Regency Centers Corporation (REG) is a leading retail real estate investment trust (REIT) in the United States, with a portfolio primarily comprised of grocery-anchored community and neighborhood centers. This strategic focus ensures dependable traffic, a key factor in the success of retail properties. In the second quarter of 2024, Regency Centers reported NAREIT funds from operations (FFO) per share of $1.06, exceeding the Zacks Consensus Estimate of $1.02. This strong performance was driven by healthy leasing activity and a year-over-year improvement in base rent. The company’s positive outlook was further solidified by a revised upward forecast for 2024.
Analysts are bullish about Regency Centers, evidenced by the recent marginal increase in the Zacks Consensus Estimate for 2024 FFO per share to $4.22. Over the past six months, shares of this retail REIT have risen 18%, outperforming the industry’s 10.5% growth. Here’s a closer look at the factors contributing to Regency Centers’ strong performance and making it a compelling investment choice:
Healthy Leasing Activity and Improving Base Rent:
Regency Centers’ premium shopping centers are strategically located in affluent suburban areas and near urban trade areas with high consumer spending power. This strategic positioning enables the company to attract top grocers and retailers, further enhancing the desirability of its properties. The company’s emphasis on necessity, service, convenience, and value retailers, catering to essential community needs, provides a strategic advantage. Notably, anchor tenants (those leasing spaces greater than or equal to 10,000 square feet) constituted 42.5% (based on pro-rata ABR) of its portfolio as of June 30, 2024. During the second quarter, Regency Centers executed approximately 2.2 million square feet of comparable new and renewal leases. Moreover, the company’s embedded rent escalators have played a crucial role in driving rent growth. In the second quarter, same-property base rents contributed 2.9% to same-property net operating income (NOI) growth.
Solid Tenant Base:
In an uncertain economic climate, the grocery component has proven to be a boon for retail REITs. Regency Centers boasts a diverse portfolio of industry-leading grocers as tenants, including Publix, Kroger, Albertsons Companies, TJX Companies, and Amazon/Whole Foods. This strong tenant base reflects the high quality of Regency Centers’ open-air shopping center portfolio, with over 80% consisting of grocery-anchored neighborhood and community centers. Six of its top 10 tenants are high-performing grocers, underscoring the company’s focus on stable and reliable income streams.
Expansion Efforts:
Regency Centers is actively enhancing its portfolio through strategic acquisitions and developmental activities. The company’s prudent financial management positions it to capitalize on growth opportunities. In May 2024, Regency Centers acquired the Compo Shopping Centers in Westport, CT. This acquisition of a 76,000-square-foot retail destination exemplifies the company’s efforts to expand in the Northeast region. During the second quarter, REG initiated approximately $40 million of new development and redevelopment projects, bringing the total project starts to $120 million since the beginning of the year through August 1, 2024. As of June 30, 2024, Regency Centers’ in-process development and redevelopment projects had an estimated net project cost of $578 million.
Balance Sheet Strength:
Regency Centers prioritizes financial flexibility and is committed to further strengthening its balance sheet position. As of June 30, 2024, the retail REIT had nearly $1.2 billion of capacity under its revolving credit facility and approximately $79.2 million of cash and equivalents. On the same date, its pro-rata net debt and preferred stock-to-operating EBITDAre ratio stood at 5.3x, while the fixed charge coverage ratio was 4.4x. The company’s well-laddered debt maturity schedule aims to limit debt maturing in any given year to less than 15% of total debt. Furthermore, Regency Centers benefits from a significant pool of unencumbered assets, providing easy access to both secured and unsecured debt markets. As of June 30, 2024, 88.1% of its wholly owned real estate assets were unencumbered.
Steady Dividend Pay-outs:
Consistent dividend payouts are a primary attraction for REIT investors, and Regency Centers is dedicated to enhancing shareholder wealth. Over the past five years, the company has increased its dividend four times, resulting in a CAGR of 3.24%. Given its solid operating platform, growth potential, and robust financial position relative to the industry, this dividend rate is anticipated to be sustainable over the long term.
Other Stocks to Consider:
For investors seeking additional opportunities in the retail REIT sector, Brixmor Property Group (BRX) and Phillips Edison & Company (PECO) are worth considering. Both currently hold a Zacks Rank of 2. The Zacks Consensus Estimate for Brixmor Property Group’s 2024 FFO per share has slightly increased to $2.13 over the past month. Similarly, the Zacks Consensus Estimate for Phillips Edison & Company’s 2024 FFO per share has also seen a marginal increase to $2.42 over the same period.
Note:
Earnings presented in this article represent FFO, a widely used metric to gauge the performance of REITs.Regency Centers Corporation’s strong performance, driven by a combination of factors, including healthy leasing activity, a solid tenant base, strategic expansion efforts, and a robust balance sheet, makes it a compelling investment opportunity in the retail REIT sector.
