Q2 2025 Regency Centers Corp Earnings Call
Greetings and welcome to Regency Center. Second quarter 2025 earnings conference call. At this time, all participants are on a listen-only mode.
A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded.
I would now like to turn the conference over to your host Christy mcilree.
Um, thank you. You may begin.
Good morning and welcome to Regency Center. Second quarter 2025 earnings conference call. Joining me today are Lisa Palmer, president and chief executive officer, Mike Moss, Chief Financial Officer, Alan Roth, east region, president and Chief Operating Officer and Nick women, Meijer west region, president and chief investment officer. 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. 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 the
forward-looking statements, we may make
Factors in risk 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 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 to our Investor Relations website. Please note that we also have posted a presentation on our website with additional information, including disclosures related to forward earnings guidance.
Question on forward-looking statements. Also applies to these presentation materials as a reminder. Given the number of participants we have on the call today, we respectfully ask that, you limit your questions to 1 and then rejoin the queue with any additional follow-up questions. Lisa.
Thank you Christie. Uh, good morning everyone.
Quarter of excellent results driven by both internal and external growth. And this is highlighted by the strength of our operating fundamentals and our creative Capital, allocation
When the operating side, we're having a phenomenal year. We continue to outperform on all metrics demonstrated by strong, same property, anoi growth and total. Noi growth
In the second quarter, we had great success commencing rents for tenants in our Sno pipeline.
Achieved record low shop, move outs.
and sustained, robust leasing activity with strong rent growth.
Our investments team is also firing on all cylinders.
Sourcing high-quality opportunities and deploying more than $600 million of capital year-to-date.
Most recently, we were excited to announce the acquisition of 5 outstanding shopping centers, located in a Premier Community in South Orange County, California.
Strategically this transaction, checks all of our boxes.
To create up to earnings.
Quality and growth.
Well, enhancing our presence in this supply-constrained Southern California market.
During the second quarter, we also released our annual corporate responsibility report, highlighting our progress and future strategic direction.
Our ongoing commitment to corporate responsibility in support of our business objectives.
Remains a founding.
Strategy for Regency.
Achievements noted in the report reflect the dedication and efforts of our entire team.
Give the strength in our results, substantial progress in Leasing and opportunistic, capital, allocation along with greater visibility for the remainder of the year.
We are raising our full year growth outlook for same property on oi core operating earnings and Nar ffo.
Regencies' distinct strategic advantages continue to differentiate our company and position us favorably for future growth.
Our high-quality grocery, anchored shopping centers located in desirable Suburban trade areas, provide a central retail offering focused on necessity service, convenience and value.
Our well-established National development platform allows us to drive substantial value creation.
And our strong balance sheet with low leverage and dependable access to low-cost Capital enables, our team to continue to pursue and successfully execute on strategic growth opportunities.
We are only halfway through 2025, and I am so proud of our team's accomplishments so far.
I look forward to building on this success for the remainder of this year into 2026 and Beyond Alan.
Thank you, Lisa and good morning everyone.
Our team achieved outstanding second quarter operating results highlighted by same property. Noi growth exceeding 7%.
With base rent being the largest contributor at 4.5%.
As discussed on last quarter's call, we had anticipated above-trend growth in the second quarter, and we delivered even better results, which were driven by a multitude of positive factors including robust leasing activity, record low shop move-outs, favorable bankruptcy outcomes, accelerated rank commencement timing on a few key anchor tenants, and meaningful improvement in our expense recovery rates.
We maintained our same property lease rate and continue to grow shop occupancy, as our high-quality properties are commanding, strong tenant, demand from a wide range of categories, including groceries restaurants, health, and wellness, off-price and personal services.
Our team is seizing every opportunity to enhance merchandising as leading retailers recognize, that high-quality well-located space is in short supply and it is in centers like ours, where these best-in-class retailers are achieving exceptional results.
We continue to commence tenants within our Sno pipeline at a rapid pace, driving our commenced occupancy rate higher by another 40 basis points quarter over quarter.
At the same time, we are also continuing to backfill the pipeline with new leases.
our lease to commenced occupancy spread was 260 basis points at quarter end, representing an Sno pipeline of 38 million of incremental base, rent,
Our Gap, spreads demonstrate our ability to not only drive mark-to-market rent increases when signing new and renewal leases.
But also reflect our continued success and meaningful contractual rent steps in the majority of our leases.
In summary. I'm really proud of our results and I'm even more proud of the work of our incredible team to achieve them.
We are capitalizing on persistent demand for our best-in-class shopping centers and the phenomenal operating trends that exist in our sector. As we upgrade our merchandising and drive, noi higher.
With the current year’s lease commencements largely de-risked, we are full speed ahead on continuing to build our future lease pipeline, as we drive momentum and sustained growth opportunities well into 2026. Nic.
Thank you, Alan, and good morning, everyone.
