Regency Centers Corporation
Regency Centers Corporation
Incorporated: 1993 as Regency Corporation
Sales: $391.9 million (2004)
Stock Exchanges: New York
Ticker Symbol: REG
NAIC: 525930 Real Estate Investment Trusts
Regency Centers Corporation is a Jacksonville, Florida-based real estate investment trust (REIT), one of the largest operators of grocery-anchored shopping centers. Its portfolio consists of more than 390 properties—either wholly owned, jointly owned, or managed—comprising 50 million square feet of space, located in metropolitan markets in 26 states. The REIT maintains strong ties with the major supermarket chains. About 90 percent of its shopping centers are anchored by grocers ranking in the top three of their market. Regency's chairman and chief executive officer, Martin E. Stein, Jr., is the son of the couple that founded the REIT's predecessor, Regency Realty.
Origins Dating to the 1960s
Martin E. Stein, Sr., and Joan Wellhouse were married in 1950. Her father ran a Tampa, Florida company that made paper wrappings used to ship citrus, and involved her in the business early on, something of a tradition with the women in her family. As she explained to the Business Journal-Jacksonville in a 1994 profile, "In my family women were always involved, interested and knew about investments. If the men retired or died early, the women just did it." Her husband also came from a well-to-do family, located in Jacksonville, where the Steins ran a Seagram's distributorship, among other business interests. In 1963 Martin and Joan Stein started the Regency Group, primarily a land and apartment development company. Four years later the company developed the first regional mall in Florida, Jacksonville's Regency Square shopping center, now known as Regency Square Mall. It was anchored originally by May Department Stores and J.C. Penney. Over the next 15 years Regency concentrated on developing office buildings and apartments. In 1981 the company doubled the size of the mall and also began to expand its operations throughout Florida. Regency reached a major turning point in 1988 with the death of Martin Stein. His wife succeeded him as chairman, while their son, Martin E. "Hap" Stein, Jr., took over as chief executive. The younger Stein earned an undergraduate degree at Washington and Lee University in Virginia, followed by a master's degree in business at Dartmouth College in New Hampshire. He returned to Jacksonville in 1976 to join the family business, but at first was put to work in an energy plant that Regency owned at the time. In 1981 he was put in charge of Regency's real estate division. Under his leadership, Regency began to concentrate on what became its niche, grocery-anchored shopping centers located in established neighborhood locations, in the belief that grocery stores were recession-proof and established locations helped to ward off competition. In addition to a 30,000-square-foot grocery store, the shopping centers Regency developed during this period were co-anchored by a 10,000-square-foot drugstore. As larger supermarket formats with pharmacies emerged, the drugstores became out-parcels, no longer serving as anchors.
By 1993 Regency's real estate holdings totaled 24 properties, including 21 shopping centers and three office complexes, half of them owned with investment partners. It was at this point that the Steins, like an increasing number of real estate developers, decided to take their portfolio public with the creation of a REIT, incorporated in July 1993 as Regency Corp. Regency Group then transferred the shopping centers and office properties to Regency Realty Corp., which was then sold to the REIT after it completed its public offering. Regency Group remained an active concern, serving as a private trust for other family interests in Florida land, utility companies, and a printing company.
Major Changes in Law Regarding REITs
in the 1980s
REITs had been established by the U.S. Congress in 1960 as a way for small investors to become involved in real estate in a manner similar to mutual funds. Just like stock companies, REITs could be taken public and their shares traded; they were also subject to regulation by the Securities and Exchange Commission. Unlike other stock companies, however, REITs were required by law to pay out at least 95 percent of their taxable income to shareholders each year, a provision that severely limited the ability of REITs to retain internally generated funds. During the first 25 years of existence, REITs were allowed only to own real estate, a situation that hindered their growth because third parties had to be contracted to manage the properties. Although REITs flourished for brief periods, from 1968 to 1972 and 1985 to 1986, it was not until changes made to the structure by the Tax Reform Act of 1986 altered the nature of real estate investment that REITs began to become truly viable investment vehicles. Limited partnership tax shelter schemes that had competed for potential investments were shut down by the act: interest and depreciation deductions were greatly reduced so that taxpayers could not generate paper losses in order to lower their tax liabilities. Separately, the act also permitted REITs to provide customary services, in effect allowing the trusts to operate and manage the properties they owned. But despite these major changes in law, the REIT form was still not embraced for a few years. In the second half of the 1980s the banks, insurance companies, pension funds, and foreign investors (especially the Japanese) provided the lion's share of real estate investment funds. The resulting glutted marketplace led to a shakeout that hampered many real estate firms. With properties available at distressed prices in the early 1990s, REITs finally became an attractive mainstream investment option and many real estate firms, starting in 1993, now went public to become roll-up vehicles in different segments of the industry. Regency Group was one of several companies to focus on neighborhood shopping centers.
