Q3 2023 Regency Centers Corp Earnings Call
Hello, and welcome to the Regency centers Corporation third quarter 2023 earnings call and webcast. If anyone should require operator assistance. Please press star zero on your telephone keypad.
And answer session will follow the formal presentation.
He may be placed in the question queue at any time by pressing star one on your telephone keypad.
As a reminder, this conference is being recorded.
My pleasure to turn the call over to Christine Mcilroy Senior Vice President capital markets. Please go ahead Christie.
Good morning, and welcome to the Regency centers third quarter 2023 earnings Conference call joining me today or at least the Palmer, President and Chief Executive Officer, Mike Mas, Chief Financial Officer, Alan Graf EVP National property operations in East region, President and Nick with admire EVP and West region President.
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 these forward looking statements we may make.
Factors and risks that could cause actual results to differ materially from these statements may be included in our presentation. Today and are described in more detail in our filings with the SEC specifically, our most recent Form 10-K and 10-Q filings.
In our discussion today, we will also reference certain non-GAAP financial measures.
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 a caution on forward looking statements also apply to the presentation material Lisa.
Thank you Christy and good morning, everyone.
We had another strong quarter of operating results supported by continued positive momentum in our business tenant demand remains really healthy and consistent and this is evident in the strength of our rent growth and our ability to further increase leased occupancy despite elevated bankruptcies and youre going to hear a lot more about this from al.
And just a few minutes.
We continue to drive success within our development program as well. This is reflected in the leasing progress that we've made across our in process pipeline as well as our significant volume.
It starts year to date.
Development is a.
Core competency of our company and as you've heard me say before I believe we have the best National platform in the business, we have proven our ability to create meaningful value and earnings accretion over time.
And we remain well positioned to reach our targeted annual pace of $200 million to $250 million of redevelopment and development spend annually.
On the transaction side, we were proud to close our merger with their stuff that'll in mid August.
Since then we've made significant headway integrating the assets into our platform and welcoming our new Regency team members are short time with the portfolio and the people has only served to reinforce our confidence in the combination of our two great companies.
We also recently acquired two shopping centers, Nick will discuss these in more detail, but despite a pretty thin transaction market I'm really proud that we were able to find some higher total return needles in the haystack.
So turning to the macroeconomic environment.
Yes, we continue to see positive trends, we're seeing in real time, the spending power of the consumer in our trade areas. This is evident in our solid sales performance for our tenants and for traffic to our centers and while a deceleration perhaps has been expected by money. We are not saying, we mean, where we remain.
Really encouraged by the structural supply demand trends that are supporting our business today.
Tenants continue to invest in brick and mortar stores that are profitable as last as a last mile distribution channel and our suburban trade areas continue to thrive.
And while we continue to create value we continue to create value through ground up development. Overall, there is very little new retail space being added in the U S supporting the value and scarcity in the existing space.
That said, we do acknowledge the increased interest rates and significantly higher borrowing cost and in the recent months do create uncertainty first as the future to our earnings from refinancing next year's debt maturities, our intentional strategy of maintaining low leverage and a ladder debt maturity schedule do act as.
The changes in rates, but we still expect to see an impact in 2020 for.
The bottom line, though is that in today's uncertain world. The one thing that we that I am certain about is that regency remains well positioned and this is a direct result of many attributes one of which is our intentional portfolio composition.
We believe the quality of our grocery anchored neighborhood and community centers and the strength and demographics of our trade areas some support durability of occupancy.
Great a wide buffer to insulate against potential economic impacts to our tenants and to our customers.
And another attribute is our strong balance sheet and liquidity position, including our significant free cash flow.
With this we have flexibility in our capital allocation decision, making and then the ability to self fund and maintained consistency in our value creation pipeline through economic cycles.
And importantly, we can also continue to play offense and be opportunistic.
All of this is what's enabled us to maintain our dividend through the pandemic and raise it again this quarter by another 3%.
Now up 15% from 2019.
Al.
Thank you Lisa and good morning, everyone. We continue to experience a very healthy retail environment as demonstrated by another quarter of strong operating results and demand for space in our centers remains robust.
We increased our same property leased rate by 20 basis points in the third quarter, even when factoring in roughly 25 basis points of impact from bankruptcy related move outs, primarily attributed to the remaining bed Bath location.
Our shop leasing activity has been at a record pace over the last several quarters, including above average retention rates, resulting in another 50 basis point increase in our shop lease rate in the third quarter to a near record high of 93, 2%.
We were also able to generate solid releasing spreads again this quarter, 9% cash spreads on a blended basis, including spreads of more than 20% on new leasing.
Straight line rent spreads were above 17%, reflecting our keen focus on sustainable annual growth and our ability to consistently achieve contractual rent steps and the majority of our leases with annual steps oftentimes, 3% or higher on our shop deals.
Leasing progress continues to drive strength in our same property base rent growth, which was more than 3% in the third quarter and remains our largest and most important contributor to same property NOI growth.
We continue to replenish our executed S. N O pipeline as tenants open today, representing more than $36 million of annual incremental base rent and our leasing pipelines remain full supported by continued depth and negotiation activity.