We've maintained a robust pace of investment activity with more than 600 million dollars of a creative Capital deployment, so far this year.
Our investments platform is unequaled by our ability to acquire redevelop and importantly, develop ground up, best-in-class shopping centers.
As Lisa mentioned, we recently had a tremendous opportunity to lean into acquiring last week. We closed on a 5.0 million square foot asset within the Rancho Mission Viejo master plan community in Orange County, California, for $357 million.
The RMV portfolio as we refer to it is 97% leased and includes more than 600,000 square feet of high-quality retail GLA and 1 of Southern California's most sought-after Suburban submarkets.
These shopping centers are right down the middle of regency's. Fairway strategically positioned at primary intersections with strong, trade area, demographics, and anchored, by high performing groceries.
The transaction is well aligned with regency's capital allocation strategy, a creative to our growth earnings and overall portfolio quality as well as leverage neutral to our balance sheet.
Furthermore, our upreach structure, provided us a competitive advantage in the transaction offering tax planning. Optionality to the seller, as well as an opportunity to participate in our future success through the ownership of our operating partnership units.
We also assumed a 150 million of below Market debt.
With an average term to maturity of about 12 years.
In addition to the acquisition of these exceptional assets, we continue to successfully execute on our $500 million process development and redevelopment pipeline.
Consistent with the fundamental strength that exists throughout our operating portfolio leasing activity. For these projects is robust and Blended project returns exceed 9%
Importantly, our team is completing projects on time and on budget.
We are also making significant progress sourcing incremental opportunities especially in our ground up development program.
While overall Supply growth in our sector remains limited. We continue to find more than our fair share of attractive projects as the leading National developer of high-quality open air shopping centers.
We have started nearly 50 million dollars of new projects this year and after 2, consecutive years of 250 million or more of starts, we continue to have visibility to at least that level in 2025 with the majority of the investment in ground up development.
Meeting brochures and retailers are cross. The country are demonstrating a strong commitment to expand in our markets and partner with us on the high-quality centers. We are developing
In closing, our team is energized, and is taking advantage of the flywheel momentum. We built within our investments platform to Source new opportunities.
As a result, we continue to see substantial activity across the board and Acquisitions Redevelopment and groundup development fueled by our best-in-class team, sector leading balance sheet. Substantial free cash flow and access to Capital
We look forward to announcing additional exciting investments in the near future. Mike.
Thank you, Nick and good morning everyone.
As you've heard from Lisa Allen and Nick, Regency delivered, exceptional results against this quarter our same property and oi and earnings growth. Surpassed our expectations and we are grateful for our team's hard work and delivering these results.
Following this strong first half performance combined with greater conviction on our outlook for the remainder of the year.
We are raising our current year earnings guidance.
I'll refer you to Pages 5 and 6 of our earnings presentation, while I highlight some key guidance changes.
we raised our same property. Noi growth range to 4 and a half to 5%.
Up 115 basis points at the midpoint.
We raised our n rate ffo range by 6 cents per share at the midpoint.
now representing full year growth of more than 7%,
Operating earnings per share increased by 5 cents, at the midpoint representing growth north of 6%.
The increased the same property in. AI guidance was fundamentally driven by higher average. Commenced occupancy from higher shop retention rates combined, with strong lease commencement activity.
Additionally, and as a follow-on impact of the elevated occupancy, together with the completion of our annual reconciliation process, we are benefiting from higher expense recovery rates, further amplifying NOI growth.
Lastly with greater Clarity on the outcomes related to some of the more high-profile bankruptcies this year. We are also narrowing our credit loss guidance to 75 to 85 basis points.
While the increase the same property in oi was the largest contributor to our overall earnings guidance range.
Our ACC creative investment activity is also moving the earnings needle. Even higher.
Including the accretion expected to be generated by our recently announced RMB, portfolio acquisition.
We've also substantially reduced our capital raising plan for the year following the successful execution of our $400 million bond offering in May.
We issued 7-year notes at a 5% coupon, allowing us to pre-fund our November unsecured bond maturity and resolve our remaining corporate-level financing needs.
This issuance demonstrates, our clear cost of capital Advantage as we Remain the only shopping center Reit with an a credit rating from both Moody's and S&P.
Our Leverage is Comfortably within our target range of 5 to 5 and a half times, and will remain. So, even taking into consideration, the portfolio acquisition,
Which was funded on an effective, leverage-neutral basis.
We continue to generate significant levels of free, cash flow have nearly full availability on our 1.5 billion credit facility.
And still have 100 million dollars of unsettled Equity from our forward ATM issuance late last year, which we will settle in the second half of this year.
With our sector leading financial and balance sheet position. We will continue to play offense and execute on Strategic investment opportunities for defying ongoing earnings growth with that. We welcome your questions
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,
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As a reminder, Regency respectfully asks that you limit yourself to one question. And if necessary, please request.
