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Regency Centers Corporation’s REG focus on building a premium portfolio of grocery-anchored shopping centers, aimed at driving dependable traffic, bodes well. However, the company’s growing development and redevelopment pipeline exposes it to various risks such as rising construction costs, entitlement delays and lease-ups.
Specifically, this retail real estate investment trust (REIT) has 80% of its properties anchored by leading grocers, which augurs well for steady cash flows and long-term growth. Moreover, long-term leases with its tenants protect the company from short-term market swings.
Amid these, Regency is also focusing on the acquisition of grocery-anchored properties. Its merger with Equity One created a high-quality portfolio of more than 400 properties — mainly grocery anchored. Moreover, strategic acquisitions will strengthen its foothold in thriving sub-markets.
A healthy balance sheet also enables Regency to pursue its growth plans. Importantly, as of Dec 31, 2017, 85.7% of the company’s wholly owned real estate assets were unencumbered. This will enable the company to enjoy favorable access to secured and unsecured debt markets. Notably, this March, the company amended a $1.25-billion unsecured revolving credit facility. This will help drive operational efficiency and financial flexibility.
However, the retail apocalypse has considerably curbed demand for retail real estate space in the United States. Mall traffic has been affected and retail landlords, including Macerich Company MAC, Taubman Centers TCO and Kimco Realty Corporation KIM, are suffering due to consumers’ preferences increasingly shifting toward online retail. This has resulted in widespread store closures and bankruptcy filing by the retailers. In fact, deeper penetration of online retailers into the grocery business has emerged as a pressing concern for the company.
As the company continues to counter mall traffic blues, Regency is increasingly investing in development and redevelopment projects. It had 19 properties, with estimated cost of $454 million in development or redevelopment, at the end of the first quarter. With a huge outlay for refurbishments, growth in profit margins of the company in the near term will likely remain limited.
Regency has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The stock has gained 1.1% in three months’ time, while the industry rallied 5%. Also, the stock has seen the Zacks Consensus Estimate for second-quarter 2018 funds from operations (FFO) per share being revised marginally downward in the past month.
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Kimco Realty Corporation (KIM) : Free Stock Analysis Report
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