Christy McElroy:

Good morning, and welcome to Regency Centers' Second Quarter 2024 Earnings Conference Call. Joining me today are Lisa Palmer, President and Chief Executive Officer; Mike Mas, Chief Financial Officer; Alan Roth, East Region President and Chief Operating Officer; and Nick Wibbenmeyer, West Region President and Chief Investment Officer. As a reminder, today's discussion may contain forward-looking statements about the company's views of future business and financial performance, including forward earnings guidance and future market conditions. These are based on management's current beliefs and expectations and are subject to various risks and uncertainties. It's possible that actual results may differ materially from those suggested by these forward-looking statements we may make. Factors and risks that could cause actual results to differ materially from these statements may be included in our presentation today and are described in more detail in our filings with the SEC, specifically in our most recent Form 10-K and 10-Q filings. In our discussion today, we will also reference certain non-GAAP financial measures. The comparable GAAP financial measures are included in this quarter's earnings materials, which are posted on our Investor Relations website. Please note that we have also posted a presentation on our website with additional information, including disclosures related to forward earnings guidance. Our caution on forward-looking statements also apply to these presentation materials. Finally, given the number of participants we have on the call today, we kindly and respectfully ask that you limit your questions to one and then rejoin the queue if you have any additional follow-up questions. This will allow everyone who'd like to ask a question an opportunity to do so. Lisa?

Alan Roth:

Thank you, Lisa, and good morning, everyone. We continue to have great leasing and operating success, reflecting the positive tenant demand environment for high-quality shopping centers in strong trade areas. We're seeing this robust demand from both new and existing tenants in a wide array of categories, including grocers, restaurants, health and wellness, off-price and personal services. Our success is evident in the continued depth and momentum in our leasing pipeline as well as in our ability to drive rents and occupancy higher and improve our expense recovery rate, all while still maintaining judicious capital spend. During the quarter, we held our same-property percent leased at 95.8%, while increasing our same-property percent commenced by 10 basis points to 92.3%. Our SNO pipeline sits at 350 basis points and represents approximately $49 million of incremental base rent. As we've discussed previously, the timing and commencement of this pipeline will largely impact the fourth quarter of 2024 and into 2025. Notably, beyond our signed pipeline of exciting retailers, we have another 1.3 million square feet of leases in negotiation. In the quarter, we were also able to drive strong blended cash rent spreads of more than 9%. GAAP and net effective rent spreads were in the upper teens, demonstrating our ability not only to drive strong mark-to-market increases but also continued success, negotiated embedded contractual rent step in nearly 100% of our leases. Our average rent steps on all leasing activity in the quarter was 2%. But importantly, we achieved a record high of 2.7% rent steps in new lease transactions. Collectively, these efforts drove same-property NOI growth of 3.3% in the second quarter, excluding term fees and COVID period reserve collections, while our base rent growth contribution remained very healthy at 2.9%. Before turning the call over to Nick, I wanted to address the recent Kroger and Albertsons announcement regarding the 579 stores they intend to divest to C&S Wholesale Grocers if a merger occurs. Regency has 11 owned locations on the C&S list out of the 104 combined Kroger and Albertsons locations in our portfolio. Further detail will be provided as we learn more, but regardless of the outcome of the proposed merger, we are very comfortable with the underlying lease obligations, and we continue to feel great about the quality of our real estate for all of these locations. In closing, as our portfolio occupancy approaches prior peak levels, combined with limited new high-quality supply and the strong trade areas in which we operate, our space is becoming more valuable. The strength in our leasing pipeline remains unabated, driven by continued appetite from retailers to expand. Our leasing and operating teams are firing on all cylinders, leveraging the current environment to deliver what we believe will be long-term sustainable performance in the years ahead. Nick?

Mike Mas:

Thank you, Nick, and good morning, everyone. For the second quarter, we reported NAREIT FFO of $1.06 per share, core operating earnings of $1.02 per share and same-property NOI growth, excluding term fees and COVID period reserve collections of 3.3%. During the quarter, recognizing the meaningful disconnect between public and private market pricing, we executed on the opportunity to repurchase approximately 3.3 million shares for $200 million, representing an average price of just over $60 per share. We bought our shares at an implied cap rate of roughly 7% compared to where we are seeing private market values today for high-quality grocery-anchored centers in the 5.5% to 6.5% range, sometimes even in the low 5s. This opportunistic investment was accretive to earnings, and was afforded to us by our strong balance sheet and liquidity position. Importantly, we remain well within our strategic leverage range with an expectation to end the year around the midpoint of our 5 to 5.5 times net debt and preferred to EBITDA target. We also maintain flexibility to continue sourcing new accretive investment opportunities, including redevelopments, new ground-up developments and acquisitions. Turning to our forward guidance. I'll refer you to the details on Slides 5 through 6 in our earnings presentation and highlight some key changes. We increased our core operating earnings midpoint by $0.03 per share, which now implies close to 4% growth this year at the midpoint, excluding the COVID period reserve collections in 2023. As we show on Slide 6 in the presentation, this increase is driven in effectively equal parts by a 25 basis point increase in our same-property NOI growth range, now at 2.25% 2.75% an increase in expectations of non-same-property NOI, largely related to accelerated contributions from ground-up developments and the positive impact of capital allocation activity, net of financing including the share repurchases I've discussed previously. We also increased our NAREIT FFO range by $0.05 per share at the midpoint or an incremental $0.02 above our core operating earnings revision, matching the increase in our guidance for non-cash items. As a reminder, for modeling purposes, as you think about the mechanics of our interest expense and interest income for the balance of the year, recall that much of the proceeds from our January bond offering were parked in similar yielding deposit accounts as we awaited the $250 million June maturity date. Therefore, the impact of refinancing this debt at a higher rate will come through earnings in the second half of this year. Looking beyond year-end, we continue to point to the embedded growth elements we see over the next 18 to 24 months, coming from our leasing and redevelopment progress. As Alan mentioned, our SNO pipeline sits at 350 basis points, representing approximately $49 million of annual base rent of which about 65% is scheduled to commence by the end of this year. As these lease commencements are weighted to the fourth quarter, the resulting NOI growth will largely occur next year. And part of this commencement is within our redevelopment pipeline, where we continue to expect an outsized benefit to same-property NOI growth in 2025 from delivering completed projects with the positive contribution likely to exceed 100 basis points, which is double what we would have experienced in past normal years. Finally, we continue to be very proud of our sector-leading balance sheet and liquidity position, which provides Regency with the cost of capital advantage and the ability to invest opportunistically. Our debt is nearly all fixed rate. Our weighted average maturity is close to seven years. We remain within our targeted leverage range of 5 to 5.5 times net debt and preferred to EBITDA, and we expect to continue generating free cash flow of more than $160 million annually. Supported by our financial position, we often reference the available options within our capital allocation toolbox that we utilize for various reasons and at different times. And in the second quarter, we had a unique opportunity to purposely employ nearly all of these tools successfully and accretively from leasing to operations to investments to capital allocation and balance sheet management, wrapped together with an increased outlook on current year earnings, Regency's unequaled strategic advantages were on full display. With that, we look forward to taking your questions.

Michael Goldsmith:

Good morning. Thanks all for taking my question. From a capital allocation perspective, you kind of did it all in the past quarter. You bought, you sold, you repurchased stock and you started ground-up development. So can you talk a little bit about your capital allocation priorities? And maybe just touch about what the cap rates are in the acquisition market for Regency type centers versus kind of how you are looking at the implied cap rate of where your stock was treating and caused you to buy back shares?

Nick Wibbenmeyer:

Absolutely. Thank you, Lisa. I appreciate the question, Michael. As Lisa alluded to, we're seeing the bid pools are much deeper than they were a quarter ago. So things that are on market now have very bidding pools. And we're staying very disciplined to what we've always articulated, which is the opportunities that we're going to pull the trigger on have to be more accretive to our quality and our growth profile, and we have to fund accretively. And so the opportunities that we've disclosed so far this year. You can see those ingoing yields are in the mid-6s. We're very comfortable, they check all those boxes, but there have been a lot of opportunities in the market that have traded that are well below that cap rate and did not check all those boxes, and we stay disciplined to making sure we are ultimately driving accretion. And so we've seen things trade in the low 5s even.

Jeff Spector:

Great, thank you. I do have a question on markets, but I know it's one question. Can I just confirm on the repurchase program to clarify the $250 million, that's still left?

Operator:

Our next question comes from Juan Sanabria with BMO Capital Markets. Please proceed with your question.

Alan Roth:

Juan, good morning. Let’s say, good afternoon. It's Alan. I appreciate the question. The short answer is no. There is no concern over the underlying fundamentals. We feel great about where we are in terms of the health of those regions, both national and local mom-and-pops. I would point you to how we're thinking about foot traffic being up 6% year-over-year, year-to-date. Sales are remaining healthy. Again, both in the national and local level. Retention rates are also above 80%, which is slightly above what our historical trends have been. So as we put all of that together, we feel very comfortable that where we sit today. The portfolio is certainly healthy. And I think that's largely a testament to how our teams go through a very rigorous qualification process for durability of occupancy.

Operator:

Our next question comes from Greg McGinniss with Scotiabank. Please proceed with your question.

Mike Mas:

I appreciate the question. First, I'd say we're very comfortable with our liquidity today. We recently recast our revolver so we have $1.5 billion of capacity. You're correct. We are at $300 million drawn on that facility. That's largely attributed to the active investments we made in the second quarter, largely also stemming from our repurchases. We're monitoring the capital markets, as you would expect us to. We do have a bias towards public unsecured financing on a long-term basis at a fixed rate, and we'll continue to monitor those markets. It is -- I mean, in the past 48 hours have been somewhat choppy, and we have seen a pretty significant rally in base treasury rates. But as you would expect, oftentimes with that type of movement, you start to see a little bit of weakness from a credit spread perspective. So just expect us to be highly attentive and attuned to where the market is going, and we will term out that facility when we think it's appropriate.

Craig Mailman :

Hey apologies, if someone asked this. I got dropped of the call. But just on the development side, you guys have been in a pretty good position here, having liquidity to start projects and clearly, higher interest rates made it difficult for peers. But given kind of the pullback in the 10-year here and potentially lower rates going forward, do you feel like it gets harder for you guys to source or at least a more competitive environment as maybe construction financing becomes an option for others going forward?

Operator:

Our next question comes from the line of Samir Khanal with Evercore. Please proceed with your question.

Lisa Palmer:

I think the team might be petrified if I answer this question because I'll just keep pushing and pushing and pushing. So I'll let Mike answer it.

Operator:

Our next question comes from Dori Kesten with Wells Fargo. Please proceed with your question.

Alan Roth:

Dori, yes, this is Alan. I appreciate the question. It's very rigorous. We do not just lease for occupancy. We're very thoughtful and deliberate in our approach to how we think about our retailers. I would say that our watch list is comprised of roughly 150 basis points of ABR. But if you think about what the industry has experienced this quarter, cons filing for bankruptcy, we have 0. Eastern Mountain Sports, we had 1. Rue21, we had 1. Big lots announced store closures, although not yet filed for bankruptcy, again, we have 1. And so I sort of look at that and go, this is exactly what we have asked of our leasing teams on how to think about not just doing transactions, but being very thoughtful in aligning with the right retailers, and I feel great about where we stand on that front.

Operator:

Our next question comes from Haendel St. Juste with Mizuho. Please proceed with your question.

Alan Roth:

Ravi, I appreciate that question. The answer is feel very good about the approach of how we are prudently managing capital. I would just bring us back to net effective rent as a percent of GAAP rent. And we're in that 80% to 85% range that we're very comfortable with. I would also say when you look at total comparable capital for the quarter, it is lower than our trailing 12 months. So the team is prudently managing it. We're growing rents appropriately. We're focused not just on rent spreads, but the embedded rent steps as well. And I don't see any shift in underlying fundamentals or trends to your question.

Ki Bin Kim :

Thank you, good morning. So -- I mean, it looks like you're setting up for a pretty good growth year in '25. If you look at the snow pipeline of 5% upside, and of course, there's some upside from contractual rent step-ups of 140 basis points and then if you add on lease spreads. So you can get to a pretty big number. Obviously, not everyone renews. But can you just talk about some of the factors that might bring down some of those positive growth factors. And if you have any kind of large known tenant move-outs that might occur in the foreseeable future. Thank you.

Operator:

Our next question comes from Ron Kamdem with Morgan Stanley. Please proceed with your question.

Lisa Palmer:

That was a sneaky way to ask two questions. I think Nick really did already address the, I believe, the transactions market that maybe as Nick just touched because you mentioned that the pools were deeper. So just maybe, Nick, the composition of the kind of the bids that we're seeing, if it's any different if it's changed at all?

Mike Mas:

Ron. Take a look at Page 8 of our investor presentation for the quarter, and I think you'll get some good composition with respect to our existing SNO pipeline. And there, you'll see that it's roughly 60% shops, 40% anchors. And from a timing perspective, we also have detail that about only about 15% of that income is going to be recognized in '24, up to 90% of that income will be recognized next year, sticking to our bullish posture on '25. I would say, though, that as we think about moving the needle on occupancy, we have some room to run on the anchor front, and we've got some really exciting opportunities that the team is working on. And I thought -- I know Alan may want to color up some of that activity.

Operator:

Our next question comes from Floris Van Dijkum with Compass Point.

Lisa Palmer:

Floris, thanks for the question. I would go back to the conviction that we had with regards to the -- what we believe a meaningful discount to private market values. We would not have executed the share repurchase. So I don't believe that cap rates are rising in the future. And with cost of financing potentially going down if we see that, I think that our product type, grocery-anchored, higher-quality shopping centers. We've seen it throughout what we thought should be a time when cap rates would rise, the cap rates were really sticky. And that's because our product type offers that sustainability and stability of cash flows. So we have convictions that cap rates are going to stay where they are. And if anything, and that's in the private market, perhaps with more capital coming into the sector, I think the scenario you described would say cap rates should go down, not up.

Linda Tsai:

On the 100 basis points of positive contribution from redevs coming online in 2025 being 2x the average. Could you just expand on some of the underlying drivers? Does it have to do with underwriting higher-than-expected rents?

Operator:

[Operator Instructions] Our next question comes from Tayo Okusanya with Deutsche Bank.

Mike Mas:

I appreciate the question. And I promise, we'll give much more visibility in 2025 on a granular level at -- when it's the right time. But again, I'll point you to that Page 7, at 220 basis points. I'll reflect you to the -- our historical commenced occupancy changes and in really good years, we can move that number by about 100 basis points. And if you recall, it's in our investor materials, but every 10 basis points of percent commenced increase can contribute up to 15 basis points of same property growth. So that's where we get comfortable indicating that the contribution of redevelopment, which is moving commenced occupancy being 100 basis points, 100 basis points through the 15 bps would give us about 150 basis points of potential growth. Again, timing matters here. So I don't want to get too into the weeds on 2025. But I think that should help you understand and appreciate the opportunity set in front of us, and I would just encourage you to spend some time on that Page 7 in our investor materials.

Alec Feygin :

Hi, good morning. And thanks for taking my question. Kind of curious about the competition that Regency is seeing in the Northeast? And is there anything specific to the region to explain what's driving the increased activity there?

Alec Feygin:

Yes, sorry, the increased transaction activity.

Operator:

Our next question comes from Mike Mueller with JPMorgan. Please proceed with your question.

Nick Wibbenmeyer:

Mike, yes, we're definitely seeing opportunities coast to coast. And so it is just timing related this quarter as it relates to the Northeast. And our team up there is doing a great job continuing to find opportunities. But I know the Southeast region, the West region, the Central region is anxiously waiting for some announcements and opportunities they're working on as well. And so we feel good about the opportunities we're seeing all around the country at the moment.

Lisa Palmer:

I want to thank all of you for spending the last approximate hour with us. We appreciate your interest in Regency. Have a great weekend, though. Thank you.

Michael Mas:

Thank you, Nick, and good morning, everyone. I'll start with some highlights from our first quarter results and then walk through updates to our 2024 guidance and forward expectations before ending with comments on our balance sheet position. We reported Nareit FFO of $1.08 per share and core operating earnings of $1.04 per share for the first quarter. Same-property NOI growth, excluding term fees and COVID period reserve collections was 2.1%. It's worth a reminder that while bad debt this quarter trended closer to our historical averages, we are comping against a year ago bad debt number that was net positive, which we know is unusual. This anomaly impacted our first quarter growth rate by 60 basis points. At 2.7%, base rent was the largest contributor to same-property NOI growth and continues to be the best indicator of portfolio performance. This was largely driven by our team driving rec growth through embedded rent steps and re-leasing spreads as well as executing on our redevelopment pipeline.

