized during 2019 on the sale of an operating property within the partnership;
•
$14.8 million decrease within Other investments in real estate partnerships primarily due to a $15.0 million gain recognized during 2019 on the sale of a single operating property; and
•
All of our investments in real estate partnerships experienced higher amounts of uncollectible lease income, negatively impacting our equity in income.
The following represents the remaining components that comprise net income attributable to the common stockholders and unit holders:
Comparison of the years ended December 31, 2019 and 2018:
For a comparison of our results from operations for the years ended December 31, 2019 and 2018, see “Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the year ended December 31, 2019, filed with the SEC on February 18, 2020.
Supplemental Earnings Information
We use certain non-GAAP performance measures, in addition to certain performance metrics determined under GAAP, as we believe these measures improve the understanding of our operating results. We believe these non-GAAP measures provide useful information to our Board of Directors, management and investors regarding certain trends relating to our financial condition and results of operations. Our management uses these non-GAAP measures to compare our performance to that of prior periods for trend analyses, purposes of determining management incentive compensation and budgeting, forecasting and planning purposes. We provide Pro-rata financial information because we believe it assists investors and analysts in estimating our economic interest in our consolidated and unconsolidated partnerships, when read in conjunction with our reported results under GAAP. We believe presenting our Pro-rata share of operating results, along with other non-GAAP measures, may assist in comparing our operating results to other REITs. We continually evaluate the usefulness, relevance, limitations, and calculation of our reported non-GAAP performance measures to determine how best to provide relevant information to the public, and thus such reported measures could change. See “Defined Terms” in Part I, Item 1.
We do not consider non-GAAP measures an alternative to financial measures determined in accordance with GAAP, rather they supplement GAAP measures by providing additional information we believe to be useful to our shareholders. The principal limitation of these non-GAAP financial measures is they may exclude significant expense and income items that are required by GAAP to be recognized in our consolidated financial statements. In addition, they reflect the exercise of management’s judgment about which expense and income items are excluded or included in determining these non-GAAP financial measures. In order to compensate for these limitations, reconciliations of the non-GAAP financial measures we use to their most directly comparable GAAP measures are provided. Non-GAAP financial measures should not be relied upon in evaluating our financial condition, results of operations, or future prospects.
Pro-rata Same Property NOI:
Our Pro-rata same property NOI changed as follows:
(1)
Represents amounts included within Lease income, in the accompanying Consolidated Statements of Operations and further discussed in Note 1, that are contractually billable to the tenant per the terms of the lease agreements.
Billable Base rent decreased $3.2 million due to loss of rents from bankruptcies and other tenant move-outs which were partially offset by contractual rent increases.
Recoveries from tenants decreased $1.2 million largely due to declines in percent leased stemming from bankruptcies and other tenant move-outs.
Percentage rent decreased $1.5 million principally due to lower tenant sales which were impacted by lockdowns during the pandemic which affected customer traffic and tenant sales.
Termination fees increased $4.3 million primarily due to strategic changes in merchandising mix and negotiated terminations for tenant failures related to COVID-19.
Uncollectible lease income increased $79.0 million due to changes in collection expectations of our lease income caused by the impact of the pandemic on our tenants.
Other property income decreased $1.1 million primarily due to reduced demand for paid parking during the pandemic.
Real estate taxes increased $5.8 million due to changes in assessed values at properties across our portfolio.
Same Property Rollforward:
Our same property pool includes the following property count, Pro-rata GLA, and changes therein:
(1)
SF adjustments arise from remeasurements or redevelopments.
Nareit FFO:
Our reconciliation of net income attributable to common stock and unit holders to Nareit FFO is as follows:
(1)
Includes Regency's Pro-rata share of unconsolidated investment partnerships, net of Pro-rata share attributable to noncontrolling interests.
Reconciliation of Same Property NOI to Nearest GAAP Measure:
Our reconciliation of Net income attributable to common stockholders to Same Property NOI, on a Pro-rata basis, is as follows:
(1)
Includes straight-line rental income and expense, net of reserves, above and below market rent amortization, other fees, and noncontrolling interest.
(2)
Includes non-NOI income earned and expenses incurred at our unconsolidated real estate partnerships, including those separated out above for our consolidated properties.
(3)
Includes revenues and expenses attributable to non-same properties, sold properties, development properties, and corporate activities.
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. We continuously monitor the capital markets and evaluate our ability to issue new debt or equity, to repay maturing debt, or fund our capital commitments.
Except for $200 million of private placement debt, our Parent Company has no capital commitments other than its guarantees of the commitments of our Operating Partnership. All remaining debt is held by our Operating Partnership or by our co-investment partnerships. The Operating Partnership is a co-issuer and a guarantor of the $200 million of outstanding debt of our Parent Company. The Parent Company will from time to time access the capital markets for the purpose of issuing new equity and will simultaneously contribute all of the offering proceeds to the Operating Partnership in exchange for additional partnership units.
As the pandemic and its related impacts continue to evolve, we have taken the following steps to ensure sufficient liquidity and financial flexibility:
•
We settled our forward equity agreements under our previous ATM program and received proceeds of approximately $125.8 million in March 2020.
•
We renewed our ATM equity offering program in May 2020 which provides for the sale of $500 million of common stock. As of December 31, 2020, all $500 million of common stock remained available for issuance.
•
We issued $600 million of new 10-year senior unsecured public notes in May 2020 and received proceeds of $598.8 million. Portions of the proceeds were used to repay the outstanding balance on our Line and to redeem in September 2020 our $300 million 3.75% unsecured Notes due 2022.
•
In January 2021, we repaid our $265 million Term Loan, resulting in no unsecured notes maturing until 2024.
•
We have a borrowing capacity on our Line of $1.2 billion, which in February 2021 was amended to extend the maturity to March 23, 2025 with the option to extend the maturity for two additional six-month periods. Our existing financial covenants under the Line remained unchanged. We also had $376.1 million of unrestricted cash available to us as of December 31, 2020, of which $265 million was used to repay the Term Loan in January 2021.
We also continue to closely monitor and assess the capital requirements of all in process and planned developments, redevelopments, and capital expenditures, which has resulted in our delaying, phasing or curtailing certain in-process and planned development, redevelopment and capital expenditure projects. We have no unsecured debt maturities until 2024 and a manageable level of secured mortgage maturities during 2021, including those mortgages within our joint ventures.
We continually evaluate alternative financing options, and we believe we can obtain financing on reasonable terms; however, there can be no assurance that additional financing or capital will be available, or that the terms will be acceptable or advantageous to us. Based upon our available cash balance, sources of capital, our current credit ratings, the number of high quality, unencumbered properties we own, and our decisions to delay, phase or curtail projects, we believe our available capital resources are sufficient to meet our expected capital needs for at least the next 12 months.
In addition to our unrestricted cash at December 31, 2020, we have the following additional sources of capital available:
(1)
Net of letters of credit.
(2)
In February 2021, the Company amended its Line agreement, which was due to mature in March 2022, to, among other items, extend the maturity date to March 23, 2025 with the option to extend the maturity for two additional six-month periods while retaining the same $1.25 billion borrowing capacity.
The declaration of dividends is determined quarterly by our Board of Directors. On February 10, 2021, our Board of Directors declared a common stock dividend of $0.595 per share, payable on April 6, 2021, to shareholders of record as of March 15, 2021. 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 years ended December 31, 2020 and 2019, we generated cash flow from operations of $499.1 million and $621.3 million, respectively, and paid $403.3 million and $391.6 million in dividends to our common stock and unit holders, respectively, including the payment of the dividend we declared on December 15, 2020 and paid on January 5, 2021 of $101.4 million. We are closely monitoring our cash collections from our tenants which significantly declined from historic levels at the start of the pandemic and resulting restrictions. As of February 8, 2021, we experienced sequential improvement in our collection rates of Pro-rata base rent billed by quarter in 2020 as follows:
Based upon our collection experience since the pandemic began, we expect our collection rates will continue to trend lower than historical pre-pandemic averages for the foreseeable future until the vaccines are fully deployed, restrictions are lifted, and the percent
leased in our shopping centers increases. If our cash flow from operations is insufficient to fund our current dividend level, a reduction in our cash dividend may be necessary or dividends could be paid in Regency stock, in order to remain in compliance with minimum REIT distributions.
We currently have 14 development and redevelopment projects in various stages of construction, along with a pipeline of potential projects for future development or redevelopment. As the effects of the pandemic remain uncertain, we continue to evaluate the pandemic’s impacts on the feasibility of our pipeline projects and non-essential capital expenditures, including project scope, investment, tenant use, timing and return on investment.
After repaying our $265 million Term Loan and funding our dividend payment in January 2021 with cash on hand, we estimate that we will require capital during the next twelve months of approximately $353.6 million to repay maturing debt, to fund construction and related costs for committed tenant improvements and in-process development and redevelopment, and to make capital contributions to our co-investment partnerships. If we start new developments or redevelopments, commit to new acquisitions, prepay debt prior to maturity, or repurchase shares of our common stock, our cash requirements will increase. The combination of our $1.2 billion capacity available on our Line and no unsecured debt maturities until 2024 strengthens our financial position enabling us to fund our expected near-term operating and capital expenditures amid the uncertainty of operating cash flows during this pandemic and recovery period. We expect to generate the necessary cash to fund our long-term capital needs from cash flow from operations, borrowings from our Line, proceeds from the sale of real estate, mortgage loan and unsecured bank financing, and when the capital markets are favorable, proceeds from the sale of equity or the issuance of new unsecured debt.
We endeavor to maintain a high percentage of unencumbered assets, as measured by 89.6% of our wholly-owned real estate assets being unencumbered at December 31, 2020. Such assets allow us to access the secured and unsecured debt markets and to maintain availability on the Line. Our trailing twelve month Fixed charge coverage ratio, including our Pro-rata share of our partnerships, was 3.6x and 4.3x for the periods ended December 31, 2020 and 2019, respectively, and our Pro-rata net debt-to-operating EBITDAre ratio on a trailing twelve month basis was 6.0x and 5.4x, respectively, for the same periods. We expect that these ratios could worsen during 2021 as a result of potential further impacts from the ongoing pandemic.
Our Line, Term Loan, and unsecured debt require that we remain in compliance with various covenants, which are described in note 9 to the Consolidated Financial Statements. We are in compliance with these covenants at December 31, 2020, 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:
Net cash provided by operating activities:
Net cash provided by operating activities decreased by $122.2 million due to:
•
$129.0 million decrease in cash flows from operating income, largely resulting from lower rent collections attributable to the impact of the pandemic on our tenants. However, we continue to negotiate with some of our tenants on repayment periods and since the pandemic began, we have executed approximately 1,600 rent deferral agreements, representing $40.8 million of rent or 4.6% of annual base rent, within our consolidated and unconsolidated real estate portfolios. The weighted average deferral period of these agreements is approximately 3.3 months, with repayment periods of approximately 9.7 months beginning in December 2020. Due to the uncertainty surrounding the pandemic, there can be no assurances how much deferred rent will ultimately be paid, or paid within the timeframes negotiated and agreed upon. The duration and severity of the pandemic will continue to impact our ability to generate cash flow from operations; offset by,
•
$6.9 million increase from cash paid in 2019 to settle treasury rate locks put in place to hedge changes in interest rates on our 30 year fixed rate debt offering and to settle an interest rate swap on the repayment of our $300 million term loan, both during 2019.
Net cash used in investing activities:
Net cash used in investing activities changed by $257.1 million as follows:
Significant investing activities included:
•
We acquired one operating property for $16.9 million during 2020 and four operating properties for $222.4 million during 2019.
•
We invested $19.2 million less in 2020 than 2019 on real estate development, redevelopment, and capital improvements, as further detailed in a table below.
•
We received proceeds of $189.4 million from the sale of 6 shopping centers and 11 land parcels in 2020, including proceeds from a short term note issued at closing and repaid during the same period, compared to $137.6 million for 7 shopping centers and 6 land parcels in 2019.
•
We received property insurance claim proceeds of $8.0 million during 2020 primarily related to a single property damaged by a tornado in 2020 and additional proceeds received on prior year fire and tornado claims. We received proceeds of $9.4 million during 2019 attributable to a single property that was severely damaged by a tornado in that year.
•
We invested $51.4 million in our real estate partnerships during 2020, including:
o
$19.6 million to fund our share of development and redevelopment activities,
o
$16.0 million to fund our share of acquiring an additional equity interest in one partnership, and
o
$15.8 million to fund our share of debt refinancing activities.
During the same period in 2019, we invested $66.9 million in our real estate partnerships, including:
o
$44.3 million to fund our share of development and redevelopment activities,
o
$9.7 million to fund our share of acquiring an additional equity interest in one partnership,
o
$8.2 million to fund our share of acquiring land under one shopping center that was previously under a ground lease, and
o
$4.7 million to fund our share of repayments for maturing debt.
•
Return of capital from our investments in real estate partnerships includes sales or financing proceeds. The $32.1 million received in 2020 is driven by our share of proceeds from debt refinancing activities and the sale of two operating properties. During the same period in 2019, we received $63.7 million from the sale of four operating properties and our share of proceeds from debt refinancing 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.
We plan to continue developing and redeveloping shopping centers for long-term investment, although in the midst of the pandemic we are re-evaluating the feasibility of all pipeline development and redevelopment projects. This evaluation may result in curtailment, delay or phasing of some or all projects, as well as limiting capital expenditures not immediately necessary as the economic situation continues to unfold. During 2020, we deployed capital of $180.8 million for the development, redevelopment, and improvement of our real estate properties, comprised of the following:
•
During 2019, we acquired two land parcels for new development and redevelopment projects. We had no such land parcel acquisitions during 2020.
•
Building and tenant improvements decreased $15.1 million during the year ended December 31, 2020, primarily related to the timing of capital projects and our active management of capital spend to preserve liquidity.
•
Redevelopment expenditures were higher during 2020 due to the timing, magnitude, and number of projects in process. Subject to capital availability, 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 expenditures were lower in 2020 due to the progress towards completion of our development projects currently in process, coupled with delays in new development starts amidst the pandemic. At December 31, 2020 and 2019, we had three development projects that were either under construction or in lease up. 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 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. In light of the current economic environment, we expect that our development and redevelopment activity will be significantly lower than our recent historical averages. As a result, we expect the amount of internal costs for development and redevelopment activities that may be capitalized could be significantly lower, reducing our financial results.
The following table summarizes our development projects in-process and completed:
(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 reported based on Regency’s ownership interest in the partnership at completion.
(4)
Estimated Net Development Costs for Eastfield at Baybrook Phase 1A is limited to our ownership interest in the value of land and site improvements to deliver a parcel to a grocer, under a ground lease agreement, to construct their building and improvements.
The following table summarizes our redevelopment projects in-process and completed:
(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 reported based on Regency’s ownership interest in the partnership at completion.
Net cash used in financing activities:
Net cash flows used in financing activities changed during 2020, as follows:
Significant financing activities during the years ended December 31, 2020 and 2019 include the following:
•
We received proceeds of $125.6 million, net of costs, in 2020 upon settling our forward equity agreements under our ATM program entered into during 2019.
•
We repurchased for cash a portion of the common stock granted to employees for stock based compensation to satisfy employee tax withholding requirements, which totaled $5.5 million and $6.2 million during the years ended December 31, 2020 and 2019, respectively.
•
We paid $32.8 million during 2019 to repurchase 563,229 common shares through our share repurchase program that were executed in December 2018 but not settled until January 2019.
•
We paid $89.7 million less in dividends during 2020 compared to 2019 primarily as a result of shifting our fourth quarter 2020 dividend payment date to January 2021, partially offset by an increase in our dividend rate during 2020 as compared to 2019.
•
We had the following debt related activity during 2020:
o
We repaid, net of draws, an additional $220 million on our Line.
o
We received net proceeds of $598.8 million upon issuance, in May 2020, of senior unsecured public notes.
o
We paid $400.0 million for other debt repayments, including:
▪
$321.7 million, including a make-whole premium, to redeem our senior unsecured public notes originally due November 2022;
▪
$67.2 million to repay four mortgages; and
▪
$11.1 million in principal mortgage payments.
o
We paid $5.1 million of loan costs in connection with our public note offerings above.
•
We had the following debt related activity during 2019:
o
We borrowed, net of payments, an additional $75.0 million on our Line.
o
We received total proceeds of $723.6 million upon the issuance of two senior unsecured public note offerings during 2019.
o
We paid $625.8 million for other debt repayments, including:
▪
$259.6 million to redeem our senior unsecured public notes originally due April 2021;
▪
$300 million for repayment of a term loan originally due December 2020;
▪
$53.7 million to repay two mortgages; and
▪
$12.4 million in principal mortgage payments.
o
We paid $7.0 million of loan costs in connection with our two public note offerings above.
Contractual Obligations
We have debt obligations related to our mortgage loans, unsecured notes, unsecured credit facilities, interest rate swap obligations, and lease agreements as described further below and in notes 4, 7, 9, and 10 to the Consolidated Financial Statements. We have shopping centers that are subject to non-cancelable long-term ground leases where a third party owns and has leased the underlying land to us to construct and/or operate a shopping center. We also have non-cancelable operating leases pertaining to office space from which we conduct our business.
