Q2 2021 Regency Centers Corp Earnings Call

August 6, 2021

[music].

Greetings and welcome to Regency centers Corporation second quarter, 2021 earnings conference call.

At this time all participants are on the listen only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad as a reminder of this conference is being recorded.

I would now like to turn the conference over to your host Christine and Macau Alright. Thank you you may begin.

Good morning, and welcome to Regency centers second quarter, 2021 and earnings conference call joining me today or at least the Palmer President and Chief Executive Officer, Mike Mas, Chief Financial Officer, Jim Thompson, Chief operating Officer, and Chris Leavitt SVP and Treasurer as a reminder, today's discussion may contain forward looking.

Statements about the company's view of future business and financial performance, including forward earnings guidance and future market conditions. These are based on management's current belief the current beliefs and expectations and are subject to various risks and uncertainties. It is possible. The 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 and our most recent form 10-K, and 10-Q filings and our discussion today. We will also reference certain non-GAAP financial measures the comparable GAAP financial measures are included.

And this quarters earnings 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 additional disclosures related to forward earnings guidance and the impact of COVID-19 on the company's business Lisa.

Thank you Christy good morning, everyone and thank you for joining us this morning.

We are pleased to report another quarter of results, reflecting strong progress toward recovery the.

<unk> has continued to rise following the removal of the most capacity restrictions across the country.

Our portfolio of foot traffic is now back to at least the 100 per cent of pre COVID-19 levels and nearly all of our markets and we've made meaningful progress on rent collections retailer demand is healthy and this is reflected and our strong leasing activity and we're seeing fewer tenant failures and therefore lower move out activity than we.

We expect it.

We acknowledge the we're not completely out of the woods, yet we are all keenly aware of rising virus cases and in many cities across the country as we experience another wave of the pandemic, new mask and vaccine restrictions are emerging with.

With the risk of perhaps even the return of capacity restrictions and some markets.

But with the knowledge and experience that we and our tenants have gained over the last year and a half we feel good about where we stand and long term and our ability to weather additional storms and importantly, if we do see new restrictions, we believe that that impact will be short term, our industry and specifically of regency's portfolio have pre.

Moving at the resiliency and this is most evident and the meaningful improvement and our west coast markets in recent months as all of our tenants were finally allowed to fully operate as the market opens up.

I've said this before and I'll say it again, the best shopping center assets will continue to thrive and the post pandemic world.

And last quarters call, we discussed pivoting to office, we are confident and our path to recovery and our strong balance sheet and access to low cost capital gives us a competitive advantage and developing and acquiring on and earnings and quality of accretive basis.

We have a really successful track record in that regard and so with this pivot we started our multi phased west Bard project, and Bethesda, Maryland, and we expanded our existing project enrichment, Virginia, which I might add has experienced experiencing robust tenant demand.

Looking forward, we remain encouraged and excited about additional opportunities and our pipeline.

Earlier. This week, we also purchased our partner's 80 per cent share and our USAA joint venture a great opportunity to allocate capital on an accretive basis into high quality assets that we have known and operate it for 20 years.

We raised equity during the quarter through our ATM on a forward basis funding this transaction as well as providing additional capacity for future investments.

As always we are active and pursuing and evaluating acquisition opportunities and today's transaction market. However, we do continue to see even greater competition for deal for.

And for deals there's been meaningful capital formation targeting high quality grocery anchored neighborhood and community centers as the investment market appreciates the demonstrated performance and resiliency of these high quality assets. So as a result, and as you would expect we've seen continued compression of cap rates for these types of assets across all of our target markets.

Before I turn it over to Jim I'd like to take just a moment to touch on something that's extremely important to regency and for me.

1 of the highlights of the second quarter for US was the release of our 2020 corporate responsibility report, which allows us.

The opportunity each year to showcase our leading ESG practices, where.

We are proud of our accomplishments across all 4 pillars of our strategy our people our communities governance and environmental stewardship.

So please allow me this opportunity to share several highlights from the from this report and our progress over the last year and again. These are just highlights.

The development and implementation of a more robust diversity equity and inclusion strategy.

Of gender pay gap that is now essentially zero and.

Impressive philanthropic efforts by our team members and what was the really challenging personal environment as well as professional and.

Increased tenant and community engagement during the pandemic for which we were recently recognized by ICSC with 3 Max The awards for.

Further progress on board diversity and refreshment the.

The introduction of and ESG metric for executive compensation, the issuance of our first Tcf day report on climate change risk.

And finally outperformance and our reduction targets for greenhouse gas emissions energy efficiency and waste diversion.

Strong corporate responsibility is the foundation of our company is ingrained in our culture and no doubt, it's part of what makes us great and.

And just as we approach all aspects of our business, we look to continue to improve and evolve our breath of the best practices over time, Jeff.

Thanks, Lisa and good morning, everyone.

We remain encouraged by continued improvement and operating trends and our portfolio.

Including increased foot traffic higher rent collections and strengthening leasing activity we.

And we took another big step and a recovery during the second quarter as many more operating restrictions were lifted providing and necessary catalyst to convert many more of our tenants back to rent paying status.

While the progress results are very rewarding and we realize it's not all clear sailing.

We continue to monitor the implication of rising Covid case levels and implementation of masks and vaccine mandates and certain geographies around the country.

But in contrast to earlier periods of the pandemic vaccines are now widely available.

Consumers are resuming more normal behaviors shopping in stores eating at restaurants, and working on and fitness clubs.

