Regency Q2 FFO Beats on Higher Revenues, Raises Guidance

Zacks

Higher revenue growth kept Regency Centers Corporation’s (REG) winning streak going, with a positive earnings surprise of around 6.0% in second-quarter 2014. In particular, the company’s core funds from operations (core FFO) per share of 71 cents exceeded both the Zacks Consensus Estimate and the year-ago quarter figure by 4 cents.

Encouragingly, this retail real estate investment trust (REIT) raised its outlook for 2014. In addition, including non-core items, reported FFO for the quarter was 71 cents per share, up from the prior-year quarter figure of 68 cents.

Total revenue for the quarter rose 10.3% year over year to $134.9 million and also exceeded the Zacks Consensus Estimate of $128 million.

Quarter in Details

Same property net operating income (NOI), excluding termination fees, climbed 3.8% on a year-over-year basis, with same-space rental rate growth of 61.2% on new leases and 6.3% on renewal leases (cash basis for spaces vacant for less than 12 months).

Regency executed a total of 380 new and renewal lease deals for 1.6 million square feet of space. At the end of second-quarter 2014, its same properties portfolio was 95.3% leased, up 40 basis points (bps) sequentially. On the other hand, all of its properties were 95.0% leased, up 50 bps sequentially.

Regency disposed four co-investment assets for $66.7 million ($21.2 million being the company’s share of sales price) and a wholly-owned drug store for $2.4 million. Also, the company completed one development project in the quarter for a net development cost of $17.3 million.

Moreover, as of Jun 30, 2014, the company had seven projects in its development pipeline, with estimated costs of $223.2 million and 19 redevelopment projects in process reflecting a total projected incremental investment of $93.1 million.

Also, in the quarter under review, Moody's Corporation (MCO) affirmed Regency’s corporate credit and senior unsecured ratings of Baa2, with a positive outlook.

Regency exited second-quarter 2014 with cash and cash equivalents of nearly $45.6 million, up from $44.4 million at the prior-quarter end. The company’s total outstanding debt came in at $2.03 billion, up from $2.00 billion at the end of Mar 2014.

Raised Outlook

Regency has raised its outlook for 2014 core FFO per share and now expects it in the range of $2.75 – $2.80, up from $2.68 – $2.74 guided earlier. This new range is higher than the Zacks Consensus Estimate of $2.72 per share of the same.

AmREIT Acquisition Offer

On July 29, Regency stated that AmREIT Inc. (AMRE) received its acquisition proposal and is seeking strategic alternatives. Notably, on Jul 10, Regency made an unsolicited offer to buy AmREIT for $22 per share, which is payable in either cash or stock or a blend of both (Read: Regency Centers Bids for AmREIT for $22 per share).

Our Take

Regency came up with another encouraging quarterly performance this season. The company primarily focuses on building a premium portfolio of grocery-anchored shopping centers. Such centers are usually necessity driven and bring in dependable traffic. Additionally, the outlook raise for the second time this year boosts investors’ confidence in the stock. Moreover, the AmREIT acquisition, if materializes, would help Regency’s Texas shopping center portfolio to significantly increase in size and will pave way for significant opportunities to fuel its same property NOI.

Regency currently carries a Zacks Rank #3 (Hold). Investors interested in the retail REIT industry may consider General Growth Properties, Inc. (GGP), having a Zacks Rank #2 (Buy).

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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