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What's in Store for Regency Centers (REG) in Q4 Earnings?

Zacks Equity Research

Regency Centers Corp. REG is slated to report fourth-quarter 2018 results on Feb 13, after the market closes. Both its revenues and funds from operations (FFO) 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 1.05%. Results reflected growth in same-property net operating income (NOI).

Further, the company has a decent surprise history. It beat the Zacks Consensus Estimate in three of the trailing four quarters and met in the other, with average surprise of 1.07%. 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

Regency expects 2018 NAREIT FFO per share of $3.76-$3.79. The Zacks Consensus Estimate for the same is currently pinned at $3.79.

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

Factors at Play

At a time when store closures and bankruptcies have curbed growth tempo of the retail real estate industry, Regency 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, which augurs well for steady cash flows and long-term growth. Along with the presence of leading grocers in its tenant roster, the company also has restaurants and service providers.

Additionally, a healthy U.S. economy, job-market gains, high consumer confidence and low gas prices have buoyed consumers’ spending power. This is evident from the 5.1% year-over-year growth in the retail sales figure for the 2018 holiday season, which marked the highest level in six years, according to Mastercard’s SpendingPulse. This is anticipated to send across encouraging signals across the retail real estate industry.

In addition, the recent data from Reis shows that the neighborhood and community shopping center vacancy rate remained flat in the fourth quarter at 10.2%, but marginally inched up from 10% at year-end 2017. Mall vacancy rate slightly edged down to 9% in the quarter from 9.1% in the third quarter. At year-end 2017, mall vacancy was 8.3%. Despite the store-closure issue plaguing the market, the little stability indicates slowdown in new development.

Amid these, we anticipate the company to have experienced decent leasing activity and top-line growth during the quarter under review. In fact, the Zacks Consensus Estimate for fourth-quarter revenues is pegged at $269.9 million, indicating a year-over-year improvement of 4.6%.

Further, the company’s strategy to sell nearly 1-2% of asset base yearly provides free cash flow that can be redeployed for developments and redevelopments. Such strategic moves are expected to enhance the company’s portfolio quality and drive long-term growth.

Nonetheless, the company has a significant development and redevelopment pipeline. Amid rising construction cost scenario, we anticipate Regency to have experienced cost overruns and compressed margins in the Dec-end quarter. This, in turn, is expected to impact development returns on these projects. In addition, recent efforts of online retailers to penetrate deeper into the grocery business is a concern for Regency.

However, prior to the fourth-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 94 cents, over the past month. Nevertheless, it indicates a 2.2% increase year over year.

Here is what our quantitative model predicts:

Regency does not have 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 0.00%.

Zacks Rank: Regency has a Zacks Rank of 2 (Buy), which increases the predictive power of ESP. However, we also need a positive ESP to be confident of a positive surprise.

Stocks That Warrant a Look

Here are a few 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:

Hersha Hospitality Trust HT, scheduled to release earnings on Feb 25, has an Earnings ESP of +3.81% and a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Sabra Health Care REIT, Inc. SBRA, slated to release fourth-quarter results on Feb 24, has an Earnings ESP of +5.49% and a Zacks Rank of 3.

American Tower Corporation AMT, set to release earnings on Feb 27, has an Earnings ESP of +0.29% and carries a Zacks Rank of 3.

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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