Regency Centers Corporation (REG), a leading real estate investment trust (REIT), recently lowered its guidance for the second quarter and full year 2009. The reduced outlook was primarily due to the impairment charges and the impact of disposal fees in a co-investment partnership vehicle.

Regency is one of the leading owners, operators and developers of grocery-anchored retail shopping centers in the U.S. Its retail strip center portfolio is among the best in the sector, with properties in high income, high-barrier markets. The company has a significant percentage of its portfolio in large population centers in Florida, Texas and California.

Regency now expects second-quarter fund from operations (FFO) to be $0.60-$0.62 per share, down by about 20% from the earlier projection of $0.74-$0.79. FFO is a widely used metric to gauge the performance of REITs. The figure is obtained after adding depreciation and amortization and other non-cash expenses to net income.

For full year, the company has reduced its FFO guidance by about 9% to $2.76-$2.90 per share, compared to previous projections of $3.03-$3.28. The cut in the outlook further signifies a tighter operating environment caused by the continued downturn in the housing market and the implosion of the credit markets.

Continued job losses have fuelled greater insecurity among consumers and spending has plummeted. Increased home foreclosures have further led to a marked slowdown in the sector. Consequently, with declining consumer confidence, large and medium sized stores have curtailed expansion plans and have closed underperforming stores.

Regency has a large concentration of grocery-anchored retail centers, which fare better in a recession. However, the company is gradually feeling the heat of worsening market fundamentals across the country.

With the news of the reduced guidance, share prices have taken a plunge of $4.65 or 13.6% in the afternoon trading on Friday, July 17, 2009. Regency’s share prices have widely swiveled from a peak of $82.43 to a low of $20.72 over the past year.

Despite a cut in the outlook, we expect Regency to hold up better compared to many retail competitors who are saddled with more debt. We reiterate our Buy rating of the company.

Read the full analyst report on “REG”
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