As of mid July nearly all of our 22 markets are now at or above 100% of 2019 foot traffic levels.

And after nearly a year and of half of operating in this environment.

Many of our tenants of learned to roll of the punches, demonstrating resiliency and creativity and adapting to evolving normal.

Moving to rent collections, we again saw improvement in all regions with Q2 and July collections.

At 96% at this point.

Our unresolved bucket continues to shrink.

As tenants have been able to get back to fully operating our teams have been successfully working to get them rent paying again.

Our leased and commenced occupancy rates ticked up this quarter, reflecting reduced move outs, but also strong leasing activity, which I'll touch on it but.

But more importantly, our net effective rent paying occupancy, which we've discussed previously is up over 150 basis points sequentially to north of 88%.

We continue to believe this is the best indicator of Recut.

The recovery progress.

We also had another strong leasing quarter exceeding 2019 levels on both new and renewal leasing as the teams are working tirelessly to get vacant space backfill to accommodate the demand we are seeing.

We're pleased to see great activity across all regions, including the harder hit states out west.

Our leasing pipelines look healthy for the remainder of the year with active interest from tenants and categories, such as grocery and medical restaurants fitness.

Pet related uses of price health and wellness and some traditional mall retailers like home athletic eyewear and cosmetic.

Although activity is strong we are seeing some impact from rising material cost labor shortages and permitting backlogs and local municipalities all contributing to continued pressure on rent commencement timing.

Our tenants are also experienced inflationary cost pressures and staffing shortages and the normal course of operating their businesses.

We are here and when we speak with our tenants that are that they are generally able to pass on many of these higher costs to consumers, especially and the traders that we operate in reflected and strong sales of among many of our grocery and restaurant tenants.

We saw improvement and rent growth and the second quarter as well as we are making fewer short term pandemic related concession.

Sessions to bridge our tenants.

We continue to push embedded rent steps to maximize revenue and cash NOI growth over the life of the lease and our GAAP rent spreads are back above 10% and closer to our 15% historical average levels.

As our leasing activity has ramped back up we also remained focused on maintaining a prudent level of capex spend.

Our positive momentum and leasing activity also extends to our in process ground up development and redevelopment projects.

And of crossing Clarendon redevelopment and Arlington, Virginia, we're very excited to announce that we just signed a new lease with lifetime.

This premier health and Wellness club with the co working component will take over 100000 square feet of the for story loft building.

Reducing lease up risk by bringing the project over 90% leased from 3% a quarter ago.

And providing and earlier than expected rent commencement date.

At the Abbott and Cambridge, Massachusetts, we have for signed leases and we've seen significant increase and office market tours and now the restrictions have lifted employees are returning to offices in Boston and students are returning to Harvard.

As mentioned on our last call and the second quarter. We started the phase 1 of our mixed used Westport project and Bethesda, Maryland.

The first phase of this project will include a new giant anchored.

120000 square foot podium style retail building with structured parking and about 100 senior living units being developed in partnership with the best in class Senior housing developer operator.

Regency's net project cost for this phase will be about $37 million net.

Net of land sale proceeds.

We are seeing some modest impacts from higher construction material and labor costs.

But our underwriting had had cost escalations built in for that and thus far the impacts to our projections have been minimal.

In summary, we have a lot of good things happening, we're very encouraged by the trends, we're seeing and the progress we've made due in large part to the hard work of our management leasing and development teams and the field.

Alright.

Thanks, Jim.

Good morning, everyone and thank you for joining us I'll begin by addressing the second quarter results and then walk through the changes and our full year guidance.

As well as the moving parts of the JV portfolio transaction and capital raise.

Second quarter of NAREIT <unk> was <unk> 99 per share helped by several items.

Collectible lease income was a positive $7 million and the quarter.

As reserves on current period billings of approximately $5 million were more than offset by the collection of 2020 reserved revenues associated with cash basis tests of close to $12 million.

You can see this breakout of our uncollectible lease income on our Covid disclosure page 33 of the supplemental.

As you may recall, our previous full year guidance range assumed about $30 million.

<unk> of 2020 reserves during 'twenty 1.

Well, we have already exceeded that as of quarter and.

We also benefited from a higher recovery rate and the second quarter following the better than anticipated outcome from our annual reconciliation process.

We do expect a recovery rate to revert back to more normal normal levels going forward.

Most importantly, we are seeing higher than expected collection rates on a cash basis tenants of 86% and the second quarter.

It's up from 78% and the first.

During the quarter, we raised close to $150 million of common equity through our ATM program on a forward basis at an average price of about $64.50 per share.

We currently plan to settle and the third quarter roughly $85 million to fund the equity component of our recently completed the USAA JV buyout and view the balance of the capital raise is capacity for future funding of investment opportunities.

We can settle the remaining shares at any time before June of 2022.

The buyout of our JV partner's, 80% interest and the portfolio of closed effective August 1.

As Lisa mentioned this was a unique opportunity to invest and high quality assets on a leveraged neutral and earnings accretive basis.

The cap rate was about 5.5%.

In addition to the partial settlement of the forward ATM funding for the transaction includes our assumption of the partner share of mortgage debt and $13 million of promote income received upon liquidation of the JV.

Turning to guidance, we point you to the detail and our earnings slide deck posted to our website.

We've previously discussed the larger needle movers to our earnings and they certainly continued to move and the right direction.

Resulting in another healthy increase to our full year expectations.

The most meaningful change that we made was to our same property NOI forecast up 725 basis points at the midpoint and.

And we reconcile the components of these changes and our slide deck.

