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Can Regency Centers (REG) Surpass Estimates in Q2 Earnings?

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Regency Centers Corp. (REG - Free Report) is slated to report second-quarter 2018 results on Aug 2, after the market closes.The company’s Q2 performance is anticipated to reflect year-over-year fall in funds from operations (FFO) per share. However, its top-line results might display growth, on a year-over-year basis.

In the last reported quarter, this Jacksonville, FL-based retail real estate investment trust (REIT) surpassed the Zacks Consensus Estimate for FFO per share by 2.13%. Results reflected growth in same-property net operating income (NOI) and strong leasing activity during the quarter.

Further, the company has an impressive surprise history. It beat the Zacks Consensus Estimate in three of the trailing four quarters and met in the other, with an average surprise of 2.47%. This is depicted in the graph below:

Regency Centers Corporation Price and EPS Surprise

Factors at Play

Regency has been focusing on building a premium portfolio of grocery-anchored shopping centers, which are usually necessity driven and enjoy dependable traffic. Hence, we anticipate the company to have experienced decent leasing activity and rental revenues growth during the quarter under review.

In fact, the Zacks Consensus Estimate for second-quarter revenues is pegged at $268.8 million, indicating a year-over-year improvement of 11.8%.

On the investment front, Regency has resorted to strategic acquisitions in a bid to fortify its portfolio in flourishing sub-markets. Such accretive investments are expected to strengthen portfolio and support its operating performance in the near term. 

These efforts have consistently enabled the company to witness continued net operating income (NOI) growth. In the April-June quarter also, we expect the company to have witnessed robust cash flow generation and impressive NOI growth.

Nevertheless, with online retailers venturing into the grocery business as well, the shift of sales from the brick-and-mortar space to online stores is emerging as a pressing concern. This is affecting retail tenants’ sales, compelling them to reconsider their footprint and opt for store closures, thereby, resulting in lesser demand for retail real estate space. Retail landlords like Kimco Realty (KIM - Free Report) , Simon Property Group (SPG - Free Report) are making diligent efforts to boost productivity of retail assets by trying to grab attention from new and productive tenants and disposing the non-productive ones. Nonetheless,the national retail vacancy rate marginally increased to 10.2% in Q2, underlining store closures of bankrupt toy retailer, Toys “R” Us Inc., per data form Reis, Inc , while national average asking rents edged 0.2% higher. This lackluster retail environment is expected to have been a spoilsport for Regency’s bottom line in Q2.

In fact, this retail REIT’s activities during the quarter to be reported were inadequate to gain analyst confidence. Consequently, the Zacks Consensus Estimate for Q2 FFO per share of 92 cents remained unchanged over the past month. Further, the figure witnessed decline of 1.08% from the prior-year quarter.

Earnings Whispers

Here is what our quantitative model predicts:

Regency has the right combination of two key ingredients — a positive Earnings ESP and Zacks Rank #3 (Hold) or higher — for increasing the odds of an earnings beat.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Earnings ESP: The Earnings ESP for Regency is +0.33%.

Zacks Rank: The company currently carries a Zacks Rank #3.

A positive Earnings ESP is a meaningful and leading indicator of a likely beat in terms of FFO per share. This, when combined with a favorable Zacks rank, makes us reasonably confident of a positive surprise.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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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