Q4 2024 Regency Centers Corp Earnings Call
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Speaker Change: Greetings and welcome to Regency Centers Corporation fourth quarter 2024 earnings conference call.
At this time, all participants are on 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, please press star zero on your telephone keypad.
Speaker Change: As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Christy McElroy. Thank you. You may begin.
Christy McElroy: Good morning, and welcome to Regency Center's 4th 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.
Christy McElroy: 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.
Christy McElroy: These are based on management's current beliefs and expectations and are subject to various risks and uncertainties.
Christy McElroy: It's possible that actual results may differ materially from those suggested by these forward-looking statements we may make.
Christy McElroy: Factors and risks that could cause actual results to differ materially from these statements may be included in our presentation today and are described in more detail in our filings with the SEC, specifically in our most recent Form 10-K and 10-Q filings.
Christy McElroy: In our discussion today, we will also reference certain non-GAAP financial measures.
Christy McElroy: The Comparable Gap 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.
Christy McElroy: 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 additional follow-up questions. Lisa?
Thank you, Christy, and good morning, everyone.
Speaker Change: We are proud to report another quarter and year of exceptional performance and execution of our strategy.
Speaker Change: Same property, NOI, and earnings growth were strong, reflective of continued robust tenant demand and opportunities for us to drive value. This was evident in the strength of our base rent growth, the size of our leasing pipeline driving new record high lease rates.
Speaker Change: The activity within our expanding development program, and continued growth in our dividends, which we increased another 5% in the fourth quarter.
Speaker Change: Our operating fundamentals continue to benefit in part from a relative lack of new supply in our sector over the last 15 or so years.
Speaker Change: At the same time, while supply growth has remained muted, Regency has found opportunities to create meaningful value through development. We had another great year of Project Starts, hitting our target of $250 million or more for the second straight year, with nearly half in new ground-up developments.
Speaker Change: We have close to $500 million of projects in process today and are having a lot of success continuing to build our shadow pipeline for future growth.
Speaker Change: Our development platform is and will continue to be a meaningful differentiator for us and as I've said before, we have the best national development platform in the business.
Speaker Change: Our creative investment activity totaled more than a half a billion dollars in 2024 with the funding of this growing development pipeline combined with our high quality acquisitions and our opportunistic share repurchases all while maintaining the strength of our balance sheet.
Speaker Change: In closing, I'm so appreciative of all the hard work of our team to generate this impressive performance and I'm even more excited about continued strong momentum as we look ahead.
Speaker Change: We believe the positive trends and tailwinds we are experiencing in our high-quality shopping centers combined with our sector-leading balance sheet and liquidity position will continue to serve as a strong foundation for the long-term success of our business. Alan?
Alan Roth: Thank you, Lisa, and good morning, everyone. Regency's 2024 operating results were highlighted by robust same property NOI and base rent growth, which was driven by record leasing activity, strong rent spreads and embedded rent steps, and success with accelerating rent commencement dates.
Alan Roth: The tenant demand environment remains very strong, with activity consistent across all regions and driven by several key categories, including grocers, restaurants, health and wellness, personal services, and off-price.
Alan Roth: Our leasing team has been extraordinarily busy, and I am so proud of their success in executing nearly 2,000 leases this past year, comprised of more than 9.4 million square feet of space. This is a significant number of deals and a record high volume for Regency.
Alan Roth: We also set new record highs for our same property lease rate ending the year at 96.7% and our shop occupancy lease rate ending the year at 94.1%.
Alan Roth: Our same property commenced rate was up another 100 basis points in Q4, with continued progress getting tenants in the SNO pipeline open and rent commencing, while also replenishing the pipeline with newly signed leases.
Alan Roth: Our Execute a Lease pipeline currently reflects 300 basis points of occupancy and $44 million of incremental base rent, supporting momentum for upcoming rent-paying commencement.
Alan Roth: We also continue to have success pushing rent growth, reflected in the upward trajectory in cash rent spreads throughout 2024, finishing the year with spreads at approximately 11% in the fourth quarter.
Alan Roth: Our renewal rent spreads were nearly 9% for the year, our highest annual rate for renewals in more than 15 years.
Alan Roth: We achieved gap rent spreads of almost 20% for the year reflecting our team's ability to capture the mark to market while also achieving record levels of rent steps and new shop lease activity indicative of the strong environment and the health of our tenants.
Alan Roth: Same property NOI growth excluding term fees and COVID period reserve collections came in at 4% for the quarter and 3.6% for the full year.
Alan Roth: In addition to our success driving rent growth and accelerating rent commencements, Same Property NOI also benefited from an improvement in our expense recovery rate.
Alan Roth: As Mike will discuss, our credit loss forecast for 2025 is in line with our historical average, which is impressive if you consider the level of retail tenant bankruptcies we've seen in the last few months.