For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key. One moment, please, while we pull for questions.
I first question comes from Samir canal with Bank of America. Please proceed with your question.
Good morning everybody. Um, I guess, Mike, um, you know, as you alluded, um, very strong print for same store in the quarter.
Um, certainly a big contributor was the base rent.
But but um, also saw some positive contributions from recoveries other income and percentage rents, so walk us through.
Kind of how you're thinking about the contribution from the various components into the second half as we think about the same store, ioi? Cadence, thanks.
Sure. Hey, Samir good morning. Um yeah. Uh, so last quarter, we spent a little bit of time, talking about the known, uh, deceleration in the growth rate, uh, that we were seeing in the numbers and that hasn't changed. And, um, however, what I would add to that is the second quarter was exceptional on a couple other line items which is um, kind of just raise it raise the, the entire sea level but that that that um, bias.
In the back half of last year. So topping to a little bit higher this year, in our expectations, um, there is a and, and in the second quarter, uniquely, uh, there is some percentage rent that shifted into the quarter, um, from the first quarter, there's, uh, other income which by definition is a bit of an uneven line item, and we had a little bit of froth in the second quarter, um, and then, um, lastly tried to color it up in the prepared remarks, but our reconciliations, uh, again, this is a testament to the team and just rent paying occupancy being higher and it exceeded our expectations on our ability, uh, to not only collect rent on a prior basis, but also to continue to collect, uh, recoveries. I should say on a prior year basis, or and collect recovery is going forward, which is increased our eye level there. Um, I hope that helps on the growth rate and the trajectory, um, but I also hope it doesn't take away from the fact that we've had an incredible first half of the year, and we're looking forward to continuing that momentum.
Thanks a lot.
Thanks mayor.
All right, next question comes from Michael Goldsmith with UBS. Please. Proceed with your question.
Good morning. Face off for taking my question. Uh, question is just about the same property at Ally growth algorithm. You know, you have a wonderful chart in your in your presentation that that outlines the different drivers. Um, you know, which is driving, you know, the 7% blessing property on a lot of growth during the quarter. Like as we think about it, going forward, um, clear? Like, you know, occupancy you're kind of at peace, least occupancy. Maybe still a little bit of room on the commence, but can you just talk about kind of the shift away from occupancy into some of the other components of the same property at AI growth algorithm to, to kind of make up for that? And I know Alan mentioned in in his comments. Uh, just that, you know, continued, meaningful contract over at steps in a majority of releases, if you could touch on that as well, thank you.
Yeah, let me just start from from, uh, hey Michael. It's Mike, uh, from the algorithm perspective. I'll let Alan provide some color, uh, if he thinks it's necessary. Um, uh, 1, I I appreciate you. Recognizing, the disclosure pretty proud of it. Uh, the team does a great job, uh, sharing that on a perspective basis. You're right, we continue to see, uh, continued runway on a commenced occas occupancy, perspective. While we are at Peak levels of percent, at least we have not reached Peak levels of commenced and that gives us confidence as we move through the second half of this year and into
2026 that we have a continued. What I would call above Trend growth profile, or opt opportunity ahead of Region C and we're excited for that. Um, I'll let Alan speak to the Sno Pipeline and in a few seconds but we should see that continued to compress in a very positive way. And then lastly from an algorithm standpoint, let me share uh that redevelopments have been and and we are expecting them to continue to be quite positive, to our same property, knee growth metric. Uh, we've talked about in the past, 25 will have. Well, you know, north of 100 basis, points, positive, uh, increase impact to our same property growth rate. And I actually, as we see here today I think that may replicate, uh, into 2026. We've done an exceptional job starting, uh, de and delivering and working on our Redevelopment business. And, um, the prospects for that to continue to be positive to noi growth, I think will continue in the next year.
Yeah, Michael. I'll just, uh, color up the Sno uh piece.
And, you know, I would just say our team is, is continuing to make really great progress. Uh, being bringing rent online as I mentioned, uh, in the opening remarks. Uh, but I'm even more proud of continuing to backfill that that Pipeline with additional, uh, sign leases. The process is working, just in terms of getting our tenants to start plans, early proactively fitting out, uh, our spaces to make them more marketable uh, ordering equipment uh, in advance. Um, all leading to some accelerated rent commencement day from a normalized.
Run rate. I think we've mentioned, we expect that at a stabilized basis. SNL be at about 175 uh, basis points. But the compression we had this quarter. It's a great thing particularly when it's in conjunction with uh percent commenced going up uh which it did uh 40 basis points. So teams clicking on all fillers on that front and uh I hope that that number continues to compress certainly over time.
Thanks Michael.
Thank you.
Our next question comes from. Excuse me. Our next question comes from Greg mcginness with Scotia Bank. Please proceed with your question.
