2011 Annual Report
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$QQXDO5HSRUW ToOurFellowShareholders: AsIreflecton2011andparticularlyasIthinkaboutthefutureofRegencyCenters,Iamtrulygratifiedby theprogressthatourexceptionalteammadeineverykeyaspectofthebusiness.Whileoureffortsto restorethe“headlineresults”thatmeetRegency’shighstandardshavenotyetbeenfullymanifested, thisexcellentworkhasputinplaceimportantbuildingblocksthatwillhavealastingimpactonfuture performance.Thesesuccesses,plusmybeliefintheCompany’ssharpenedstrategy,inherentstrengths, andresilientdemandfromourretailcustomersgivemegreatconfidencethatRegencywillsoon reestablishour“bluechip”standingwithyou. Iwanttohighlightcrucialstepsthatweretakenbyourdedicatedteamin2011thathavepositioned Regencytoachievethreekeyobjectives:sustainfuturegrowthinnetoperatingincome(NOI)of3%, reinvigorateadisciplineddevelopmentprogramtoaddvaluetotheportfolio,andassurereliableaccess tocapital: • We leased nearly seven million square feet of space, including approximately two million square feet of new leases. These remarkable totals represent more leasing than has ever been accomplished in a single year at Regency. We are also pleased with the quality of the tenants that are augmenting our merchandising mix. We signed multiple leases with leading anchor and side shop retailers including Publix, T.J. Maxx, Petco, Chase, Starbucks, Panera Bread, Five Guys,Chipotle, and Great Clips. •Weincreasedoccupancyintheoperatingportfolioto93.5%,thehighestlevelinthreeyears. TheyearͲendresultwasduetoacombinationofrobustleasingdemandfromleadingretailers andlowermoveͲouts.Consequentlywewereabletoovercomethenegativeimpactfrom Blockbuster’sbankruptcyandseveralanchorvacancies.Ourmomentumwasmostnotablein smallshopleasingwheredemandfrombetteroperatorsproducedpositiveabsorptionfor spacesunder10,000squarefeet. •Westartedmorethan$95millionofnewdevelopmentsand$20millionofredevelopmentsor expansionsatattractiveriskͲadjustedreturns.Alloftheseprojectsbenefitfromexcellent anchorsponsorshipanddemonstrateddemandforsmallshopspace.Inadditionwesoldor convertedtodevelopmentroughly$30millionofland. •Wecompletedonaproratabasismorethan$110millioninacquisitionsandthesaleofover $90millionofoperatingproperties.Indicativeofthequalityofthecenterswehavepurchased sincethebeginningoflastyearareaveragegrocerysalesof$700persquarefootand householdincomeof$115,000.Thiscompareswiththepropertiessoldthathadaveragesfor grocerysalesof$340persquarefootandhouseholdincomeof$86,000. •Werenewedour$600millionlineofcreditonanextremelyfavorablebasis.Wealsoclosed andlockedrateonover$500millionofmortgagefinancinginourcoͲinvestmentpartnerships withtermsthatexceed10yearsandratesthataverage4.7%.OneofourcoͲinvestment partnerscommittedanadditional$100millionofequitytoourpartnershipwiththem.Finally, weclosedona$250millionunsecuredbanktermloantorefinancenearͲtermmaturingdebt. ThisfiveͲyeartermloanprovidesuswithsubstantialflexibilitytorepaywhenitmakessenseto doso. Ifullyacknowledgethatthethreecriticalbottomlineresultsin2011werenotyetreturnedtoan acceptablelevel: x Despitetheenormousamountofleasing,netoperatingincomeexclusiveoftermfeeswas slightlypositiveforthesecondconsecutiveyear. x Recurringfundsfromoperations(RFFO)pershareof$2.40wasessentiallyflat,eventhough RFFOincreasedbynearly7%,to$213million. x TotalshareholderreturnswerebelowourpeeraveragefortheoneͲandthreeͲyearperiods. Thatsaid,Regency’steamhasinplaceastrategytoproducedependablegrowthinNOIand,inturn,per shareRFFOandNetAssetValue(NAV).WerecognizethatitwilltakeconsistentfirstͲrateresultsinthese keymetricstotranslateintotheultimateperformancemilestoneͲtotalshareholderreturnthatexceeds ourshoppingcenterpeers. ExceptionalPeopleforEnduringCustomerRelationships CrucialtoRegency’ssuccesswillbeourtalentedandengagedpeoplewhowillcontinuetobeRegency’s singularadvantage.Ourteamwillbevitaltoenablingthecompanytofullyleverageourotheressential assets,expertlyexecuteourstrategy,andeffectivelyaccomplishourcriticalgoalsandobjectives.These dedicatedprofessionalswillupholdtheenduringrelationshipsandpreeminentstatusourcustomers haveaccordedtous.Retailers,brokers,developmentpartners,coͲinvestmentpartners,banks,debt investorsandmortgagelenderstrulyrecognizethevalueoftheRegencyplatform,andthebenefitsof doingbusinesswithourtalentedteam. DominantGroceryAnchoredShoppingCentersforReliableGrowth Regency’sstrategyistoownaportfolioofdominantgroceryanchoredshoppingcenters.Centers locatedininfillmarketswithsubstantialpurchasingpowerthatareanchoredbyhighlyproductive national,regional,andspecialtygrocerychainshaveproventobeatriedandtrueformulaforcreating sustainablecompetitiveadvantages.Propertieswiththesecriticalingredientsdominatetheirtrade areasbyattractingbettersideshopretailers,maintainingandgrowingoccupancy,enjoyingpricing powerandgeneratingreliablegrowthinNOI. Inthatregardnearly90%ofRegency’sportfolioissituatedinatop50marketandbenefitsfroman