Alan Roth: Our exposure to credit risk tenants is very manageable, a direct result of our deliberate, long-term approach to strategic merchandising and intense asset management.
Nick Wibbenmeyer: In closing, our fantastic results are attributed to continued strength in the fundamentals of our business, combined with the hard work of our talented team. A thriving retail demand environment, coupled with limited news supply, sets Regency up well for continued success. Nick?
Nick Wibbenmeyer: Thank you, Alan, and good morning, everyone. We had another active quarter of a creative investment activity to cap off a very successful year.
Nick Wibbenmeyer: In 2024, we started nearly $260 million of development and redevelopment projects, including $35 million in the fourth quarter.
Nick Wibbenmeyer: These investments encompass 24 distinct value-add projects in 14 markets around the country, with blended yields exceeding 10%. This was the highest level of annual starts in nearly two decades, and nearly half of that was in new ground-up developments.
Nick Wibbenmeyer: It was also a very productive year for project completions, as we are starting to see a more significant direct benefit from our team's efforts in expanding our pipeline over the last few years.
Nick Wibbenmeyer: We completed more than $230 million of projects during 2024, including seven projects in the fourth quarter totaling more than $150 million.
Nick Wibbenmeyer: Notably, this included Buckhead Landing in Atlanta, where public celebrated a long-awaited and highly successful grand opening in December, evident in a nearly 50% increase in foot traffic compared to before the project's commencement.
Nick Wibbenmeyer: At year-end, we had nearly $500 million of development and redevelopment projects in process with blended returns of more than 9%. The team continues to make great progress executing on lease-up amid exceptional tent demand as we are currently more than 94% leased within the pipeline.
Nick Wibbenmeyer: To reiterate Lisa's comments, our development platform remains a key differentiator for Regency.
Nick Wibbenmeyer: There is no doubt this business is challenging and each project presents its own unique set of complexities.
Nick Wibbenmeyer: But our unequaled combination of expertise, proven track record, deep industry relationships, and access to capital has enabled us to strategically build our pipeline and execute on numerous attractive projects in recent years.
Nick Wibbenmeyer: Looking ahead, we remain highly optimistic about our opportunity set. We expect demand for high-quality space and the markets and trade areas where we operate to continue to support attractive returns, driving meaningful accretion and growth on a risk-adjusted basis.
Nick Wibbenmeyer: Gifting to acquisitions, we continue to see an uptick in activity in the transaction market and our team is actively underwriting opportunities around the country. As previously disclosed, we acquired University Commons and HEB Anchorage Center in Austin within a long-standing institutional joint venture partnership.
Nick Wibbenmeyer: We also currently have a center under contract in Nashville, which will further enhance our presence in a market where we've been looking to expand for some time.
Nick Wibbenmeyer: This high-quality center is in a desirable trade area located in close proximity to existing Regency assets And we look forward to providing additional details on the transaction in the coming months
Nick Wibbenmeyer: In closing, we believe the success and momentum within our investments platform, especially the growth in our development and redevelopment pipeline over the last few years, positions Regency well for the future, providing clear visibility into the drivers of our earnings growth in the years ahead.
Nick Wibbenmeyer: Thank you, Nick, and good morning everyone. As Lisa, Alan, and Nick have described, we reported another strong quarter to complete an exceptional full year of results, generating core operating earnings growth of just over 5%, excluding the impact of prior year collections.
Nick Wibbenmeyer: Our high-quality portfolio produced same-property NOI growth, excluding term fees and COVID-period collections, of 3.6% for the year, primarily driven by base rent growth.
Nick Wibbenmeyer: We are looking forward to continuing this positive momentum, so let's now turn to our 2025 earnings guidance.
Nick Wibbenmeyer: As usual, I'll refer you to some helpful details on pages 5 and 6 of our earnings presentation, including a roll-forward of 2024 results to the midpoint of our current year outlook.
Nick Wibbenmeyer: We are guiding to a NAREAD FFO range of 452 to 458 per share, which reflects nearly 6% year-over-year growth at the midpoint.
Nick Wibbenmeyer: The largest contributor to our earnings growth is same property NOI, which we expect to grow in a range of 3.2% to 4%.
Nick Wibbenmeyer: Just as a quick reminder, now that we are about a year and a half past our merger date with Erstat Biddle, those properties have now entered our same property pool as of January 1st of this year.
Nick Wibbenmeyer: We expect base rents will continue as the primary driver of same-property NOI growth generated from contractual rent steps, continued strength in releasing spreads, and higher average commenced occupancy, including redevelopment contributions.
Alan Roth: Even with the uptick in recent bankruptcy filings that Alan referenced, our credit loss outlook is unchanged from our indication a quarter ago at a range of 75 to 100 basis points of total revenues, in line with our historical averages.
Alan Roth: Tenant failures and move-outs simply said, have and will always be part of this business, but Regency's low and manageable exposure to tenant credit risk speaks to the quality of our portfolio as well as our merchandising disciplines.
