Morningstar | REG Updated Forecasts and Estimates from 15 May 2019
First-quarter results were in line with our expectations for no-moat Regency Centers, and nothing in the quarter leads us to believe that we will make any material changes to our $74 fair value estimate. Same-store occupancy declined sequentially to 95.0% from 96.2% mainly due to the closure of two Sears locations, in line with our expectations. Releasing spreads were up 8.8%, slightly ahead of our 8.3% estimate. Same-store base rent was up 2.8%, ahead of our expectations, though percentage rent, lease termination fees, and other rent all fell year over year leading to same-store revenue growth of only 2.0%. Regency did a good containing expenses, which only grew 0.6% in the first quarter, and therefore saw net operating income grow 2.5% in the quarter. While NAREIT defined funds from operations was $0.95 in the first quarter and 2 cents below our estimate due to a charge for the early extinguishment of debt, core funds from operations that strips out non-recurring items and non-cash items were in line with our estimate of $0.91.Regency does expect NOI growth to slow over the course of the year, which is why it maintained its NOI guidance of 2.0% to 2.5% for 2019 even though the first quarter came in at the high end of that range. It received two months of rent from Sears in the first quarter, so the loss of one month from the quarter caused a 10-basis-point drag on growth. The full removal of that rent going forward will grow to be a 40-basis-point drag on the portfolio, moving the run-rate from the first quarter below the midpoint of 2019 guidance. Given that the portfolio is also experiencing a 20-basis-point drag due to the Toys 'R' Us boxes that the company is still releasing, Regency will see growth significantly below its historical average of around 3% growth. We think that the current headwinds from these closures will become tailwinds when they get released, and the company should get see a year or two of growth above 3% in the near future.
Regency Centers is a real estate company and self-administered and self-managed real estate investment trust. Regency Centers L.P. is the entity through which the company conducts substantially all of its operations and owns substantially all of its assets. The company's business consists of acquiring, developing, owning and operating income-producing retail real estate principally located in various markets in the United States.
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Morningstar provides data on approximately 530,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 18 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries and had approximately $185 billion in assets under advisement and management as of June 30, 2016.
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