The following table of Contractual Obligations summarizes our debt maturities, including our Pro-rata share of obligations within co-investment partnerships as of December 31, 2020, and excludes the following:
•
Recorded debt premiums or discounts and issuance costs that are not obligations;
•
Obligations related to construction or development contracts, since payments are only due upon satisfactory performance under the contracts;
•
Letters of credit of $9.7 million issued to cover our captive insurance program and performance obligations on certain development projects, which the latter will be satisfied upon completion of the development projects; and
•
Obligations for retirement savings plans due to uncertainty around timing of participant withdrawals, which are solely within the control of the participant, and are further discussed in note 14 to the Consolidated Financial Statements.
(1)
Includes interest payments.
(2)
We are obligated to contribute our Pro-rata share to fund maturities if they are not refinanced. We believe that our partners are financially sound and have sufficient capital or access thereto to fund future capital requirements. In the event that a co-investment partner was unable to fund its share of the capital requirements of the co-investment partnership, we would have the right, but not the obligation, to loan the defaulting partner the amount of its capital call which would be secured by the partner’s membership interest.
(3)
2021 and 2022 payments for Regency’s notes payable include principal and interest for its $265 million 2% Term Loan due to mature in January 2022 but repaid by Regency in January 2021.
Critical Accounting Estimates
Knowledge about our accounting policies is necessary for a complete understanding of our financial statements. The preparation of our financial statements requires that we make certain estimates that impact the balance of assets and liabilities as of a financial statement date and the reported amount of income and expenses during a financial reporting period. These accounting estimates are based upon, but not limited to, our judgments about historical and expected future results, current market conditions, and interpretation of industry accounting standards. They are considered to be critical because of their significance to the financial statements and the possibility that future events may differ from those judgments, or that the use of different assumptions could result in materially different estimates. We review these estimates on a periodic basis to ensure reasonableness; however, the amounts we may ultimately realize could differ from such estimates.
Collectibility of Lease Income
Lease income, which includes base rent, percentage rent, and recoveries from tenants for common area maintenance costs, insurance and real estate taxes are the Company's principal source of revenue. As a result of generating this revenue, we will routinely have accounts receivable due from tenants.
Lease income for operating leases with fixed payment terms is recognized on a straight-line basis over the expected term of the lease for all leases for which collectibility is considered probable at the commencement date. At lease commencement, the Company generally expects that collectibility is probable due to the Company’s credit assessment of tenants and other creditworthiness analysis undertaken before entering into a new lease; therefore, income from most operating leases is initially recognized on a straight-line basis. For operating leases in which collectibility of Lease income is not considered probable, Lease income is recognized on a cash basis and all previously recognized and uncollected Lease income is reversed in the period in which the Lease income is determined not to be probable of collection. In addition to the lease-specific collectibility assessment, the Company may recognize a general reserve, as a reduction to Lease income, for its portfolio of operating lease receivables which are not expected to be fully collectible based on the Company’s historical collection experience. Although we estimate uncollectible receivables and provide for them through charges against income, actual experience may differ from those estimates.
Real Estate Investments
Acquisition of Real Estate Investments
Upon acquisition of real estate operating properties, the Company estimates the fair value of acquired tangible assets (consisting of land, building, building improvements and tenant improvements) and identified intangible assets and liabilities (consisting of above and below-market leases and in-place leases), assumed debt, and any noncontrolling interest in the acquiree at the date of acquisition, based on evaluation of information and estimates available at that date. Based on these estimates, the Company allocates the estimated fair value to the applicable assets and liabilities. Transaction costs associated with asset acquisitions are capitalized, while such costs are expensed for business combinations in the period incurred. Beginning in July 2017, the Company adopted Accounting Standard Update 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business, under which the acquisition of operating properties are generally considered asset acquisitions. If, however, the acquisition is determined to be a business combination, any excess consideration above the fair value allocated to the applicable assets and liabilities results in goodwill. Fair value is determined based on an exit price approach, which contemplates the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
The Company's methodology for determining fair value of the acquired tangible and intangible assets and liabilities includes estimating an “as-if vacant” fair value of the physical property, which includes land, building, and improvements. In addition, the Company determines the estimated fair value of identifiable intangible assets and liabilities, considering the following categories: (i) value of in-place leases, and (ii) above and below-market value of in-place leases.
The value of in-place leases is estimated based on the value associated with the costs avoided in originating leases compared to the acquired in-place leases as well as the value associated with lost rental and recovery revenue during the assumed lease-up period. The value of in-place leases is recorded to Depreciation and amortization expense in the Consolidated Statements of Operations over the remaining expected term of the respective leases.
Above-market and below-market in-place lease values for acquired properties are recorded based on the present value of the difference between (i) the contractual amounts to be paid pursuant to the in-place leases and (ii) management's estimate of fair market lease rates for comparable in-place leases, measured over a period equal to the remaining non-cancelable term of the lease, including below-market renewal options, if applicable. The value of above-market leases is amortized as a reduction of Lease income over the remaining terms of the respective leases and the value of below-market leases is accreted to Lease income over the remaining terms of the respective leases, including below-market renewal options, if applicable.
Changes to these assumptions could result in a different pattern of recognition. If tenants do not remain in their lease through the expected term or exercise an assumed renewal option, there could be a material impact to earnings.
Valuation of Real Estate Investments
In accordance with GAAP, we evaluate our real estate for impairment whenever there are indicators, including property operating performance and general market conditions, that the carrying value of our real estate properties (including any related amortizable intangible assets or liabilities) may not be recoverable. If such indicators occur, we compare the current carrying value of the asset to the estimated undiscounted cash flows that are directly associated with the use and ultimate disposition of the asset. Our estimated cash flows are based on several key assumptions, including rental rates, expected leasing activity, costs of tenant improvements, leasing commissions, anticipated hold period, comparable sales information, and assumptions regarding the residual value upon disposition, including the exit capitalization rate. These key assumptions are subjective in nature and the resulting impairment, if any, could differ from the actual gain or loss recognized upon ultimate sale in an arm's length transaction. If the carrying value of the asset exceeds the estimated undiscounted cash flows, an impairment loss is recognized equal to the excess of carrying value over fair value.
The fair value of real estate assets is subjective and is determined through comparable sales information and other market data if available, as well as the use of an income approach such as the direct capitalization method or the discounted cash flow approach. Such
cash flow projections consider factors such as expected future operating income, trends and prospects, as well as the effects of demand, competition and other factors, and therefore is subject to management judgment and changes in those factors could impact the determination of fair value. In estimating the fair value of undeveloped land, we generally use market data and comparable sales information. Changes in our disposition strategy or changes in the marketplace may alter the hold period of an asset or asset group, which may result in an impairment loss and such loss could be material to the Company's financial condition or operating performance.
Recent Accounting Pronouncements
See Note 1 to Consolidated Financial Statements.
Environmental Matters
We are subject to numerous environmental laws and regulations as they apply to our shopping centers pertaining primarily to specific chemicals historically used by certain current and former dry cleaning tenants, the existence of asbestos in older shopping centers, and the presence of underground petroleum storage tanks. We believe that the few tenants who currently operate dry cleaning plants or gas stations do so in accordance with current laws and regulations. Generally, we endeavor to require tenants to remove dry cleaning plants from our shopping centers or convert them to more environmentally friendly systems, in accordance with the terms of our leases. We also have a blanket environmental insurance policy for third-party liabilities and remediation costs on shopping centers that currently have no known environmental contamination. We have also secured environmental insurance policies, where appropriate, on a relatively small number of specific properties with known contamination, in order to mitigate our environmental risk. We monitor the shopping centers containing environmental issues and in certain cases voluntarily remediate the sites. We also have legal obligations to remediate certain sites, and we are in the process of doing so.
As of December 31, 2020, we had accrued liabilities of $8.3 million for our Pro-rata share of environmental remediation, including our Investments in real estate partnerships. We believe that the ultimate remediation of currently known environmental matters will not have a material effect on our financial position, liquidity, or results of operations. We can give no assurance that existing environmental studies on our shopping centers have revealed all potential environmental contamination; that our estimate of liabilities will not change as more information becomes available; that any previous owner, occupant or tenant did not create any material environmental condition not known to us; that the current environmental condition of the shopping centers will not be affected by tenants and occupants, by the condition of nearby properties, or by unrelated third parties; or that changes in applicable environmental laws and regulations or their interpretation will not result in additional environmental liability to us.
Off-Balance Sheet Arrangements
We do not have off-balance sheet arrangements, financings, or other relationships with other unconsolidated entities (other than our unconsolidated investment partnerships) or other persons, also known as variable interest entities, not previously discussed. Many of our unconsolidated investment partnerships’ operating properties have been financed with non-recourse loans, to which we have no repayment guarantees.
Inflation/Deflation
Inflation has been historically low and has had a minimal impact on the operating performance of our shopping centers; however, inflation may become a greater concern in the future. Substantially all of our long-term leases contain provisions designed to mitigate the adverse impact of inflation, which require tenants to pay their pro-rata share of operating expenses, including common-area maintenance, real estate taxes, insurance and utilities, thereby reducing our exposure to increases in costs and operating expenses resulting from inflation. In addition, many of our leases are for terms of less than ten years, which permits us to seek increased rents upon re-rental at market rates. However, during deflationary periods or periods of economic weakness, minimum rents and percentage rents may decline as the supply of available retail space exceeds demand and consumer spending declines. Percent leased declines may also result in lower recovery rates of our operating expenses.
Item 7A.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
We are exposed to two significant components of interest rate risk:
•
We have a Line commitment, as further described in note 9 to the Consolidated Financial Statements, which has a variable interest rate that as of December 31, 2020 is based upon an annual rate of LIBOR plus 0.875%. LIBOR rates charged on our Line change monthly and the spread on the Line is dependent upon maintaining specific credit ratings. If our credit ratings are downgraded, the spread on the Line would increase, resulting in higher interest costs. The interest rate spread based on our credit rating ranges from LIBOR plus 0.700% to LIBOR plus 1.550%.
•
We are also exposed to changes in interest rates when we refinance our existing long-term fixed rate debt. The objective of our interest rate risk management program is to limit the impact of interest rate changes on earnings and cash flows. To achieve these objectives, we borrow primarily at fixed interest rates and may enter into derivative financial instruments such as interest rate swaps, caps, or treasury locks in order to mitigate our interest rate risk on a related financial instrument. We do not enter into derivative or interest rate transactions for speculative purposes. Our interest rate swaps are structured solely for the purpose of interest rate protection.
We continuously monitor the capital markets and evaluate our ability to issue new debt, to repay maturing debt, or fund our commitments. Although the capital markets have experienced volatility related to the pandemic, we continue to believe that we will be able to successfully issue new secured or unsecured debt to fund maturing debt obligations given our credit ratings, our capacity under our unsecured credit facilities, and the number of high quality, unencumbered properties that we own which could collateralize borrowings. However, the degree to which such capital market volatility will adversely impact the interest rates on any new debt that we may issue is uncertain.
Our interest rate risk is monitored using a variety of techniques. The table below presents the principal cash flows, weighted average interest rates of remaining debt, and the fair value of total debt as of December 31, 2020. For variable rate mortgages and unsecured credit facilities for which we have interest rate swaps in place to fix the interest rate, they are included in the Fixed rate debt section below at their all-in fixed rate. The table is presented by year of expected maturity to evaluate the expected cash flows and sensitivity to interest rate changes. Although the average interest rate for variable rate debt is included in the table, those rates represent rates that existed as of December 31, 2020, and are subject to change on a monthly basis. In addition, the Company continually assesses the market risk for its floating rate debt and believes that a 1% increase in interest rates would decrease future earnings and cash flows by approximately $350,000 per year based on $34.1 million of floating rate mortgage debt outstanding at December 31, 2020. If the Company increases its line of credit balance in the future, additional decreases to future earnings and cash flows could occur.
Further, the table below incorporates only those exposures that exist as of December 31, 2020, and does not consider exposures or positions that could arise after that date or obligations repaid before maturity. Since firm commitments are not presented, the table has limited predictive value. As a result, our ultimate realized gain or loss with respect to interest rate fluctuations will depend on the exposures that arise during the period, our hedging strategies at that time, and actual interest rates.
The table below presents the principal cash flow payments associated with our outstanding debt by year, weighted average interest rates on debt outstanding at each year-end, and fair value of total debt as of December 31, 2020.
(1)
Reflects amount of debt maturities during each of the years presented as of December 31, 2020. 2022 Fixed rate debt includes the $265 million Term Loan, originally due to mature in January 2022, but repaid in January 2021.
(2)
Reflects weighted average interest rates of debt outstanding at the end of each year presented. For variable rate debt, the benchmark interest rate (LIBOR), as of December 31, 2020, was used to determine the average rate for all future periods.
Item 8.
Item 8. Consolidated Financial Statements and Supplementary Data
Regency Centers Corporation and Regency Centers, L.P.
Reports of Independent Registered Public Accounting Firm
Regency Centers Corporation:
Consolidated Balance Sheets as of December 31, 2020 and 2019
Consolidated Statements of Operations for the years ended December 31, 2020, 2019, and 2018
Consolidated Statements of Comprehensive Income for the years ended December 31, 2020, 2019, and 2018
Consolidated Statements of Equity for the years ended December 31, 2020, 2019, and 2018
Consolidated Statements of Cash Flows for the years ended December 31, 2020, 2019, and 2018
Regency Centers, L.P.:
Consolidated Balance Sheets as of December 31, 2020 and 2019
Consolidated Statements of Operations for the years ended December 31, 2020, 2019, and 2018
Consolidated Statements of Comprehensive Income for the years ended December 31, 2020, 2019, and 2018
Consolidated Statements of Capital for the years ended December 31, 2020, 2019, and 2018
Consolidated Statements of Cash Flows for the years ended December 31, 2020, 2019, and 2018
Notes to Consolidated Financial Statements
Financial Statement Schedule
Schedule III - Consolidated Real Estate and Accumulated Depreciation - December 31, 2020
All other schedules are omitted because of the absence of conditions under which they are required, materiality or because information required therein is shown in the consolidated financial statements or notes thereto.
Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors
Regency Centers Corporation:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Regency Centers Corporation and subsidiaries (the Company) as of December 31, 2020 and 2019, the related consolidated statements of operations, comprehensive income, equity, and cash flows for each of the years in the three-year period ended December 31, 2020, and the related notes and financial statement schedule III - Consolidated Real Estate and Accumulated Depreciation (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2020, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated February 17, 2021 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.
Change in Accounting Principle
As discussed in Note 1 to the consolidated financial statements, the Company has changed its method of accounting for leases as of January 1, 2019 due to the adoption of Accounting Standards Codification Topic 842, Leases.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Identification and assessment of real estate property impairment indicators
As discussed in Note 1 to the consolidated financial statements and presented on the consolidated balance sheet, real estate assets, less accumulated depreciation was $9.1 billion as of December 31, 2020. The Company evaluates real estate properties for impairment whenever there are indicators, including property operating performance and general market conditions, that the carrying value of the real estate properties may not be recoverable.
We identified the identification and assessment of real estate property impairment indicators as a critical audit matter. A high degree of subjective auditor judgment was required to evaluate the Company’s judgments regarding the identification and assessment of potential indicators that the carrying value of the real estate properties may not be recoverable. Changes in assumptions regarding property conditions, occupancy rates, net operating income and the rate of cash collections from tenants,
and anticipated hold periods could have an impact on the determination to further evaluate the real estate properties for impairment.
The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls related to the critical audit matter, including controls related to the identification and assessment of potential indicators of impairment. Using property financial and leasing data, we performed an assessment of changes in occupancy rates, net operating income and the rate of cash collections for individual real estate properties and compared the results to the Company’s assessment. In addition, to identify a change in property condition or a shortened hold period we inquired of Company officials, attended Company quarterly meetings and inspected documents such as meeting minutes of the Company’s board of directors.
/s/ KPMG LLP
We have served as the Company's auditor since 1993.
Jacksonville, Florida
February 17, 2021
Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors
Regency Centers Corporation:
Opinion on Internal Control Over Financial Reporting
We have audited Regency Centers Corporation’s and subsidiaries’ (the Company) internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2020 and 2019, the related consolidated statements of operations, comprehensive income, equity, and cash flows for each of the years in the three-year period ended December 31, 2020, and the related notes and financial statement schedule III - Consolidated Real Estate and Accumulated Depreciation (collectively, the consolidated financial statements), and our report dated February 17, 2021 expressed an unqualified opinion on those consolidated financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ KPMG LLP
Jacksonville, Florida
February 17, 2021
Report of Independent Registered Public Accounting Firm
The Board of Directors of Regency
Centers Corporation, and the
Partners of Regency Centers, L.P.:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Regency Centers, L.P. and subsidiaries (the Partnership) as of December 31, 2020 and 2019, the related consolidated statements of operations, comprehensive income, capital, and cash flows for each of the years in the three-year period ended December 31, 2020, and the related notes and financial statement schedule III - Consolidated Real Estate and Accumulated Depreciation (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Partnership as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2020, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Partnership’s internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated February 17, 2021 expressed an unqualified opinion on the effectiveness of the Partnership’s internal control over financial reporting.