averageofmorethan$100,000inhouseholdincomeorathreeͲmilepopulationdensityofalmost 100,000.Ourgroceryanchorsexceed$25millioninaveragesales,or$500persquarefoot.This translatestoanaverageofalmost20,000weeklyshoppervisitstoourshoppingcenters. EarlyindicationsarethatrobusttenantdemandandleasingactivityforspaceinRegency’sshopping centershavecarriedoverinto2012.Thisnotonlyincludesanchors,butalsomoreimportantlynational, regional,andlocalretailersthatleasethesmallspacesinourcenters.Themomentuminleasingto bettersmallshopretailersmakestheachievementof95%occupancyfeelincreasinglyattainableevery day.TofurtherimproveoccupancyandparticularlyNOI,ourplanfor2012involvesanevenmore aggressiveefforttosellnonͲstrategicassetsandrecyclethecapitalintotheacquisitionand developmentofdominantinfillgroceryanchoredcenterswithbetterfuturegrowthprospects. Inadditiontoowningtherightshoppingcentersontherightcornersintherightmarkets,wewill continuetoconcentrateonmerchandisingvacantspacetobestͲinͲclasslocal,regionalandnational retailersthroughourPremierCustomerInitiative.Also,differentiatingtheappearanceofourshopping centersfromthecompetitionalongwithadvancingsustainabilityhaveandwillcontinuetobetop priorities. Forexample,notonlyareweinvestingheavilytoenhancetheappealofourcenterstoshoppersand tenants,butRegencyalsoremainsaleaderintheshoppingcenterspaceforitseffortstoimprovethe operatingefficiencyandlowertheenvironmentalimpactofourproperties.Ourgreengenuity®program isnowinitsfifthyearandcontinuestogainmomentum.Overthepastthreeyearswehavecompleted energyefficientprojectsat56properties,meaningfullyreducingelectricitycostsatthoselocations,and installed“smart”irrigationcontrollersat96properties,savingnearly300milliongallonsofwatersince 2008. Theseandothermeasuresimprovethecompetitiveadvantageofourcenterswithourretailcustomers andthecommunitiesinwhichourfacilitiesaresituated.WebelieveRegency’sindustryͲleading initiatives,especiallytheimprovementinthequalityofourtenants,ourmerchandisingassortmentand ourcontinuedprogresstoward95%occupancywillsoonrestorepricingpower.Intotal,theonͲgoing tenantdemandforthebestcenters,rentgrowth,embeddedcontractualrentincreases,andcontinuing positivetrendsinmoveͲoutsandbaddebtswillaffordamixthatwillreturnsamepropertyNOIgrowth toRegency’shistoricaverageof3%. DevelopmentsforAddingValuetothePortfolio WebelievethatRegency’scapabilitytocreatedominantgroceryanchoredshoppingcentersin attractivemarketsonabasisthatisaccretivetoourcostofcapital,NAV,andthepriceatwhichwe couldacquirecomparablepropertiesisanessentialRegencyadvantage.Beingabletoapplytheseskills toredevelopandrenovateexistingpropertiesintodominantcentersmakesdevelopmentanevenmore compellingstrategy.AccordinglyRegencywilltakeadvantageofouruniquecombinationofpresencein keymarkets,inͲhouseexpertise,excellentanchorrelationships,infilloperatingpropertiesandprime landfordevelopmentorsaletodiligentlygrowthroughtheprofitablecreationofthrivingshopping centersthroughdevelopmentandredevelopment. Regency’strackrecordisthebesttestamentthatdevelopmenthasbeenacycleͲtestedstrategythathas createdmeaningfulvalueforshareholders.The181developmentsandredevelopmentswestartedsince 2000havegeneratedanaveragereturnofapproximately8.7%andestimatedvaluecreationofover $650milliononatotalinvestmentof$2.7billion. Moreover,wehaveentrenchedourdevelopmentstrategywithsomevaluablelessonslearned:focuson dominantinfillshoppingcentersthatwillbeownedlongterm,andmorecarefullycalibratetovisible demandtheamountofshopspacebeingconstructed.Theresultshavebeenrewarding.Theeight developmentsstartedsince2009haveperformedandleasedwell,andproducedanaveragereturnin excessof9%. StrongBalanceSheetforAccesstoCapital Combined,themeasureswehavetakeninthepastseveralyearsprovideuswithnegligiblenearͲterm debtmaturities,significantcapacityonthe$600millionlineofcredit,coͲinvestmentpartnerswithan appetiteforgrowth,andafiveͲyeartermloanwithagreatdealofflexibility.Also,fundsgeneratedfrom theaccelerateddispositionplanwillnotonlybeusedtofinancenewinvestments,butalsowillbe consideredforimprovementtothebalancesheet.Wewillcontinuetobecommittedtomaintainingand evenenhancingRegency’sbalancesheetstrength,accesstocapital,andamplefinancialflexibility. MovingForward Wearekeenlyawarethatintheyearsaheadwewilllikelybeoperatinginanuncertainandfragile businessenvironment.However,theeconomyandthecapitalmarketsseemtoberecovering.Thisis evidentforusintheuptickindemand,thehealthofourretailcustomers,andoursuccessinselling properties.Whateverthescenario,Ifeelthatourrecentprogressandourclearandattainableroadmap forthefuturewillenablethecompanytoprosperfromimprovingeconomicconditionsorwithstand othercrises. LookingtothefutureI,alongwithBrianSmith,ourPresidentandChiefOperatingOfficer,andBruce Johnson,ourChiefFinancialOfficer,couldnotbemoreproudoftheentireRegencyteam.Their