Regency Centers (REG) to Post Q2 Earnings: What's in Store?
Regency Centers Corp. REG is slated to report second-quarter 2024 results on Aug 1, after the closing bell. In anticipation of the announcement, industry analysts and investors are eager to assess the company's performance and prospects in the current economic climate.
In the last reported quarter, this Jacksonville, FL-based retail real estate investment trust (REIT) reported NAREIT FFO per share of $1.08, outpacing the Zacks Consensus Estimate by 3.9%. Results reflected healthy leasing activity and a year-over-year improvement in the base rent. However, high interest expenses during the quarter acted as a dampener.
Over the trailing four quarters, the company’s FFO per share exceeded the Zacks Consensus Estimate on three occasions and met in the remaining quarter, with the average beat being 1.71%. This is depicted in the graph below:
Regency Centers Corporation Price and EPS Surprise
Regency Centers Corporation price-eps-surprise | Regency Centers Corporation Quote
In this article, we will dive deep into the U.S. retail real estate market environment and the company's fundamentals and analyze the factors that may have contributed to its second-quarter 2024 performance.
U.S. Retail Real Estate Market in Q2
Per a Cushman & Wakefield CWK report, although gains in real income and employment continue to support consumer spending, the growth rate has decelerated and become more uneven in recent months. For the first time in years, the retail market is at the point of being supply-constrained, particularly in quality shopping centers.
On a year-over-year basis, the national retail vacancy rate remained unchanged at 5.3% in the second quarter. The vacancy rate was steady for the third consecutive quarter and was among the lowest rates since 2007.
Asking rents continue to increase in response to a tight market. On average, the asking rents for shopping centers improved 3.8% year over year to $24.37 per square foot in the second quarter.
The second quarter witnessed a positive net absorption in the retail market, totaling 1.4 million square feet nationally. This marked a bounce back from its first negative reading over the past three years, recorded in the first quarter of 2024.
Since 2020, new retail construction has been minimal, and it has further retrenched due to high interest rates and other financing challenges.
Factors at Play
Regency is expected to have benefited from its portfolio of high-quality open-air shopping centers in affluent suburban areas and near urban trade areas of the United States. With more people continuing to move to the suburbs due to post-pandemic migration and the hybrid work setup, Regency’s suburban shopping center portfolio is expected to have benefited.
In a healthy retail real estate environment in the second quarter, we expect the company to have witnessed decent leasing activity, aiding occupancy rates at its properties.
Additionally, 80% of REG’s portfolio comprises grocery-anchored neighborhood and community centers, which are necessity-driven by nature. The company also has a good tenant mix, with several industry-leading grocers. This is likely to have helped the company generate stable rental revenues during the second quarter.
The Zacks Consensus Estimate for REG’s second-quarter revenues is pegged at $361.6 million, which indicates an increase of 15.1% from the year-ago quarter’s reported figure.
However, higher e-commerce adoption and a high interest rate environment are expected to cast a pall on its quarterly performance to some extent.
The company’s activities during the to-be-reported quarter were inadequate to garner analysts’ confidence. The Zacks Consensus Estimate for quarterly FFO per share has remained unrevised at $1.02 over the past month. The figure also implies a decline of nearly 1% from the prior-year quarter’s reported number.
Q2 Updates
Regency Centers announced the acquisition of the Compo Shopping Centers in the heart of Westport, CT. The acquisition of this 76,000-square-foot retail destination comes as part of the company’s efforts to expand in the Northeast.
What Our Quantitative Model Predicts
Our proven model does not conclusively predict a surprise in terms of FFO per share for Regency this season. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of an FFO beat, which is not the case here.
Regency currently has an Earnings ESP of -0.75% and carries a Zacks Rank of 2. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
Stocks That Warrant a Look
Here are two stocks from the retail REIT sector — Simon Property Group SPG and Tanger, Inc. SKT — you may want to consider as our model shows that these have the right combination of elements to report a surprise this quarter.
Simon Property, scheduled to report quarterly numbers on Aug 5, has an Earnings ESP of +0.44% and carries a Zacks Rank of 3. You can see the complete list of today’s Zacks #1 Rank stocks here.
Tanger is slated to report quarterly numbers on Aug 1. SKT has an Earnings ESP of +0.94% and carries a Zacks Rank of 2 presently.
Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.
Note: Anything related to earnings presented in this write-up represents funds from operations (FFO) — a widely used metric to gauge the performance of REITs.
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