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What's in the Cards for Regency Centers' (REG) Q1 Earnings?

Zacks Equity Research

Regency Centers Corp. REG is slated to report first-quarter 2020 earnings on May 7, after market close. While its funds from operations (FFO) per share are anticipated to have been stable, year on year, revenues are likely to reflect an increase.

In the last reported quarter, this Jacksonville, FL-based retail real estate investment trust (REIT) delivered a positive surprise of 2.04% in terms of FFO per share. Decent leasing activity and rent spreads aided performance.

Further, the company has a decent surprise history. It beat the Zacks Consensus Estimate in three of the trailing four quarters and missed in the other, the average positive surprise being 1.55%. 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 first quarter began on a positive note with a resilient economy and decent job-market strength. However, things got weary in the second half of the March-end quarter thanks to the coronavirus pandemic.

Regency has a considerable experience in the retail real estate industry and 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.

The company’s properties are mainly located in strong trade areas characterized by higher spending power. This helps the company attract top grocers and retailers. Its investments in value-accretive developments also augur well.

However, store closures and bankruptcies have been affecting the retail real estate market, for long, which has been undergoing structural changes. Moreover, the escalating number of coronavirus cases has forced several retailers to close their stores, in order to contain the spread of the virus. Some retailers have also reduced store hours, while many others are keeping e-retail operations running as consumers are now increasingly opting for online purchases to avoid gathering in public spaces. Nevertheless, the impact of such shutdowns and store closures are likely to be more pronounced on retail real estate fundamentals in the June-end quarter.

Regency, too, is not immune to move outs, store closures and retailer bankruptcies. It has withdrawn its full-year 2020 guidance in light of the coronavirus pandemic. The choppy retail real estate environment is likely to have curbed its growth momentum in the to-be-reported quarter to some extent, as secular industry headwinds continue to dampen industry fundamentals.

Moreover, significant upfront costs involved with the development and redevelopment pipeline might have clipped its margins. Contribution from redevelopment is likely to have remained muted during the period in discussion.

The Zacks Consensus Estimate for first-quarter revenues is pegged at $288.1 million, indicating a year-over-year increase of just 0.6%. Additionally, Regency’s activities during the January-March period were inadequate to gain analyst confidence. The Zacks Consensus Estimate for FFO per share witnessed a one cent downward revision over the past month and is currently pinned at 98 cents. The figure remains 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.

Regency currently carries a Zacks Rank #3 and has an Earnings ESP of -1.02%.

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:

Life Storage, Inc. LSI, slated to release first-quarter earnings on May 7, has an Earnings ESP of +0.36% and carries a Zacks Rank of 3 at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

Americold Realty Trust COLD, scheduled to announce earnings results on May 7, has an Earnings ESP of +9.74% and currently holds a Zacks Rank #3.

VEREIT, Inc. VER, set to report quarterly numbers on May 20, has an Earnings ESP of +5.15% 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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