So call acquisition uh to better understand transaction Market through this lens. Uh, so who are you competing with for the asset? And from your perspective, what gave you a Competitive Edge in successful, executing the deal.
Morning. Greg, this is Nick. Appreciate the uh, question. You know, this is 1 of those opportunities that I can. I can really sort of pound our chest that it was truly off-market. And so, um, the seller is a family. That's owned these properties literally since the 1800s, they've owned, tens of thousands of Acres throughout Southern California that they've been Master planning, develop master plan developing. Um, now for generations and um, they chose us and they came to us really for 3 primary reasons in our discussions with them. Um, first and foremost, uh, the quality of our currency matters and so the up free transaction was really important to them from a tax optionality standpoint moving forward on their side, um, and the quality of the currency, they were getting in return was really critical given they are now a large shareholder of Regency centers. And, uh, so we appreciate, uh, their commitment to our platform and their ownership now in our company. Um, so beyond the quality of our currency, the quality of our operations mattered again. Uh, they have a
Very vested interest in this community not only and what they've done to develop it today, but there's future development on the horizon residential um, to the east of these projects and they live in shop in these communities. They're very, very proud of these shopping centers and so the quality of the operator taking over the shopping centers to make sure they are best-in-class. Moving forward, was critical to them and then last but not least. Um, there are future development opportunities within the future phases of their master plan development and so the opportunity to partner with them on future developments mattered. And so, um, really when they, they prioritize those 3 items. Um, the only company they felt like checked. All 3 of those boxes was us. And so, uh, we're very proud to, um, have engaged with them, came up with a, a, a quality, um, transaction for all parties involved.
I just need to come, come over top just for a second and just say, I'm really proud of the team because it took um, many throughout our organization to make this happen. It certainly didn't happen overnight as you can imagine. Uh, and um,
Just ditto, everything, Nick said, in terms of why the sellers were were comfortable and wanted to transact with Regency, and that goes to the people and to our strategy and to the company that we built. So grateful, grateful to the whole team grateful to the sellers.
Thanks, Victor. Let's go. Thank you.
Our next question comes from Steve Saka with evercore, isi, please proceed with your question.
Yeah, thanks. Good morning. Uh, could you maybe expound on the uh, the development opportunities? You know, it seems like development yields are quite high for you guys. These are the acquisition yields and I'm just curious if there's, you know, incremental discussions you're having with the national retailers about new developments.
I appreciate the question Steve again it's Nick. Um yeah as we've been articulating I think now for quite quite a few quarters we continue to see demand from best-in-class groceries, growing their physical presence in the markets that we do business and so we continue to have very active conversations with those key. Groceries about partnering with them, to help them build their program out. And so we, uh, as I've articulated in the prepared remarks, we're bullish on our ability, uh, to find those opportunities. They are very difficult. I'll reinforce that it is challenging to find these deals, um, but we are best-in-class given our relationships, our expertise, and our Capital. Um, our teams just continue to do a tremendous job Coast to Coast partnering with these groceries and putting these deals together. And so we're bullish. As we've talked about we've delivered or we started, 250 million dollars in the last 2 years. And as I said, in the prepared remarks, we expect to start that much this year or uh, even maybe Beyond
On that and we do expect the majority of that to be in Roundup. Developments given the success, our team has had and in terms of yields as you've seen, we're in that 7% range 7% plus. And I would expect us to maintain that that yield uh, eyesight for the for the time being
Thanks Steve.
Our next question comes from Craig malman with City, please proceed with your question.
Thanks it's Nick here with Craig. Um you touched on the better expense recovery rates in the quarter and you know net Opex dropped um meaningfully quarter over quarter. So how sustainable is that going forward? Or do you expect a reversal?
Perspective going forward again because of the 1 there is a 1-time element to the second quarter being that we we completed our our annual reconciliation process. Um so not to get too much in the weeds there but that results in a little bit of Prior uh recognition that exceeded our estimates that we booked at the end of last year.
The the rough number, there's maybe a million dollars of kind of 1-time baked into the second quarter. Um, I do, we do anticipate that this recovery rate basically will fall Maybe by 100 basis points if you're using Q2 as a run rate, um, going forward. But that, uh, again, the, the the average in place occupancy is really what's driving this higher rate of recovery for us and that average in place occupancy. Last quarter. We were talking about that potentially moving by 75 basis points or more in 2025. Now, as we see here today, given the success we had in the second quarter, we're seeing that move by north of a 100 basis points in 2025 that significant change in average, commence occupancy, is what's driving. The fundamental increase in our expense recoveries
Thanks Nick.
Our next question comes from a Todd Thomas with keybanc capital markets, please proceed with your question.
