Q2 2022 Regency Centers Corp Earnings Call

August 5, 2022

[music].

Greetings and welcome to the Regency centers Corporation second quarter 2022 earnings call.

At this time all participants are in a listen only mode.

<unk> 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.

And please note that this conference is being recorded.

I will now turn the conference over to Christy Mcelroy Senior Vice President capital markets. Thank you you may begin.

Good morning, and welcome to Regency Centers' second quarter 2022 earnings Conference call. Joining me today are Lisa Palmer, President and Chief Executive Officer, Mike <unk>, Chief Financial Officer, Jim Thompson, Chief Operating Officer, Chris Leavitt, SVP and Treasurer, Alan Ross Senior managing director of the East region and equipment.

Our senior managing director of the West region.

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 beliefs and expectations and are subject to various risks and uncertainties. It is 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.

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.

Thank you Christy good morning, everyone. Thank you for joining us today.

We are pleased to report strong second quarter results, reflecting a still healthy operating environment.

Leasing demand continues to be strong and tenant move outs remain light driving occupancy and rent growth higher.

We acknowledge the increasing macroeconomic headwinds and in our view that makes our results all the more notable we know that we're not immune to the adverse impacts of inflation interest rate increases and recessionary risks all of which could have implications for us, but we very much believe that we are extremely well positioned to weather any economic storm.

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For the remainder of this year as a result of that we're very confident in our forecast as reflected in our guidance increase and looking beyond 2022, regency's portfolio and balance sheet were built for times of greater uncertainty everything we've done over the last decade and every decision we've made positions the company not only to.

Offense and drive growth when times are good but to successfully navigate challenging macroeconomic environments. We are designed to outperform through cycles.

Most recently and the resiliency of our performance through the pandemic and how quickly we were able to pivot back to offense and return to pre pandemic levels of NOI earnings per share and leverage.

Importantly in the context of the current environment the demographic profile of our trade areas is supportive of a consumer that has more cushion to absorb pressures from inflation and economic softness.

And in times, when tenant bankruptcies, maybe elevated or locations tend to be among the best performing limiting occupancy decline.

Additionally, current positive momentum as a source of tailwind into 2023 and beyond first and foremost is our strong pipeline of leases both executed and those are no gate and negotiation.

Also next year, we will see an even greater benefit from development and redevelopment NOI coming online.

And finally, as we've been saying our dense suburban neighborhoods and communities continued to benefit from structural tailwind stemming from post pandemic migration and hybrid work.

Where we have begun to see some impacts from the current environment is in the capital markets, but again, we are extremely well positioned the strength of our balance sheet and our low leverage afford us the luxury of not needing to raise capital when it's not advantageous to do so.

And our dry powder and ready access to capital give us a competitive advantage should opportunities arise a prime example of that was the execution of our share repurchases in the second half of June we saw a window of opportunity to essentially by our own high quality properties in a mid 6% implied cap rate range, a meaningfully more attractive price.

And then what we would pay for anything comparable in the private market today.

We were uniquely positioned to take advantage of that dislocation, given our balance sheet strength and liquidity position.

We can't control the macro environment, but we can control our response to it as we sit here today, we remain confident in our operational strategy and our balance sheet strikes regardless of the macro backdrop.

Closing out I'd like to comment briefly on ESG as many of you know that had been covering regency for awhile, we take pride in having best in class sector, leading environmental social and governance programs across which we continue to meet or exceed our goals.

We did publish our annual corporate responsibility report in late May and also announced an interim 2030 target for reducing absolute scope, one and two greenhouse gas emissions, which was endorsed by the science based targets initiative. We also set a long term net zero target of 2015, we.

We don't take these commitments lightly these targets were established after extensive work by our team to identify and analyze the impact of specific initiatives that will help us reach these goals, which includes further improvements in common area of energy efficiency and continued growth in our onsite solar program.

Corporate responsibility as a foundational strategy for regency and it has been for many years, it's part of our culture and is fundamental to what we do as is our commitment to portfolio quality and balance sheet strength Jim.

Thanks, Lisa and good morning, everyone.

While we are keeping a close eye on increasing economic pressures in the U S. Today, the operating environment for our open air retail centers currently remains healthy and active.

We had a great second quarter operating results, leading us to further increase our 2022 same property NOI guidance by 100 basis points to 5.25% at the midpoint, excluding prior year collections.

This confidence in our outlook is driven by continued positive vectors in our key metrics.

First continued robust tenant demand with new leasing volumes up 20% year to date versus the historical average.

Increasing occupancy both on leased and commenced spaces, especially on shop space as we backfill space vacated during the pandemic.

Our tenants are paying rent and we're nearly back to more customary levels of current period bad debt.

Retention rates remained above historical average cash spreads for nearly 9% in the second quarter.

We're embedding contractual rent steps and close to 90% of our executed leases.

Especially important in this inflationary environment contributing to GAAP rent spreads of 17%.

Strong tenant sales reports again contributing to higher percentage rent and we're maintaining low levels of leasing capex with net effective rent growth also in the mid teens.

Our success and momentum relating to all these key drivers of our business gives us continued confidence in the strength of our core operating outlook.

As Lisa discussed, we do acknowledge the heightened risk of softer economic environment.

<unk> the potential for an uptick in tenant failures.

We're not seeing that yet and as tenant move out activity has remained light and.

And we believe that is a result of the purge of weaker operators that occurred during the pandemic.

Our tenants are as healthy as healthy as they've ever been especially our shop tenants, who went through the ringer two years ago and emerged stronger and smarter.

So if we do see bankruptcies materialize, we feel like we're in a good relative position.

Turning to development, we now have nearly $390 million of development and redevelopment projects and process at yields in the 7% to 8% range.

Despite construction cost increases over the last couple of years, we remain on track and on budget with our current in process projects.

Additionally, we continued to source new opportunities supported by strong tenant demand at yields that are holding steady despite cost increases we're seeing in our underwriting.

During the second quarter, we started phase II of our ground up development in Houston.

You may recall that we completed phase one of this project late last year and the HEB anchor which opened in December is already one of the top performing grocers in the Houston market.

This new phase of the project will include roughly 50000 square feet of shops in our parcels adjacent to the new ATB store.

We have already signed or committed leases on the nearly 75% of new space and anticipate the first tenants opening in about a year from now.