Of this change 225 basis points is attributable to an increase and our forecast for the collection of previously reserved in 2020.

Our forecast for the year is now $45 million up from $30 million previously.

Of the $45 million as I mentioned earlier, we have recognized about 32 million 3 quarter and and have collected another $3 million in July.

The other 500 basis points of the guidance increase is driven by fundamental current year improvement.

Supported by higher collection rates from cash basis tenants and lower move out activity.

Reflecting the progress we experienced and the second quarter and raised expectations for the balance of the year.

Please also note that we've added the $13 million promote income tied to the JV portfolio transaction to our NAREIT <unk> forecast, which will be recognized and the third quarter.

We will not include this 1 time transactional income and our core operating earnings metric.

While we have not yet moved any tenants back to accrual basis accounting from cash basis, we are continuing with our evaluation and expect a subset of tenants that have remained current on rent to qualify and the second half of this year.

And while conversions may have a positive impact on straight line rent and NAREIT <unk>, we have not yet included any of this movement and to our revised guidance range.

From a balance sheet perspective, we remain on very solid footing as our free cash flows continue to grow meaningfully benefiting from a low payout ratio without having reduced our dividend our leverage continues on a visible path back to pre pandemic levels.

We have cash on hand for revolver capacity.

No unsecured debt maturities until 2024 and balance sheet capacity remaining from our forward equity raise to be opportunistic.

As we have discussed previously we continue to expect a recovery back to 2019 NOI levels by the end of next year on an annualized basis.

Primarily due to the time it takes for rent to commence on back filling vacant space.

With every dollar of reserved rent that we are able to recover and with every tenant we can convert back to rent pain, rather than absorbed the vacancy the shallower of the trough and the higher the level from which we will continue to grow.

With that we look forward to taking your questions.

At this time, we'll be conducting a question and answer session. If you'd like to ask a question. Please press star 1 on your telephone keypad.

A confirmation tone will indicate your line is and the question queue.

You May press star 2 if you'd like to remove your question from the queue.

And for participants using speaker equipment and may be necessary to pick up your handset before pressing the star keys, 1 moment, please while we poll for questions.

Our first question comes from Katy Mcconnell with Citi. Please proceed with your question.

Great. Thank you so for.

First just wondering if you can provide some more background on how the USAA transaction came about and then how youre thinking about acquisition opportunities going forward.

Hey, Craig.

This is Mike I'll start and I think Lisa will jump in to talk about forward opportunities.

The transaction what was presented itself I mean, obviously not too long ago.

The USAA is really the real estate adviser of the representing a consortium of investors.

So I think what they and to give you a little bit of history that JV was formed in 2009. So if you think about that buy and opportunity.

This was a really good opportunity for that consortium to crystallize the return.

And we were we were able to take advantage of that and as with any JV, whether single asset or portfolio. The partner is likely your best first option as a buyer and we were there ready for that we were very happy to buy and these properties, we've owned them and operate them for 20 years now none of them extraordinarily.

Well they fit in very nicely with the portfolio.

Victor is M is very consistent with our high quality assets and.

Very happy to move forward that transaction.

And just and thinking about forward and I think I'll take you back 3 months.

And when we talked about turning the corner because thats really when we we really had the confidence and we talked about the pivot to offense.

And that we have a much clearer path to continued improvement and we continue to see that which is great and with that and free cash flow and excess of $100 million. The really strong balance sheet that we have access to low cost of <unk>.

Other low cost of capital.

Just as I said in my prepared remarks, we have a really successful track record and not just acquire and K, but also developing.

So using that access to capital and that low cost capital is the competitive advantage to continue to.

To have accretive investments going forward and we're always looking.

Great and then maybe on the development side now that you've started the second phase of Cary Towne and the Westborough project can you comment on how pre leasing guidance. So far for the retail component and then for Wes fired way stand on future phases for rocky as far as securing partners.

Yes, Jay it's Jim.

And on carrier Cary Towne, and I'll take that 1 first.

We've had good really good activity and.

A couple of executed leases names you may know towards the Taco out of Texas has migrated to North Carolina and.

Opening days and 1 of our other centers in that marketplace Adam.

The 100 people deep so north Carolina people like tacos as much of it like barbecues when it appears.

Also we've got the Virginia, ABC liquors and execute of deal prospects.

Probably the most iconic high and jeweler and the.

The Richmond marketplace is.

As is and dialogue with us as well as the Lulu Lemon. So that gives you a flavor of the type of tenants we're talking to there.

As far as West Bart.

We're very very early obviously, we've just started construction we've got a ways to go.

But we've had some good early dialogue with with some tenants that have expressed interest.

Yes.

But we feel very confident that the products can be very very very well received and the marketplace.

As to the partners. We have continued dialogue with some folks that we've been engaged with for the last 2 years and we're working towards.

Finalizing agreements at this point.

On the phase III.

Okay, great. Thanks, everyone.

Thanks Kay.

Our next question is from Derek Johnson with Deutsche Bank. Please proceed with your question.

Hi, everyone. Thank you.

So how have conversations gone with key political leaders in your markets, especially the west given your exposure and I'm sure you guys have had them do you get a sense that they have learned from the shutdowns last year and are perhaps more comfortable with local retailers preparedness and ability to maintain a safe environment.

<unk> for shoppers and tenants have any conversations, giving you greater confidence in the officials and maybe there the <unk>.

<unk>.

Possible handling of any pandemic related to bikes anything you'd share would be helpful.

