If you lost a chunk of your portfolio during the
GreatRecession or were late to the party as themarket recovered,
you might be trying to make up that lost ground with
aggressiveinvestments . With the market steadily climbing upward,
you would probably be less likely to go for safe, defensive plays
intended to protect yourmoney rather than grow it.
While that's a good strategy at this point in the economic
cycle, it might also pay to consider one particularreal estate
investment trust (REIT) that owns, operates and develops retail
properties, including a sizable representation of
grocery-anchored retail properties in its portfolio. The
grocery-anchored retail component provides the safe defensive
play, while the REIT also stands to benefit from rising
construction activity as theeconomy improves.
Regency Centers Corp. (
grows by acquiring new properties, developing properties
andinvesting inpartnership with others. Typically, the REIT has
an anchor tenant lined up to lease the space before starting a
With a portfolio of 345 U.S. retail properties (including the
properties it owns in partnerships) totaling 46 million square
feet, as of the first quarter, Regency focuses on investing in
"infill" locations that are densely populated and provide
barriers to entry that reduce competition. The grocers it counts
as anchor tenants include
(accounting for 4.3% of annual base rent at the end of 2012),
Whole Foods (Nasdaq: WFM)
Trader Joe's (
Other tenants -- which prefer being close to grocery anchors,
considering that these stores attract customers year-round at all
stages of the economic cycle (which is what makes for the
defensive play) -- include restaurants such as Subway and
retailers such as
and Toys R Us.
As the economy has improved, Regency has seen better
performance with itsfunds from operations (FFO) , anearnings
measure used in the REIT world that accounts for the
real-estate-heavy nature of these companies, rising nearly 16% to
64 cents per share for the first quarter from the same period
Regency also saw its netoperating income for the first quarter
and rents on vacant space rise 5.1% and 5.4%, respectively, from
the same period of 2012. For the full year 2012, the
REIT'srevenues were at $496.2 million, up 3.5% from 2008.
However, the REIT's expenses were also up during this period,
cutting into itsincome .
For the full year 2013, Regency has raised its outlook,
looking forFFO in the range of $2.47 to $2.54, up from $2.45 to
$2.53. Regency also expects net operating income growth at its
properties to be at least 2.5%, from a previous estimate of at
least 2%. Regency's management expects that its rising
redevelopment activity this yearwill moderate the REIT's 2013
income but have a positive impact on future earnings.
Regency's healthy operating margins, north of 35% last year,
and its safe tenant base certainly attracted the attention of
investors who saw it as a defensive play during the Great
Recession, driving REG's price as high as $70 during the dark
days of September 2008. Thestock is now down to about $53, as
investors have started getting more aggressive and leaving the
safety of defensive plays, making for a price-to-FFO ratio of as
much as 20.
However, Regency's development portfolio means that the REIT
could benefit from economic growth ascommercial real estate
activity picks up. As of the first quarter, Regency had four
projects in the process of development, with 92% of the space
leased. Regency also engages in redevelopment activity at
existing properties to add value and increase rents.
Risks to Consider:
Regency's use of prominent grocery-anchored tenants to draw
other tenants means that if a prominent anchor vacates a space,
other tenants at the property may have the right to terminate
their lease, creating a risk. Another risk for investors is
nearly half the company's leasable space is in California,
Florida and Texas, exposing Regency to the vagaries of weather in
these states, as well as higher insurance costs. Also, rising
interest rates could cut into the earnings of this REIT, which
finances its activity partly withdebt financing .
Action to Take -->
To maintain its status as a REIT, Regency must pay out at least
90% of its earnings to investors. Regency's first-quarterdividend
payout of 46 cents a share makes for an annual dividend of $1.85
and ayield of about 3.5%. This stock may be for you if you have a
long-term orientation and value a defensive play with steady
dividend payouts that also providesupside . You may want to wait
to see if this stock declines any further in the nearterm -- as
more investors rush out of it in favor of more growth-oriented
plays -- before you rush in.
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