With healthy retail demand and subdued construction activity continuing to drive the recovery in the retail real estate industry, Regency Centers Corp. REG seems well-poised to benefit from its portfolio of premium open-air shopping centers. Also, its focus on building a high-quality portfolio of grocery-anchored shopping centers and encouraging development pipeline bode well.
Late in October, Regency reported third-quarter 2024 NAREIT funds from operations (FFO) per share of $1.07, outpacing the Zacks Consensus Estimate of $1.04. The figure increased 4.9% from the prior-year quarter. Results reflected healthy leasing activity and a year-over-year improvement in the same property's net operating income (NOI) and base rents. The company raised its 2024 outlook.
Analysts, too, seem bullish on this Jacksonville, FL-based Zacks Rank #2 (Buy) company. The Zacks Consensus Estimate for this retail real estate investment trust’s (REIT) 2024 funds from operations (FFO) per share indicates a favorable outlook as it has moved marginally upward over the past month to $4.26.
Shares of REG have risen 4.3% in the past three months, outperforming the industry's growth of 3.1%. Given its solid fundamentals and positive estimate revisions, the stock is likely to keep performing well in the quarters ahead.
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What Makes Regency Centers a Solid Pick?
Healthy Operating Fundamentals: Regency’s premium shopping centers are situated in affluent suburban areas and near the urban trade areas where consumers have high spending power, enabling the company to attract top grocers and retailers. Anchor tenants comprised 42% (based on pro-rata ABR) of its portfolio as of Sept. 30, 2024.
In the third quarter, Regency executed 1.8 million square feet of comparable new and renewal leases at a blended cash rent spread of 9.3%. As of Sept. 30, 2024, REG’s same-property portfolio was 96.1% leased, reflecting an increase of 20 basis points (bps) sequentially and an expansion of 80 bps year over year. Also, same property base rents contributed 2.7% to same-property net operating income growth in the quarter.
Focus on Grocery-Anchored Shopping Centers: REG’s focus on necessity, service, convenience and value retailers serving the essential needs of the communities provides Regency with a strategic advantage. Its portfolio comprises 80% of the grocery-anchored neighborhood and community centers, which are necessity-driven by nature. This ensures dependable traffic and allows the company to bank on its grocery centers during uncertain times.
In uncertain times, the grocery component has benefited retail REITs, and Regency has numerous industry-leading grocers such as Publix, Kroger, Albertsons Companies, TJX Companies, Inc. and Amazon/Whole Foods as tenants. Six of Regency’s top 10 tenants are high-performing grocers.
Acquisitions & Development: Regency is making efforts to improve its portfolio with acquisitions and developments in key markets. In August 2024, the company acquired East Greenwich Square in Rhode Island for $33 million at Regency's share. Subsequent to quarter end, in October 2024, the company acquired University Commons in Round Rock, a suburb of Austin, TX, for $14 million at Regency's share. As of Sept. 30, 2024, Regency’s in-process development and redevelopment projects had estimated net project costs of $618 million at the company’s share.
Balance Sheet & Cash Flow Strength: Regency maintains a healthy balance sheet position, and as of Sept. 30, 2024, this retail REIT had nearly $1.5 billion of capacity under its revolving credit facility. As of the same date, its pro-rata net debt and preferred stock to operating EBITDAre was 5.2X. The company’s investment-grade credit ratings of A3 and BBB+ from Moody’s and S&P Global, respectively, render it access to the debt market at favorable costs. With low leverage, limited near-term maturities and a large pool of unencumbered assets, the company remains well-poised to meet its obligations and bank on growth scopes.
Dividend: Solid dividend payouts are arguably the biggest attraction for REIT investors, and Regency remains committed to that. Delighting its shareholders, early this month, Regency announced a 5.2% increase in its quarterly common stock dividend to 70.5 cents. This marks its 11th successive year of increases. The increased amount will be paid out on Jan. 3, 2025 to shareholders on record as of Dec. 16, 2024. From 2014 through the third quarter of 2024, the company’s dividend witnessed a CAGR of 3.7%. In the last five years, REG has increased its dividend five times. Check Regency Centers’ dividend history here.
Other Stocks to Consider
Some other top-ranked stocks from the retail REIT sector are Tanger Inc. SKT and American Assets Trust, Inc. AAT, each carrying a Zacks Rank #2 at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for Tanger’s ongoing year’s FFO per share is pegged at $2.11, suggesting year-over-year growth of 7.6%.
The Zacks Consensus Estimate for American Assets Trust’s 2024 FFO per share stands at $2.53, indicating 5.42% growth from the prior-year quarter’s tally.
Note: Anything related to earnings presented in this write-up represents funds from operations (FFO) — a widely used metric to gauge the performance of REITs.
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