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Regency Marginally Misses

REG FRT

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Regency Centers Corporation (REG - Analyst Report), a real estate investment trust (REIT), reported second quarter 2011 FFO (funds from operations) of $55.1 million or 61 cents per share, compared to $48.5 million or 58 cents in the year-earlier quarter. Funds from operations, 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.

The reported FFO marginally missed the Zacks Consensus Estimate by a penny. Excluding non-recurring items, recurring FFO for the reported quarter was $50.5 million or 56 cents per share compared to $49.1 million or 59 cents in the year-ago period. The company reported total revenues of $116.2 million in second quarter 2011, compared to $111.9 million in the year-ago quarter.

During the quarter, Regency reported a 0.8% dip year-over-year in same-store net operating income (NOI), with a rental rate decline of 1.0% (cash basis). The company executed a total of 510 new and renewal lease transactions during the quarter, spanning 1.8 million square feet. The same-store portfolio of the company was 92.2% leased at quarter-end.

Regency started a project during the quarter for an estimated development cost of $2.1 million and a completion yield of 10.1%. About 6 projects worth $121.8 million of net development costs were completed in the quarter. As of June 30, 2011, the company had 24 projects under development (95% funded and 86% leased) at an estimated total cost of $400.7 million.

During the reported quarter, Regency purchased a wholly-owned property for $11.0 million at a cap rate of 7.6%. Subsequent to quarter end, the company acquired an additional property through its co-investment partnerships for $21.0 million at a cap rate of 6.4%.

The company sold a co-investment operating property during the quarter for $3.1 million at a cap rate of 4.9%. In addition, Regency sold 2 land out-parcels for $0.8 million.

The company maintains a conservative capital structure and follows a self-funding capital strategy to fund its growth, which includes disposal of non-strategic assets and a continued focus on industry-leading co-investment partnership programs. At quarter-end, Regency had cash and cash equivalents of about $18.4 million with a debt of $2.0 billion.

We maintain our long-term Neutral recommendation for Regency, which currently has a Zacks #3 Rank that translates into a short-term Hold rating. We also have a Neutral recommendation and a Zacks #2 Rank (short-term Buy rating) for Federal Realty Investment Trust (FRT - Analyst Report), one of the peers of Regency.

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