What's in the Offing for Regency Centers (REG) in Q2 Earnings?
Regency Centers Corp. REG is slated to report second-quarter 2023 results on Aug 3 after the closing bell. The company’s quarterly results are likely to display year-over-year revenue growth and funds from operations (FFO) per share.
In the last reported quarter, this Jacksonville, FL-based retail real estate investment trust (REIT) reported a surprise of 5.88% in terms of NAREIT FFO per share. The results reflected a better-than-anticipated top line, aided by healthy leasing activity and a year-over-year improvement in the base rent.
Over the trailing four quarters, the company’s FFO per share exceeded the Zacks Consensus Estimate on two occasions, met once and missed in the remaining one, the average beat being 2.52%. This is depicted in the graph below:
Regency Centers Corporation Price and EPS Surprise
Regency Centers Corporation price-eps-surprise | Regency Centers Corporation Quote
Factors at Play
Per a report from CBRE Group CBRE, the demand for retail space in the second quarter of 2023 was subdued, with net absorption totaling 5.9 million square feet. This represented the lowest level of demand since the sector experienced a negative net absorption of 10.1 million square feet in the third quarter of 2020.
However, on the brighter side, rent growth in the U.S. retail real estate market recommenced during the quarter. The overall average asking rent of $23.21 per square foot improved 0.6% quarter over quarter, marking the highest increase since the first quarter of 2022. Moreover, the figure improved 2.1% year over year. This growth was attributable to significant gains in Raleigh and various Florida markets, per the CBRE Group report.
In addition, elevated construction costs and economic concerns resulted in historically low levels of construction completions. The second quarter’s overall availability rate declined 10 basis points (bps) to 4.8%, a record low.
Amid this backdrop, Regency is anticipated to have capitalized on the post-pandemic migration trend and the hybrid work setup of people who are now shifting to suburban areas. As a result, demand for the company’s high-quality open-air shopping centers in the affluent suburban areas and near urban trade areas of the United States is likely to have remained robust, boosting occupancy levels and its cash flows.
Moreover, this retail REIT’s portfolio comprises around 80% of the grocery-anchored neighborhood and community centers, which are necessity-driven by nature. It also enjoys a good tenant mix with several industry-leading grocers. This is expected to have led to stable rental revenue generation during the quarter.
The Zacks Consensus Estimate for second-quarter revenues is pegged at $313.3 million, indicating an increase of 3.7% from the year-ago quarter’s reported figure.
During the second quarter, Regency continued its accretive acquisitions and development activities to bolster its external growth. 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 is expected to enhance Regency's geographic diversification, tenant mix, growth prospects and balance sheet strength.
The deal, which has been approved by both the companies' boards of directors, will create a combined portfolio of 481 properties with more than 56 million square feet of gross leasable area. For the combined entity, the enterprise value is estimated at $16 billion, with a pro forma equity market capitalization of around $11 billion.
The company’s activities during the to-be-reported quarter were adequate to garner analysts’ confidence. The Zacks Consensus Estimate for REG’s second-quarter FFO per share has been revised a penny upward to $1.01 over the past two months. Moreover, the figure implies an improvement of 1% from the prior-year quarter’s reported figure.
Nonetheless, the overall choppiness in the economy and high interest rates might have impeded the company’s performance to some extent.
Q2 Developments
In May 2023, Regency Centers, in partnership with Blumenfeld Development Group, announced its plan to revitalize the currently vacant SunVet Mall in Long Island, NY. The planned redevelopment involves transforming the site into a 168,000-square-foot, grocery-anchored, open-air shopping center, with the fourth Whole Foods Market in Suffolk County as the centerpiece.
Earning Whispers
Our proven model does not conclusively predict a surprise in terms of FFO per share for Regency this season. The combination of a positive Earnings ESP and a Zacks Rank #3 (Hold) or higher — increases the odds of a beat. However, that is not the case here.
Earnings ESP: REG has an Earnings ESP of -0.36%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Zacks Rank: REG currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1(Strong Buy) Rank stocks here.
Stocks That Warrant a Look
Here are some stocks that are worth considering from the REIT sector, as our model shows that these have the right combination of elements to deliver a surprise this reporting cycle:
Ventas VTR is scheduled to report quarterly numbers on Aug 3. VTR has an Earnings ESP of +1.75% and a Zacks Rank #2 currently.
Ryman Hospitality Properties RHP is slated to report quarterly numbers on Aug 3. RHP has an Earnings ESP of +3.87% and carries a Zacks Rank #1 presently.
Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.
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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Ventas, Inc. (VTR) : Free Stock Analysis Report
Regency Centers Corporation (REG) : Free Stock Analysis Report
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