Neutral Stance on Regency

Zacks Equity Research
January 21, 2014

On Jan 20, 2014, we reaffirmed our long-term recommendation on Regency Centers Corp. (NYSE:REG) – a retail real estate investment trust (:REIT) – at Neutral. The decision reflects increased guidance for 2013, an optimistic outlook for 2014, successful execution of the company’s strategic initiatives and strong third-quarter 2013 performance. Yet, stiff competition, rise in internet sales and a huge development and redevelopment pipeline remain our plausible concerns.

Why Neutral?

Regency’s portfolio of shopping centers, located in high-income, high-barrier markets is among the best in the sector. Moreover, with a focus on best-in-class retailers such as The Kroger Co. (NYSE:KR) and Safeway Inc. (NYSE:SWY), the portfolio drives value and mitigates operating risks.

Ushering good news for its shareholders, in Dec 2013, Regency increased the lower end of its 2013 core FFO per share outlook to $2.61–$2.63 from $2.60–$2.63 forecasted earlier. Also, the company provided a positive guidance for 2014.  

Notably, aided by growth in same property net operating income and a better-than-expected increase in revenues, this retail REIT’s third-quarter 2013 core funds from operations (core FFO) per share of 65 cents exceeded the Zacks Consensus Estimate by 2 cents and the year-ago figure by 3 cents. In addition, strategic acquisitions and the inclusion of premium development and redevelopment projects boost Regency’s portfolio in infill locations with high occupancy levels and strong tenant sales and offer ample room for top-line growth going forward.

Yet, rise in online shopping through the Internet, mobile phones and tablets have intensified competition and continue to adversely affect the demand for physical stores. Moreover, although Regency’s growing development and redevelopment pipeline is encouraging, it exposes the company to various risks such as rising construction costs, entitlement delays and lease-ups.

Nevertheless, the Zacks Consensus Estimate for 2013 FFO per share remained flat at $2.61. On the other hand, for 2014, it moved up by a penny to $2.68, over the last 60 days. Consequently, the stock now carries a Zacks Rank #3 (Hold).

Regency is scheduled to release its fourth-quarter 2013 earnings results after the closing bell on Feb 12. The Zacks Consensus Estimate for FFO per share for the quarter is pegged at 64 cents per share, depicting a year-over-year growth of 1.49%.

Other Stock to Consider

Cedar Realty Trust, Inc. (NYSE:CDR) carrying a Zacks Rank #2 (Buy) is a better-ranked stock in the REIT-Equity Trust – Retail industry.

Note: FFO, 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.

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