We are seeing strength in tenant demand across all of our regions and from a range of categories, including grocers off price medical restaurants, fitness and pet services.
In fact at our former bed Bath locations, we've had one of the fastest absorption rates in recent memory as it relates to immaterial anchor liquidation.
And while most of the new leases won't commence until the second half of 2024 or later.
Half of our vacated spaces have been executed with new tenants and the remainder of the space is in active negotiation.
Based on our activity back filling the rejected leases, we now expect rent spreads above 30% on average exceeding our original projections.
In regard to the recent Rite aid bankruptcy filing we have 22 locations in total representing 50 basis points of ABR.
We had one store that was already dark which was part of the initial rejection list and one more on the going out of business sale list.
We are early in the process of this bankruptcy proceeding, but we feel really good about our exposure and the quality of our locations as a result of productive sales or below market rents.
We know that tenant bankruptcies are a normal part of our business and importantly, our high quality shopping centers are well positioned to grow through it with better merchants, often at higher rents and driving greater traffic to our centers.
Lastly, as Lisa mentioned, the integration process with Earth that federal has been progressing successfully we are excited to welcome our new regency team members in the northeast and bring these high quality assets into our portfolio, where we are already having tremendous success on the leasing front.
With this transaction, we further strengthened our best in class operating platform Nick.
Thank you Alan good morning, everyone.
Had another productive quarter for development and redevelopment activity, increasing our starts year to date to $210 million.
One of our Q3 starts is the $15 million redevelopment Circle Marina Center in Southern California acquire.
Acquired in 2019 with the intention to redevelop the center.
That concludes the replacement of existing Staples box with the new sprouts farmers market.
In addition to extensive slight improvements a facade renovation and enhancements to the shop space in common areas.
We continue to make great progress executing on our $440 million in process pipeline and I've seen tremendous activity on these projects currently over 84% leased with blended returns of more than 8%.
As an example at our ground up building Glenwood Green project and Old Bridge, New Jersey targeting shop, right buildings are substantially complete and on schedule to open this coming spring.
Leasing momentum has been strong and we are now 92% pre leased with a great tenant lineup, including Walmart Shake Shack Duck Donuts Harrisburg get involved in that small.
Now turning to acquisitions, while private transaction market activity remains then we were able to source two unique opportunities to allocate capital to higher iron ores within our targeted trade areas.
In September we acquired old town square within one of our joint venture partnerships are high performing center in Chicago neighborhood anchored by Jewel Osco, the region's top grocer.
This is a near urban asset with suburban filing out located in a trade area with over 500000 residents in a three mile radius.
Widely regarded as one of the premier grocery anchored centers in the Chicago area.
In October we closed on the acquisition no positively in Orange County, California.
This bond anchored center provides a near term value add opportunity have to redevelopment.
Also in an estimated IRR, let's say 10%.
As we look ahead, our teams remain focused on building our value creation pipeline and we see the opportunity to start more than 1 billion of development and redevelopment projects over the next five years.
Demand is strong among groceries and other retailers looking to grow their footprints and high quality centers with many attractive trade areas, coupled with the relative lack of new supply.
We have the best development team in the business, we continue to see a compelling opportunity to capitalize on incremental demand at a time. When we are one of the only developers with the capability to fund projects and execute.
And as we've discussed many times before we have the ability to self fund our growth pipeline without raising any incremental equity.
Free cash flow north of $160 million annually.
We're sourcing these projects through the redevelopment of our existing assets, we're acquiring redevelopment opportunities like circle Marina No Plaza.
And then with Landover landowners and expanding groceries as we seek new ground up development projects.
It's important to note, especially in this environment as we evaluate investment opportunities. Our teams remain cognizant of today's higher cost of capital and we are focused on ensuring appropriate risk adjusted returns.
It also gives us comfort that the type of assets, we are building and Redeveloped, we meaningfully derisk our projects that are putting a shovel in the ground with significant pre leasing entitlements and bids for the majority of our cost in hand.
Overall, we are excited about the investments we've made and by the opportunities we see ahead of us.
Right.
Thank you Nick and good morning, everyone.
I'll start with highlights from our third quarter results walk through a few changes to our guidance for the balance of this year.
Cause I had some comments on 2024 and finish by touching base on our balance sheet position.
We reported third quarter NAREIT <unk> to $1 two per share, which was impacted by a penny of edp merger transition expenses.
And core operating operating earnings of 97 per share.
Same property NOI by two 9% in the third quarter, excluding the impact of Covid period, with those collections and termination fees.
Importantly, as Alan mentioned, the largest component of growth continues to be base rent.
Contributed 320 basis points to our NOI growth rate in the quarter driven by the combination of embedded rent steps higher commenced occupancy and redevelopments coming online.
Turning to our revised current year guidance I'll refer you to the detail on slides five through seven and our earnings presentation.
Driven by another strong quarter of new leasing and continued high tenant retention, we've eliminated the bottom end of our prior same property NOI growth range and they're now got into finished the year at about three 5% excluding.
Excluding COVID-19 period reserve collections and termination fees.
