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REGENCY CENTERS CORP (REG)·Q4 2016 Earnings Summary

Executive Summary

  • Q4 2016 delivered solid operating performance: Net Income of $55.9M ($0.53/share), NAREIT FFO/share of $0.79, and Core FFO/share of $0.86; same-property NOI growth ex-term fees was 3.9% and same-property percent leased ended at 96.2% .
  • Guidance shifted: 2017 Core FFO/share was raised to $3.44–$3.50 while 2017 Net Income/share and NAREIT FFO/share were lowered to $1.34–$1.40 and $3.33–$3.39, respectively, primarily reflecting financing and preferred redemption impacts; 2017 SPNOI growth guided to 2.25%–3.0% .
  • Balance sheet actions post year-end (two senior note tranches: $350M 3.6% 2027; $300M 4.4% 2047; redemption of 6.625% preferred) improved free cash flow and fixed charge coverage; management increased Core FFO guidance by $0.02 due to these actions .
  • Pipeline execution remains a differentiator: two Q4 development starts (Chimney Rock Crossing and The Village at Riverstone) and 21 projects in process at year-end (~$291M, 85% leased/committed) support medium-term NOI/NAV growth .

What Went Well and What Went Wrong

What Went Well

  • Robust leasing and pricing power: Q4 blended rental spread was 12.7% (new +21.4%, renewals +9.7%); same-property NOI growth ex-term fees +3.9% .
  • Strengthened balance sheet and accretive financing: issued $650M of unsecured notes and redeemed preferreds, boosting free cash flow and fixed charge coverage; Core FFO guidance increased by $0.02 as a result .
  • Strategic positioning and culture: “2016 was an exceptional year… fortress balance sheet… best-in-class team,” underscoring durable competitive positioning and consistent Core FFO growth .

What Went Wrong

  • 2017 earnings mix optics: despite raising 2017 Core FFO/share, 2017 NAREIT FFO/share and Net Income/share were lowered to reflect one-time financing/preferred redemption costs, pressuring GAAP-based optics near term .
  • Bankruptcy-related headwinds: management expects moderating 2017 same-property NOI growth as backfills from 2016 bankruptcies ramp later in the year (H2 weighting) .
  • Retail environment caution: while demand remains healthy, management noted ongoing sector disruptions (e-commerce/format changes) that could intermittently pressure leasing cadence and comps in H1 2017 .

Financial Results

Income statement and per-share metrics

MetricQ4 2015Q3 2016Q4 2016
Total Revenues ($M)$146.2 $152.8 $159.6
Net Income Attributable to Common ($M)$17.6 $5.3 $55.9
GAAP Diluted EPS$0.18 $0.05 $0.53
NAREIT FFO/Share (diluted)$0.67 $0.29 $0.79
Core FFO/Share (diluted)$0.79 $0.81 $0.86
Net Income Margin (%)12.0% (calc. from )3.5% (calc. from )35.0% (calc. from )

Note: Net Income Margin is calculated from reported revenues and net income cited above.

Operating KPIs

KPIQ4 2015Q3 2016Q4 2016
Same-Property % Leased (period-end)96.2% 96.0% 96.2%
SPNOI Growth ex-Term Fees (YoY)—2.9% 3.9%
Blended Rent Growth (cash, comp.)—5.8% 12.7%
Leasing Transactions (#)—376 452

Portfolio actions and balance sheet highlights

  • Development starts: Chimney Rock Crossing ($71.2M; Whole Foods/Nordstrom Rack/Saks Off 5th), The Village at Riverstone ($30.6M; Kroger) .
  • In-process development/redevelopment: 21 properties, $290.9M combined costs; 52% funded; 85% leased/committed .
  • Debt capital markets: $350M 3.6% due 2027 and $300M 4.4% due 2047 issued on Jan 26, 2017; preferred redemption announced Jan 17, 2017 .
  • Dividend: $0.51 per share declared for March 1, 2017 (reflecting period up to merger shareholder meeting) .

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Net Income/ShareFY2016$1.23–$1.26 $1.41–$1.43 Raised
NAREIT FFO/ShareFY2016$2.74–$2.77 $2.72–$2.74 Lowered (merger costs)
Core FFO/ShareFY2016$3.25–$3.28 $3.28–$3.30 Raised
SPNOI ex-Term FeesFY20163.0%–3.4% ~3.5% Raised
Net Income/ShareFY2017$1.41–$1.47 (initial) $1.34–$1.40 (updated) Lowered
NAREIT FFO/ShareFY2017$3.40–$3.46 (initial) $3.33–$3.39 (updated) Lowered
Core FFO/ShareFY2017$3.42–$3.48 (initial) $3.44–$3.50 (updated) Raised
SPNOI ex-Term FeesFY20172.25%–3.0% 2.25%–3.0% Maintained
Same-Property LeasedFY2017 (E)~96.0% ~96.0% Maintained
Commenced OccupancyFY2017 (E)~94.5% ~94.5% Maintained
Net Interest ExpenseFY2017 (E)—$98–$100M Set
Net G&A ExpenseFY2017 (E)—$64–$67M Set
Recurring 3rd-Party FeesFY2017 (E)—$23.75–$24.75M Set
DividendQ1 2017$0.50/run-rate$0.51 declared (timing-related) Increased for period

Note: All stand-alone 2017 guidance excludes Equity One merger impacts per company disclosures .