Alan Roth: Moving to the balance sheet, in the fourth quarter we raised $100 million of equity on a forward basis through our ATM at an average price of $74.66 per share.
Alan Roth: This issuance adds to our liquidity and balance sheet capacity as we work to invest growth capital into accretive investment opportunities.
Alan Roth: We have 12 months to settle in order to best match fund sources and uses.
Alan Roth: Our liquidity position is further supported by our strong free cash flow generation and access to debt capital.
Alan Roth: We have more than $1.4 billion available on our unsecured line of credit. We have no unsecured bond maturities until late this year, and our leverage remains within our targeted range of 5 to 5.5 times debt-to-EBITDA.
Alan Roth: We believe that our balance sheet position, ready access to low-cost capital, and ample liquidity will continue to provide us with the flexibility to be opportunistic, drive growth, and create shareholder value. With that, we look forward to your questions.
and many more. Thank you. Thank you.
Alan Roth: Thank you. At this time we'll be conducting a question and answer session. If you'd like to ask a question please press star 1 on your telephone keypad.
Alan Roth: As a reminder, we ask that you please limit to one question, and if you have a follow-up, please return to the question queue.
Alan Roth: A confirmation tone will indicate your line is in the question queue. You may press star 2 if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
One moment, please, while we poll for questions.
Alan Roth: My first question comes from Andrew Riel with Bank of America. Please proceed with your question.
Good morning. Thanks for taking my question.
Andrew Riel: So $250 million of development and redevelopment spend this year. Could you just share more detail on what you plan to start in 2025 and what types of projects you see as adding the most value going forward?
Andrew Riel: And then I believe the blended yield on in-process did tick up to 9% in 2024. So is this kind of the level you expect to deliver over the long term, or are you finding new opportunities to maybe even push that a little bit further? Thanks.
Morning, Andrew. This is Nick. Really appreciate the question.
Andrew Riel: Let's start with your spend question, the $250 million. So the spend side of the equation is we have clear visibility to that. So that's just forecasting the project we've already started that we'll continue to fund through 2025. And so I feel really good about those projects that we started in 2023 and 2024 and as they continue to progress.
Andrew Riel: In addition to that, we do still anticipate finding another $250 million.
Andrew Riel: of opportunities for development and redevelopment spend as we move into 2025 or starts and so continue to be excited about that pipeline and the progress the team.
continues to make related to that.
Andrew Riel: In terms of yield, as you can see, they've been pretty, I'd call it, steady.
Andrew Riel: In terms of our starts, to your point, they've increased on the margin.
Andrew Riel: We feel really comfortable about our ground-up development yields being 7% plus and we continue.
to solve for returns in that range.
Speaker Change: Our next question comes from Craig Mauman with Citi. Please proceed with your question.
Speaker Change: Thanks. It's Nick Joseph here with Craig. I was hoping you could run through what the drivers to earnings are that drove kind of guidance now above what was previously discussed in terms of the considerations for year-over-year FFO growth and same-store growth.
and many more. Thank you. Thank you.
Speaker Change: Sure, and again I'll reference you to page 6 of the supplemental materials that we provided, which I think tell the story pretty cleanly, but it's foundationally driven by our same property analogriths, right? So 3.2 to 4 percent is driving the majority of the earnings outlook for 25.
Speaker Change: And then you add to that a creative cap allocation, which is both transactions that occurred in 24, our net acquisition activity, the contribution to Nick's point of
Speaker Change: delivering some developments here that have been building on our pipeline to this point and that will only increase even beyond 25.
Speaker Change: And then the net impact of our share repurchases last year is also coming through. We do have some headwinds in the growth outlook for 2025, primarily on the interest rate line item.
Speaker Change: And that is to be expected. That's largely, or about half of that, and we note nine cents of headwind here, about half of that is due to the bond that we already placed in 24. So a full year impact of that refinance.
Speaker Change: And the balance of that interest expense line item is actually attributed to that accretive cap allocation activity.
Speaker Change: So that's continuing to invest capital accretively going forward. Lastly, and I may just take this opportunity to identify the G&A expense line item, you will see a positive contribution from G&A. That is unusual.
But, again, this stems back to this.
Speaker Change: opportunity to continue to capitalize overhead as a result and directly as a result of our success in growing that development business. So with added starts, added spend, that's increasing our capitalization.
Speaker Change: It's also helpful to share that it's topping out. The growth rate in that component of our P&L is topping out in 25. It should grow at a more reasonable rate from this point forward.
Thanks for watching!
Speaker Change: Our next question comes from Michael Goldsmith with UBS. Please proceed with your question.
Michael Goldsmith: Good morning. Thanks a lot for taking my question. Can you walk through the thought process around the credit loss reserve of 75 to 100 basic points and within that, can you quantify any pressure from tenants you felt in the fourth quarter and anything you have visibility or are watching for in 2025?
