Q3 2024 Regency Centers Corp Earnings Call
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Speaker Change: Welcome to Regency Centres Cooperation 3rd Quarter 2024 Earnings Call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation.
Speaker Change: If anyone should require operator assistance during the conference,
Speaker Change: Please press star and zero on a telephone keypad.
Speaker Change: As a reminder, this conference is being recorded.
Speaker Change: I would now like to turn the call over to Christy McElroy. Thank you and over to you.
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Christy McElroy: Good morning and welcome to Regency Center's third quarter 2024 earnings conference call. Joining me today are Lisa Palmer, President and Chief Executive Officer, Mike Mas, Chief Financial Officer, Alan Roth, East Region President and Chief Operating Officer, and Nick Wibbenmeyer, West Region President and Chief Investment Officer.
Speaker Change: As a reminder, today's discussion may contain forward-looking statements about the company's views of future business and financial performance, including forward earnings guidance and future market conditions.
Speaker Change: These are based on management's current beliefs and expectations and are subject to various risks and uncertainties. It's possible that actual results may differ materially from those suggested by these forward-looking statements we may make.
Speaker Change: 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 at the SEC, specifically in our most recent Form 10-K and 10-Q filings.
Speaker Change: 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.
Speaker Change: Please note that we have also posted a presentation on our website with additional information.
Speaker Change: including disclosures related to Forward Earnings Guidance.
Speaker Change: Our caution on forward-looking statements also applies to these presentation materials. Finally, as a reminder, given the number of participants we have on the call today, we kindly and respectfully ask that you limit your questions to one, and then rejoin the queue if you have any additional follow-up questions. This will allow everyone who'd like to ask a question an opportunity to do so. Lisa?
Lisa Palmer: Thank you, Christy. Good morning, everyone. We are proud to report another really great quarter of results driven by the hard work of our team and continued robust operating fundamentals, including sustained strength in tenant demand.
Lisa Palmer: This is evident in our strong rent growth, our sizable leasing pipeline, our same property lease occupancy rate, which we've now pushed above 96%, another record high for shop occupancy and accelerating same property NOI growth.
Lisa Palmer: As a result, we're raising current year guidance and now expect same property NOI growth of 3.5% and core operating earnings per share growth of nearly 5%.
Lisa Palmer: We've also continued to be very active on the investment side, especially through our development platform.
Speaker Change: Nick will go into more detail, but we've had another strong year of development and redevelopment starts.
Speaker Change: And we've already achieved our annual target of $200 to $250 million per project starts for the second consecutive year.
Speaker Change: This success in sourcing new opportunities is a product of the team's expertise, relationships, and the strong tenant demand we are experiencing across our portfolio. And it is supported by our cost of capital and strength of our balance sheet.
Speaker Change: As our grocery partners and other tenants look to further expand their footprints, high-quality space in top trade areas is hard to come by, creating an opportunity for us to leverage our platform.
Speaker Change: And as we further grow our Roundup development pipeline, it will increasingly be a significant and unequaled differentiator for regency across the peer group, amplifying total NOI growth beyond the impacts of our same property portfolio.
Speaker Change: In addition to our development pipeline, in 2024 we've deployed nearly $300 million of capital into accretive transactions, including shopping center acquisitions and the repurchase of our own shares.
Speaker Change: Overall, we had an exceptional quarter, driving both strong organic growth within our current portfolio and creating meaningful value through our investments for the future.
Speaker Change: Yes, the operating fundamentals are robust in our sector today, but more importantly, our results reflect the talent of our team and quality of our portfolio, positioning Regency to thrive in the current environment as well as through economic cycles.
Speaker Change: Our assets are intentionally located in strong suburban trade areas benefiting from limited new supply. Our grocery-anchored neighborhood and community centers represent what we believe is the optimal retail format to serve consumers looking for necessity, service, convenience, and value.
Speaker Change: And we believe the high quality of our centers, with careful attention to merchandising mix, placemaking, and connecting with our communities, provides our centers with superior competitive positioning in the marketplace.
Speaker Change: Thank you Lisa and good morning everyone. We had a tremendous quarter of operating and leasing results, evidenced in our strong base rent and same property NOI growth.
Speaker Change: This was largely driven by robust leasing activity, accelerated rent commencement timing, higher shop tenant retention, lower credit loss, and favorable impact to expense recoveries due to higher occupancy.
Speaker Change: With regard to our occupancy, we ended the quarter above 96% lease for the first time since 2018 within our same property portfolio, up another 20 basis points.
Speaker Change: We achieved yet another new milestone in our shop occupancy rate, ending the quarter at a record high of 93.7%.
Speaker Change: Our ability to move the occupancy needle higher is reflective of continued robust demand from both anchor and shop tenants in a wide range of categories, including grocers, restaurants, health and wellness, off-price, and personal services.
Speaker Change: Our same property commenced rate was up 40 basis points this quarter, as we saw great progress accelerating rent commencement dates for the signed leases in our S&O pipeline, with earlier move-ins a credit to the hard work and collaboration between the tenants and our local teams.