Yes, I don't know that I can speak to what political leaders may or may not do because that could change even regardless of what they say I think but just the confidence and what we what we have seen in terms of when markets are open and how our tenants are retailers.

Our service providers are still operating safely even when there were restrictions when there were.

And more.

Protocols, if you will that I do believe that that has given the confidence to the tenants who have really big voices and their local communities as well speaking to the to the local leaders and the political later so it's not just the it's not just the shopping center owners that are speaking, it's the it's the real constituents that 1 business.

<unk> operate businesses and live and the communities that have the loud voices and I think thats, what theyre really hearing so we do have confidence that and.

And I mentioned this in my prepared remarks, EBIT, if we we.

We do see increased restrictions from.

Masking, our vaccine restrictions or even potentially some new capacity restrictions.

The better operators have learned they've adapted.

And we believe that we're going to continue to see improvement as we go forward.

Thank you and thank you for that Lisa and can we just Mike maybe run through the reserve collection of assumption and better than guidance, a little bit I believe you collected $32 million versus 30 million and we were previously expecting year to date.

And then the positive change to $45 million and recoveries throughout.

Throughout the second half and indicates the run rate of around $6.5 million per quarter and the second half.

Should we anticipate a higher collection rate and 3 Q for modeling versus for Q.

Or should we kind of just balance it out and the second half of the year.

And.

Clearly it seems like there's an opportunity there and hopefully surpass the $45 million level any color is welcome and thank you.

I appreciate it the Eric and I'm going to do the best I can.

It's very difficult to predict the timing of those collections and.

And we did offer of the $3 million and July so at least we have that kind of a larger pop.

And everyone can put into their models, but I think beyond that.

<unk> would be the.

To kind of consider it on the straight line basis as we as we finished out the year, we do obviously feel confident in and that $45 million midpoint number it can move around within the range.

Could collect a little bit more we may collect a little bit less it is and unpredictable.

It is a challenging number obviously to get our arms around given the changes we had throughout the year as I think about the same property range just to bring it up a little bit.

And maybe the bookends will be helpful. For everyone is the midpoint of the range is essentially assuming that the net effective rent paying occupancy level, which we described that's about 88% today just continues to grind higher through the balance of the year. So said another way cash basis tenants, we are anticipating a slow north.

We are the trajectory on their collection rates.

They are at 86% today, that's 20% higher than they were coming into the year in January So we've had a remarkable level of increase there.

I said this on last quarter's call I'll just reiterate it if you to think about that range, 1% collection rate on our cash basis tenants is worth about $3 million on a full year basis of income. So that can also help us help everyone to think about the tolerances and the range.

And I think with that with that book and of the 1% equals 3 million I think with the $45 million of which all but 10 has been accounted for and collected at this point and time.

And I think with those 2 pieces, we're just trying to be as transparent as possible and that'll help everyone.

Think about that that full year range that we've offered.

Thanks, Mike very helpful for me sure.

Our next question is from Craig Schmidt with Bank of America. Please proceed with your question.

Thank you.

I know you've been touching on external growth and.

Its acceleration, but now with the acquisitions, you have the lower and more competitive cap rates with redevelopment TNF higher construction.

The cost of labor and material.

Just wondering which of those levers.

As the most appealing and in terms of the driving and external growth acquisitions or redevelopment.

Okay.

We need and and Craig.

And because I'd love to say all of the above.

Okay.

<unk>.

We've always said this very.

And very consistently.

If you make me choose clearly I'm going to choose the line that has the higher returns.

And so the best use of our capital.

Is it.

Redevelopment and investing back into assets that we know and we are able to.

And that we've owned and operated for quite some time and get really accretive returns.

But with that said I do like the I like the and word and I would like to be able to say that we can do all.

To the extent that we can leverage our platform, our knowledge and the markets and our low cost of capital and add to our portfolio base.

High quality assets that are accretive to our quality and accretive to earnings. So it allows us to then further grow our cash flows and further grow NOI.

And I'd like to do I'd like to do at all.

And then just and just looking at the percent leased at close to the Mariner at 66% I assume that retailers are interested in redevelopment slash developments.

And pursuing those of the.

I mean, the patient opportunities.

Yeah, and Jim can add.

Can add some color for you, but the cost of every day as an exceptional.

Location and real estate asset and the fact that we have the ability to add as much value as we're going to add there really speaks to that and validates that.

There is there will be when we do commenced the full redevelopment there already is and will continue to be a tremendous amount of demand for the retail space there.

Great and then 1 last question.

And I don't know if its mix related but I am wondering why of the new our new leasing spreads on new leases is flat and <unk> 21.

Craig It did have a little bit to do with mix, we had we had.

And heavier than normal mix of shops versus the acreage this quarter.

But importantly, I think I'd like to stress the trend line is.

For spreads is really moving in the right direction as are all of our operating metrics.

Our philosophy on prudent Capex spend certainly impacts of this this metric.

And having said that I would say our capex as a percentage of total NOI tends to be at the lower end of the peer group, which does allow us to maximize free cash flow.

As we sit there and look at our business and try to make asset management decisions.

We look we look at total rent and total rent includes obviously these these initial spreads.

Embedded rent steps, which we continue to be very successful and achieving.

Growing expense recoveries, which we I think do very well year on year out and.

And the lease up our space back to historic levels.

Zinc and combination all of those actions are going to result in the the larger objective of creating sustainable NOI.

And earnings growth and the long run.

Okay. Thanks for that color.

Thank you.

Our next question is from Greg Mcginniss with Deutsche Bank. Please proceed with your question.

