Physical retailers have been battling against brutal headwinds for several years, forcing many to close locations. That has made it tough for retail landlords like Regency Centers (NYSE: REG) to keep their shopping centers occupied. As a result, the real estate investment trust (REIT) has been redeveloping many of its properties to attract new tenants that aren't facing headwinds from a steady shift toward online shopping.
Unfortunately, conditions in the retail sector really turned apocalyptic in 2020 because of the COVID-19 outbreak. That has made things even more challenging for Regency Centers as many of its tenants couldn't afford to pay their rent.
While conditions are brutal, the REIT is in a better position to weather the storm than many of its peers. Here's a closer look at this retail-focused landlord.
Regency Centers company profile
Regency Centers is a retail REIT focused on owning, operating, and developing open-air shopping centers. As of the middle of 2020, the company owned 415 centers with more than 56 million square feet of leasable space. Most of its properties are in affluent and densely populated areas, led by the following five markets:
- Miami/Fort Lauderdale/West Palm Beach: 44 properties (10.6% of the total).
- Los Angeles/Long Beach/Anaheim: 27 properties (6.5% of the total).
- Washington/Arlington/Alexandria: 27 properties (6.5% of the total).
- Atlanta/Sandy Springs/Roswell: 22 properties (5.3% of the total).
- San Francisco/Oakland/Hayward: 22 properties (5.3% of the total).
Grocery stores anchor about 80% of the REIT's shopping centers, driving a steady stream of traffic to its locations, which benefits other tenants in its properties. Overall, the REIT leases space to a wide variety of retail tenant types:
- Grocery and drug stores (22% of its ABR)
- Restaurant: fast food and limited-service (12%)
- Personal services (8%)
- Restaurant: casual and fine dining (7%)
- Apparel (6%)
- Off-price (5%)
- Banks (5%)
- Hobby and sports (4%)
- Business services (4%)
- Home (4%)
- Fitness (4%)
- Office and communications (3%)
- Other medical (3%)
- Other essential retail (3%)
- Pet (3%)
- Essential medical (2%)
- Other retail (2%)
- Home improvement and auto (2%)
- Entertainment (1%)
About 62% of its ABR comes from tenants that sell or provide essential goods and services (thus, they remained open during government-mandated shutdowns to slow the spread of COVID-19). Meanwhile, many of its other tenants are immune to disruption from e-commerce (e.g., fitness, restaurants, medical, and entertainment).
Regency Centers news
Regency Centers has spent several years repositioning its portfolio and properties to better withstand the retail apocalypse. It has actively managed its portfolio through acquisitions and asset sales while also selectively developing and redeveloping retail centers to bring in new grocery stores and other apocalypse-proof tenants. For example, in 2019, the REIT sold 11 properties for $209.5 million and bought four for $281.6 million, focusing on buying shopping centers where it sees enhancement potential through development or redevelopment projects. Meanwhile, the company completed six ground-up development projects and three redevelopments for $230.7 million.
The REIT began 2020 with roughly $350 million of in-process development and redevelopment projects. However, it chose to defer about $145 million of those projects due to the uncertainty caused by COVID-19. The remaining projects included ground-up developments and redevelopments anchored by grocery stores and projects to meet the needs of new tenants like fitness centers and home goods stores.
The REIT has an extensive pipeline of additional projects under consideration, including those deferred in early 2020. Potential projects include redeveloping former anchor storefronts to meet new tenants' needs and undertaking mixed-use projects that include building new retail, office, hotel, and multifamily space.
Regency Centers chose to defer some of its projects in 2020 due to the impact COVID-19 had on rental collection rates across the retail industry. Many of its tenants couldn't afford to pay their rent due to government-mandated shutdowns early in the year. As a result, the REIT only collected 72% of the rent it billed during the second quarter and 75% in July. It signed deferral agreements for 5% of the uncollected rent for the second quarter and 4% in July, the bulk of which it should receive in 2021. However, by late 2020, the company still hadn't received rent or signed deferral agreements covering more than 20% of what it billed during the spring and summer months of 2020, primarily from restaurants and nonessential retailers struggling amid the pandemic.
Regency Centers stock price
Despite the headwinds facing the retail industry, Regency Centers has done a solid job creating shareholder value since its initial public offering (IPO) in 1993. Through the middle of 2020, the REIT produced an annualized total shareholder return of 9.1%, which is just shy of the S&P 500's 9.7% total annualized return during that time frame.
Unfortunately, the REIT's more recent performance hasn't been so enriching for investors as it has significantly underperformed the S&P 500 over the last five years: