Regency Beats on FFO, Guides Higher

Zacks

Regency Centers Corporation (REG) – a real estate investment trust (:REIT) – reported first-quarter 2013 core FFO (funds from operations) per share of 64 cents, 2 cents ahead of the both the Zacks Consensus Estimate and the prior-year quarter figure. In addition, the company raised its 2013 guidance slightly.

The results were driven by better-than-expected revenues that were supported by successful execution of strategic initiatives and significant leasing activity.

Including non-core items, FFO for the quarter stood at $57.9 million, or 64 cents per share, ahead of $49.9 million, or 55 cents per share in the year-ago period.

Quarter in Detail

Total revenue for the first quarter reached $126.1 million, nearly flat year over year and ahead of the Zacks Consensus Estimate of $118 million.

During the quarter under review, same-store net operating income (:NOI), excluding termination fees, climbed 5.1% on a year-over-year basis, with rental rate growth of 5.4% (cash basis for spaces vacant less than 12 months).

Leasing Activity

Regency executed a total of 328 new and renewal lease deals, spanning 1.0 million square feet, during the quarter under review. At the end of the quarter, Regency’s same-store portfolio was 94.3% leased, whereas all of its properties were 94.2% occupied.

Portfolio Restructuring Activity

Regency and its co-investment partner – Charter Hall Retail REIT – dissolved the residual co-investment partnership during the reported quarter. Following this, the portfolio assets were dispersed as 100% ownership interests between Charter Hall and Regency, according to the terms of its original partnership agreement.

As a result, Regency gained full ownership interest in Hilltop Village (a 100,030 square foot center in Denver, Colo.) that is occupied by King Soopers of The Kroger Co. (KR), while complete interest in 3 assets was conferred to Charter Hall. The company also vended one outparcel at a gross sale price of $100,000.

At quarter end, Regency sold Deer Springs Town Center – a 331,000 square feet shopping center in Las Vegas, Nev., for $50.5 million. Notably, Deer Springs is occupied by Home Depot Inc. (HD), Toys ‘R Us, Michael’s and Ross Stores Inc. (ROST).

As of Mar 31, 2013, Regency had 4 projects under development with estimated net development costs of $193.6 million.

As of Mar 31, 2013, Regency owned 345 retail properties (including those held in co-investment partnerships), spanning a total of 46.0 million square feet located across top U.S. markets.

Liquidity

At the end of the first quarter of 2013, Regency’s cash and cash equivalents stood at about $28.5 million compared with $28.8 million at the end of the prior quarter. Its total debt came in at $1.93 billion, slightly below $1.94 billion as of the end of the prior quarter.

During the reported quarter, the company generated gross proceeds of $63.3 million from its at-the-market equity program. The company is expected to use the funds to finance its new investment activities. Notably, Regency issued around 1.2 million new common shares at a weighted average price of $52.59 per share.

Dividend

On May 6, 2013, Regency declared a common stock quarterly dividend of 46.25 cents per share, payable on Jun 5 to stockholders of record as of May 22, 2013.

Outlook

Regency has slightly raised the guidance range for full-year 2013. The company now expects core FFO per share in the range of $2.50 – $2.57, up from the prior range of $2.48 – $2.56, and FFO per share (including non-core items) to $2.47–$2.54, ahead of the prior range of $2.45–$2.53. This is based on expectations of same property NOI growth w/o term fees ranging from 2.5%–3.2%, above the prior range of 2.0%–3.0% and cap rate for dispositions (average) of 7.0%–8.0%, compared with the prior guidance of 7.3%–8.0%

Our Viewpoint

We are encouraged by Regency’s first-quarter results. The company is actively spreading its footprint in high-income and high-barrier markets through the addition of upscale assets. Moreover, the inclusion of premium development and redevelopment projects as well as leading national retailers as tenants is noteworthy. Thus, we expect these activities to provide Regency a considerable up-market potential and boosts its top-line growth going forward.

Regency currently holds a Zacks Rank #2 (Buy).


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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