We have also raised our per share core operating earnings guidance by three cents at the midpoint driven primarily by the upward revision to same property NOI expected accretion from the ers that little transaction and changes to our acquisition and disposition assumptions.
Comparably, we only raised our NAREIT <unk> per share range by a penny.
Primarily due to the offsetting impact of forecasted merger transition costs.
As we all start to plan for 2024 on slide eight of our earnings presentation. We provided some forward looking considerations of certain nonrecurring items, including Covid period reserve collections and noncash impacts as well as summary details on the Earth that battle merger accretion and related continuing transition expense.
Yes.
While I won't belabor the details on today's call. We trust you will find this disclosure very helpful.
Highly recommend you will do it as we recognize there are many moving pieces to consider heading into next year.
Additionally, given the higher interest rate environment and potential future refinancing impact we want to provide as much transparency transparency as possible as to how we're thinking about our financing plans next year.
These plans include an unsecured bond offering in the first half of 2024.
And the $400 million to $450 million range with proceeds used to refinance scheduled debt maturities and to reduce our balances on our credit facility.
We are proud of the strength of our balance sheet, which has been an intentional and foundational strategy of our company.
And it's particularly important in times like today.
Lynn for others access to capital is more limited and pricing more volatile imports.
Importantly, as Lisa mentioned, we are not immune to the adverse impact of higher rates, but our overall low leverage combined with a well ladder maturity schedule helps mitigate the financing impacts for regency in any given year.
We feature one of the strongest balance sheets in the REIT sector with our leverage remains at the low end of our targeted range of five five and a half times debt to EBITDA.
We continue to generate significant free cash flow expected to be north of $150 million. This year self funding, our growing investments by farm and.
And we have access to meaningful liquidity through our $1 billion to $5 billion line of credit.
Given this foundation, we remain confidently on our front foot as we move forward.
With that we're happy to take your questions.
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Press Star two if you'd like to move your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing star one one moment. Please while we poll for questions. Our first question today is coming from Michael Goldsmith from UBS. Your line is now live.
Good morning, Thanks, a lot for taking my question can we just talk quickly about the moving pieces do you ever said that it'll transaction and the impact on the guidance next year and then also next year. It seems like the deals are headwind to NAREIT <unk>. This year and so maybe the fourth quarter F. A phone number isn't it.
Run rate for next year, but it's also a positive on core operating earnings this year and next year it should be a chill into both <unk> core operating earnings is that right Mike.
Yeah.
Thank you Michael and I would encourage everyone to look at page eight of the supplement that we put out with our guidance.
Considerations for next year, I think it'll be very helpful. But I think you've actually outlined it pretty well and you clean your question. It will be a positive contribution from a core perspective at a at the level of about one of that percent accretion and we've given those components. There on the slide it's basically worth an incremental 445 per share and 24 versus 23 and.
Then the complexity that you're outlining would be in our Navy. That's S. O one item as it relates to the merger transition costs.
We will have we'll end this year, we are estimating a 5 million dollar area large portion of that coming through in the fourth quarter of this year and then we are anticipating the trailing $7 million of of those same expenses on a transition basis leaking into 2024 from a timing perspective, there I think it's fair to just you use.
Pro rata spread of that $7 million through the year next year.
And I can't help but take this opportunity I think it's a great opportunity to just reiterate what I said in my prepared remarks, it's been a short time.
It closed in mid August, but the integration.
And bringing the properties and the people into regency.
In that short period of time, it's just it is just really validate it that this is a great transaction and a combination of two really really good companies and we're excited about it.
Thank you one last night.
Just to confirm just to convert many have asked us about the noncash impacts from the purchase accounting just and it's on the it's in our materials, but just want to confirm that there is no impact in 'twenty 'twenty four as the revenues the noncash revenues are offsetting the noncash expenses.
Thanks for that and my follow up is on the lease escalators. It seems as though that's the largest piece of your same property NOI.
The algorithm it seems like you're getting 3%.
I guess, how quickly can you know in an elevator and escalator environment, you've got the most exposure to small shop, how quickly can you kind of cycles through cycled through some of the older leases between have lower escalators and get these tenants onto a higher escalator so that.
It is.
Slowly lifts your overall earnings growth on a same property NOI algorithm. Thanks.
Yeah. Michael This is Alan I, what I would say is that is a keen focus and has been for quite some time and as you noted.
I don't think you said the number but 75% of our shop deals did have 3% or higher escalators and approximately 95% of our deals had escalators. So.
The team is constantly when given the opportunity to have access to this embedded rent steps.
Opportunity.
We are implementing it and so I'm certainly.
Keen focus.
Thank you. Our next question is coming from Juan Sanabria from BMO capital markets. Your line is now live.
Hey, good morning, guys. It's Eric on for one maybe just starting with old town squares I just want to talk about maybe you could talk about the backstory and maybe the opportunity set within the asset.
Is this maybe a potential indication to increase your presence into Illinois and potential other Midwest markets.
Eric Good morning. This is Nick I appreciate the question so.
Starting off with old town part of your question, Yes, it's an asset we've been targeting for quite some time to.