We also started a major redevelopment this quarter at our Buckhead landing property in Atlanta, formerly known as the Piedmont Peachtree.

With total cost of around $25 million, we will redevelop the 150000 square foot center and replace the existing grocer with a new publix anchor.

Our team.

Is really excited to start this much anticipated transformation of this irreplaceable location in the heart of Buckhead.

Our consistent track record in successful execution within our development and redevelopment program is a testament to the depth and perseverance of our experienced teams across the country.

This Avenue for investment is a core competency for regency, and it's where we have the ability to create value and drive incremental growth in.

In upcoming quarters, we look forward to sharing further details on additional projects as we plan to start over the next 12 to 18 months.

In summary.

Even in a more volatile macro environment, we remain encouraged by continued strength in tenant sales foot traffic and demand for space.

Supporting continued same property NOI growth and reflective of the resiliency and quality of our locations and tenant base beyond that are self funded value creation pipeline provides an additional layer of accretion and growth.

Mike.

Thank you Jim good morning, everyone.

I'll start by addressing second quarter results walk through key changes in our 2022 revised guidance and touch base on our balance sheet further.

We'd like to point out some new disclosure on page eight of our supplemental where we now summarize the contributing elements of our same property NOI growth.

Last quarter, we spent time, describing the noise that exists in the quarterly cadence of our NOI growth rate throughout 2022.

Driven primarily by the collection of prior year reserves as well as an expense recovery adjustment that occurred in the second quarter of last year.

Due to the continued significant impacts of these items, we stress that base rent growth is the best indicator of what is truly driving our business and is the best representation of our continued growth trajectory.

You should find that this new disclosure is helpful. In making these things more clear and as you can see in the table the largest positive contributors to second quarter performance where growth in base rent and improvement in current euro uncollectable lease income.

Which together added a total of 450 basis points to our NOI growth rate.

While the offsetting factors include the tougher year over year comparisons related to prior year reserve collections and expense recoveries detracting, a total of 380 basis points from our results.

We've also added gap or straight line rent spreads to our supplemental on page 19, as a complement to our historically reported cash spreads.

GAAP spreads have always been an important metric for us internally.

Given our strong focus on embedding contractual rent growth into our leases and.

And we believe this metric helps provide an even more fulsome picture of the primary drivers of our base rent growth over time.

Notably as of the second quarter, even after removing the positive impact of prior year collections. Our core operating earnings per share has returned to pre pandemic 2019 levels.

This achievement is a testament to our portfolio quality and resiliency.

We also converted more cash basis turns back to accrual in the second quarter, continuing a trend over the last year.

Following improvement in both collections and underlying tenant credit the.

The resulting reversal of straight line rent reserves contributed $3 $5 million or <unk> <unk> per share to NAREIT <unk>, which was not included in prior guidance. We now have about 12% of our ABR remaining on a cash basis of accounting.

Turning to our updated current year guidance, we refer you to page six of our second quarter earnings presentation, specifically the column, indicating the drivers of the increase in our NAREIT <unk> range at the midpoint.

The biggest change was to our same property NOI growth forecast of 100 basis points at the mid point.

Positively impacting our NAREIT <unk> per share outlook by about <unk> <unk>.

All of the positive operating trends, we are seeing that Jim outlined and that impacted our second quarter results are supportive of the 100 basis point increase for the full year.

The primary drivers include higher average commenced occupancy.

But if it's benefiting both base rent and expense recoveries.

And better collections on cash basis tenants, leading to decreasing levels of uncollectible lease income.

Another driver of the increase is noncash revenues up three per share at the midpoint.

Primarily driven by the impact on straight line rent from the conversion of cash based SaaS back to accrual during the second quarter.

Recall recall that we only include these impacts and results and guidance on an as converted basis.

Our balance sheet remains in excellent excellent condition, ending the quarter with full capacity on our revolver with total leverage at the bottom end of our targeted range of five to five five times net debt to EBITDA.

This strong balance sheet positioned position enabled us to take advantage of an opportunity to repurchase our shares in the second half of June .

We bought back one 3 million shares for about $75 million.

Representing an average price of 50 825 per share.

As Lisa mentioned this price implied cap rate in the mid sixes, a price at which we would happily buy assets that match regency's quality and growth profile.

Notably the share repurchase was about a penny accretive to 2022 earnings.

The debt markets have remained volatile and the movement in both treasuries and spreads has impacted our cost of debt capital.

But with no unsecured maturities until 2024, we have the luxury to remain patient waiting for more opportunistic windows.

We're also remind you that during periods of dislocation in the capital markets. The importance of our significant level of free cash flow was highlighted which at north of $130 million annually allows us to continue investing accretively.

Looking ahead from an operational perspective inflationary impacts on the consumer combined with the softer economic backdrop introduces some uncertainty to our outlook beyond 2022.

But as we reflect on our resiliency throughout the pandemic the impacts from which could be described as indiscriminate towards property location and tenant quality.

We believe regency's portfolio is well positioned ahead of a more traditional economic recession.

With greater bifurcation in performance across the quality spectrum of trade area locations property formats and tenant exposures.

As Lisa indicated you won't hear us say, we're immune to the impacts of a downturn.

But the good news is that we are starting from a position of strength.

Our leasing pipeline is a very active feature and a healthy mix of tenant demand across all markets categories and sizes with retention rates that continue to be above historical averages.

One silver lining of the pandemic because of the less resilient operators were called out during 2020, and our tenant base has emerged even stronger providing stable footing and our occupancy.

We also have a strong value creation pipeline fully funded with free cash flow with visibility to more meaningful NOI contributions in 2023 and 2024.

And maybe most importantly, as we consider the rising economic uncertainties, we have one of the strongest balance sheets in the sector.

Allowing us the ability to remain on offense and create value through investments should opportunities arise.

With that we look forward to taking your questions.

Thank you at this time, we'll be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate that your line is in the queue.

You May press Star two if you would like to remove your question from the queue and for participants using speaker equipment. It may be necessary to pick up your handset before pressing any star keys.

One moment, please while we poll for any questions.

Yes.

Our first question comes from the line of Greg Mcginniss with Scotiabank. Please proceed with your question.

Hey, good morning.