Change in Accounting Principle
As discussed in Note 1 to the consolidated financial statements, the Partnership has changed its method of accounting for leases as of January 1, 2019 due to the adoption of Accounting Standards Codification Topic 842, Leases.
Basis for Opinion
These consolidated financial statements are the responsibility of the Partnership’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Partnership in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) related to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate a opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Identification and assessment of real estate property impairment indicators
As discussed in Note 1 to the consolidated financial statements and presented on the consolidated balance sheet, real estate assets, less accumulated depreciation was $9.1 billion as of December 31, 2020. The Partnership evaluates real estate properties for impairment whenever there are indicators, including property operating performance and general market conditions, that the carrying value of the real estate properties may not be recoverable.
We identified the identification and assessment of real estate property impairment indicators as a critical audit matter. A high degree of subjective auditor judgment was required to evaluate the Partnership’s judgments regarding the identification and assessment of potential indicators that the carrying value of the real estate properties may not be recoverable. Changes in
assumptions regarding property conditions, occupancy rates, net operating income and the rate of cash collections from tenants, and anticipated hold periods could have an impact on the determination to further evaluate the real estate properties for impairment.
The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls related to the critical audit matter, including controls related to the identification and assessment of potential indicators of impairment. Using property financial and leasing data, we performed an assessment of changes in occupancy rates, net operating income and the rate of cash collections for individual real estate properties and compared the results to the Partnership’s assessment. In addition, to identify a change in property condition or a shortened hold period we inquired of Partnership officials, attended Partnership quarterly meetings and inspected documents such as meeting minutes of the general partners’ board of directors.
/s/ KPMG LLP
We have served as the Partnership's auditor since 1998.
Jacksonville, Florida
February 17, 2021
Report of Independent Registered Public Accounting Firm
The Board of Directors of Regency
Centers Corporation, and the
Partners of Regency Centers, L.P.:
Opinion on Internal Control Over Financial Reporting
We have audited Regency Centers, L.P.’s and subsidiaries’ (the Partnership) internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the Partnership maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Partnership as of December 31, 2020 and 2019, the related consolidated statements of operations, comprehensive income, capital, and cash flows for each of the years in the three-year period ended December 31, 2020, and the related notes and financial statement schedule III - Consolidated Real Estate and Accumulated Depreciation (collectively, the consolidated financial statements), and our report dated February 17, 2021 expressed an unqualified opinion on those consolidated financial statements.
Basis for Opinion
The Partnership’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Partnership’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Partnership in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ KPMG LLP
Jacksonville, Florida
February 17, 2021
REGENCY CENTERS CORPORATION
Consolidated Balance Sheets
December 31, 2020 and 2019
(in thousands, except share data)
See accompanying notes to consolidated financial statements.
REGENCY CENTERS CORPORATION
Consolidated Statements of Operations
For the years ended December 31, 2020, 2019, and 2018
(in thousands, except per share data)
See accompanying notes to consolidated financial statements.
REGENCY CENTERS CORPORATION
Consolidated Statements of Comprehensive Income
For the years ended December 31, 2020, 2019, and 2018
(in thousands)
See accompanying notes to consolidated financial statements.
REGENCY CENTERS CORPORATION
Consolidated Statements of Equity
For the years ended December 31, 2020, 2019, and 2018
(in thousands, except per share data)
See accompanying notes to consolidated financial statements.
REGENCY CENTERS CORPORATION
Consolidated Statements of Cash Flows
For the years ended December 31, 2020, 2019, and 2018
(in thousands)
See accompanying notes to consolidated financial statements.
REGENCY CENTERS, L.P.
Consolidated Balance Sheets
December 31, 2020 and 2019
(in thousands, except unit data)
See accompanying notes to consolidated financial statements.
REGENCY CENTERS, L.P.
Consolidated Statements of Operations
For the years ended December 31, 2020, 2019, and 2018
(in thousands, except per unit data)
See accompanying notes to consolidated financial statements.
REGENCY CENTERS, L.P.
Consolidated Statements of Comprehensive Income
For the years ended December 31, 2020, 2019, and 2018
(in thousands)
See accompanying notes to consolidated financial statements.
REGENCY CENTERS, L.P.
Consolidated Statements of Capital
For the years ended December 31, 2020, 2019, and 2018
(in thousands)
See accompanying notes to consolidated financial statements.
REGENCY CENTERS, L.P.
Consolidated Statements of Cash Flows
For the years ended December 31, 2020, 2019, and 2018
(in thousands)
See accompanying notes to consolidated financial statements.
REGENCY CENTERS CORPORATION AND REGENCY CENTERS, L.P.
Notes to Consolidated Financial Statements
December 31, 2020
1.
Summary of Significant Accounting Policies
(a)
Organization and Principles of Consolidation
General
Regency Centers Corporation (the “Parent Company”) began its operations as a REIT in 1993 and is the general partner of Regency Centers, L.P. (the “Operating Partnership”). The Parent Company primarily engages in the ownership, management, leasing, acquisition, development and redevelopment of shopping centers through the Operating Partnership, has no other assets other than through its investment in the Operating Partnership, and its only liabilities are $200 million of unsecured private placement notes, which are co-issued and guaranteed by the Operating Partnership. The Parent Company guarantees all of the unsecured debt of the Operating Partnership.
As of December 31, 2020, the Parent Company, the Operating Partnership, and their controlled subsidiaries on a consolidated basis (the “Company” or “Regency”) owned 297 properties and held partial interests in an additional 114 properties through unconsolidated Investments in real estate partnerships (also referred to as “joint ventures” or “co-investment partnerships”).
Estimates, Risks, and Uncertainties
The preparation of the consolidated financial statements in conformity with U.S. GAAP requires the Company’s management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of commitments and contingent assets and liabilities, at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The most significant estimates in the Company’s financial statements relate to the net carrying values of its real estate investments, collectibility of lease income, goodwill, and acquired lease intangible assets and acquired lease intangible liabilities. It is possible that the estimates and assumptions that have been utilized in the preparation of the consolidated financial statements could change significantly if economic conditions were to weaken.
COVID-19 Pandemic
On March 11, 2020, the novel coronavirus disease (“COVID-19”) was declared a pandemic (“COVID-19 pandemic” or the “pandemic”) by the World Health Organization as the disease spread throughout the world. The pandemic continues to evolve, making the broader implications on the Company’s future results of operations and overall financial performance uncertain at this time. While much of the Company’s lease income is derived from contractual rent payments, the tenants’ ability to meet their lease obligations have been negatively impacted by the disruptions and uncertainties of the pandemic. The tenants’ ability to respond to these disruptions, including adapting to governmental orders or recommendations and changes in their customers’ shopping habits and behaviors, will influence the tenants’ ability to survive and ultimately fulfill their lease obligations. While the announcement of vaccine approvals by the U.S. Food and Drug Administration (“FDA”) in early December 2020 was a positive development, at about the same time, several states and many localities reinstituted mandatory business limitations and closures as cases spiked again, in advance of full scale vaccine deployment. Further, forced closures may occur as cases spike or additional strains of the virus emerge, while the speed of vaccine rollout remains uncertain.
Due to the pandemic, certain tenants have requested rent concessions or have sought to renegotiate future rents based on changes to the economic environment. Other tenants have chosen not to reopen or honor the terms of their existing lease agreements. In addition, in 2020 we saw a meaningful spike in the number of bankruptcy filings by our tenants versus prior years, which in certain cases can lead to a tenant “rejecting” (terminating) one or more of our leases as permitted by applicable bankruptcy law, or seeking to negotiate reduced rent as part of the bankruptcy reorganization process.
The Company is closely monitoring its cash collections from its tenants which significantly declined from historic levels at the start of the pandemic but have since gradually improved. As of February 8, 2021, we experienced sequential improvement in our collection rates of Pro-rata base rent billed by quarter in 2020 as follows:
Since the pandemic began, the Company has executed approximately 1,600 rent deferral agreements within its consolidated and unconsolidated real estate portfolio. The weighted average deferral period of these agreements is approximately 3.3 months, with repayment periods of approximately 9.7 months beginning in December 2020. The Company expects to continue to work with tenants to address the adverse impacts of the pandemic, which may result in further rent deferrals, concessions or abatements. As a result, there can be no assurance that our base rent collection percentages will continue at or
REGENCY CENTERS CORPORATION AND REGENCY CENTERS, L.P.
Notes to Consolidated Financial Statements
December 31, 2020
above Q4 2020 levels, or that cash flows from operations will be sufficient to sustain and fund the Company’s dividend payments without the benefit of other sources of capital or changes to its current dividend levels. In the event of a surge in COVID-19 cases or new governmental restrictions causing our tenants to reduce their operations or close, our base rent collection percentages and percent leased could decline from recent 2020 levels.
New leasing activity declined in 2020 and is expected to remain below 2019 levels into 2021 as businesses delay executing leases amidst the immediate and uncertain future economic impacts of the pandemic. This, coupled with tenant failures and bankruptcies, may result in decreased demand for space in our centers, which could result in pricing pressure on rents. Additionally, if construction of tenant improvements are delayed due to the impacts of the pandemic, it may take longer before new tenants are able to open and commence rent payments, or attract new tenants.
The pandemic has adversely impacted the Company’s ability to start or complete tenant buildouts, new ground up development, or redevelopment of existing properties. The pandemic has also impacted the Company’s ability to timely source materials for construction and has caused labor shortages which have impacted its ability to complete construction projects on anticipated schedules. In the event a surge in new cases resulting in additional lockdowns occurs, similar impacts to the Company’s supply chain may arise which could have a material adverse effect on the Company’s business, financial condition and results of operation. The Company continues to closely monitor its projects, which has resulted in prudently delaying, phasing or curtailing certain in-process and planned development, redevelopment and capital expenditure projects.
The duration and severity of the pandemic across the United States will continue to negatively impact many of the Company’s tenants, and their ability to meet their rent obligations under their lease agreements with the Company. As such, the impact from the pandemic could still negatively impact the Company’s results of operations and financial condition in the future.
Our business continuity and disaster recovery plan enabled us to continue operating productively during the pandemic. We have maintained, and expect to continue to maintain, without interruption, our financial reporting systems as well as our internal controls over our financial reporting and disclosure controls and procedures.
Consolidation
The accompanying consolidated financial statements include the accounts of the Parent Company, the Operating Partnership, its wholly-owned subsidiaries, and consolidated partnerships in which the Company has a controlling interest. Investments in real estate partnerships not controlled by the Company are accounted for under the equity method. All significant inter-company balances and transactions are eliminated in the consolidated financial statements.
The Company consolidates properties that are wholly owned or properties where it owns less than 100%, but which it has control over the activities most important to the overall success of the partnership. Control is determined using an evaluation based on accounting standards related to the consolidation of variable interest entities (“VIEs”) and voting interest entities. For joint ventures that are determined to be a VIE, the Company consolidates the entity where it is deemed to be the primary beneficiary. Determination of the primary beneficiary is based on whether an entity has (1) the power to direct the activities of the VIE that most significantly impact the entity’s economic performance, and (2) the obligation to absorb losses of the entity that could potentially be significant to the VIE or the right to receive benefits from the entity that could potentially be significant to the VIE.
REGENCY CENTERS CORPORATION AND REGENCY CENTERS, L.P.
Notes to Consolidated Financial Statements
December 31, 2020
Ownership of the Parent Company
The Parent Company has a single class of common stock outstanding.
Ownership of the Operating Partnership
The Operating Partnership's capital includes general and limited common Partnership Units. As of December 31, 2020, the Parent Company owned approximately 99.6%, or 169,680,138, of the 170,445,184 outstanding common Partnership Units of the Operating Partnership, with the remaining limited common Partnership Units held by third parties (“Exchangeable operating partnership units” or “EOP units”). Each EOP unit is exchangeable for cash or one share of common stock of the Parent Company, at the discretion of the Parent Company, and the unit holder cannot require redemption in cash or other assets (i.e. registered shares of the Parent). The Parent Company has evaluated the conditions as specified under Accounting Standards Codification (“ASC”) Topic 480, Distinguishing Liabilities from Equity as it relates to exchangeable operating partnership units outstanding and concluded that it has the right to satisfy the redemption requirements of the units by delivering unregistered common stock. Accordingly, the Parent Company classifies EOP units as permanent equity in the accompanying Consolidated Balance Sheets and Consolidated Statements of Equity and Comprehensive Income. The Parent Company serves as general partner of the Operating Partnership. The EOP unit holders have limited rights over the Operating Partnership such that they do not have the power to direct the activities of the Operating Partnership. As such, the Operating Partnership is considered a VIE, and the Parent Company, which consolidates it, is the primary beneficiary. The Parent Company's only investment is the Operating Partnership. Net income and distributions of the Operating Partnership are allocable to the general and limited common Partnership Units in accordance with their ownership percentages.
Real Estate Partnerships
Regency has a partial ownership interest in 124 properties through partnerships, of which 10 are consolidated. Regency's partners include institutional investors and other real estate developers and/or operators (the “Partners” or “Limited Partners”). Regency has a variable interest in these entities through its equity interests. As managing member, Regency maintains the books and records and typically provides leasing and property and asset management services to the partnerships. The Partners’ level of involvement in these partnerships varies from protective decisions (debt, bankruptcy, selling primary asset(s) of business) to participating involvement such as approving leases, operating budgets, and capital budgets. The assets of these partnerships are restricted to the use of the partnerships and cannot be used by general creditors of the Company. And similarly, the obligations of these partnerships can only be settled by the assets of these partnerships or additional contributions by the partners.
•
Those partnerships for which the Partners are involved in the day to day decisions and do not have any other aspects that would cause them to be considered VIEs, are evaluated for consolidation using the voting interest model.
o
Those partnerships in which Regency has a controlling financial interest are consolidated and the limited partners’ ownership interest and share of net income is recorded as noncontrolling interest.
o
Those partnerships in which Regency does not have a controlling financial interest are accounted for using the equity method and Regency's ownership interest is recognized through single-line presentation as Investments in real estate partnerships, in the Consolidated Balance Sheet, and Equity in income of investments in real estate partnerships, in the Consolidated Statements of Operations. Cash distributions of earnings from operations from Investments in real estate partnerships are presented in Cash flows provided by operating activities in the accompanying Consolidated Statements of Cash Flows. Cash distributions from the sale of a property or loan proceeds received from the placement of debt on a property included in Investments in real estate partnerships are presented in Cash flows provided by investing activities in the accompanying Consolidated Statements of Cash Flows. Distributed proceeds from debt refinancing and real estate sales in excess of Regency's carrying value of its investment has resulted in a negative investment balance for one partnership, which is recorded within Accounts payable and other liabilities in the Consolidated Balance Sheets.
The net difference in the carrying amount of investments in real estate partnerships and the underlying equity in net assets is accreted to earnings and recorded in Equity in income of investments in real estate partnerships in the accompanying Consolidated Statements of Operations over the expected useful lives of the properties and other intangible assets, which range in lives from 10 to 40 years.
REGENCY CENTERS CORPORATION AND REGENCY CENTERS, L.P.
Notes to Consolidated Financial Statements
December 31, 2020
•
Those partnerships for which the Partners only have protective rights are considered VIEs under ASC Topic 810, Consolidation. Regency is the primary beneficiary of these VIEs as Regency has power over these partnerships, and they operate primarily for the benefit of Regency. As such, Regency consolidates these entities and reports the limited partners’ interest as noncontrolling interests.
The majority of the operations of the VIEs are funded with cash flows generated by the properties, or in the case of developments, with capital contributions or third party construction loans.
The major classes of assets, liabilities, and noncontrolling equity interests held by the Company's consolidated VIEs, exclusive of the Operating Partnership, are as follows:
(1)
Included in the December 31, 2019 balances were real estate assets and cash held in Section 1031 like-kind exchanges, of which none remained at December 31, 2020.
Noncontrolling Interests
Noncontrolling Interests of the Parent Company
The consolidated financial statements of the Parent Company include the following ownership interests held by owners other than the common stockholders of the Parent Company: (i) the limited Partnership Units in the Operating Partnership held by third parties (“Exchangeable operating partnership units”) and (ii) the minority-owned interest held by third parties in consolidated partnerships (“Limited partners' interests in consolidated partnerships”). The Parent Company has included all of these noncontrolling interests in permanent equity, separate from the Parent Company's stockholders' equity, in the accompanying Consolidated Balance Sheets and Consolidated Statements of Equity. The portion of net income or comprehensive income attributable to these noncontrolling interests is included in net income and comprehensive income in the accompanying Consolidated Statements of Operations and Consolidated Statements of Comprehensive Income of the Parent Company.
Limited partners' interests in consolidated partnerships are not redeemable by the holders. The Parent Company also evaluated its fiduciary duties to itself, its shareholders, and, as the managing general partner of the Operating Partnership, to the Operating Partnership, and concluded its fiduciary duties are not in conflict with each other or the underlying agreements. Therefore, the Parent Company classifies such units and interests as permanent equity in the accompanying Consolidated Balance Sheets and Consolidated Statements of Equity.
