Is Now A Good Time To Buy Regency Centers?

When investors consider acquiring a stock, they must uncover numerous variables to make an informed decision. They should assess the fundamentals of a stock, as well as its historical performance, dividend growth, and recent events.

However, investors must also ask, "Is this really an opportune moment to acquire this stock?"   How do analysts perceive the company’s prospects? Does it have a unique niche? What was the most recent earnings report? What do technical indicators suggest about the risk of a purchase now?

Can you guess which type of investments Morgan Stanley says will reach $2.7 trillion by 2027? It even offers up to 20% APY potential to accredited investors.

Take a look at one real estate investment trust (REIT) that has been checking many of the boxes lately after a few years of underperformance. 

Regency Centers Corp 

Regency Centers Corp REG is a Jacksonville, FL-based retail REIT, founded in 1963 that owns and operates 482 open-air shopping center properties, totaling more than 61 million square feet in higher-income areas. Its portfolio, located largely on the East Coast of the U.S. with over 9,000 tenants, includes 80% grocery-anchored properties, restaurants, service providers, medical spaces, and higher-class retailers. As of June 2024, Regency had a 95.8% lease rate. Regency Centers is a member of the S&P 500. 

Recent news on this REIT has been quite positive. On May 2, Regency Centers reported its first quarter 2024 operating results. Funds From Operations (FFO) of $1.08 beat the consensus estimate of $1.03 and was equal to Regency's FFO of $1.08 in Q1 2023. Revenue of $357.46 million beat the consensus estimate of $346.96 million and easily topped Q1 2023 revenue of $311.94. 

On May 9, Regency Centers announced the acquisition of the two Compo Shopping Centers in Westport, CT. Regency already owns an adjacent center called Compo Acres. With the acquisition of the new centers, the combined operation will be known as the Compo Acres Shopping Center and will comprise almost 120,000 square feet of high-quality retail space. 

On June 26, Regency Centers announced a new Fast Charging Station for electric vehicles in partnership with EVgo Inc. EVGO at Blakeney Town Center in Charlotte, N.C. Regency has developed approximately 40 of Evgo's 120+ charging stations across 10 states, and more are expected next year.

One analyst has recently lifted Regency's price target twice. On May 23, Mizuho analyst Haendel St. Juste maintained Regency Centers with a Neutral rating and bumped the price target from $60 to $61. Again, on July 9, Mizuho analyst Haendel St. Juste upgraded Regency Centers from Neutral to Outperform and raised the price target by 9.8% from $61 to $67.

Unfortunately, Regency has not performed very well over the past 2.5 years. Its total return since Jan. 1, 2022, is -10.37%. Rising interest rates have hurt the share price despite steady earnings and increasing revenue. However, since April 15 of this year, Regency's total return has been 7.75%, so it's clearly on the upswing. 

Regency Centers pays a quarterly dividend of $0.67 per share. The annualized $2.68 dividend yields 4.34%. The dividend is well covered with a payout ratio of 63.9% on a forward annual FFO of $4.19. The P/FFO of 14.75 is above the Retail REIT sector median of 12.54, however, its recent close at $61.74 is still well below its 2022 high of $70.90.

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Regency Centers has many notable strengths, and there are several reasons why now could be a good time to purchase shares:

·       Having 80% of its strip malls grocery-anchored by leading supermarkets provides stability conducive to keeping present tenants and attracting new prospects should a tenant leave upon lease expiration. Its largest grocery store tenants include Publix, Safeway, Kroger, and Whole Foods Market.

·       Non-grocery tenants include publicly traded companies such as JP Morgan Chase & Co JPM, Starbucks Corp SBUX, Wells Fargo & Co WFC, Bank of America Corp BAC, AT&T Inc T and Chipotle Mexican Grill, Inc. CMG.

·       In its Q1 2024 operating results, Regency beat the analyst consensus estimates for FFO and revenue and topped its revenue from the same quarter a year ago.

·       Regency had a recent analyst upgrade and two price target hikes since late May.

·       It's expanding its partnership with EVgo to generate additional sources of revenue.

·       Regency's recent purchase of the Compo Shopping Centers will give it a tremendous presence in a well-to-do area of Connecticut.

·       Regency has increased its dividend four times over the past five years, with no cuts or suspensions. The payout ratio is moderate, so there is a minimal chance of a dividend cut in the immediate future.

·       In the last few days, Regency has formed the "Golden Cross" pattern on its chart, in which the 50-day Simple Moving Average (SMA) has crossed above the 200-day SMA.

So, despite its lackluster performance since 2022, Regency Centers now appears to be a good stock for a long-term purchase. If the FED were to cut interest rates, that would certainly help lift the share price back to its pre-2022 price.

One caveat is that with the P/FFO at 14.75, the stock may be slightly overvalued until the FFO increases, and that could take a few quarters until the new Compo acquisitions and enhanced Evgo partnership become accretive to earnings. 

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