Regency Centers (NASDAQ: REG) has been around a long time -- founded in 1963 and publicly held since 1993 -- and with a focus on grocery store-anchored shopping centers, this Jacksonville, Florida-based REIT should be well-positioned from a comeback from its recent pandemic pummeling.
Perhaps. The issue here is that while Regency Centers hasn’t announced a dividend suspension like some other REITs, it well could when it reports its second-quarter earnings in a couple weeks. And dividends are a big part of what REITs are all about, after all.
Respectable major metrics, and a depressed stock
Regency Centers, whose portfolio of interest in 419 properties makes it the largest of shopping center-focused REITs, paid out a dividend of 59.5 cents a share on May 26 and has paid 50 cents or more per share each quarter since 2016. The current yield from that is almost 6%.
Meanwhile, the company’s quarterly funds from operations was a respectable 98 cents per share, in line with first-quarter estimates and continuing its record of meeting or exceeding expectations for that key metric.
Its share price, meanwhile, has a 52-week range of $31.80 to $70.13, as of Friday, July 17, when it closed at $41.70. So, does that make REG a buy, much less a bargain, in this time of swooning retail REITs?
Rough seas have arrived
There certainly are signs of trouble.
Like many other REITs, Regency Centers has withdrawn its 2020 guidance, issuing this statement: “The company will evaluate resumption of guidance in the future as the impact of COVID-19 on its tenants’ business and the company’s business is better understood."
And, perhaps critically, this REIT operates with gross leases, meaning the rent is fixed in the lease, like a typical residential lease, and that most of the operating expenses are borne by the landlord. While that may yield a higher rent than a net lease that splits operating expenses with the tenant, it can hurt more when the rent’s not paid.
Rent payments take a beating
And that rental income has taken a beating. Regency Centers reported in a June 1 update that it had collected 68% of its base rent in April and then only 58% in May. Anchors like Publix, Kroger, Albertsons, TJX Companies, and Whole Foods are paying more than 90%, but the smaller shops and restaurants that cluster around those anchors are not faring nearly as well.
For instance, according to that June 1 report, "other retail," like fitness centers and personal service, paid only 28% of their May rent after making 44% of their April rent. Same thing with fast food restaurants (59% in April and 48% in May) and full-service restaurants (45% in April and 31% in May).
As of May 31, the company also said 75% of its 8,000 or so tenants were open and 25% were closed, with all grocery and drug stores open, as well as nearly all pet stores, banks, home improvement and auto, and other essential retail.
Bottom line: only 43% of Regency Centers’ tenants are making more than 90% of its rent and are in businesses that can be expected to weather the coronavirus storm fairly well. The rest are in businesses that are getting hammered hard, including many that may well have closed for good.
Poised for a bounce back?
The ability to fill those spots back up with paying tenants will be crucial to the future of Regency Centers, its stock, its dividends, and its attractiveness as an investment. The company itself has cut back but not stopped investing in itself, at least for now.
Regency is continuing with about $205 million of $350 million in development and projects but has deferred about $145 million while continuing with that required by leases and local jurisdictions, it said in that first-quarter report.
But its website also advertises its willingness to consider cash purchases for attractive properties, while listing a few of its own.
Here’s what Regency Centers says it’s looking to buy: "Well-positioned community properties or portfolios anchored by a dominant grocer. … Located in a major U.S. market with incomes and population counts above the market average."
If that sounds like something you’d like to buy, too, consider Regency Centers. At such a beaten-down price, and with funds from operations still covering expenses at a ratio of 4.3 to 1, along with manageable debt and strong liquidity, I still think this issue merits serious consideration for a buy, if you’re willing to wait it out and especially if the dividend yield continues.
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