Elizabeth Yang Doykan:

[Technical Difficulty]

Jeffrey Spector:

Hello, can you hear me now?

Elizabeth Yang Doykan:

So I was asking [Technical Difficulty] if any of the benefit to same-store flowed through in the first quarter? Just seeing if maybe you [ saw ] any upside [indiscernible] or additional sources of accretion might have exceeded your expectations as we're through the early part of the year.

Lisa Palmer:

I'll take that and allow Nick to come over top of me if he wants to add a little more detail. Really unchanged, our investment strategy, whether it's for acquisitions, which we've had recent success with or whether it's for development, is aligning with our operating portfolio. So above-average quality with regards to merchandising mix, the tenants and to the extent that we can add our expertise to make that happen, we're looking for those opportunities as well. Grocery anchored primarily and also in great trade areas with above-average demographics.

Operator:

Our next question comes from the line of Michael Goldsmith with UBS.

Michael Mas:

Thanks, Michael. As I -- as we look into the balance '24, 2% to 2.5% guide range. We still have a lot of confidence in that expectation. It's going to hover around, it's going to hover within that range quarter-over-quarter and really pretty consistent, I would say, as we look through the balance, and I appreciate you highlighting the fact that Q1 did have a unique anomaly in the prior year basis.

Michael Goldsmith:

And my follow-up is on the SNO pipeline. It took a step up here now currently sitting at 370 basis points or $50 million with the SNO pipeline. What's the elevated -- what's the trajectory from here? Should we expect that to be worked down through '24 and '25 or should it kind of still remain elevated and choppy. Just trying to understand better around how you -- how quickly you can monetize this elevated pipeline.

Juan Sanabria:

Just curious on the decisions, in some cases, to be proactive and trying to increase the -- or improve their merchandise mix and increase rents and if that -- how are you making that decision? And it seems like that's obviously a product of a stronger market here. Could you do more of that in '25 that could temporarily offset growth? Just trying to play devil's advocate here.

Michael Mas:

Let me take it first, and then I'd like Alan to give some color on what you've seen in the portfolio. But from my perspective, the Urstadt portfolio is performing right on plan. And we had high expectations for the portfolio, and the team is doing a remarkable job of delivering on those expectations. So just to reiterate that, we called for about 1.5 points worth of accretion. We're going to deliver that and that we haven't come off plus or minus that expectation. And there's a little bit of timing noise from a cadence perspective as I indicated in the first quarter, and that will level off by year-end. Is additive or would have been additive, had we called it same property by about the same amount I mentioned last quarter, which we said we're up to about 0.25 point. So I'll leave it at that. And if Alan has a comment.

Viktor Fediv:

This is Viktor Fediv for Greg McGinniss. So we've noticed that your new leases, tenant allowances and landlord work as a percentage of new base rents have increased both on a quarter-over-quarter and year-over-year basis. Just curious, was it something unique this quarter or it's a current market environment. So you need to provide higher TAs and [ landlord ] work to get new leases done.

Viktor Fediv:

And then as a follow-up, could you please provide some additional color on the remaining $75 million of dispositions. So far, both dispositions in '24 were in Florida. And apart from properties being noncore, was it also driven by just relatively more attractive pricing than transaction market in Florida now, and should we expect other dispositions be within the same submarket or there are no other noncore assets in that submarket.

Ronald Kamdem:

Just 2 quick ones. So one on -- just on the acquisition front, obviously, the $46 million added in the guidance. Maybe can you talk about just how that came about? And has sort of opportunities sprung up or change given sort of the move in rates has that sort of slowed activity?

Operator:

Does that complete your question?

Lisa Palmer:

I'll answer that just very high level and to the extent that my partners here want to add any more specific color, but it is both. I'm glad that you added that at the end. I mean, I think you can see with our leasing success and results, the health in the portfolio and where -- we can say, some records are meant to be broken and we continue to drive our percent leased higher and higher. And that SNO pipeline is real. And so that does create real visibility to rent that will commence and we also have been really successful with our redevelopment pipeline. And Mike talked about those in the prepared remarks and in one of the questions. And we have real visibility to that also being additive in 2025. So it's all of the above.

Ravi Vaidya:

This is Ravi Vaidya on the line for Haendel. I hope you guys are doing well. We've heard from you and your peers that the leasing environment is very strong and robust. But I just wanted to ask, particularly around [ Med care ] and urgent care centers and things along that line. We've started to hear some softness in demand from some of the operators there, notably Walmart. And just wanted to hear your thoughts on what you're seeing from a leasing demand perspective.

Michael Mas:

Ravi, it's Mike. Maybe I'll give you a bit of a boring answer, but we don't see any change. I've been pretty -- we've been pretty consistent on this topic for some time. 11% area is kind of our run rate, and that's all CapEx, right? So that's maintenance and leasing capital. And we don't see that changing on balance, on average over the long run. You're going to have periods of time where as you're adding to commenced occupancy as we are now where that could increase over that line -- that average line, again, because of the volume of activity you're doing, but the team does an incredible job of ensuring that we're investing the right amount of money into the operator's business, and we're getting a fair -- market-leading rent in those cases and market-leading terms and they're just very judicious with our capital spend, and I think that's appropriate.

Operator:

Our next question comes from the line of Craig Mailman with Citi.

Michael Mas:

Yes, I think this will help you, Craig. We don't need to sell the properties to afford or pay for the Westport acquisition. That is -- we have the free cash flow in position, we have the balance sheet capacity. We have -- on a leverage neutral basis, if you take our free cash flow expectations, we have over $300 million of kind of investment capacity at our fingertips, so to speak.

Craig Mailman:

And the remaining $95 million that you guys have kind of dialed in, how much of that do you have visibility on at this point? And maybe what do you think timing could be on some of these sales?

Craig Mailman:

Okay. So I guess I was getting at -- you guys have done $30 million, $25 million is incremental you kind of think, but then the other $70 million is kind of known, what's the timing on those?

Operator:

Our next question comes from the line of Ki Bin Kim with Truist.

Lisa Palmer:

Let me just take it generally first, and then I'll let Alan talk about the actual discussions with tenants. I mean the future is always uncertain, right? And in today's world, the macroeconomic, I don't know any of us can predict what is going to happen. But what we do know is that we have high-quality centers and our trade areas have been to this point, and we expect to be able to -- and we expect to continue especially given the types of, the types of uses within our centers, right? It's value, convenience, service that we would expect that our shopping centers, the trade areas, the consumers and our trade areas are going to be capable of absorbing the macro pressures that we're seeing today.

Ki Bin Kim:

And on development, I don't think you guys have a large land bank and -- but you guys have been very successful in starting some projects at high yields. Also just curious about the second round of development that you might be pursuing. How might that be different in terms of yields versus the current pipeline, especially given your kind of land bank position?

Floris Gerbrand van Dijkum:

I guess it's more of a follow-up question. In terms of the development versus redevelopment. One of Regency's core competencies has always been the development, I think, Lisa. You guys have -- you're somewhat unique as I think most of your peers are saying that rents probably need to rise by anywhere -- over 25% in order to justify new development on a national basis. But obviously, there's always unique opportunities. And I suspect Cheshire is one of those. But how much of an advantage or how much of your development -- future development pipeline do you think is going to come from your existing portfolio versus brand-new opportunities like Cheshire. And also, what's the difference in return on those kind of opportunities in your view?

Nicholas Wibbenmeyer:

And all I would add to that, Floris, is as Mike alluded to earlier, and we continue to be very vocal about, the great news is, for us, it's not an either/or process. We are an enviable position with our capital that we are going to take advantage of opportunities that we see in our existing portfolio. And as you see in our in process, the team has found a lot of opportunities at very accretive and attractive returns to invest new capital into our existing portfolio. But we also are going to continue to take advantage of every opportunity we see on a ground-up basis that we know we can derisk and we can put a shovel on the ground at an attractive return there. And we have capability. We have the team that's across the country focused on that, and we have the capital. And so we are blessed to be in a position of not choosing between the 2. We're going to do both.

Lisa Palmer:

Sorry, I was just going to reiterate, Nick, what you already said earlier, and that was the 7% to 9%, the target threshold hasn't changed for developments. And acquisitions are going to -- it's going to vary. It's going to depend on the total return, if you will, what's the future growth right? We acquired Nohl Plaza, which had a tremendous amount of upside and a much lower cap rate, for example.

Operator:

Our next question comes from the line of Linda Tsai with Jefferies.

Alan Roth:

Linda, this is Alan. I don't have the actual number of what percent were grocers, but there certainly were a number of transactions that are in there. The target that we had mentioned in Norwalk, we are very excited about the first Whole Foods Daily Shop. I think that was announced here a few months ago in Manhattan, which will be opening likely in the fourth quarter of this year. And if you haven't heard about that concept, that's their new quick and convenient shopping experience for that urban customer. We've got a couple of public deals that are under redevelopment right now. So I would tell you there's a pretty significant amount of grocer activity that is within that number. We're excited to get both of those Kroger deals -- excuse me, Publix deal is open, which are down in Atlanta. And so it's a significant part of it. Second part of your question? I'm happy in a moment with it.

Operator:

Our next question comes from the line of Mike Mueller with JPMorgan.

Nicholas Wibbenmeyer:

I appreciate the question. This is Nick. I'm glad you actually pointed out that it is part of the master plan community because to us, these partnering and working with master plan developers is a real competitive advantage of ours. And so if you put yourselves in the shoe of a master plan developer, one of the most important things you can have to make sure that you continue to sell high-quality homes to high-quality purchasers is retail amenities and grocery being a really important part of that. And so in the communities that we're servicing, these are wealthy areas with expected high purchase prices for the homes. And so they want high-quality grocers. We have the relationships with the high-quality grocers. We have the expertise to design those assets at a really high level. They know we have the capital to build them. And they know we anticipate owning those. And so we're making every decision along the way from a long-term ownership perspective. And so when you put your shoe -- yourself in the seat of a master plan developer, we're really one of the best partners that you could hope for to execute on that important amenity.

Omotayo Okusanya:

So based on all the commentary, on the call, everything seems to be going really, really well at the company. So I guess, just going back to guidance, Again, I'm trying to understand the solid beat in 1Q, understanding all the items. Mike, that doesn't kind of translate to a bigger increase in guidance? And kind of what's trying to connect those 2 dots of -- what am I missing?

R.J. Milligan:

First off, I really appreciate the AFFO disclosure, hopefully, the rest of your peers that don't already provided, follow your lead. But aside from the lack of disclosure from some of your peers, there's always a lot of different bucketing of CapEx. And sorry, I have more of a philosophical question. In your AFFO calculation, you don't include redevelopment CapEx and I think as an industry, some of your peers are pretty discerning as to what's really redevelopment, i.e., growth CapEx. Well, I think some are pretty liberal and throwing a lot of re-tenanting into that redevelopment bucket, which really looks a lot more like maintenance CapEx. So I'm just curious how you think about bucketing those costs to get to your AFFO calculation?

Lisa Palmer:

I think what Mike is trying to say is that whether you look at it on just the leasing only, we're at the low end. And if you bump -- if you throw everything together, we're still at the low end. And it goes back again to just our intentional approach to leasing capital.

Anthony Powell:

Just a question on the Kroger, Albertsons merger and the back and forth with the FTC in that with the dispositions. Any concerns that, that merger may be taking a bit longer to completely expected or any impact if it's not commenced, got a few questions on that from clients in the past few months.

Lisa Palmer:

Thank you all for joining us this morning. Appreciate your interest, and have a great weekend. Thank you.

Christy McElroy:

Good morning, and welcome to Regency Centers' fourth quarter 2023 earnings conference call. Joining me today are Lisa Palmer, President and Chief Executive Officer; Mike Mas, Chief Financial Officer; Alan Roth, East Region President and Chief Operating Officer; and Nick Wibbenmeyer, West Region President and Chief Investment Officer. As a reminder, today's discussion may contain forward-looking statements about the company's views of future business and financial performance including forward earnings guidance and future market conditions, either based on management's current beliefs and expectations and are subject to various risks and uncertainties. It's possible that actual results may differ materially from those suggested by these forward-looking statements we may make. Factors and risks that could cause actual results to differ materially from these statements may be included in our presentation today and are described in more detail in our filings with the SEC, specifically in our most recent Form 10-K and 10-Q filings. In our discussion today, we will also reference certain non-GAAP financial measures. The comparable GAAP financial measures are included in this quarter's earnings materials, which are posted on our Investor Relations website. Please note that we have also posted a presentation on our website with additional information including disclosures related to forward earnings guidance. Our caution on forward-looking statements also applies to these presentation materials. Lisa?

Alan Roth:

Thank you, Lisa, and good morning, everyone. We had another quarter with great operating results and leasing momentum capping off a very active 2023. Our teams are taking full advantage of the healthy retail environment that has continued into 2024. Our success was evident in same-property NOI growth of 3.6% in 2023, excluding COVID period reserve collections and termination fees, with base rent growth being the most significant driver, a function primarily of driving rents higher, commencing shop occupancy and bringing redevelopment projects online. In the fourth quarter, we executed nearly 2.5 million square feet of leases with activity from categories including grocers, restaurants, health and wellness, off-price and personal services. Our leasing pipelines continued to be robust, representing another 1 million square feet of potential new leases in LOI and lease negotiation. We achieved cash rent spreads of 12% on a blended basis in Q4, including 35% spreads on new leasing. Full year 2023 cash rent spreads of 10% was our highest annual level since 2016. GAAP and net effective rent spreads were above 20% in the quarter, demonstrating our ability to obtain contractual rent steps in our leases while also being judicious on CapEx spend. Our same-property percent lease rate was up another 30 basis points in Q4, ending the year at 95.7%, and our prelease spread widened further to 280 basis points as a result of our leasing success in the quarter. This pipeline of executed deals now reflects more than $40 million of base rent for leases yet to commence. I've said in the past that records are made to be broken and the team drove our shop leased rate to yet another new record high of 93.4% in the fourth quarter. That represents an impressive 150 basis point increase in shop leasing year-over-year, reflective of nearly 1.4 million square feet of shop space leased, our highest shop volume in more than a decade. Our anchor lease rate also ticked higher in the quarter and ended the year up 10 basis points over 2022 despite the impact from bankruptcy related closures. Our teams have made great progress remerchandising this space with exceptional retailers and at higher rents. And in some cases, our ability to recapture this space has acted as a catalyst for long awaited redevelopment projects. As I look towards 2024, it will take some time to see the benefit of this re-tenanting activity given the 12 to 24 month average downtime associated with anchor re-leasing and lead times on redevelopment projects. For example, some of the Bed Bath spaces that we've released will not rent commence until the fourth quarter of this year. So even with our substantial leasing progress, our anchor commenced occupancy rate ended 2023 lower by 60 basis points, and as a result, we will feel the impact of these vacancies in 2024. That said, the work we've done to date means that we have meaningful visibility into our anchor commencement trajectory. We expect to move our portfolio lease rate even higher in 2024 as demand for space in our high quality centers continues unabated. This will ultimately drive an elevated level of anchor commencement in late 2024 and into 2025. In closing, I am really proud of the tremendous work and success of our team over the last year and I am excited for another great year of leasing activity as the current retail environment is enabling us to create meaningful long-term value at our shopping centers. Nick?