Thanks for watching!
Alan Roth: Yeah, let me start with the guidance component and then Alan can talk about specifics.
Speaker Change: So maybe just to reiterate how we think about credit loss.
Speaker Change: And we've been very clear about this, it's really a combination of two items, right? So it's uncollectible lease income, classic bad debt expense.
Speaker Change: Rolling through your P&L on that line item. Our historical average is about plus or minus 50 basis points. Actually, in 24, we did better than that. We ended the year at about 30 basis points. We are planning for a more historically average year going forward.
Speaker Change: Then you add to that the second component, which is lost base rent as a result of bankruptcy filings.
Speaker Change: Sorry. So for that, that will fill out the balance of our range. So 25 to 50 basis points. This is where it's more speculative.
Speaker Change: And we do have some clarity, however, given what's all the filings that occurred over the holidays and but but we but timing is an input.
Speaker Change: We still have to learn what's going to happen to these bankruptcy filings, and Alan can color that up. But it's that combination is supporting our current range of 75 to 100 basis points.
Speaker Change: Yeah, and Michael, good morning. I would just again reiterate, as I said in the remarks too, that we do have very limited
Speaker Change: and Manageable Known Exposure, and I think that that certainly is a testament to our deliberate approach in terms of how we how we manage our assets and the durability of our occupancy, but I would bring this back also to tenant health.
Speaker Change: where our ARs are low, sales and traffic do continue to trend up, our pipeline remains strong, supply is limited, and many retailers are having a hard time meeting the growth objective. And so in that instance where we are going to get that space back,
Speaker Change: Great retailers are anxious to secure great real estate and we believe we have great real estate
Thank you very much.
Speaker Change: Our next question comes from Dory Keston with Wells Fargo. Please proceed with your question.
Dory Keston: Thanks, good morning. The same store NOI range for the year was better than expected, but it was also slightly wider versus last year's guide. I know you've definitely like walked through the pieces of it, but I guess I'm just wondering on the spread, I guess, what is driving it starting off wider?
Dory Keston: Hey, Dory, thank you. Number one, your first comment, it is slightly better than our head down. I'm sorry. There's some feedback there.
Dory Keston: Okay, we're good. Dory, 3.6% midpoint of our current guidance, that does compare to it to the outlook head nod we gave last quarter of plus or minus three and a half, so I feel like we're in line with that. Slightly positive given the great fourth quarter we had from a leasing perspective.
on the range.
In our history, we've had various ranges in initial guidance.
Dory Keston: That's tied at 50 basis points as wide as 100 basis points.
This is 80. So I feel like it's...
Dory Keston: kind of consistent with how we've handled it in the past. The biggest factor is going to be move-outs and credit loss, right? So where you end up in the year from a timing perspective on both of— and volumes on both of those is going— is largely going to dictate where we finish.
Okay, thank you.
Speaker Change: Our next question comes from Greg McGinnis with Scotia Bank. Please proceed with your question.
Greg McGinnis: Hey, good afternoon. Given the ground-up development pipeline, could you just instead discuss your view on the transaction market and whether you're seeing any opportunities to
Greg McGinnis: require how that compares to recent years and cap rates more broadly, and if you could also disclose where you think the ground-up developments might trade after completion so we can have some idea on value creation, that would be appreciated as well.
Speaker Change: Before, I know Nick's going to jump in and answer this, before he does, I just want a lot of the, I just wanted to reiterate that our investments playbook hasn't changed. We saw a lot of notes overnight asking about kind of the
Speaker Change: Yeah, the increased focus on acquisitions given our acquisitions guidance and as, as has been the case, development and redevelopment is our, is our number one priority. Nick's already addressed that and, you know, and we'll more right now.
Speaker Change: But we've always acted on and will continue to act on compelling acquisition opportunities when it meets all of our objectives. And as we've always said, that could be
Speaker Change: single property, could be a portfolio, a small portfolio of properties, or it could be M&A, which we've also done.
Speaker Change: So, just want to make sure that there's nothing that's changed here. Our investments playbook is the same, our strategy is to remain disciplined in investing our capital accretively. And I'll let Nick actually more directly answer your questions.
Absolutely. No, thank you, Lisa. Thank you, Greg.
Speaker Change: There's no question, investor appetite right now is extremely healthy for the centers we're pursuing.
Speaker Change: Grocery Anchor Neighborhood and Community Centers. And so, as Lisa just said, first and foremost, we're funding our development and redevelopment program and we feel really good about that. But we are still very active in the transactions market. And so, as we've said before, when we can find an opportunity that we believe is equal to our quality and our future growth profile,
Speaker Change: and that we can fund it creatively, we are going to lean in and we've been successful in doing that as you can see in 2024 we had success and now as we've given you guidance in 25 we feel good about some of those opportunities we're now
Speaker Change: pursuing. And again, the one in natural, we'll talk in more detail next quarter after we announce it, but feel really, really good about, again, checking those boxes, funding it creatively and
Speaker Change: feel really good about its future growth profile given the mark-to-market opportunities.
