Back to top

Image: Bigstock

Here's How Regency (REG) is Placed Ahead of Q1 Earnings

Read MoreHide Full Article

Regency Centers Corp. (REG - Free Report) is slated to report first-quarter 2021 results on May 6, after the bell. The company’s quarterly results will likely display declines in both revenues and funds from operations (FFO) per share.

In the last reported quarter, this Jacksonville, FL-based retail real estate investment trust (REIT) delivered a surprise of 5.56% in terms of NAREIT FFO per share.

In the last four quarters, the company exceeded the Zacks Consensus Estimate on one occasion, met in another and missed in the other two. It has a trailing four-quarter negative surprise of 6.06%, on average. This is depicted in the graph below:

Let’s see how things have shaped up prior to this announcement.

Factors to Note

The retail real estate market had already been battling dwindling traffic issues, store closures and retailer bankruptcies, and the pandemic has only further aggravated its woes. However, per a report from Cushman & Wakefield (CWK - Free Report) , the retail market conditions seemed to have improved in first-quarter 2021, thanks to the distribution of government stimulus payments and vaccinations acceleration that led to shoppers becoming more active.

Particularly, net absorption registered at -740,000 square feet, representing the lowest negative absorption recorded by far since the onset of the pandemic, while leasing activity, though down somewhat at 25 million square feet (msf), was still above the second-quarter 2020 low level. Moreover, retail vacancy expanded 10 basis points (bps) from the prior quarter to 7.3%.

Notably, Regency has a high quality open-air shopping center portfolio with 80% grocery-anchored neighborhood & community centers. Further, with a focus on necessity, service, convenience, and value retailers, its portfolio included essential retail and services tenants comprising 45% of Regency’s annual base rent (ABR) as of Dec 31, 2020.

In fact, significant essential retail businesses at the company’s centers have enabled its properties to remain open, operating for the entirety of the pandemic till date. Roughly 97% of Regency Centers’ tenants were open, based on pro-rata annual base rent (ABR) as of the end of January 2021.

However, the market is witnessing a shift in retail shopping from brick-and-mortar stores to internet sales, which has been further aggravated by the pandemic. The recent efforts of online retailers to go deeper into the grocery business have emerged as a concern for this REIT that focuses on building a premium portfolio of grocery-anchored shopping centers.

Furthermore, the pandemic-induced woes still prevail for the retail real estate industry. In fact, though portfolio foot traffic has recovered to around 80-85% of year-ago levels, it was affected by the government mandated closures and capacity restrictions in the March-end quarter.

The pandemic has mostly impacted many non-essential businesses that have experienced significant declines in customer traffic and temporary store closures. Many entertainment, fitness, sit down restaurant, and personal service centers were either not allowed to open or were operating with severe capacity restrictions in the quarter. While collection rates from such tenants are improving, with the health hazard still prevailing any robust improvement in rent collections from these tenant categories is likely to be elusive.

As a result, the company is likely to have witnessed uncollectable lease income issues in the first quarter. In addition, seasonality in the business and elevated tenant failures might have dampened base rent growth, eroding the company’s revenues.

The Zacks Consensus Estimate for first-quarter revenues is pegged at $255.5 million, suggesting a year-over-year decline of 9.9%.

The Zacks Consensus Estimate for the quarterly FFO per share witnessed a 3-cent downward revision to 75 cents over the past month, indicating bearish sentiments of analysts. It also calls for a 23.5% year-over-year fall.

Here is what our quantitative model predicts:

Our proven model does not conclusively predict a beat in terms of FFO per share for Regency this season. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of a FFO beat. But that’s not the case here. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Regency currently carries a Zacks Rank #3 and has an Earnings ESP of -1.33%.

Stocks That Warrant a Look

Here are a few stocks in the REIT sector that you may want to consider, as our model shows that these have the right combination of elements to report a positive surprise this quarter:

Healthcare Trust of America, Inc. (HTA - Free Report) , slated to release first-quarter results on May 6, has an Earnings ESP of +0.33% and carries a Zacks Rank of 3 at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

Cedar Realty Trust, Inc. (CDR - Free Report) , set to report quarterly numbers on May 6, currently has an Earnings ESP of +1.54% and carries a Zacks Rank of 3.

Note: Anything related to earnings presented in this write-up represents funds from operations (FFO) — a widely used metric to gauge the performance of REITs.

Infrastructure Stock Boom to Sweep America

A massive push to rebuild the crumbling U.S. infrastructure will soon be underway. It’s bipartisan, urgent, and inevitable. Trillions will be spent. Fortunes will be made.

The only question is “Will you get into the right stocks early when their growth potential is greatest?”

Zacks has released a Special Report to help you do just that, and today it’s free. Discover 7 special companies that look to gain the most from construction and repair to roads, bridges, and buildings, plus cargo hauling and energy transformation on an almost unimaginable scale.

Download FREE: How to Profit from Trillions on Spending for Infrastructure >>