And I guess scotiabank.

Hello, and good morning.

Good morning.

Okay.

And you show me the sequential lease.

The occupancy growth accelerating leasing volumes and I wonder if some of the tailwind maybe headwinds to tenant retention and demand.

And how should we think about the cadence of potential recovery and economic occupancy for the net effective rent paying occupancy I guess.

I'll start with our goalpost, which we which we did reference on the call, but we continue to see.

Our return of recovery to 2019 levels of net operating income and the on an annualized basis sometime.

And I'd say back half to the end of 2022.

We're very hopeful Greg and we're working hard to pull that forward, but 1 of the challenges there. If it is a headwind versus the threshold issue is we lost about 200 basis points of occupancy.

As a result of the pandemic, we need and we are making progress leasing that up but that does take time and it's pretty visible to see how much time. It takes to lease to build out to commence rent so that to bring that forward.

Meaningfully is more challenging, but we are working as hard as we can to do that.

And maybe Jim can talk a little bit about some of the headwinds that he sees from the operator side and and the leasing activity.

Yes, Greg.

Before I go on the headwinds I think I would I would like to touch back on.

The activity, we're seeing today is very strong across all regions.

I think when I look at the pipeline and look forward.

It continues to be robust.

I think from a tailwind standpoint, I think the leasing opportunity is in front of us and we're going to take advantage of it.

As Mike indicated we've got we've got more vacancy than we've had historically so I think we've got product, we've got demand and we're going to make those 2 things.

Turn into rent paying occupancy.

Headwinds, obviously are what we've talked about I think there is there is labor issues.

Theres pricing supply chain issues.

How those shake out we don't know I will say today the tenants the retailers are are dealing with that.

Lot of a lot of them are able to pass through those costs to consumers at this point.

So it really feels like.

Things are turning to the blow and our way right and that there are headwinds and we're watching them, but they're not stopping progress I.

And I think that in the.

That's the best way to think about it and if you think about we had headwinds headwinds were far greater than tailwind in 2020.

And it is flipped and the tailwind of clearly stronger than than any any headwinds that we're facing right now.

And maybe to dig into that a little bit more and I appreciate the color.

Im sorry, the tenant watch list analysis highlights the much improved environment compared to the last few years and this.

Curious what is your your view on that how is your watch list of exposure improve over the last 18 months.

And what are you still viewing and maybe some of the higher risk tenants or industries.

Let me start with the watch list, Craig I think our view would mirror yours.

And as we look back at our watch list over.

Years, and <unk> consecutive quarters, it's meaningfully improved much by subtraction right. So we've had a lot of tenants who have kind of worked through the the system and as.

File bankruptcy and moved out of our centers and we are.

Finding opportunities to re lease those spaces. Those that have remained many of them are and improve their credit quality.

And whether through operations.

Where this pandemic may have been a tailwind for certain necessity based retailers and essential retailers.

Or through access to capital markets, whether privately and publicly theres been a lot of improvement from a credit quality perspective, there. So.

Our view is much like yours are much different landscape and and improved landscape.

Jim anything on the.

You hit it on the headline.

And.

And I think that's great.

And maybe the often drop.

Let's move on to the net.

Our next question comes from 1 the Santa Maria with BMO Capital markets. Please proceed with your question.

Hi, good morning.

Just hoping we could talk a little bit about just market rents and how those of trended for.

And I guess, both the anchor and small shop space, just generically across your portfolio and and.

And whether or not rents are truly and fact, raising rising and if and if so if you've seen kind of any degradation and maybe inferior space.

People look to improve.

Improve the quality of where they're located and the stronger getting stronger, but just curious on what what's the actual market rent growth has been maybe over the last 6 months of relative to 2019.

Well I would.

And I guess I would tell you that.

From my seat it appears market rents are really pretty steady from what we've seen before.

Pandemic.

The strong centers attract good retailers and good retailers want to be next to other good retailers. So it's it's the system we're used to.

To thriving in.

And as.

And I said a minute ago, we've got more space and we've had before and that is generating a lot of interest and activity from from retailers, who want to be in our product type.

But to answer your question simply I think market rates are what we were used to seeing pre pandemic and general.

Okay, Great and then just.

On the joint venture as any other opportunities with existing partners too.

To buyout their interest and.

Over the next 12 to 18 months or any <unk>.

The maturing or things like that where you could have some goalposts that are and you can see if you could maybe convert on.

Hey, Ron.

All of the ventures are of long lives. So theres no finite life to any of them. So there is nothing kind of contractually that would bring an opportunity to the horizon.

As we mentioned this was a unique opportunity with the particular joint venture and a group of owners.

That could change for our other of JV partners going forward, but at this point and time. They are all very well committed to the space the enjoy their allocation of the grocery anchored retail their portfolios.

Our portfolios are performing well very consistent quality to regency's overall quality.

So we're there.

And we could be there is the potential buyer as we have with USAA, but it's going to take.

Willing seller at this point and we don't have that right now and I think that Thats really probably 1 of the most important points out and if they do become a willing seller.

The we have the capacity and the ability to act.

Thank you.

And.

Our next question comes from Richard Hill with Morgan Stanley. Please proceed with your question.

Hey, you got Rod Cabinet I'm on for Richard Hill, Congrats on a great quarter, 2 quick ones just on the foot traffic.

Impressive recovery back to pre Covid levels. Just curious is there any discernible change and spending patterns and our people spending more as at the different demographics base, just sort of any curious if <unk> seen anything different.