Speaker Change: But even as we've gotten many tenants open and rent commencing, we've further replenished our SNO pipeline through our continued leasing success.
Speaker Change: It remains substantial today at 340 basis points, and nearly $50 million of incremental base rent, representing a significant runway to commence occupancy and a tailwind to NOI growth looking ahead.
Speaker Change: We achieved strong blended cash rent spreads of more than 9% in the third quarter and gap rent spreads exceeding 20%, further demonstrating our ability not only to drive high rent increases when we are marking our leases to market, but also to embed meaningful contractual rent
Speaker Change: Our retention rate remains above our historical average at over 85% in the quarter, while we also generated above-average renewal rent spreads of 9%.
Speaker Change: These positive renewal trends are reflective of the quality of our centers and the strong performance that our tenants are experiencing.
Speaker Change: Due to the great success we've had increasing occupancy, achieving strong rent spreads, embedding annual rent steps, and retaining tenants, our same property NOI growth, excluding term fees and COVID period reserve collections, was ahead of our expectations for the quarter at 4.9%, with the majority of that growth coming from base rent contribution of 2.7%.
Speaker Change: We also had positive contributions from lower bad debt, which is indicative of the strong health and credit position of our tenant base.
Speaker Change: On the expense side, our team has had success in managing our operating expenses and we've also seen an improvement in our expense recovery rate due primarily to higher shop occupancy and reflective of our ability to maximize the value of our lease contracts.
Speaker Change: In closing, I am proud of the great work from our team in delivering exceptional results, and we are energized for the opportunities to further drive NOI growth in 2025. Next.
Speaker Change: Thank you, Alan. Good morning, everyone. We have another very active quarter of accretive investment activity, where we're building our value creation pipeline, including the start of two ground-up development projects, great execution on our in-process projects, and additional acquisitions in high-quality grocery and shopping centers.
Speaker Change: Year to date, we've started more than $220 million of new development and redevelopment projects at blended yields exceeding 10%.
Speaker Change: For the second consecutive year, we anticipate starting more than $250 million of projects with roughly half of those costs associated with ground-up developments in 2024.
Speaker Change: In the third quarter alone, we started 9 projects totaling over $100 million, including two new ground-up developments.
Speaker Change: One of those we discussed on last quarter's call, the 160,000 square foot HEB anchored development in Houston called Jordan Ranch, which will serve as the retail component of a new thriving master plan community.
Speaker Change: The second is an 80,000 square foot, Safeway anchored ground-up project in the Bay Area called Oakley Shops that we started in August. This project will serve as the primary retail destination in this attractive suburban trade area.
Speaker Change: Leasing activity on both development and redevelopment projects remains robust, with the projects currently more than 90% leased on average, with blended returns exceeding 9%.
Speaker Change: This quarter we completed the Glenwood Green ground-up development in Old Bridge, New Jersey. We've seen strong community reception to this Target and Chocolate Anchor project, now over 95% leased, with tenants performing extremely well.
Speaker Change: In fact, we've uniquely outperformed our underwriting expectations due to the strong leasing demand, enhancing the IRR and resulting in a 50 basis point increase to our estimated stabilized yield.
Speaker Change: As Lisa discussed earlier, our ground-up development program is a key differentiator for regency across the peer group. We fully expect it to be an increasingly additive component to total NOI growth in coming years as we bring many of these projects online.
Speaker Change: The strong momentum and success of our sector-leading development program continues to be supported by the macro tailwinds within the shopping center industry, as well as the hard work of Regency's experienced development team, which I believe to be the best in the business.
Speaker Change: Our talent and relationships combined with our flexible balance sheet and free cash flow provide us with an unequaled advantage in the shopping center development business today, particularly with ground-up opportunities.
Speaker Change: In addition to our $220 million of project starts and $200 million of share repurchases this year, we've also successfully completed the acquisition of more than $90 million of shopping centers, bringing our year-to-date investment activity to more than $500 million.
Speaker Change: In August, we acquired a neighborhood center in a strong suburban trade area in East Greenwich, Rhode Island, anchored by a market-leading grocery.
Speaker Change: Subsequent to Quarter End, we acquired an HEV anchored center located in a prime retail node in the Austin suburb of Round Rock. Our team continues to be actively engaged, sourcing and underwriting additional deals that fit our investment criteria.
Speaker Change: In closing, our entire investment team is engaged and excited about our opportunity set. We look forward to not only seeing the growing benefits of our larger value creation pipeline, but also continued success sourcing new projects and the creative acquisitions.
Speaker Change: Bye.
Speaker Change: Thank you, Nick, and good morning, everyone.
Speaker Change: We reported strong third quarter results, outpacing our expectations primarily driven by fundamental operating performance.
Speaker Change: Results include Mayweather FFO of $1.07 per share and core operating earnings of $1.03 per share for the quarter.
