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On Oct 9, 2013, we reinstated our long-term Neutral recommendation on Regency Centers Corp (REG - Analyst Report). The decision reflects successful execution of the company’s strategic initiatives, decent second-quarter 2013 performance and a flexible balance sheet position. Yet, rising customer purchases through catalogs and the Internet, and a huge development and redevelopment pipeline remain our plausible concerns.

Why the Neutral Stance?

Regency’s portfolio of shopping centers, located in high-income, high-barrier markets, is among the best in the sector. Moreover, with a focus on best-in-class retailers such as Whole Foods Market, Inc. (WFM - Analyst Report) and The Kroger Co. (KR - Analyst Report), the portfolio drives value and mitigates operating risks.

Also, strategic acquisitions and the inclusion of premium development and redevelopment projects will boost Regency’s portfolio in infill locations with high occupancy levels and strong tenant sales and offer ample room for top-line growth going forward. Encouragingly, Regency raised its outlook range for full-year 2013 Core Funds From Operations (Core FFO) per share for the second time in the year. Such moves inspire investors’ confidence.

Regency’s second-quarter 2013 Core FFO per share of 67 cents exceeded the Zacks Consensus Estimate by 3 cents, driven by significant leasing and same property net operating income increases. However, with a dip in overall revenues acting as a headwind, Regency’s Core FFO declined by 2 cents from the year-ago figure.

Moreover, stiff competition from other players in the market, rise in interest rates and geographical concentration of Regency’s assets pose a threat to its profitability. Also, although, Regency’s growing development and redevelopment pipeline is encouraging, it exposes the company to various risks such as rising construction costs, entitlement delays and lease-ups. Additionally, significant rise in online shopping through the Internet, mobile phones and tablets could upset the demand for Regency’s properties.

Nevertheless, the Zacks Consensus Estimate for 2013 and 2014 FFO per share moved up marginally to $2.59 and $2.67, respectively, over the last 60 days. Consequently, this retail real estate investment trust (REIT) now carries a Zacks Rank #2 (Buy).

Regency is scheduled to release its third-quarter 2013 earnings results after the closing bell on Oct 30. The Zacks Consensus Estimate for FFO per share for the upcoming quarter is pegged at 63 cents per share, depicting year-over-year growth of 9.31%.

Other Stocks to Consider

Simon Property Group Inc. (SPG - Analyst Report) is another retail REIT, which deserves a look with the same Zacks Rank as Regency.

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.

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