Regency's FFO Declines

Regency Centers Corp. (REG - Analyst Report), a real estate investment trust (REIT) owning community shopping centers in the U.S., reported FFO (fund from operations) of $46.4 million or 58 cents per share in the third quarter, compared to $83.6 million or $1.19 per share in the year-earlier period. Fund from operations, a widely used metric to gauge the performance of REITs, is obtained after adding depreciation and amortization and other non-cash expenses to net income.
 
The decrease in year-over-year FFO was primarily due to the non-cash impairment charges of $103.2 million. Excluding the one-time charges, recurring FFO in the third quarter was $55.9 million or 69 cents per share compared to $57.7 million or 82 cents per share in the year-ago period. Recurring FFO during the quarter was well within the earlier guidance provided by the company.
 
During the quarter, Regency reported a 6.5% decrease in same-store net operating income (NOI) largely due to a rental rate decline of 7.4% (cash basis). The company executed a total of 400 new and renewal lease transactions during the quarter, spanning 1.4 million square feet. The operating portfolio of the company was 93.2% leased at quarter end, up 20 bps sequentially from the second quarter.
 
Regency stabilized one project during the quarter at a stabilized NOI yield of 6.3%, and started construction work on a new project. At quarter end, the company had 42 projects under development at an estimated total cost of $823.6 million. Regency acquired two properties during the quarter along with its JV partner for $17.9 million at an average cap rate of 9.31%. The company also sold a wholly-owned property for $20.2 million at an average cap rate of 5.03%. In addition, Regency and its co-investment partnerships sold four land parcels for $4.1 million.
 
Subsequent to the end of the quarter, Regency formed a new co-investment partnership with United Services Automobile Association (USAA), a Fortune 500 financial services company, and sold seven of its shopping center properties to the partnership. The company further plans to sell another asset to the partnership in November, bringing the value of total assets sold to $133.9 million at an average cap rate of 8.75%. Regency has a 20% stake in the JV and will target a leverage of approximately 50% on the entire portfolio.
 
For the first nine months of 2009, Regency had cash and cash equivalents of about $174 million and total debt of $2.1 billion. Approximately 89% of the total debt is fixed rate. Regency has about $1.4 million of debt maturing in the remainder of 2009 and $5.4 million of debt maturing in 2010. Regency anticipates fourth quarter recurring FFO in the range of 53 cents to 58 cents per share, and recurring FFO for full year 2009 in the range of $2.59 to $2.64 per share.