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Regency Centers (REG) Beats Q1 FFO and Revenue Estimates

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Backed by better-than-expected growth in revenue, Regency Centers Corporation’s (REG - Free Report) first-quarter 2017 core funds from operations (“FFO”) per share of 90 cents came ahead of the Zacks Consensus Estimate of 83 cents.

Further, the results compared favorably with 80 cents reported in the year-ago quarter. Moreover, the company experienced growth in same property net operating income (“NOI”).

Total revenue for the quarter came in at $196.1 million, while adjusted revenue was $189.4 million, ahead of the Zacks Consensus Estimate of $185.4 million. The figures also compared favorably with the year-ago quarter’s total revenue of $149.6 million and adjusted revenue of $142.9 million.

Further, the first-quarter 2017 was a notable period for Regency, with the company completing the previously announced merger with Equity One on Mar 1. Also, Regency was added to the benchmark S&P 500 Index on Mar 2, after the close of trading.

Inside the Headlines

During the quarter, Regency executed 1.1 million square feet of new and renewal leases on a comparable basis, at 8.2% blended rent spreads. Rent spreads on new leases was 0.2%, while the same for renewal leases was 10.0%.

As of Mar 31, 2017, the total portfolio was 95.3% leased, while the same property portfolio was 96.0% leased. Moreover, Regency’s same property NOI, net of termination fees, climbed 3.7% on a year-over-year basis for the newly combined portfolio.

Regency’s cash and cash equivalents were $44.8 million at the end of first-quarter 2017, up from $17.9 million at the end of 2016. The company’s total outstanding debt was $3.4 billion, up from $1.64 billion at the end of the previous year.

Notable Portfolio Activity

During the quarter, Regency started the development of two projects with combined estimated net development costs aggregating $61.0 million. The first one is an 187,000 square foot center – The Field at Commonwealth – in the Washington D.C. metro area, having estimated net development costs of $44.6 million. The second development start is a 70,000 square foot center – Pinecrest Place – situated within a dense infill submarket of Miami. It has estimated net development costs of $16.4 million.

On the other hand, during the quarter, the company sold one co-investment property, for a total gross sales price of $21.0 million, with Regency’s share being $4.2 million.

At first-quarter end, the company had 30 projects in development or under redevelopment with combined, estimated costs of $515 million.

Outlook

Regency updated its guidance for 2017 taking into account the impacts anticipated as a result of the merger. The company now expects core FFO per share in the $3.60–$3.68 band, against the prior guided range of $3.44–$3.50. The Zacks Consensus Estimate for the same is currently pegged at $3.48.

Dividend Update

On Apr 26, Regency’s board of directors announced a quarterly cash dividend of 53 cents per share on its common stock. This dividend will be paid on May 31 to shareholders of record as of May 22. Notably, the quarterly dividend of 53 cents per share, or $2.12 on an annualized basis, denotes an increase from $2.00 in 2016.

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 attract huge traffic. In addition, the presence of a cluster of leading grocers will cushion the company from market swings.

Further, the company’s merger with Equity One elevated the company’s position in the retail real estate market and offered it with a host of opportunities to drive long-term growth. However, shift in retail shopping from brick and mortar stores to internet sales, and rate hikes remain concerns for the company.

Regency currently carries a Zacks Rank #3 (Hold).

Stocks to Consider

Investors can also consider better-ranked stocks in the REIT space like Equity LifeStyle Properties, Inc. (ELS - Free Report) , Prologis, Inc. (PLD - Free Report) and PS Business Parks, Inc. . All the three stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Equity LifeStyle Properties currently has a long-term growth rate of 4.7%.

Prologis’ estimates for 2017 funds from operations (“FFO”) per share moved north nearly 3.8% to $2.76, over the past 30 days.

Moreover, PS Business Parks’ estimates for 2017 FFO per share climbed 1.2% to $5.93, over the past 30 days.

Note: All EPS numbers presented in this write up represent funds from operations (“FFO”) per share. 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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