Speaker Change: And then to your question related to cap rates, yeah, as I mentioned in a previous question, we are solving on ground up to north of a 7% yield.
Speaker Change: and again when you look at what we're buying and what the market is buying in terms of core grocery anchored assets
Speaker Change: We feel really good about getting our 150 basis point plus spread. And so you can solve to a, you know, mid five and a half to six on the deals we're developing. And so feel really good about that value creation straight out of the gate. And so that's why we are prioritizing that capital.
Thank you.
and many others. Thank you. Thank you.
Speaker Change: Our next question comes from Flores Van Dyckum with Compass Point. Please proceed with your question.
Speaker Change: Good morning, guys. Thanks for taking my question. So on capital allocation, it appears like
Speaker Change: The ground-up development you're doing is not necessarily in the first-ring suburbs. Cheshire and Oakley are a little further away.
Speaker Change: But the redevelopment presumably is more And where you're getting your really juicy returns is more in the infill first ring locations. Could you touch on, could you just talk about
Speaker Change: The, you know, how big of a shadow pipeline of redevelopment potentially do you have in that first ring? server portfolio and then maybe talk about your mixed-use entitlements if you're pursuing any of those and presumably
Speaker Change: You would be looking to offload those to to third parties to actually develop, you know mixed use on your assets but maybe you can talk about some of the
Speaker Change: project or the scope of creative recycling that you potentially could do by offloading some of that mixed use to third parties.
Sure. So, Flores, this is Nick. Again, good morning.
Speaker Change: I'll start with your first question, which is really about the development and redevelopment. And so I would tell you we're active in all aspects of our geographic territory. And so, as you've alluded, some of our redevelopments are infill, some are first or second ring suburbs. And so we are hyper-focused on continuing to pull that lever at all opportunities. And so I wouldn't articulate redevelopments are more infill than are developments, necessarily. We have some development progress.
Speaker Change: development opportunities we are currently working on that I think you'll see in the future as we announce those are very until to some of our core markets and so continue to feel good about our entire geographic territory related to developments and redevelopments
Speaker Change: The projects that we do think the highest and best use may be something different than retail, we will bring in a partner, but I would tell you those are a small component.
Speaker Change: As you look at our redevelopment program moving forward we're hyper-focused on the core retail aspect of our business. I would tell you the mixed-use comes into play a little bit more on the potential ground-ups where there may be some horizontal mixed-use.
Speaker Change: components where we will bring in a partner which is which is what we've done for years so that's no different than how we've handled those large developments over the last decade or so.
Bye, Fig.
and many more. Thank you. Thank you.
Speaker Change: Our next question comes from Juan Sanabria with BMO Capital Markets. Please proceed with your question.
Speaker Change: Hi, good morning. Just a question on the builder economic occupancy and how much you'd expect to be able to to capture in 2025 and maybe if you could just comment what would be
kind of the same store versus the redepth.
Speaker Change: potential there. And then as a Part B, there was a comment to, I don't know if it was G&A, but I think it said something like the growth rate was topping out in 2025. So just wanted to see if that was in reference to like the capitalized interest portion that was helping to
Speaker Change: To offset some GNA pressures that would like inflationary pressures. Just wanted to clarify that. Thanks
Juan Sanabria: Hey Juan, I think I'll take most of these. So from an occupancy kind of guidance perspective.
Juan Sanabria: We're at, as we mentioned, we're hitting, you know, peak occupancy on the top line, right? So...
Juan Sanabria: to and to think about the likelihood of losing some tenants through credit loss and normal churn activity I'm not going to guide to a higher level of overall percent least although We're all encouraging the team to continue to lease our space and we have and we have great centers with great demand
Juan Sanabria: rent-paying occupancy, which is really the driver of both same-property growth and earnings growth, we are anticipating to make meaningful headway in 2025.
Juan Sanabria: We've been forecasting this year in previous quarters on these calls, I think we have the opportunity to move rent-paying occupancy by 75 basis points, maybe even more in 2025 on an average basis.
So, think about, you know...
Juan Sanabria: that average basis. And in fact, I think we can hit to that, get to that average number pretty quickly in the year and have the benefit of that higher run rate going forward. So that is a
Juan Sanabria: That is a meaningful component of our growth outlook on a same property basis going forward.
Juan Sanabria: I will reiterate that the redevelopment impact to our same property growth rate is expected to be north of 100 basis points. We've been forecasting that for about a year now, and those developments have largely delivered and there's really good visibility to that.
Lastly, kind of pivoting to your to your G&A question.