Oh, sorry existing GLA was down from prior quarters at one 3 million square feet is that just a function of more limited anchor leasing because obviously the number of leases was quite good.

How should we be interpreting that result.

Greg This is Jim.

Great question and be happy to kind of explain what's going on there.

Basically the total number of transactions was right in line with trailing 12 months.

As were the new leasing volumes.

And quite frankly rent spreads were very solid as well.

But overall the GLA leased was was slightly down for the quarter due to the renewables.

And it's really the mix between anchors and shops typically we're about 50 50 mix. This particular quarter. It was 70 30 heavy on shops, which basically smaller square footage averages.

It also.

It relates to that.

<unk> $34 43, which is a little higher than the average so.

As I looked at that.

Don't tell anybody, but I looked at the July numbers from a renewal standpoint, just to satisfy my own curiosity.

July numbers are significantly on the renewal side significantly higher than our average monthly rates and the mix is back where the anchors should be so.

I think the anomaly will be will be sorted out prior to year end.

Not too worried about that in addition.

Just mentioned that the overall renewal retention rate is over 8% right at 80%, which is again higher than our typical average.

Okay. So it sounds like it's just a timing issue then.

Question from Okay, Great and second question for me is the post pandemic migration.

Closer suburbs first ring suburbs and hybrid worked from home seemingly here to stay how does that impact the foot traffic, you're seeing at the centers and decisions around merchandising.

Greg I think the.

Quit track for traffic, we are seeing is really back to where we've seen it before.

In general our demand is very strong.

Really across the board across.

Regions as well as product type.

Categories are doing exceptionally well I think our very active or grocery value apparel. The <unk> restaurants, obviously, we're seeing a lot of.

Good strong demand in the health fitness medical and also the pet categories.

The mix between locals and nationals for the shop space is really relatively the same as what we've seen.

And really.

From an overall demand standpoint, I'd say just to give you a flavor on the anchors we've got 39 available spaces today.

<unk> 24 of those are either LOI or at lease.

So again I think that's what the likes of T J X Publix Burlington Ross.

Five below Nordstrom rack. So those are the kind of folks we're talking to and I think that gives you a sense for not only we're seeing great shop demand, but also the anchor demand is very very strong.

Great. Thank you.

The only thing I'd add to that I think as we remain confident in that that suburban markets in which we operate.

Kind of anchored by the dominant grocer.

With <unk>.

<unk> necessity type of retailers.

And we think we believe we're going to continue to see demand shift towards our product type and our quality and Greg I'll, just add really well said.

We continue I think we sound like a broken record, but what the past two and a half years. If that's how long it's been have really demonstrate and validate it is the importance of the neighborhood community shopping center in the retail and service.

Ecosystem and.

<unk>.

As I said and I said, we sound like a broken record if you went back and you listen to earning.

Earnings calls prior to the pandemic and then throughout it.

We feel really good about the future of our business.

And sorry, just one point of clarification on the foot traffic are you seeing any increase in midweek traffic and do you have the data on length of stay and whether that's changed since our pre pandemic.

Well, it's basically still the same and that remember we did as everybody did we did that with the pandemic and we've recovered really quickly and much more quickly in some markets versus others.

As we always said was indiscriminate, but what it was describing.

The amount of shutdowns.

So there have not been significant dip.

Differences from pre pandemic through today.

Thank you.

And our next question comes from the line of Michael Goldsmith with UBS. Please proceed with your question.

Good morning, Thanks, a lot for taking my question maybe to follow up on Greg's question here.

Can you talk a little bit about the demand from tenants and maybe break it down between discretionary versus essentials, I know you'll have more exposure to the extent some signs, but trying to understand if different types of tenants.

Are slowing their demand or if the momentum continues on both sides.

Yes.

I would I would tell you that I see the demand.

Basically staying pretty robust across across all sectors of the folks that we do business with.

So we're really not seeing a category I can point to to say this has fallen off.

Thanks for that.

My second question the lease spreads accelerated on a cash basis.

GAAP basis. So if there is there kind of a continued upward.

The trend here and then I think you also mentioned that you have escalators in 90% of your new leases, where does that stand before us.

Accepting our tenants and taking on these escalators. Thanks.

Sure.

Yes, the cash rent spreads.

Roughly this quarter right at 9%.

Trailing 12 months is right in that neighborhood that that mirrors, what we believe long term is our target for the cash rent spreads and again, we've coupled that cash rent spread with the embedded spreads that we're putting in the existing the new leases.

The combination of that really is what I think judicious.

Capex spend that kind of gets us that net effective rent and GAAP rent spreads that were kind of look as real answer to whether or not we're.

We're making progress in our business.

As far as.

The embedded.

We are in this inflationary area.

Area right now we are taking steps to.

Raise our asks were asking between 3% to 4% on deals today, which is higher than we've done in the past and we're.

We're having pretty good success with that I think everybody recognizes the inflation touches everyone in and.

We're not.

Well.

We're not getting left out of the program. So we're actually having pretty good success getting getting that higher embedded rent steps.

Thank you very much good luck in the back half.

Thanks, Michael.

And our next question comes from the line of Keybanc Kim with Truest. Please proceed with your question.

Thanks, and good morning.

So you have a 240 basis point spread between signed and occupied.

Could you just talk about what that ABR looks like and how much of it is actually being accrued in the income statement already.

Yes.

On the pre lease.

The lease percentage keeping this is Mike so that's worth about $34 million of threat, we actually added some disclosure to our NAV page I don't have the patient number but page 33, thanks, Christy and Youll see that we added some disclosure to get you to the value of that pre lease pipeline.

All of that is again, it's pre leased percentage. So that's embedded into our forward outlook of same property NOI growth.

We did.

I'll take this opportunity to to.

Reconfirm that we've increased our outlook for the balance of the year by 100 basis points. It is largely driven by higher commenced occupancy and lower move outs and the combination of the two so we will continue to deliver space we're doing so.

Quite successfully it's not easy.

But the team is doing a remarkable job, bringing that that pre lease that pre leased pipeline.

Into production.

And then lastly, the other huge element from a same property NOI outlook as uncollectible lease income we've been.

Just you know.

So surprised this year how quickly that is.

Healing and returning back to classic levels of 50 basis points.

Last year was 175 basis points of bad debt, we came out.