On the spending patterns and intentions.

From now versus pre Covid.

Yes.

I think initially.

Initially what we were seeing were.

Bigger fewer baskets the bigger baskets so people were.

Is that describes the probably trying to come less often but buying.

Equal or greater.

I think.

My impression is that is leveling out to kind of the.

And the foot traffic, obviously is coming back so I think the basket size is likely coming down slightly but when you look at the sales of grocers and we.

And we listened to all of the teams report quarterly <unk>.

Activity the <unk>.

Number of restaurants that across the country, we're really generating significant.

Increases above 2019 levels.

During the summer it was impressive.

Clearly to me anyway indicated that the traffic is coming back and they're not just showing up and walking through the centers, thereby so we're pretty happy with what we're seeing.

Great and then my second question was just going to the guidance change I think the commentary from the cash basis is pretty clear.

But just a little bit more of Karl on the lower move out activity sort of what are you. What did you see and the first half of the year and maybe what are you assuming and the second half and how does that compare to a normalized year.

I'm going to I'm going to limit my comments of net effective rent paying occupancy Ron really.

We don't see a better measure for 'twenty, 1 performance than that and and the reality is because the the uncollectible of leasing component and so the inverse of our collection rate that's the biggest needle mover and the numbers.

At the same time, we were gratified to see higher levels of lease activity and.

And forecasted lower levels of move out so that that is going to speak more to our.

Our belief that we will continue to grow into 'twenty 2 and beyond.

But from from a.

Giving guidance on where we and from a percent lease perspective, I think we're going to limit it to just net effective rent paying occupancy today is 88% or so we think that will continue to grind higher through the balance of the year.

Got it thanks guys.

Our next question is from Mike Mueller with Jpmorgan. Please proceed with your question.

Yes.

Development and redevelopment pipeline.

Free heavily skewed toward redevelopment and I'm. Just curious is there a shadow pipeline of new opportunities that we could see start off over the next few years.

Yes, Mike absolutely.

And as the World recovers there is an appetite from the grocery.

Sector for growth.

We're certainly in tune with that and working hard too.

Locate sites, our Shadow pipeline is building and my opinion nicely.

And.

We're talking to the type of traditional <unk> and <unk>.

And grocers that are historically.

Used to doing business within our portfolio. So yes, we feel pretty good about what we're seeing out there from an activity standpoint, and Mike you've heard us speak to that before right developments not of switch turn it on and off and even throughout 2020, while we may have paused.

Pending we did not pause advancing the ball and projects. We are already working on and the team was working really diligently to ensure that we continue to move those forward. So we do expect that youll continue to see.

And that shadow pipeline convert.

So a real and progress pipeline.

Got it okay. Thank you.

As a reminder, if you'd like to ask a question. Please press star 1 on your telephone keypad 1 moment, please while we poll for questions.

Our next question comes from Linda Tsai with Jefferies. Please proceed with your question.

Hi, good afternoon.

Given the consolidation and the shopping center space, just having 2 larger peers and the space change the competitive landscape.

Maybe in terms of acquisitions or conversations with tenants from the leasing standpoint.

I'll hit from the competition from acquisitions and all that.

Jim touch on on leasing.

I don't believe that it does.

And.

The acquisition landscape has always been competitive.

<unk> of the size of those competitors I mean, there are times, depending upon which market that you are.

And that we're looking in.

And we could be going up against some of our larger public peers are we can certainly be going up against smaller and then also private capital as well and the competition is really coming and the capital for investing and high quality grocery anchored shopping centers is really coming from many sources.

Small large private public.

And from a from a leasing the leasing standpoint.

Hi.

The quality of the asset the quality of asset and early does get down to the individual asset and.

So I don't think the.

And the competitive set changes quite frankly from and from an owner's perspective.

Thanks, and then Mike.

And Mike relative to your comments about cash basis going back to accrual potentially benefiting the second half of 'twenty, 1, but not being factored and estimates and your forecast what's the best way to think about magnitude of the potential benefit is like a couple of pennies or far greater slug like the benefit.

Cash basis tenants, helping to queue.

Linda I appreciate the question believe me and him and.

It's unfortunate that we're in this position of the of the accounting requirements and it is providing volatility and potential for volatility and our <unk> guidance and forward looking.

But I can't.

It is equally hard for me to give you an estimate there.

The best we can do is be as transparent as possible, which which includes really 2 things..1 it is likely that from some tenants will flip back to accrual accounting this year.

And.

As I talked about last quarter and then this there is about 13% of our ABR that's current on rent.

That is currently classified as cash basis tenants, so that would be a.

And indicator of.

And how large that potential population could be and I'm, not saying that all of those will flip and because we are setting pretty high thresholds and standards.

Before we will convert the tenant from cash basis to accrual.

And then lastly, let me just add this is why we continue to report on and use core operating earnings as and earnings metric. We are eliminating the impact of the non cash. This is how we're running our business. This is how we talk about making decisions internally and this is what we talked to our board of about we continue to believe that that is the.

The best operating metric to keep a finger on the pulse of our success.

Thank you.

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

Hi, everyone can you talk about the series you sold this quarter did you get credit for the entitlements you had in place or was it something you are still entitling.

Hancock and Hancock I'm sorry.

Yes.

And we were going down the path early on on the Sears building, we determined that.

The alternative use other than retail was probably higher and better use.

So we absolutely did go down the path of entitling for office.

And that's the direction we were headed.

We ended up engaging with and.

And office Slash medical user.

<unk>.