Speaker Change: Same property NOI growth was 4.9%, excluding term fees and COVID period reserve collections.
Speaker Change: with the majority of that growth coming from base rents.
Speaker Change: As a result of this outperformance and continued higher expectations for the rest of the year, we're raising our current year guidance ranges.
Speaker Change: I'll refer you to the detail on slides 5 and 6 in our earnings presentation while highlighting some key changes.
Speaker Change: The primary driver to our elevated earnings outlook is an increase in our same property NOI growth by 100 basis points from the prior midpoint, now to 3.5%, excluding term fees and COVID period reserve collections.
Speaker Change: We now expect to maintain a higher average commenced occupancy rate this year due to a combination of accelerated rent commencement as we deliver our S&O pipeline and higher shop retention rates, reducing downtime impacts.
Speaker Change: Credit loss is also coming in lower than we had originally planned, given favorable uncollectible lease income rates, or lower bad debt, and positive bankruptcy outcomes.
Speaker Change: Notably, we now expect a credit loss range of 50 to 75 basis points this year, down from our previous range of 75 to 100 basis points.
Speaker Change: And lastly, following these higher levels of commenced occupancy.
Speaker Change: Same property NOI is also benefiting from higher net expense recoveries.
Speaker Change: We increased both our NAVID FFO and core operating earnings ranges by five cents per share at the midpoint, primarily driven by the increase to our same property NOI growth outlook I just described.
Speaker Change: The new midpoint of our core operating earnings range represents nearly 5% year-over-year growth.
Speaker Change: Looking ahead to next year, while we have not yet provided our full suite of earnings guidance, as we will do that in February with our Q4 results, today we want to provide some initial color to help with future expectations.
Speaker Change: in the three-and-a-half percent area.
Speaker Change: And for NARED FFO, we expect 2025 growth of at least 5%.
Speaker Change: As for a couple of reminders, in 2025 we will absorb the full-year impact from this year's debt refinancing activity, and we also know that this year's merger-related expenses of approximately $7 million will not repeat.
Speaker Change: Moving to our balance sheet, we completed a $325 million bond issuance in August at a 5.1% coupon, which was used to pay down the balance of our line of credit.
Speaker Change: Following this transaction, we remain within our target leverage range of five to five and a half times DECI-DECA, and we expect to generate free cash flow of more than 160 million dollars this year, fueling the growth of our development pipeline.
Speaker Change: We continue to be very proud of our balance sheet and liquidity position, providing regency with a cost of capital advantage and the ability to create value when accretive opportunities arise. With that, we look forward to your questions.
Speaker Change: Thank you for tuning in.
Speaker Change: Thank you.
Speaker Change: Ladies and gentlemen, we will now be conducting a question and answer session. If you would like to ask a question, please press star and one on the telephone keypad.
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Speaker Change: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
Speaker Change: We request you to limit yourself to one question.
Speaker Change: Ladies and gentlemen, we will wait for a moment while we poll for questions.
Speaker Change: and many more. Thank you. Thank you.
Speaker Change: The first question is from Jeffrey Spector with Bank of America, please go ahead.
Speaker Change: Hi, this is Andrew Riel on for Jeff. Thanks for taking our question. Just on the balance sheet, you received the credit rating upgrade from Moody's this year. No significant refi needs until late 2025.
Andrew Riel: Given you're now at the low end of your target leverage range, just wondering what your appetite is for levering up to fund growth, and has the reversal in interest rates changed your financing plans at all?
Andrew Riel: and many more. Thank you. Thank you.
Speaker Change: I'll take that, Andrew. I appreciate the question.
Speaker Change: I would characterize our position within our ranges at the midpoint, and I think we're very comfortable kind of floating between that five and five and a half times that duplicate range. As we've demonstrated this year, we will lean into balance sheet capacity when we have it and when we see compelling opportunities.
Speaker Change: This year, in fact, we did that through the repurchase of our own stock. And I think it's important to remind everyone and consider that as we look at external growth comparisons across the peer group. For us, that was an allocation of our capital on an accretive basis, providing about a penny of earnings accretion this year and another penny looking out into the future.
Speaker Change: To the extent we see compelling opportunities going forward, we'll continue to use our leverage-free cash flow and our balance sheet capacity. And if we see something that's...
Speaker Change: creative to our internal rate of growth and consistent with our quality. We might even take that up to the upper end of our range, but we are committed to operating within that five to five and a half times area and we'll continue to do that do so going forward.
Speaker Change: and many more. Thank you for watching. I hope you enjoyed this video. If you did, please click the Like button and subscribe to my channel. I'll see you in the next video.
Speaker Change: Thank you.
Speaker Change: The next question is from Michael Goldsmith with UBS. Please go ahead.
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Speaker Change: and many more. Thank you. Thank you.
Michael Goldsmith: Good morning. Thanks a lot for taking my question. You took the same property and allied growth expectation for 24% to 3.5%. You're pointing to a similar number for...
