What's in the Cards for Regency Centers' (REG) Q3 Earnings?

Regency Centers Corp. REG is slated to report third-quarter 2019 results on Oct 30, after the market closes. While funds from operations (FFO) per share are anticipated to have remained stable, year on year, revenues are likely to reflect a marginal dip.

In the last reported quarter, this Jacksonville, FL-based retail real estate investment trust (REIT) missed the Zacks Consensus Estimate for FFO per share by 1.04%. The quarterly results reflected a decline in revenues.

Further, the company has a decent surprise history. It beat the Zacks Consensus Estimate in three of the trailing four quarters, the average positive surprise being 1.59%. This is depicted in the graph below:

Regency Centers Corporation Price and EPS Surprise

Regency Centers Corporation Price and EPS Surprise

Regency Centers Corporation price-eps-surprise | Regency Centers Corporation Quote

Let’s see how things have shaped up for this announcement.

Factors at Play

The recent data from Reis shows that the vacancy rate of neighborhood and community shopping center contracted 10 basis points (bps) sequentially to 10.1% in the third quarter. Both, national average asking rent and effective rent, which nets out landlord concessions, inched up 0.3% sequentially. However, the Regional Mall vacancy rate expanded 10 bps sequentially to 9.4%. Nonetheless, rent growth was 0.2% in the quarter.

Admittedly, store closures and bankruptcies have been affecting the retail real estate market, for long, which is, in fact, undergoing structural changes. However, with retail spending being still healthy, with consumer spending increasing amid job growth, the retail real estate sector is expected to have grown at a slow yet steady pace.

With respect to Regency, we note that the company has a considerable experience in the retail real estate industry and has developed several retail real estate projects over the years. The company is able to differentiate itself by strategically focusing on building a premium portfolio of grocery-anchored shopping centers. Such centers are usually necessity driven and drive a dependable traffic.

Along with the presence of leading grocers in its tenant roster, the company also has restaurants and service providers. In fact, the company is focusing on having a superior merchandising mix, consisting mainly of best-in-class necessity, value and service-oriented retailers that draw consumers and drive foot traffic and are usually resistant to store rationalization from disruptors, including e-commerce.

Moreover, Regency’s properties are primarily located in strong trade areas characterized by higher spending power. This helps the company attract top grocers and retailers.

Nevertheless, the company is not immune to move outs, store closures and retailer bankruptcies. In fact, the choppy retail real estate environment might have curbed its growth momentum in the to-be-reported quarter to some extent as secular industry headwinds have continued to dent industry fundamentals. Moreover, significant upfront costs involved with development and redevelopment pipeline might have strained its margins.

Amid these, the Zacks Consensus Estimate for the third-quarter revenues is pegged at $275.4 million, indicating a marginal year-over-year decline of nearly 1.1%. Additionally, Regency’s activities during the July-September quarter were inadequate to gain analyst confidence. The Zacks Consensus Estimate for FFO per share witnessed marginal downward revision over the past two months and is currently pinned at 96 cents. The figure remained stable year over year.

Here is what our quantitative model predicts:

Our proven model does not conclusively predict a positive 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 odds of a FFO beat. But that’s not the case here. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Although Regency carries a Zacks Rank of 3, its Earnings ESP of 0.00% makes surprise prediction difficult.

Stocks That Warrant a Look

Here are a few stocks in the REIT sector that you may want to consider, as our model shows that these have the right combination of elements to report a positive surprise this quarter:

Stag Industrial, Inc. STAG, scheduled to release earnings on Oct 30, has an Earnings ESP of +1.10% and currently carries a Zacks Rank of 3. You can see the complete list of today’s Zacks #1 Rank stocks here.

Digital Realty Trust, Inc. DLR, slated to report third-quarter results on Oct 29, has an Earnings ESP of +2.61% and currently carries a Zacks Rank of 3.

Apartment Investment and Management Company AIV, set to release quarterly numbers on Oct 31, has an Earnings ESP of +0.6% and carries a Zacks Rank of 3, currently.

Note: Anything related to earnings presented in this write-up represent funds from operations (FFO) — a widely used metric to gauge the performance of REITs.

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