We wanted to be and owner versus.

And let's see so.

That was the pivot we made we're looking to.

And to transform that asset into the the highest and best value, we could and we determined that the selling to this end user was the best way for US. The good thing is there is still a neighbor and theyre going to be generating high daytime traffic for us for our soon to be Redeveloped HEB expanded store and so.

It's very.

Very good win win for us.

We sold an asset to a great operator, and they are going to be a terrific neighbor.

Got it thanks for that and then.

Mentioned and more capital coming into the space looking at shopping centers would you look to do more joint ventures or more with users and partners.

On the acquisition from.

I mean, we've always spoken about our joint ventures and <unk>.

The joint ventures will serve the purpose of access to capital, which knock on wood.

We don't need right now from them.

Or access to expertise.

There could perhaps be.

The <unk>.

Some scenario, where that's the case, but also and that's probably also unlikely.

More of the opportunity will come on it's actually access to properties or access to actual and opportunities and so to the extent that the joint venture partner allows us to have access to and opportunity that we may not otherwise have been absolutely we would entertain it and that's how we think about it.

Thanks, everyone.

We have reached the end of the question and answer session. At this time I would like to turn the call back over to Lisa Palmer for closing comments.

Yeah.

Thank you all for joining us on a Friday I appreciate your time and I also do on the just give a quick shout out to the <unk>.

Regency team and thank you for a great quarter and great results and.

Everyone have a nice weekend.

This concludes today's conference you may disconnect your lines at this time and we thank you for your participation.

[music].

Greetings and welcome to Regency centers Corporation second quarter, 2021 earnings conference call at.

At this time all participants are on the listen only mode. A question and answer session will follow the formal presentation. If any much require operator assistance. During the conference. Please press star zero on your telephone keypad as a reminder, this conference is being recorded.

I'd now like to turn the conference over to your host Christine Mcelroy. Thank you you may begin.

Good morning, and welcome to Regency centers second quarter 2021 earnings Conference call. Joining me today are Lisa Palmer, President and Chief Executive Officer, Mike Mas, Chief Financial Officer, Jim Thompson, Chief operating Officer, and Chris Leavitt SVP and Treasurer as a reminder, today's discussion may contain forward looking.

Statements about the Companys views of future business and financial performance, including forward earnings guidance and future market conditions. These are based on managements current believes the current beliefs and expectations and are subject to various risks and uncertainties. It is possible. The actual results may differ materially from those suggested by the forward looking statements we may make.

Thank you Christy good morning, everyone and thank you for joining us this morning.

We are pleased to report another quarter of results, reflecting strong progress toward recovery the.

<unk> has continued to rise following the removal of the most capacity restrictions across the country.

Our portfolio of foot traffic is now back to at least 100% of pre COVID-19 levels and nearly all of our markets and we've made meaningful progress on rent collections retailer demand is healthy and this is reflected and our strong leasing activity and we're seeing fewer tenant failures and therefore lower move out activity than we.

As expected.

We acknowledge that we are not completely out of the woods. Yet we are all keenly aware of rising virus cases and in many cities across the country as we experience another wave of the pandemic, new mask and vaccine restrictions are emerging with.

What's the risk of perhaps even the return of capacity restrictions and some markets.

<unk> and its resiliency and this is most evident and the meaningful improvement and our west coast markets in recent months as all of our tenants were finally allowed to fully operate as the market opens up.

I've said this before and I'll say it again, the best shopping center assets will continue to thrive and the post pandemic world.

And last quarters call, we discussed pivoting to offense and we are confident and our path to recovery and our strong balance sheet and access to low cost capital gives us a competitive advantage and developing and acquiring on and earnings and quality accretive basis.

We have a really successful track record in that regard and so with this pivot we started our multi phased westward project and Bethesda, Maryland, and we expanded our existing project enrichment, Virginia, which I might add is expiring experiencing robust tenant demand.

Looking forward, we remain encouraged and excited about additional opportunities and our pipeline.

Earlier. This week, we also purchased our partner's, 80% share and our USAA joint venture a great opportunity to allocate capital on an accretive basis into high quality assets that we have known and operate it for 20 years.

We raised equity during the quarter through our ATM on the forward basis funding this transaction as well as providing additional capacity for future investments.

As always we are active and pursuing and evaluating acquisition opportunities and today's transaction market. However, we do continue to see even greater competition for deal for deals there as the.

And meaningful capital formation targeting high quality grocery anchored neighborhood and community centers as the investment market appreciates the demonstrated performance and resiliency of these high quality assets. So as a result, and as you would expect we've seen continued compression of cap rates for these types of assets across all of our target markets.

Before I turn it over to Jim I'd like to take just a moment to touch on something that's extremely important to regency and for me.

1 of the highlights of the second quarter for US was the release of our 2020 corporate responsibility report, which.

It allows us.

The opportunity each year to showcase our leading ESG practices.

We are proud of our accomplishments across all 4 pillars of our strategy our people our communities governance and environmental stewardship.

So please allow me this opportunity to share several highlights from the from this report and our progress over the last year and again. These are just highlights.

The development and implementation of a more robust diversity equity and inclusion strategy.

Of gender pay gap that is now essentially zero and.

Impressive philanthropic efforts by our team members and what was the really challenging personal environment as well as professional.

Increased tenant and community engagement during the pandemic for which we were recently recognized by ICSC with 3 Max The awards.

Further progress on board diversity, and refreshment, the introduction of and ESG metric for executive compensation the <unk>.

<unk> of our first Tcf day report on climate change risk.

