Yahoo Finance Regency Centers (REG) Up 10% in 6 Months: Will the Trend Last?
Shares of Regency Centers Corporation REG, currently carrying a Zacks Rank #3 (Hold), have rallied 10.1% in the past six months compared with the industry’s growth of 4.9%.
Healthy retail demand and muted new supply continue to drive the recovery in the retail real estate industry. Regency is well-poised to benefit from its strategically located shopping centers in affluent suburban areas and near urban trade areas amid this favorable fundamental of the retail real estate market. Its focus on grocery-anchored shopping centers assures dependable traffic and has aided occupancy levels and rent growth in recent quarters.
This August, Regency closed the previously announced buyout of Urstadt Biddle Properties Inc. in an all-stock transaction. This created a combined company with a total equity market capitalization of more than $11 billion and an enterprise value of more than $16 billion.
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Let us now decipher the factors behind the surge in the stock price and also check whether this trend will last.
Regency continues to benefit from its focus on building a premium portfolio of grocery-anchored shopping centers. Such centers are usually necessity-driven and attract dependable traffic. In the uncertain times, the grocery component has benefited retail REITs, including Regency. Encouragingly, this retail REIT has a high-quality open-air shopping center portfolio, with 80% grocery-anchored neighborhood and community centers.
Moreover, the company’s focus on necessity, service, convenience and value retailers serving the essential needs of the communities provides it with an unequaled strategic advantage. We expect a year-over-year increase of 3.1% in lease income in the current year.
REG’s premium shopping centers are situated in affluent suburban areas and near urban trade areas where consumers have high spending power, enabling the company to attract top grocers and retailers. Furthermore, the best-in-class operators are opening new locations in its high-quality centers. With more people moving to suburbs due to the post-pandemic migration and the hybrid work setup, Regency’s suburban shopping center portfolio is expected to garner long-term benefits.
These factors have helped the company’s performance, and from the beginning of 2023 through Jun 30, 2023, REG’s same-property base rent grew 4% on a year-over-year basis, aiding same-property net operating income (NOI) growth of 5%, excluding termination fees or collection of 2020/2021 reserves.
Regency is also making efforts to improve its portfolio with acquisitions and developments in key markets. Its acquisition of Urstadt Biddle Properties is projected to be immediately accretive to core operating earnings. With the combined portfolio comprising 480 properties and encompassing more than 56 million square feet of gross leasable area, the move enhances Regency's geographic diversification, tenant mix, growth prospects and balance sheet strength.
As of Jun 30, 2023, Regency’s in-process development and redevelopment projects estimated net project costs of around $410 million at the company’s share. Given REG’s prudent financial management, it is well-poised to capitalize on growth opportunities.
Regency maintains a healthy balance sheet position. This retail REIT had around $1.2 billion available under its revolving credit facility as of Jun 30, 2023. As of the same date, its pro-rata net debt-to-operating EBITDAre ratio was 4.9, while the fixed charge coverage ratio was 4.8. Additionally, the company has no unsecured debt maturities until June 2024. This low leverage with limited near-term maturities offers flexibility to REG.
Regency also enjoys a large pool of unencumbered assets. As of Jun 30, 2023, 90.4% of its wholly owned real estate assets were unencumbered. With a high percentage of such assets, the company can enjoy accessibility to the secured and unsecured debt markets and maintain availability on the line.
Solid dividend payouts are the biggest attractions for REIT investors, and Regency is committed to boosting shareholder wealth. For the 2014-2022 period, the company’s dividend has witnessed a CAGR of 3.8%.
Furthermore, in the last five years, Regency has increased its dividend four times. Therefore, given the company’s solid operating platform, scope for growth and decent financial position compared to that of the industry, this dividend rate is expected to be sustainable over the long run.
However, higher e-commerce adoption and the efforts of online retailers to go deeper into the grocery business raise concerns for Regency Centers. A high-interest-rate environment adds to the company’s woes.
Stocks to Consider
Some better-ranked stocks from the retail REIT sector are Essential Properties Realty Trust EPRT and Tanger Factory Outlet Centers SKT, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for Essential Properties Realty Trust’s ongoing year’s FFO per share is currently pegged at $1.64.
The Zacks Consensus Estimate for Tanger Factory Outlet Centers’ current-year FFO per share has been raised marginally in the past week to $1.89.
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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Regency Centers Corporation (REG) : Free Stock Analysis Report
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