Regency Centers Corp. REG is slated to report third-quarter 2024 results on Oct. 28 after the closing bell. In anticipation of the announcement, industry analysts and investors are eager to assess the company's performance and prospects in the current economic climate.

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In the last reported quarter, this Jacksonville, FL-based retail real estate investment trust (REIT) reported NAREIT funds from operations (FFO) per share of $1.06, outpacing the Zacks Consensus Estimate of $1.02. Results reflected healthy leasing activity and a year-over-year improvement in the base rent. However, high interest expenses during the quarter acted as a dampener.

Over the trailing four quarters, the company’s FFO per share exceeded the Zacks Consensus Estimate on three occasions and met in the remaining quarter, with the average beat being 2.19%. This is depicted in the graph below:

Regency Centers Corporation Price and EPS Surprise

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

In this article, we will dive deep into the U.S. retail real estate market environment and the company's fundamentals and analyze the factors that may have contributed to its third-quarter 2024 performance.

US Retail Real Estate Market in Q3

Per a Cushman & Wakefield CWK report, there has been a pullback in net absorption for U.S. shopping centers, resulting in a slight negative shift in the third quarter. With absorption falling down, rent growth continued to moderate in the quarter. However, with new constructions remaining subdued, the national vacancy rate remained near a historic low of 5.4%.

The third quarter witnessed a negative net absorption in the U.S. shopping center, totaling 0.26 million square feet (msf). The decrease was due to a negative net absorption of 1.8 msf observed in the southern region of the country.

The asking rents for U.S. shopping centers increased 3.4% year over year to $24.54 per square foot in the third quarter.

New construction activity remains subdued, and 2024 is expected to be the weakest year for new construction on record. As of the third quarter of 2024, there are 11.1 msf under construction within a market with an inventory of 4.31 billion square feet, resulting in virtually no supply risk.

Factors at Play for Regency

Regency’s premium portfolio is situated in affluent suburban areas and near urban trade areas of the United States. With more people continuing to move to the suburbs due to post-pandemic migration and the hybrid work setup, Regency’s suburban shopping center portfolio is expected to have benefited.

Regency has a high-quality open-air shopping center portfolio, with more than 80% grocery-anchored neighborhood and community centers, which are necessity-driven by nature. The company has a good tenant mix, with several industry-leading grocers. These factors are likely to have helped the company generate stable rental revenues during the third quarter.

The Zacks Consensus Estimate for REG’s third-quarter revenues is pegged at $354.5 million, which indicates an increase of 7.2% from the year-ago quarter’s reported figure.

However, higher e-commerce adoption and elevated interest expenses are expected to cast a pall on its quarterly performance to some extent.

The company’s activities during the to-be-reported quarter were inadequate to garner analysts’ confidence. The Zacks Consensus Estimate for quarterly FFO per share has remained unrevised at $1.04 over the past three months. However, the figure implies growth of nearly 2% from the prior-year quarter’s reported number.

Q3 Updates by Regency

In August, Regency announced the opening of Oakley Shops at Laurel Fields, a new ground-up development anchored by Safeway in Oakley, CA. Oakley Shops represents Regency's first development in the Northern California submarket and will encompass around 79,000 square feet of retail space. Given the property’s prime location and popularity, it is likely to draw in substantial consumer footfall and drive sales, making the move strategic for Regency.

What Our Quantitative Model Predicts for Regency

Our proven model does not conclusively predict a 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 chances of an FFO beat, which is not the case here.

Regency currently has an Earnings ESP of -0.04% and carries a Zacks Rank of 2. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Stocks That Warrant a Look

Here are two stocks from the broader REIT sector — $Public Storage(PSA-N)$ PSA and Extra Space Storage EXR— that you may want to consider, as our model shows that these have the right combination of elements to report a surprise this quarter.

Public Storage, scheduled to report quarterly numbers on Oct. 30, has an Earnings ESP of +0.26% and carries a Zacks Rank of 3. You can see the complete list of today’s Zacks #1 Rank stocks here.

Extra Space Storage is slated to report quarterly numbers on Oct. 29. EXR has an Earnings ESP of +0.67% and carries a Zacks Rank of 3 at present.

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

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