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Regency Posts Mixed 3Q

Zacks Equity Research

Regency Centers Corporation (REG), a real estate investment trust (:REIT), reported third quarter 2012 FFO (funds from operations) of $52.0 million or 58 cents per share, compared with $56.0 million or 62 cents per share in the year-earlier quarter.

Excluding non-recurring items, recurring FFO for the reported quarter stood at $55.6 million or 62 cents per share versus $54.9 million or 61 cents per share in the year-ago period. Recurring FFO in the reported quarter beat the Zacks Consensus Estimate by 4 cents.

The company reported total revenues of $113.6 million in the third quarter of 2012, compared with $119.5 million in the year-ago quarter. Total revenues in the reported quarter missed the Zacks Consensus Estimate of $115 million.

During the reported quarter, same-store net operating income (:NOI) excluding termination fees increased 4.4% on a year-over-year basis, with a rental rate growth of 13.7% (cash basis for spaces vacant less than 12 months). Regency executed a total of 396 new and renewal lease transactions during the quarter, spanning 1.3 million square feet. The same-store portfolio of the company was 94.3% leased at the end of the quarter.

Regency sold three co-investment operating properties during the quarter for $61.5 million at a weighted average cap rate of 8.2%. The company also sold a land parcel for $725,000. At the same time, Regency closed the sale of a 15-property portfolio to an affiliate of Blackstone Real Estate Partners VII for $321.0 million, at a weighted average cap rate of 8.1%. The company will maintain a $47.5 million preferred equity investment in the portfolio, which is expected to earn an annual return of 10.5%.

During third quarter 2012, Regency purchased a 189,321-square-foot shopping center titled Balboa Mesa Shopping Center in San Diego, California. The property was acquired from Balboa Realty LLC, a private real estate company, for $59.5 million. Regency will largely benefit from the prime location of the property as it is situated in a major retail node with an estimated 63,000 vehicles passing the site daily. In addition, the shopping center has a residential population of 126,000 in its periphery and a daytime population of 109,000 within a three-mile radius.

As of September 30, 2012, Regency had seven projects under development with estimated development cost of $241.7 million. Additionally, the company also had three redevelopment projects in the pipeline with development costs of $13.2 million.

During the reported quarter, Regency amended its existing unsecured revolving credit facility in a concerted effort to strengthen its liquidity and reduce refinancing risk. The new credit facility has increased the borrowing capacity by $200 million to an aggregate of $800 million. Regency has also extended the maturity of the revolving credit facility by a year. The modified credit facility is currently scheduled to mature in September 2016 and has an accordion feature that would further enable Regency to extend the maturity by an additional year, subject to the fulfillment of certain conditions.

At quarter-end, Regency had cash and cash equivalents of about $21.4 million and total debt of $1.8 billion. For full year 2012, Regency revised its FFO guidance from the earlier range of $2.30 -$2.36 to $2.34 - $2.39 per share. For full year 2013, the company expects FFO in the range of $2.42 - $2.50 per share.

Regency currently retains a Zacks #3 Rank, which translates into a short-term Hold rating. We maintain our long-term Neutral recommendation on the stock. One of its competitors, DDR Corp. (DDR) also holds a Zacks #3 Rank.

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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