Mike Mas:

Thank you, Nick, and good morning, everyone. I'll start with some highlights from our full year results, walk through details related to our initial 2024 guidance range and finish by discussing recent balance sheet activity. We reported Nareit FFO of $4.15 per share and core operating earnings of $3.95 per share in 2023. Year-over-year growth in core operating earnings per share was nearly 6%, excluding the timing impact of COVID period reserve collections, driven in large part by same-property NOI growth of 3.6%. Base rent, following significant gains in rent paying occupancy remained the largest contributor to our NOI growth rate at 360 basis points. Turning to our initial guidance for 2024, I'll first refer you to the helpful detail on Slides 5 through 7 in our earnings presentation. Excluding the timing impact of COVID period reserve collections last year, the midpoint of our 2024 range reflects core operating earnings growth of more than 3%. The largest contributor to growth continues to be same-property NOI, for which our guidance assumes a range of 2% to 2.5%. Base rent growth this year will continue to be driven by embedded rent steps, positive re-leasing spreads, additional rent commencement of shop leases and deliveries of redevelopment projects. However, anchor space recapture is expected to impact our commenced occupancy rate in the near term, primarily a result of bankruptcy related moveouts and some junior anchor moveouts following lease expiration. Given the longer lead time to open new anchor tenants, we expect our average commenced occupancy rate to be down by about 50 basis points year-over-year in 2024, impacting same-property NOI growth in the short-term. But more importantly, due to robust tenant demand, we have been re-leasing this anchor space just about as quickly as we are recapturing it and we expect our overall portfolio lease rate will trend higher throughout the year. We will begin to benefit from this outsized anchor rent commencement activity beginning in late 2024. In addition to same-property NOI growth, our earnings range also reflects previously discussed accretion from the UBP merger as well as positive contributions from recently completed ground-up developments. As we discussed last quarter, the impact of higher rates and debt refinancing activity remains a headwind to core operating earnings growth this year. That said, we are very pleased to gain greater visibility on this impact as we took advantage of an attractive debt capital markets window in early January to prefund our 2024 maturities with a new $400 million bond priced at 5.25%. Notably, as you consider our guidance range for interest expense and preferred dividends, please know that it is showing net of expected interest income. January proved to be a busy month as we also closed on the recast of our revolving credit facility, which was upsized by $250 million to a $1.5 billion total commitment, which included a tightening of our borrowing spread by 15 basis points. In an environment where access to capital is even more precious and banks are being incrementally more discriminating, we are proud of this result, a reflection of Regency's performance track record, portfolio quality and balance sheet position, as well as the strength of our long-standing banking partnerships. Our recent activity has further fortified our sector-leading balance sheet and liquidity position. We remain at the low end of our targeted leverage range of 5 times to 5.5 times net debt to EBITDA. And following the prefunding of our '24 maturities, our next unsecured bond maturity is not until November of 2025. We have ample capacity on our newly upsized revolver and expect to generate free cash flow north of $160 million this year. This liquidity, balance sheet capacity and differentiated access to capital allows us to further grow our development and redevelopment pipelines as both Lisa and Nick discussed, and remain opportunistic as we look for incremental avenues to drive growth and value. With that, we are happy to take your questions. Thank you.

Michael Goldsmith:

Good morning. Thanks a lot for taking my question. As we look at the algorithm for 2024, is it that same property NOI growth is solid? And then there's some puts and takes related to the merger and debt refinancing and a normalization of some factors that just may limit the flow-through. So I guess my question is what gets you to the low and the high-end of the range this year? And then thinking about anchor leasing coming online at the end of 2024 and into 2025 and potentially more normalized comparisons kind of going forward, should that algorithm look better going forward? Thank you.

Michael Goldsmith:

Mike, thank you so much for the thorough response.

Michael Goldsmith:

Thanks for that. And maybe --

Michael Goldsmith:

Maybe I'll keep it very short. You're looking for NOI growth of 2% to 2.5% for the core portfolio. How are you thinking about growth in the UBP portfolio? Is that growing a little bit faster than the core?

Michael Goldsmith:

Thank you so much for the thorough responses.

Mike Mas:

Appreciate it, Michael.

Dori Kesten:

Thanks. Good morning. I know your acquisition guide currently sits at zero, but can you talk about the volume of centers you described as of interest to Regency out there today? And would you be surprised if you ended the year as a net acquirer?

Dori Kesten:

Got it. Thank you.

Jeffrey Spector:

Great, thank you. And thanks for the comments on '24. I know there's a lot to get done, but comments into '25, right, because I think investors, the market, is kind of trying to look past, let's say, some of these headwinds in '24 in terms of a higher longer-term growth rate for that same-store NOI. Can you remind me, like, do you have a company goal target for that same-store NOI? And second would be what other key initiatives are you working on, whether it's portfolio composition, technology, et cetera, to, again drive that higher same-store NOI, let's say, into '25 and beyond?

Jeffrey Spector:

Thank you. And then a more detailed question. Can you talk a little bit more about The Longmeadow Shops, the acquisition in December? Can you discuss anything around the cap rate, seller motivation, value-add opportunity? Any color on that asset would be helpful. Thank you.

Jeffrey Spector:

Thank you.

Operator:

Our next question is from Craig Mailman with Citi. Please proceed with your question.

Lisa Palmer:

I know you addressed me with that question, Craig, but I think it's best to allow Alan to handle that.

Lisa Palmer:

And again, I would just come on top. When you think about our business model and our value proposition to our investors. It is the sustainability and the safety of that growing cash-flow stream, which translates to our core operating earnings growth and then dividend growth. And I know that we're getting far removed from the 2020-year, but I think it's really important to remember that we went through, I mean a time, the entire world went through a time that none of us had ever experienced before. And we did not cut our dividend. And I think that, that's really important when you again, you think about the value proposition for our investors. It's core operating earnings growth plus dividend growth to get to total shareholder returns in the 8% to 10% range.

Mike Mas:

Another power packed question. And I appreciate it, Craig. We do have some headwinds to our growth rate this year and we kind of -- we just ran through them and clicked through them and I think we understand those in '24, and again, happy to dig into any of those that you'd like to. But I do see the power of our existing free-cash flow. And the ability for us to put that capital directly into our growing and exciting -- excitingly growing, development, redevelopment pipeline, which will add to our growth rate going forward. Beyond -- and we actually have from a leverage perspective, given our balance sheet position at the low-end of our targeted leverage range, we actually have on a leverage-neutral basis even more capital driven again by that free-cash flow to put into our acquisition intents. And Nick did a nice job of explaining how we think about acquisition activity going forward, which will add to our core operating earnings growth rate. But then you kind of put all that together combined with a normalization and continued growing of our commenced occupancy through '24 towards the end unfortunately, into '25, I think those elements will reflect themselves in a core operating earnings growth rate, that is at least meeting the objectives that Lisa outlined of being 4% on core operating earnings with a commensurate increase in dividend growth. And if we can do better on the margin in all elements of our business, rent growth, maybe even push those occupancy records even a little bit higher. All of those should result in maybe a slightly even more amplified vision of growth.

Operator:

Thank you. Our next question is from Samir Khanal with Evercore ISI. Please proceed with your question.

Mike Mas:

Hey Sameer. Yeah, I'll reiterate the -- from the beginning, we've articulated the strategy behind this merger as being a portfolio that looks like Regency's assets. And on a long-term basis, we see a growth rate that looks like Regency's growth rate. But in the near-term one element that we liked about the opportunity was this ability to bring that rent-paying occupancy higher than it has -- than it currently exists and I just articulated. In fact, this year we are seeing an additive growth rate from a same-property perspective because of that movement in commenced occupancy. So there's not -- that doesn't, what you didn't hear me say is, there's a big redevelopment, heavier component of this merger in the near-term. But I'm not -- we're not dismissing that either. We do see -- we are -- we know it's a leasing exercise right now. But as we're leasing up this portfolio we have an eye towards the future, as we do in our -- across all of our assets. And we are constantly looking to find value-add accretive redevelopment opportunities for really well-located pieces of commercial real-estate, and that's what we bought. And so we're pretty excited about the long-term prospects there.

Lisa Palmer:

I'll take it. If Alan like to add, please feel free, Alan. But generally speaking, again, think about our portfolio and the types of shopping centers we own, neighborhood community shopping centers tend to be more convenience, value, necessity, service. So the consumer -- and in the trade areas that we do mostly operate in, there's not been a lot of job losses. So people are -- they still have their -- they still have their jobs, and they are still earning wages. And therefore they're still spending. And when people do cut back, they tend to not necessarily cut back at their neighborhood and community shopping centers first, they may trade down, which sometimes also will benefit us. So we're not going to say that we'll never -- that we won't feel any pressure from consumer spending declining. But again, we have long-term leases. And we can absorb, and our tenants, because they are high quality, good operators, can also absorb some decline in sales. Sales do not need to grow every year for a tenant to be able to pay their rent. Our tenants are great operators. And it has been, in my experience, we have gone through many cycles at Regency, and there have been more moderate recessions. So even if we were to enter into a recession, there have been more moderate recessions where we really didn't feel any pain as a result of that. And then there are ones that are much more significant, like the GFC and COVID, and we did feel that pain. But I don't see that in -- I don't have any visibility to a recession of that type or that type of decline in 2024, so don't expect to feel much pressure.

Samir Khanal:

Thank you.

Greg McGinnis:

Hey, good afternoon. We've spoken about finding ground up developers maybe lacked the capital to get construction started. Do you still see that as an opportunity for investment this year, or are there other non-traditional, opportunistic investment opportunities, it's a lot of opportunities that you're looking to pursue this year.

Greg McGinnis:

Great, thanks, for a second question here. It's a bit of a different type of asset from your shopping center bread-and-butter, but what's your confidence in re-leasing those Manhattan vacancies that you talked about and is 101 7th Ave potentially address this year as well.

Greg McGinnis:

Thank you.

Ronald Kamdem:

Hey, two quick ones. So I'm looking at the supplement, I see Avenida Biscayne Cambridge Square was added, maybe can you provide an update on Westbard Square, that looked like $450 million, is that still coming on in the next sort of 12 months to 18 months. And even beyond that, how are you guys thinking about potential sort of new starts and development given the strength of the balance sheet?

Lisa Palmer:

It's -- so many of you know, I played softball and my favorite softball team actually opened the season today. And this is a softball. Give me another opportunity to say the best team in the business, the best platform in the business, our leverage free cash flow funds it. That is a competitive advantage for us, and it's something we're really proud of. And I expect, and I'm confident that we will continue to execute and perform. Thanks for the question. That was great.

Mike Mas:

Yeah, appreciate it, Ron. So from a credit loss perspective, and I think is how I'll take your question. We are planning for 75 basis points to 100 basis points of -- and that's, by the way that's a metric on build revenues, but we are planning for 75 basis points to 100 basis points of credit loss. That is very similar to what we planned for. In fact, we kind of ended the year towards the lower end of that range in '23. Roughly half of that credit loss provision is, I'd call, bankruptcy related and the balance roughly to traditional bad debt expense. I think to extend your question beyond kind of as we deal with the drop in commence occupancy in '24. And Alan alluded to some of the reasons for that, but as we solve them pretty actively throughout the course of the year, yeah, we're going to -- it's about driving that commenced occupancy rate, closing that gap on that SNO pipeline. That is what's going to translate to top line earnings growth on a core basis.

Operator:

Our next question is from Juan Sanabria with BMO Capital Markets. Please proceed with your question.

Lisa Palmer:

I've never seen Nick play softball, so I'm a little afraid of this answer, but I'll let him answer.

Juan Sanabria:

And where do you think we should think of yields for new starts that you may find in '24?

Juan Sanabria:

And one more follow-up, if you don't mind, anything unusual in the fourth quarter on the OpEx side, flowing through the same store, that kind of impacted the growth rate for the quarter that we should be aware of thinking forward?

Juan Sanabria:

Thank you.

Anthony Powell:

Hi, good morning. I guess a clarification question on the junior anchor comments. The ones that moved out at least aspiration, were these all Manhattan and other in a watch list tenants or are there other groups of tenants in that bucket? And if so, why did they move or why did they, I guess vacate?

Anthony Powell:

Okay. If I get to my next question. So you look at '25 and '26, you have like 7% of your anchors, I guess, lease operations in those two years. Are you going to keep doing this and maybe pushing tenants out for higher rent, or is this kind of the peak of this activity in '24?

Alan Roth:

And I would just -- I'd just add that over the long-term, we'd come back to our components of same-property NOI growth, and would still expect to be in that 2.5% to 3% range.

Operator:

Our next question is from Ki Bin Kim with Truist Securities. Please proceed with your question.

Mike Mas:

I appreciate the question Ki Bin. Listen from on a go-forward basis, the directionality of our OpEx and the growth rate in that line item hasn't changed our capital allocation thoughts at all. We continue to want to grow our portfolio across the entirety of our regions, in fact, in particularly Phoenix, we'd like to dive into and add to the extent we can find some opportunities in that region, and add that to the Regency portfolio. But kind of no change from a capital allocation perspective as a result of the increases. I'll let Alan comment on the pressure that may or may not exist on rent growth.

Ki Bin Kim:

Okay. And then, quick follow-up here. The 50 basis points drag from the commenced occupancy, is that roughly equivalent to the NOI drag?

Ki Bin Kim:

Okay. Thank you.

Linda Tsai:

Thanks. Not sure if you've answered this with the previous line of questioning, but you said 2025 is setting up based on lease timing to be disproportionate year of growth in NOI. So does that mean '24 should be disproportionately above your long-term 3% target?

Mike Mas:

Yeah, we're not meeting our objectives in 2024 that we articulate on a long-term basis. And that we -- frankly, hold us -- we're pretty serious about holding ourselves accountable to. And in '25, yes, to the extent, and again, we're not giving '25 guidance, Linda. But to the extent we -- the portfolio delivers what we see it delivering at the end of this year, going into '25 and compressing that commenced rate, bringing that -- growing SNO pipeline back online, yeah, that should translate into above average core operating earnings growth, all else being equal, and I stress, all else being equal. We're going to have a bond to refinance again in '25. I mean, there are other elements to the plan that certainly incorporate, that will impact that result. But I think the idea and the direction that you have in mind is correct.

Linda Tsai:

That's very helpful. Thank you. And my second question is, on the Rite Aid's and Bed Bath & Beyond that contribute to the economic anchor occupancy decline. Can you just give us an update on where you are in various stages of signed leases versus working on backfill still?

Linda Tsai:

And how do we think about those rents for Rite Aid, are they sort of all over the map. Are they above or below market?

Linda Tsai:

Thank you.

Michael Mueller:

Yeah, hi, just a really quick one here. Your 93.4% small-shop leased rate, what's the commenced level that goes along with that and where do you think that commenced level can grind higher to, if at all?

Alan Roth:

North, so we're going to continue to take it north, Mike. I would -- I mean --

Michael Mueller:

Okay, so that spread applies to small shops too.

Michael Mueller:

Okay, okay. Appreciate it. Thank you.

Kenneth Billingsley:

Hey, good afternoon. This is Ken Billingsley for Floris. Quick question on your guidance for '24. Given the same economic conditions that are supporting your core business, you're guiding to a 100 million in dispositions at approximately 5.5% cap rate. Can you provide some color as to why you're seeing that given your confidence in this cap rate?

Kenneth Billingsley:

Great. Thank you.

Lisa Palmer:

Thank you all for your interest in Regency. And hope everyone has a great weekend. Thank you.

Christy McElroy :

Good morning, and welcome to Regency Centers' third quarter 2023 earnings conference call. Joining me today are Lisa Palmer, President and Chief Executive Officer; Mike Mas, Chief Financial Officer; Alan Roth, EVP National Property Operations and East Region President; and Nick Wibbenmeyer, EVP and West Region President. As a reminder, today's discussion may contain forward-looking statements about the company's views of future business and financial performance, including forward earnings guidance and future market conditions. These are based on management's current beliefs and expectations and are subject to various risks and uncertainties. It's possible that actual results may differ materially from those suggested by these forward-looking statements we may make. Factors and risks that could cause actual results to differ materially from these statements may be included in our presentation today and are described in more detail in our filings with the SEC, specifically our most recent Form 10-K and 10-Q filings. In our discussion today, we will also reference certain non-GAAP financial measures. The comparable GAAP financial measures are included in this quarter's earnings materials, which are posted on our Investor Relations website. Please note that we have also posted a presentation on our website with additional information, including disclosures related to forward earnings guidance. Our caution on forward-looking statements also applies to the presentation materials. Lisa?