You have the ability to have a suburban lay out in the near urban environment with a really high quality grocery or and we track that asset for sure probably over a decade and just seen it perform year in and year out and so it was one we were excited to have the opportunity.
To participate in the bid process. It was ultimately owned by institutional honor that did have an end of their life to that whole period, and our understanding and so they were looking to liquidate it.
And on the flip side once we got control of it one of our long standing institutional partners that we've been partners with for nearly 20 years does did have the opportunity through our rotation to take an 80% stake and they exercise that opportunity given they were excited about the real estate as well and so we were happy to.
Get that one marked up and close this quarter.
In terms of your question in the Midwest as you know we were focused in all of our major markets that we have offices. So we are looking for those needles in the haystack and I think the analogy I heard this week and I kind of like it is and it's not as the normal deal flow Theres drips of water out there and so we are.
<unk> each of those drops of water at all of the major markets that we do business in and the ones that as we've always said are equal or accretive to our quality and growth and or and accretive to earnings. We're going to act on we have the ability to act on and so whether it be in the Midwest or the coastal markets. We're focused on investing our capital where it makes sense.
Okay. That's helpful and then maybe one on the snow pipeline all of them.
This $36 million, how much is that related to bed Bath and then how should we think about the cadence of that coming online through 'twenty three 'twenty four thank you.
Eric.
One and a half million dollars of that $36 million as bed Bath.
I'll add to this interestingly, we did add $3 million of U B P portfolio S. N O pipeline to that number as well in the quarter and from a cadence perspective about 80% of that pipeline will come online through the end of next year.
Great. Thank you very much.
Yeah.
Thank you next question today is coming from what you're doing from Bank of America. Your line is now live.
Hi, Good morning, I, just wanted to follow up on them you know that.
The cap rate on that.
That that would close on for that.
For for the Chicago asset and and maybe it's just as an indication for where.
You see cap rates trending for quality grocery anchored centers today, and then separately if you could confirm that.
Not no Plaza am I, I know Ah, yeah that that deal with quite different given that the redevelopment opportunity.
Bank with labs can't hear more of the back story on that as well.
I'll take the first part.
I'll pass it to to Nic for Knoll Plaza.
I loved.
I loved mixed analogy I actually didn't hear that this week and we were together, so I'm not certain where he heard it.
But there really are drips of water and not deal flow. So it's really difficult to say that the cap rate on Chicago as a read through to cap rates are where there is the transaction market is still just really thin and Ah. We did have we think of it.
I said it in my prepared remarks really is more of a needle in a haystack.
The most important thing and you know, Mike said des and you've heard me say it many times.
We generate a significant amount of free cash flow and we have that we have that cash flow prioritize to go to our development and redevelopments, but to the extent that we have excess cash flow not allocated to that we have the ability to be opportunistic.
And that's what you're saying is due and that's what we did with them the Chicago asset as well as no plaza. So I'll toss it to I'll pass it to Nick for at all.
Thank you Lisa and thanks Louise for the question, Yes, Great question regarding no very different profile than the old town and so no. It was owned by a tick and owned it for decades ultimately got to the point, where the tick wanted to divest and take their money and move it elsewhere.
So given it was owned by a tick as most picked situations not a lot of capital invested over those years and so great opportunity for us to use our platform in southern California come in we love the real estate, we love the fundamentals of it.
But it definitely needs of reinvestment and that's an opportunity for us and so we although you see the cap rate there. When you do the math is lower than our standard acquisition given the redevelopment, we expect to do near term and the investment we expect to make them. We do expect the IRR to be north of 10% until really excited about using our redevelopment expertise.
To to shine that asset up and put it into the operating portfolio for a long time to come.
Yeah.
Great that's helpful.
Second you just looking at your page on net effective rents are in the supplement it looks like the competition of new leases signed.
For small shop trended down quarter to quarter closer in line with anchor leases signed.
I guess first is that a function and <unk>.
<unk> demand from small shop, what may be more of a current composition to think about and signing new leases and then second you know what what's more realistic as to how much are there you can push on that small shop leased rate, Kevin It's reached a near record high.
Yeah.
Lindsay This is Alan Thank you for the follow up question. So no. It is not indicative of any market noise whatsoever. It can be a bit lumpy quarter over quarter, as you know and and and you said it yesterday there were more anchor transactions in Q3.
Then we had had in prior quarter end and so that that certainly is what would drive drove that.
Regarding shop lease rate you know I was I was laughing, but dead serious when we were having a conversation amongst the company records are meant to be broken.
And so I really believe in the team we have the portfolio that we've got and so we.
We are certainly focused on the shop side, although at the 93% Mark right now are being able to do our best to continue to drive that so I'm excited to watch and see what the team. The team can do the environment as you've heard us say and.
And you've heard all all of our peers is really healthy today and the demand in our sector is really strong.
And we've reiterated that structural tailwind we have they're still there the post pandemic hybrid work limited new supply.
And then.
Just a renewed appreciation from both from both the customer as the shoppers themselves and the retailers on a physical presence.
And we are still we are still benefiting from those tailwind. So I do believe that this record is there to be broken.
Great. Thanks.
Thank you. Your next question is coming from Greg Mcginniss from Scotiabank. Your line is now live.