With Salomon Brothers Inc. acting as lead underwriter and St. Petersburg, Florida-based James and Associates and Atlanta-based Robinson-Humphrey Co. as co-managers, Regency sold 5.41 million shares at $20 apiece, raising $108 million. Shares were then listed on the New York Stock Exchange and began trading. The offering allowed Regency Group to retire more than $80 million in debt. It also provided the new REIT with cash and shares that could be used to develop new shopping centers and roll up existing properties. Of the 24 properties in Regency's initial portfolio, 16 were located in Florida, five in Alabama, two in Mississippi, and one in Atlanta. With Martin E. Stein, Jr., serving as CEO, management's goal was to make Regency into a major regional developer of neighborhood shopping centers in Florida and the Southeast.
The REIT padded its war chest in the fall of 1995 with the private placement of $50 million in stock, of which $44 million was used to acquire four shopping centers in St. Petersburg, Tampa, West Palm Beach, and Atlanta. Regency received another infusion of cash in June 1996, when Security Capital Group bought a 43 percent stake at a cost of $132 million. The deal was a turning point for Regency on a number of levels. Aside from the additional capital to fuel ever greater growth, the alliance with Security Capital was significant because the REIT in effect received the imprimatur of the man behind Security Capital, William Sanders, a man with a sterling reputation in real estate. After launching Chicago-based LaSalle Partners in 1968, he reestablished himself in New Mexico in 1990 and within a matter of five years had assembled a $5 billion real estate portfolio among REITs he ran under the Security Capital banner. In the words of the Florida Times Union, Regency's association with Sanders "put the real estate industry on notice that Regency [was] a company to watch." Although Regency had delivered high dividends to its shareholders, the price of its stock had languished during its early years. The REIT received a much needed boost from the Sanders connection, providing more buying power with its stock and increased access to capital markets to raise additional funds.
At the end of 1996 Regency owned 50 properties, but in early 1997 the REIT made a significant jump in size when it acquired Branch Properties L.P. in a deal worth more than $200 million that brought with it 26 shopping centers, either existing or in development. Many of them were located in Atlanta, giving Regency a dominant position in the market. Other properties were located in the Nashville area and the Carolinas. Regency was now beginning to raise its sights beyond the Southeast, targeting such Midwest cities as Indianapolis and Cincinnati and Mid-Atlantic markets including Washington, D.C., and Baltimore. Through the rest of 1997, Regency added properties in many of these markets. In April it paid $48.4 million to acquire two supermarket-anchored shopping centers in Charlotte, North Carolina, one in Asheville, North Carolina, and another two in Orlando, Florida. Later in the summer, Regency spent another $63.5 million to add a Cincinnati shopping center and two more Atlanta-area properties. Finally, in the autumn of 1997, Regency acquired two additional Miami shopping centers and a third in Columbus, Ohio, at a cost of nearly $40.6 million. The year 1997 was also noteworthy because Joan Stein stepped down as Regency's chair, and was succeeded by her son.
Founded in 1963, Regency has the experience, resources and flexibility to create value for our grocer partners, our retail partners and our development partners.
Creation of Industry Powerhouse;
Merger with Pacific Retail Trust in 1998
Regency opened 1998 with another major acquisition, this time spending more than $250 million to add privately held, St. Louis-based developer Midland Group's 21 existing shopping centers and development pipeline of an additional 11 centers, totaling about 3.2 million square feet of retail space. Midland was the largest developer of Kroger grocery-anchored shopping centers, and in addition to St. Louis sites, Regency also picked up shopping centers in Cincinnati and Columbus, Ohio, and Raleigh, North Carolina. Furthermore, Regency entered into a joint venture with The State of Ohio Teacher's Retirement System to acquire Midland's interest in another seven shopping centers located in Texas and Colorado. The Midland deal was also important because it established an important relationship with Kroger, one of the major supermarket chains in the country. Regency's appetite for shopping centers was not sated, however. In September 1998, the REIT acquired Pacific Retail Trust, a William Sanders closely held company with 69 shopping centers, existing or in development, located in western states.
In effect, Sanders was assembling a powerhouse roll-up vehicle with national scope to consolidate a fragmented segment of the real estate industry that all too often involved owners who were underfunded developers, unschooled institutions, or just mom-and-pop operators. Not only would the combined operations save on overhead costs, but also the beefed up Regency would be able to attract more investors to fuel even greater growth. When the merger was completed in early 1999, Security Capital, which had owned 40 percent of Regency and 70 percent of Pacific Retail, owned a controlling 54 percent stake in the combined company. At this stage, Regency owned 192 shopping centers in 22 states, 22.2 million square feet of retail space, and total assets valued at $2.2 million. Nevertheless, the price of Regency shares continued to be undervalued by Wall Street, prompting a buyback effort by the REIT during 1999. At the close of the year, Regency posted revenues of $258 million and net income of nearly $90 million.