Juan Sanabria: number one interest expense isn't in G&A but capitalized overhead is and it is a component of that so what I was trying to make clear is we've been benefiting
Juan Sanabria: pretty significantly, and you can see that in our results because we highlight capitalized overhead in our P&L.
Juan Sanabria: of this growing development business that we've invested in for a long time. And that pipeline has grown meaningfully over the last two to three years. And that has resulted in increases in capitalized overhead.
Juan Sanabria: That those increases will continue and meaning more meaningfully into 25 and then we should top off We're kind of topping off and hitting our from a growth rate perspective. We're hitting our limits So to speak and our team is operating at
Juan Sanabria: Full capacity and we are and we are hopefully going to continue to deliver, you know, strategically targeted centers in the 250 plus range of starts, but we're kind of leveling off on all aspects of that.
I think, let me just...
Juan Sanabria: Maybe the easy way to think about it is if we're able to continue to, which we expect that we will be, $250 million of starts on a sustainable basis, then the capitalized overhead
Juan Sanabria: growth rate will mirror our normal GNA growth rate because it's the people that are working within Regency that we're capitalizing. So that's probably the best way to think about it. It's not that it will stop growing, it'll just grow along with a normal increase in GNA year to year.
Speaker Change: Our next question comes from Todd Thomas with KeyBank Capital Markets. Please proceed with your question.
Todd Thomas: Hi, thanks. Good morning. You touched on renewal spreads in the quarter and
in general, which have been elevated.
Speaker Change: and particularly with the portfolio's lease rate at 96.7. Do you see any material changes in spreads, either new or renewal spreads? And perhaps you can provide, you know, some color on how that they might trend throughout the year relative to 24. And then can you also talk about expectations around.
Tenant Retention in 2025, whether you see any changes there.
Alan Roth: Thank you for the question. This is Alan. So I'll start with, you know, strong sales.
Alan Roth: Coupled with limited supply certainly drives rent, as we all know, and we are an environment where we continue to see that.
Alan Roth: positive momentum, both with spreads and with rent steps. And, you know, I mentioned in the opening remarks, new leasing spreads of 16 percent, which was a significant increase to prior quarters. But we've always said, let's bring that back to gap rent, which is what we really like to emphasize as a better measure of total rent growth. And we had north of 30 percent.
Alan Roth: in gap spreads for new transactions this quarter, which really is emphasizing that contribution to sustainable growth through the success the team's having both in the spreads and in the steps.
Alan Roth: So, I feel really good about that and the momentum that stays behind that. To your retention question, I wouldn't necessarily...
Alan Roth: guide to a number per se, but I would say we are historically 70-75 ish percent from a retention perspective and I'm very comfortable with that. You know at the end of the day that gives us the opportunity to
Alan Roth: Keep those retailers that are thriving within our portfolio, but also stay relevant and intentionally, it's part of the deliberate strategy cycle through the deals that that are important for us to replace.
and many more. Thank you. Thank you.
Speaker Change: Our next question comes from Michael Gorman with BTIG. Please proceed with your question.
Michael Gorman: Yeah, thanks. Good morning. Just wanted to turn back to the development side for a minute here and maybe ask about competition
Speaker Change: We've heard some conversations about construction costs moderating a little bit. Obviously, retailer demand is still quite robust.
Speaker Change: with Institutional Capital also looking at the space more aggressively now than in recent years. Have you started to see maybe at the margins any merchant developer activity come back into the space? Obviously, you've got great tenant relationships that's driving the opportunities, but I'm just curious if even at the margin there's more competition on these development opportunities that you're seeing. Thanks.
Nick Wibbenmeyer: I appreciate the question, Michael. This is Nick, and a very astute question, definitively. And so I'd say, look, first and foremost,
Nick Wibbenmeyer: Some of our biggest competition is our customers, and so there's no question. HEB, Publix, Kroger, they continue to be very active in their own self-development program, and so the good news is we have very close and good working relationships to find opportunities to work with them.
Nick Wibbenmeyer: and we'll continue to do that. But on the margin, to your point,
Nick Wibbenmeyer: Our real competition is we wake up day in and day out, and this is just unusual in the developments. The operating side of the business as well is really, really astute and good local owners and operators and developers.
Nick Wibbenmeyer: They continue to be active, and we do a very thorough study every year of...
Nick Wibbenmeyer: where developments happened, which ones we were involved with, which ones we weren't.
Nick Wibbenmeyer: And year in and year out, there are a lot of very small local developers that have successfully done a project or two in their backyard.
Nick Wibbenmeyer: And I would tell you, over the last six or nine months, they have gotten a little more pep in their step than they did 18 months ago.
Nick Wibbenmeyer: But they continue to have real challenges, as you articulated. You have to have the relationships, you have to have the expertise, and you have to have the capital. And those are three puzzle pieces that are hard for even the locals to put together. So that's why we continue, even with...
