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Why You Should Retain Regency Centers (REG) Stock for Now

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Regency Centers Corp. (REG - Free Report) is well-positioned to benefit from its portfolio of premium shopping centers in affluent suburban areas and near urban trade areas with strong growth drivers. Also, an encouraging development pipeline and balance-sheet strength bode well.

Regency is focused on building a premium portfolio of grocery-anchored shopping centers. Its portfolio comprises 80% of grocery-anchored neighborhood and community centers, which are necessity-driven by nature. This ensures dependable traffic and allows the company to bank on its grocery centers during uncertain times.

Also, its portfolio has a good tenant mix with several industry-leading grocers. This enables it to generate steady rental revenues.

Additionally, with more people moving into the suburbs due to post-pandemic migration and the hybrid work setup, Regency’s suburban-shopping-center portfolio is likely to benefit as the best-in-class operators are opening new locations in high-quality centers.

To enhance its portfolio, REG has been making acquisitions and developments in key markets. From the beginning of 2022 through Jun 30, 2022, the company’s acquisitions totaled $171 million (at Regency’s share), encompassing 772,000 gross leasable area.

Moreover, in second-quarter 2022, Regency commenced more than $50 million of development and redevelopment projects and completed redevelopment projects with combined costs of approximately $12 million, each at the company’s share. Given its prudent financial management, REG is well-poised to capitalize on growth opportunities.

Regency maintains a healthy balance-sheet position with ample liquidity and a low leverage level. As of Jun 30, 2022, it had full capacity under its $1.2-billion revolving credit facility and a pro-rata net debt-to-operating EBITDAre ratio of 5.0. REG has no unsecured debt maturities until 2024. Also, its investment grade credit ratings give favorable access to the debt market. Such strong financial footing gives it enough financial flexibility and aids its expansion efforts.

However, over recent years, the adoption of e-commerce by consumers and their preference for online shopping have lowered the demand for physical stores and, in turn, the retail real estate space.

Although a huge development and redevelopment-projects pipeline is encouraging, it exposes the company to various operational risks such as rising construction costs and lease-ups.

Further, higher interest rates might increase the company's borrowing costs, affecting its ability to purchase or develop real estate. More so, the dividend payout might become less attractive than the yields on fixed income and money market accounts.

Shares of this Zacks Rank #3 (Hold) stock have lost 8.7% in the past three months compared with the industry’s decline of 4.1%.

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Stocks to Consider

Some better-ranked stocks in the retail REIT sector are Kimco Realty (KIM - Free Report) , Kite Realty Group Trust (KRG - Free Report) and SITE Centers Corp. (SITC - Free Report) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Zacks Consensus Estimate for Kimco Realty’s 2022 FFO per share has moved marginally upward in the past month to $1.55.

The Zacks Consensus Estimate for Kite Realty’s 2022 FFO per share has moved 1.1% upward in the past month to $1.82.

The Zacks Consensus Estimate for SITE Centers' ongoing year’s FFO per share has been raised nearly 1% over the past two months to $1.16.

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

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