Positives Found in Regency Centers' Q2 Results Despite Flat Same-Store Net Operating Income Growth

Regency Centers reported second-quarter results that were mixed compared with our expectations, though we didn’t see anything in the quarter that would change our $75 fair value estimate for the no-moat company. Same-store occupancy improved 20 basis points sequentially to 94.5%, which was in line with our estimate. Re-leasing spreads were up 8.8%, better than our estimate of 6.1% re-leasing spreads, which led to base rent increasing 3.0% year over year in the second quarter. However, Regency reported revenue declines in tenant recoveries, percentage rent, and termination fees, which led to same-store revenue falling 0.4% in the quarter. However, we will note that falling termination fee income is a positive for the company in the long term and that falling tenant recoveries are directly tied to lower same-store operating expenses, which were down 1.3%. So, while same-store net operating income was flat year over year and missed our estimate of 7.5% growth, we think how Regency missed our numbers presents a long-term positive for the company. Regency also reported core funds from operations of $0.95 in the quarter that beat our $0.90, which is another positive for the company in the quarter.