Regency Centers Corporation’s (REG) core funds from operations (“FFO”) of 71 cents per share missed the Zacks Consensus Estimate by a penny. However, the results compared favorably with the year-ago quarter figure of 66 cents. While the company experienced a year-over-year rise in revenues, its operating expenses too, moved north, leading to the estimate miss.
Total revenue for the quarter rose 8.1% year over year to nearly $136.2 million, exceeding the Zacks Consensus Estimate of $134 million. However, operating expenses also climbed 5.5% to $90.8 million.
For full year 2014, Regency reported core FFO per share of $2.82 per share, up from $2.63 per share reported a year ago. Full-year 2014 revenues came in at $537.9 million, denoting a rise of 10% year over year.
Behind the Headline Numbers
For the fourth quarter, same property net operating income (“SPNOI”), excluding termination fees, climbed 5.3% on a year-over-year basis, with same-space rental rate (for spaces vacant for less than 12 months) growing 16.9% on new leases and 8.2% on renewal leases.
At the end of 2014, the company’s same properties portfolio was 95.8% leased, unchanged sequentially. On the other hand, all of its properties were 95.4% leased, up 10 basis points (bps) sequentially.
During the reported quarter, Regency disposed one co-investment asset for $14.7 million ($7.4 million being the company’s share of the gross sales price) and five wholly owned properties for $57.4 million.
Meanwhile, the company and a co-investment partner acquired Broadway Market for $43.0 million (Regency’s share of the purchase price being $8.6 million). Also, the company acquired 50% stake of its co-investment partner in Indian Springs Center for $26.6 million (including $12.6 million of secured mortgage debt assumption).
Further, at quarter end, the company had 7 projects in development (estimated net development costs of $232.2 million) and 14 redevelopment projects in process (total estimated incremental investment upon completion of $67.5 million).
Regency exited 2014 with cash and cash equivalents of about $121.8 million, up from $90.2 million at the prior-year end. The company’s total outstanding debt stood at $2.02 billion on Dec 31 2014, up from $1.85 billion at the prior-year end. Notably, during the quarter, the company reaped gross proceeds of $55.0 million through its at-the-market common equity program.
Notably, in Jan 2015, Regency had provided preliminary results for 2014 and raised its dividend by 3.2% to 48.5 cents per share. The dividend will be paid on Mar 5, 2015 to shareholders of record as of Feb 23 (for a detailed version please read: Regency Unveils 2014 Preliminary Results, Raises Dividend).
Outlook 2015
Regency expects 2015 core FFO per share and FFO per share in the respective ranges of $2.91–$2.97 and $2.89–$2.95. Further, it anticipates 2015 SPNOI growth, excluding termination fees, in a range of 3–4%. The Zacks Consensus Estimate for 2015 is currently pegged at $2.96, well within the company’s guided range.
Our Take
An earnings miss, even by a penny is discouraging. However, going forward, we believe that the company’s focus on building a premium portfolio of grocery-anchored shopping centers would augur well. Such centers are usually necessity driven and attract dependable traffic. The dividend hike also boosts investor’s confidence on the stock.
Regency currently carries a Zacks Rank #2 (Buy). Investors interested in the retail REIT industry may also consider stocks like Agree Realty Corp. (ADC), American Assets Trust, Inc. (AAT) and Pennsylvania Real Estate Investment Trust (PEI). All these stocks have the same Zacks Rank as Regency.
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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