Despite an economy that began to slump in 2000, Regency continued to prosper in 2000, supporting the contention that grocery-anchored shopping centers were indeed recession-proof. Much of the REIT's growth was the result of keeping pace with grocer's expansion plans. Regency was keen on high-growth, densely populated markets with above-average incomes, such as Arizona, Texas, and California, especially in the Los Angeles area. All told, Regency spent about $500 million in 2000 on development deals.
In January 2001, Regency Realty Corporation changed its name to Regency Centers Corporation, a brand-building effort to help solidify the REIT's position as a major national grocery-anchored shopping center operator and developer. New markets Regency focused on were Oregon and Washington, where it had 19 shopping centers opened or in development. In the Puget Sound region alone there were ten Regency shopping centers. On the East Coast, Regency was constructing two major shopping centers in northern Virginia, as well as developing projects in Wilmington, Delaware, and Vorhees, New Jersey, part of a plan to build a presence in the Interstate 95 corridor that runs from the Washington, D.C., area through Philadelphia to New York City and Boston. Regency launched a major push in the Philadelphia market in 2003 in the hope of opening a dozen shopping centers within the next two or three years.
In 2002 General Electric Capital Corporation acquired Security Capital Group Inc., in the process gaining majority ownership of Regency. Despite speculation that GE Capital was primed to acquire the remaining Regency shares, the firm opted instead in June 2003 to sell the stock, which had finally begun to rise, reaching a record high around $35 when GE announced its intentions. The decision to sell by GE Capital appeared to be little more than simply an effort to take advantage of a seller's market.
Regency's revenues grew to $353.7 million in 2002 and $377.6 million in 2003, while net income during this period improved to $110.5 million in 2002 and $130.8 million in 2003. The REIT remained aggressive in 2004, completing a major deal in the autumn, paying $406 million to acquire 17 shopping centers from Atlanta-based Branch Capital Partners, thereby doubling Regency's Atlanta portfolio and strengthening its dominant position in the market. In early 2005, Regency was involved in an even larger transaction, teaming up with Australia's Macquarie CountryWide Trust to buy the 101 strip mall portfolio of the California Public Employees' Retirement System at a cost of $2.74 billion. The partners had been involved in some deals a couple of years earlier, but nothing approached this deal in magnitude. Regency took a 35 percent interest and would manage the properties, half of which were located in the Washington, D.C., area and California markets. In addition, the portfolio included shopping centers in Regency target markets such as Philadelphia and Chicago, plus toeholds in new markets in suburbs of New York City and Minneapolis. It was quite likely that Regency would pursue further joint ventures. In this way, the REIT was able to expand its platform while conserving its capital and receiving fees for managing the shopping centers. Given that there were few real estate opportunities in Australia and New Zealand, the prospect of continued cooperation with Macquarie or other Australian firms was highly likely.
Regency Centers Texas L.L.C.; Regency Centers, L.P.; K&G/RRG II, L.L.C.; Macquarie CountryWide-Regency, L.L.C.; Columbia Regency Retail Partners, L.L.C.
Developers Diversified Realty Corporation; Kimco Realty Corporation; Weingarten Realty Investors.
- Regency Group is founded by Martin E. and Joan Stein.
- Martin Stein dies and is succeeded as CEO by his son, Martin E. Stein, Jr.
- The Regency Corporation is formed as a REIT.
- Security Capital acquires majority ownership.
- Midland Group is acquired.
- Pacific Retail Trust is acquired.
- The company name is changed to Regency Centers Corporation.
- Regency acquires 17 shopping centers from Atlanta-based Branch Capital Partners.
- Regency teams with Australia's Macquarie Country-Wide Trust to buy the 101 strip mall portfolio of the California Public Employees' Retirement System.
Basch, Mark, "Acquisition Takes Regency into Midwest," Florida Times Union, January 14, 1998, p. B4.
——, "Regency Rolls, Stock Languishes," Florida Times Union, May 27, 1998, p. B7.
——, "Regency Set to Move into Midwest and Mid-Atlantic," Florida Times Union, June 13, 1997, p. C8.
Chittum, Ryan, and Morag MacKinnon, "Regency Centers Goes Strip-Mall Shopping," Wall Street Journal, February 16, 2005, p. C5.
Horak, Kathy, "'Being a Lady, She Adds a Touch of Class,'" Business Journal-Jacksonville, July 15, 1994, p. 11.
——, "Regency Group Takes Trust Public," Business Journal-Jacksonville, August 13, 1993, p. 1.
Laird, Susan, "A REIT in a Hurry," Florida Trend, August 1997, p. 28.
Lerner, Michele, "Martin 'HAP' Stein, Jr.—Happy Days at Regency Centers," Real Estate Portfolio, November/December 2003.
Novelli, Lynn, "Shopping Smart," Real Estate Portfolio, January/February 2001.