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Should You Retain Regency (REG) Stock in Your Portfolio Now?

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Regency Centers Corp.’s (REG - Free Report) well-located premium shopping centers in affluent suburban areas and near urban trade areas, focus on grocery-anchored shopping centers, and solid tenant demand has aided the company’s growth in recent quarters. Further, accretive buyouts, an encouraging development pipeline and a solid balance sheet augur well. However, higher e-commerce adoption and high interest rate raise concerns.

This retail real estate investment trust (REIT) is focused on building a premium portfolio of grocery-anchored shopping centers, which are usually necessity driven and attract dependable traffic. As of the first quarter of 2023, the company’s portfolio comprised 80% grocery-anchored neighborhood and community centers.

Moreover, its portfolio has a good tenant mix with several industry-leading grocers. This enables it to generate steady rental revenues. Additionally, with people moving into the suburbs due to post-pandemic migration and the hybrid work setup, Regency’s suburban-shopping-center portfolio is expected to garner long-term benefits.

The company has been witnessing continued outperformance in tenant sales, resulting in higher percentage rents, especially in the restaurant and grocery categories. We expect 2023 lease income to grow 2.1% year over year.

Additionally, it is making efforts to improve its portfolio with acquisitions and developments in key markets. As of Mar 31, 2023, Regency’s in-process development and redevelopment projects estimated net project cost was around $303 million at the company’s share.

Regency is focused on strengthening its balance sheet. This retail REIT had full capacity under its $1.2 billion revolving credit facility as of Mar 31, 2023. Additionally, it has no unsecured debt maturities until June 2024. This low leverage with limited near-term maturities offers flexibility to the company.

However, the market witnessing a shift in retail shopping from brick-and-mortar stores to Internet sales poses a concern. This is likely to adversely impact the market share for brick-and-mortar stores. Also, the likelihood of tenant bankruptcies and store closures in the near term could affect the company’s profitability.

Additionally, a high interest rate environment is a concern for Regency Centers. Elevated rates are likely to affect its ability to purchase or develop real estate. The company also has a substantial debt burden and its net debt as of Mar 31, 2023, was approximately $4.2 billion. We expect interest expenses to rise 1.6% year over year in 2023.

Shares of this Zacks Rank #3 (Hold) company have lost 10.5% over the past six months compared with the industry’s fall of 2.7%.


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Stocks to Consider

Some better-ranked stocks from the retail REIT sector are Acadia Realty Trust (AKR - Free Report) and Saul Centers (BFS - Free Report) , each carrying a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Zacks Consensus Estimate for Acadia Realty Trust’s 2023 FFO per share has been revised marginally north over the past month to $1.23.

The Zacks Consensus Estimate for Saul Centers’ 2023 FFO per share has been revised 1.3% north over the past month to $3.05.

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

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