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What's in the Cards for Regency Centers' (REG) Q1 Earnings?

Zacks Equity Research

Regency Centers Corp. REG is slated to report first-quarter 2019 results on May 2, after the market closes. Its revenues are anticipated to reflect year-over-year growth.

In the last reported quarter, this Jacksonville, FL-based retail real estate investment trust (REIT) surpassed the Zacks Consensus Estimate for FFO per share by 4.26%. Results reflected growth in revenues.

Further, the company has a decent surprise history. It beat the Zacks Consensus Estimate in each of the trailing four quarters, the average positive surprise being 2.13%. This is depicted in the graph below:

Regency Centers Corporation Price and EPS Surprise

Regency Centers Corporation Price and EPS Surprise | Regency Centers Corporation Quote

Let’s see how things have shaped up for this announcement.

Factors at Play

Regency has a considerable experience in the retail real estate industry and has developed several retail real estate projects over the years. At a time when store closures and bankruptcies have curbed growth tempo of the retail real estate industry, the company is able to differentiate itself by strategically focusing on building a premium portfolio of grocery-anchored shopping centers. Such centers are usually necessity driven and drive a dependable traffic. Along with the presence of leading grocers in its tenant roster, the company also has restaurants and service providers.

Its properties are primarily located in strong trade areas characterized by high spending power. This helps the company attract top grocers and retailers. Regency also has a cluster of industry-leading grocers which augurs well for steady cash flows generation and long-term growth.

In addition, the healthy U.S. economy and job-market gains are key catalysts for the retail real estate industry’s growth. In fact, in March, retail sales rebounded strongly from the decline suffered in the previous month. This added to the series of economic reports, which indicate that the economy is gathering steam after a soft start to the year. Consumer confidence is getting a boost, fueled by job growth and rising wages, thereby spurring demand for retail goods. This is anticipated to have a positive impact on the industry in the to-be-reported quarter.

Amid these, the Zacks Consensus Estimate for the first-quarter revenues is pegged at $274.4 million, indicating a year-over-year improvement of 1.8%.

However, the choppy retail real estate environment might limit its growth momentum to some extent as secular industry headwinds, including retailer downsizing and tenant bankruptcies are continuing to affect the industry fundamentals.

Recent data from Reis shows that the neighborhood and community shopping center vacancy rate remained flat in the first quarter at 10.2%, but marginally inched up from prior year’s 10%. Additionally, the regional mall vacancy rate witnessed an uptick of 0.3% to 9.3% during the quarter. Nonetheless, national average asking rent and effective rent inched up 0.4% on a sequential basis and 1.6% year over year.

Moreover, although a growing development and redevelopment projects pipeline is encouraging, it exposes the company to various risks such as rising construction costs, entitlement delays and lease-ups. Furthermore, such initiatives involve significant upfront costs and drag the margin until the properties get established. In addition, recent efforts of online retailers to penetrate deeper into the grocery business is a concern for Regency.

Prior to the first-quarter earnings release, there is lack of any solid catalyst for raising optimism about the company’s business activities and prospects. As such, the Zacks Consensus Estimate for FFO per share remained unchanged at 96 cents, over the past month. Also, the figure indicates no change compared to the prior-year quarter.

Here is what our quantitative model predicts:

Regency has the right combination of two key ingredients — a positive Earnings ESP and Zacks Rank #3 (Hold) or higher — for increasing the odds of an earnings beat.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Earnings ESP: The Earnings ESP for Regency is +0.70%.

Zacks Rank: Regency carries a Zacks Rank #3, currently.

A positive Earnings ESP is a meaningful and leading indicator of a likely beat in terms of FFO per share. This, when combined with a favorable Zacks rank, makes us reasonably confident of a positive surprise.

Other Stocks That Warrant a Look

Here are a few other stocks in the REIT sector that you may want to consider, as our model shows that these have the right combination of elements to report a positive surprise this quarter:

Public Storage PSA, scheduled to release earnings on May 1, has an Earnings ESP of +1.15% and currently carries a Zacks Rank of 3. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Welltower, Inc. WELL, set to report quarterly numbers on Apr 30, has an Earnings ESP of +0.58% and a carries a Zacks Rank of 3.

Mid-America Apartment Communities, Inc. MAA, slated to report first-quarter results on May 1, has an Earnings ESP of +0.29% and holds a Zacks Rank of 3.

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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