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Why Is an Earnings Beat Unlikely for Regency (REG) in Q1?

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Regency Centers Corp. REG is slated to report first-quarter 2018 results on Apr 30, after the market closes. Both its revenues and funds from operations (FFO) per share are expected to experience year-over-year growth.

Last quarter, this Jacksonville, FL-based retail real estate investment trust (REIT) delivered in-line FFO per share. Results reflected growth in same-property net operating income (NOI) and strong leasing activity during the quarter.

Further, the company has a solid surprise history. It beat the Zacks Consensus Estimate in three of the trailing four quarters with an average surprise of 4.04%. 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

However, the stock has lost 12.5% in the last three months, underperforming the 11.4% decline witnessed by the industry it belongs to.

Factors That Might Impact Q1 Results

Regency focuses on building a premium portfolio of grocery-anchored shopping centers and neighborhood centers. Such centers are usually necessity driven and bring a dependable traffic. Also, the company has solid experience in the retail real estate industry and enjoys presence of well-known grocers as tenants.

Moreover, Regency’s merger with Equity One in 2017 helped the company in creating a high-quality portfolio of over 400 properties that were mainly grocery-anchored. The efficient moves have permitted Regency to already realize the anticipated $27 million of general and administration (G&A) cost synergies. In fact, management anticipates realizing another $27 million in G&A synergies in 2018. In the first-quarter too, we anticipate this merger to drive robust growth in rental rates and occupancy levels.

Moreover, the Zacks Consensus Estimate for first-quarter revenues is pegged at $263.1 million, indicating a year-over-year improvement of 38.9%.

However, with online retailers venturing into the grocery business, the shift of sales from the brick and mortar space to online stores is emerging as a pressing concern. This is adversely affecting the retail tenants’ sales, leading them to reconsider their footprint and opt for store closures, thereby, resulting in lesser demand for retail real estate space.

Regency’s activities during the quarter could not gain adequate analyst confidence. Consequently, the Zacks Consensus Estimate for FFO per share of 94 cents for the first quarter remained unchanged over the past month. However, the figure witnessed rise of 4.4% from the prior-year quarter.

Earnings Whispers

Our proven model does not conclusively show that Regency Center will likely beat estimates this season. This is because a stock needs to have both — a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or at least 3 (Hold) — for this to happen. However, that is not the case here as you will see below.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks ESP: Regency has an Earnings ESP of -1.17%, representing the percentage difference between the Most Accurate estimate and the Zacks Consensus Estimate.

Zacks Rank: Regency’s Zacks Rank #4 (Sell) further decreases the predictive power of ESP.

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:

Taubman Centers, Inc. TCO, slated to release earnings on Apr 26, has an Earnings ESP of +0.47% and a Zacks Rank of 3. You can see the complete list of today’s Zacks #1 Rank stocks here.

Simon Property Group, Inc. SPG, scheduled to release quarterly numbers on Apr 27, has an Earnings ESP of +0.50% and a Zacks Rank #3.

RLJ Lodging Trust RLJ, slated to release first-quarter results on May 14, has an Earnings ESP of +2.68% and a Zacks Rank #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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