Speaker Change: 2025. And this represents an acceleration from what you experienced in the first half of this year. So I guess
Speaker Change: What has changed? Is it the strength of the leasing environment and the market that's kind of like caught up and now you're starting to reap the benefit of that and accelerating leasing property and the like? Or are there some other factors that come into play? I guess just trying to understand what has changed that makes you feel more comfortable about this higher level of growth and that it's sustainable.
Speaker Change: and others. Thank you. Thank you.
Speaker Change: and many more. Thank you. Thank you.
Speaker Change: I can start if the team would like and I'll let Alan opine on the changes but just from a numbers and sense perspective Michael
Speaker Change: Nothing has really changed from our perspective. We've been pretty loud and confident over the past couple quarters about our projections for future potential NOI growth and earnings growth falling on. We knew coming into the year that we would have a bit of a trough in our average commenced occupancy. But we were also emboldened by the S&O pipeline that the team continued to build and replenish as we commenced rent.
Speaker Change: One thing that has changed this year, and especially in validated through the third quarter, is that we've accelerated rents coming out of the S&O pipeline into productivity that has had a tag-along impact from a recovery percentage.
Speaker Change: And those, and it's really that timing of that kind of
Speaker Change: We started that process earlier through the third quarter results.
Speaker Change: really, you know, as a testament to the team's hard work, as a testament to the continued tailwinds we're seeing in the market.
Speaker Change: Yeah, I'm happy to jump in, Michael, too. I appreciate the question. As Mike said, we've been at it for a number of quarters now in terms of really focused on the rent commencement date acceleration, and creativity is paying off, and there's also great partnerships.
Speaker Change: with our tenants.
Speaker Change: And, you know, we are proactively whiteboxing spaces where appropriate. We are getting tenants.
Speaker Change: to start plans before leases are signed, in many cases, something that was not a norm.
Speaker Change: Many, many months ago, ordering the right equipment in advance and negotiating favorable lease terms. And interestingly, the permitting and supply chain is really normalizing now and it's allowing us to be more aggressive.
Speaker Change: On defaults, when tenants aren't prosecuting their plans and their permits. And collectively, you know, we're starting to see it really pay off in terms of acceleration of rent commencement dates.
Speaker Change: Let's make it attractive.
Michael Goldsmith: If you don't mind, Michael.
Michael Goldsmith: and Michael Mas. Thank you.
Michael Goldsmith: I think we began talking about the growth that we expected and how good we felt about 2025 two quarters ago.
Michael Goldsmith: And as Alan and Mike both said.
Michael Goldsmith: We're starting to see the fruits of all the hard work and the quality of our portfolio and the quality of the team.
Michael Goldsmith: come through a little bit sooner. And the good thing is, is the 2025 growth is still there. And I know you're really familiar with our business model, as most people are on the call. We really do believe, again, with the quality of our portfolio, the quality of our team and
Michael Goldsmith: The redevelopment platform that we have will enable us, on a stable occupancy basis, to deliver same-property NOI growth, let's say close to 3% on a sustainable, steady basis.
Michael Goldsmith: and while we're increasing occupancy it's going to be higher and that's what we're seeing and the team continues to set the bar higher and higher for what we're able to achieve so we feel really good about our results and I'm really proud of the team.
Speaker Change: Appreciate all the perspectives. Good luck in the fourth quarter.
Speaker Change: Thanks, Michael.
Speaker Change: Thank you. The next question is from Craig Mailman with Upsity. Please go ahead.
Craig Mailman: Thank you.
Craig Mailman: Hey, good morning. Um, maybe on the capital deployment front, you know, you guys are getting the money out there on the redevelopment side And you put the 300 million out to acquisitions and share repurchases this year But as you look at the acquisition market, you feel like there's an opportunity for
Craig Mailman: Transactions went off to accelerate above that $90 million as we head into 2025.
Speaker Change: Does it make sense from a funding perspective to kind of take the win on the share repurchase? Could that be a source of proceeds going forward to kind of reissue now that you're at or above kind of at least RNAV?
Speaker Change: Greg, this is Nick. Good morning. I appreciate the question. I'll take the first part and then have Mike maybe weigh in on the second part.
Speaker Change: As you've indicated, we've really been active across all fronts, and so, as we've said in the past, we will continue to prioritize.
Speaker Change: Our free cash flow and our capacity to our development and redevelopment program.
Speaker Change: And as I indicated in our prepared remarks, we have every indication we'll end this year again north of $250 million in that program, similar to last year.
Speaker Change: And then, as Mike alluded to earlier in the call, we have additional capacity to lean into when we find other opportunities that
Speaker Change: meet our criteria.
Speaker Change: And so as we look at one-off acquisitions, as we've talked about, if we find things that are consistent with our quality and our growth profile, we do have the capacity to lean in, especially when we identify ones that we can fund accretively. And so you can see throughout the year we've found those opportunities, and as we continue to identify those, whether it's in 24 or 25, the great news is we do have the ability and capacity to execute on this.