Alan Roth :

Thank you, Lisa, and good morning, everyone. We continue to experience a very healthy retail environment as demonstrated by another quarter of strong operating results and demand for space in our centers remained robust. We increased our same-property lease rate by 20 basis points in the third quarter, even when factoring in roughly 25 basis points of impact from bankruptcy-related move-outs, primarily attributed to the remaining Bed Bath locations. Our shop leasing activity has been at a record pace over the last several quarters, including above-average retention rates, resulting in another 50 basis point increase in our shop lease rate in the third quarter to a near record high of 93.2%. We were also able to generate solid re-leasing spreads again this quarter, 9% cash spread on a blended basis, including spreads of more than 20% on new leasing. Our straight-line rent spreads were above 17%, reflecting our keen focus on sustainable annual growth and our ability to consistently achieve contractual rent steps in the majority of our leases with annual steps often 3% or higher on our shop deals. Leasing progress continues to drive strength in our same property base rent growth which was more than 3% in the third quarter and remains our largest and most important contributor to same-property NOI growth. We continue to replenish our executed SNO pipeline as tenants open today, representing more than $36 million of annual incremental base rent, and our leasing pipelines remain full, supported by continued depth and negotiation activity. We are seeing strength in tenant demand across all of our regions and from a range of categories, including grocers, off-price, medical, restaurants, fitness, and pet services. In fact, at our former Bed Bath location, we've had one of the fastest absorption rates in recent memory as it relates to a material anchor liquidation. And while most of the new leases won't commence until the second half of 2024 or later, half of our vacated spaces have been executed with new tenants and the remainder of the space is in active negotiation. Based on our activity backfilling the rejected leases, we now expect rent spreads above 30% on average, exceeding our original projections. In regard to the recent Rite Aid bankruptcy filing, we have 22 locations in total, representing 50 basis points of ABR. We had one store that was already dark, which was part of the initial rejection list and one more on the going out of business sale list. We are early in the process of this bankruptcy proceeding, but we feel really good about our exposure and the quality of our locations as a result of productive sales or below market rents. We know that tenant bankruptcies are a normal part of our business. And importantly, our high-quality shopping centers are well positioned to grow through it with better merchants, often at higher rents and driving greater traffic to our centers. Lastly, as Lisa mentioned, the integration process with Urstadt Biddle has been progressing successfully. We're excited to welcome our new Regency team members in the Northeast and bring these high-quality assets into our portfolio where we are already having tremendous success on the leasing front. With this transaction, we further strengthened our best-in-class operating platform. Nick?

Michael Mas :

Thank you, Nick, and good morning, everyone. I'll start with highlights from our third quarter results, walk through a few changes to our guidance for the balance of this year, provide some comments on 2024 and finish by touching base on our balance sheet position. We reported third quarter NAREIT FFO of $1.02 per share, which was impacted by $0.01 of EDP merger transition expenses and core operating earnings of $0.97 per share. We grew same-property NOI by 2.9% in the third quarter, excluding the impact of COVID period reserve collections and termination fees. Importantly, as Alan mentioned, the largest component of growth continues to be base ramp, contributing 320 basis points to our NOI growth rate in the quarter, driven by the combination of embedded rent steps, higher commenced occupancy and redevelopments coming online. Turning to our revised current year guidance, I'll refer you to the detail on Slides 5 through 7 in our earnings presentation. Driven by another strong quarter of new leasing and continued high tenant retention, we've eliminated the bottom end of our prior same-property NOI growth range and are now guiding to finish the year at about 3.5%, excluding COVID period reserve collections and termination fees. We have also raised our per share core operating earnings guidance by $0.03 at the midpoint, driven primarily by the upward revision to same-property NOI, the expected accretion from the Urstadt Biddle transaction and changes to our acquisition and disposition assumptions. Comparably, we only raised our NAREIT FFO per share range by $0.01 primarily due to the offsetting impact of forecasted merger transition costs. As we all start to plan for 2024 on Slide 8 of our earnings presentation, we provided some forward-looking considerations of certain nonrecurring items, including COVID period reserve collections and noncash impacts as well as summary details on the Urstadt Biddle merger accretion and related continuing transition expenses. While I won't belabor the details on today's call, we trust you'll find this disclosure very helpful, and we highly recommend you review it as we recognize there are many moving pieces to consider heading into next year. Additionally, given the higher interest rate environment and potential future refinancing impact, we want to provide as much transparency as possible as to how we are thinking about our financing plans next year. These plans include an unsecured bond offering in the first half of 2024, sized in the $400 million to $450 million range with proceeds used to refinance scheduled debt maturities and to reduce our balances on our credit facility. We are proud of the strength of our balance sheet, which has been an intentional and foundational strategy of our company and is particularly important in times like today when for others, access to capital is more limited and pricing more volatile. Importantly, as Lisa mentioned, we are not immune to the adverse impact of higher rates but our overall low leverage, combined with a well-laddered maturity schedule helps mitigate the financing impacts for Regency in any given year. We feature one of the strongest balance sheets in the REIT sector with our leverage remaining at the low end of our targeted range of 5x to 5.5x debt-to-EBITDA. We continue to generate significant free cash flow, expected to be north of $160 million this year, self-funding our growing investments pipeline, and we have access to meaningful liquidity through our $1.25 billion line of credit. Given this foundation, we remain confidently on our front foot as we move forward. With that, we're happy to take your questions.

Michael Goldsmith :

Can we just talk quickly about the moving pieces of the Urstadt Biddle transaction, any impact on the guidance next year and then also next year? It seems like the deal is a headwind in NAREIT FFO this year. And so maybe the fourth quarter FFO number isn't the best run rate for next year, but it's also positive in core operating earnings this year and next year, it should be a tailwind to both FFO and core operating earnings. Is that right, Mike?

Lisa Palmer :

And I can't help but take this opportunity. I think it's a great opportunity to just reiterate what I said in my prepared remarks. It's been a short time. I mean we just closed in mid-August, but the integration and bringing the priorities and the people into Regency in that short period of time. It's just -- it has just really validated that this is a great transaction and a combination of 2 really good companies, and we're excited about it.

Michael Goldsmith :

And my follow-up is on the lease escalators. It seems as though that's the lease of our same property NOI algorithm, it seems like you're getting 3% plus. I guess how quickly can in an elevated escalator environment, you've got the most exposure to small shop? How quickly can you kind of cycle too cycle through some of the older leases, which may have lower escalators and get these tenants on to higher escalators so that it slowly lifts your overall earnings growth or same-property NOI algorithm?

Operator:

Next question is coming from Juan Sanabria from BMO Capital Markets.

Nicholas Wibbenmeyer :

Eric, this is Nick. I appreciate the question. So starting off with Old Town per your question, yes, it's an asset we've been targeting for quite some time to have the ability to have a suburban layout and a near urban environment with a really high-quality grocer. And we've tracked that asset for so probably over a decade and just seen it perform year in and year out. And so it was 1 we were excited to have the opportunity to participate in the bid process. It was ultimately owned by an institutional owner that did have an end of their life to that whole period is our understanding, and so they were looking to liquidate it. And on the flip side, once we got control of it, one of our long-standing institutional partners that we've been partners with for nearly 20 years, did have the opportunity through our rotation to take an 80% stake and they exercise an opportunity given they were excited about the real estate as well. And so we were happy to get that one locked up and close this quarter. In terms of your question on the Midwest, as you know, we're focused in all of our major markets that we have offices. So we are looking for those needles in the haystack. And I think the analogy I heard this week, and I kind of like it is instead of the normal deal flow, there's drips of water out there. And so we are evaluating each of the drips of water in all of the major markets that we do business in. and the ones that, as we've always said, are equally accretive to our quality and growth and/or and accretive to earnings, we're going to act on. We have the ability to act on. And so whether it be in the Midwest or the coastal markets, we're focused on investing our capital where it makes sense.

Michael Mas :

Eric, $1.5 million of that $36 million is Bed Bath. I'll add to this. Interestingly, we did add $3 million of UBP portfolio SNO pipeline to that number as well in the quarter. And from a cadence perspective, about 80% of that pipeline will come online through the end of next year.

Lizzy Doykan:

I just wanted to follow up on the cap rate that we closed on for the Chicago asset and maybe if this is an indication for where you see cap rates trending for quality grocery-anchored centers today? And then separately, if you could confirm the pricing on Nohl Plaza. I know that deal is quite different, given the redevelopment opportunity, but would love to hear more of the back story on that as well.

Nicholas Wibbenmeyer :

Great question regarding Nohl, very different profiles in old town. And so Nohl was owned by a tick that had owned it for decades, ultimately got to the point where the tick wanted to divest. And take their money and move it elsewhere. And so given it was owned by a tick as most tick situation, not a lot of capital invested over those years. And so a great opportunity for us to use our platform in Southern California come in. We love the real estate. We love the fundamentals of it, but it definitely needs a reinvestment, and that's an opportunity for us. And so we -- although you see the cap rate there when you do the math is lower than a standard acquisition. Given the redevelopment we expect to do near term and the investment we expect to make, we do expect the IRR to be north of 10%. And so we're really excited about using our redevelopment expertise to shine that asset up and put into the operating portfolio for a long time to come.

Alan Roth :

Liz, this is Alan. Thank you for the follow-up question. So no, it is not indicative of any market noise whatsoever. It can be a bit lumpy quarter-over-quarter, as you know. And you said it, yes, there were more anchor transactions in Q3 than we had in prior quarter. And so that certainly is what drove that. Regarding shop lease rate, I was laughing, but dead serious when we were having a conversation amongst the company records are meant to be broken. And so I really believe in the team we have, the portfolio that we've got. And so we are certainly focused on the shop side, although at the 93% mark right now, being able to do our best to continue to drive that. So excited to watch and see what the team can do.

Operator:

Next question is coming from Greg McGinniss from Scotiabank.

Michael Mas :

I'm happy to take that one, and Alan can provide some color on the integration momentum and what you've seen within the portfolio in particular. The thesis of the merger is the same as well, this is a leasing exercise for us with a portfolio of very high-quality shopping centers in very high-quality trade areas. That look very similar to what Regency invested in for the last 60 years of our company's existence. We saw an opportunity of a 200 basis points plus or minus differential in percent lease between the 2 portfolios at the time of the merger announcement. And our eyes are set on closing that gap. We don't see any inherent reason with the assets themselves or the trade areas within their -- that they exist. That gap should exist. We think that the portfolio should slowly and over the next several years come to the same lease rate as the legacy Regency portfolio. And to your point on when, this isn't going to be an overnight impact on absorbing that 200 basis points of differential. But we do -- we've gotten off to a really good start. We really appreciate the integration efforts that are ongoing within the team to Lisa's comments earlier. And Alan will take it from here, but I think we're pretty excited about the prospects.

Viktor Fediv :

And probably as a quick follow-up. You already mentioned that there are probably some attractive redevelopment opportunities within that portfolio. So given where interest rates are now what would be our kind of target IRR and for redevelopments and acquisitions in developers you mentioned, if you have an ex capital that you can deploy?

Operator:

Next question is coming from Ron Kamdem from Morgan Stanley.

Nicholas Wibbenmeyer :

Appreciate the question, Ron. This is Nick. So you're absolutely right. We are hyper-focused, as Lisa has said, and we've been vocal about it continuing to lean into our development and redevelopment pipeline. And so the teams are very active in doing exactly sort of what you laid out and what I laid out in my prepared remarks, which is derisking these as much as we possibly can before we put a shelf older ground. And so there is great tenant demand out there. So some of these deals we're just finalizing leases to get them released appropriately. We are very thoughtful of making sure we have our arms around costs and some of these deals we're finalizing cost. And then some of them are in our last legs of entitlements that we're finalizing. And so once we check those boxes is when we put a shovel on the ground, and we are excited about what we're seeing in our pipeline of continued opportunities to use all of the tools in our tool belt to our advantage in these market conditions. And so do you expect to continue to talk about some great opportunities quarter in and quarter out.

Michael Mas :

Ron, really, first, I appreciate the comments you made on the disclosure. The team did a phenomenal job with that and glad you appreciate it. Let me speak a little bit to those 2 line items from a '24 outlook perspective. Happy to give some color. Also, I want to be sure to say there's more to come when we put out our full suite of guidance and the full package as you're accustomed to, which we'll do in -- when we guide in February. The -- from a credit loss perspective, our outlook hasn't changed for the balance of this year, right? So from a full year perspective, we've affirmed the 60 to 90 basis point impact for full credit loss, which includes both bad debt expense or uncollectible lease income, together with the lost rents associated with bankruptcies. To your question on ULI or bad debt, our historical run rate is about 50 basis points. We will do better than that in '23, largely due to the first quarter of the year, and we've talked about this on that call, where we had from a cash basis tenancy, we had an unusually high collection rate where they just were paying some very late billings in that quarter. All of that's translating to a lower than average historical run rate. So -- and when I think about the second half of the year, it's actually kind of trending back to historical averages. So I would -- our eyesight kind of looking into '24 is going to probably start in that area of our historical averages of 50 basis points. I'm also happy you mentioned interest expense in my remarks, I did try to lay out what our plans include looking into next year, but let me just go through them again. Roughly $400 million to $450 million of planned financing activity. We need to refinance the $250 million bond that matures in June. Recall that, that's at a 3.75% interest rate today. We have some mortgages that are maturing next year. There's one larger mortgage that's roughly $80 million. So we'll add that to our financing plan. And then recall that we have the transaction expenses from the merger with UPP that we will also fold into that transaction activity. All in all, that's $400 million to $450 million of needs and we see where the treasury is running at the moment, which is running in our favor. And just to give you a sense of where we think our indicative spreads are, we're probably in the mid-6s, plus or minus, and again, depending on where the base rates go from here and how our spreads have contract or expand from this point forward. But we feel really good about our ability to execute really efficiently in the capital markets, and it will just be a matter of our timing selection and where rates end up.

Samir Khanal :

So my question is more on the anchor side. You talked a lot of talk a lot about sort of limited supply, demand is still strong. But is there an opportunity to even push rents higher here upon renewals with anchors maybe from a mark-to-market opportunity or even higher rent bumps. Clearly, that's not happening overnight. But I guess, how are those conversations going with anchors today?

Samir Khanal :

Right. I mean, I usually think about -- when you think about anchors, they usually pay lower rents, right? So I'm saying, is the industry ready to get to a point where they start to start to come up and start to pay market rents that are even higher than where they are today. That's sort of my question. So I guess you're starting to...

Samir Khanal :

Got it. And I guess on this -- the rent spreads, the 30% you talked about, I mean, how should we think about the CapEx involvement to get that 30%, I guess?

Operator:

Next question today is coming from Craig Mailman from Citi.

Lisa Palmer :

Yes. And I'm just going to reiterate what I said before. We do look at our cost of capital and our cost of capital does inform and basically dictate what our required returns are. And to the extent that we can invest our capital and we look at something like Nohl Plaza, that is -- it is a redevelopment. It is like our development pipelines. And yes, they take time to get to the total return, but we're looking at the total return IRR and to the extent that we can invest our capital on an accretive basis and ensure that we are being paid appropriately for any risk reward, if you will, core versus ground-up development we look at all of it and accretive to our future growth rate, accretive to our quality and accretive to earnings. And if it checks those boxes, then we're going to do it.

Lisa Palmer :

Again, if it exceeds our cost of capital and especially for our core acquisition, that works for us.

Lisa Palmer :

I'll take it from a higher level perspective and to the extent you would like to color it up at the end. I mean, generally speaking, there are higher borrowing costs for everyone, and that includes our tenants. And I don't have a crystal ball. I'm not certain what the future holds. I can tell you, right now, we have not seen a slowdown in demand. Could higher borrowing costs and higher cost of capital for tenants slow their expansion plans? Possibly. But even if it does, we own high-quality real estate and some of the best real estate. Slowing it doesn't mean it's grinding to a halt and I am really confident that we will continue to capture new stores and expansion plans of retailers.

Craig Mailman :

Okay. I guess I was coming up from the standpoint of -- do you feel like there's anyone that's expanding too quickly given what's going on in the macro? Or does it still feel people are appropriately kind of size of the opportunity for the long term?

Operator:

Your next question today is coming from Ki Bin Kim from Truist Securities.

Lisa Palmer :

We have not seen anything to date. And again, do believe that our sector while not completely immune is more resistant, and I hear you from the grocers, but the grocers have been experiencing pretty strong comp sales across the board. And so instead of growing at 8%, they're now growing at 3%. They're still growing. So we are not seeing that yet and expect, again, given the property type, the necessity, the value the convenience we feel really well positioned and resistant to potential economic adverse impacts in addition to the trade areas in which we operate.

Lisa Palmer :

Tend to be -- sorry, go ahead.

Lisa Palmer :

Based on yesterday's.

Operator:

Next question is coming from Linda Tsai from Jefferies.

Michael Mas :

We're basically at slightly above average retention rates. I think we're in the 80% area. Is that right? And that's a little bit of a tick up on top of what our historical average is.

Michael Mas :

Interesting. It's going to -- for '25, I would fair to say it's going to continue to balance each other out. It's interesting. The weighted average life of that debt mark-to-market is significantly shorter than the weighted average life of the lease mark-to-market, Linda. So there is a point in time when that the debt mark will burn off prior to the leases, but it's not in the next 2 years.

Michael Mueller :

Two questions. First, the small shops, 93.2% leased. I'm curious, where is that on a commenced basis? And then a second question. I know you haven't had [indiscernible] long, but how is the leasing of the smaller centers in the buildings going from an efficiency standpoint compared to what you thought heading into the transaction?

