Here's Why Regency Centers (REG) is an Apt Portfolio Pick Now
With the pandemic's impact waning, retail real estate has rebounded considerably. Regency Centers’ REG portfolio of premium shopping centers in affluent suburban areas and near urban trade areas with strong growth drivers is well-positioned to benefit from this trend. Also, an encouraging development pipeline and balance-sheet strength bode well.
Analysts 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) 2022 funds from operations (FFO) per share indicates a favorable outlook as it has increased 1.8% over the past two months to $3.96.
Shares of REG have lost 10.3% in the past three months, narrower than the industry's decline of 11.7%. Given its robust fundamentals and positive estimate revisions, the stock is likely to keep performing well in the quarters ahead. Hence the dip offers a good entry point.
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What Makes Regency Centers a Solid Pick?
Solid Industry Fundamentals: Regency’s premium shopping centers are situated in affluent suburban areas and near the urban trade areas where consumers have high spending power. With more people moving into the suburbs due to post-pandemic migration and the hybrid work setup, Regency’s suburban-shopping-center portfolio is likely to benefit as the best-in-class operators are opening new locations in high-quality centers.
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 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, its portfolio has a good tenant mix with several industry-leading grocers. Of the top 10 tenants, six are high-performing grocers. This assures a stable revenue generation for the company.
Acquisitions & Development: To enhance its portfolio, REG has been making acquisitions and developments in key markets of the United States. From the beginning of 2022 through Jun 30, 2022, the company’s buyouts totaled $171 million (at Regency’s share), encompassing 772,000 gross leasable area.
Moreover, in second-quarter 2022, it commenced more than $50 million of development and redevelopment projects and completed redevelopment projects with combined costs of approximately $12 million, each at the company’s share. Given its prudent financial management, REG is well-poised to capitalize on future growth opportunities.
Balance Sheet & Cash Flow Strength: Regency maintains a healthy balance-sheet position with ample liquidity and a low leverage level. As of Jun 30, 2022, it had full capacity under its $1.2-billion revolving credit facility and a pro-rata net debt-to-operating EBITDAre ratio of 5.0.
Also, its investment grade credit ratings of BBB+/Baa1 with stable outlooks from 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-poised to carry forward with its expansionary efforts.
REG’s current cash flow growth is projected at 31.83% compared with the 26.69% growth estimated for the industry. Moreover, its trailing 12-month return on equity (ROE) is 7.40% compared with the industry’s average of 6.13%. This reflects that the company is more efficient in using shareholders’ funds than its peers.
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.
REG has increased its dividend four times in the last five years, and its five-year annualized dividend growth rate is 2.94%. Considering its solid operating platform and solid balance-sheet strength, the company 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 Kimco Realty KIM, Kite Realty Group Trust KRG and SITE Centers Corp. SITC.
The Zacks Consensus Estimate for Kimco Realty’s ongoing year’s FFO per share has been raised 1.3% over the past two months to $1.56. KIM currently holds a Zacks Rank #2.
The Zacks Consensus Estimate for Kite Realty Group Trust’s current-year FFO per share has moved 1.6% northward in the past two months to $1.85. KRG sports a Zacks Rank #1 (Strong Buy) presently. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for SITE Centers’ 2022 FFO per share has moved marginally upward in the past two months to $1.16. SITC presently carries a Zacks Rank of 2.
Note: Anything related to earnings presented in this write-up represent funds from operations (FFO) — a widely used metric to gauge the performance of REITs.
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Kimco Realty Corporation (KIM) : Free Stock Analysis Report
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