Speaker Change: Craig, let me follow up there. Thank you, Nick. From a capital-sourcing perspective, we're going to be disciplined. We're very proud of our capital allocation track record. We have access to many forms of capital. We've been very cognizant around our understanding of our incremental cost of capital when we're deployed, and we'll use equity when and if that makes sense.
Speaker Change: But, you know, we have the balance sheet capacity, we have access to equity. Let me also throw in...
Speaker Change: The acquisition we closed just after quarter end was with our partnership with Oregon.
Speaker Change: with a recent re-condemnment to that 25-year-old vehicle of another $150 million of equity from Oregon. So we have multiple sources of capital, we'll use it in a disciplined basis with a mindset of growing earnings per share going forward.
Speaker Change: Thanks guys.
Speaker Change: Thank you.
Speaker Change: The next question comes from Greg McGinnis with Scotiabank. Please go ahead.
Speaker Change: Good morning. Mike, it's obviously a fairly substantial same-stranded Y increase this late in the year. Would you be able to maybe rank out in terms of
Speaker Change: Associated Recoveries, Retention Rate, or on the bad debt side.
Speaker Change: and just trying to get an understanding as to which of those factors you think may be kind of long-term contributors in terms of how leasing and business is going or in terms of how you're handling tenants.
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Speaker Change: Yeah, hey Greg, I appreciate it. You got the categories right, so higher retention rates, accelerated commencements out of that F&O pipeline, all leading to and translating to higher recoveries. I would say...
Speaker Change: Roughly 40% of the increase is from credit loss improvement, and that would be both a combination of ULI, or at that extent, down from our expectations back in August on the margin. And I'd say they're running—our run rate year-to-date is 40 basis points. That's, as we've talked about in the past, that's below our historical averages.
Speaker Change: The balance is roughly split evenly between accelerated commencements, higher retention, and higher recoveries as a result. So that's how I would compartmentalize the change.
Speaker Change: Mm-hmm.
Speaker Change: As we're looking forward into 2025, for now at least, not looking for guidance, but is the expectation for kind of a normalization on the bad debt side? Or is there anything in particular about the portfolio or what you're seeing from the consumer maybe making you a bit more bullish on that front?
Speaker Change: Yeah, we're going to be short of offering a full suite of guidance at this point in time, but I do think it's fair to indicate that we would plan for a roughly historical average level of bad debt and credit loss next year, so recall that. Bad debt expense and bankruptcy output, that's basically a 75 to 100 basis point credit loss provision, so I would plan for that level next year.
Speaker Change: From a color perspective, Alan, is there anything you want to share? Yeah, I mean, Greg, I would just say that...
Alan Roth: We're always intensely managing the portfolio. And, you know, one comment I made last...
Alan Roth: I identified some of those bankruptcy filings that you had noted. Cons, we had zero locations. Eastern Mountains, 4321 and Red Lobster, we had one.
Alan Roth: with all three of them.
Alan Roth: And so was that an anomaly in Q2? I think as you look at the Q3 filings now, a similar thing has happened. Buka Devepo is filed, Roti is filed, Big Lots is filed.
Speaker Change: to quality merchandising and really our qualification process. And, you know, we feel we feel good about the strength of the sales, as Lisa mentioned, the strength of the portfolio and the markets that we're operating in right now. But we're certainly always keeping a watchful eye on it.
Speaker Change: And just as a reminder, we are limiting to one question. We have a lot of people in the queue. Thanks, Greg.
Speaker Change: Sorry.
Speaker Change: Thank you. The next question is from Todd Thomas with KeyBank Capital Markets. Please go ahead.
Todd Thomas: Thank you.
Todd Thomas: Hi, thanks, good morning. I just wanted to ask
Todd Thomas: And then can you provide an update on, you know, sort of the opportunities for upside that you see within that portfolio as it stands today?
Speaker Change: Hey, Todd. Welcome to the party, by the way. I appreciate having you. I will take the first, and I'll let Alan maybe comment on...
Speaker Change: We will officially move those assets into same property affected with Q1 of next year. So we'll come out of the gates.
Speaker Change: next year with with UBP assets as part of our same store portfolio. My comments around growth next year would include those assets so three and a half percent.
Speaker Change: In the area of 3.5% growth next year would include performance from UBP. Honestly, we don't see a material difference between the performance of those assets and regencies at this point in time. And that was all consistent with the outlook we had going into the merger at the beginning.
Speaker Change: Thank you. Thank you. Thank you.
Alan Roth: Hey Todd, this is Alan. I would just say, you know, we are thrilled with the expanded platform, more thrilled with the integration of some really great people, but things are going well. We signed over 200 leases year-to-date in the portfolio and we've got runway.
Alan Roth: to continue to grow that percent lease. And that is the one thing we've been saying since the acquisition is it's really a hyper focus on lease, lease, lease from a redevelopment perspective, as you asked.
Alan Roth: In the parking lot, a couple of renovations and mid to long term will evaluate some bigger redevelopments, but.
