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Staying Neutral on Regency Centers

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On Jul 19, 2013, we reiterated our long-term recommendation on retail real estate investment trust (REIT) Regency Centers Corp (REG - Free Report) at Neutral. The decision is based on the company’s successful execution of strategic initiatives, opportunistic acquisitions and significant leasing activity and the slight rise in the 2013 guidance. Yet stiff competition and technological advancements leading to a rise in online shopping could upset the demand for its properties.  

Why the Neutral Stance?

Regency Centers is actively spreading its footprint in high-income and high-barrier markets through the addition of upscale assets. In addition, the company boasts a cluster of industry leading grocers such as Whole Foods Market , Publix, Safeway and The Kroger Co. (KR - Free Report) as tenants.

During second-quarter 2013, Regency announced the purchase of Preston Oaks in Dallas. The company also disclosed its plan to redevelop an Ore.-based premium shopping center – Greenway Town Center.

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. In tune, Regency has also slightly raised the guidance range for full-year 2013 based on enhanced same property net operating income growth projections.

The company has an active development pipeline that increases operational risks. In addition, stiff competition along with a rise in customer buyouts through catalogs as well as online through the Internet, mobile phones and tablets could upset the demand for Regency’s properties.  

The Zacks Consensus Estimate for 2013 FFO (funds from operations) per share moved up marginally to $2.56, while for 2014, it dipped slightly to $2.64 per share, over the last 60 days.

Regency is scheduled to release its second-quarter 2013 earnings results after the closing bell on Jul 31. The Zacks Consensus Estimate for FFO per share for the upcoming quarter is pegged at 64 cents per share. The earnings ESP (Read: Zacks Earnings ESP: A Better Method) for Regency Centers is 0.00% for the second quarter. This, along with its Zacks Rank #3 (Hold), reduces the chances of a positive earnings surprise.

Other Stocks to Consider

Another retail REIT that is performing better and deserves a look is The Macerich Company (MAC - Free Report) , carrying a Zacks Rank #2 (Buy).

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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