Thinking it would be in the 100 basis points area now we've lowered our eyes is again about 75 basis points for the balance of the year, so that implies a back half of the year.

That's basically on par are getting pretty close to that historical average. So we feel to confirm the point that Jim made earlier I feel really good about the in place tenancy and the health of our tenants.

I can't help but just make a quick comment, but while we talk about it it is extremely important to get the signed but not occupied.

Paying rent.

And to get we don't get back to maybe a more stabilized level I am very happy if it stays where it is as long as our percent rent paying is also increasing because that means we're doing a lot more new leasing.

So that's a good thing so the fact that that S. N O isn't moving much and our percent rent paying is increasing means we're doing more new leasing so that's a really positive sign.

Great and second question for me.

Right.

When I look at your tenant list.

Probably one of the healthiest tenant rosters.

I can see in the strip center space.

It shows your top 30 tenants so I'm, assuming the rest is probably equally as healthy.

How do you think about your tenant roster today versus pre COVID-19.

And as there are some concerns about the macro slowdown or inflation impacts on.

Consumer segment, how do you think your portfolio in your tenant roster handles.

That situation versus what it might have been three years ago.

Keep in I think.

Honestly I think we're absolutely a stronger.

In a stronger position today with our tenancy.

Obviously, the last couple of years really.

Split the wheat from the chaff.

Our survivors are smarter stronger just like I said in the opening comments.

They are savvy they are reactive.

They know how to get things done with a lot of adversity.

And that gives me a lot of comfort in.

Great.

It really.

Much much going into any kind of slowdown I feel very comfortable with the folks we've got.

On the roster right now.

Okay. Thank you.

And our next question comes from the line of Craig Schmidt with Bank of America. Please proceed with your question.

Thank you.

My question.

The contractual bumps you mentioned in the opening comments I'm just wondering what are your annual contractual bumps generally ranging and do you have any CPI bumps in any of your existing leases.

Annual average is probably somewhere in the two to four range.

CPI, we do we've got kind of a mixed bag, we do have some CPI, but generally I would say.

That's a pretty small portion.

Most are stated.

Stated rates we have.

At renewal time, we got some fair market value, we're kind of shifting towards at fair market value.

Windows renewal.

Good.

It's fair, it's fair both ways it doesn't lock anybody into.

Our predicament if you will so.

I think thats it.

That 2% to 4% it sounds like it's a little bit higher than it was are you been able to invest that.

Yes.

I'm, sorry say that again.

The 2% to 4% bumps around a little bit higher than I'm used to hearing I'm. Just wondering if you've been able to raise that in the last few years.

The two to four is new and in place is probably closer to the yes, let me I'll take that one Jim.

What you typically hear US talk about Craig is our portfolio wide impact to growth. So if you look through the entirety of the portfolio. We're at one 3% or so of growth were teetering on one four.

The team and Jim articulated on a deal specific basis, we're getting to the sometimes 4% growth on over 90% of our new leasing and Thats whats, helping drive that one three up but its.

There is 9000 tenants that we're working through where have we have move outs that actually you can have a tenant moving out that was paying 3% contractual increases.

It's a mountain to move, but we're making great progress in that regard.

Great and then if I could a follow up there is I mean.

I understand your appropriate caution about the macro environment, but.

There are articles going around saying that 50% of small businesses go out of business.

In the months ahead.

I guess I find that.

I have not heard anyone suggest the recession as bad as the great recession, and the great recession had nowhere near that number of damage. The small shops are you seeing anything there.

Unduly worried about your small shops, even given the macro environment.

Craig I'll take that one I, absolutely not and I'll just reiterate what Jim just talked about with regards to the health of our tenant base. It sounds a little bit contradictory and we say we're coming into this what maybe what may become a recession, if it's not already.

A position of strength.

Meaning that the tenants that we have in place that merchants that are in our shopping centers really have survived.

That just that separate the wheat from the chaff.

Really have survived a really difficult challenging time from a demand standpoint.

With with COVID-19, and so we have really strong good operators.

And they even those that may pull back on maybe new store opening plans.

We have the best locations and if they pull back from Okay, I'm going to open two stores in this market to one I don't see an impact to regency whatsoever in that scenario.

I will go out on a limb and agree with you and say and I could I may very well be wrong, but I don't see.

Another GSE.

Future at least not in the next two years.

Okay. Thank you very much.

And the next question comes from Craig Melman with Citigroup. Please proceed with your question.

Hey, good morning.

Maybe following up on the previous question on the escalators.

As we're running out at above average retention rate is getting better.

As you can have in the past.

The retailers who.

Want to keep the space that they have are you able to or are.

Are you, giving up anything to get the higher escalators or are you getting the face rent increases that you would have wanted.

Along with that can you talk a little background on kind of a negotiation there with tenants.

Yes, I don't think we're giving anything up to to negotiate market.

We're pretty good negotiators.

Rents and.

That's what we believe market is today.

We're seeing other landlords moving that direction. So we're just.

We're just.

Negotiating what we believe is market today.

So as we think about kind of long term trends and same for the structural uptick in escalate.

Escalators here I mean, what do you think.

Could start to post in the next couple of years as you really turn into leases.

Leases.

Yeah, Hey, Craig it's Mike.

So.

I'll go back to the one point Theyre going to one four that's a big change as sound small, but it is a big change, but in the overall picture of our forward outlook on same property NOI growth we're still.

The two the two largest contributors in the near term, we will continue to be occupancy increases and lease spreads.

Certainly embedding contractual increases is important to regency's long term outlook and our long term growth.

And we will not stop embedding those those increases into our leases, which we have been doing for us.

A long period of time at this point, but right now our.

Eyes are on our ability to push commenced occupancy we've talked about 2022, achieving plus or minus 100 basis points and commenced and we feel as good as we have six months ago, and saying that and we have good visibility to achieving that objective until at this point, if we think about even a softer economic backdrop.

Given our relative position of strength, we feel like we can grow through.

Or a period of disruption and continue to add rent paying occupancy in 'twenty three and on previous calls we've talked about another 100 basis points, plus or minus of opportunity more to come on when that will more to come when we put out formal guidance for in our outlook for next year and beyond but there's at least another 100 basis points of commenced there to get back to our.

Occupancy levels.

Then the other major contributors lease spreads and Jim spent a lot of time.