Hi, thanks. I wanted to go back to the SoCal acquisition. Um, do, do you have any uh, rights to participate in uh, future developments um, or or future acquisition opportunities with the sellers in in SoCal within that Master Plan community and then you highlighted that, it's a creative to regencies core growth rate. Can you just provide some additional detail, uh, on the growth opportunity with within the portfolio? Which is, you know, 97% lease. What's the upside related to? And is there any incremental, capex or reinvestment, Capital anticipated, um, in order to generate that that outsized growth
Sure Todd, let me start with your your second question. Um yes, we're we're really excited about the future, growth of that portfolio as you articulated. It is 97% least. Um however we do think there's upside in some of the rents that are uh in the near term. And there are some small Redevelopment opportunities, there's currently a vacant Ride Aid and a Sendero Marketplace that we anticipate redeveloping. And the soon to be uh, vacated CVS, uh, further north in the Bridge Park and so small uh, redevelopments within that portfolio. But again exactly what we do every day in our core portfolio. And so we do expect that growth rate to be north of 3%. Uh moving forward and so uh, although that portfolio has been uh, really well taken care of really well operated. There's still opportunity for growth within it which is what we're
excited about
In terms of your first question, I'll start with the acquisition first. Um, no. We don't have the ability to acquire more within that, um, after plan Community. Because, uh, the answer is simple. We bought all of their assets that currently exists. And so that's what we were. So excited about within this, uh, acquisition is, we own all of the retail serving these phenomenal master plan developments. And so, um, knowing that we, we really do control that market is what we're excited about. And then in terms of future development, there are plans future development, especially on the residential side again, which is just going to bring more demand to the existing assets. But we do anticipate the potential for future retail, and we have had discussions and very positive dialogue about participating in partnering to everybody's benefit on those projects in the future.
Thanks Todd.
Our next question comes from Handel St. Just with meizuo Securities please proceed with your question. Thank you for your question.
Hey there. Good morning. Uh, you guys mentioned plant to settle the 100 million remaining forwards in the second half of the year. So I guess I was curious and what your your thoughts are planned to work for that capital. I think most of us presume it's for development of but also was curious kind of what your appetite for more potential Acquisitions uh could be in near term. Thank you.
Um, but on balance, I would just view it as added capacity.
Thanks handle.
Our next question comes from Cooper Clarke with Wells Fargo. Please proceed with your question.
Great, thank you for taking the question. Could you provide thoughts on farther portfolio style deals from here and what, you're seeing portfolio cap rates versus single asset transactions? As we think about the SoCal acquisition and the upward revision to acquisition cap rates and guidance.
Sure. Let me let me speak first. Uh Cooper. Good morning. This is Nick um to what we're just seeing in the market in general and then Mike may call her up a little bit of just how to think of the cap rate related to uh RMV. And so we're still seeing overall a lot of demand in our sector. So no question. There's a capital, that's very interested in owning Irreplaceable, grocery anchored, essay assets, throughout the country. And so whether that's single assets or portfolio, quality assets, um, seeing cap rates, you know, push down on the low fives depending on the growth profile and to the low sixes. And so, um, there's some stability in that in the sense that it feels like. That's the way it's been here over the last couple of quarters, given the capital flow and interest in our sector. For all of the, uh, reasons you're hearing flow through our operating results. And so, um, we continue to be competitive. And as we've always said, the really good news about our business plan is, we don't have to buy things to meet our growth objectives. Um, given our development and Redevelopment program, but when those opportunities presented,
Themselves, where we feel like we can, uh, acquire assets that are equal or better than our quality and growth profile, and that we can fund creatively, we are ready to move. R&B is a perfect example of that.
Thanks Cooper.
Our next question comes from Juan Sanabria with BMO Capital markets, please proceed with your question.
Good morning. Um, just hoping you could talk a little bit about the tenant Health on the small shop side. You said that the turnover was less than expected I guess. Is that?
Why do you attribute that to and um how are tenants feeling about tariffs, particularly on the on the small shop side? Where there I think there's less, maybe the ability to pass costs through or to have negotiating leverage with suppliers.
Juan good morning. Um, I appreciate the question. Uh, look we're looking at uh, foot traffic to our assets and and it remains positive. Uh, our ARS are at historic lows, our sales are up for our retailers and our pipeline, particularly on the, on the new lease side remains very strong. So, um, your, your question about the health of the tenant, it it it's very strong in our portfolio and very, um, proud of the discipline and intentional approach of power. Managing, that retention rate was about 77%. It's a little bit higher than we typically see. And again I think that's a little bit of the supply constraints. Uh, that you're
Staying out there coupled with um, uh, productive storage for them. But uh, you know, for US cycling through and enhancing merchandise, has always been a key thing for us. So, uh, we're, we're hearing nothing but um, really positive feedback from our existing tenant base and as they think through, uh, your your tariff question, um, you know, their time tested operators, they know how to operate and be agile through uncertain times. And, you know, I suspect if if the time comes where they need to negotiate with suppliers, they will if they need to consider sourcing Goods elsewhere, they will. If if it's passing through some expensive consumer, they will they're going to evaluate all the levers that that need to be done and and I don't believe they're sitting back. They're evaluating those things. Now, and many are making changes right now. So uh, feedback is positive uh, in pipeline. Um, that's that's coming behind it remains very positive. Yeah, I would just reiterate, what we've
Been saying for for many years, we are. If you think about our product type, No 1 really, no 1 know. There's no consensus on what the impact will be of of policies. But what we do know is that
We have a really high quality portfolio, you just mentioned. We have our, the health of our tenants, um, is a really strong and we have we are in good Suburban trade areas and we with the with the focus on essential needs value, convenience daily Necessities. Uh we feel really good about the future opportunities and growth within our portfolio. The consumers, not only are our tenants resilient to Consumers also very resilient and we continue to see that with all of the trends in our portfolio. Foot traffic tenant sales, Etc. Feel really good about it.
