Should You Retain Regency (REG) Stock in Your Portfolio Now?

Regency Centers Corp.’s REG well-located properties in affluent suburban areas and near urban trade areas, focus on grocery-anchored shopping centers and solid tenant demand have aided the company’s growth. Moreover, accretive buyouts, an encouraging development pipeline and a solid balance sheet augur well. However, higher e-commerce adoption and high interest rates raise concerns.

What’s Supporting REG?

This retail real estate investment trust (REIT) is focused on building a premium portfolio of grocery-anchored shopping centers, which are usually necessity-driven and attract dependable traffic. It has a high-quality open-air shopping center portfolio, with more than 80% grocery-anchored neighborhood and community centers.

Moreover, its portfolio has a good tenant mix with several industry-leading grocers. This enables it to generate steady rental revenues. Additionally, with people moving into the suburbs due to post-pandemic migration and the hybrid work setup, Regency’s suburban-shopping-center portfolio is expected to benefit.

The company is making efforts to improve its portfolio with acquisitions and developments in key markets. In 2023, It completed acquisitions for a combined total of $62 million at Regency’s share. As of Dec 31, 2023, Regency’s in-process development and redevelopment projects estimated net project costs were around $468 million at the company’s share. Management is focused on further building its value creation pipeline and achieving its goal of starting more than $1 billion of development and redevelopment projects over the next five years.

Regency is focused on strengthening its balance sheet. This retail REIT had nearly $1.1 billion available under its $1.25 billion revolving credit facility as of Dec 31, 2023. Additionally, the company has a well-laddered debt maturity schedule and is aiming to have less than nearly 15% of total debt maturing in any given year. It also enjoys investment-grade credit ratings of A3 and BBB+ from Moody’s and S&P Global, respectively, rendering access to the debt market at favorable costs.

What’s Hurting REG?

The retail real estate market, including participants like Kimco Realty KIM and The Macerich Company MAC, has been witnessing a challenge because of the shift in retail shopping from brick-and-mortar stores to Internet sales. Moreover, the efforts of online retailers in recent years to go deeper into the grocery business have emerged as a concern for Regency, which focuses on building a premium portfolio of grocery-anchored shopping centers.

Further, a high interest rate environment may dampen consumer sentiments, affecting demand for retail space. This is likely to lead to a lesser scope for the company to increase rents and hurt occupancy growth.

Moreover, elevated interest rates imply high borrowing costs for the company, which can hinder its ability to acquire or develop its real estate holdings. As of Dec 31, 2023, Regency’s consolidated debt was approximately $4.15 billion.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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