In the 9% range mid to high single digits is where we want to be where we need to be to achieve our objectives of averaging.

North of two and a half certainly $2 75 before redevelopment contributions and when you add the investment and the reinvestment into our portfolio.

Feel good about averaging 3% or better on a sustained basis going forward.

Okay, and then maybe on the.

Similar.

Kind of aspect.

Right now as a full growth you guys are a little bit impacted by the noise from collections, but.

With the higher retention rate you guys should theoretically have less capex higher net effect is I'm just trying to think as you know.

Maybe it doesn't fully correct itself by 'twenty three but as you look maybe to the outer years and not looking for guidance per se, but just.

A sense of.

Where that longer term <unk> growth from the portfolio.

It could start to trend and how that could look relative.

To peers in the sector.

I'll, let you handle the peers component better.

So let's talk about a couple ways to interpret our got our disclosure first so core operating earnings I would point you right to that metric. We are unique in this space than we use core operating earnings obviously, we're stripping out the impacts of anything that's non cash the only difference between core operating earnings in <unk> is going to be capitals and.

When we think about capitals, we are planning and have been spending about 10% to 11% of our NOI every year and and maintenance capital as combined with leasing leasing capitals, we don't see that trending materially outside of those bounds Craig I would probably point you more towards the upper end of that range at about 11%.

Given the amount of space, we have less left to lease.

It's just going to be a volume business that we probably will spend a little bit more capital beyond and then to your point on prior year collection. So you got to eliminate the impact of prior year collections from up to get to more of a core <unk> metric. When you do that as we think about our business going forward our core operating earnings growth. Therefore are.

<unk> growth should match or should match together should move in lockstep with one another.

We just don't see any kind of.

Disproportionate moving parts between those those elements.

Okay. Thank you.

Sure.

And our next question comes from the line of Wes Golladay with Baird. Please proceed with your question.

Hi, everyone I just want to go back to you maybe looking at your watch list.

At this point in time is it more skewed towards connects with capital structure issues. It sounds like everything on the ground level is looking pretty good.

I think generally that that's probably the right answer.

There are a couple of folks on there that really don't have debt issues as much as they've got operational issues, but for the most part youre exactly correct on that.

Assumption.

Would you typically have a much higher recovery rate when it's just a rework.

Absolutely.

We look as we look at that watch list and look at the guys that might be towards the top of that list.

We do a lot of place or data and things like that to try to understand look at sales where do they fit in the organization and ports.

Fortunately for the.

Vast majority of those locations, we sit in the top 60, 70% of their of their locations, which gives us great leverage when it comes to negotiating.

Yes.

And our reorganization VK.

So.

In addition to that we look at the existing rents versus what we again believe market rents are and I think we've got some some pretty good opportunity.

For our upside.

And a lot of those cases so.

At this point, we're pretty comfortable where we are in the watch list.

And in our position.

And that holds arena, where it goes from here.

We have a very detailed investment strategy, but it really comes down to we like to own.

Acquire develop properties, where bad news is good news.

I guess, maybe I mean, it sounds like the anchor space is pretty much spoken for all of our vacant space.

Would it be fair to say, maybe you want some space back at this point.

You mentioned you have some upside on some of these assets.

As Lisa said we.

We like.

We like opportunity to bad news becomes good news and Thats.

A lot of times getting those anchor spaces back and can trigger the redevelopment that you're waiting on.

Those are the kind of things with watch list tenants or our strategic plan.

<unk> that we devised for every one of our assets. Our guys are if I get it back what am I going to do so we're not we're not surprised when it happens or if it happens, but we're ready.

In the event it does happen that we know where we're headed.

Got it and then for the redevelopment I think the comment earlier in the call was the development and redevelopment will be a positive contributor next year, but more specifically for the redevelopment do you expect it to be that net positive contribute contribution that you Havent your algorithm or is there anything special that's going to come off why that may be a little bit of a detriment.

To offset the positive putting what's coming online next year.

More to come details west, but on balance it's going to be a major contribution on a net basis. We will continue I hope to have some opportunities to frankly take some NOI offline to set up new to setup new redevelopment, but.

In particular, the Abbott and <unk>.

Crossing Clarendon are two assets that the teams have been working extraordinarily hard on we've been from a financial finance perspective, very excited looking out to when those properties start to stabilize and that time is now.

The leases have been executed great visibility into when we start.

We will start seeing some income start to come in at the very tail end of even this year, providing from this point forward in those two assets and if you put our four in process ground up developments into the bucket by 2024, that's another 15 plus million dollars of NOI.

We are creating in the portfolio so.

The short answer we do anticipate returning to a positive contribution from Redevelopments.

As we look into 'twenty, three and 'twenty four.

Great. Thanks for the time.

Thanks Wes.

And our next question comes from the line of Ronald Camden with Morgan Stanley . Please proceed with your question.

A couple of quick ones just looking at the shop occupancy it's been ticking up nicely over the last 12 months I think I heard you say earlier that there is maybe 100 basis points foreign to go to get to peak just trying to get a sense of just for some contacts throughout the cycles.

How high does that can that stock occupancy yet could you get to sort of the 93 plus range or do you start to Orion system structural factors. Thanks.

Yes, so the 100 basis points by the way wasn't all and commenced rates so that thats shops and anchors. We look at 92, 5%, 93% as a kind of a top end from a shop percent leased perspective.

So that's where our eyes are we believe in the quality of the portfolio. We believe we can replicate those ceilings.

And the teams are working hard to do that.

Great and then just my next question was just trying to back to sort of the bread crumbs of the growth algorithm.

You have a really great breakdown of sort of the same store NOI in the Sop.

I see base rents at 3% just trying to get a handle of some of the other two big lines on collectibles and this is year to date numbers uncollectible, adding $4 seven recoveries.

Headwind of three nine as Youre thinking about sort of the future and those sort of presumably normalized David.

Is this sort of the right <unk>.

Way to think about it in terms of the long term growth prospects of the company.

Lips.

Let's first make some short term comments and then we'll get into the long but.

We do see I. Appreciate you noted the new disclosure by the way. So I hope everyone takes it takes a look at that I think it's really helpful.

First as his highlights that base rent growth as we've been trying to point People's eyes too is the best line item to look at for the health and forward quality of our earnings stream in the near term and what you see there is yes, 3% growth outside of the noise in the first half of this year, we should do better.