Alan Roth: I would use our Danbury Square as a good example. At the time of the merger, it was 50% lease, and through really great leasing by the team, we're at 96% now. And so that's sort of the mindset within the portfolio, and that's where we're focused. And because you are new to the party.
Speaker Change: It has performed, as Alan said, as we'd expected, if not slightly above our expectations, exactly what we thought. And at the time when we did announce the merger, we did comment that it was very consistent with our quality. There weren't a ton of redevelopment opportunities, and it was going to be a leasing exercise. We under-anticipated spending a little bit more capital because of the amount of leasing that we were going to do.
Speaker Change: Performing exactly as we expected only. And so we rolled in the same property percent least it's still not as well least is what you will call legacy Regency. So we still have some opportunity there. And that is really what you'll see when we roll it in the same property.
Speaker Change: Thanks Todd.
Speaker Change: and many more. Thank you. Thank you.
Speaker Change: Thank you.
Speaker Change: The next question is from Juan Sanabria with BMO Capital Markets. Please go ahead.
Juan Sanabria: Hi, good morning. Just hoping you could talk a little bit about 24 performance, which has obviously been better than you'd expected, and your early thoughts on 25.
Juan Sanabria: Is the earlier than expected rent commencement, is that pulling forward?
Juan Sanabria: growth that you otherwise would have thought would have come next year? And should we think of the three and a half as kind of the floor on growth next year? I recognize this is a little bit of a sensitive question, just put any color you can give on how we should be thinking about the puts and takes should be helpful. Thank you.
Speaker Change: Yeah, I appreciate the question Lon, and you'll appreciate the response, but three and a half percent area is what we're indicating for next year I think that's enough to share at this point in time Listen, we're still working on the finer edges of our plan for next year, and we'll put out a full suite of guidance Next quarter, and we'll give you as we customarily do
Speaker Change: A lot of transparency and to the support for that. But no, to your first question, I don't feel like it's a pull-forward. I feel like this is a launching point, and we've been talking about this for some time.
Speaker Change: anticipating the launch point of growth to be late 24 and into 25, and I think we've just launched sooner. Importantly, as you think about our S&O pipeline,
Speaker Change: You know, it was $50 million. Last quarter, it was $50 million. Again, this quarter, roughly. But that doesn't tell the story. We've replenished $14 million of ABR in that portfolio. So, we've delivered $14 million a little sooner than we anticipated, on average.
Speaker Change: But we filled it right back up and that's what's kind of raising our eye level or the kind of water level for us in 24 and then compounding that into 25.
Speaker Change: Thanks a lot.
Speaker Change: Thank you for watching. I hope you enjoyed the video. If you did, please subscribe to my channel. I post weekly. I'll see you next time.
Speaker Change: Thank you. The next question is from Dori Keston with Wells Fargo. Please go ahead.
Dori Keston: Thanks, good morning. It looks like some of the legacy ERSTAT office building sales are pushed into 25 in your disposition guide. Can you just remind us if there's any other non-core, non-long-term assets from ERSTAT that remain beyond those?
Dori Keston: and more at www.plastics-car.com
Speaker Change: I got let me talk about the guidance and I and Nick if you'd like to color it up please do so. Dory it was just a bit of a change and as you mentioned we had three or three or four
Speaker Change: or said little kind of very small office buildings that we would like to move that are non-core, non-strategic assets.
Speaker Change: I think in total we're talking $15 million or so of proceeds.
Speaker Change: We've moved that out of this year and more to come on our disposition guidance next year. We are going to withhold that until next quarter.
Speaker Change: I want to remind you of what we said at the time of the merger. There is nothing disproportionate about the quality of the ERSTAT assets as we merge them into Regency, and they won't result in a disproportionate disposition program going forward.
Speaker Change: and many more. Thank you for watching. This is a production of the U.S. Department of State. This is a production of the U.S. Department of State.
Dori Keston: Thanks, Dory.
Dori Keston: Thank you.
Speaker Change: May we request you to unmute your mic and go ahead with your question please?
Speaker Change: I appreciate the color on 25, the initial kind of guidepost. I guess my question is on the debt maturities here. You've got $300 million or so of debt maturing next year with three handles on them. So I guess I'm curious, what's your plan, what you're thinking there, perhaps timing it, is that refinancing kind of embedded within that?
Speaker Change: 5% FFO growth outlook for next year. Thanks.
Speaker Change: from the debt that changes both in 24 and in 25. So importantly, the largest impact actually has to do with what we financed this year, which, as you know, was all affected basically right at the midpoint of the year in June.
Speaker Change: So we need to capture a full year of that in 2025, but we do have a very late 2025 maturity that we have incorporated into that, that has not, we're going to, you know, it's at a favorable rate as you mentioned, we're going to use that capital and that cost of capital as long as we can.
Speaker Change: We are going to be very tactical with our windows selection as we work in the capital markets next year and we will refinance that bond into the public market at the right time.
Speaker Change: and many more. Thank you for watching. I hope you enjoyed this video. If you did, please click the like button, leave a comment, and subscribe to my channel.