Hello. This is Victor a fatty one Mr. Greg Mcginniss.
And so now that you've started integration of you'd be people folio and given your scale and relationships with current tenants I assume you already had some conversations regarding expansion into newly acquired properties. So do you have a vision of what would be let's call. It the regency and back on the <unk> portfolio.
Occupancy within the next say six or 12 months and how it translates into the combined occupancy in back.
I'm happy to take that one and Alan can provide some color on the the integration momentum and what he's seen in within the portfolio in particular.
The thesis of the merger.
Is the same as it was this is the leasing exercise for us with with a portfolio of very high quality shopping centers in very high quality trade areas that look very similar to what regency invest in for the last 60 years of our company's existence.
We.
Saw an opportunity of a 200 basis points, plus or minus differential and percent leased between the two portfolios at the time of the merger announcement.
And our eyes are set on closing that gap are we don't see any inherent reason with the assets themselves or the trade areas within there.
They exist that that gap should exist.
We think that the portfolio should.
Slowly and over the next several years come to the same lease rate as the legacy regency portfolio.
And to your point on when Tom you know this isn't going to be an overnight.
Impact on the absorbing that 200 basis points of differential, but we do we've gotten off to a really good start we really appreciate the integration efforts that are ongoing within the team to at least his comments earlier.
And Alan will take it from here, but I think we're pretty excited about the prospects.
Yeah, I think Mike articulated it quite quite well our number one goal is a very intentional approach to leasing, but we're also thinking about how can some redevelopments you know in the future be unlocked and in the near term you know, we recently executed a dunkin' ground lease where we're gonna create a pad out and one of the parking lots of ours.
Of our shopping center and so there are certainly opportunities like that that the team is focused on but in sort of the medium to long term I think there's also the opportunity to evaluate some redevelopment opportunities, but we have some interesting spaces that that you know right around the closing of the merger where there are David's bridal was in bankruptcy and the team has already executed.
To replace that space, we had a large vacant former Barnes and noble and we brought in a phenomenal local multi store operator of illicit bring a craft beer concept that the community is super excited about again, we've gotten that solved and so the teams really hyper focused on the shop leasing side and as Lisa mentioned.
And you know I I am most excited about the great people that have been integrated but the platform I think really will pay dividends long term as well.
Thank you and a privilege as a quick follow up you already mentioned that there are probably some attractive redevelopment opportunities within that portfolio. So given where interest rates are now what would be our kind of target IRR and for redevelopment and acquisitions in developed probably that demand.
If you have an extra capital it can deploy.
And for those of you that remember records I'm always going to sound like a broken record.
Because yes, we acknowledge obviously our cost of capital we acknowledge that the that our cost of capital has increased but again free cash.
And the best development platform in the business and we have proven our ability to execute and create value through cycles and the only thing I would reiterate that Nick already said once and this is where the broken record comes in to the extent that we can invest capital that is going to be and shopping centers.
That are or at least neutral, but accretive to our quality.
Accretive to our future growth rate and accretive to our earnings and we're going to do it and I believe that that is a competitive advantage for us and it is something that we're gonna.
Again from my prepared remarks, we're going to continue to play offense and be opportunistic and do that when we can.
Okay. Thank you.
Thank you next question is coming from Ron Camden from Morgan Stanley. Your line is now live.
Hey, just a couple quick ones are just staying on the development a fraud I see the 440 million, but in the presentation you have another sort of $80 million at the midpoint in the next 12 to 18 months.
On that 80 million can you talk about are those pre leased is there sort of interest are there and what would it take to start those maybe sooner rather than later.
On your on your thinking.
I appreciate the question Rob This is Nick so you're.
You're absolutely right. We are hyper focused as Lisa has said and we've been vocal about it continuing to lean into our development and redevelopment pipeline and so the teams are very active in doing exactly sort of what you laid out and what I laid out in my prepared remarks, which is de risking these as much as we possibly can before we put a shovel on the ground and so.
There's a great tenant demand out there. So some of these deals were just finalizing leases to get them re leased appropriately.
We are very thoughtful of making sure we have our arms around cost of some of these deals were finalizing cost and then some of them are last minute. Our last our last legs of entitlements that we're finalizing and so once we check those boxes as when we put a shovel in the ground and we are excited about what we're seeing in our pipeline of continued opportunities to to use.
All of the tools in our tool belt to our to our advantage in these market conditions and so do you expect to continue to talk about some great opportunities quarter in quarter out.
Great and then my last one is just on the 'twenty 'twenty. Four considerations are just are Super Super helpful. If I could just ask just two more so one is just on bad debt how is it trending this year and given the opening comments it doesn't seem like there's any reason, we should think that should be different in 'twenty.
Four and then the last one is just on interest cost is there anything in 'twenty four debt maturities or anything that we should be.
I'm mindful up thanks.
Hey, Ron really first I appreciate the comments you made on the disclosure of the team did a phenomenal job of that and I'm glad you appreciate it.
Let me speak a little bit to those two line items from a 24 outlook perspective happy to give some color also wanna be sure to say, there's more to come when we put out our full suite of guidance in the in the full package as you're accustomed to which will do and when we guide in February.