Thank you, Juan.
Our next question comes from Rich. Hightower with Barclays Bank, please proceed with your question.
Hi, good morning everybody. Um, thanks for, uh, taking a question, a lot of good questions, um, so far. But I think just to, um, maybe just a, a follow up on the tightening of the, uh, the credit loss assumption for 2025, obviously. That's a, that's a, that's a good sign. But any any indications on, uh, maybe potentially troubled tenants for 26. Um, even notwithstanding the the comments just now about, um, very strong tenant Health, any any sort of leading indicators there?
Uh, hey Rich, let me just speak to the guidance and the change a little bit and then Alan can jump into from at 10 Health perspective. Uh, appreciate you. Um, helping us reiterate that we did kind of narrow and, and lessen. Our, our outlook for credit loss and and I would like to remind everyone when we speak of credit loss at Regency. It is a combination both of move outs from bankruptcies, or lost Bass Run, uh, together with uncollectible lease lease income or traditionally bad debt expense. Uh, I'd say both of those elements are have declined in our outlook, for the, for the year. Uh, the BK, um, Outlook is what declined, the most, and if you, if you think about what's occurred over the last 3 months, it's just a lot of clarity. We've had a lot more clarity come to us through the outcomes of these bankruptcy proceedings. And we now know that, um, which stores we will lose and which we won't. And when
And the timing and that certainty is what's allowed us to to lower our eye level there in a very positive way as an example. Um, we learned in May that CVS was taking 4 of the, of the right, a, uh, positions in our Pacific Northwest portfolio. So, that is a change to our plan and allowing us to to lower our eye level. Um,
I mean, I don't know if we have much more to add beyond what Alan already shared from an Outlook perspective. We our tenants are extraordinarily healthy. Um, uh, the are that we're looking at greater than 90. Days is a historical historically, low levels. Um, we would continue to anticipate a retention rate, roughly in the 75 day. Basis, point range, uh, tenants will move out. Um, so so that element of the business plan won't change. Um, active asset management will continue, uh, will we are always looking to upgrade our merchandising mix and ensure that we're providing the best um, product for our consumer.
And um, but at the same time, there's going to be bankruptcy filings. It, it is an element of our business, tenants will fail. Um, Regency does better than most in those um, outcomes, we retain, uh, in reorganizations, we retain a lot of our
Thanks great. Thank you.
Our next question comes from West Gallade with beard. Please proceed with your question.
Hello, everyone. Just want to talk about the earlier commitments of a few tenants. Were those primarily Junior anchors? And they are they just looking to open a season earlier.
Oh, wow. I'm assuming you're talking about earlier, uh, commencement of rent. Yes, it was a couple of anchor, tenants that, um, in fact, we were just, uh, able to accelerate, uh, openings is really what it boils down to. Uh, and I think, again, that's a testament to, to driving a, a very efficient process. Um, being front and center visible in partnering with our retailers to to get them open.
West, did that answer your question?
Yeah. Well just a yeah. Was it a um, was it just the ability to get it open? Or were they kind of pushed into to say, hey, we want to open a set of maybe fall. We want to get open for the summer. Is it? Was there anything like that? Going on.
No, I don't. There there was no, again, I think it's always interest our line. The sooner, we can get it open the quicker, we can get our consumer in the faster, we can generate sales, which is a a real real win-win for all of us.
um,
I I really just don't have much more to add to it than that West. It was just a good partnership and I think that is 1 thing that we pride ourselves on is working together with our, our customer, which is our our retailer, our tenants, uh, and doing everything we can to get them open sooner.
Okay, thank you.
Our next question comes from kein Kim with truist Securities. Please, proceed with your question. Thank you. Just a couple quick ones on leasing, uh, the renewal spread this quarter 17.2% on a gap basis. Uh, can you remind me does that include options or not? And what would that spread look like without options? Um, and just second question,
At all over time. Thank you.