Speaker Change: and many more. Thank you. Thank you.
Speaker Change: Thank you.
Speaker Change: The next question is from the line of Ronald Camden with Morgan Stanley. Please go ahead.
Speaker Change: Hi, this is Matt on for Ron. You guys mentioned that tenant demand was very strong this quarter, and you could see that in the same property shop percent lease number. How should we be thinking about that going forward over the next 12 to 24 months?
Speaker Change: Hey, Matt. Thank you for the question. This is Alan. Demand is strong. And, you know, I would say, you know, we've set a recent
Speaker Change: Spaces that are occupied right now and Sephora, J.Crew, Everbank, Mendocino Farms, they're all looking at spaces that are occupied, not just signing leases in 2025, and I'm just naming a few, but also signing leases in 2026.
Speaker Change: So we would expect to continue pushing forward. I don't have my sights set on a particular number.
Speaker Change: as part of that process. But we're focused on on continuing to drive the shops and we're focused on our anchor side as well, trying to get that back to our our peak levels of, you know, roughly 98 and a half percent. So.
Lisa Palmer: We believe there's runway, and the team is committed. I'm disappointed that Alan didn't say it for like the third consecutive quarter. Records are meant to be broken, Lisa. Thank you. I want to say it before you say it, right? Thank you. Matt, thanks for the question. Thank you, guys.
Speaker Change: Thank you. The next question is from Sameer Khanna with Evercore ISI. Please go ahead.
Sameer Khanna: Hey Mike.
Sameer Khanna: On the three and a half percent for next year, you know, I just want to understand
Sameer Khanna: Because I think the expectation is for the group, and not only Regency, but the group to accelerate growth next year. So look, maybe you're being conservative here, but I get the rent commencements, the higher occupancy, but is there something that's sort of putting a lid on better growth next year? I just want to make sure that I'm not missing anything there. Thanks.
Speaker Change: I don't think you're missing anything Samir and I actually I mean as Lisa's points that we she was making earlier in the call this is above trend growth this is this is three and a half percent two consecutive years is on a stabilized basis
Speaker Change: Thank you all for joining us today. We are benefiting from opportunity gains. I would encourage people to take a look at page 7 in the earnings deck.
Speaker Change: I will share with you that as a supporting element of that three and a half percent
Speaker Change: Head Nob in the next year, we are anticipating moving commenced by in the area of 75 to 100 basis points north, which if you study the history of that page, you'll see moving commenced occupancy by 100 basis points north.
Speaker Change: is about as good and about as fast as we can run. And the teams are pushing the pace on that every single day, and we're very proud of them. But that's a 75 to 100 basis points, a very healthy change in percent commence. So to answer your question directly,
Speaker Change: You know, what's the headwinds, frankly it's just time. We've got to lease the space, we've got to build out that space, we've got to deliver that space. And we're doing that as well as we possibly can right now and I'm very proud of the team.
Speaker Change: Thank you.
Speaker Change: http://TheBusinessProfessor.com
Speaker Change: Hey, good morning guys. Thanks for taking my question.
Speaker Change: You have one of the highest percentages of ABR coming from shop space in the sector, I think at 58%. But as you look at this S&O pipeline, and typically, which I think is around 57% shop,
Speaker Change: I'm not going to get into necessary specifics. I hope that we continue to lease and bring and commence our anchors as well as shop space. But when you think about just
Speaker Change: accumulating shop space and making them into anchors. We have not been afraid of shop space. We like shop space. Clearly, you just pointed to the fact that the rents are higher, we typically get better contractual rent steps, the growth is better, but at the same time, it's a balance. We also very much...
Speaker Change: Cashflow and the NOI stream at our shopping centers. We didn't need to cut our dividend during COVID.
Speaker Change: And I think that that's really, it's a really important factor and we balance it, but we lean into shop space, we like shop space, we like the format of our existing portfolio. We really, and we intend to continue to grow in that, in that sector.
Speaker Change: Thank you.
Speaker Change: Thanks, Lisa. Thank you, Florett.
Speaker Change: Thank you. The next question comes from Linda Tai with Jefferies. Please go ahead.
Linda Tai: Hi, thank you. In terms of building and replenishing the S&O pipeline, you said you replenish with 14 million this year. Do you think that stays elevated or compresses next year?
Speaker Change: Well, um...
Speaker Change: It's a blessing and a curse, right? We want to continue to elevate, we want to continue to lease more space and absorb and set new records as Alan indicated, but we're also going to commence rent, right? Linda, I do think from a trajectory perspective, we will commence that S&O pipeline over time and into 2025.
Speaker Change: as we, because we're just running out of it, we're hitting kind of top ends of percent lease. It's less of a lease to lease, it's less of a face to lease. You should expect us to compress that going forward as our outlook for material move-outs isn't significantly high either. So I do anticipate us.