Noncontrolling Interests of the Operating Partnership
The Operating Partnership has determined that limited partners' interests in consolidated partnerships are noncontrolling interests. Subject to certain conditions and pursuant to the terms of the partnership agreements, the Company generally has the right, but not the obligation, to purchase the other member’s interest or sell its own interest in these consolidated partnerships. The Operating Partnership has included these noncontrolling interests in permanent capital, separate from partners' capital, in the accompanying Consolidated Balance Sheets and Consolidated Statements of Capital. The portion of net income (loss) or comprehensive income (loss) attributable to these noncontrolling interests is included in net income and comprehensive income in the accompanying Consolidated Statements of Operations and Consolidated Statements Comprehensive Income of the Operating Partnership.
(b)
Revenues and Tenant Receivable
Leasing Income and Tenant Receivables
The Company leases space to tenants under agreements with varying terms that generally provide for fixed payments of base rent, with stated increases over the term of the lease. Some of the lease agreements contain provisions that provide for
REGENCY CENTERS CORPORATION AND REGENCY CENTERS, L.P.
Notes to Consolidated Financial Statements
December 31, 2020
additional rents based on tenants' sales volume (“percentage rent”), which are recognized when the tenants achieve the specified targets as defined in their lease agreements. Additionally, most lease agreements contain provisions for reimbursement of the tenants' share of actual real estate taxes, insurance and common area maintenance (“CAM”) costs (collectively “Recoverable Costs”) incurred.
Lease terms generally range from three to seven years for tenant space under 10,000 square feet (“Shop Space”) and in excess of five years for spaces greater than 10,000 square feet (“Anchor Space”). Many leases also provide the option for the tenants to extend their lease beyond the initial term of the lease. If a tenant does not exercise its option or otherwise negotiate to renew, the lease expires and the lease contains an obligation for the tenant to relinquish its space, allowing it to be leased to a new tenant. This generally involves some level of cost to prepare the space for re-leasing, which is capitalized and depreciated over the shorter of the life of the subsequent lease or the life of the improvement.
On January 1, 2019, the Company adopted the new accounting guidance in Accounting Standards Codification (“ASC”) Topic 842, Leases, including all related Accounting Standard Updates (“ASU”). Prior to that, the Company applied ASC Topic 840, Leases, which required similar straight line lease income and expense recognition, and allowed initial indirect leasing costs to be deferred, but did not require balance sheet recognition of Right of use assets or Lease liabilities.
Classification
Under Topic 842, new leases or modifications thereto must be evaluated against specific classification criteria, which, based on the customary terms of the Company’s leases, are classified as operating leases, similar to the Company’s lease classification under the previous Topic 840. However, certain longer-term leases (both lessee and lessor leases) may be classified as direct financing or sales type leases, which may result in selling profit and an accelerated pattern of earnings recognition. At December 31, 2020, all of the Company’s leases were classified as operating leases. See the pandemic discussion that follows for unique considerations amidst the pandemic.
Recognition and Presentation
CAM is a non-lease component of the lease contract under Topic 842, and therefore recognition for these CAM expenses would be accounted for under Topic 606, Revenue from Contracts with Customers, and presented separate from Lease income in the Consolidated Statements of Operations, based on an allocation of the overall consideration in the lease contract, which is not necessarily the amount that would be billable to the tenants for CAM reimbursements per the terms of the lease contract. As the timing and pattern of providing the CAM service to the tenant is the same as the timing and pattern of the tenants' use of the underlying lease asset, the Company elected, as part of an available practical expedient, to combine CAM with the remaining lease components, along with tenants' reimbursement of real estate taxes and insurance, and recognize them together as Lease income in the accompanying Consolidated Statements of Operations.
Collectibility
Lease income for operating leases with fixed payment terms is recognized on a straight-line basis over the expected term of the lease for all leases for which collectibility is considered probable at the commencement date. At lease commencement, the Company generally expects that collectibility of substantially all payments due under the lease is probable due to the Company’s credit checks on tenants and other creditworthiness analysis undertaken before entering into a new lease; therefore, income from most operating leases is initially recognized on a straight-line basis. For operating leases in which collectibility of Lease income is not considered probable, Lease income is recognized on a cash basis and all previously recognized straight-line rent receivables are reversed in the period in which the Lease income is determined not to be probable of collection. In addition to the lease-specific collectibility assessment performed under Topic 842, the Company may also recognize a general reserve, as a reduction to Lease income, for its portfolio of operating lease receivables which are not expected to be fully collectible based on the Company’s historical collection experience.
The Company estimates the collectibility of the accounts receivable related to base rents, straight-line rents, recoveries from tenants, and other revenue taking into consideration the Company's historical write-off experience, tenant credit-worthiness, current economic trends, and remaining lease terms. Beginning with the adoption of ASC 842, Leases, on January 1, 2019, uncollectible lease income is a direct charge against Lease income. Prior to 2019, uncollectible lease income was recorded in Other operating expenses, while uncollectible straight line rent was recorded as a charge to Lease income.
REGENCY CENTERS CORPORATION AND REGENCY CENTERS, L.P.
Notes to Consolidated Financial Statements
December 31, 2020
COVID-19 Pandemic and Rent Concessions
During 2020, in response to the pandemic and the resulting entry into agreements for rent concessions between tenants and landlords, the FASB issued interpretive guidance relating to the accounting for lease concessions provided as a result of COVID-19. In this guidance, entities could elect not to apply lease modification accounting with respect to such lease concessions, and instead, treat the concession as if it was a part of the existing contract. This guidance is only applicable to COVID-19 related lease concessions that do not result in a substantial increase in the right of the lessor or the obligations of the lessee. The Company has elected to treat concessions that satisfy this criteria as though the concession was part of the existing contract and therefore not treated like a lease modification.
Since the pandemic began, the Company has executed approximately 1,600 rent deferral agreements representing $40.8 million of rent or 4.6% of Pro-rata annual base rent, within its consolidated and unconsolidated real estate portfolio. The weighted average deferral period of these agreements is approximately 3.3 months, with repayment periods of approximately 9.7 months beginning in December 2020. The Company will continue to negotiate with some tenants, which may result in further rent concessions as determined necessary and appropriate. Collectibility assessment of these concessions generally includes consideration of the tenants’ business performance, ability to sustain their business in the current environment, as well as an assessment of their credit worthiness and ability to repay such amounts in the future.
The following table represents the components of Tenant and other receivables, net of amounts considered uncollectible, in the accompanying Consolidated Balance Sheets:
(1)
Other receivables include construction receivables, insurance receivables, and amounts due from real estate partnerships for Management, transaction and other fee income.
Real Estate Sales
The Company accounts for sales of nonfinancial assets under Subtopic 610-20, whereby the Company derecognizes real estate and recognizes a gain or loss on sales when a contract exists and control of the property has transferred to the buyer. Control of the property, including controlling financial interest, is generally considered to transfer upon closing through transfer of the legal title and possession of the property. Any retained noncontrolling interest is measured at fair value at that time. The adoption this Subtopic 610-20 on January 1, 2018, resulted in the recognition, through opening retained earnings, of $30.9 million of previously deferred gains from property sales to the Company's Investments in real estate partnerships.
Management Services and Other Property Income
The Company recognizes revenue under Topic 606, Revenue from Contracts with Customers, when or as control of the promised services are transferred to its customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those services. The following is a description of the Company's revenue from contracts with customers within the scope of Topic 606.
Property and Asset Management Services
The Company is engaged under agreements with its joint venture partnerships, which are generally perpetual in nature and cancellable through unanimous partner approval, absent an event of default. Under these agreements, the Company is to provide asset and property management and leasing services for the joint ventures' shopping centers. The fees are market-based, generally calculated as a percentage of either revenues earned or the estimated values of the properties managed or the proceeds received, and are recognized over the monthly or quarterly periods as services are rendered. Property management and asset management services represent a series of distinct daily services. Accordingly, the Company satisfies its performance obligation as service is rendered each day and the variability associated with that compensation is resolved each day. Amounts due from the partnerships for such services are paid during the month following the monthly or quarterly service periods.
REGENCY CENTERS CORPORATION AND REGENCY CENTERS, L.P.
Notes to Consolidated Financial Statements
December 31, 2020
Several of the Company’s partnership agreements provide for incentive payments, generally referred to as “promotes” or “earnouts,” to Regency for appreciation in property values in Regency's capacity as manager. The terms of these promotes are based on appreciation in real estate value over designated time intervals or upon designated events. The Company evaluates its expected promote payout at each reporting period, which generally does not result in revenue recognition until the measurement period has completed, when the amount can be reasonably determined and the amount is not probable of significant reversal. The Company did not recognize any promote revenue during the years ended December 31, 2020, 2019, or 2018.
Leasing Services
Leasing service fees are based on a percentage of the total rent due under the lease. The leasing service is considered performed upon successful execution of an acceptable tenant lease for the joint ventures’ shopping centers, at which time revenue is recognized. Payment of the first half of the fee is generally due upon lease execution and the second half is generally due upon tenant opening or rent payments commencing.
Transaction Services
The Company also receives transaction fees, as contractually agreed upon with each joint venture, which include acquisition fees, disposition fees, and financing service fees. Control of these services is generally transferred at the time the related transaction closes, which is the point in time when the Company recognizes the related fee revenue. Any unpaid amounts related to transaction-based fees are included in Tenant and other receivables within the Consolidated Balance Sheets.
Other Property Income
Other property income includes parking fee and other incidental income from the properties and is generally recognized at the point in time that the performance obligation is met.
All income from contracts with the Company’s real estate partnerships is included within Management, transaction and other fees on the Consolidated Statements of Operations. The primary components of these revenue streams, the timing of satisfying the performance obligations, and amounts are as follows:
The accounts receivable for management services, which are included within Tenant and other receivables in the accompanying Consolidated Balance Sheets, are $9.9 million and $11.6 million, as of December 31, 2020 and 2019, respectively.
(c)
Real Estate Investments
The following table details the components of Real estate assets in the Consolidated Balance Sheets:
REGENCY CENTERS CORPORATION AND REGENCY CENTERS, L.P.
Notes to Consolidated Financial Statements
December 31, 2020
Capitalization and Depreciation
Maintenance and repairs that do not improve or extend the useful lives of the respective assets are recorded in operating and maintenance expense.
As part of the leasing process, the Company may provide the lessee with an allowance for the construction of leasehold improvements. These leasehold improvements are capitalized and recorded as tenant improvements, and depreciated over the shorter of the useful life of the improvements or the remaining lease term. If the allowance represents a payment for a purpose other than funding leasehold improvements, or in the event the Company is not considered the owner of the improvements, the allowance is considered to be a lease incentive and is recognized over the lease term as a reduction of Lease income. Factors considered during this evaluation include, among other things, who holds legal title to the improvements as well as other controlling rights provided by the lease agreement and provisions for substantiation of such costs (e.g. unilateral control of the tenant space during the build-out process). Determination of the appropriate accounting for the payment of a tenant allowance is made on a lease-by-lease basis, considering the facts and circumstances of the individual tenant lease.
Depreciation is computed using the straight-line method over estimated useful lives of approximately 15 years for land improvements, 40 years for buildings and improvements, and the shorter of the useful life or the remaining lease term subject to a maximum of 10 years for tenant improvements, and three to seven years for furniture and equipment.
Development and Redevelopment Costs
Land, buildings, and improvements are recorded at cost. All specifically identifiable costs related to development and redevelopment activities are capitalized into Real estate assets in the accompanying Consolidated Balance Sheets, and are included in Construction in progress within the above table. The capitalized costs include pre-development costs essential to the development or redevelopment of the property, development / redevelopment costs, construction costs, interest costs, real estate taxes, and allocated direct employee costs incurred during the period of development or redevelopment.
Pre-development costs represent the costs the Company incurs prior to land acquisition or pursuing a redevelopment including contract deposits, as well as legal, engineering, and other external professional fees related to evaluating the feasibility of developing or redeveloping a shopping center. As of December 31, 2020 and 2019, the Company had nonrefundable deposits and other pre development costs of approximately $25.3 million and $17.7 million, respectively. If the Company determines that the development or redevelopment of a particular shopping center is no longer probable, any related pre-development costs previously capitalized are immediately expensed. During the years ended December 31, 2020, 2019, and 2018, the Company expensed pre-development costs of approximately $10.5 million, $2.5 million, and $1.9 million, respectively, in Other operating expenses in the accompanying Consolidated Statements of Operations.
Interest costs are capitalized into each development and redevelopment project based upon applying the Company's weighted average borrowing rate to that portion of the actual development or redevelopment costs expended. The Company discontinues interest and real estate tax 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 the Company capitalize interest on the project beyond 12 months after substantial completion of the building shell. During the years ended December 31, 2020, 2019, and 2018, the Company capitalized interest of $4.4 million, $4.2 million, and $7.0 million, respectively, on our development and redevelopment projects.
We have a staff of employees directly supporting our development and redevelopment program. All direct internal costs attributable to these development activities are capitalized as part of each development and redevelopment project. The capitalization of costs is directly related to the actual level of development activity occurring. During the years ended December 31, 2020, 2019, and 2018, we capitalized $10.2 million, $20.4 million, and $17.1 million, respectively, of direct internal costs incurred to support our development and redevelopment program.
Acquisitions
The Company generally accounts for operating property acquisitions as asset acquisitions. The Company capitalizes transaction costs associated with asset acquisitions and expenses transaction costs associated with business combinations. Both asset acquisitions and business combinations require that the Company recognize and measure the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the operating property acquired (“acquiree”).
The Company's methodology includes estimating an “as-if vacant” fair value of the physical property, which includes land, building, and improvements. In addition, the Company determines the estimated fair value of identifiable intangible assets and liabilities, considering the following categories: (i) value of in-place leases, and (ii) above and below-market value of in-place leases.
REGENCY CENTERS CORPORATION AND REGENCY CENTERS, L.P.
Notes to Consolidated Financial Statements
December 31, 2020
The value of in-place leases is estimated based on the value associated with the costs avoided in originating leases compared to the acquired in-place leases as well as the value associated with lost rental and recovery revenue during the assumed lease-up period. The value of in-place leases is recorded to Depreciation and amortization expense in the Consolidated Statements of Operations over the remaining expected term of the respective leases.
Above-market and below-market in-place lease values for acquired properties are recorded based on the present value of the difference between (i) the contractual amounts to be paid pursuant to the in-place leases and (ii) management's estimate of fair market lease rates for comparable in-place leases, measured over a period equal to the remaining non-cancelable term of the lease, including below-market renewal options, if applicable. The value of above-market leases is amortized as a reduction of Lease income over the remaining terms of the respective leases and the value of below-market leases is accreted to Lease income over the remaining terms of the respective leases, including below-market renewal options, if applicable. The Company does not assign value to customer relationship intangibles if it has pre-existing business relationships with the major retailers at the acquired property since they do not provide incremental value over the Company's existing relationships.
Held for Sale
The Company classifies land, an operating property, or a property in development as held-for-sale upon satisfaction of the following criteria: (i) management commits to a plan to sell a property (or group of properties), (ii) the property is available for immediate sale in its present condition subject only to terms that are usual and customary for sales of such properties, (iii) an active program to locate a buyer and other actions required to complete the plan to sell the property have been initiated, (iv) the sale of the property is probable and transfer of the asset is expected to be completed within one year, (v) the property is being actively marketed for sale, and (vi) actions required to complete the plan indicate that it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn. Properties held-for-sale are carried at the lower of cost or fair value less costs to sell.
Impairment
We evaluate whether there are any indicators, including property operating performance and general market conditions, that the value of the real estate properties (including any related amortizable intangible assets or liabilities) may not be recoverable. For those properties with such indicators, management evaluates recoverability of the property's carrying amount. Through the evaluation, we compare the current carrying value of the asset to the estimated undiscounted cash flows that are directly associated with the use and ultimate disposition of the asset. Our estimated cash flows are based on several key assumptions, including rental rates, expected leasing activity, costs of tenant improvements, leasing commissions, anticipated hold period, and assumptions regarding the residual value upon disposition, including the exit capitalization rate. These key assumptions are subjective in nature and could differ materially from actual results. Changes in our disposition strategy or changes in the marketplace may alter the hold period of an asset or asset group which may result in an impairment loss and such loss could be material to the Company's financial condition or operating performance. To the extent that the carrying value of the asset exceeds the estimated undiscounted cash flows, an impairment loss is recognized equal to the excess of carrying value over fair value. If such indicators are not identified, management will not assess the recoverability of a property's carrying value. If a property previously classified as held and used is changed to held for sale, the Company estimates fair value, less expected costs to sell, which could cause the Company to determine that the property is impaired.
The fair value of real estate assets is subjective and is determined through comparable sales information and other market data if available, or through use of an income approach such as the direct capitalization method or the discounted cash flow approach. Such cash flow projections consider factors such as expected future operating income, trends and prospects, as well as the effects of demand, competition and other factors, and therefore is subject to management judgment and changes in those factors could impact the determination of fair value. In estimating the fair value of undeveloped land, the Company generally uses market data and comparable sales information.
A loss in value of investments in real estate partnerships under the equity method of accounting, other than a temporary decline, must be recognized in the period in which the loss occurs. If management identifies indicators that the value of the Company's investment in real estate partnerships may be impaired, it evaluates the investment by calculating the fair value of the investment by discounting estimated future cash flows over the expected term of the investment.