Uh, keep in good morning. Uh, so to answer your first question, yes, it does include options, uh, and our negotiated, uh, renewal rates are absolutely higher. Uh, when you're excluding the option rate, uh, from that, um, uh metric. Um, your second question was on, uh, it was basically on our, our ability to push occupancy costs. I'm happy to take it. I I because I've spoken about this in, in other calls, in, in, in most meetings, there's clearly there's been limited Supply and so, the supply demand equation, we've talked about it is, is in our favor today. Um,
Really find other ways to eliminate costs and their business. So that they can afford higher occupancy costs. So yes, we're absolutely pushing its why you continue to see the really strong contractual rent steps that the team is that.
The team is getting in our leases in addition to the rent spreads upon exploration.
Thank you Steven.
Our next question comes from Mike Mueller with Jpmorgan. Please proceed with your question yes.
Hi in the comments, you specifically mentioned working to source new developments and looking at the Sop. It's about a 50 50 split today between ground up and redevelopment investment do you think that's about where the mix is going to stay for the next three to five years and how deep is the retail pipeline.
Sure Mike Good morning, I appreciate the question.
Look the reality is as I articulated a little bit ago, we continue to find success in the ground up program and so I do think just given where our occupancy is going up.
Redevelopments, we are always going to be a core part of our business, we're going to constantly be pruning our portfolio for opportunities to invest capital Accretively and so I don't want to take away from those efforts, but when you talk about a spend rate in our start rate and the $250 million plus range.
Do think as you look forward.
The majority of that will start to come from ground up developments and I think again this year youll see that flip in terms of our starts as we round out the third and fourth quarter here.
Got it.
Our next question comes from Floris Van <unk> with Ladenburg Thalmann. Please proceed with your question.
Hey, Thanks for taking my question.
So Lisa I mean, I've heard you talk about the favorable supply and demand and obviously one of the best operating environments in history or certainly recent history.
Has your thinking changed on what your peak occupancy both leased and physical can be and.
How much more room do you think there is certainly some of your peers have been achieving.
Higher occupancy levels leased occupancy than you guys, which historically you've led the sector has your thinking changed on how much more room, you have to to push occupancy levels higher.
Absolutely and <unk>.
We are continuing to do that and I feel good that I mean, we're already surpassing prior.
Prior peaks Alan has often said records are made to be broken and we continue to break them. So our thinking has changed and we do believe that we can continue to push higher and I do believe that the percent leased is highly correlated with quality of our portfolio as is.
Very well leased but at the same time, you can't look at it in isolation.
Nick just Nick just mentioned it.
Our focus on redevelopment and intense asset management and when you do redevelop often there will be strategic vacancy and so that may cloud the numbers, but theres. No question that we believe that we can we can continue to surpass and hold higher levels of percent leased than we have.
In past history.
There is no ceiling Flores.
And 100% might be.
Yeah.
We are very comfortable and absolutely committed to also taking space offline when it's accretive to do the redevelopment is at least as I had mentioned.
Good question. Thank you Floris.
Our next question comes from Jamie Feldman with Wells Fargo. Please proceed with your question.
Great. Thank you just following up on.
The second part of Coopers question so.
How do you think about the magnitude of potential for more larger scale op unit deals.
It sounds like this one it took years to come together it was pretty unique in terms of the scale and quality.
It'd be helpful for you to frame how other transition transaction like this may be out there and how you balance taking the good with the bad and portfolio transactions.
Yeah.
Let me start Nik and.
You can maybe speak to the specifics of the deal.
It's really Jamie it's really an M&A type of mindset when you come across these opportunities.
Don I don't want to I mean, they don't they don't come around that often nor does large scale M&A and but the mindset is largely the same we're partnering theres a given to get.
We are selling our portfolio they are selling their assets, we are buying their assets, thereby in our portfolio. We have a we bring to that a mindset of what is our value what is our NAV.
We balance that with what is our perception of their value their their cash flows.
And you move from there by the way that those cash flows would include in this particular case the value.
Of the below market debt that they're bringing to the equation as well.
And just to reiterate that's four 2% coupon for 12 years, which has value to it.
And then I think to speak to the point that Nick made earlier regency can be a magnet.
And we are very attractive to us to a seller.
Cause anyone with a downrate can and operating sorry, it can provide a tax protection, but the ability to partner with us and see the value of the combined organization going forward and the growth potential of not only those assets, but the balance of the portfolio.
Think separates regency as we continue to look for for more opportunities.
And I'd just add from the question about the how do we balance portfolio. It's it's what we always say I'll just reiterate it whether its a single asset whether it's a portfolio of five properties or whether it's a company is the transaction accretive to earnings is it or is it neutral or accretive to our future growth.
And is it neutral or accretive to the quality of the portfolio and if it checks those boxes.
We have the ability to execute and then we did successfully.
Just on sorry.
Sorry, just to come back I want to come when it gets the points out there that hopefully are pretty clear to our disclosure.
