Continuing with its winning streak, Regency Centers Corporation (REG) reported a positive earnings surprise of 3.1% in fourth-quarter 2013. The company’s fourth-quarter core funds from operations (core FFO) per share of 66 cents exceeded the Zacks Consensus Estimate by 2 cents and the year-ago quarter figure by 3 cents.
Higher revenue growth and improved core portfolio fundamentals aided the results. Encouraged by its performance, this retail real estate investment trust (REIT) also raised its quarterly dividend by 1.6%.
Including non-core items, reported FFO for the quarter was 65 cents per share, in line with the year-ago figure.
For 2013, Regency’s core FFO stood at $2.63 per share, higher than $2.56 in 2012. Also, reported FFO came in at $2.62 per share, up from $2.47 per share in 2012.
Behind the Headlines
Total revenue for the quarter rose 8.4% year over year to $126.0 million, which exceeded the Zacks Consensus Estimate of $119 million. For the full year, revenues came in at $489.0 million, up 3.2% from $473.9 million in the prior year.
Same property NOI, excluding termination fees, climbed 2.7% on a year-over-year basis, with same-space rental rate growth of 6.5% (cash basis for spaces vacant for less than 12 months).
During the quarter, Regency executed a total of 445 new and renewal lease deals for 1.5 million square feet of space. At the year-end, its same property portfolio was 95.1% leased, up 20 basis points (bps) sequentially. On the other hand, all of its properties were 94.8% leased, up 20 bps sequentially.
Portfolio Restructuring Activity
During the quarter, Regency divested 4 wholly owned and 5 co-investment assets for $127.3 million, of which the company’s share was $91.3 million. On the other hand, Regency along with its local joint venture partners acquired two assets at $76.4 million, of which the company’s share was $65.5 million.
Regency concluded 3 development projects for net development costs of $176.2 million during the fourth quarter. These projects are 98% leased and committed (including retailer-owned square footage) on a combined basis.
As of Dec 31, 2013, Regency had 6 development projects in its pipeline for an estimated cost of $158.3 million. Notably, 53% of in-process developments are financed and (including retailer-owned square footage) 85% leased and committed. Moreover, as of that date, the company had 13 redevelopment projects in its pipeline for a total estimated cost of $52.8 million.
In total in 2013, Regency offloaded non-core assets worth $309.4 million and utilized the proceeds to fund the buyout of $95.3 million worth premium assets and commenced developments and redevelopments of $194.3 million worth of new high-quality properties in its core markets.
Liquidity
At the end of 2013, Regency’s cash and cash equivalents were about $90.2 million, up from $28.8 million at year-end 2012. The company’s total outstanding debt came in at $1.85 billion, down from $1.94 billion at year-end 2012.
Raised Dividend
On Feb 10, 2014, Regency declared a common stock quarterly dividend of 47 cents, which was 1.6% higher than the prior dividend rate of 46.25 cents per share. This increased dividend is payable on Mar 6, 2014 to stockholders of record as of Feb 24.
2014 Outlook
As previously declared, Regency affirmed its outlook for 2014 core FFO per share in the range of $2.66 – $2.72. The Zacks Consensus Estimate of $2.68 for the same is within the company’s specified range.
Our Take
We are encouraged with yet another impressive quarterly performance by Regency, which has surprised in the last four quarters as well. In particular, the company’s portfolio of shopping centers, located in high-density markets with affluent customers, is among the best in the sector. Moreover, with a focus on best-in-class grocery anchors, including Whole Foods Market, Inc. (WFM), Safeway Inc. (SWY) and The Kroger Co. (KR), the portfolio drives value and mitigates operating risks. Additionally, the dividend increase enhances investors’ confidence in this Zacks Rank #3 (Hold) stock.
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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