Here's Why Should You Add Regency Centers to Your Portfolio

Regency Centers Corporation REG is one of the leading retail real estate investment trusts (REIT) in the United States. The company's portfolio mainly consists of grocery-anchored community and neighborhood centers ensuring dependable traffic.

Last month, Regency Centers reported second-quarter 2024 NAREIT funds from operations (FFO) per share of $1.06, which outpaced the Zacks Consensus Estimate of $1.02. Results reflected healthy leasing activity and a year-over-year improvement in the base rent. The company also raised its 2024 outlook.

Analysts seem bullish about this Zacks Rank #2 (Buy) company, with the Zacks Consensus Estimate for its 2024 FFO per share being raised marginally over the past month to $4.22.

Over the past six months, shares of this retail REIT have risen 18% compared with the industry's 10.5% growth.

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Factors That Make Regency Centers a Solid Pick

Healthy Leasing Activity and Improving Base Rent: Regency Centers' premium shopping centers are situated in affluent suburban areas and near the urban trade areas where consumers have high spending power, enabling it to attract top grocers and retailers. The company's focus on necessity, service, convenience and value retailers serving the essential needs of the communities provides it with a strategic advantage.

Notably, anchor tenants (tenants renting spaces greater than or equal to 10,000 square feet) comprised 42.5% (based on pro-rata ABR) of its portfolio as of Jun 30, 2024. Regency Centers executed around 2.2 million square feet of comparable new and renewal leases in the second quarter.

Also, Regency Centers' embedded rent escalators have been a key driving factor behind its rent growth. In the second quarter, same-property base rents contributed 2.9% to same-property net operating income (NOI) growth.

Solid Tenant Base: In uncertain times, the grocery component has benefited retail REITs, and Regency Centers' has numerous industry-leading grocers such as Publix, Kroger, Albertsons Companies, TJX Companies, and Amazon/Whole Foods as tenants. It has a high-quality open-air shopping center portfolio, with more than 80% grocery-anchored neighborhood and community centers. Six of its top 10 tenants are high-performing grocers.

Expansion Efforts: To enhance its portfolio, REG has been undertaking acquisitions and developmental activities. Given its prudent financial management, it is well-poised to capitalize on growth opportunities.

In May 2024, it acquired the Compo Shopping Centers in the heart of Westport, CT. The acquisition of this 76,000-square-foot retail destination is part of the company's efforts to expand in the Northeast.

In the second quarter, REG started approximately $40 million of new development and redevelopment projects, bringing total project starts to $120 million since the beginning of the year through Aug 1, 2024. As of Jun 30, 2024, Regency Centers' in-process development and redevelopment projects had estimated net project costs of $578 million.

Balance Sheet Strength:  Regency Centers enjoys financial flexibility and focuses on further strengthening its balance sheet position. This retail REIT had nearly $1.2 billion of capacity under its revolving credit facility and approximately $79.2 million of cash and equivalents as of Jun 30, 2024. As of the same date, its pro-rata net debt and preferred stock-to-operating EBITDAre ratio was 5.3x while the fixed charge coverage ratio was 4.4x. The company has a well-laddered debt maturity schedule, aiming to have less than nearly 15% of total debt maturing in any given year.

The company also enjoys a large pool of unencumbered assets, which provides it easy access to the secured and unsecured debt markets. As of Jun 30, 2024, 88.1% of its wholly owned real estate assets were unencumbered.

Steady Dividend Pay-outs: Solid dividend payouts are the biggest attraction for REIT investors and Regency Centers is committed to boosting shareholder wealth. In the last five years, the company has raised its dividend four times and its dividend witnessed a CAGR of 3.24%. Therefore, given its solid operating platform, the scope for growth and its decent financial position compared with the industry, this dividend rate is expected to be sustainable over the long run.

Other Stocks to Consider

Other top-ranked stocks from the retail REIT sector are Brixmor Property Group BRX and Phillips Edison & Company PECO, each carrying a Zacks Rank of 2 at present.

The Zacks Consensus Estimate for Brixmor Property Group's 2024 FFO per share has moved marginally northward over the past month to $2.13.

The Zacks Consensus Estimate for Phillips Edison & Company's 2024 FFO per share has increased marginally over the past month to $2.42.

Note: Anything related to earnings presented in this write-up represents FFO, a widely used metric to gauge the performance of REITs.

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