Regency Down to Underperform - Analyst Blog
April 20 2011 - 8:30AM
Zacks
We have recently lowered our
recommendation on Regency Centers Corp. (REG), a
leading operator and developer of grocery-anchored and community
shopping centers across the U.S., from Neutral to Underperform as
we anticipate it to perform well below the broader market.
Jacksonville, Florida-based Regency
owns, operates, and develops grocery-anchored retail shopping
centers in the U.S. The company seeks to own assets in high-income
in-fill markets that are tenanted by market-dominant grocers,
category-leading anchors, specialty retailers and restaurants.
We are presently bearish on Regency
primarily due to its active development pipeline, which increases
operational risks in the current credit-constrained market,
exposing it to rising construction costs, entitlement delays, and
lease-up risk. As such, we are skeptical about the long-term
earnings potential of the company.
In addition, most of the properties
of the company are concentrated in select markets of California,
Florida and Texas, leading to concentration risk. Furthermore, the
possibility of store closings at many Regency stores adds
uncertainty to earnings, and it might have to re-let large big box
spaces at significantly lower rents in a tough leasing environment.
This undermines the earnings expectation of the company and
consequently, we remain cautious about its future.
However, the average household
income in the markets in which Regency has a significant presence
is over $95,000, nearly 30% higher than the national average.
Regency’s quality portfolio is also anchored by dominant grocers as
well as leading national retailers, which drive traffic into its
centers. About 79% of its total portfolio is leased to national and
regional retailers. If the company can weather the present deluge
of negative investor sentiments, it can expect a reversal in
fortunes.
Regency presently has a Zacks #3
Rank that translates into a short-term ‘Hold’ rating. We also have
a Zacks #3 Rank for Developers Diversified Realty
Corp. (DDR), one of the competitors of Regency.
DEV DIVERFD RLT (DDR): Free Stock Analysis Report
REGENCY CTRS CP (REG): Free Stock Analysis Report
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