Tax Basis
The net book basis of the Company's real estate assets exceeds the net tax basis by approximately $2.7 billion and $2.8 billion at December 31, 2020 and 2019, respectively, primarily due to the tax free merger with Equity One and inheriting lower carryover tax basis.
REGENCY CENTERS CORPORATION AND REGENCY CENTERS, L.P.
Notes to Consolidated Financial Statements
December 31, 2020
(d)
Cash, Cash Equivalents, and Restricted Cash
Any instruments which have an original maturity of 90 days or less when purchased are considered cash equivalents. As of December 31, 2020 and 2019, $2.4 million and $2.5 million, respectively, of cash was restricted through escrow agreements and certain mortgage loans.
(e)
Other Assets
Goodwill
Goodwill represents the excess of the purchase price consideration from the Equity One merger in 2017 over the fair value of the assets acquired and liabilities assumed. The Company accounts for goodwill in accordance with ASC Topic 350, Intangibles - Goodwill and Other, and allocates its goodwill to its reporting units, which have been determined to be at the individual property level. The Company performs an impairment evaluation of its goodwill at least annually, in November of each year, or more frequently as triggers occur. See note 5.
The goodwill impairment evaluation is completed using either a qualitative or quantitative approach. Under a qualitative approach, the impairment review for goodwill consists of an assessment of whether it is more-likely-than-not that the reporting unit’s fair value is less than its carrying value, including goodwill. If a qualitative approach indicates it is more likely-than-not that the estimated carrying value of a reporting unit (including goodwill) exceeds its fair value, or if the Company chooses to bypass the qualitative approach for any reporting unit, the Company will perform the quantitative approach described below.
The quantitative approach consists of estimating the fair value of each reporting unit using discounted projected future cash flows and comparing those estimated fair values with the carrying values, which include the allocated goodwill. If the estimated fair value is less than the carrying value, the Company would then recognize a goodwill impairment charge for the amount by which the carrying amount exceeds the reporting unit's fair value, not to exceed the total amount of goodwill allocated to that reporting unit.
Investments
The Company determines the appropriate classification of its investments in debt and equity securities at the time of purchase and reevaluates such determinations at each balance sheet date. The fair value of securities is determined using quoted market prices.
Debt securities are classified as held to maturity when the Company has the positive intent and ability to hold the securities to maturity. Debt securities that are bought and held principally for the purpose of selling them in the near term are classified as trading securities and are reported at fair value, with unrealized gains and losses recognized through earnings in Investment income in the Consolidated Statements of Operations. Debt securities not classified as held to maturity or as trading, are classified as available-for-sale, and are carried at fair value, with the unrealized gains and losses, net of tax, included in the determination of comprehensive income and reported in the Consolidated Statements of Comprehensive Income.
Equity securities with readily determinable fair values are measured at fair value with changes in the fair value recognized through net income and presented within Investment income in the Consolidated Statements of Operations.
(f)
Deferred Leasing Costs
Deferred leasing costs consist of costs associated with leasing the Company's shopping centers, and are presented net of accumulated amortization. Such costs are amortized over the period through lease expiration. If the lease is terminated early, the remaining leasing costs are written off.
The adoption of Topic 842 on January 1, 2019, changed the treatment of leasing costs, such that non-contingent internal leasing and legal costs associated with leasing activities can no longer be capitalized. The Company, as a lessor, may only defer as initial direct costs the incremental costs of a tenant’s operating lease that would not have been incurred if the lease had not been obtained. These costs generally consist of third party broker payments.
(g)
Derivative Financial Instruments
The Company manages economic risks, including interest rate, liquidity, and credit risk primarily by managing the amount, sources, and duration of its debt funding and the use of derivative financial instruments. Specifically, the Company enters into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or future payment of known and uncertain cash amounts, the amount of which are determined by interest rates. The Company's
REGENCY CENTERS CORPORATION AND REGENCY CENTERS, L.P.
Notes to Consolidated Financial Statements
December 31, 2020
derivative financial instruments are used to manage differences in the amount, timing, and duration of the Company's known or expected cash payments principally related to the Company's borrowings.
All derivative instruments, whether designated in hedging relationships or not, are recorded on the accompanying Consolidated Balance Sheets at their fair value. The accounting for changes in the fair value of derivatives depends on the intended use of the derivative, whether the Company has elected to designate a derivative in a hedging relationship and apply hedge accounting, and whether the hedging relationship has satisfied the criteria necessary to apply hedge accounting. Derivatives designated and qualifying as a hedge of the exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges. Hedge accounting generally provides for the matching of the timing of gain or loss recognition on the hedging instrument with the earnings effect of the hedged forecasted transactions in a cash flow hedge. The Company may enter into derivative contracts that are intended to economically hedge certain risks, even though hedge accounting does not apply or the Company elects not to apply hedge accounting.
The Company uses interest rate swaps to mitigate its interest rate risk on a related financial instrument or forecasted transaction, and the Company designates these interest rate swaps as cash flow hedges. Interest rate swaps designated as cash flow hedges generally involve the receipt of variable-rate amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount. The Company may also utilize cash flow hedges to lock U.S. Treasury rates in anticipation of future fixed-rate debt issuances. The gains or losses resulting from changes in fair value of derivatives that qualify as cash flow hedges are recognized in Accumulated other comprehensive income (loss) (“AOCI”). Upon the settlement of a hedge, gains and losses remaining in AOCI are amortized through earnings over the underlying term of the hedged transaction. The cash receipts or payments related to interest rate swaps are presented in cash flows provided by operating activities in the accompanying Consolidated Statements of Cash Flows.
The Company formally documents all relationships between hedging instruments and hedged items, as well as its risk management objectives and strategies for undertaking various hedge transactions. The Company assesses, both at inception of the hedge and on an ongoing basis, whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in the cash flows and/or forecasted cash flows of the hedged items.
In assessing the valuation of the hedges, the Company uses standard market conventions and techniques such as discounted cash flow analysis, option pricing models, and termination costs at each balance sheet date. All methods of assessing fair value result in a general approximation of value, and such value may never actually be realized.
(h)
Income Taxes
The Parent Company believes it qualifies, and intends to continue to qualify, as a REIT under the Code. As a REIT, the Parent Company will generally not be subject to federal income tax, provided that distributions to its stockholders are at least equal to REIT taxable income. All wholly-owned corporate subsidiaries of the Operating Partnership have elected to be a TRS or qualify as a REIT. The TRS's are subject to federal and state income taxes and file separate tax returns. As a pass through entity, the Operating Partnership generally does not pay taxes, but its taxable income or loss is reported by its partners, of which the Parent Company, as general partner and approximately 99.6% owner, is allocated its Pro-rata share of tax attributes.
The Company accounts for income taxes related to its TRS’s under the asset and liability approach, which requires the recognition of the amount of taxes payable or refundable for the current year and deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the financial statements. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The Company records net deferred tax assets to the extent it believes it is more likely than not that these assets will be realized. A valuation allowance is recorded to reduce deferred tax assets when it is believed that it is more likely than not that all or some portion of the deferred tax asset will not be realized. The Company considers all available positive and negative evidence, including forecasts of future taxable income, the reversal of other existing temporary differences, available net operating loss carryforwards, tax planning strategies and recent and projected results of operations in order to make that determination.
In addition, tax positions are initially recognized in the financial statements when it is more likely than not the position will be sustained upon examination by the tax authorities. Such tax positions shall initially and subsequently be measured as the largest amount of tax benefit that has a greater than 50% likelihood of being realized upon ultimate settlement with the tax authority assuming full knowledge of the position and relevant facts. The Company believes that it has appropriate support for the income tax positions taken and to be taken on its tax returns and that its accruals for tax liabilities are adequate for all open tax years (2016 and forward for federal and state) based on an assessment of many factors including past experience and interpretations of tax laws applied to the facts of each matter.
REGENCY CENTERS CORPORATION AND REGENCY CENTERS, L.P.
Notes to Consolidated Financial Statements
December 31, 2020
The Coronavirus Aid, Relief, and Economic Security ("CARES") Act was signed into U.S. law on March 27, 2020 and provided an estimated $2.2 trillion to fight the COVID-19 pandemic and stimulate the U.S. economy. The assistance includes tax relief and government loans, grants and investments for entities in affected industries. The Company is currently evaluating the programs and tax benefits that may apply to its operations including the corporate net operating loss carryback, increases in the interest expense limitation, employee retention credit, and deferrals of both employer payroll taxes and corporate estimated taxes.
(i)
Lease Obligations
The Company has certain properties within its consolidated real estate portfolio that are either partially or completely on land subject to ground leases with third parties, which are all classified as operating leases. Accordingly, the Company owns only a long-term leasehold or similar interest in these properties. The building and improvements constructed on the leased land are capitalized as Real estate assets in the accompanying Consolidated Balance Sheets and depreciated over the shorter of the useful life of the improvements or the lease term.
In addition, the Company has non-cancelable operating leases pertaining to office space from which it conducts its business. Leasehold improvements are capitalized as tenant improvements, included in Other assets in the Consolidated Balance Sheets, and depreciated over the shorter of the useful life of the improvements or the lease term.
Upon the adoption of Topic 842, the Company recognized Lease liabilities on its Consolidated Balance Sheets for its ground and office leases of $225.4 million at January 1, 2019, and corresponding Right of use assets of $297.8 million, net of or including the opening balance for straight-line rent and above / below market ground lease intangibles related to these same ground and office leases. A key input in estimating the Lease liabilities and resulting Right of use assets is establishing the discount rate in the lease, which since the rates implicit in the lease contracts are not readily determinable, requires additional inputs for the longer-term ground leases, including market-based interest rates that correspond with the remaining term of the lease, the Company's credit spread, and a securitization adjustment necessary to reflect the collateralized payment terms present in the lease. This discount rate is applied to the remaining unpaid minimum rental payments for each lease to measure the operating lease liabilities.
The ground and office lease expenses continue to be recognized on a straight-line basis over the term of the leases, including management's estimate of expected option renewal periods. For ground leases, the Company generally assumes it will exercise options through the latest option date of that shopping center's anchor tenant lease.
(j)
Earnings per Share and Unit
Basic earnings per share of common stock and unit are computed based upon the weighted average number of common shares and units, respectively, outstanding during the period. Diluted earnings per share and unit reflect the conversion of obligations and the assumed exercises of securities including the effects of shares issuable under the Company's share-based payment arrangements, if dilutive. Dividends paid on the Company's share-based compensation awards are not participating securities as they are forfeitable.
(k)
Stock-Based Compensation
The Company grants stock-based compensation to its employees and directors. The Company recognizes the cost of stock-based compensation based on the grant-date fair value of the award, which is expensed over the vesting period.
When the Parent Company issues common stock as compensation, it receives a like number of common units from the Operating Partnership. The Company is committed to contributing to the Operating Partnership all proceeds from the share-based awards granted under the Parent Company's Long-Term Omnibus Plan (the “Plan”). Accordingly, the Parent Company's ownership in the Operating Partnership will increase based on the amount of proceeds contributed to the Operating Partnership for the common units it receives. As a result of the issuance of common units to the Parent Company for stock-based compensation, the Operating Partnership records the effect of stock-based compensation for awards of equity in the Parent Company.
(l)
Segment Reporting
The Company's business is investing in retail shopping centers through direct ownership or partnership interests. The Company actively manages its portfolio of retail shopping centers and may from time to time make decisions to sell lower performing properties or developments not meeting its long-term investment objectives. The proceeds from sales are generally reinvested into higher quality retail shopping centers, through acquisitions, new developments, or redevelopment of existing centers, which management believes will generate sustainable revenue growth and attractive returns. It is
REGENCY CENTERS CORPORATION AND REGENCY CENTERS, L.P.
Notes to Consolidated Financial Statements
December 31, 2020
management's intent that all retail shopping centers will be owned or developed for investment purposes; however, the Company may decide to sell all or a portion of a development upon completion. The Company's revenues and net income are generated from the operation of its investment portfolio. The Company also earns fees for services provided to manage and lease retail shopping centers owned through joint ventures.
The Company's portfolio is located throughout the United States. Management does not distinguish or group its operations on a geographical basis for purposes of allocating resources or capital. The Company reviews operating and financial data for each property on an individual basis; therefore, the Company defines an operating segment as its individual properties. The individual properties have been aggregated into one reportable segment based upon their similarities with regard to both the nature and economics of the centers, tenants and operational processes, as well as long-term average financial performance.
(m)
Business Concentration
Grocer anchor tenants represent approximately 20% of Pro-rata annual base rent. No single tenant accounts for 5% or more of revenue and none of the shopping centers are located outside the United States.
(n)
Fair Value of Assets and Liabilities
Fair value is a market-based measurement, not an entity-specific measurement. Therefore, a fair value measurement is determined based on the assumptions that market participants would use in pricing the asset or liability. As a basis for considering market participant assumptions in fair value measurements, the Company uses a fair value hierarchy that distinguishes between market participant assumptions based on market data obtained from independent sources (observable inputs that are classified within Levels 1 and 2 of the hierarchy) and the Company's own assumptions about market participant assumptions (unobservable inputs classified within Level 3 of the hierarchy). The three levels of inputs used to measure fair value are as follows:
•
Level 1 - Quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access.
•
Level 2 - Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly.
•
Level 3 - Unobservable inputs for the asset or liability, which are typically based on the Company's own assumptions, as there is little, if any, related market activity.
The Company also remeasures nonfinancial assets and nonfinancial liabilities, initially measured at fair value in a business combination or other new basis event, at fair value in subsequent periods if a remeasurement event occurs.
REGENCY CENTERS CORPORATION AND REGENCY CENTERS, L.P.
Notes to Consolidated Financial Statements
December 31, 2020
(o)
Recent Accounting Pronouncements
The following table provides a brief description of recent accounting pronouncements and expected impact on our financial statements:
Standard
Description
Date of adoption
Effect on the financial statements or other significant matters
Recently adopted:
Accounting Standard Updates (“ASU”) 2016-13, June 2016, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments
This ASU replaces the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates.
This ASU also applies to how the Company evaluates impairments of any available-for-sale debt securities and any non-operating lease receivables arising from leases classified as sales-type or direct finance leases.
January 2020
The Company has completed its evaluation and adoption of this standard, which resulted in changes in evaluating impairment of its available-for-sale debt securities. Declines in fair value below amortized cost resulting from credit related factors will be reflected in earnings, within Net investment income in the accompanying Consolidated Statements of Operations. Changes in value from market related factors continue to be recognized in Other comprehensive income (“OCI”).
The Company’s investments in available-for-sale debt securities are invested in investment grade quality holdings or U.S. government backed securities, and are well diversified. During the year ended December 31, 2020, the Company did not recognize any allowance for credit loss.
Additionally, the Company’s non-operating lease receivables experienced no credit losses during the year ended December 31, 2020, and the Company has no other financial instruments, such as lease receivables arising from sales-type or direct finance leases, subject to this ASU.
ASU 2018-19, November 2018: Codification Improvements to Topic 326, Financial Instruments - Credit Losses
This ASU clarifies that receivables arising from operating leases are not within the scope of Subtopic 326-20. Instead, impairment of receivables arising from operating leases should be accounted for in accordance with Topic 842, Leases.
January 2020
The Company has completed its evaluation and adoption of this standard with no additional changes in its accounting for operating leases and related receivables.
ASU 2018-13, August 2018: Fair Value Measurements (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement
This ASU modifies the disclosure requirements for fair value measurements within the scope of Topic 820, Fair Value Measurements, including the removal and modification of certain existing disclosures, and the additional of new disclosures.
January 2020
The Company has completed its evaluation and adoption of this new standard. The Company does not have any assets or liabilities measured to fair value requiring modified disclosures at December 31, 2020. See note 11 for fair value disclosures
REGENCY CENTERS CORPORATION AND REGENCY CENTERS, L.P.
Notes to Consolidated Financial Statements
December 31, 2020
Standard
Description
Date of adoption
Effect on the financial statements or other significant matters
Recently adopted:
ASU 2018-15, August 2018, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract
The amendments in this ASU align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license). The ASU provides further clarification of the appropriate presentation of capitalized costs, the period over which to recognize the expense, the presentation within the Statements of Operations and Statements of Cash Flows, and the disclosure requirements.
January 2020
The Company has completed its evaluation and adoption of this standard. Qualifying implementation costs incurred in a cloud computing arrangement that is a service contract are no longer expensed as incurred but rather are deferred within Other assets and amortized to earnings, within General and administrative expense in the accompanying Consolidated Statements of Operations, over the term of the arrangement. Cash flows attributable to the service arrangements, including implementation thereof, are reflected as Operating cash flows within the Consolidated Statements of Cash Flows.
ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting
In March 2020, the Financial Accounting Standards Board (“FASB”) issued ASU 2020-04, Reference Rate Reform (Topic 848). ASU 2020-04 contains practical expedients for reference rate reform related activities that impact debt, leases, derivatives, and other contracts. The guidance in ASU 2020-04 is optional and may be elected over time as reference rate reform activities occur.
March 2020 through December 31, 2022
The Company has elected to apply the hedge accounting expedients related to probability and the assessments of effectiveness for future LIBOR-indexed cash flows to assume that the index upon which future hedged transactions will be based matches the index on the corresponding derivatives. Application of these expedients preserves the presentation of derivatives consistent with past presentation. As additional index changes in the market occur, the Company will evaluate the impact of the guidance and may apply other elections as applicable.