Speaker Change: compressing that going forward. It won't compress to historical averages in one year. We have, and we're on the same page internally here, we have more than one year of growth ahead of us in a disproportionate manner because of increases in rent pay and occupancy.
Speaker Change: Thank you.
Speaker Change: Thank you.
Speaker Change: Thank you.
Speaker Change: The next question is from Alec Fagan with Baird. Please go ahead.
Alec Fagan: Hi, thank you for taking my question. One on the development pipeline, it looks like it's currently at $237 million. I'm curious how big that pipeline can get in the next year.
Speaker Change: I appreciate the question, Alec. So, as you alluded, you know, our total in-process development and redevelopment right now is over 600 million, so the team's just done and...
Speaker Change: exceptional job of continuing to bring projects online but
Speaker Change: Also, continuing to execute on, as I mentioned in prepared remarks, Glenwood Green, the project we just completed, a ground-up project, Mill Bridge, New Jersey team did a phenomenal job of bringing that online.
Speaker Change: As we've indicated, we expect to start over $200 million a year. 2023, we started $250 million. This year, we expect to start another $250 million of projects.
Speaker Change: and we're very bullish on the future pipeline as we move into future years of continuing to start and ultimately deliver over 200 million dollars of projects year in and year out. We love the platform and we're going to continue to lean into it.
Speaker Change: and many more. Thank you. Thank you.
Speaker Change: Thank you.
Speaker Change: Thank you.
Speaker Change: Before we take the next question, a reminder to all participants that you may press star and 1 to ask a question.
Speaker Change: The next question is from Mike Muller with J.P. Morgan. Please go ahead.
Mike Muller: Yeah, hi. How does what you're expecting today for new development stabilization timeframes compare to what you saw say between the GFC and COVID?
Speaker Change: It's a great question, Mike. I would tell you, similar to what Alan's remarks were about, you know, what we're doing in terms of the operating portfolio and bringing tenants online aggressively, we're seeing the same thing on the development end. We are starting to see permitting, supply chains, bidding processes, I would call it stabilized.
Speaker Change: And so I would expect our ground-up developments to, from commencement to...
Speaker Change: From commencement of construction to coming online, be in the two to three year range depending on the size of the project, the scale of the project, and the construction timeline.
Speaker Change: Again, I point to Old Bridge as a really good example of that. Team did a really nice job starting that and bringing it online, not only on time, actually a little ahead of schedule and ahead of budget as it relates to NOI. And so we have confidence in our ability right now to start these projects and deliver them on time and on budget.
Speaker Change: and many more. Thank you. Thank you. Thank you. Thank you.
Speaker Change: Thank you, Michael. Okay, thanks.
Speaker Change: Thank you.
Speaker Change: The next question is from Keebin Kim with Truist Securities. Please go ahead.
Keebin Kim: Thanks, just a couple of follow-ups here. What drove other property rental income hire and I'm curious if that's a more sustainable level?
Speaker Change #100: Thank you, Ben. Yeah, real quick. So, as you can see in the disclosure, we differentiate between other lease income and other property income.
Speaker Change #100: For everyone's benefit, you know, lease-related other income items are in the lease line items of things like storage, signage, ATMs, temporary tenants, etc.
Speaker Change #100: is the ancillary income streams that our shopping centers can generate because of their quality and nature. But they're not contractual, right? So insurance settlements, fees, parking, etc., items like that. There was a planned higher level of other property income in the settlement area, in the insurance settlement area.
Speaker Change #100: That did come into fruition in the third quarter. Importantly, it was part of our initial plan coming into the year, so it is not a contributing factor to our outlook increase for the year.
Speaker Change #100: It is one time in nature, but so is everything within that category. What we know when we zoom out is that we will consistently drive other income in our portfolio because of its location qualities.
Speaker Change #101: Okay, thanks. And just going back to that 3.5% SAMHSA ROI commentary on 25, just to better understand some of the detracting elements, are you at all watching any kind of larger leases that may not renew that might be causing some cushion into that SAMHSA ROI number?
Speaker Change #102: We're highly, I mean we're doing a bottom-up plan, keyed in, we're very aware of the needle mover releases.
Speaker Change #103: 24 was a unique set of circumstances so we so we
Speaker Change #104: I do want to remind everyone, credit loss in 24 in the 50-75 basis point area on a revised basis.
Speaker Change #104: And my comments earlier in the call, we will plan for more of a historical average year next year. So that is a touch of a headwind. And remember, historical averages are 75 to 100 basis points.
Speaker Change #105: Okay, thank you, Mike.
Speaker Change #106: Thank you. Bye. Bye.
Speaker Change #107: Thank you. As there are no further questions, I would now like to hand the conference over to Lisa Palmer for closing remarks.
Lisa Palmer: Thank you all for your time. Appreciate your interest in Regency and we will see hopefully many of you in I think just a few weeks, maybe. Thank you.
Lisa Palmer: Thank you.
Speaker Change #108: This concludes today's conference. You may now disconnect your lines at this time.
Speaker Change #109: Thank you for your participation.