Michael Mas :

And just in from the stats department, 89.5% on the commenced shop rate at the end of the quarter.

Paulina Rojas:

As you highlighted you have a muted exposure to Ride Aid, but pharmacies are a material tenant of yours as a group, especially the -- well, the industry has been shrinking for a while. And to my knowledge, confirming some writing about, you haven't been impacted by closures -- significant closures thus far. But what is your strategy looking forward for the industry as a whole? And given the size what tenant categories come to minus best backfield for the space?

Alan Roth :

Yes. And Paulina, I would add to that. So we have locations. And as you mentioned, one was on the rejection list that we're aware of and one more was on the going out of business list. But I think just to speak to the quality of the real estate and how the team thinks and I tip my hat to our West Coast team, we're not sitting back waiting for these spaces to come back. We do have one deal that naturally expires in May. We haven't heard yet whether Rite Aid wants to reject it or not. But we have executed a lease already at a triple-digit rent spread. We love those low single-digit rents. And so that happens to be with a hardware store. So as you think about retailers that are willing to go in there, it's hardware, so the home improvement, cosmetics, grocers, we may have a few that could make sense if we get access to them where we would split them and do some multi-tenant deals. But I think there's various different ways we can go. And as Lisa mentioned, these are some really good end caps or prominent locations. Some of them have drive-throughs. So there's a lot of different tools in the playbook based on the unit itself.

Lisa Palmer :

Yes. I don't know that it's changed much at all since last quarter. It's changed, I think, from the -- in the beginning of the year, if you were to go back and read our transcripts, we were starting to feel better and thought that there was more clarity to the stabilization of interest rates, which would then reduce. There's still a bid ask spread because there's really -- there's -- I think it's clear that there's a disconnect between public market pricing and private market pricing. And that is going to continue as long as that we have the volatility that we have with interest rates and borrowing costs, which is why I'm really proud of the total return needles in the haystack that we were able to find this quarter. I don't think the dynamic has changed at all. It's still just a drip.

Lisa Palmer :

Kevin, appreciate that. Thank you. Thank you all for your interest. Have a good weekend, and enjoy your extra hour of sleep or however you intend to use it. Thanks all.

Christy McElroy:

Good morning, and welcome to Regency Centers’ Second Quarter 2023 Earnings Conference Call. Joining me today are Lisa Palmer, President and Chief Executive Officer; Mike Mas, Chief Financial Officer; Alan Roth, EVP National Property Operations and East Region President; and Nick Wibbenmeyer, EVP and West Region President. As a reminder, today’s discussion may contain forward-looking statements about the company’s views of future business and financial performance, including forward earnings guidance and future market conditions. These are based on management’s current beliefs and expectations and are subject to various risks and uncertainties. It’s possible that actual results may differ materially from those suggested by these forward-looking statements we may make. Factors and risks that could cause actual results to differ materially from these statements may be included in our presentation today and are described in more detail in our filings with the SEC, specifically in our most recent Form 10-K and 10-Q filings. In our discussion today, we will also reference certain non-GAAP financial measures. The comparable GAAP financial measures are included in this quarter’s earnings materials, which are posted on our Investor Relations website. Please note that we have also posted a presentation on our website with additional information, including disclosures related to forward earnings guidance. Our caution on forward-looking statements also applies to these presentation materials. Today’s discussion may also contain forward-looking statements about the company’s pending merger with Urstadt Biddle, including forward pro forma earnings accretion estimates and projected timing of the merger close. While we currently expect the transaction to close in mid- to late August, the closing remains subject to shareholder approval and conditions being satisfied or waived. Lisa?

Alan Roth:

Thank you, Lisa, and good morning, everyone. We continue to benefit from a strong retail environment as demonstrated by another quarter of fantastic operating results, particularly on the leasing side. New leasing volume year-to-date is 40% above our historical average. And in the second quarter, we achieved our highest shop new leasing volume in over 10 years. As a result, we increased our shop lease rate by another 60 basis points sequentially to 92.7%. Our overall same-property lease rate is up 10 basis points in the second quarter despite 60 basis points of occupancy loss due to bankruptcy, further validating the strength and quality of our portfolio. Exceptional second quarter leasing activity also came with strong cash rent spreads of 12% on a blended basis and nearly 30% on new leasing. Our continued success with contractual rent steps is reflected in our GAAP rent spreads of 20% on a blended basis. This strength in our operating trends helped us drive another successful quarter for same-property base rent and NOI growth. Tenant demand is coming from a broad range of categories, including but not limited to grocers, off-price, medical, restaurants and pet services. Our signed but not occupied pipeline represents over $30 million of annual incremental base rent, and our same-property occupancy spread remains wide at 250 basis points. Even as executed leases commence each quarter, we continue to replenish our SNO pipeline with the execution of new deals. As we look ahead, our leasing pipelines remain full, with another 1 million square feet under LOI and lease negotiation. Our second quarter activity did include a mix of larger space deals with longer lease terms, which resulted in elevated per square foot leasing CapEx. But importantly, net effective rents remain in line with our historical average. With regard to backfilling our former Bed Bath & Beyond spaces, we are executing our vision and making excellent leasing progress. You’ll recall that our exposure at the time of the bankruptcy filing a quarter ago was 50 basis points of ABR. Two of our locations were purchased at auction by Burlington and Michael, and we have fully executed leases on three additional spaces. We have significant interest on the remaining spaces and our team is actively negotiating with multiple prospects, including the in-process pursuit of redevelopment projects at a couple of the locations. Overall, we anticipate marking the market our rent by approximately 20% to 25% on average for our former Bed Bath stores. As we’ve noted previously, we feel confident in our ability to re-lease our high-quality real estate when tenant bankruptcies occur often at higher rents and upgraded tenancy. In closing, we recognize that our success in the second quarter is not only reflective of the current environment and the strength of our assets but of the hard work of our best-in-class leasing and operating team. We see that momentum continuing as we work in the coming months to integrate Urstadt Biddle’s people and high-quality properties and create even more value through the combined portfolio. Nick?

Michael Mas:

Thanks Nick, and good morning, everyone. I’ll start with highlights from our second quarter results, walk through a few changes to our current year earnings guidance, provide some estimates for accretion related to our pending Urstadt Biddle merger and finish with some comments on our balance sheet position. We grew same-property NOI by 3.6% in the second quarter after excluding the impact of COVID period reserve collections. Importantly, the largest driver of growth continues to be base rent, contributing 380 basis points to the NOI growth rate in the quarter. As we’ve continued to stress on previous calls, base rent growth is the most important indicator of our portfolio’s performance. And in Q2, our growth was driven by the combination of embedded resets, positive re-leasing spreads, growth in occupancy and redevelopments coming online. Turning to 2023 guidance. As always I’ll refer you to the helpful detail on Slides 5 through 7 in our earnings presentation. Driven by another strong quarter of leasing, incredibly strong, if I may add, and greater clarity around the current operating environment and bankruptcy impact, we’ve raised the bottom end of our same-property NOI growth range as well as our ranges for NAREIT FFO and core operating earnings. With more certainty at the margin, we have eliminated some previous downside scenarios. Our updated same-property NOI growth range is now 3% to 3.5%. While we’ve maintained our total credit loss assumption at 60 to 90 basis points, we now expect a greater contribution from average commenced occupancy, benefiting from strong shop leasing through the first half of the year and absorption more than offsetting the negative impact from bankruptcy closings. Same-property NOI is the primary driver of the $0.01 increase in the midpoint of our core operating earnings guidance range. With the Bed Bath auction behind us and the outcome of those stores now known, we now have clarity on impact from the acceleration of below-market rents tied to those locations. For the full year, we anticipate roughly $6 million of accelerated below-market rent within our non-cash guidance, about half of which has been recognized year-to-date. Our full year non-cash guidance also includes $3.5 million of expected impact from the reinstatement of straight-line rent associated with the conversion of cash basis tenants back to accrual up slightly from a quarter ago. As a result, we’ve raised our assumption for noncash items to plus or minus $37.5 million, positively impacting our NAREIT FFO range, the midpoint of which is up $0.02. For those that are undoubtedly starting to think about 2024, we consider both of these items, combining for $9 million to $10 million of noncash revenue this year to be non-recurring in nature. And speaking of non-recurring items, our guidance for COVID reserve collections for 2023 remains unchanged at $4 million. As we thankfully reached the last of our collections on deferral agreements, and with only 5% of our tenants on a cash basis of accounting today, we are not currently anticipating any material COVID period collections to recur in 2024. These updated guidance ranges and the details I just reviewed remain on a Regency stand-alone basis only and do not yet factor in any impacts from the Urstadt Biddle transaction, which we expect to close by the end of this month. We will provide updated current year guidance with more detailed assumptions on a pro forma basis when we report our third quarter results, so more to come. But in the meantime, we are prepared to offer a high-level outlook. Our expectation is to deliver incremental per share core operating earnings accretion of $0.01 in 2023, reflecting about 4 months of impact and plus or minus 1.5% accretion for the full year of 2024, which continues to include an estimated $9 million of annual G&A cost synergies. Importantly, this accretion estimate is for core operating earnings, not NAREIT FFO as it does not include any impact to noncash items. The teams are making excellent progress with integration prep, and we’re all excited for the merger closing and the future prospects of the combined company. I’ll finish by highlighting the strength of our balance sheet, which is the foundation of our capital allocation strategy. With one of the strongest balance sheets in the overall REIT sector, our leverage remains at the low end of our targeted range of 5 to 5.5 times debt-to-EBITDA and will remain so following the close of Urstadt Biddle merger. We are generating significant free cash flow, expected to approach $150 million this year, self-funding our growing investment pipeline that Nick highlighted previously. And we have access to meaningful liquidity through our $1.25 billion line of credit with less than 10% of our total debt maturing through the end of 2024. I can’t stress enough the importance of our balance sheet strength and allowing us maximum flexibility throughout economic cycles and providing us an ability to remain opportunistic as the team executes on our investment strategy. With that, we look forward to taking your questions.

Craig Mailman:

Hey good morning. Lisa, I just wanted to touch base on the transaction market. Clearly, I know you guys have UBA in the pipeline here. But a lot of your peers have been talking about maybe a little bit of a swing [Ph] in the acquisition market. I’m just kind of curious what you guys are seeing if there’s even an appetite to buy one-offs or if the focus now is just on redevelopment pertaining within the portfolio and what you guys are going to bring into the portfolio after the merger closes?

Nicholas Wibbenmeyer:

Good morning, Craig. I appreciate the question as well. So yes, as you guys have been hearing and seeing close activity definitely still remains then, but there’s no question. We’re seeing the pace of opportunities coming to market accelerating and that bid-ask spread is tightening. And so we are starting to see data points come up somewhere in the range of low 6s to 7 on a cap rate. But on certain deals, we’re seeing them definitely even drop below 6 depending on the growth rate and the size. And so we are actively pursuing these opportunities, underwriting them, understanding them. And as always, if we see an opportunity that we think is equal or accretive to our quality and growth rate and accretive to our earnings, then we’re ready to move forward. As Mike just indicated, we have the capacity to do so.

Alan Roth:

Yes Craig, good morning it’s Alan. We have not seen any backing off just yet. And so there’s been no impact to your backing question at all. In fact, I would take us to our pipeline, which we feel really good about where we have nearly 1 million square feet still in the pipeline that is in active negotiation right now. So nothing just yet.

Alan Roth:

It probably leans more towards shops on the pipeline side, Craig, but it’s really across the board just in both anchor and shops in terms of the activity. I think there’s a lot of junior box retailers that just haven’t had the ability to identify spaces given limited supply and, of course, the Bed Bath & Beyond is I think, opened a bit of that. So again, I think it’s really -- it’s addressing the totality of the portfolio, but leaning towards shops.

Operator:

And the next question comes from the line of Sanket Agrawal with Evercore ISI. Please proceed with your question.

Alan Roth:

Can you just repeat the last part of that is you’re seeing an uptick? Sanket?

Alan Roth:

So Sanket, I’ll go ahead and see if I can answer that question. So the leasing conversations on the ground still remain really positive. We’re very proud of, I think, the certainly, the spreads that we achieved in the second quarter. I think as you saw, it was almost 30% on new leasing. And I think really a lot of that was a function of the mix of our anchor and shops where we had a little bit more on the anchor front. But if you look at just the shop spreads for the quarter and you’re going to take a few of those anchor deals out, we were still in the mid-teens, which is really exceptional. And I’d probably bring you also towards our GAAP rent spreads, which were 44% and again, really outstanding for the quarter. And I think that ties into the focus the team has on embedded rent steps and really speaks to the strength of the market to your question.

Sanket Agrawal:

Okay. And I have a follow-up, sir. As you guys expect to close the Urstadt Biddle acquisition this quarter, did you guys like study the difference in base rent or is that Biddle’s portfolio has versus your portfolio in similar markets? So what is the gap there behind how much you guys are trying to acquire on that side as you take over that portfolio?

Sanket Agrawal:

Okay, thank you.

Ki Bin Kim:

Thanks and good morning. If I can start off with a really boring question. Can you just help me go back to that below-market rent topic? How should -- you had a little bit more in this quarter. How should that trend throughout the year? I’m just curious if there’s going to be a bigger burn off point at some point in 2023 or 2024?

Michael Mas:

I will limit my spot to 2023. I mean much more to come on 2024 as we finish out the budgeting process, right, this -- which will kick off later this summer, and we’ll offer more guidance later this year. But you bring up a good point, I mentioned on the call, there will be a burn off really targeted to the Bed Bath & Beyond spaces in particular. So we are anticipating losing another $1 million of non-cash income just simply related to them in the second half versus the first. So you should plan for that as we think about our full year guidance. And hopefully, that helps you with what you’re looking for on that item, plus in my prepared remarks with respect to the reinstatement of straight-line rent as well, not recurring.

Nicholas Wibbenmeyer:

Sure. Thanks for the question. This is Nick. So definitely not seeing any difference in California to the rest of the country. We’re seeing strong demand across the board, and that is inclusive of California, in all aspects of California. And I would even point out even in the Bay Area because again, the majority of our properties are in the suburban markets that are still seeing significant demand. And so we’re very, very pleased with the activity the demand and the leasing velocity we’re seeing out LA.

Alan Roth:

Ki Bin, I think that’s the vacating of our grocer in Manhattan, the deal. So again, we can’t announce who that tenant is, but we’ve already executed a lease to replace a majority of that space, so more to come in the next quarter.

Operator:

And the next question comes from the line of Juan Sanabria with BMO Capital Markets. Please proceed with your question.

Michael Mas:

Hey Eric, from a percent lease perspective, I mean, this has changed from last quarter. Last quarter, we were communicating an expectation that by year-end, percent lease could be actually down modestly as a result of that Bed Bath & Beyond filing. But given the team’s incredible leasing activity in the shop category in the second quarter, we’re now anticipating being up modestly as a spot percent lease rate by year-end. So super excited about that here at Regency. However, from a commenced perspective, we are anticipating that, that commenced spot rate at year-end is going to be slightly down and that’s only a matter of time as we deliver the assigned and non-occupied pipeline going into 2024. So really, the seeds that were planted in the second quarter and the leasing that the team delivered from a leasing perspective, that’s all going to pay dividends for us as we turn the calendar and move into 2024. Not to mention the fact that we’re making incredible progress on the re-leasing of the vacated Bed Bath stores as well.

Michael Mas:

Sure. Yes, you’ve got a 250 basis points, about $31 million of rent. That’s about 3% of our Abbot. And I’d say it’s roughly pass by year-end this year and all of it -- nearly all of it by the end of next. .

Michael Mas:

What are we getting -- sorry, Alan, what are we getting in from a leasing bumps perspective in our current activity?

Michael Mas:

And then from an impact perspective, Eric, 140 basis points of our base rent growth is coming from rent steps. And that’s been pretty consistent for us for a long time now as the team has done an exceptional job of embedding growth into our leases. We are -- based on this momentum and we’re pushing this every single day, we’re hopeful to move that impact going forward. But it is a tough mountain to climb, and it is that -- moving that impact to same-property growth north from where we are now, we’ll take some time, but the teams are doing great work.

Operator:

And the next question comes from the line of Greg McGinniss with Scotiabank. Please proceed with your question.