Nick Wibbenmeyer: On the margin, the increase in competition locally, we feel really good about getting more than our fair share of that opportunity set moving forward.
Yeah. Very well said, Nick. I think the...
Nick Wibbenmeyer: When you think about our industry and our sector, it's really fragmented, and that's true for the operating, as Nick said, that's true for the operating portfolio, as well as for development. And it is why we feel really good about how well positioned we are because of our national platform, because there are true
Nick Wibbenmeyer: real benefits of that scale that we're able to, you know, bring to both the operating portfolio as well as to the development program.
Great, thank you.
Speaker Change: Our next question comes from Wes Gulliday with Baird. Please proceed with your question.
Wes Gulliday: Hey everyone, I just want to stick to the development. I guess, you know, we'll look at the size of the pipeline It's been growing 500 million. Where could that go over the next two to three years? Is there a governor from a risk perspective from your end? It seems like it's about two and a half percent of the enterprise value. Is it opportunity set driven? What's driving it from going higher?
Wes Gulliday: I'll jump in and Nick can color it up if he likes.
Speaker Change: We've been working really hard to continue, you know, focusing on our grocery-anchored
Speaker Change: You know, bread and butter development program and building that to a sustainable $250 million a year, and the team has done exceptional work in getting us to this point where we've now done it for the second consecutive year. And I expect to continue to see that for us to meet that objective going forward.
Speaker Change: So, and it's not easy, as Nick has said, it's taken a lot of work to do that. So at this point, I would say it has been opportunity, the opportunity set has been the limiting factor.
to the extent that we see the opportunity set.
Speaker Change: resource challenge that that would be. So to this point it's been opportunity set driven and if that changes trust me you'll hear us talk about it.
Speaker Change: I have nothing to add to that. Thank you both. That's a good answer Lisa. Thank you both.
Thank you.
Speaker Change: Our next question comes from Steve Sakwa with Evercore ISI. Please proceed with your question.
Speaker Change: Hey, this is Maun. It's on for Steve. Thanks for taking the question. I just wanted to quickly circle back on the credit loss assumptions. I know you touched on this before with a question and also outlined that, call it there's a 25-50 basis points allowance for loss base rent from bankruptcies included in that credit loss assumption. And I just wanted to get a better understanding.
Speaker Change: How conservative or like what the base assumption is that's going into forming this specific number are you can you share any color on what the assumption is in terms of how many stores you assume in the base case to get back that you have to backfill or just
Speaker Change: help us understand how much room there is just given the exposure you have. That would be super helpful. Thank you.
Speaker Change: I'll do what I can. I don't know if it'll be characterized as super helpful but it's a ground-up assumption process. So we are we're taking a look at our role, we're identifying where we see risk, where we know risk exists.
and we're handicapping our
Speaker Change: the likelihood and potential of those sites to be rejected through bankruptcy court.
Speaker Change: and we're not we're not assuming that all are necessarily rejected. We're making space by space, tenant by tenant assumptions.
Speaker Change: We're capturing all the tenants that are very well known to everyone on this call.
Speaker Change: in that analysis, and we're trying to put forth what we believe to be a practical outlook and reality of how we think we'll end the year. I hope we do better than that, but a lot of this component of the plan, frankly, is out of our control.
I appreciate it. Thank you
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Speaker Change: Our next question comes from Keebin Kim with Truist Securities. Please proceed with your question.
Keebin Kim: Thank you. Good morning. So looking at your same-store operating expenses year-over-year for the full year, it only grew not even 1%. So I was just curious, is there a comp issue going on or maybe you can provide some details on if there's any initiatives that are...
Speaker Change: They are working on that are keeping a lid on some of your operating expenses. Thank you
Speaker Change: Yeah, Key Ben, I really appreciate you noticing that, and I know the team will be very appreciative of that. It's just good hard work by our operations team.
Speaker Change: A little bit of scale advantages, I will say that. We do have the benefit, to Lisa's point, from a contract negotiation perspective, but it's just good, hard, diligent work in a rising price environment over the last several years.
Speaker Change: to calibrate our levels of service at the property level to ensure that we're delivering high service to our tenants, to our end consumers, while also managing the P&L. It's as simple as that.
I'm sure your attendance appreciated too. Thank you.
Thank you Keith Wibben
Speaker Change: As a reminder, if you'd like to ask a question, please press star 1 on your telephone keypad.
One moment, please, while we poll for questions.
Speaker Change: Our next question comes from Paulina Rojas with Green Street. Please proceed with your question.
Paulina Rojas: Good morning. My question is really big picture. Today there is significant uncertainty around immigration policies and tariffs.
Speaker Change: So how sensitive do you see your business and the retail sector in general?
to the direction this policy takes.
Speaker Change: I'm not asking for a specific position on the topic, and we certainly don't have much clarity on what could finally be implemented.