Other than that to finish out the year on the base rent line item, we will that will not be a decelerating impact that will be an accelerated impact. We will continue to have tailwind as I mentioned previously from bad debt expense, our uncollectible lease income.

As the portfolio very quickly moves back to historical averages again 175 basis points last year moving to about 75 basis points. This year 50 basis points from being our long term sustained average.

There is there is noise in the other line items. We've got just a lot of Covid era type of adjustments still moving through really 2021 that are impacting all of the other components of growth.

But I think looking forward.

Our eyes are focused on base rent growth.

The amplified impact of recovery income as you lease up space and raise your commenced occupancy youre going to amplify that growth by picking up margin on your on your collections.

And then we add into that the investment in what we just talked about with west and the contribution from Redevelopments and you put all that in into the bucket and we feel great about achieving our long term objectives of 3% or better through redevelopment and in the short term, we should do better than that from an occupancy perspective, because we have room to grow.

So rent paying occupancy.

And.

Also thats certainly the same property NOI growth kind of long term growth model, which is very.

Very large component of the going forward growth for the company.

But we also have the ability to invest the very high level of free cash flow that we generate.

Which will also be an important part of our long term growth of core of core operating earnings per share.

And I point, you to our Investor presentation, not just a disclosure where we do do a very thank you team a very nice job of illustrating our growth model going forward and thats on a stabilized basis. So it's not even actually.

Accounting for the occupancy increases that we are seeing today and we will continue to see in the near future.

Excellent that's all my questions. Thank you.

And the next question comes from the line of Hong Zhang with Jpmorgan. Please proceed with your question.

Yes, hi.

You've talked about potentially reaching back to 96% leased occupancy as early as late next year I guess given your.

The commentary about the uncertainty that's in the market right now.

Our thinking around that changed at all.

Okay.

Yes.

I'm happy to jump in.

We'll reiterate again that regardless of the macro backdrop, we feel really confident about the quality of our properties and higher going forward.

The health of our business.

We just re it just repeating what we said in our prepared remarks.

Have.

Entering this with a position of strength.

As we have worked through a lot of dislocation and disruption through the past two years, our operators our tenants our merchants are in an extremely healthy position.

And we believe and Jim talked about how we've watched them be adaptive and react to and be flexible and I really believe that even if there is softening consumer demand, which we're not seeing because of again our trade areas are supportive of consumers that are able to absorb a little bit more but even if there is softening demand, we truly believe that theyre going to be able to adapt.

Be flexible as we've seen them already do.

Then with that.

Retailers and merchants play a long term game as well it's not just about the next 12 months and they are also positioning our company for future growth and theyre going to need new locations for that future growth and theyre going to desire to be in the best locations and we feel that we are really well positioned to be able to work with them and help them meet their goals as well.

Got it thank you.

And the next question comes from the line of Derek Johnston with Deutsche Bank. Please proceed with your question.

Hi, everyone. Good morning, and I'm, sorry, I know, we spent probably too much time on this but it's important.

I'll try to be pointed because investors definitely seemed concerned about before at outlook.

All of our business trends in the second half much more so than strong results and may even pipeline commentary, but look we believe regency is very well positioned but.

Could you speak to actual conversations with tenants and perspective tenants and I guess the question is are we sensing or seeing any slowdowns in decision, making right now or is this exercise really mostly conjecture at this point, that's kind of what I'm trying to figure out.

Derek I would tell you that.

Fresh off ICSC in Vegas.

Sure.

Trust me I've been at this game, a long time and I am looking for smoke more than anybody and just not seeing it today.

There is continued.

Positive attitude towards growth deals are getting done.

Yes, we're looking hard, but youre not seeing any cracks at.

At this point.

And you are.

No. Thank you that's helpful and that's also in line with with peer commentary.

Just I guess sticking on leasing.

So the Abbott and Boston I was wondering if we can just get an update on the early leasing there and tenant interest I know, it's stabilized at 24 right, but you do have some rents commencing I think in the back half of this year. So just really any color on the demand the interest.

This mixed use asset and really how you feel about the project and how.

<unk> tenants are.

Acting as well thank you.

Sure.

<unk>.

The avid is.

During construction completion it looks fantastic if you get an opportunity up in the Harvard areas. Please poke your head and I think you'd be impressed with what we've accomplished up there.

Leasing momentum is strong we're 100% leased on a retail.

It was a little slow on the office side coming out of Covid.

They were close to go.

But we've had great.

Current opportunity on the office side and I believe we just.

Scientists there we go.

Just.

The press just signed a lease on the majority of our office space.

In the.

In the tower so.

Very very positive news.

Like I said this project looks great.

They're under construction should be opening up and now that we've got this office lease executed.

We'll have a good report for next quarter.

Alright excellent.

Congrats thank you.

And our next question comes from the line of Juan Sanabria with BMO capital markets. Please proceed with your question.

Hi, Good morning, it's Eric on for one I was just hoping if you could talk about.

How your tenant underwriting has changed post pandemic and kind of your thoughts today.

Given the potential slowdown in the economy.

I think our underwriting really is has been consistent.

We are pretty conservative in underwriting.

We embed.

Contingencies, we've increases contingencies as we saw interest rates increase as we saw a slowdown from from.

Sure.

Supplies and other things so I think our underwriting has.

To keep up with the moving parts in the economy.

And from an underwriting standpoint, we still are.

Able to.

Underwrite deals that still meet our threshold from a yield perspective.

With good <unk>.

Disability towards expectation for cost.

So Eric.

I'll jump in and add I don't.

The way your question was framed out I think we look at tenant underwriting whether in the operations side of the business or project underwriting and the investment side of the business for all seasons, and we don't we don't necessarily look.

At the economic backdrop and changed.

We have a very focused strategy on our merchandising mix and what types of operators, we want to partner with and do business with and Thats been consistent through all seasons in all economic cycles, and we make adjustments on the margins and our investment activity to have to account for or provide for a changing landscape in costs as you would expect us to do.

Got it.

Really we don't.

You're pushing accelerate or push on the brakes materially in any way we apply our very.

Long long standing well honed strategy on both on both sides.

Oh, great. Thank you.

And then just follow up on foot traffic traffic given youre a defensive portfolio I was just curious how are your centers performing.