Not yet adopted:
ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes
The amendments in this update simplify the accounting for income taxes by removing certain exceptions to the general principles in Topic 740, Income Taxes, and also improve consistent application of and simplify GAAP for other areas of Topic 740 by clarifying and amending existing guidance.
Notable changes of potential impact include income-based franchise taxes and interim period recognition of enacted changes in tax laws or rates.
January 2021
The Company has evaluated this update and determined it will not have a material impact to its financial condition, results of operations, cash flows or related footnote disclosures.
REGENCY CENTERS CORPORATION AND REGENCY CENTERS, L.P.
Notes to Consolidated Financial Statements
December 31, 2020
2.Real Estate Investments
Acquisitions
The following tables detail consolidated shopping centers acquired or land acquired for development or redevelopment for the periods set forth below:
(1)
The purchase price presented above reflects the purchase price for 100% of the property, of which the Company previously owned a 30% equity interest prior to acquiring the other partner’s interest and gaining control.
(1)
The Company purchased a 0.17 acre land parcel adjacent to the Company's existing operating Pablo Plaza for redevelopment.
(2)
The Company purchased The Field at Commonwealth Ph II, which is land adjacent to an existing operating property, for future development
3.
Property Dispositions
Dispositions
The following table provides a summary of consolidated shopping centers and consolidated land parcels disposed of during the periods set forth below:
(1)
Includes proceeds from repayment of a short-term note on the sale of one of the properties, issued at closing and repaid during the same three months ended March 31, 2020.
At December 31, 2020, the Company also had two properties classified within Properties held for sale on the Consolidated Balance Sheets.
REGENCY CENTERS CORPORATION AND REGENCY CENTERS, L.P.
Notes to Consolidated Financial Statements
December 31, 2020
4.
Investments in Real Estate Partnerships
The Company invests in real estate partnerships, which consist of the following:
(1)
On January 1, 2020, the Company purchased the remaining 70% of a property owned by the NYC partnership (Country Walk Plaza), as discussed in note 2, and therefore all earnings of this property are included in consolidated results from the date of acquisition and excluded from partnership earnings.
(2)
The USAA partnership has distributed proceeds from debt refinancing and real estate sales in excess of Regency’s carrying value of its investment, resulting in a negative investment balance of $4.4 million, which is recorded within Accounts Payable and other liabilities in the Consolidated Balance Sheets.
(3)
In January 2020, the Company purchased an additional 16.62% interest in Town and Country Shopping Center, bringing its total ownership interest to 35%.
(1)
During the third quarter of 2019, a $10.9 million impairment of real estate was recognized within the NYC partnership from changes in the expected hold periods of various properties.
(2)
The USAA partnership has distributed proceeds from debt refinancing and real estate sales in excess of Regency’s carrying value of its investment resulting in a negative investment balance of $3.9 million, which is recorded within Accounts Payable and other liabilities in the Consolidated Balance Sheets.
(3)
Includes our investment in the Town and Country shopping center, which began with an initial 9.38% ownership percent in 2018, with an additional 9.0% interest acquired during 2019.
REGENCY CENTERS CORPORATION AND REGENCY CENTERS, L.P.
Notes to Consolidated Financial Statements
December 31, 2020
The summarized balance sheet information for the investments in real estate partnerships, on a combined basis, is as follows:
The following table reconciles the Company's capital recorded by the unconsolidated partnerships to the Company's investments in real estate partnerships reported in the accompanying Consolidated Balance Sheet:
(1)
The USAA partnership has distributed proceeds from debt refinancing and real estate sales in excess of Regency's carrying value of its investment resulting in a negative investment balance, which is recorded within Accounts payable and other liabilities in the Consolidated Balance Sheets.
The revenues and expenses for the investments in real estate partnerships, on a combined basis, are summarized as follows:
REGENCY CENTERS CORPORATION AND REGENCY CENTERS, L.P.
Notes to Consolidated Financial Statements
December 31, 2020
Acquisitions
The following table provides a summary of shopping centers and land parcels acquired through our unconsolidated real estate partnerships during 2020, which had no such acquisitions in 2019:
Dispositions
The following table provides a summary of shopping centers and land parcels disposed of through our unconsolidated real estate partnerships:
Notes Payable
Scheduled principal repayments on notes payable held by our unconsolidated investments in real estate partnerships as of December 31, 2020, were as follows:
These fixed and variable rate loans are all non-recourse to the partnerships, and mature through 2034, with 91.5% having a weighted average fixed interest rate of 4.1%. The remaining notes payable float over LIBOR and had a weighted average variable interest rate of 2.4% at December 31, 2020. Maturing loans will be repaid from proceeds from refinancing, partner capital contributions, or a combination thereof. The Company is obligated to contribute its Pro-rata share to fund maturities if the loans are not refinanced, and it has the capacity to do so from existing cash balances, availability on its line of credit, and operating cash flows. The Company believes that its partners are financially sound and have sufficient capital or access thereto to fund future capital requirements. In the event that a co-investment partner was unable to fund its share of the capital requirements of the co-investment partnership, the Company would have the right, but not the obligation, to loan the defaulting partner the amount of its capital call.
Management fee income
In addition to earning our Pro-rata share of net income or loss in each of these co-investment partnerships, we receive fees, as follows:
REGENCY CENTERS CORPORATION AND REGENCY CENTERS, L.P.
Notes to Consolidated Financial Statements
December 31, 2020
5.
Other Assets
The following table represents the components of Other assets in the accompanying Consolidated Balance Sheets:
The following table presents the goodwill balances and activity during the year to date periods ended:
As the Company identifies properties (“reporting units”) that no longer meet its investment criteria, it will evaluate the property for potential sale. A decision to sell a reporting unit results in the need to evaluate its goodwill for recoverability and may result in impairment. Additionally, other changes impacting a reporting unit may be considered a triggering event. If events occur that trigger an impairment evaluation at multiple reporting units, a goodwill impairment may be significant.
During the three months ended March 31, 2020, the Company recognized $132.2 million of Goodwill impairment. The market disruptions related to the significant economic impacts of the pandemic triggered evaluation of reporting unit fair values for goodwill impairment. The Company’s reporting units are at the individual property level. The carrying value of long-lived assets within each of the reporting units were first tested for recoverability with no resulting impairments. Next, the fair value of each reporting unit was compared to its carrying value, including goodwill. Of the 269 reporting units with goodwill, 87 of those were determined to have fair values lower than carrying value. As such, goodwill impairment losses totaling $132.2 million were recognized for the amount that the carrying amount of the reporting unit, including goodwill, exceeded its fair value, limited to the total amount of goodwill allocated to that reporting unit. Fair values of the reporting units were determined using a discounted cash flow approach, including then current market cash flow assumptions for impacts to existing tenant contractual rent as well as prospective future rent and percent leased changes and related capital and operating expenditures. The cap rates and discount rates used in the analysis reflect management’s best estimate of market rates adjusted for the current environment. No additional Goodwill impairments were recognized after March 31, 2020, including as a result of the Company’s annual goodwill impairment evaluation in November 2020.
REGENCY CENTERS CORPORATION AND REGENCY CENTERS, L.P.
Notes to Consolidated Financial Statements
December 31, 2020
6.
Acquired Lease Intangibles
The Company had the following acquired lease intangibles:
The following table provides a summary of amortization and net accretion amounts from acquired lease intangibles:
(1)
On January 1, 2019, the Company adopted the new accounting guidance in ASC Topic 842, Leases, including all related ASUs, and correspondingly reclassified Below-market ground leases and Above-market ground leases against the Company’s Right of use asset, where they continue to be amortized to Operating and maintenance in the accompanying Consolidated Statements of Operations.
The estimated aggregate amortization and net accretion amounts from acquired lease intangibles for the next five years are as follows:
7.
Leases
Lessor Accounting
All of the Company’s leases are classified as operating leases. The Company's Lease income is comprised of both fixed and variable income. Fixed and in-substance fixed lease income includes stated amounts per the lease contract, which are primarily related to base rent, and in some cases stated amounts for CAM, real estate taxes, and insurance. Income for these amounts is recognized on a straight-line basis.
Variable lease income includes the following two main items in the lease contracts:
(i)
Recoveries from tenants represents amounts which tenants are contractually obligated to reimburse the Company for the tenants’ portion of actual Recoverable Costs incurred. Generally the Company’s leases provide for the tenants to
REGENCY CENTERS CORPORATION AND REGENCY CENTERS, L.P.
Notes to Consolidated Financial Statements
December 31, 2020
reimburse the Company based on the tenants’ share of the actual costs incurred in proportion to the tenants’ share of leased space in the property.
(ii)
Percentage rent represents amounts billable to tenants based on the tenants' actual sales volume in excess of levels specified in the lease contract.
The following table provides a disaggregation of lease income recognized as either fixed or variable lease income based on the criteria specified in ASC Topic 842:
During the year ended December 31, 2020, the Company experienced a higher rate of uncollectible lease income driven by changes in expectations of collectibility of both past due rents and recoveries and future rent steps given the impact of the pandemic on our tenants.
Future minimum rents under non-cancelable operating leases, excluding variable lease payments, are as follows:
Lessee Accounting
The Company has shopping centers that are subject to non-cancelable, long-term ground leases where a third party owns the underlying land and has leased the land to the Company to construct and/or operate a shopping center.
The Company has 22 properties within its consolidated real estate portfolio that are either partially or completely on land subject to ground leases with third parties. Accordingly, the Company owns only a long-term leasehold or similar interest in these properties. These ground leases expire through the year 2101, and in most cases, provide for renewal options.
In addition, the Company has non-cancelable operating leases pertaining to office space from which it conducts its business. Office leases expire through the year 2029, and in many cases, provide for renewal options.
REGENCY CENTERS CORPORATION AND REGENCY CENTERS, L.P.
Notes to Consolidated Financial Statements
December 31, 2020
The ground and office lease expense is recognized on a straight-line basis over the term of the leases, including management's estimate of expected option renewal periods. Operating lease expense under the Company's ground and office leases was as follows, including straight-line rent expense and variable lease expenses such as CPI increases, percentage rent and reimbursements of landlord costs:
Operating lease expense under the Company's ground and office leases was $19.7 million, $20.5 million and $19.1 million for the years ended December 31, 2020, 2019, and 2018 respectively, which includes fixed and variable rent expense.
The following table summarizes the undiscounted future cash flows by year attributable to the operating lease liabilities under ground and office leases as of December 31, 2020, and provides a reconciliation to the Lease liability included in the accompanying Consolidated Balance Sheets:
8.
Income Taxes
The Company has elected to be taxed as a REIT under the applicable provisions of the Internal Revenue Code with certain of its subsidiaries treated as taxable REIT subsidiary (“TRS”) entities, which are subject to federal and state income taxes.
The following table summarizes the tax status of dividends paid on our common shares:
(1) During 2020, the Company declared four quarterly dividends, the last of which was paid on January 5, 2021, with a portion allocated to the 2020 dividend period, and the balance allocated to 2021.
REGENCY CENTERS CORPORATION AND REGENCY CENTERS, L.P.
Notes to Consolidated Financial Statements
December 31, 2020
Our consolidated expense (benefit) for income taxes for the years ended December 31, 2020, 2019, and 2018 was as follows:
(1)
Includes $(355,000), $757,000 and $706,000 of tax (benefit) expense presented within Other operating expenses during the years ended December 31, 2020, 2019, and 2018, respectively. Additionally, $1.6 million, $488,000, and ($184,000) of tax expense (benefit) is presented within Gain on sale of real estate (or Provision for impairment), net of tax, during the years ended December 31, 2020, 2019, and 2018, respectively.
The TRS entities are subject to federal and state income taxes and file separate tax returns. Income tax expense (benefit) differed from the amounts computed by applying the U.S. Federal income tax rate to pretax income of the TRS entities, as follows:
(1)
Includes ($355,000), $757,000, and $706,000 of tax (benefit) expense presented within Other operating expenses during the years ended December 31, 2020, 2019, and 2017, respectively. Additionally, $1.6 million, $488,000, and ($184,000) of tax expense (benefit) is presented within Gain on sale of real estate (or Provision for impairment), net of tax, during the years ended December 31, 2020, 2019 and 2018, respectively.
The tax effects of temporary differences (included in Accounts payable and other liabilities in the accompanying Consolidated Balance Sheets) are summarized as follows:
The net deferred tax liability decreased during 2020 due to sales and depreciation of properties at TRS entities. The Company believes it is more likely than not that the remaining deferred tax assets will not be realized unless tax planning strategies are implemented.
REGENCY CENTERS CORPORATION AND REGENCY CENTERS, L.P.
Notes to Consolidated Financial Statements
December 31, 2020
9.
Notes Payable and Unsecured Credit Facilities
The Company’s outstanding debt consists of the following:
(1)
Includes six mortgages with interest rates that vary on LIBOR based formulas. Four of these variable rate loans have interest rate swaps in place to fix the interest rates. The effective fixed rates of the loans range from 2.5% to 4.1%.
(2)
Weighted average effective rate for the Line is calculated based on a fully drawn Line balance. During February 2021, the Company amended its Line agreement to extend the maturity to March 23, 2025 retaining the same overall borrowing capacity of $1.25 billion and credit-based interest rate spread over LIBOR currently equal to 0.875%.
(3)
In January 2021, the Company repaid in full the $265 million Term Loan, using cash on hand.
Notes Payable
Notes payable consist of mortgage loans secured by properties and unsecured public and private debt. Mortgage loans may be repaid before maturity, but could be subject to yield maintenance premiums, and are generally due in monthly installments of principal and interest or interest only. Unsecured public debt may be repaid before maturity subject to accrued and unpaid interest through the proposed redemption date and a make-whole premium. Interest on unsecured public and private debt is payable semi-annually.
The Company is required to comply with certain financial covenants for its unsecured public debt as defined in the indenture agreements such as the following ratios: Consolidated Debt to Consolidated Assets, Consolidated Secured Debt to Consolidated Assets, Consolidated Income for Debt Service to Consolidated Debt Service, and Unencumbered Consolidated Assets to Unsecured Consolidated Debt. As of December 31, 2020, management of the Company believes it is in compliance with all financial covenants for its unsecured public debt.
Unsecured Credit Facilities
At December 31, 2020, the Company had an unsecured line of credit commitment (the “Line”) and an unsecured term loan (the “Term Loan”) under separate credit agreements with a syndicate of banks.
At December 31, 2020, the Line had a borrowing capacity of $1.25 billion, which is reduced by the balance of outstanding borrowings and commitments from issued letters of credit. The Line bears interest at a variable rate of LIBOR plus 0.875% and is subject to a commitment fee of 0.15%, both of which are based on the Company's corporate credit rating.
On February 9, 2021, the Company entered into an Amended and Restated Credit Agreement, which among other items, i) retains a borrowing capacity of $ 1.25 billion, ii) includes a $125 million sublimit for swingline loans and $50 million available for issuance of letters of credits, iii) extends the maturity date to March 23, 2025 and iv) includes an option to extend the maturity date for two six-month periods. The existing financial covenants under the Line remained unchanged.
The Term Loan bears interest at a variable rate based on LIBOR plus 0.95% and has an interest rate swap in place to fix the interest rate at 2.0%, as discussed further in note 10. During January 2021, the Company repaid in full the $265 million Term Loan, and settled its related interest rate swap, as discussed in Note 10.
REGENCY CENTERS CORPORATION AND REGENCY CENTERS, L.P.
Notes to Consolidated Financial Statements
December 31, 2020
The Company is required to comply with certain financial covenants as defined in the Line and Term Loan credit agreements, such as Ratio of Indebtedness to Total Asset Value (“TAV”), Ratio of Unsecured Indebtedness to Unencumbered Asset Value, Ratio of Adjusted EBITDA to Fixed Charges, Ratio of Secured Indebtedness to TAV, Ratio of Unencumbered Net Operating Income to Unsecured Interest Expense, and other covenants customary with this type of unsecured financing. As of December 31, 2020, the Company is in compliance with all financial covenants for the Line and Term Loan.
Scheduled principal payments and maturities on notes payable and unsecured credit facilities were as follows:
(1)
Includes unsecured public and private debt and unsecured credit facilities.
(2)
In January 2021, the Company repaid in full the $265 million Term Loan.
The Company has $31.6 million of debt maturing over the next twelve months, which is in the form of non-recourse mortgage loans. The Company currently intends to repay the maturing balances and leave the properties unencumbered. The Company has sufficient capacity on its Line to repay the maturing debt, if necessary.
10.
Derivative Financial Instruments
The Company may use derivative financial instruments, including interest rate swaps, caps, options, floors, and other interest rate derivative contracts, to hedge all or a portion of the interest rate risk associated with its borrowings. The principal objective of such arrangements is to minimize the risks and/or costs associated with the Company’s operating and financial structure as well as to hedge specific anticipated transactions. The Company does not intend to utilize derivatives for speculative or other purposes other than interest rate risk management. The use of derivative financial instruments carries certain risks, including the risk that the counterparties to these contractual arrangements are not able to perform under the agreements. To mitigate this risk, the Company only enters into derivative financial instruments with counterparties with high credit ratings. The Company does not anticipate that any of the counterparties will fail to meet their obligations.