Alan Roth:

Yes. Victor, thank you for the question. I would say it certainly has shifted a bit in the landlord arena, I think, as evidenced by some of the results that you’re seeing. But from a market perspective, we’re not seeing capital go up just in terms of the market shifting that. For us, specifically, quarter, it’s gone up moderately because of just the mix of deals that we did this quarter, leaning more towards the anchor side. But generally speaking, as occupancies certainly rise, we feel pretty good about the quality of the portfolio, our ability to really choose the right retailers as we always intensely asset manage our portfolio and continue with what we perceive as fair market terms.

Operator:

And the next question comes from the line of Anthony Powell with Barclays. Please proceed with your question.

Michael Mas:

Anthony, I appreciate the question. We left our guidance range unchanged, correct. What I would say there is actually; let’s get some stats out here first. 60 to 90 basis points of our credit loss reserve. Remember, I think we all are familiar with this by now, but that’s coming from 2 different line items, right? So you’re losing base rent from the bankruptcy impact, but you’re also recording bad debt expense unrelated to the bankruptcies, right? That’s what’s comprising the 60 to 90 basis points. Two thirds of that guidance is from bankruptcy impact, the balance coming from traditional bad debt and I would say we’re about 30% of the way through that estimate at the midyear, so that gain. Let me say this, if nothing else were to happen from this point forward in the bankruptcy arena, we’ll probably end up closer to the 60 basis points out of that range. And it does feel as if the -- as we all have talked about in the past, bankruptcies do tend to be seasonal. It does feel like more of a first half of that in a second. But we’re in uncharted territories here, so we’re just being a little bit careful with that range. But 90 basis points would be satisfactory to kind of capture any unforeseen kind of negative impact that could happen in the back half of the year.

Nicholas Wibbenmeyer:

Anthony, this is Nick. I appreciate the question. So there’s no doubt right now the financial markets are a challenge for most developers. We all talk about liquidity challenges; the tightest liquidity is in construction loans. And so that is really an opportunity for us. And as I said in our prepared remarks, our capabilities, our capital and our contacts, and we mean that are all very necessary to make deals happen right now. They’re really tough to make developments happen for a plethora of reasons. But that’s why we feel really bullish we’re going to get more than our fair share of opportunities. And so we have to from everyone in the business, whether it be capital interested, whether it be developers that need capital and the good news is we already have all the tools in our tool belt, and we’re using those as appropriate. And so excited about, obviously, bringing Sunbelt online start of construction this quarter and hope to announce future deals in the future.

Anthony Powell:

Thank you.

Ronald Kamdem:

Hi, just a couple of quick ones. So just starting on the sort of the recurring or non-recurring stuff this year versus next year. Just trying to get my arms around that. So I mean, I think it sounds like the collections of past reserves and certain noncash items is going to be the biggest sort of tough stuff to comp next year. But from a cash basis, whether it’s same-store NOI whether it’s some of the occupancy gains is that fair that should be closer to sort of your long-term targets?

Ronald Kamdem:

Got it. Makes sense. And then so I mean, I think going back to -- I think some of the comments you made about the UBP merger, presumably, you’re not going to have any more of these headwinds on the same-store NOI guide. So presumably, I mean, I think 2024, if you look past these noncash items, I mean, it could be a pretty strong sort of year, right? So what are sort of the like the puts and takes, right? Is it bad debt that we should be thinking about? Because everything else seems like it’s going to be pretty strong.

Lisa Palmer:

But probably important just to reiterate, I know you mentioned the opportunity in increasing the commenced occupancy in the UBP portfolio. But in case you missed the prepared remarks, Mike did say that we expect 1.5% COE accretion in 2024 from that merger.

Operator:

And the next question comes from the line of Floris Van Dijkum with Compass Point. Please proceed with your question.

Lisa Palmer:

Appreciate the question, Floris. And I also appreciate the comments. You are correct. We are focused on the retail portion of development. It is our core competency. It is our competitive advantage. It is what we are really good at. And yes, there are going to be a mix of uses when we are focusing on some of the highest quality pieces of property and land. Oftentimes, there will be demand for other types of uses. And when that is the case, we’re certainly going to capitalize on that, but it is not our specialty. So we will typically partner with someone who -- that is their core competency. And it may mean that we just invest the land. It may mean that we invest a little bit of capital, but we will always bring in the expertise that is needed to ensure that we have the Folsom project and optimizing the land. And we have examples of that, as you said, Westbard is one. We have 1 out in California where Nick is where we’ve partnered with Holland to do the residential across the street from the Grove, which is everyone, is familiar with it. We’ve rebranded it to Bluemont third. So absolutely. I appreciate the question, Floris, and you are right. We are focused on the retail portion of high-quality mostly grocery anchored suburban shopping centers.

Lisa Palmer:

Yes, if you say markets and not a state that is correct. And again, I think it’s really we like the portfolio, the composition, our geographic diversity. The fact that we have offices across the United States. And we’re very focused on trade areas, as you know, not necessarily macro markets. And we will continue to invest in the markets that we are already invested in when we have the opportunity to add high-quality shopping centers to our portfolio.

Operator:

And our next question comes from the line of Mike Mueller with JPMorgan. Please proceed with your question.

Michael Mas:

Yes. Mike, sorry, I’m going to prevent the team for me to answer the question. More to come on the close, we’re not closed yet. We have spent more time with it. We’re as excited as we have been since we announced the merger and since we started to look at it. None of that has changed. It’s only accelerated and amplified. As a matter of maybe disclosure guidance, we actually at this point in time, don’t anticipate including it in the same-property pool. We will likely treat it as an asset acquisition. So your -- the technical question, how will impact our same-property growth isn’t necessarily relevant. But we’re excited to talk about the portfolio when it’s time to do so.

Operator:

On the line of Wes Golladay with Baird. Please proceed with your question.

Michael Mas:

Hey Wes. I think I’ve talked to the headwinds we want to talk about already, and they’re largely coming from the non-cash area. So the $9 million to $10 million of non-recurring non-cash impacts. We’ve talked about the $4 million of prior year collections that also won’t recur. That’s where we’re going to limit our conversation today. The redevelopment impact, I mentioned previously, just again, directionality. We will continue to see that as a positive contributor going forward. And the details of that are in the support, you can map that out.

Nicholas Wibbenmeyer:

Sure, Wes. I appreciate the question. This is Nick. There is no question we are in direct dialogue with our partner grocers around the country. The grocers want to continue to add stores. Their business has been very good over the last several years, and they’re excited about continuing to grow their top line. And so there’s no question, but there are challenges making those deals pencil and there isn’t 1 solution to solving all those challenges. Part of its construction cost, part of its entitlements, Part of it is financing cost. Part of it is rent. And so our job and our capabilities allow us to stand in the middle of all of those and make sure we’re pulling every single lever using every tool in our toolbox, which is why I would tell you, we’re as excited as we’ve been in a long time about getting more than our fair share because we are one of the only companies in the country that have all of those tools, have those capabilities, have those relationships and have that knowledge. And so we’re bullish on growing the development pipeline in the cycle right now. I’m sorry, go ahead, Lisa.

Nicholas Wibbenmeyer:

I was just going to allude to, as Mike indicated, we have plenty of capacity. And as Lisa indicated, we have free cash flow is prioritized for it, and we have a balance sheet behind that to make sure we can appropriately continue to lean into those opportunities as we put those pieces together.

Wesley Golladay:

Great guys. Thanks everyone.

Linda Tsai:

Hi, I think your retention ratio was historically around 75%, and it’s trending above that now. Are you getting back to peak occupancy? Are you above that?

Unidentified Company Representative:

Peak retention rate. She just clarified your question.

Alan Roth:

We are still -- let me answer -- let me -- let me go and reverse that. So in terms of are we back to where we think peak occupancies are, no, we believe there’s still runway. We’re making really good progress. Obviously, some of the bankruptcies that we alluded to the 60 basis point impact did sort of pull us back a bit despite the great success we had on a lot of shop leasing. But there’s runway there. We feel really good about, again, as I said the pipeline of where we’re going. And I hope not only do we get back to historic highs, but we can get past this. That’s certainly where we’re setting our eyes.

Linda Tsai:

And then when you look out to the next year or two, how do you think about the ratio of organic versus external growth in terms of having the best opportunity sets?

Linda Tsai:

Thank you.

Michael Goldsmith:

Good morning. Thanks for taking my question. My question relates kind of to the balance between new leasing and your ability to pay TIs. Are tenants looking for greater TIs I thought it stepped up in the quarter? And just given the macro environment, maybe other landlords don’t have as much capital available to help their tenants out. Is that helping you become a landlord of choice for certain types of tenants? Thanks.

Michael Goldsmith:

And just as a follow-up related to small shop. Clearly, another big quarter with a sequential step-up of 60 basis points. Is there an artificial cap on how high small shop occupancy can get historically, it’s been lower than anchor, but we just seen such strong movement lately. It sounds like you have a great pipeline there. So is there a point where we just kind of reach a moment where it may be -- it just doesn’t move that much higher and are we approaching that?

Michael Goldsmith:

Thank you very much. Good luck in the back half.

Operator:

Ladies and gentlemen, at this time, there are no further questions. I would like to turn the floor back over to Lisa Palmer for any closing comments.

Operator:

Ladies and gentlemen, that does conclude today’s conference. You may disconnect your lines at this time. Thank you for your participation and have a great day.

Christy McElroy:

Good morning and welcome to Regency Centers' first quarter 2023 earnings conference call. Joining me today are Lisa Palmer, President and Chief Executive Officer; Mike Mas, Chief Financial Officer; Alan Roth, EVP, National Property Operations and East Region President; and Nick Wibbenmeyer, EVP and West Region President. As a reminder, today's discussion may contain forward-looking statements about the company's views of future business and financial performance, including forward earnings guidance and future market conditions. These are based on management's current beliefs and expectations and are subject to various risks and uncertainties. It's possible that actual results may differ materially from those suggested by the forward-looking statements we may make. Factors and risks that could cause actual results to differ materially from these statements may be included in our presentation today and are described in more detail in our filings with the SEC, specifically in our most recent Form 10-K and 10-Q filings. In our discussion today, we will also reference certain non-GAAP financial measures. The comparable GAAP financial measures are included in this quarter's earnings materials, which are posted on our Investor Relations website. Please note that we have also posted a presentation on our website with additional information, including disclosures related to forward earnings guidance. Our caution on forward-looking statements also applies to these presentation materials. Lisa?

Alan Roth:

Thank you, Lisa, and good morning, everyone. The positive leasing and retail environment we experienced last year has continued, as evidenced by another quarter of strong operational trends. Leasing activity remains robust with new leasing volume 20% above our historical first quarter average. Activity was led by continued strength in shop leasing, where occupancy was up another 20 basis points in the quarter, on top of a 200-basis point increase during 2022. Cash rent spreads remain healthy. And importantly, our GAAP and net effective rent spreads were both in the mid-teens in Q1 and on a trailing 12-month basis. The GAAP and net effective rent spread metrics are the most reflective of our ability to drive base rent growth, while prudently managing our capital investment and maximizing our return. We believe, these mid-teen spreads are reflective of the quality of our shopping centers and locations, which gives us leverage and lease negotiations and allows us to limit leasing capital spend. To that end, I would encourage you to review our new net effective rent disclosure on page 20 of our supplemental. Embedded rent escalators are a huge driver of our rent growth and we continue to have success driving these steps. Nearly, 90% of all leasing activity and 93% of shop leases in the first quarter had embedded rent steps, which is our highest percentage on record for shops. So not only are we pushing the rate of contractual increases higher, but we're getting them in more leases. These positive operating results and activity contributed to another solid quarter of base rent and same-property NOI growth. Most importantly, it provides further conviction in our forward growth trajectory. Leasing activity remains strong and our signed, but not occupied pipeline is flat quarter-over-quarter at 230 basis points, representing $32 million of annual incremental base rent. So the leases that we are commencing each quarter, we are replenishing the pipeline with new leases signed. Notably, our new disclosure on page 20 also includes enhanced information on our signed, but not occupied pipeline. Today, we also have nearly one million square feet of leases under LOI or lease negotiation, further reflective of the strength and demand that we continue to see. This activity includes square footage associated with recent tenant bankruptcies for which we've seen strong interest. The most notable of these is the recent filing of Bed Bath & Beyond, of which we have 10 locations comprising only 50 basis points of ABR. Five of these locations were included on last week's rejection list, which we had expected. Our teams have been proactively engaged on all of our Bed Bath locations with potential backfill tenants, in anticipation of the opportunity to recapture and remerchandise the stores. Demand is coming from several categories, including grocers, off-price retailers, home décor, sporting goods and medical uses. This is resulting in multiple retailers buying for many of these spaces and we anticipate average mark-to-market of approximately 20%. In addition to Bed Bath, we continue to actively manage all of our at-risk tenant exposure. We own great real estate in some of the best suburban trade areas around the country and leasing demand remains strong. We are not afraid to get spaces back in an environment of limited new supply growth and a surplus of great retailers that are actively looking to expand. In summary, our team feels really good about the continued positive momentum we are seeing in the retail operating environment. Nick?

Mike Mas:

Thanks, Nick and good morning, everyone. I'll start with some highlights from our first quarter results then walk through a couple of changes to our full year earnings guidance and assumptions. Excluding COVID period reserve collections, we delivered same-property NOI growth of 6.3% in the first quarter. The largest driver was base rent, contributing a strong 430 basis points in the quarter. Base rent growth is the most important indicator of our portfolio strength. And we continue to see positive impacts from embedded rent escalators, positive spreads on re-leasing space and higher occupancy year-over-year. We also saw meaningful outperformance on percentage rents in the quarter, contributing 100 basis points to same property NOI growth, despite tougher year-over-year comps, driven by continued strength in grocery and restaurant sales. Notably, percentage rents tend to be seasonal with the majority of sales-based billings occurring in the first quarter of the year. The other meaningful driver to first quarter same-property NOI was a 130-basis point positive contribution from uncollectible lease income. We continue to isolate the collection of COVID period reserves from 2020 and 2021 to provide a better picture of normalized results. But the realities of cash basis tenancy can create some variability in the bad debt line item from quarter-to-quarter. To that end, and due to the better-than-expected collection rates on cash basis tenants, we experienced a positive contribution to uncollectible lease income this quarter, as we collected on rents originally billed and reserved in 2022. The increasing collection rates and decline in receivable and reserve balances demonstrate the health and resiliency of our tenant base. Turning to 2023 guidance. I'd like to point you to the helpful detail on Slides 5 through 7 in our investor presentation. We've increased both our NAREIT FFO and core operating earnings guidance ranges each by $0.04 per share, driven largely by the outperformance in percentage rents and uncollectible lease income in the first quarter. Collectively, these items also drove the 50-basis point upward revision in our same-property NOI growth guidance to a new range of 2.5% to 3.5% excluding COVID period reserve collections. I also want to spend a minute on our credit loss assumption, which we revised to a lower range of 60 to 90 basis points for the full year from 75 to 100 basis points previously. Notably, the midpoint of our new same-property NOI and earnings per share ranges now capture the potential for a full liquidation of Bed Bath & Beyond by mid-year. This scenario was previously contemplated in the low end of those ranges. However, this change was offset by first quarter outperformance and bad debt that I discussed earlier, which positively impacted our full year credit loss assumption. On the capital side in late March, we repurchased roughly 350,000 shares for $20 million at an average price just over $57 per share. This repurchase was executed to hedge the planned issuance of a like kind of Mountain OP units to the seller of the development project in New York that Nick mentioned earlier. I'll end as I typically do, highlighting the strength and afforded opportunity of Regency's balance sheet, the importance of which is never more evident than in times of capital markets' turmoil. Leverage remains at the low end of our targeted range of five to 5.5 times debt to EBITDA we are generating significant free cash flow projected to be north of $140 million this year funding our investments' pipeline. We have access to significant liquidity with our $1.25 billion line of credit. And there are no significant debt maturities for over a year. This position of strength allows us to be patient and opportunistic, in this evolving environment. With that, we look forward to taking your questions.

Michael Goldsmith:

Good morning. Thanks a lot for taking my question. My first question is on the sustainability of the leasing demand. What have you seen -- have you seen any change in the leasing volumes post-Silicon Valley Bank and some of the disruption that was experienced in March? And just has that sustained in April? And if you have seen anyone express any sort of resistance or slowdown in leasing what are the reasons they're talking about, just trying to get a sense of the long-term sustainability of this recent trend?