We're getting a penny to this year's earnings, which again is only a half year's worth of ownership. So you double that and where we're at two two pennies of accretion on a relatively small portfolio with respect to the to the quantum of regency's assets.
It's just again speaks to the quality of this trade I think it was a pretty special transaction very proud to have our new unit holders I know they are proud of the outcome.
That we've accomplished together and we're excited to see these properties group.
Thanks, Jamie.
As a reminder, if you'd like to ask a question. Please press star one on your telephone keypad one moment, please while we poll for questions.
Our next question comes from Paulina Rojas with Green Street Advisors. Please proceed with your question.
Good morning.
I found it interesting that you can treat your exposure to California, where do your top state My ADR.
Do you have any strategic plans to reduce.
Reduce exposure to other U S markets, where should I think about future acquisitions, and really almost like 100% driven by to run with our trade area.
Property key considerations.
Well, let me, let me try to address what I believe I heard.
With regards to really just portfolio diversification and exposure to markets.
We really like the markets in which we operate we really like the diversification national exposure.
We have talked about that there are potentially some markets that we would like to expand into to grow further like our acquisition in Nashville in early earlier this year.
And we will continue to invest incrementally in.
The markets that we like if again, if it checks all of those boxes. If we are able to find compelling opportunities that are accretive to earnings accretive to growth accretive to quality and again.
We are confident and comfortable with our portfolio diversification, we don't have outsized exposure to any.
One MSA.
Yeah.
Thanks Helane.
Our next question comes from Michael Gorman with <unk>. Please proceed with your question.
Yeah. Thanks, good morning understanding it's a smaller component can we maybe just reverse the acquisition discussion and talk about the disposition guidance and.
How do we think about that 75 million and are those assets that are no longer accretive to regency's growth profile or are these assets that have maybe moved out of the quality spectrum, whether it's demographics or geography or tenant base that's in those assets.
How are you thinking about what's in that bucket and.
Using that for our funding source going forward. Thanks.
Yeah I appreciate it Mike.
So the guidance is unchanged.
For the year, we've been forecasting $75 million of sales, we did drop the cap rate this quarter on those to five and a half now that we have some more clarity on the transaction, but frankly, it's largely one asset where we see a lower growth potential than the balance of the regency portfolio and by the way of the cap rate that we're disclosing you can tell we're getting a pretty.
Full value for that so.
Call. It a flattish grocery anchored shopping center that we would be disposing of that we see we just don't see the growth potential there any longer relative to regency.
The other tidbits of the guidance would include smaller pieces of the portfolio that are just non strategic so we picked up some small office buildings in the BP portfolio.
That we are moving to dispose of given that they just don't align with our strategy and to reiterate reiterate what Nick said earlier about being in the position that we do not need to acquire anything to achieve our growth objectives given.
Our exceptional development platform, we also don't need to sell anything, but when we have an opportunity to dispose.
Dispose of something but as Mike said, either non strategic or the growth rate.
Is not on par with what we expect for the whole portfolio and able to invest those funds accretively.
We will capitalize on that opportunity, we believe that it fortifies future NOI growth.
It always have believed that.
Thanks, Michael.
Our next question comes from Ronald Camden with Morgan Stanley. Please proceed with your question.
Hey, This is just a quick follow up just on the acquisition environment.
See you guys had the large deal a couple of your peers talked about activity just historically cap rates have been really tight.
Is this just a one off or is this sort of a notable shift where do you think over the next couple of years.
There will be more sort of opportunities. Thanks.
Hey, Ron Good morning, I. Appreciate the question this is Nick.
Yes look the reality is.
Sellers come out when they see demand picking up and so as I articulated earlier, there is demand for core grocery anchored shopping centers from the investment community and so I do think that is bringing some sellers out there that are testing that market and so as we look at what's on the market right now I would say its up from a year ago.
And we're a little bit in that summer lull right now where people are going to wait until after labor day to call for offers and I do think another group of assets will come out after labor day, and so I.
I do think we are seeing a marginal pickup in velocity, but as we've articulated on this call several times.
We're going to chase the ones that makes sense for us and lean in on those but the good news is we don't have to find those to make a to make our earnings growth that we're projecting.
To be really clear well I always say, we don't need to we like to.
Because and we've been very successful and if you look at our track record for acquiring compelling outstanding shopping centers that check all of those boxes, we have our cost of capital advantage, we have a platform advantage and when we're able to find those opportunities we have been able to exit.
<unk> successfully and I expect that we'll continue to do so.
And then great and just to.
Thanks, so much.
We have reached the end of the question and answer session I'd now like to turn the call back over to Lisa Palmer for closing comments.
Thanks, So much Rob. Thank you all for your interest in Regency and have a great day. Thank you.
This concludes today's conference you may disconnect your lines at this time and we thank you for your participation.