Speaker Change: I'm more interested in your thoughts really around, one, how impactful it could be for regencies, and two, what variables do you think are more relevant to monitor, whether it's construction costs.
Speaker Change: and Retailer Profitability for a Specific Tenant Category, or any other factor.
Thanks for watching!
Paulina Rojas: I appreciate the question, Paulina, and I'm glad that you asked.
Paulina Rojas: not for the position or for a prediction because if I could predict I'm more than likely wouldn't be sitting in the seat that I'm sitting in today. I'd be doing something. I'd be doing something different but you know similar to
Paulina Rojas: past recessions and economic cycles. I think that the way we think about it is we do not expect there to be a material impact to the Regency portfolio and that is because we are so well positioned.
Paulina Rojas: You know, if you take the trade areas in which we operate, so one, that the consumer in those trade areas.
Paulina Rojas: is very resilient and it has been able to, you know, even in the past inflationary, very high inflationary years, absorb price increases.
Paulina Rojas: You think about the quality of our centers themselves and then therefore the merchandising mix, the focus on necessity, service, value.
Paulina Rojas: Those categories tend to perform better in inflationary environments through economic cycles. And because of the quality of our portfolio, we tend to have those operating units
Paulina Rojas: within larger scale portfolios of our tenants that are producing better sales.
and if you're producing higher sales...
You can afford to pay the rent.
Paulina Rojas: and the consumers continue to come in. So I will never say that we are immune to.
economic cycles, impacts from tariffs, neither will our tenants be.
Paulina Rojas: But I don't believe that, at this time, with what we are looking forward to...
Paulina Rojas: that the impact would be material. I think the other thing too is think about how resilient and adaptive and flexible our tenants have been. They have operated through some really difficult times and they've survived. Even if their margins are being squeezed, they continue to grow their sales and they continue to make money and they continue to pay rent. It's a win-win. If they grow sales, we collect rent and we can grow that rent.
Paulina Rojas: So I do not expect for it to be that significant.
immigration side and the supply the labor supply potential impacts
Paulina Rojas: Anytime construction costs go up, again, it's something that's a challenge for us and it's something that we have dealt with. We've dealt with it for the past four years.
Paulina Rojas: and we've been very successful in still achieving our development goals and achieving our development returns. So again, could there be an impact? There could, and I expect we'll continue to have success.
Thank you.
Speaker Change: Our next question comes from Linda Tsai with Jeffries. Please proceed with your question.
Thank you.
Speaker Change: Yes, hi. On developments being north of the 7% yield and getting 150 BPS plus spread over acquisitions, how stable is that yield or spread as you look at one to two years just given the rising cost of labor and construction?
Nick Wibbenmeyer: Linda, this is Nick. Appreciate the question. As Lisa just alluded to, we're hyper focused on doing our best to maintain those yields.
Nick Wibbenmeyer: I hope we don't see in the next couple of years what we saw looking over our shoulder the last several years.
Nick Wibbenmeyer: But as you can look at our in-process pipeline and what the team has been able to deliver, more times than not on the margin, we've actually outperformed, even in the face of those cost increases over the last several years, and that's because
Nick Wibbenmeyer: Our team does a really, really thoughtful job project by project of, one, de-risking these transactions as much as we can, so while we have control of the real estate before we close, before we start construction, we spend significant time and effort and money
on diligence and drawings and getting bids in hand.
Nick Wibbenmeyer: And where there is inputs that we don't have perfect visibility to, we appropriately underwrite what we believe are acceptable cost increases going forward. And so, as Lisa just said, we had to do that a lot over the last several years. We're likely going to have to do it going forward. And our teams have done a really nice job of delivering those results.
Thank you.
Nick Wibbenmeyer: Okay, yes, okay. Our next question, it jumped into the queue, sure, is from Mike Muller with JP Morgan. Please proceed with your question.
Speaker Change: Yeah, hey, just a quickie here. At 94.1% leased, can you squeeze any more occupancy out of the small shops, or is that essentially full?
Speaker Change: Can I just say yes? I was going to crack a similar comment. I do appreciate the question, and we have said quarter after quarter after quarter records are meant to be broken, so we've stopped thinking about where that can go. Our teams are hyper-focused. They are going to lease as much space.
Speaker Change: As they can, they're going to continue to take advantage of the quality of the real estate and the quality of the environment that we're in, so we are going to keep pushing for our shareholders and for the portfolio.
Okay, thank you.
Thank you.
Speaker Change: There are no further questions at this time. Now I'd like to turn the call back over to Lisa Palmer for closing comments.
Speaker Change: Thank you. And since Alan just ended with that comment, before I say thank you to all of you, I say thank you to the entire Regency team for these exceptional results and looking forward to an even better 2025. Thank you all for your time. Appreciate it. Thanks.
Speaker Change: This concludes today's conference. We thank you for your participation, and you may disconnect your lines at this time.
Goodbye.