Regency Centers (REG) Beats Q2 FFO And Revenue Estimates

Regency Centers Corporation’s (NYSE:REG) second-quarter 2016 core funds from operations (“FFO”) of 82 cents per share surpassed the Zacks Consensus Estimate of 81 cents. Further, the results compared favorably with 75 cents reported in the year-ago quarter.

Better-than-expected results were attributable to growth in same property net operating income (“SPNOI”).

Total revenue for the quarter came in at $152.4 million, surpassing the Zacks Consensus Estimate of $148 million and up 8.0% from a year ago.

Behind the Headlines

During the quarter, Regency’s tally for new and renewal leasing transactions reached 399, spanning 1.6 million square feet of space. Moreover, Regency’s SPNOI climbed 3.4% on a year-over-year basis, excluding termination fees, for its wholly-owned properties plus its pro-rata share of co-investment partnerships.

Rental rate growth for new leases was 29.0%, while the same for renewal leases was 9.1%. Same properties portfolio was 96.3% leased while all of the company’s properties were 95.8% leased.

Regency’s total pro-rata share of cash and cash equivalents were $33.8 million at the end of second-quarter 2016, down from $46.7 million at 2015 end. The company’s total outstanding debt was $1.98 billion, up from $1.86 billion at the prior-year end.

Notable Portfolio Activity

During the quarter, the company acquired the retail part of the Market Common Clarendon in Arlington, VA. This was done on an unencumbered basis for a net purchase price of $280.5 million. Clarendon consists 300,000 square feet of retail space and is anchored by reputed companies like Whole Foods Market, Inc. (NASDAQ:WFM) and Apple Inc. (NASDAQ:AAPL) among others.

At quarter end, the company had 22 properties in development or under redevelopment with combined, estimated costs of $201.1 million.

Outlook

Regency updated its guidance and now expects 2016 core FFO per share in a range of $3.22–$3.27 against the prior outlook of $3.20–$3.26. The Zacks Consensus Estimate is currently pegged at $3.25.

Dividend Update

On Jul 28, 2016, Regency’s board of directors announced a quarterly cash dividend of 50 cents per share on its common stock. The dividend will be paid on Aug 31 to shareholders of record as of Aug 17.

Our Take

Regency’s better-than-expected second-quarter results in encouraging. Moreover, with a dense, prosperous, and educated customer base, the Clarendon buyout seems a strategic fit for Regency.

Going forward, the company’s focus on building a premium portfolio of grocery-anchored shopping centers augurs well. Such centers are usually necessity-driven and attract huge traffic. Also, the presence of a cluster of leading grocers will cushion the company from market swings. Yet, stiff competition and an anticipated rise in interest rates pose concerns before the stock.

REGENCY CTRS CP Price, Consensus and EPS Surprise

REGENCY CTRS CP Price, Consensus and EPS Surprise | REGENCY CTRS CP Quote

Regency currently carries a Zacks Rank #3 (Hold). However, investors interested in the retail REIT industry may consider another better-ranked stock – The Macerich Company (NYSE:MAC) – which carries a Zacks Rank #2 (Buy).

Note: FFO, a widely used metric to gauge the performance of REITs, is obtained after adding depreciation and amortization and other non-cash expenses to net income. All EPS numbers presented in this write up represent FFO per share.