The from a credit loss perspective, our outlook hasn't changed for the balance of this year right. So from a full year perspective, we affirmed the 60 to 90 basis point.
Impact for full credit loss, which includes both bad debt expense or you are uncollectible lease income together with the last rep rents associated with bankruptcies to your question.
You ally or bad debt, our historical run rates about 50 basis points, we will do better than that in 'twenty three.
Largely due to the first quarter of the year and we've talked about this on that call where we had for.
From a cash basis basis tenancy, we had an unusually high collection rate, where they just we're paying some very very late billings in that quarter. All of that is translating into a lower than average historical run rate.
And when I think about the second half of the year, it's actually kind of trending back to historical averages. So I.
I would my out alright, so kind of looking into 'twenty for us is going to probably start in that area of our historical averages at 50 basis points.
I'm also happy you mentioned interest expense.
You know my in my remarks, I did try to lay out what we're what our plans include looking into next year, but let me just go through them again.
Roughly $400 million to $450 million of planned financing activity, we need to refinance the $250 million bond that matures in June a recall that that set of three and three quarters interest rate today.
We have some mortgages that are maturing next year theres, one larger mortgages roughly $80 million. So we'll add that to our financing plan and then recall that.
We have the transaction expenses from the from the merger with U P. P. M that we will also fold into that transaction activity.
All in all that's $400 million to $450 million of needs.
And we see where the treasury is running at the moment, which is running in our favor.
To give you a sense of where we think our indicative spreads are.
<unk> in the mid six's, plus or minus and again depending on.
Where the base rates go from here and how our spreads.
Contract or expand from this point forward, but we feel really good about.
Our ability to execute really efficiently in the capital markets and then it'll just be a matter of our timing selection and where rates end up.
Super helpful. That's it for me thank you.
Thank you. Our next question today is coming from Samir Khanal from Evercore ISI. Your line is now live.
Good morning, everyone. So my question is more on the anchor side, you talked a lot of talk a lot about sort of limited supply demand is still strong.
But is there an opportunity to even push rents higher here upon renewals with anchors maybe from a mark to market opportunity.
Or even higher rent bumps clearly that that's not happening overnight, but I guess how are those conversations going.
With anchors today.
Yeah.
Sameer This is Alan thank you.
For the question, yes, the answer is yes.
Where we stand today, we have north of 50 anchor leases that do expire without options over the next three years and so certainly the team is is high.
Hyper aware of for those that need to stay in making sure that we're getting the appropriate market rent for those and where we can upgrade tenancy, we will certainly do that so.
There is that opportunity.
Demand remains strong I think that's largely driven by a lack of supply and as we we look at our bed Bath resolutions as I said in my remarks, the speed to getting those executed with faster frankly than we anticipated and it's with some great retailers Rei restoration hardware outlet Burlington just to name a few where some of the deals that we've already signed.
And so there was a pretty deep pool right now with you know the supply and demand scenario is certainly working to our advantage.
Right I mean, I, usually think about when you think about anchors they usually pay lower rents right. So what I'm, saying is the industry ready to get to a point, where they start to start to come up and start to pay market rents there in <unk>.
Then where they are today, that's sort of my question.
So I guess youre starting again.
Yes, Sameer the answer is yes, I would just take you back again using real time that bed Bath as an example, we're exceeding 30% mark to market on the deals that we signed and so.
I think from that perspective.
Definitively tell you, yes, as we sit here today, we are able to drive those spaces to a much higher market rent than.
And then that of what's in place.
Got it and I guess on this the rent spreads of 30% you talked about I mean, how should we think about the capex.
Involvement to get that 30% I guess.
So Sameer I would say capitals in general relative to shop leasing has stayed pretty neutral we're not seeing much in the way of enhanced capital's there I will say on the anchor leasing front you do find that capital tend to be a little bit more.
Expensive, but you know as you noted the 30% you know obviously it is the GAAP rent spreads that we experienced and and you know I think the balance of all of that embedded rent steps as being a keen focus.
As a as a success, we're having right now.
Okay. Thank you.
Thanks Amir.
Thank you next question today is coming from Craig Mailman from Citi. Your line is that right.
Hey, good morning, everyone.
Wanted to go back to the.
Action market.
That was helpful. The 10% or north of 10% IRR on the asset you bought in the quarter, but I was just trying to.
See kind of where your return requirements have trended with rates going higher on something that's more of a core asset versus a redevelopment opportunity like this and you know your appetite for.
You know going in at a lower <unk>.
Initial cap rate knowing that there's upside.
Acknowledging the fact that that's dropped a good amount of its free cash flow a year or so you know just.
Just thinking about your weighted average cost of capital and how you're kind of putting it all in a in the part and.
Thinking about it.
Yeah, and I'm, just going to reiterate what I said before we do look at our at our cost of capital and our cost of capital does inform and basically dictate what our required returns are and to the extent that we can invest our capital and we look at something like no plaza that.
It is a redevelopment is like our development pipelines and yes, they take time to get to the total return, but we're looking at the total return the irr's and to the extent that we can invest our capital on an accretive basis.
