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Is it Wise to Hold Regency Centers Stock in Your Portfolio?

Zacks Equity Research

Regency Centers Corporation’s REG premium portfolio of grocery-anchored shopping centers is well poised to generate steady cash flows and drive long-term growth.  However, the company is not immune to the recent efforts of online retailers to penetrate deeper into the grocery business.

Regency has a considerable experience in the retail real estate industry and has developed several retail real estate projects over the years. The company mainly focuses on constructing a premium portfolio of grocery-anchored shopping centers. Such centers are usually necessity driven and drive a dependable traffic. The company’s 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 help generate steady rental revenues.

Additionally, it enjoys substantial liquidity and capacity, with $1.25-billion line of credit. Its debt-maturity profile is well laddered with no significant maturities until 2020. Furthermore, the company enjoys a large pool of unencumbered assets and good relationships with lenders. In fact, as of Dec 31, 2018, 87.8 % of its wholly-owned real estate assets were unencumbered.

Moreover, solid dividend payouts are arguably the biggest attraction for REIT shareholders and Regency’s dividend has witnessed a compound annual growth rate of 4.5% since 2014.

Notably, for fourth-quarter 2018, Regency reported NAREIT funds from operation (FFO) per share of 98 cents which surpassed the Zacks Consensus Estimate as well as came in higher than the year-ago tally, both, by four cents. Further, adjusted revenues of $277.07 million outpaced the Zacks Consensus Estimate of $269.96 million. The figure also came in higher than the year-ago tally of $257.9 million.

Nonetheless, move-outs, store closures and retailer bankruptcies are likely to affect performance of the retail real estate market in the near term. This, in turn, will dampen the performance of companies, including Macerich Company MAC, Taubman Centers TCO, Kimco Realty Corporation KIM and Regency as well.

Regency has guided for same-property NOI growth of 2-2.5% in 2019, which incorporates near-term headwinds associated with Sears, K-mart, as well as a muted contribution from redevelopments in 2019.

Further, at year-end 2018, Regency had 19 properties in development or redevelopment, indicating a total investment worth $390 million. 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. Moreover, such initiatives involve significant upfront costs and drag the margin until the properties get established.

The stock has gained 12.8% in three months’ time, while the industry has rallied 25.8%. However, the Zacks Consensus Estimate for 2018 FFO per share edged down nearly 1% to $3.79 over the past month.

Regency has a Zacks Rank #3 (Hold), currently. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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