In versus the competition in the respective trade markets.

As you would expect them to perform.

We are not we believe we own market dominant centers trade area dominant centers that is our objective we call. It our DNA approach to investment we use premier high quality as these designations and.

The reason, we use those designations as they outperform on several metrics one of which is tenant consumer demand and they continue to outperform on consumer demand. Our centers are the preferred centers generally in those in those preferred trade areas.

Foot traffic levels would support that outperformance sales support that outperformance tenant demand and rents I think the best the best scorecard that you can really use for that yes, you can look at foot traffic and should but what are what our average base rents because that's what the market is demanding so that's it.

The retailers are using as the basis for the sales that they can produce and sales.

And in both cases as we've already talked about.

Earlier today.

As Jim did when you were talking about bankruptcies regency is in the very top percentage in both of those categories.

Great. Thank you guys appreciate it.

And our next question comes from the line of Polina Rojas with Green Street. Please proceed with your question.

Good morning.

Hi.

You talked about the strength of your tenants and.

But in terms of your small shop Chubb.

Chuck cohort I hear from you and your peers.

Our strong growth.

And our scientists with Scott, but they are.

<unk> from a period of great eastern.

Option, which is itself very pending.

Are you able to track any other hard metric.

Sales leverage.

Statements, but they are stronger than in the past.

And I know the FCC inflammation limited, but I was wondering is there any.

Anything at all you to that.

It's more.

Tangible you can focus on track overtime.

Certainly.

Sales has been a.

A major indicator in the past.

And we continue to use that.

Our small shop tenants, we are able to get that kind of reporting so that's probably our best metric too.

At least judge.

Historical performance.

We obviously.

We obviously look hard at critical and but it's also an important factor of small shop tenants is.

Their past performance from an operator standpoint, you can walk in in a retailer store and get a pretty good sense.

Whether there.

They're a good retailer or not and thats that.

What our folks in the field do an excellent job of staying close to our tenants.

And you can read the tea leaves and Thats.

It's hard to put it on paper and give you a metric, but that's how we that's how you have to run your business too to be able to stay ahead of that.

I think thats one of the one of the things we do very very well at the asset management level is really understand what's going on behind those doors.

You mentioned sales.

How frequently can you.

Can you have access to their performance.

We generally take a hard Doug on an annual basis.

And I think then the police hurt and I know Paul I know you've heard US talk about this as well we have 'twenty, two maybe a little bit more than 20 offices across the country with people in the <unk>.

In the local markets that are working with our tenants really closely so we absolutely look at our reported sales, but also just having good relationships with our with our tenants with our customers.

It's really important to understanding the health of their businesses. The challenges they may be facing I think we really.

Rose above some of the challenges in the pandemic because of that.

And we will continue to do so in good times and in bad times.

So that's also an important part of it so it's not a hard and fast metric and nothing that we can actually report, but it certainly those relationships those conversations and understanding.

It's important to them.

Thank you.

My other question is regarding comments, thank you Paul.

So.

<unk> 10.

Basis points sequentially.

And one key.

In addition, we are affected by seasonality.

And my first question is there any reason behind that softer sequential improvement.

And the second part.

Hum.

You mentioned you were targeting an incremental 100 basis points here. So can you confirm that that.

Same property occupancy.

<unk> for the year.

Glenn and I want to make sure I.

I am understanding that target 100, well.

That's the commenced occupancy increases that we're targeting.

As a.

Period period basis.

Measurement, so it'll be at year end, we should be 100 basis points.

Up from where we started I think we're already 40 basis points through the first half of the year. So that speaks to the confidence we have in delivering space from that pre lease pipeline over the balance of this year.

But thats a spot rate so that we're excited about is the impact on 2023.

Okay. So yes, okay got the commencement should be stronger in the back half.

Yes, it needs to be to achieve our objectives of 100.

Yes.

Plus or minus 100, but we.

We feel good about delivering this space.

Again already contracted for so it's just a matter of.

Of our tenants building out I'm, not making light of how difficult this can be.

The teams are doing I mean daily hard work delivering spaces building out space that we can get to rent commencement.

Yes, thank you very much.

Sure.

And as a reminder, if you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate that your line is in the queue.

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

Hi, you've got 12% left on cash basis accounting last quarter. It was 14% just given the trajectory you've been coming out.

From the pandemic, how many quarters might it take to get to a normalized level of cash and your percentage of tenants on cash basis accounting.

Hey, Linda it's Mike.

Yeah.

I don't have a discrete answer to your question, but we're making great progress I do think we do have some visibility to at least another 1% to 3% kind of sticking with our policy of what a tenant needs to do and how they need to behave.

For us to convert them back to accrual accounting. So we do see another 1% to 3% I think in our near term.

Impact, which by the way would include another call it $2 million to $5 million of noncash straight line rent conversions. So we don't guide on that number.

In the supplement but we.

We do talk about it on this call.

Beyond that then the question becomes well what is your normal percentage of cash basis tenants.

Again, a little bit harder to get a gauge on because the leasing standards also changed as we look at our historical averages so, but we think our numbers probably in the mid <unk> mid single digit area, the 5% to 8% range somewhere in that area plus or minus.

So we've got a little bit of room to run, but we're nearing the end.

And we will continue to will.

We will continue to make progress as we have and I. Appreciate the question in that.

<unk> for it.

It's a metric that we have all begun to report, but the important thing to really focus on is bad debt expense.

Because a tenant can be a cash basis tenants paying rent.

And as Mike said earlier.

We are seeing our bad debt expense returned to more typical historical levels. That's the more important thing that we really and thats, what we focus on here.

Here as well.

Thanks for that and then the jobs report came out this morning, and was better than expected with decent hiring in retail, including grocery and general merchandise are you hearing this as well from your tenants in terms of easing labor shortages.

I think generally speaking what we.

We have seen.

And the same conversations that we're having with our tenants that we have seen things ease.

<unk>.

We even said that last quarter, so, it's a little more than even a quarter, where we've seen.

Some easing of both labor shortages and also supply chain difficulties.

Thanks.

Okay.

And our next question comes from the line of Michael Gorman with BTG. Please proceed with your question.

Yeah. Thanks, Good morning, I know, we're running a little long so I'll try to be quick but stepping back for a minute and looking longer term Lisa you talked about ESG and some of the targets you laid out in your new report.