And finally outperformance and our reduction targets for greenhouse gas emissions energy efficiency and waste diversion.

Strong corporate responsibility is the foundation of our company, it's ingrained in our culture and no doubt, it's part of what makes us great.

And just as we approach all aspects of our business, we look to continue to improve and evolve our breath of the best practices over time, Jeff.

Thanks, Lisa and good morning, everyone.

We remain encouraged by continued improvement and operating trends and our portfolio.

Including increased foot traffic higher rent collections and strengthening leasing activity we.

While the progress results are very rewarding and we realize it's not all clear sailing.

We continue to monitor the implication of rising Covid case levels and implementation of masks and vaccine mandates and certain geographies around the country.

But in contrast earlier periods of the pandemic vaccines are now widely available.

Consumers are resuming more normal behaviors shopping in stores eating at restaurants, and working out of fitness clubs.

As of mid July nearly all of our 22 markets are now at or above 100% of 2019 foot traffic levels.

And after nearly a year of of half of operating in this environment.

Many of our tenants of learned to roll of the punches, demonstrating resiliency and creativity and adapting to evolving normal.

Moving direct collections, we again saw improvement in all regions with Q2 and July collections.

At 96% at this point.

Our unresolved rent bucket continues to shrink.

As tenants have been able to get back to fully operating our teams have been successfully working to get them rent paying again.

Our leased and commenced occupancy rates ticked up this quarter, reflecting reduced move outs, but also strong leasing activity, which I will touch on.

But more importantly, our net effective rent paying occupancy, which we've discussed previously is up over 150 basis points sequentially to north of 88%.

We continue to believe this is the best indicator of our recovery progress.

We also had another strong leasing quarter exceeding 2019 levels on both new and renewal leasing as our teams are working tirelessly to get vacant space backfill to accommodate the demand we are seeing.

We're pleased to see great activity across all regions, including the harder hit states out west.

Our leasing pipelines look healthy for the remainder of the year with active interest from tenants and categories, such as grocery and medical restaurants fitness.

Pet related uses of price health and wellness and some traditional mall retailers like home athletic eyewear and cosmetic.

Although activity is strong we are seeing some impact from rising material cost labor shortages and permitting backlogs at local municipalities all contributing to continued pressure on rent commencement timing.

And our tenants are also experience inflationary cost pressures and staffing shortages and the normal course of operating their businesses.

But we're here and when we speak with our tenants that are that they are generally able to pass on many of these higher costs to consumers, especially and the traders that we operate and reflected in strong sales among many of our grocery and restaurant tenants.

We saw improvement and rent growth and the second quarter as well as we're making fewer short term pandemic related concession.

Sessions to bridge our tenants.

We continue to push embedded rent steps to maximize revenue and cash NOI growth over the life of the lease.

And our GAAP rent spreads are back above 10% and closer to our 15% historical average levels.

As our leasing activity has ramped back up we also remain focused on maintaining a prudent level of capex spend.

Our positive momentum and leasing activity also extends to our and process ground up development and redevelopment projects.

And our crossing Clarendon redevelopment and Arlington, Virginia, we're very excited to announce that we just signed a new lease with lifetime.

This premier health and Wellness club with the co working component will take over 100000 square feet of the for story loft building <unk>.

Reducing lease up risk by bringing the project to over 90% leased from 3% a quarter ago.

And providing and earlier than expected rent commencement date.

As mentioned on our last call and the second quarter. We started the phase 1 of our mixed used Westport project and Bethesda, Maryland.

The first phase of this project will include a new giant anchored.

120000 square foot podium style retail building with structured parking and about 100 senior living units being developed in partnership with the best in class Senior housing developer operator.

Regency's net project cost for this phase will be about $37 million net of land sale proceeds.

We are seeing some modest impacts from higher construction material and labor costs.

But our underwriting had had cost escalations built in for that and thus far the impacts to our projections have been minimal.

Alright.

Thanks, Jim.

Good morning, everyone and thank you for joining us I'll begin by addressing the second quarter results and then walk through the changes and our full year guidance.

As well as the moving parts of the JV portfolio transaction and capital raise.

Second quarter and NAREIT <unk> was <unk> 99 per share helped by several items.

Collectible lease income was a positive $7 million and the quarter.

As reserves on current period billings of approximately $5 million were more than offset by the collection of 2020 reserved revenues associated with cash basis tests of close to $12 million.

You can see this breakout of our uncollectable lease income on our Covid disclosure page 33 of the supplemental.

As you may recall, our previous full year guidance range assumed about $30 million.

<unk> of 2020 reserves during 'twenty 1.

Well, we have already exceeded that as of quarter and.

We also benefited from a higher recovery rate and the second quarter following of better than anticipated outcome from our annual reconciliation process.

We do expect a recovery rate to revert back to more normal normal levels going forward.

Most importantly, we are seeing higher than expected collection rates on a cash basis tenants of 86% and the second quarter.

It's up from 78% and the first.

During the quarter, we raised close to $150 million of common equity through our ATM program on a forward basis at an average price of about $64.50 per share.

We currently plan to settle and the third quarter roughly $85 million to fund the equity component of our recently completed the USAA JV buyout and view of the balance of the capital raise is capacity for future funding of investment opportunities.

We can settle the remaining shares at any time before June of 2022.

The buyout of our JV partner's, 80% interest and the portfolio closed effective August 1.

As Lisa mentioned this was a unique opportunity to invest and high quality assets on a leverage neutral and earnings accretive basis.