Jacksonville, Florida-based Regency Centers Corporation (REG) is an equity based real estate investment trust that owns and operates retail properties. It controls a total of 451 properties through direct ownership and joint ventures.
Regency concentrates on densely populated, affluent communities, where the average household income is $85,806, compared to a $66,848 national average. Its community and neighborhood shopping centers are often anchored by supermarkets, drug stores and high-volume retailers which sell consumer necessities. These two factors help Regency minimize competition to its tenants from outlet stores and big box retailers. There are two additional advantages to REG's focus on high density areas – occupancy rates in Regency's properties are high, at or above 95% since 2003, and high real estate costs are barriers to entry in these locations.
Regency funds a large portion of its acquisition and development with the sale of existing assets and agreements with joint venture partners, keeping its balance sheet relatively debt-free. In 2007 REG increased its line of credit to $600M and received an upgrade in its investment grade rating from BBB to BBB+, which lowered the interest rates on its debt by 40 basis points. Regency's low debt level effectively increases the proportion of REG that is owned by shareholders, leading to a higher demand for its stock and increasing its market capitalization. This is crucial for Regency because it operates fewer properties than competitors like Simon Property Group (SPG) and Kimco Realty (KIM), and has the lowest revenue and net income among retail REITs. So its low debt level, and focus on quality markets, are key factors attracting investors to the company's stock.
REG increases revenues mainly with new acquisitions and new completed developments. During 2007 the company acquired 5 operating properties and increased their development pipeline to $1.6B. The company funds new acquisitions with new debt, proceeds from the sale of assets and investments from joint venture partners. These last two make up a particularly high portion of the funds REG uses to purchase new properties. During 2007 REG received $730 million to fund new acquisitions from disposal of properties and partners funding acquisitions.
During 2007 93% of REG's revenues were from some form of rents paid by tenants. The remainder was from management fees obtained by managing third party assets. REG increased its revenues primarily through the addition of new leasable square feet, either through acquisition or its development pipeline. Though revenue and operating income both continued to rise, operating income as a percentage of income has been steadily declining. This is due to increased depreciation expense from REG's rapidly expanding portfolio, as well as increases in interest expense from greater debt balances and increased operating expenses from operating new properties.
Funds From Operations (FFO), a measure commonly used in the real estate industry, continued to rise in 2007. Funds From Operations is obtained from a company's net income, excluding any gain/sale on real estate sold during the period and excluding any depreciation/amortization. REG's erratic net income is due to its fluctuating depreciation expense and recognition of various accounting gains/losses on the sale of its assets. Both of these are results of REG's rapid expansion.
REG competes with numerous other firms to both acquire properties and lease tenants. The table below lists other national retail retail real estate investment trusts that directly compete with REG. REG operates in the middle of the pack in terms of geographic focus, operating properties in just 23 states. Regency operates the 2nd fewest properties of its competitors, and has the lowest revenue and net income of any of its competitors (Though FRT's net income was only higher due to a one time extraordinary item recognized in 2007, it had lower income than REG in 2003-2006). Despite this fact however, it is in the middle of the pack in terms of market capitalization (only Kimco and DDR have higher market caps). This is due to REG's low debt level ($2.0B), lower than any of its competitors except FRT ($1.6B in debt). This low debt level effectively increases the proportion of REG that is owned by shareholders, leading to a higher market capitalization for REG's equity. It also decreases the riskiness of REG's equity, as it decreases the amount of debt that must be paid before equity holders receive dividend payment.
The table below provides competitive data comparing REG with some of its close competitors.
|Company||Revenues (12/31/2007, Millions)||Market Cap(Billions, 04/05/08)||Operating Properties||Number of States With Operating Properties|
|Regency Centers (REG)||451.51 ||5.00 ||232 ||23 |
|Federal Realty Investment Trust (FRT)||485.89 ||4.80 ||82 ||13 |
|Kimco Realty (KIM)||681.55 ||10.33 ||946 ||45 |
|Developers Diversified Realty (DDR)||944.85 ||5.31B ||740 ||45 |
|Weingarten Realty Investors (WRI)||599.05 ||3.12 ||383 ||22 |
In 2007 REG's market share among global Retail REITs was just 3%. Market share is listed by Funds From Operations (FFO), a metric that takes into account earnings from existing properties but not cash from acquisitions or sales of assets. Globally there are 38 REITs focusing on retail properties producing an aggregate $10.0B in FFO.] Most of those were small companies, only 9 Retail REITs are listed in the Russell 1000.