The Company’s objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish this objective, the Company primarily uses interest rate swaps as part of its interest rate risk management strategy. Interest rate swaps designated as cash flow hedges involve the receipt of variable-rate amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount.
REGENCY CENTERS CORPORATION AND REGENCY CENTERS, L.P.
Notes to Consolidated Financial Statements
December 31, 2020
The following table summarizes the terms and fair values of the Company's derivative financial instruments, as well as their classification on the Consolidated Balance Sheets:
(1)
Derivatives in an asset position are included within Other assets in the accompanying Consolidated Balance Sheets, while those in a liability position are included within Accounts payable and other liabilities.
(2)
In January 2021, the Company early settled the $265 million interest rate swap in connection with its repayment of the Term Loan.
These derivative financial instruments are all interest rate swaps, which are designated and qualify as cash flow hedges. The Company does not use derivatives for trading or speculative purposes and, as of December 31, 2020, does not have any derivatives that are not designated as hedges.
The changes in the fair value of derivatives designated and qualifying as cash flow hedges are recorded in Accumulated other comprehensive income (loss) (“AOCI”) and subsequently reclassified into earnings in the period that the hedged forecasted transaction affects earnings.
The following table represents the effect of the derivative financial instruments on the accompanying consolidated financial statements:
(1)
At December 31, 2020, based on intent to repay the Term Loan in January 2021, the Company recognized the Accumulated other comprehensive loss for the Term Loan swap in earnings within Early extinguishment of debt.
As of December 31, 2020, the Company expects approximately $3.7 million of accumulated comprehensive losses on derivative instruments in AOCI, including the Company's share from its Investments in real estate partnerships, to be reclassified into earnings during the next 12 months.
REGENCY CENTERS CORPORATION AND REGENCY CENTERS, L.P.
Notes to Consolidated Financial Statements
December 31, 2020
11.
Fair Value Measurements
(a)
Disclosure of Fair Value of Financial Instruments
All financial instruments of the Company are reflected in the accompanying Consolidated Balance Sheets at amounts which, in management's estimation, reasonably approximates their fair values, except for the following:
The above fair values represent management's estimate of the amounts that would be received from selling those assets or that would be paid to transfer those liabilities in an orderly transaction between market participants as of December 31, 2020 and 2019, respectively. These fair value measurements maximize the use of observable inputs. However, in situations where there is little, if any, market activity for the asset or liability at the measurement date, the fair value measurement reflects the Company's own judgments about the assumptions that market participants would use in pricing the asset or liability.
The Company develops its judgments based on the best information available at the measurement date, including expected cash flows, appropriately risk-adjusted discount rates, and available observable and unobservable inputs. Service providers involved in fair value measurements are evaluated for competency and qualifications on an ongoing basis. As considerable judgment is often necessary to estimate the fair value of these financial instruments, the fair values presented above are not necessarily indicative of amounts that will be realized upon disposition of the financial instruments.
(b)
Fair Value Measurements
The following financial instruments are measured at fair value on a recurring basis:
Securities
The Company has investments in marketable securities that are included within Other assets on the accompanying Consolidated Balance Sheets. The fair value of the securities was determined using quoted prices in active markets, which are considered Level 1 inputs of the fair value hierarchy. Changes in the value of securities are recorded within Net investment (income) loss in the accompanying Consolidated Statements of Operations, and includes unrealized (gains) losses of ($3.0) million, ($3.8) million, and $3.3 million for the years ended December 31, 2020, 2019, and 2018, respectively.
Available-for-Sale Debt Securities
Available-for-sale debt securities consist of investments in certificates of deposit and corporate bonds, and are recorded at fair value using matrix pricing methods to estimate fair value, which are considered Level 2 inputs of the fair value hierarchy. Unrealized gains or losses on these debt securities are recognized through other comprehensive income.
Interest Rate Derivatives
The fair value of the Company's interest rate derivatives is determined using widely accepted valuation techniques including discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves and implied volatilities. The Company incorporates credit valuation adjustments to appropriately reflect both its own nonperformance risk and the respective counterparty's nonperformance risk in the fair value measurements.
REGENCY CENTERS CORPORATION AND REGENCY CENTERS, L.P.
Notes to Consolidated Financial Statements
December 31, 2020
Although the Company has determined that the majority of the inputs used to value its derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with its derivatives utilize Level 3 inputs, such as estimates of current credit spreads, to evaluate the likelihood of default by the Company and its counterparties. The Company has assessed the significance of the impact of the credit valuation adjustments on the overall valuation of its derivative positions and has determined that the credit valuation adjustments are not significant to the overall valuation of its interest rate swaps. As a result, the Company determined that its interest rate swaps valuation in its entirety is classified in Level 2 of the fair value hierarchy.
The following tables present the placement in the fair value hierarchy of assets and liabilities that are measured at fair value on a recurring basis:
The following tables present the placement in the fair value hierarchy of assets and liabilities that are measured at fair value on a non-recurring basis:
REGENCY CENTERS CORPORATION AND REGENCY CENTERS, L.P.
Notes to Consolidated Financial Statements
December 31, 2020
During the years ended December 31, 2020 and 2019, the Company recorded Provision for impairment of $17.5 million and $40.3 million, respectively, on one operating property which is classified as held and used. The property, which is located in the Manhattan market of New York City, was impaired during 2019 as a result of a fair value analysis performed based on lease up expectations after its single retail tenant declared bankruptcy. As the pandemic continued to impact the leasing market, limiting visibility for replacement prospects for this property, the hold period probabilities shifted triggering further evaluation of the current fair value resulting in the additional impairment charge during the fourth quarter of 2020.
The 2019 fair value was derived using a discounted cash flow model, which included assumptions around redevelopment of the asset to its highest and best use as a mixed-use project and re-leasing the space. The discount rate of 8.58% and terminal capitalization rate of 4.75% used in the discounted cash flow model are considered significant inputs and assumptions to estimating the fair value of the property, which is considered a Level 3 input per the fair value hierarchy. The 2020 fair value was based on third-party offers for the property and is reflected in the above Level 2 fair value hierarchy.
During the year ended December 31, 2019, the Company also recorded a $10.2 million Provision for impairment on one operating property which was classified as held and used and resulted in a fair value of $28.1 million. That operating property is classified as held for sale at December 31, 2020. The property was remeasured to fair value based on its expected selling price and is reflected in the above Level 2 fair value hierarchy.
12.
Equity and Capital
Common Stock of the Parent Company
At the Market (“ATM”) Program
Under the Parent Company's ATM equity offering program, the Parent Company may sell up to $500.0 million of common stock at prices determined by the market at the time of sale. There were no shares issued under the ATM equity program during the year ended December 31, 2020. As of December 31, 2020, all $500 million of common stock authorized under the ATM program remained available for issuance.
Under a previous ATM equity program which expired on March 31, 2020, the Company sold shares through forward sale agreements, which the Company settled during March 2020. At settlement, the Company issued 1,894,845 shares of its common stock, receiving $125.8 million of net proceeds which were used for working capital and general corporate purposes.
Share Repurchase Program
On February 4, 2020, the Company's Board authorized a common share repurchase program under which the Company may purchase, from time to time, up to a maximum of $250 million of shares of its outstanding common stock through open market purchases or in privately negotiated transactions. Any shares purchased, if not retired, will be treated as treasury shares. The program is set to expire on February 5, 2021, but may be modified at the discretion of the Board. The timing and actual number of shares purchased under the program depend upon marketplace conditions, liquidity needs, and other factors. Through December 31, 2020, no shares have been repurchased under this program.
On February 3, 2021, the Company’s Board authorized a new common share repurchase program under which the Company may purchase, from time to time, up to a maximum of $250 million of its outstanding common stock through open market purchases or in privately negotiated transactions. Any shares purchased, if not retired, will be treated as treasury shares. This new program is set to expire on February 3, 2023.
Common Units of the Operating Partnership
Common units of the operating partnership are issued or redeemed and retired for each of the shares of Parent Company common stock issued or repurchased and retired, as described above.
In January 2020, the Operating Partnership issued 18,613 exchangeable operating partnership units, valued at $1.3 million, as partial purchase price consideration for the acquisition of an additional 16.62% interest in an operating shopping center.
REGENCY CENTERS CORPORATION AND REGENCY CENTERS, L.P.
Notes to Consolidated Financial Statements
December 31, 2020
General Partners
The Parent Company, as general partner, owned the following Partnership Units outstanding:
13.
Stock-Based Compensation
The Company recorded stock-based compensation in General and administrative expenses in the accompanying Consolidated Statements of Operations, the components of which are further described below:
(1)
Includes amortization of the grant date fair value of restricted stock awards over the respective vesting periods.
(2)
Includes compensation expense specifically identifiable to development and redevelopment activities. During 2018, these amounts also include compensation expense specifically identifiable to leasing activities, as non-contingent internal leasing costs were capitalizable prior to the adoption of Topic 842, Leases, on January 1, 2019.
The Company established its Omnibus Incentive Plan (the “Plan”) under which the Board of Directors may grant stock options and other stock-based awards to officers, directors, and other key employees. The Plan allows the Company to issue up to 5.4 million shares in the form of the Parent Company's common stock or stock options. As of December 31, 2020, there were 4.7 million shares available for grant under the Plan either through stock options or restricted stock awards.
Restricted Stock Awards
The Company grants restricted stock under the Plan to its employees as a form of long-term compensation and retention. The terms of each restricted stock grant vary depending upon the participant's responsibilities and position within the Company. The Company's stock grants can be categorized as either time-based awards, performance-based awards, or market-based awards. All awards are valued at fair value, earn dividends throughout the vesting period, and have no voting rights. Fair value is measured using the grant date market price for all time-based or performance-based awards. Market based awards are valued using a Monte Carlo simulation to estimate the fair value based on the probability of satisfying the market conditions and the projected stock price at the time of payout, discounted to the valuation date over a three year performance period. Assumptions include historic volatility over the previous three year period, risk-free interest rates, and Regency's historic daily return as compared to the market index. Since the award payout includes dividend equivalents and the total shareholder return includes the value of dividends, no dividend yield assumption is required for the valuation. Compensation expense is measured at the grant date and recognized on a straight-line basis over the requisite vesting period for the entire award.
REGENCY CENTERS CORPORATION AND REGENCY CENTERS, L.P.
Notes to Consolidated Financial Statements
December 31, 2020
The following table summarizes non-vested restricted stock activity:
(1)
Time-based awards vest beginning on the first anniversary following the grant date over a one or four year service period. These grants are subject only to continued employment and are not dependent on future performance measures. Accordingly, if such vesting criteria are not met, compensation cost previously recognized would be reversed.
(2)
Performance-based awards are earned subject to future performance measurements. Once the performance criteria are achieved and the actual number of shares earned is determined, shares vest over a required service period. The Company considers the likelihood of meeting the performance criteria based upon management's estimates from which it determines the amounts recognized as expense on a periodic basis.
(3)
Market-based awards are earned dependent upon the Company's total shareholder return in relation to the shareholder return of a NAREIT index over a three-year period. Once the performance criteria are met and the actual number of shares earned is determined, the shares are immediately vested and distributed. The probability of meeting the criteria is considered when calculating the estimated fair value on the date of grant using a Monte Carlo simulation. These awards are accounted for as awards with market criteria, with compensation cost recognized over the service period, regardless of whether the performance criteria are achieved and the awards are ultimately earned. The significant assumptions underlying determination of fair values for market-based awards granted were as follows:
(4)
The weighted-average grant price for restricted stock granted during the years is summarized below:
(5)
The total intrinsic value of restricted stock vested during the years is summarized below (in thousands):
(6)
As of December 31, 2020, there was $12.9 million of unrecognized compensation cost related to non-vested restricted stock granted under the Parent Company's Plan. When recognized, this compensation results in additional paid in capital in the accompanying Consolidated Statements of Equity of the Parent Company and in general partner preferred and common units in the accompanying Consolidated Statements of Capital of the Operating Partnership. This unrecognized compensation cost is expected to be recognized over the next three years. The Company issues new restricted stock from its authorized shares available at the date of grant.
REGENCY CENTERS CORPORATION AND REGENCY CENTERS, L.P.
Notes to Consolidated Financial Statements
December 31, 2020
14.
Saving and Retirement Plans
401(k) Retirement Plan
The Company maintains a 401(k) retirement plan covering substantially all employees and permits participants to defer eligible compensation up to the maximum allowable amount determined by the IRS. This deferred compensation, together with Company matching contributions equal to 100% of employee deferrals up to a maximum of $5,000 of their eligible compensation, is fully vested and funded as of December 31, 2020. Additionally, an annual profit sharing contribution may be made, which vests over a three year period. Costs for Company contributions to the plan totaled $3.5 million, $3.5 million, and $3.9 million for the years ended December 31, 2020, 2019, and 2018, respectively.
Non-Qualified Deferred Compensation Plan (“NQDCP”)
The Company maintains a NQDCP which allows select employees and directors to defer part or all of their cash bonus, director fees, and vested restricted stock awards. All contributions into the participants' accounts are fully vested upon contribution to the NQDCP and are deposited in a Rabbi trust.
The following table reflects the balances of the assets and deferred compensation liabilities of the Rabbi trust and related participant account obligations in the accompanying Consolidated Balance Sheets, excluding Regency stock:
Realized and unrealized gains and losses on securities held in the NQDCP are recognized within Net investment income in the accompanying Consolidated Statements of Operations. Changes in participant obligations, which is based on changes in the value of their investment elections, is recognized within General and administrative expenses within the accompanying Consolidated Statements of Operations.
Investments in shares of the Company's common stock are included, at cost, as Treasury stock in the accompanying Consolidated Balance Sheets of the Parent Company and as a reduction of General partner capital in the accompanying Consolidated Balance Sheets of the Operating Partnership. The participant's deferred compensation liability attributable to the participants' investments in shares of the Company's common stock are included, at cost, within
Additional paid in capital in the accompanying Consolidated Balance Sheets of the Parent Company and as a reduction of General partner capital in the accompanying Consolidated Balance Sheets of the Operating Partnership. Changes in participant account balances related to the Regency common stock fund are recorded directly within stockholders' equity.
15.
Earnings per Share and Unit
Parent Company Earnings per Share
The following summarizes the calculation of basic and diluted earnings per share:
(1)
Includes the dilutive impact of unvested restricted stock.
(2)
Using the treasury stock method, 2019 weighted average common shares outstanding for basic and diluted earnings per share exclude 1.9 million shares issuable under the forward ATM equity offering as they would be anti-dilutive. These shares are included in 2020 weighted average common shares outstanding as they were settled in March 2020.
REGENCY CENTERS CORPORATION AND REGENCY CENTERS, L.P.
Notes to Consolidated Financial Statements
December 31, 2020
Income allocated to noncontrolling interests of the Operating Partnership has been excluded from the numerator and exchangeable Operating Partnership units have been omitted from the denominator for the purpose of computing diluted earnings per share since the effect of including these amounts in the numerator and denominator would be anti-dilutive. Weighted average exchangeable Operating Partnership units outstanding for the years ended December 31, 2020, 2019, and 2018, were 765,046, 464,286, and 349,902, respectively.
Operating Partnership Earnings per Unit
The following summarizes the calculation of basic and diluted earnings per unit:
(1)
Includes the dilutive impact of unvested restricted stock.
(2)
Using the treasury stock method, weighted average common shares outstanding for basic and diluted earnings per share exclude 1.9 million shares issuable under the forward ATM equity offering outstanding during 2019 as they would be anti-dilutive.
16.
Commitments and Contingencies
Litigation
The Company is involved in litigation on a number of matters and is subject to certain claims, which arise in the normal course of business, none of which, in the opinion of management, is expected to have a material adverse effect on the Company's consolidated financial position, results of operations, or liquidity. However, no assurances can be given as to the outcome of any threatened or pending legal proceedings. Legal fees are expensed as incurred.
Environmental
The Company is subject to numerous environmental laws and regulations pertaining primarily to chemicals historically used by certain current and former dry cleaning tenants, the existence of asbestos in older shopping centers, and older underground petroleum storage tanks. The Company believes that the ultimate disposition of currently known environmental matters will not have a material effect on its financial position, liquidity, or operations. The Company can give no assurance that existing environmental studies with respect to its shopping centers have revealed all potential environmental contaminants; that its estimate of liabilities will not change as more information becomes available; that any previous owner, occupant or tenant did not create any material environmental condition not known to the Company; that the current environmental condition of the shopping centers will not be affected by tenants and occupants, by the condition of nearby properties, or by unrelated third parties; and that changes in applicable environmental laws and regulations or their interpretation will not result in additional environmental liability to the Company.
Letters of Credit
The Company has the right to issue letters of credit under the Line up to an amount not to exceed $50.0 million, which reduces the credit availability under the Line. These letters of credit are primarily issued as collateral on behalf of its captive insurance program and to facilitate the construction of development projects. As of December 31, 2020 and 2019, the Company had $9.7 million and $12.5 million, respectively, in letters of credit outstanding.
REGENCY CENTERS CORPORATION AND REGENCY CENTERS, L.P.
Notes to Consolidated Financial Statements
December 31, 2020
17.
