Regency Centers Earnings: High Percentage Rent and NOI Growth Lead to Higher Than Anticipated FFO

First-quarter results for Regency Centers REG were better than we anticipated, giving us confidence in our $76 fair value estimate for the no-moat company. Same-store occupancy remained flat sequentially and was up 80 basis points year over year at 95.1%. Re-leasing spreads were 5.5% in the first quarter, a little below our estimate of 8.1% higher rent over prior rent terms. Still, same-store revenues were up 3.8%, same-store operating expenses were up 4.1%, and same-store net operating income was up 3.7%. Excluding the impact of lease termination fees and excluding the impact of rent owed from 2020 and 2021 collected in 2022, same-store NOI was up 6.3%, which was better than our estimate of same-store NOI increasing 3.0%. Part of the reason same-store NOI growth was higher was that the company reported $7.7 million in percentage rent due to high tenant sales, well above our estimate of just $1.5 million percentage rent in the quarter. Regency reported core funds from operations of $1.03 per share in the first quarter, better than our $0.96 estimate largely due to the higher NOI growth.

While the first quarter came in well above our expectations, we don’t anticipate making any significant changes to our estimates for the rest of 2023. Management updated core FFO guidance to a new range of $3.87 to $3.93, an increase of $0.04 over the prior guidance range. Our current $3.91 estimate for 2023 is above the midpoint of the updated range, and if we incorporate first-quarter results, then our estimate is above the high end of the new guidance. The midpoint of guidance implies that the next three quarters will see a core FFO average of $0.96. We think this is slightly conservative and that management may raise guidance again, but we feel comfortable with our current estimates and don’t see the first quarter as the new run-rate level for the company.