And ensure that we are being we're being paid appropriately for any of the risks.
Risk reward if you will core versus ground up development.
We look at all of it and accretive to our future growth rate accretive to our quality and accretive to earnings and if it checks. Those boxes, then we're going to do it.
I mean do you guys have like a lower threshold, where unlevered returns need to be for the deal to kind of move forward investment committee or is it deal by deal.
Again, if it if it exceeds our cost of capital.
And especially for our core acquisition.
That's that that works for us.
Okay, and then just separately on the leasing you know everyone is.
Talking about really good demand across the board and I'm, just kind of curious from from your viewpoint being going through cycles before.
Are you feeling comfortable with the expansion plans of retailers do you think.
Some of them are expanding too quickly or just you know.
The lack of availability is may be amplifying, how good things feel relative to kind of the activity going on in your portfolio.
Thoughts around that versus sort of the normal cycle.
I'll take it from a higher level perspective and to the extent that we'd.
We'd like to color it up at the end.
I mean generally speaking.
There are higher borrowing costs for everyone and that includes our tenants.
And I don't have a crystal ball I'm not certain what the future holds I can tell you right now we have not seen a slowdown in demand could higher borrowing costs and higher cost of capitals for tenants slowed their expansion plans, possibly but even if it does.
We own we own high quality real estate and some of the best real estate slowing it doesn't mean, it's it's grinding to a halt and I am really confident that we will continue to capture new stores and expansion plans of retailers yeah.
Yeah, Craig the only thing I would add is whether in good times or bad times.
We refer to our three pillars of merchandising place, making and connecting to the community and we're always taking an intentional approach to that and always proactively and intensely managing these assets and so we don't just sign the leases signed leases right. We are diving into operating experience credit worthiness synergistic.
Enhancement to the overall asset so.
I I think with that mindset. It works in good times or bad.
Okay, I guess, that's coming out from the standpoint of do you feel like there's anyone that's expanding too quickly.
Given what's going on in the macro or you still feel people are appropriately kind of size of the opportunity for the long term.
Let me, let me kind of talk through some of the retailers that we're doing business right right now and as I think about off price T. J Maxx Burlington five below we're doing a lot of business with them. They're fantastic. If you think about <unk> first watch in kind of a relatively new public companies Mendocino farms still.
<unk> coffee phenomenal and I think theyre very deliberate in their approach as well and great operators with strong sales performance. If you lean into the franchise concepts. You know we're doing a lot of business with the likes of sent Hound or distressed zones of the world again, they're putting really good operators in there and we're seeing great success at that level.
So all I can do Craig is look it at the retailers, we're doing business with look at their volumes and sort of their productivity of of where they are and look at the operators. When it is a franchise concept and I can just tell you as we sit here today I think they were making the right decisions and I think our team is making the right decisions and partnering with those operators.
<unk>.
Great color.
Yeah.
Thank you next question today is coming from keeping Kim from <unk> Securities. Your line is now live.
Thanks, Good morning.
So certain retailers have highlighted potential consumer weakness trends, even though grocers.
So just from your advantage point I was wondering if you saw any discernible trends from your consumers. However, you want to slice and dice that.
We have not seen anything to date and again.
I do believe that our sector, while not completely immune is more resistant and I hear you from the grocers, but the grocers.
<unk> had been experiencing pretty strong comp sales.
Across the board and so you know instead of growing at 8%, they're now growing at 3% and they are still growing. So we are not seeing that yet and expect again, given the property type the necessity the value the convenience and we feel really well positioned.
<unk> and resistant to potential economic you know adverse impacts in addition to the trade areas in which we operate.
Okay, and a quick one for Mike tend to be.
Sorry go ahead.
So for Mike.
You mentioned that the bond that you might raise next year would be in the mid sixes. I was curious is that based on like last week's treasury for this week.
Yeah.
Based on yesterday yesterday.
No.
R. R indicative spreads are 180 so.
Around 80, 185, plus or minus on where the treasury is and it's been moving around pretty rapidly.
So it's looking better keeping them, maybe a little bit hesitant to declare victory here.
But where we're actively and very acutely monitoring the markets, we're going to we're going to execute when we see it.
A really good opportunity for regency to have a good execution.
There's no we can be patient.
Only we only have 20% of our overall debt maturing over the next two years.
So you know to.
To the comments, we made our upfront, whereas well positioned as we can be even in a higher rate environment given all the work we did over the last decade.
From a how much debt we carry to when it matures.
Well no one is losing sleep here over this year's execution in transaction activity and we're going to act when it's when it when the windows there.
Okay. Thank you.
Yeah.
Thank you next question is coming from Linda Tsai from Jefferies. Your line is now live.
Hi, I know you don't normally disclose retention ratios, but just wondering if youre running at peak or have even exceeded peak retention.
Oh, we're basically at slightly above average retention rates I think we're in the 80% area is that right and that's a little bit of a tick up on top of what our historical averages.
And then in terms of the purchase accounting impact.
Thank you ally on page eight non-GAAP.
Noncash revenues and noncash expenses fully offsetting each other next year in 2025 and beyond how would those impact flowing through.
