Regency Centers Corporation (NASDAQ:REG) is a preeminent national owner, operator, and developer of neighborhood and community shopping centers predominantly located in suburban trade areas with compelling demographics. The company's portfolio includes thriving properties merchandised with highly productive grocers, restaurants, service providers, and best-in-class retailers that connect to their neighborhoods and communities.
Regency Centers' mission is to create thriving environments for retailers and service providers to connect with surrounding neighborhoods and communities. The company's vision is to elevate quality of life as an integral thread in the fabric of its communities. Regency's portfolio includes 482 retail properties totaling more than 57.0 million square feet of gross leasable area (GLA), with over 80% of the properties being grocery-anchored.
Financials
For the full year 2023, Regency reported annual net income of $364,557,000 and annual revenue of $1,322,466,000. The company generated annual operating cash flow of $719,591,000 and annual free cash flow of $453,800,000. In the first quarter of 2024, Regency reported net income of $112,658,000 and revenue of $363,852,000.
Regency's Solid First Quarter Performance
Regency Centers reported a solid first quarter of 2024, with funds from operations (FFO) of $1.08 per share, beating the consensus estimate of $1.03. Revenue of $363,852,000 also topped the consensus estimate of $346,960,000 and was up from $311,940,000 in the prior-year quarter.
The company's same-property net operating income (NOI) growth, excluding termination fees, was 2.1% in the first quarter. Base rent growth was the largest contributor to same-property NOI growth at 2.7%, driven by rent steps in existing leases, positive re-leasing spreads, and the execution of the company's redevelopment pipeline.
Regency's same-property leased occupancy rate increased 20 basis points sequentially to 95.8% in the first quarter, reflecting the continued strength in the leasing environment. The company executed 461 new and renewal leasing transactions representing 2.0 million square feet of space, with positive rent spreads of 8.5% during the quarter.
Robust Leasing Activity and Redevelopment Pipeline
Regency's leasing team has been highly successful in re-leasing space, with the company's same-property commenced occupancy rate down only 70 basis points sequentially despite intentional anchor move-outs. The company has been proactively recapturing and re-merchandising space with upgraded tenants at higher rents, improving the long-term value of its centers.
Regency's pipeline of executed leases stands at a record high, with a 370 basis point delta between its same-property leased and commenced occupancy rates. This represents an incremental $50 million of annual base rent that will commence in the coming quarters, providing strong visibility into future growth.
In addition to its leasing success, Regency has an impressive development and redevelopment pipeline. As of March 31, 2024, the company had over $547 million in estimated pro-rata project costs for its current in-process development and redevelopment projects. In the first quarter, Regency started the $67 million ground-up development of The Shops at Stone Bridge in Cheshire, Connecticut, which will be anchored by Whole Foods and T.J. Maxx.
Regency also continues to make progress on its in-process redevelopment projects, with over $326 million in estimated net project costs. Notable redevelopment projects include The Abbot in Boston, Westbard Square in Bethesda, Maryland, and Bloom on Third in Los Angeles.
Liquidity
Regency's balance sheet and liquidity position remain strong, providing the company with the financial flexibility to fund its growth initiatives. In February 2024, Regency received a credit rating upgrade to A3 with a stable outlook from Moody's Investors Service, making it the only REIT in the open-air shopping center sector with an A rating.
As of March 31, 2024, Regency had over $1.7 billion in liquidity, including nearly full capacity on its $1.5 billion revolving credit facility. The company's pro-rata net debt and preferred stock-to-operating EBITDA ratio on a trailing 12-month basis was 5.4x, well within the company's targeted range of 5.0x to 5.5x.
Regency has also been proactive in managing its debt maturities, with the majority of its 2024 maturities prefunded following a $400 million unsecured debt offering in January 2024. The company's weighted average debt maturity is close to 7 years, and 98.3% of its variable-rate mortgage loans are fixed through interest rate swaps.
Outlook
Looking ahead, Regency expects its same-property NOI growth, excluding termination fees, to be in the range of 2% to 2.5% for the full year 2024. The company has also provided visibility into potential growth drivers for 2025, including:
1. Commencement of the company's record-high pipeline of executed leases, with approximately 65% scheduled to commence by the end of 2024. This represents an incremental $50 million of annual base rent.
2. Continued contribution from Regency's in-process development and redevelopment projects, which are expected to add over 100 basis points to same-property NOI growth in 2025.
3. Momentum from the company's ground-up development program, which is expected to start bearing more fruit as Regency heads into 2025.
Regency's strong balance sheet, liquidity position, and proven development and redevelopment capabilities position the company well to capitalize on growth opportunities and deliver above-average earnings, dividend, and free cash flow growth over the long term.
Risks and Challenges
While Regency's outlook remains positive, the company faces some risks and challenges, including:
1. The potential impact of a economic slowdown or recession on consumer spending and tenant health. 2. The ongoing threat of e-commerce and its impact on brick-and-mortar retail. 3. Competition from other retail real estate operators and developers. 4. Rising interest rates and their effect on the company's cost of capital and ability to finance growth initiatives.
However, Regency's focus on high-quality, grocery-anchored shopping centers in affluent suburban markets, as well as its strong balance sheet and operational expertise, should help the company navigate these challenges and continue delivering value for shareholders.
Conclusion
Regency Centers is a well-positioned retail REIT with a high-quality portfolio, robust leasing activity, and a strong development and redevelopment pipeline. The company's solid first quarter performance, strengthened balance sheet, and visibility into future growth drivers make it an attractive investment opportunity in the retail real estate sector. With its experienced management team, strategic focus, and commitment to creating thriving environments for its tenants and communities, Regency Centers is poised for continued success.