Regency Centers Corporation’s REG second-quarter 2015 core funds from operations (“FFO”) of 75 cents per share beat the Zacks Consensus Estimate by 2 cents. Further, the results compared favorably with the year-ago quarter tally of 71 cents. Better-than-expected results were attributable to strong growth in same property net operating income (“NOI”).
Total revenue for the quarter rose 4.6% year over year to nearly $141.1 million, exceeding the Zacks Consensus Estimate of $133 million.
Behind the Headlines
During the quarter, Regency’s new and renewal leasing transactions tally reached 408 and included 1,379,000 square feet of space.
Moreover, in second-quarter 2015, same property NOI (“SPNOI”) excluding termination fees for its wholly-owned properties plus its pro-rata share of co-investment partnerships climbed 4.3% on a year-over-year basis. On the other hand, rental rate growth for new leases was 13.2% and for renewal leases was 7.8%. Same properties portfolio was 95.9% leased, reflecting a 40 bps year-over-year growth. On the other hand, all of its properties were 95.8% leased, up 80 bps year over year.
During the quarter, the company sold two properties and year to date, Regency has disposed three properties for a combined gross sales price of $59.1 million. The company’s share of the combined gross sales price is $40.3 million.
Further, at quarter-end, the company had 15 projects in development or under redevelopment (estimated net development cost of $231.9 million). In-process developments were 64% funded and 92% leased and committed, including retailer-owned square footage. During the quarter, one project was completed by Regency, comprising $55.9 million in net development costs and a yield of 7.6%.
Regency’s total pro-rata share of cash and cash equivalents was $44.1 million at the end of the second-quarter 2015, down from $128.5 million at 2014-end. The company’s total outstanding debt stood at $1.99 billion on Jun 30, 2015, down from $2.02 billion at prior-year end.
2015 Outlook Raised
Regency raised its core FFO per share guidance to $2.95–$2.99 from the earlier projections of $2.93–$2.97. The Zacks Consensus Estimate for 2015 is currently pegged at $2.97, well within the company’s guided range. The company further revised SPNOI growth (pro rata), excluding termination fees, in a range of 3.6–4.1% from the earlier band of 3.2–4%.
Dividend Update
On Aug 3, 2015, Regency’s Board of Directors announced a quarterly cash dividend on its common stock of 48.5 cents per share. The dividend will be paid on Sep 2, 2015 to shareholders of record as of Aug 19.
Our Take
Going forward, Regency’s focus on building a premium portfolio of grocery-anchored shopping centers augurs well. Such centers are usually necessity-driven and attract huge traffic. Also, presence of a cluster of leading grocers protects it from market swings. Yet, stiff competition and an anticipated rise in interest rates in the medium term remains a concern.
Regency currently carries a Zacks Rank #3 (Hold). Investors interested in the retail REIT industry may consider stocks like American Assets Trust, Inc. AAT, Agree Realty Corp. ADC and Simon Property Group Inc. SPG. All these stocks carry 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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