The increase in consumers’ preference for in-person shopping experiences following the pandemic downtime has been driving the recovery in the retail real estate industry.
Given this backdrop, Regency Centers Corp. REG is well-poised to benefit from its portfolio of premium shopping centers in the affluent suburban areas and near urban trade areas of the United States as these have strong growth drivers.
This retail real estate investment trust (REIT) is focused on building a premium portfolio of grocery-anchored shopping centers. As of the third-quarter end, its portfolio comprised 80% of grocery-anchored neighborhood and community centers, which are necessity-driven. This ensures dependable traffic and allows the company to bank on its grocery centers during uncertain times.
REG’s portfolio has a good tenant mix, with several industry-leading grocers. This enables it to generate steady rental revenues.
With more people moving into the suburbs due to the post-pandemic migration and the hybrid work setup, Regency’s suburban-shopping-center portfolio is expected to benefit.
Regency’s expansion efforts into the key markets and development initiatives seem encouraging. From the beginning of 2022 through Sep 30, 2022, the company’s acquisitions totaled $201 million (at Regency’s share), encompassing 972,000 gross leasable area.
On the balance-sheet front, the company had the full capacity under its $1.2-billion revolving credit facility as of Sep 30, 2022. Its low leverage and limited near-term maturities provide ample financial flexibility.
Also, investment grade credit ratings of BBB+/Baa1 from S&P Global and Moody's, respectively, render it favorable access to the debt market. With a strong financial footing, Regency is well-positioned to capitalize on future growth opportunities.
Analysts, too, seem bullish about the Zacks Rank #3 (Hold) company. The Zacks Consensus Estimate for the company’s 2022 funds from operations (FFO) per share has moved marginally upward over the past week, indicating a favorable outlook for Regency.
Shares of REG have gained 23.1% in the quarter-to-date period compared with the industry’s growth of 19.7%.
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Nonetheless, given the conveniences of online shopping, rising e-commerce adoption is concerning for Regency. The efforts of online retailers to go deeper into the grocery business in recent years is likely to hurt the market share for brick-and-mortar stores, raising concerns for the company.
Supply-chain challenges and labor shortages amid a high inflationary environment could adversely impact Regency’s development and redevelopment project pipeline.
Also, rising interest rates are likely to increase the company's borrowing costs, affecting its ability to purchase or develop real estate.
Stocks to Consider
Some better-ranked stocks from the retail REIT sector are Tanger Factory Outlet Centers SKT and American Assets Trust AAT, each carrying a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for Tanger Factory Outlet Centers’ ongoing year’s FFO per share is pegged at $1.80.
The Zacks Consensus Estimate for American Assets Trust’s 2022 FFO per share is pegged at $2.29.
Note: Anything related to earnings presented in this write-up represent funds from operations (FFO) — a widely used metric to gauge the performance of REITs.
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