Michael Goldsmith:

Got it. Thanks for that. And my follow-up question is for Mike. It seems like half of the upside to the 2023 guidance and the outperformance was driven by base rent which we kind of talked about. But then, the rest was kind of driven by percentage rent and maybe some upside or near-term upside in the lease termination fees. So I guess, the question here is just the sustainability of that. Or is that sort of a one-time item that shouldn't recur through the rest of the year?

Michael Goldsmith:

Thank you very much.

Greg McGinniss:

Hey, good morning. Just to kind of touch on some of those headwinds/tailwinds thinking about where we might end up at the end of the year. I think on the last call, you talked about kind of flattish occupancy through year-end potentially. But given this kind of healthy Q1 leasing maybe a little bit of an offset from the Bed Bath & Beyond bankruptcy how are you thinking about year-end occupancy expectations at this time?

Greg McGinniss:

Great. Thanks. And as a follow-up I just wanted to touch on the tenant watch list. I think regional banks have obviously been in the news a lot based on our look. You don't have any exposure to the ones that have been called out yet. It's more like 50 basis points maybe-ish around there I think. We'd love to have you confirm. On other regional bank exposure, curious on potential backfills for those kinds of spaces especially on the outparcels and what level of demand you might be seeing there. And then looking at maybe like Kohl's, Rite Aid, Michaels, we see some more risk than I think limited to 1.9% of GLA. Are you in discussions on some of those spaces as well?

Lisa Palmer:

I'll just -- if Alan doesn't mind I'll come over top for the bank branch. I think your observation is correct. Our exposure to the bank branches are -- I mean I think on our significant tenant list you've got JPMorgan, Wells, and Bank of America. And so any of the regional bank branches that we have would be really immaterial.

Operator:

Thank you. Our next question is from Craig Mailman with Citi. Please proceed with your question.

Alan Roth:

So, Craig good question. Thank you. Look I think there's -- it's widely accepted that inflation is impacting all of us to include us and therefore we're able to pass through a lot of these higher escalators as you saw and heard on our -- 90% of all deals had embedded rent steps and 93% of our shops had those. And so we're having success not only getting them in our deals but we're having them success in getting them at higher values. I'm not seeing a tremendous amount of pushback there. Occupancy costs frankly are going in the inverse direction because I think sales are generally going up for most of our retailers. And so will that provide an ability to push further? I think in some categories it will Craig and in others maybe it doesn't. But they all seem to be operating in pretty healthy reasonable levels that give us the ability to I think really reasonably push those going forward.

Lisa Palmer:

Well, I'll quarter back. I'm going to have Mike answer the share repurchase. And then we'll toss it to Nick for the overall transaction market.

Nick Wibbenmeyer:

And thank you, Nick in regards to the transaction market as Lisa alluded to in our opening remarks that is a little surprising of how few data points there were in Q1. So it has been very, very quiet out there. But as we've said in the past, we're always focused on opportunities that are accretive to earnings and that are equal or accretive to the quality and the growth of our current portfolio. And we have the capacity and the desire to act on those opportunities that meet that criteria. And so we're very focused on it and hopeful that in the near future some more opportunities we'll pop up that we can take advantage of.

Nick Wibbenmeyer:

On the margin, I mean look we're eyes wide open regarding what's going on in the market. But we're again highly focused on making sure it's accretive to us and what is our cost of capital and how do we best use that cost of capital. And so, depending on the risk profile of any transaction we evaluate that we decide how we're going to fund it and make sure that there's an appropriate spread there. And so we're very comfortable that the opportunities we're working on right now are accretive to the company long term.

Nick Joseph:

Thank you very much.

Samir Khanal:

Hey, good morning, everyone. Mike on the FFO guidance, you did the 108 NAREIT FFO in the quarter and I know there were some onetime items. I mean we were looking at some of the term fees maybe it was a $0.02 impact, but even if we use 106 sort of for the run rate you're still getting to like 420 for the year. And I look at your guidance and I'm just thinking are you being overly conservative here given the macro or is there something we need to think about that are impacting growth?

Samir Khanal:

Thanks for that. And then my second question is around leasing spreads. When you provided the commentary certainly very positive around leasing. But when I look at the spreads and again it's still pretty good or mid-single digits growth. But if you look at the last few quarters, they've decelerated right? And look I know it's volatile month-to-month. I get that but maybe just provide a bit of color on those leasing spreads we're seeing?

Samir Khanal:

Thank you.

Juan Sanabria:

Hi. So maybe just circling up a little bit from a different perspective or asking it differently than Samir did. For the guidance, you assume that occupancy is maybe flat to slightly down by year-end, but does it dip between now and then as a result of Bed Bath before you capture the SNL pipeline? How should we think about the quantum of that decline to maybe piece together these various pieces you've talked about on the call?

Juan Sanabria:

No, thank you. That's helpful. Super helpful. And then just a quick question on the reversal of cash to GAAP had a bit of a benefit in the first quarter. How is that captured in the guidance to look at page 6 and what bucket does that fall under? And is there anything else assumed in terms of reversals back to GAAP for the balance of the year?

Juan Sanabria:

Right. Thank you.

Anthony Powell:

Hi. Good morning. There are some press recently on some of the traditional anchors in malls like Macy's and Nordstrom expanding their smaller format shops. Are you seeing some of that activity in your leasing pipeline?

Anthony Powell:

Thanks. And maybe one more on percentage rents. I get that it will be lower this year, but there was a big kind of year-over-year increase. How should we be modeling percentage rents just going forward say next year either on a as a percent of base rent or year-over-year growth?

Anthony Powell:

All right. Thank you.

Lizzy Doykan:

Good morning. I just was curious about the G&A line item that was revised up by $1 million for full year. And not too meaningful but just wanted to see what drove the increase in expectations there and if anything could be noted as recurring or if we should expect more variability to that as we get through the year?

Lizzy Doykan:

Got it. Thank you. And I was hoping to get more details on a couple of the projects you had discussed at the opening just on the development in the New York metro area and the master planned community in Metro Houston, understand if you are waiting to share more details once you're able to add it to the pipeline. But just seeing if there's anything unique to each of those projects that you think you could find in other opportunities in the near future? And what particularly drew you in about the markets for these specific projects?

Lisa Palmer :

And Lizzy our overall development strategy just follows our investment strategy. And we want to invest in shopping centers that have a long-term sustainable competitive advantage, where we're going to be able to grow NOI over the long term. And these two developments New York and in Houston fit that criteria.

Operator:

Thank you. Our next question is from Wes Golladay with Baird. Please proceed with your question.

Mike Mas :

Yes, so [indiscernible] rent you obviously would lose and we planned -- and we estimate that to be about $0.5 million less given what they were paid current through first quarter and what we will lose into the filing date. And then post petition for the five that have not yet been rejected we would continue to collect rent through their -- through the event that may or may not happen, which could be an assumption of the lease in the bankruptcy itself or a future rejection. As we indicated, we've -- at the midpoint of our guidance, we've accommodated for the worst-case scenario, which would be a full liquidation of the chain. We think we have some pretty -- we know we have some pretty good locations. The ones that have not yet been rejected we like all of our opportunities we really like those and there's -- which also tells us there's a chance that they could be picked up in option. So we'll be paying very close attention to the proceedings there. But that's -- hopefully that helps you think about the financial impact of Bed Bath.

Alan Roth:

I'll start with Bed Bath and let Lisa or Mike answer the capital question but -- the short answer Wes I appreciate you asking that. There's one Bed Bath that we are evaluating the merits of whether or not we want to entertain redevelopment but generally speaking this really is just a re-leasing exercise for us as all it is.

Wes Golladay :

Got it. Thanks for the time everyone.

Floris Van Dijkum:

Hey, good morning. Thanks for taking my question. Your shop space is the most valuable portion of your portfolio was I think, Lisa, you've alluded to in the past as well. And the beauty is you have over 50% of your ABR comes from the shop space and a big trend two-thirds of your SNO pipeline in the shop space. Could you remind us again what your peak shop occupancy was? And where do you think that could go over the next two, 2.5 years or so?

Alan Roth:

Yes. And as you know, we're at 92.1% right now. And I would just go back to the pipeline of really great deals that are falling up. And I'd put on top of that, our upcoming Vegas ICSC show that's here at the end of May, the amount of meetings the teams already have scheduled and the attendance that we anticipate from the retail community is really strong. So, we have the runway and we're planning to continue to set our sights high.

Floris Van Dijkum:

No, I appreciate that. Maybe if you can -- you've talked about the rent bumps. And to me that's one of the most underrated aspects of the business, and sort of the cruising speed that that produces. You mentioned, that almost all of your shop space has fixed rent bumps, are you getting 3% rent bumps? And how do you see that your cruising speed evolve, as you sign new leases?

Floris Van Dijkum:

Thanks. Maybe last but not least, just I hear, Wegmans might be coming to Connecticut. Any chance that you guys might be involved in that?

Alan Roth:

We are not involved in that, Floris. Sorry, I didn't know who was going to answer that whether it was Nick or myself. But we're hearing the same rumors. So, they'll be great for the Connecticut community, if they end up making that happen.

Operator:

Thank you. Our next question is from Mike Mueller with JPMorgan. Please proceed with your question.

Alan Roth:

Hi, Mike. This is Alan. I'll answer the first part. It's pretty simple. It's simply options that are getting exercised that don't have embedded rent steps. That's the 7% to 10% you mentioned. I'll take it to Nick.

Mike Mueller:

Okay. Thank you.

Ronald Kamdem:

Great. Just a couple of quick ones. Just trying to understand over the sort of the recent events with the banking system, if there's been sort of any ripple effects of the business? And I'm thinking of it in 2 or 3 different ways. One is as you guys are thinking about this future redevelopment pipeline opportunities of $115 million to $150 million I see in the presentation does anything change about your timing or conviction to getting those done? And the other piece of it is obviously on the acquisition front have you seen sort of more activity? You guys are in a great liquidity position does that create opportunity? And then I'd love to hear from a tenant perspective. Clearly, the bad debt is feeling pretty good. It went down in the guidance but are tenants sort of talking about it feeling it? Just trying to understand if there's any ripple effects we should be thinking about? Thanks.

Alan Roth:

And Ron from a tenant perspective the short answer is no. We're just simply not hearing that at the property and portfolio level. That said, our team is utilizing currently on a proactive basis and enhancing programs that we started during COVID to support our tenants. And so, we've got a tenant mentorship program. We do webinars for them. We've got this proprietary merchant success toolkit. And so we're prepared to not only proactively deal with that, but should that tide turn have the resources there for our retailers to partner with them and help them through that process.

Ronald Kamdem:

Great. And then just my last one. Just any quick updated thoughts on the Kroger Albertsons situation and views for the company. Thank you.

Ronald Kamdem:

All right. One more sorry I had in my notes I missed it. But -- so we've been hearing about sort of the insurance costs and premiums on property in Florida, other markets and so forth. Clearly you guys -- you charge some of that back to the tenant. But are you guys -- how are you guys thinking about that at all? Has that come up? What's the thinking there?

Ronald Kamdem:

Thanks so much.

Greg McGinniss:

Sorry. I was muted. Just wanted to talk about the transactions and potential development pipeline, again just for a couple of points of clarification. Is the $90 million cited from the New York Metro area development inclusive of acquisition and development costs? Similar question for Houston, and whether you need additional land acquisitions for future development phases there, if you're securing that with that first investment?

Greg McGinniss:

Yes. Sorry, I was also saying for the Houston, whether you'll need to acquire additional land for future phases or if you're still carrying that with the $10 million.

Greg McGinniss:

Okay. Great. And then what are the targeted returns on these development projects that make the additional risk worthwhile maybe versus something like redevelopment. I mean I know you've – Lisa you said that you're not taking risky investments here, but inherently with development there's got to be a little bit more than where you already have the cash flow. So just curious what expected returns might be.

Greg McGinniss:

Okay. Great. And just final one for me. Are these investments the type that Lisa was previously referring to? I think it was the Q3 call, at least initially on the Q3 call regarding smaller developers about access to capital. And does that feel like a growing opportunity as bank lending becomes potentially even more scarce going forward?

Lisa Palmer:

And I just – I want to reiterate that because I think that's a really important point that Nick just said. Our relationships with the retailers or especially the grocery anchors that are driving a lot of our developments shouldn't be underestimated because they know we can perform. And in times like this that is extremely important and that is also helping us to drive that development pipeline and build it further.

Operator:

Thank you. There are no further questions at this time. I'd like to hand the floor back over to Lisa Palmer for any closing comments.

Operator:

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.

Christy McElroy:

Good morning, and welcome to Regency Centers' fourth quarter 2022 earnings conference call. Joining me today are Lisa Palmer, President and Chief Executive Officer; Mike Mas, Chief Financial Officer; Alan Roth, Executive Vice President, National Property Operations and East Region President; Nick Wibbenmeyer, Executive Vice President, West Region President; and Chris Leavitt, SVP and Treasurer. As a reminder, today's discussion may contain forward-looking statements about the company's views of future business and financial performance, including forward earnings guidance and future market conditions. These are based on management's current beliefs and expectations and are subject to various risks and uncertainties. It's possible that actual results may differ materially from those suggested by the forward-looking statements we may make. Factors and risks that could cause actual results to differ materially from these statements may be included in our presentation today and are described in more detail in our filings with the SEC, specifically in our most recent Form 10-K and 10-Q filings. In our discussion today, we will also reference certain non-GAAP financial measures. The comparable GAAP financial measures are included in this quarter's earnings materials, which are posted on our Investor Relations website. Please note that we have also posted a presentation on our website with additional information, including disclosures related to forward earnings guidance. Our caution on forward-looking statements also applies to these presentation materials. Lisa?

Alan Roth :

Thank you, Lisa, and good morning, everyone. The retail operating environment remains healthy, and we ended the year with another strong quarter. I'm really proud of our 2022 results. We had an exceptional year in leasing, helping to drive strong occupancy gains with our leased rate up 80 basis points and our commenced rate up 110 basis points over levels one year ago. Notably, our year-end 2022 same-property lease rate is back to our 2019 level of 95.1%. But make no mistake, we still have room to run and we aim to ultimately get back closer to peak levels of 96% or higher. The primary driver was our record year for shop space leasing ending the year up 200 basis points with our shop lease rate now 70 basis points above 2019. I am especially proud of the shop occupancy recovery considering the many challenges we faced during the pandemic. Our tenant retention rate remains above historical averages, bad debt as a percent of revenues is back to pre-COVID levels. And importantly, our GAAP and net effective rent spreads were in the mid-teens for the year due to our team's accomplishments of achieving initial cash rent spreads north of 7%, embedding contractual rent steps in the majority of our leases and maintaining our track record of judicious leasing capital spend. All of these positive trends and the progress we've made contributed to another strong year of same-property NOI growth of 6.3%, excluding COVID-related reserve collections and term fees. At year-end, our signed but not occupied pipeline of 230 basis points represents more than $34 million of annual base rent, giving us positive momentum into 2023. Importantly, as leases commence, we continue to replenish this pipeline with newly executed leases. We have seen strong tenant demand continuing in the New Year, and our LOI and lease negotiation pipelines remain full. Our most active categories include restaurants, health and wellness, veterinary, grocers and off-price. We are hearing from top national retailers that their appetite to expand outpaces the quality inventory available today which bodes well for Regency's high-quality portfolio. As we all know from recent headlines, tenant bankruptcies and early store closures will be more impactful as we think about move-outs in 2023. Among retailers that have recently filed for bankruptcy, Party City comprises only 20 basis points of ABR over 6 stores, and we have only one Regal Cinema, which is less than 10 basis points of ABR. In the context of Bed Bath & Beyond's recently announced store closures, at year-end, we had 11 stores comprising 60 basis points of ABR. We had one of those expire naturally in January, and of the closures announced last week, we had five locations on the list. Within our 2023 guidance range, we've embedded assumptions for credit loss associated with these bankruptcy filings and store closure announcements which Mike will discuss in more detail. But all of that said, we believe our overall exposure to at-risk tenants is relatively limited. Our current tenant base is healthier than ever as a result of being intentional in the centers that we own and thoughtful in our merchandising process. And whatever the outcome of the at-risk tenants, we feel really good about the quality of our real estate. Tenant bankruptcies are a normal part of our business. And to the extent we get stores back from underperforming retailers, we have opportunities to mark-to-market rents and upgrade the merchandising mix at our centers. To that end, our teams are already negotiating with replacement tenants at higher rents for all of the known closures. In summary, our strong Q4 results and the trends we are experiencing today provide positive momentum into 2023. Nick?

