Here's What Makes Regency Centers (REG) an Apt Portfolio Pick
With healthy retail demand and muted new supply continuing to drive the recovery in the retail real estate industry, Regency Centers Corp. REG seems well-poised to benefit from its portfolio of premium open-air shopping centers. Also, its focus on building a high-quality portfolio of grocery-anchored shopping centers and an encouraging development pipeline bode well.
The company recently posted strong second-quarter 2023 results, aided by healthy leasing activity and a year-over-year improvement in the base rent. Moreover, management revised its expectations for 2023 NAREIT funds from operations (FFO) per share to the range of $4.11-$4.15 from $4.07-$4.15 guided earlier.
Analysts, too, seem bullish on this Jacksonville, FL-based Zacks Rank #2 (Buy) company. The Zacks Consensus Estimate for this retail real estate investment trust’s (REIT) 2023 funds from operations (FFO) per share indicates a favorable outlook as it has moved marginally upward over the past two months to $4.12.
Shares of REG have gained 12.3% in the past three months compared with the industry's growth of 6.3%.
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What Makes Regency Centers a Solid Pick?
Healthy Operating Fundamentals: Regency’s high-quality open-air shopping centers are situated in affluent suburban areas and near the urban trade areas where consumers have high spending power. With the continuation of the post-pandemic migration trend and the hybrid work setup, demand for Regency’s properties is likely to remain robust, boosting occupancy levels and its cash flows.
In the second quarter of 2023, Regency executed roughly 2 million square feet of comparable new and renewal leases at a blended cash rent spread of 11.7%. Its same-property portfolio was 95.2% leased as of Jun 30, 2023, reflecting an expansion of 70 basis points (bps) year over year. Also, same-property base rent improved 4.7%, aiding same-property net operating income growth of 3.8%.
Focus on Grocery-Anchored Shopping Centers: REG’s focus on necessity, service, convenience and value retailers serving the essential needs of the communities provides it with an unequaled strategic advantage. Its portfolio comprises 80% of the grocery-anchored neighborhood and community centers, which are necessity-driven by nature. This ensures dependable traffic and allows the company to bank on its grocery centers during uncertain times.
Also, REG enjoys a good tenant mix with several industry-leading grocers, assuring stable revenues for the company. As of Jun 30, 2023, grocery tenants accounted for 19% of its annual base rent.
Acquisitions & Development: To bolster its external growth, REG has been focusing on making strategic acquisitions and developments in the key markets of the United States. Notably, in May 2023, it entered into a definitive merger agreement to acquire Urstadt Biddle Properties Inc., a real estate investment trust that owns and operates retail properties in the suburban New York metropolitan area, in an all-stock transaction valued at roughly $1.4 billion. The merger, expected to close mid-to-late August 2023, will likely enhance Regency's geographic diversification, tenant mix, growth prospects and balance sheet strength.
Moreover, as of Jun 30, 2022, its in-process development and redevelopment projects estimated net project costs of around $410 million at the company’s share. So far, it has incurred 44% of the cost. Management anticipates incurring $130 million of development and redevelopment spend for 2023.
Balance Sheet & Cash Flow Strength: Regency maintains a healthy balance-sheet position and had $1.2 billion of immediate liquidity as of Jun 30, 2023. Also, its investment grade credit ratings of BBB+ (Stable Outlook) and Baa1 (Positive Outlook) S&P Global and Moody's, respectively, render it favorable access to the debt market. With strong financial footing and enough financial flexibility, REG is well-positioned to capitalize on growth opportunities.
In addition, REG’s current cash flow growth is projected at 21.54% compared with the 14.01% estimated for the industry.
Dividend: Solid dividend payouts are arguably the biggest attraction for REIT investors, and Regency remains committed to that. Since 2014, this retail REIT has steadily increased its dividend payments and continued with its payments even during the pandemic. For the 2014-2022 time period, the company’s dividend has witnessed a CAGR of 3.8%. Also, REG has increased its dividend four times in the last five years. Check Regency Centers’ dividend history here.
Given its solid operating platform and solid balance sheet strength, it is likely to maintain its dividend payout in the forthcoming quarters.
Other Stocks to Consider
Some other top-ranked stocks from the retail REIT sector are Kite Realty Group Trust KRG and Essential Properties Realty Trust EPRT, each carrying a Zacks Rank #2 at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for Kite Realty Group’s ongoing year’s FFO per share is pegged at $1.98, suggesting a year-over-year growth of 2.6%.
The Zacks Consensus Estimate for Essential Properties Realty Trust’s 2023 FFO per share stands at $1.65, indicating 7.8% growth from the prior-year quarter’s tally.
Note: Anything related to earnings presented in this write-up represents funds from operations (FFO) — a widely used metric to gauge the performance of REITs.
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