Earnings Call Themes & Trends

TopicPrevious Mentions (Q2 & Q3 2016)Current Period (Q4 2016)Trend
Balance sheet & financingEmphasis on fortress balance sheet; equity issuance; term loan to 2022 at 2.0% fixed; 2017 bonds redeemed; net debt/EBITDA well below 5x .Issued $650M of 10/30-year notes; redeemed 6.625% preferred; improved free cash flow and fixed charge coverage; +$0.02 Core FFO guidance from financing .Strengthening, with long-duration, low-coupon funding.
Bankruptcy impact & SPNOIAnticipated H2’16 and H1’17 drag; ~40 bps FY16 SPNOI impact cited; backfill ongoing .2017 SPNOI 2.25%–3.0% as backfills open H2; Q4 SPNOI ex-term fees +3.9% .Near-term moderation; H2 weighting as tenants open.
Development pipelineHigh-ROI projects; new starts (e.g., Tustin); raised starts guidance top end; visible 2017 opportunities .Two Q4 starts; 21 active projects (~$291M) 85% leased; near-8% blended returns cited .Consistent execution; pipeline depth maintained.
Equity One mergerAnnounced Nov 2016; accretion to Core FFO and SPNOI expected; limited commentary pre-close .Still limited commentary; timeline to Feb 24 vote/March 1 close; reiterated accretive outlook and transparency post-close .On track; integration plans to be detailed post-close.
E-grocery/online threatQuality locations/tenants mitigate risks; healthy demand maintained .Specialty grocers mindful but expansion ongoing; not primary concern in negotiations .Watchful but not a key headwind today.
Investment marketSelectivity in acquisitions; recycle lower-growth assets .High-quality assets still see ample capital; continued dispositions to fund development .Stable with strong demand for premier centers.

Management Commentary

  • “2016 was an exceptional year… NOI growth was a strong 3.5%… a fortress balance sheet… the best in the business.” – Hap Stein, Chairman & CEO .
  • “Maintaining a fortress balance sheet continues to be a foundational principle… issued our first ever 30-year bonds… increased Core FFO guidance by $0.02… reduced NAREIT FFO guidance by $0.07 due to one-time preferred redemption costs.” – Lisa Palmer, President & CFO .
  • “2016 was an impressive year for development and redevelopment… started 16 new projects representing more than $200 million at a weighted 7.6% return.” – Mac Chandler, EVP Development .
  • On 2017 leasing/pricing: “We still expect very healthy double-digit rent growth… at 96% leased we’re enjoying strong landlord leverage.” – Lisa Palmer/Mac Chandler .

Q&A Highlights

  • Redevelopment appetite remains healthy; retailers want contemporary, relevant centers; transaction markets still show robust demand for high-quality shopping centers .
  • 2017 SPNOI to moderate from 2016 levels due to bankruptcy-related downtime; spreads expected to remain double-digit with H2 ramp as backfills open .
  • E-grocery risk tempered: specialty grocers are aware of online dynamics but expansion plans continue; not a primary concern in leasing dialogues .
  • Mixed-use approach: focus on being best-in-class retail partner within larger projects; preference for patient, entitlement-advanced opportunities .
  • Dispositions fund developments; no dispositions under contract at the time, but development capex supported by free cash flow and asset recycling .

Estimates Context

  • We attempted to retrieve S&P Global consensus (EPS/Revenue/EBITDA/Targets) for Q4 2016 and recent quarters, but were unable to access the data due to API daily request limits. As a result, we cannot present definitive beats/misses versus Wall Street consensus for this period.
  • Investors should note the company’s reported Q4 Core FFO/share ($0.86) and NAREIT FFO/share ($0.79) when comparing to any external consensus sources .

Key Takeaways for Investors

  • High-quality, grocery-anchored portfolio continues to exhibit pricing power: Q4 blended cash rent spreads +12.7% and SPNOI ex-term fees +3.9% support earnings durability .
  • Guidance signals: 2017 Core FFO/share raised to $3.44–$3.50 while GAAP/FFO optics lowered due to financing/preferred redemption costs—core fundamentals intact; SPNOI growth 2.25%–3.0% with H2 weighting .
  • Balance sheet strength is a competitive advantage: long-dated unsecured funding and preferred redemption improve free cash flow and coverage; liquidity to fund selective growth .
  • Development/redevelopment remains a key NAV driver: two Q4 starts and a ~$291M in-process pipeline at 85% leased/committed underpin medium-term growth .
  • Near-term watch items: bankruptcy backfill timing and H1/H2 cadence of commencements; management expects improved trajectory into H2 2017 .
  • Strategic catalyst: Equity One merger expected to enhance scale, SPNOI growth, and redevelopment pipeline; detailed integration/targets to follow post-close .

Citations:

  • Q4 2016 earnings press release and supplemental (Form 8-K, Feb 9, 2017) –.
  • Q4 2016 earnings call transcript (Feb 9, 2017) –.
  • Updated 2016 and initial 2017 guidance press release (Form 8-K, Jan 12, 2017) –.
  • Q3 2016 results press release and supplemental (Form 8-K, Nov 2, 2016) –.