Michael Mas:

Thank you, Nick, and good morning, everyone. I'll take you through some highlights from our Q4 and full year results, then walk through our 2023 guidance and assumptions before ending with some color on our balance sheet position. Our strong performance last year was underpinned by growth in NOI and more specifically from base rent growth. Excluding the collection of 2020 and 2021 reserves, which I'll refer to today as COVID collections, we delivered same-property NOI growth of 5.8% in the fourth quarter and 6.3% for the full year. Again, most importantly, we saw a 3.6% contribution from base rent growth in 2022, accelerating to 4.8% in the fourth quarter. This growth in base rent over the last year has been driven by contractual rent steps, mark-to-market on re-leasing, increases in occupancy and commencement of rent from redevelopment projects. As Alan mentioned, our leased occupancy rate is now back to pre-pandemic levels, but our eyes are set even higher. COVID collections were about $2 million in the fourth quarter and totaled $20 million for the year. That's down from $46 million in 2021. During the fourth quarter, we converted another 2% of our tenants back to an accrual basis of accounting from cash, and as a result, recognized nearly $5 million of non-cash income from the reversal of straight-line rent reserves. We ended the year with 7% of our tenants remaining on a cash basis of accounting. For uncollectible lease income, in 2022, we were close to our historical average of 50 basis points on current year billings by nearly all metrics but for some limited exposure to higher profile potential bankruptcies, our in-place tenancy is about as strong as it's ever been. Looking ahead to 2023 and after excluding COVID collections, we are guiding to core operating earnings per share growth of close to 4% year-over-year at the midpoint. We'd like to point you to Slides 5 through 8 in our earnings presentation, which I'm certain you'll find extraordinarily helpful as you work through our outlook. We expect same property NOI growth, excluding COVID collections of 2% to 3%, which is the largest positive driver of earnings into 2023. The primary contributor continues to be base rent growth, driven by embedded rent steps, rent growth from new leasing and shop space commencement as well as the delivery of completed redevelopment projects. Importantly, our same-property NOI guidance range also assumes credit loss impact of roughly 75 to 100 basis points from anticipated tenant bankruptcies and early store closures, including from those tenants that Alan discussed. This credit loss impact includes an assumption that current year uncollectible lease income will be modestly above our pre-pandemic average of 50 basis points as well as the potential for occupancy to end the year flat to lower -- should bankruptcy-driven move-outs occur. Again, this range excludes any impact from COVID collections, which I'll discuss in a minute. As you think about reconciling NAREIT FFO of $4.10 last year to a guided midpoint of $4.07 in 2023. Remember that this metric continues to be significantly impacted by COVID era accounting adjustments, including the collection of rents previously reserved as well as the impact on non-cash revenues from converting tenants from cash to accrual. Our operating fundamentals continue to strengthen, as they have in 2022 and as they are expected to continue this year. And these pandemic-related items can mask our true growth in cash earnings. It's important to take this a step further this morning as these two items meaningfully impact year-over-year comparability. First, we are anticipating lower COVID collections of $3 million in 2023 compared to $20 million last year. And second, we are also anticipating lower non-cash revenues of $36 million at the midpoint in 2023 compared to $47 million in 2022. Please note that we increased our full year non-cash revenue guidance from $30 million a quarter ago to account for new information, including an assumption that we will continue converting tenants to accrual accounting in 2023, as well as the likelihood that we will recognize accelerated below-market rent amortization triggered by the potential for bankruptcy-related store closures. This is why we focus on core operating earnings, which strips out the noncash adjustments and also why we provide same-property NOI excluding COVID collections. With this added transparency, you can better see the underlying positive growth. Again, I encourage you to use the materials in our earnings presentation, as I'm certain you'll find it very helpful in evaluating these impacts. The good news is that we are fast approaching the point where these COVID-related impacts will no longer create meaningful noise in our reported results. To finish and to pivot from guidance, we feel great about how we are positioned from a balance sheet perspective with one of the strongest in the REIT sector at a time when it matters most. Our leverage is at the lower end of our targeted range of 5 times to 5.5 times debt-to-EBITDA. And we expect to generate free cash flow north of $140 million this year, self-funding our development and redevelopment commitments. While the financing markets have moved in our favor over the last 3 months, we have no need to access the capital markets this year. Our revolving credit line was undrawn at year-end, and we have no unsecured debt maturities until mid-2024. Our liquidity position and maturity profile provide us the ability to remain patient and act when we need and walk to. With that, we look forward to taking your questions.

Michael Goldsmith :

Good morning. Thanks for taking for my questions. You have this nice chart in your presentation where you outlined the factors that drive your long-term organic same-property NOI growth algorithm of 2.5% to 3% to your 2023 guidance of same property NOI growth without termination fees or collections of reserves 2% to 3% is generally consistent with that. So maybe you can reconcile your long-term algorithm with what you're expecting this year. Where are the moving pieces? And just does that mean that 2023 is setting up as a Regency average year? Thanks.

Michael Goldsmith :

And my follow-up is on the (inaudible) pipeline. Are you able to quantify how much is in there? And is that going to be realized by the end of 2023? Or is that a 2024 type of event?

Michael Goldsmith :

Got it. Thank you very much. Good luck in '23.

Operator:

Our next question is from Ki Bin Kim with Truist. Please proceed with your question.

Alan Roth :

Ki Bin, it's Alan. I would look to our pipeline to answer that question and tell you that it's still full with a tremendous amount of activity that's following on the heels of a really strong 2022 year. So -- by and large, as we said, at 95.1% leased, we're setting our eyes higher, and we believe we can and will get back to 96%-plus and the quality space that remains will certainly allow us to do that coupled with the great merchandising activity that remains in our pipeline.

Alan Roth :

Yeah. I think we're shooting for high single digits is kind of how we look at that, Ki Bin. Feel again, really confident in doing that. But as you know, there's a lot of levers that also go into that cash rent spread and that includes embedded rent steps as well as our approach to how we spend our capital. And so collectively, again, I think we feel confident with the trajectory and the path that we're going down.

Operator:

Thank you. Our next question is from Greg McGinniss with Scotiabank. Please proceed with your question.

Alan Roth :

Yeah, Greg. No fun to be talking about bankruptcies again. But we have 10 stores that do remain that represent 50 basis points of ABR. We have five stores that were on the closure list. And again, we feel really good not only about those five stores, but the totality of whatever may come of the Bed Bath portfolio. From a mark-to-market perspective, we think we're in the 15% to 20% range. And I think when you think about bankruptcies that have happened in the past such as Sports Authority, Toys "R" Us, Stein Mart, those were 40,000 to 45,000 square foot stores, and the Bed Bath stores are generally in the 30,000 square foot range. And so that really provides a much wider pool of interested users that, for the most part, will not require downsizes or splits, which again, I think will play a part in your capital question. We are negotiating deals for all of our known closures. And in some instances, we're even running what I'll call an RFP in the interest of appropriately managing demand and relationships. But time will tell. They obviously just recently announced that equity raise. So we're staying close to it, and we're staying active and aggressive on all of our spaces.

Nick Wibbenmeyer :

Great question. This is Nick. As you can imagine, it's a wide range of investment. As you guys have seen the capital markets, especially for construction debt for local developers is effectively frozen. And so we are very well situated, as I mentioned in our prepared remarks, with our retailer relationships, combined with our impressive team around the country and clearly our available capital. And so -- we are, I would say, moving from coffee conversations that started 90 days ago into real dialogue and real negotiations and analysis of these opportunities. And so I do feel like it's the early stages, but the early stages are very important to growing a meaningful pipeline. And some of these projects that you could appreciate when you look at our historical development program of scale. So excited about it.

Operator:

Thank you. Our next question is from Floris Van Dijkum with Compass Point. Please proceed with your question.

Michael Mas :

Sure, Floris. I think you're asking about the accelerated below-market rent associated with the potential to get back anchor spaces. So we do -- we have incorporated a touch of that income into our expectations. It is a fluid situation, as you know. And those -- what we have incorporated into our guidance is, call it, roughly $3 million or so of anticipated accelerated amortization. Those would be tied to what we believe to be the potential for the Bed Bath & Beyond scenario to play itself out in which we may get back those spaces. To Alan's point, I mean it's really a direct reflection of Alan's point that it's about a 15% mark-to-market opportunity on those units, which that below-market rent would indicate exists. And again, those original amounts were put up at the time of acquisition of the shopping centers and time will tell on the true economics where we end up.

Lisa Palmer :

Before Alan answers this question, I feel like I have to jump in and say I appreciate that you recognize that all space is not equal. And I would say it's not just from small shop and anchor all retail is not created equally, and high-quality space actually is very different and command, but much different rents than those of lesser quality. So I appreciate you making that recognition, Floris. I'll let Alan answer your question more specifically.

Floris Van Dijkum :

Thanks.

Unidentified Analyst:

Hi, thanks for taking my question. I was wondering if you could walk through the assumptions behind base rent growth seeing that as the primary driver of 23% same-store NOI guidance. What exactly are you assuming for contractual rent in-place rents and then the commencement of rent from redevelopment? Or if you could just talk about your strategy on how you're balancing the Street?

Unidentified Analyst:

Great. Thank you. Another follow-up, I was wondering what is included in your assumptions for the $65 million of dispositions baked within guidance at a 7% cap rate? Is this just based on what you're seeing in the market? Or is that kind of an estimated -- just an allocation for now? Thanks.

Lisa Palmer :

And I'll just add. I appreciate Mike's comments about that. We really do believe that a year like 2023, may really shine a spotlight on that in terms of making sure that we are proactively managing the quality of our portfolio. And we believe that, that really does fortify sustainable NOI growth over the long term. So while that disposition guidance did come with a 7% cap rate that as Mike said, that's a placeholder. We looked at last year's transactions and just added a little bit of perhaps market movement to that. But more to come, and we'll have more clarity as we move through the year with regards to that market. But again, it's an important part of our strategy and one that we remain committed to, and I believe has enabled us to deliver same property NOI growth at the higher end of the industry.

Craig Mailman :

Good morning. Just want to follow up on the transition of tenants back to accrual accounting from cash. I'm just kind of curious, as we sit here today. I mean, could you just give a little bit of color on what types of tenants you guys move back in the fourth quarter? And of the 7%, maybe what's the probability of moving more and where you think that 7% to move to by the end of the year or what's a more normalized level?

Craig Mailman :

That's helpful. And then separately, maybe Lisa going back to your commentary of better visibility today than three months ago. Could you just give a little bit of color on what aspects of the business you feel like you have more visibility on today, whether it's leasing, you talk about the transaction market a bit, tenant credit? And also, I'm just kind of curious, if you were forced to give guidance three months ago versus today, what -- directionally kind of where we sit today versus three months ago?

Craig Mailman :

Great. Thank you.

Juan Sanabria :

Hi, thank you. Maybe a question for Mike. I was just hoping you could maybe delve a little bit into the expense recoveries that you noted were elevated in the fourth quarter and for the year and how that changes or morphed a bit into '23?

Juan Sanabria :

Great. And then just maybe a sensitive question, but on Amazon, what do you guys think from them across Whole Foods and their other brick-and-mortar concepts with regards to demand for space, appetite for new stores the lack thereof and how you're using your space? And is there any signs of weakness there with regards to foot traffic versus other grocery concepts?

Nick Wibbenmeyer :

Yeah. Juan, I would just add, as Alan alluded to, there's just -- there's a lot of demand from a lot of our grocers right now to continue to expand around the country. And so that's a lot of what's driving our excitement about future development opportunities is key grocers such as Whole Foods do want to expand. They're performing really well, and we're excited about continuing to grow our portfolio with them and others.

Operator:

Thank you. Our next question is from Anthony Powell with Barclays. Please proceed with your question.

Michael Mas :

Sure. Anthony, it's Mike. Let's talk through maybe scenarios is how I like to think about it from a midpoint, low end and high end. And also, when we think about credit loss reserve, I think it's important to remind everyone, that's a combination of uncollectible lease income or bad debt expense, together with the impact on base rent that could come from a rejection of a lease in the bankruptcy. So it's a combination of base rent in assets as well as the expense line item. From a scenario standpoint, let's start with the midpoint and go from there. We are anticipating what I would call more of a classic reorganization scenario at the midpoint of our range. So in the middle of that 75 to 100 basis points. And by the way, that 75 to 100 is really encapsulating the top to bottom. So a classic reorganization, Alan gave us some intel and some clarity on what stores have been identified for closure at least. That does not mean that they've been identified for rejection. Nothing's happened at this point. But that scenario would be in the midpoint. You can also be certain to know that a full liquidation scenario of this name would be captured by the low end of our guidance. So we are very comfortable that even with a relatively -- soon to follow filing if that were to happen and a relatively quickly paced liquidation process, we are pretty comfortable here that the low end of our range would capture that scenario. And then the -- and then I'd say, I'd actually extend that midpoint scenario into the upper end. So what may be an unlikely scenario that a lot of good happens and Bed Bath is if there are no closures at all and that they continue as a going concern, frankly, that would be a little bit of an upside to our guided range. Now also recall it's credit loss, so there's bad debt expense. I mentioned in the call, we are a little bit of an increase with respect to 2023 outlook versus 2022 actual performance. So just a little bit more cushion in the plan from a classic bad debt expense perspective. And we'll see how the year progresses. I feel really good, again, about our tenancy, feeling really good about the quality of our merchandising but we all are aware of what potential headwinds there may be out there.

Lisa Palmer :

I'll just point to our balance sheet and the fact that we're generating $145 million of free cash flow. We do have development spend. But even we are able to access the debt markets and to the extent that we leverage that cash flow, even staying leverage neutral within our strategic net debt-to-EBITDA targets, that gives us investment potential north of $200 million. So we are positioned to be active. It has to be the right opportunity. And you all probably get tired of hearing me say this, right? If it checks the three boxes, we will be active. If it's accretive to earnings, accretive to our future growth rate and accretive to our quality, we're poised to act.

Operator:

Thank you. Our next question is from Mike Mueller with JPMorgan. Please proceed with your question.

Alan Roth :

Thank you for the question, Mike. The simple answer is very similar to what we've seen historically. And so our target returns on redevelopments have not changed materially. And so when you look at our ones that we've recently completed and are ones that are in process, we're targeting similar returns for our future redevelopments.

Michael Mas :

I like to think about it in two layers, Mike. And it all kind of -- it's -- I'll summarize as to what I said in the call that it's flat to slightly negative if the bankruptcies were to appear. But when I think about our lease -- our base leasing plan. And again -- and if I think about the SNO pipeline and the fact that we're going to deliver that pipeline, that's a rising level of percent commenced, and that is what's driving that billable base rent line item. However, when you layer in the possibility of bankruptcies, that could lead us in my midpoint scenario to a flat to maybe slightly negative outlook for percent leased. So there's a lot of good news in that occupancy outlook but there's also the potential for some vacancy to come back our way. Not afraid of it to Alan's comments really excited and actively working on re-leasing that space today. But that would be the best outlook on occupancy.

Michael Mas :

Including the scenario I outlined with respect to a reorganization scenario of the tenant in question.

Operator:

Thank you. Our next question is from Tayo Okusanya with Credit Suisse. Please proceed with your question.

Lisa Palmer :

That prioritization has not changed. The best use of our capital has been and will continue to be the developments and redevelopments. We get the best returns. We have a really successful track record of delivering our underwriting and the underwritten returns that we disclosed to you, which are clearly a premium over competitive bidding acquisition market. At the same time, we do have the capital to invest, as I just stated. And if we are able to check those boxes of accretive to earnings, accretive to quality and accretive to our future growth rate, then we will invest in high-quality shopping centers as well. We've been successful with that. We had quite an active -- really the past two years, we've been successful in closing on shopping centers that check all three of those boxes, some off-market and one or two that were actually competitive bidding as well. And share repurchases, we've had the opportunity to take advantage of what we believe to be a significant dislocation in the market a few times in the history of Regency, and we will continue to use that arrow in our quiver when the opportunity presents itself.

Operator:

Our next question is from Paulina Rojas with Green Street. Please proceed with your question.

Lisa Palmer :

I'm going to Paulina, going to -- I'll let Nick handle this as he's -- again, we haven't been active, as you've seen from the results as I said, the market is falling, transaction activity is still pretty thin. But Nick's team is the one along with Barry Argos are really kind of farming those opportunities. So I'll let Nick address that.

Paulina Rojas:

And can you characterize point to a specific segment of investors that are back at the table that have regained confidence? Because we also hear a lot of institutional investors that are selling product and need to sell product today. So how can you characterize the demand at the margin that you are seeing coming back?