Summary of Quarterly Financial Data (Unaudited)
The following table summarizes selected Quarterly Financial Data for the Company on a historical basis for the years ended December 31, 2020 and 2019:
REGENCY CENTERS CORPORATION AND REGENCY CENTERS, L.P.
Schedule III - Consolidated Real Estate and Accumulated Depreciation
December 31, 2020
(in thousands)
REGENCY CENTERS CORPORATION AND REGENCY CENTERS, L.P.
Schedule III - Consolidated Real Estate and Accumulated Depreciation
December 31, 2020
(in thousands)
REGENCY CENTERS CORPORATION AND REGENCY CENTERS, L.P.
Schedule III - Consolidated Real Estate and Accumulated Depreciation
December 31, 2020
(in thousands)
REGENCY CENTERS CORPORATION AND REGENCY CENTERS, L.P.
Schedule III - Consolidated Real Estate and Accumulated Depreciation
December 31, 2020
(in thousands)
REGENCY CENTERS CORPORATION AND REGENCY CENTERS, L.P.
Schedule III - Consolidated Real Estate and Accumulated Depreciation
December 31, 2020
(in thousands)
REGENCY CENTERS CORPORATION AND REGENCY CENTERS, L.P.
Schedule III - Consolidated Real Estate and Accumulated Depreciation
December 31, 2020
(in thousands)
REGENCY CENTERS CORPORATION AND REGENCY CENTERS, L.P.
Schedule III - Consolidated Real Estate and Accumulated Depreciation
December 31, 2020
(in thousands)
REGENCY CENTERS CORPORATION AND REGENCY CENTERS, L.P.
Schedule III - Consolidated Real Estate and Accumulated Depreciation
December 31, 2020
(in thousands)
(1)
See Item 2, Properties, for geographic location and year each operating property was acquired.
(2)
The negative balance for costs capitalized subsequent to acquisition could include out-parcels sold, provision for loss recorded, and demolition of part of the property for redevelopment.
See accompanying report of independent registered public accounting firm.
REGENCY CENTERS CORPORATION AND REGENCY CENTERS, L.P.
Schedule III - Consolidated Real Estate and Accumulated Depreciation
December 31, 2020
(in thousands)
Depreciation and amortization of the Company's investment in buildings and improvements reflected in the statements of operations is calculated over the estimated useful lives of the assets, which are up to 40 years. The aggregate cost for federal income tax purposes was approximately $8.9 billion at December 31, 2020.
The changes in total real estate assets for the years ended December 31, 2020, 2019, and 2018 are as follows:
The changes in accumulated depreciation for the years ended December 31, 2020, 2019, and 2018 are as follows:
See accompanying report of independent registered public accounting firm.
Item 9.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A.
Item 9A. Controls and Procedures
Controls and Procedures (Regency Centers Corporation)
Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures
Under the supervision and with the participation of the Parent Company's management, including its chief executive officer and chief financial officer, the Parent Company conducted an evaluation of its disclosure controls and procedures, as such term is defined under Rule 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Based on this evaluation, the Parent Company's chief executive officer and chief financial officer concluded that its disclosure controls and procedures were effective as of the end of the period covered by this annual report on Form 10-K to ensure information required to be disclosed in the reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported, within the time period specified in the SEC's rules and forms. These disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed by the Parent Company in the reports it files or submits is accumulated and communicated to management, including its chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure.
Management's Report on Internal Control over Financial Reporting
The Parent Company's management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Under the supervision and with the participation of its management, including its chief executive officer and chief financial officer, the Parent Company conducted an evaluation of the effectiveness of its internal control over financial reporting based on the framework in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on its evaluation under the framework in Internal Control - Integrated Framework (2013), the Parent Company's management concluded that its internal control over financial reporting was effective as of December 31, 2020.
KPMG LLP, an independent registered public accounting firm, has audited the consolidated financial statements included in this annual report on Form 10-K and, as part of their audit, has issued a report, included herein, on the effectiveness of the Parent Company's internal control over financial reporting.
The Parent Company's system of internal control over financial reporting was designed to provide reasonable assurance regarding the preparation and fair presentation of published financial statements in accordance with accounting principles generally accepted in the United States. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance and may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Changes in Internal Controls
There have been no changes in the Parent Company's internal controls over financial reporting identified in connection with this evaluation that occurred during the fourth quarter of 2020 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting. The Parent Company has incorporated the effects of COVID-19 related impacts into our control structure.
Controls and Procedures (Regency Centers, L.P.)
Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures
Under the supervision and with the participation of the Operating Partnership's management, including the chief executive officer and chief financial officer of its general partner, the Operating Partnership conducted an evaluation of its disclosure controls and procedures, as such term is defined under Rule 13a-15(e) and 15d-15(e) promulgated under the Exchange Act. Based on this evaluation, the chief executive officer and chief financial officer of its general partner concluded that its disclosure controls and procedures were effective as of the end of the period covered by this annual report on Form 10-K to ensure information required to be disclosed in the reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported, within the time period specified in the SEC's rules and forms. These disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed by the Operating Partnership in the reports it files or submits is accumulated and communicated to management, including the
chief executive officer and chief financial officer of its general partner, as appropriate, to allow timely decisions regarding required disclosure.
Management's Report on Internal Control over Financial Reporting
The Operating Partnership's management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Under the supervision and with the participation of its management, including the chief executive officer and chief financial officer of its general partner, the Operating Partnership conducted an evaluation of the effectiveness of its internal control over financial reporting based on the framework in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on its evaluation under the framework in Internal Control - Integrated Framework (2013), the Operating Partnership's management concluded that its internal control over financial reporting was effective as of December 31, 2020.
KPMG LLP, an independent registered public accounting firm, has audited the consolidated financial statements included in this annual report on Form 10-K and, as part of their audit, has issued a report, included herein, on the effectiveness of the Operating Partnership's internal control over financial reporting.
The Operating Partnership's system of internal control over financial reporting was designed to provide reasonable assurance regarding the preparation and fair presentation of published financial statements in accordance with accounting principles generally accepted in the United States. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance and may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Changes in Internal Controls
There have been no changes in the Operating Partnership's internal controls over financial reporting identified in connection with this evaluation that occurred during the fourth quarter of 2020 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting. The Operating Partnership has incorporated the effects of COVID-19 related impacts into our control structure.
Item 9B.
Item 9B. Other Information
Not applicable
PART III
Item 10.
Item 10. Directors, Executive Officers, and Corporate Governance
Information concerning our directors, executive officers, and corporate governance is incorporated herein by reference to our definitive proxy statement to be filed with the Securities and Exchange Commission within 120 days after the end of the fiscal year covered by this Form 10-K with respect to the 2021 Annual Meeting of Stockholders. Information regarding executive officers is included in Part I of this Form 10-K as permitted by General Instruction G(3).
Code of Ethics.
We have a code of ethics applicable to our Board of Directors, principal executive officers, principal financial officer, principal accounting officer and persons performing similar functions. The text of this code of ethics may be found on our web site at www.regencycenters.com. We will post a notice of any waiver from, or amendment to, any provision of our code of ethics on our web site.
Item 11.
Item 11. Executive Compensation
Incorporated herein by reference to our definitive proxy statement to be filed with the Securities and Exchange Commission within 120 days after the end of the fiscal year covered by this Form 10-K with respect to the 2021 Annual Meeting of Stockholders.
Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Equity Compensation Plan Information
(as of December 31, 2020)
(1)
This column does not include 618,935 shares that may be issued pursuant to unvested restricted stock and performance share awards.
(2)
The weighted average exercise price excludes stock rights awards, which we sometimes refer to as unvested restricted stock.
(3)
The Regency Centers Corporation Omnibus Incentive Plan, (“Omnibus Plan”), as approved by stockholders at our 2019 annual meeting, provides that an aggregate maximum of 5.6 million shares of our common stock are reserved for issuance under the Omnibus Plan.
Information about security ownership is incorporated herein by reference to our definitive proxy statement to be filed with the Securities and Exchange Commission within 120 days after the end of the fiscal year covered by this Form 10-K with respect to the 2021 Annual Meeting of Stockholders.
Item 13.
Item 13. Certain Relationships and Related Transactions, and Director Independence
Incorporated herein by reference to our definitive proxy statement to be filed with the Securities and Exchange Commission within 120 days after the end of the fiscal year covered by this Form 10-K with respect to the 2021 Annual Meeting of Stockholders.
Item 14.
Item 14. Principal Accountant Fees and Services
Incorporated herein by reference to our definitive proxy statement to be filed with the Securities and Exchange Commission within 120 days after the end of the fiscal year covered by this Form 10-K with respect to the 2021 Annual Meeting of Stockholders.
PART IV
Item 15.
Item 15. Exhibits and Financial Statement Schedules
(a)
Financial Statements and Financial Statement Schedules:
Regency Centers Corporation and Regency Centers, L.P. 2020 financial statements and financial statement schedule, together with the reports of KPMG LLP are listed on the index immediately preceding the financial statements in Item 8, Consolidated Financial Statements and Supplemental Data.
(b)
Exhibits:
In reviewing the agreements included as exhibits to this report, please remember they are included to provide you with information regarding their terms and are not intended to provide any other factual or disclosure information about the Company, its subsidiaries or other parties to the agreements. The Agreements contain representations and warranties by each of the parties to the applicable agreement. These representations and warranties have been made solely for the benefit of the other parties to the applicable agreement and:
•
should not in all instances be treated as categorical statements of fact, but rather as a way of allocating the risk to one of the parties if those statements prove to be inaccurate;
•
have been qualified by disclosures that were made to the other party in connection with the negotiation of the applicable agreement, which disclosures are not necessarily reflected in the agreement;
•
may apply standards of materiality in a way that is different from what may be viewed as material to you or other investors; and
•
were made only as of the date of the applicable agreement or such other date or dates as may be specified in the agreement and are subject to more recent developments.
Accordingly, these representations and warranties may not describe the actual state of affairs as of the date they were made or at any other time. We acknowledge that, notwithstanding the inclusion of the foregoing cautionary statements, we are responsible for considering whether additional specific disclosures of material information regarding material contractual provisions are required to make the statements in this report not misleading. Additional information about the Company may be found elsewhere in this report and the Company's other public files, which are available without charge through the SEC's website at http://www.sec.gov .
Unless otherwise indicated below, the Commission file number to the exhibit is No. 001-12298.
1.
Underwriting Agreement
(a)
Form of Equity Distribution Agreement dated May 17, 2017 among Regency Centers Corporation, Regency Centers, L.P. and the parties listed below (incorporated by reference to Exhibit 1.1 to the Company’s Form 8-K filed on May 17, 2017). The Equity Distribution Agreements listed below are substantially identical in all material respects to the Form of Equity Distribution Agreement, except for the identities of the parties, and have not been filed as exhibits to the Company’s 1934 Act reports pursuant to Instruction 2 to item 601 of Regulation S-K:
(i)
Equity Distribution Agreement dated May 17, 2017 among Regency Centers Corporation, Regency Centers, L.P. and Wells Fargo Securities, LLC;
(ii)
Equity Distribution Agreement dated May 17, 2017 among Regency Centers Corporation, Regency Centers, L.P. and J.P. Morgan Securities LLC;
(iii)
Equity Distribution Agreement dated May 17, 2017 among Regency Centers Corporation, Regency Centers, L.P. and Merrill Lynch, Pierce, Fenner & Smith Incorporated;
(iv)
Equity Distribution Agreement dated May 17, 2017 among Regency Centers Corporation, Regency Centers, L.P. and BB&T Capital Markets, a division of BB&T Securities, LLC;
(v)
Equity Distribution Agreement dated May 17, 2017 among Regency Centers Corporation, Regency Centers, L.P. and BTIG, LLC;
(vi)
Equity Distribution Agreement dated May 17, 2017 among Regency Centers Corporation, Regency Centers, L.P. and RBC Capital Markets, LLC;
(i) Equity Distribution Agreement, dated May 8, 2020, among Regency Centers Corporation, Regency Centers, L.P. and Jefferies LLC.
(ii) Equity Distribution Agreement, dated May 8, 2020, among Regency Centers Corporation, Regency Centers, L.P. and SMBC Nikko Securities America, Inc.
(iii) Equity Distribution Agreement, dated May 8, 2020, among Regency Centers Corporation, Regency Centers, L.P. and Regions Securities LLC
(iv) Equity Distribution Agreement, dated May 8, 2020, among Regency Centers Corporation, Regency
Centers, L.P., The Bank of Nova Scotia and Scotia Capital (USA) Inc.
(v) Equity Distribution Agreement, dated May 8, 2020, among Regency Centers Corporation, Regency Centers, L.P., Bank of Montreal and BMO Capital Markets Corp.
(vi) Equity Distribution Agreement, dated May 8, 2020, among Regency Centers Corporation, Regency Centers, L.P., TD Securities (USA) LLC and The Toronto-Dominion Bank
(f)
Form of Forward Master Confirmation, dated May 8, 2020, dated May 8, 2020 (incorporated by reference to Exhibit 1.4 to the Company’s Form 8-K filed on May 8, 2020). The Forward Master Confirmations listed below are substantially identical in all material respects to the Form of Forward Master Confirmation, except for the identities of the parties, and have not been filed as exhibits to the Company’s 1934 Act reports pursuant to Instruction 2 to item 601 of Regulation S-K:
(i) Forward Master Confirmation, dated May 8, 2020, by and between Regency Centers Corporation and Wells Fargo Bank, National Association and Wells Fargo Securities, LLC.
(ii) Forward Master Confirmation, dated May 8, 2020, by and between Regency Centers Corporation and Bank of America, N.A.
(iii) Forward Master Confirmation, dated May 8, 2020, by and between Regency Centers Corporation and JPMorgan Chase Bank, National Association, New York Branch
(iv Forward Master Confirmation, dated May 8, 2020, by and between Regency Centers Corporation and Bank of Montreal
(v) Forward Master Confirmation, dated May 8, 2020, by and between Regency Centers Corporation and Mizuho Markets Americas LLC
(vi) Forward Master Confirmation, dated May 8, 2020, by and between Regency Centers Corporation and Jefferies LLC
(vii) Forward Master Confirmation, dated May 8, 2020, by and between Regency Centers Corporation and The Bank of Nova Scotia
(viii) Forward Master Confirmation, dated May 8, 2020, by and between Regency Centers Corporation and The Toronto-Dominion Bank.
3.
Articles of Incorporation and Bylaws
(a)
Restated Articles of Incorporation of Regency Centers Corporation (amendment is incorporated by reference to Exhibit 3.A to the Company’s Form 10-Q filed on August 8, 2017).
(b)
Amended and Restated Bylaws of Regency Centers Corporation (amendment is incorporated by reference to Exhibit 3.B to the Company’s Form 10-Q filed on August 8, 2017).
(c)
Fifth Amended and Restated Agreement of Limited Partnership of Regency Centers, L.P. , (incorporated by reference to Exhibit 3(d) to the Company's Form 10-K filed on February 19, 2014).
4.
Instruments Defining Rights of Security Holders
(a)
See Exhibits 3(a) and 3(b) for provisions of the Articles of Incorporation and Bylaws of the Company defining the rights of security holders. See Exhibits 3(c) for provisions of the Partnership Agreement of Regency Centers, L.P. defining rights of security holders.
The certifications in this exhibit 32 are being furnished solely to accompany this report pursuant to 18 U.S.C. § 1350, and are not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and are not to be incorporated by reference into any of the Company's filings, whether made before or after the date hereof, regardless of any general incorporation language in such filing.
32.1
18 U.S.C. § 1350 Certification of Chief Executive Officer for Regency Centers Corporation.
32.2
18 U.S.C. § 1350 Certification of Chief Financial Officer for Regency Centers Corporation.
32.3
18 U.S.C. § 1350 Certification of Chief Executive Officer for Regency Centers, L.P.
+ Submitted electronically with this Annual Report
Item 16. Form 10-K Summary
None.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
February 17, 2021
/s/ Martin E. Stein, Jr.
Martin E. Stein. Jr., Executive Chairman of the Board
February 17, 2021
/s/ Lisa Palmer
Lisa Palmer, President, Chief Executive Officer, and Director
February 17, 2021
/s/ Michael J. Mas
Michael J. Mas, Executive Vice President, Chief Financial Officer (Principal Financial Officer)
February 17, 2021
/s/ J. Christian Leavitt
J. Christian Leavitt, Senior Vice President and Treasurer (Principal Accounting Officer)
February 17, 2021
/s/ Joseph Azrack
Joseph Azrack, Director
February 17, 2021
/s/ Bryce Blair
Bryce Blair, Director
February 17, 2021
/s/ C. Ronald Blankenship
C. Ronald Blankenship, Director
February 17, 2021
/s/ Deirdre J. Evens
Deirdre J. Evens, Director
February 17, 2021
/s/ Thomas W. Furphy
Tom W. Furphy, Director
February 17, 2021
/s/ Karin M. Klein
Karin M. Klein, Director
February 17, 2021
/s/ Peter Linneman
Peter Linneman, Director
February 17, 2021
/s/ David P. O'Connor
David P. O'Connor, Director
February 17, 2021
/s/ Thomas G. Wattles
Thomas G. Wattles, Director