Regency Centers (REG) Q3 FFO Meets Estimates, Revenues Up

Regency Centers Corporation’s (NYSE:REG) fourth-quarter 2017 core funds from operations (FFO) per share of 92 cents came in line with the Zacks Consensus Estimate. Results compared favorably with 86 cents reported in the year-ago quarter.

The company’s quarterly results reflect growth in same-property net operating income (NOI) and strong leasing activity during the quarter.

Adjusted revenues for the quarter came in at $257.9 million, marginally outpacing the Zacks Consensus Estimate of $257.1 million. Further, the figure came in higher than the year-ago tally of $153 million.

For full-year 2017, Regency came up with core FFO per share of $3.69, ahead of the prior-year tally of $3.29. However, it missed the Zacks Consensus Estimate by a penny.

Adjusted revenues for the full-year came in at $958.17 million, slightly above the Zacks Consensus Estimate of $958.16 million. The figure came in significantly higher than the year-ago tally of $589 million.

Inside the Headlines

During the reported quarter, Regency executed 1.8 million square feet of new and renewal leases on a comparable basis, leading to 6% blended rent spreads. Rent spreads on new leases came in at 2.2%, while the same for renewal leases was 7.1%.

New leasing corresponded to roughly 443,000 square feet, with Anchors’ representation of about 60% of new activity, which compares favorably with an average of 30%, recorded in the year-ago quarter.

As of Dec 31, 2017, the company’s wholly-owned portfolio, including pro-rata shares of co-investment partnerships, was 95.5% leased. Moreover, the same-property portfolio was 96.3% leased, reflecting an expansion of 30 basis points (bps) sequentially and year over year, when adjusted for the present same property pool. In the same-property asset portfolio, small shops were 92.5% leased, reflecting an uptick of 10 bps sequentially and 40 bps year over year. Further, within the same-property portfolio, Anchors were 98.6% leased, reflecting a growth of 40 bps sequentially and year over year, when adjusted for the present same property pool.

In addition, Regency’s same-property NOI as adjusted, excluding termination fees, climbed 2.7% on a year-over-year basis.

Regency’s cash and cash equivalents were $49.4 million at the end of fourth-quarter 2017, up from $17.9 million recorded at the end of 2016. The company’s total outstanding debt was $3.6 billion, up from $1.64 billion witnessed at the end of the previous year.

Notable Portfolio Activity

During the quarter under review, the company sold five shopping centers, for a total value of $103 million. Regency closed acquisitions of two properties for about $150 million during the quarter.

As the fourth quarter ended, the company had 23 properties in development or under-development with combined, estimated net development costs of over $544 million.

Outlook

Regency expects the operating FFO per share to be in the range of $3.48–$3.54, this reflects no change from the guidance issued on Jan 11, 2018.

The company expects 2.25%-3.25% growth in same property net operating income, excluding termination fees. Acquisitions and dispositions are expected to be approximately $150 million each.

Dividend Update

On Feb 6, Regency’s board of directors announced a quarterly cash dividend of 55.5 cents per share on its common stock, denoting an increase of 5.7%. This dividend will be paid on Mar 2 to shareholders of record as of Feb 20, 2018.

Capital Market Activities

The company issued 1.25 million shares of the common stock and received approximately net proceeds of $89.1 million after making adjustments for interest, dividends and the underwriters’ discount.

Regency’s board authorized share repurchase of its common stock for up to $250 million by Feb 6, 2020.

Our Take

Regency’s focus on building a premium portfolio of grocery-anchored shopping centers augurs well for the long term. Such centers are usually necessity-driven and enjoy dependable traffic. Furthermore, the company’s focus on small-shops portfolio has proved beneficial for the company. Also, the company’s merger with Equity One has elevated the former’s position in the retail real estate market and offered a host of opportunities to drive long-term growth.

However, Regency incurred merger-related costs, which impacted its bottom line. In addition to this, the recent trend of online retailers, to go deeper into the grocery business, has emerged as a concern for this real estate investment trust (REIT).

Regency Centers Corporation Price, Consensus and EPS Surprise

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

We now look forward to the earnings releases of other REITs like HCP (NYSE:HCP) , CubeSmart (NYSE:CUBE) and EPR Properties (NYSE:EPR) . HCP and CubeSmart are scheduled to release results on Feb 13 and Feb 15 respectively, while EPR Properties is slated to report its numbers on Feb 28.

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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