Alright, the different projects and different initiatives that you have on the emissions front.

It is not.

There will be an additional costs and incremental costs, but there is also savings as.

As we do implement some of the energy efficiency.

Things that we've already we've done over the past 13 years from a water conservation led lighting and we will continue to do and we'll also continue to perhaps generate some revenues from solar panels.

So from a material standpoint, it's not material.

What's more important is the fact that we are.

Are really focused on embodied responsibility and corporate responsibility within our company.

And it truly is a foundational strategy and as we think about and talk about new investment opportunities and as part of the conversation every acquisition every development.

Will.

Look at the impact essentially.

Two are.

Targets into our goals and objectives, but it's not a material costs. If I may just add a little bit more detail. Therefore, you Michael 80% of our objectives can be achieved by really pulling two levers right through 2030, it's.

Led light conversions and addition of solar panels on property. So it's at least this point <unk> is already part of our plan. So that is in effect a neutral element of our expense.

Expense rate and then solar panels is to her points, where that's where you actually save some money. In fact, you have an ROI and make money on.

Solar panel installation, so just for a little bit more added color the balance so, whereas the other 20% going to come from innovation is going to play a big role and then we might have to buy some <unk> as well, which there will be high quality racks, and we'll be very smart with that.

That's great color. Thank you and just maybe following up on that.

I understand that it's quarter regency anyway, but I'm wondering as the entire market evolves as you're having more conversations around developments redevelopments, maybe even acquisitions and lease discussions I'm wondering if you are seeing.

Regency's dedication to ESG come up in those conversations as may be a competitive advantage is something that maybe helps in these negotiations and in these discussions.

For regular way business.

Let me start on the capital market side, yes.

Whether it be tapping the unsecured bond markets or whether it's.

We have a bit of a financial incentive within our revolver, but we're seeing we're seeing it permeate through the capital markets and we do believe ultimately whether it's access or whether it's pricing reductions there will be some marginal benefit to us on the operation side on the operational side I would say there are kindred spirits.

That appreciate what you do.

But I don't think its I don't think its ingrained in the at the.

The real estate level.

As much as the capital market and then we do development I was gonna say since we're tag teaming and then I'll take the transaction side on the transaction side, we've actually.

We're part of a bid process. If you will on a portfolio of properties. Unfortunately, we were not successful on it it was a major part of the bid as to the efforts that the company.

Is putting into.

The E in ESG. So yes. It is it is very important to other stakeholders as well.

That's very helpful. Thanks, everybody.

Thanks, Michael.

Thank you everyone. At this time, we have reached the end of the question and answer session and I would now like to turn the call back over to Lisa Palmer for any closing remarks.

Thank you all very much appreciate your time with us.

You may be heading to the to the shore or the beach or the long Island.

For the weekend enjoy your enjoy your weekend. Thanks al.

This concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation and have a great day.

Okay.

[music].

Welcome to the Regency centers Corporation second quarter 2022 earnings call. At this time all participants are in a 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 and.

And please note that this conference is being recorded.

I will now turn the conference over to Christy Mcelroy Senior Vice President capital markets. Thank you you may begin.

Our senior managing director of the West region.

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 management's current beliefs and expectations and are subject to various risks and uncertainties. It is 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 inner.

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.

Thank you Christy good morning, everyone. Thank you for joining us today.

We are pleased to report strong second quarter results, reflecting a still healthy operating environment.

Leasing demand continues to be strong and tenant move outs remain light driving occupancy and rent growth higher.

Not only to play offense and drive growth when times are good but to successfully navigate challenging macroeconomic environments. We are designed to outperform through cycles, evidenced most recently and the resiliency of our performance through the pandemic and how quickly we were able to pivot back to offense and return to pre pandemic levels of NOI, earning.

Per share and leverage.

And in times, when tenant bankruptcies, maybe elevated or locations tend to be among the best performing limiting occupancy decline.

Additionally, current positive momentum as a source of tailwind into 2023 and beyond first and foremost is our strong pipeline of leases both executed and those are in negotiation.

Also next year, we will see an even greater benefit from development and redevelopment NOI coming online.

And finally, as we've been saying our dense suburban neighborhoods and communities continued to benefit from structural tailwind stemming from post pandemic migration and hybrid work.

Where we have begun to see some impacts from the current environment is in the capital markets, but again, we are extremely well positioned the strength of our balance sheet and our low leverage affords us the luxury of not needing to raise capital when it is not advantageous to do so.

And then what we would pay for anything comparable in the private market today.

We were uniquely positioned to take advantage of that dislocation, given our balance sheet strength and liquidity position.

We can't control the macro environment, but we can control our response to it as we sit here today, we remain confident in our operational strategy and our balance sheet strength, regardless of the macro backdrop.

Closing out I'd like to comment briefly on ESG as many of you know that have been covering regency for awhile, we take pride in having best in class sector, leading environmental social and governance programs across which we continue to meet or exceed our goals.

Thanks, Lisa and good morning, everyone.

While we are keeping a close eye on.

Increasing economic pressures in the U S. Today, the operating environment for our open air retail centers currently remains healthy and active.

We had a great second quarter of operating results, leading us to further increase our 2022 same property NOI guidance by 100 basis points to 5.25% at the midpoint, excluding prior year collections.

Confidence in our outlook is driven by continued positive vectors in our key metrics.

First continued robust tenant demand with new leasing volumes up 20% year to date versus the historical average.

Increasing occupancy both on leased and commenced spaces, especially on shop space as we backfill space vacated during the pandemic.

Our tenants are paying rent and we're nearly back to more customary levels of current period bad debt retention.

Our retention rates remain above historical average cash spreads were nearly 9% in the second quarter, and we're embedding contractual rent steps and close to 90% of our executed leases, especially important in this inflationary environment contributing to GAAP rent spreads of 17%.

Strong tenant sales reports again contributing to higher percentage rent.

We're maintaining low levels of leasing capex with net effective rent growth also in the mid teens.

Our success and momentum related to all of these key drivers of our business gives us continued confidence in the strength of our core operating outlook.

As Lisa discussed, we do acknowledge the heightened risk of softer economic environment, including the potential for an uptick in tenant failures.

We're not seeing that yet and a tenant move out activity has remained light.