Oh interesting it's.
It's gonna for 25, I would say, it's fair to say, it's going to continue to balance each other out.
The weighted average life of that debt Mark to market is significantly shorter than the weighted average life of the lease mark to market.
So there is a point in time when that debt Mark will burn off prior to the leases, but it's not in the next two years.
Thank you.
Thank you next question is coming from Mike Mueller from Jpmorgan. Your line is now live.
Yeah, Hi, two questions first.
The small shops 93, 2% leased I'm curious where is that on a commenced basis.
And then second question.
No you Havent had earn out for that long.
But how is the the leasing of a smaller centers and the buildings going from an efficiency standpoint, compared to what you thought heading into the transaction.
I'll start on the second question.
Mike This is Alan so, it's working well and I think a lot of that is back to Lisa's comment of.
Not just the integration of the portfolio, but the integration of a lot of great people. So there are people had intimate knowledge of some of those smaller assets that that you're referencing and.
Just across the board, we've we've felt really great about the activity that's going on.
And and the integration process and so.
We're not seeing any differentiation of challenges or successes based on the asset at all just in general It's I think it's the rising tide with what you're hearing across the totality of the portfolio.
And just in from the stats Department.
89, 5% on the commenced shop right at the end of the quarter.
Got it okay that was it thank you.
Thanks, Mike.
Thank you as a reminder, that star one to be placed in the question queue. Our next question is coming from Paul in a rural Hospital reassure your line is in our lives.
Good morning.
And as you highlighted you haven't renewed it and.
You have a muted exposure to rite aid and a pharmacy.
Alright, and material tenant of yours, I think Ralph.
Fish anything yet.
And well the industry has been shrinking for a while and to my knowledge can you tell me if I'm right. You don't you havent been and impacted by some assurance and finishing and kosher.
But what is your strategy looking for work and play.
For the industry as a whole and and given their size.
Tenant category come to mind, as Beth and vaccines for the state.
I'll start and then I'll, let I'll, let Alan finish it up with the especially with the addressing the latter part of that question, but just generally speaking when we think about pharmacy exposure.
<unk>.
And I know some of you have heard me say this in prior meetings and there's probably many of you that are on this call that didn't live through this but I was with regency when all drug stores were in line and we had a lot of them.
And they moved out of line and moved out to out parcels and we were able to replace them and we were able to replace them at better rents now that they're mostly on the out parcels that some of the best real estate in our shopping centers.
And while again I believe that we have some of the highest quality.
Real estate in the country and we tend to have.
Have lesser.
Locations are fewer locations when retailers do.
Closed stores, but even when we do it's an opportunity for us to release and as one of the questions earlier.
<unk> addressed.
Those anchor even junior anchor rents tend to have longer leases and the rents will move and when we are not able to get access to them. So that gives us access to the opportunity to market to market and given the location and the quality of the real estate, even within our shopping centers, we will replace it with really good tenants.
Yeah, Paulina I would I would add to that so we have 22 locations and as you mentioned one was on the rejection list that we're aware of and one more was on the going out of business less but I think just to speak to the quality of the real estate and how the team thinks and I tip my hat to our west coast team.
We're not sitting back waiting.
For these these spaces to come back we do have one deal that naturally expires in may we haven't heard yet whether rite aid wants to reject it or not but we have executed a lease already.
At a triple digit rent spread we love those low single digit rents and so that happens to be with a hardware store. So as you think about retailers that are willing to go in there its hardware sort of home improvement cosmetics grocers.
We may have a few that could make sense, if we get access to them, where we would split them and do some multi tenant deals, but I think there's various different ways. We can go and as Lisa mentioned.
These are some some really good end caps for prominent locations some of them have drive throughs. So theres a lot of different tools in the playbook based on the unit itself.
Thank you and very detailed answer.
And then on the transaction market I know you have said there is no real deal flow.
But given the rise of interest rates I'm trying to put together the few transactions that have closed how.
How do you think the bead fourth stream has changed since last quarter at the margin.
And if you don't want to provide a numerical answer at quantitatively and how has the dynamic changed how has the market reacted to that higher rate.
Yeah, I don't know that it's changed much at all since last quarter.
It's changed I think from the in the beginning of the year. If you were to go back and you know what.
We read our transcripts, we were starting to feel better and thought that there was there was more clarity to the stabilization of interest rates, which would then reduce theres still a bid ask spread because there's there's really there's I think there's it's clear that there's a disconnect between public market pricing and private mark.
Pricing and that is going to continue as long as that we have the volatility that we have are with interest rates and borrowing costs, which is why I'm really proud of the the total return needles in the haystack that we were able to we were able to find this quarter.
I don't think the denial dynamic has changed at all it's still just the drip.
Thank you.
Thank you we've reached end of our question and answer session I'd like to turn the floor back over to Lisa for any further or closing comments.
Kevin I appreciate that thank you and thank you all for your interest have a good weekend and enjoy your extra hour.
Sleep or however, you intend to use it thanks al.
Thank you that does conclude today's teleconference. You may disconnect. Your line at this time and have a wonderful day, we thank you for your participation today.