Regency Centers Corporation Q2 FY2025 earnings call

• Operating side: Phenomenal year with strong same property NOI and total NOI growth, successful rent commencements in SNO pipeline, low shop move-outs, robust leasing with rent growth. - Investments: Deployed over $600 million year-to-date, acquired five shopping centers in South Orange County, CA, which is accretive to earnings and growth. - Corporate responsibility: Released annual Corporate Responsibility Report highlighting progress and strategic direction. - Guidance revision: Raised full year growth outlook for same property NOI, core operating earnings, and Nareit FFO. - Balance sheet: Strong balance sheet with low leverage, A credit rating, $1.5 billion credit facility nearly fully available, and successful bond offering in May.

In the second quarter, Regency Centers achieved strong operating results. Same property NOI growth exceeded 7%, with base rent being the largest contributor at 4.5%. They had great success commencing rents for tenants in the SNO pipeline, recorded record low shop move-outs, and sustained robust leasing activity with strong rent growth. The investments team deployed over $600 million of capital year-to-date, including the acquisition of five shopping centers in South Orange County, California. The same property NOI growth was driven by factors like higher average commenced occupancy from strong lease commencement activity and improved expense recovery rates. The SNO pipeline had a leased and commenced occupancy spread of 260 basis points at quarter end, representing $38 million of incremental base rent. Cash rent spreads were 10% and GAAP rent spreads nearly 20%.

• Raised same property NOI growth range to 4.5% to 5%, up 115 basis points at the midpoint. - Raised NAREIT FFO range by $0.06 per share at the midpoint, now over 7% growth. - Raised core operating earnings per share by $0.05 at the midpoint, over 6% growth. - Narrowed credit loss guidance to 75 to 85 basis points. - Accretive investment activity from recent acquisitions, like the RMV portfolio acquisition, contributing to earnings. - Leverage comfortably within target range of 5 to 5.5x even with portfolio acquisition funded on leverage-neutral basis.

• Expense recovery rates will decelerate from the second quarter's level as the one-time annual reconciliation process impact fades. - Credit losses from bankruptcies, although guidance has been narrowed, there will still be tenant failures and the need for active asset management to re-lease spaces.

Q: Samir Khanal with Bank of America asked about the contribution of various components to same-store NOI cadence in the second half.

A: Michael J. Mas said base rent is the largest contributor, but credit loss elements, uncollectible lease income, and prior year recognition from the annual reconciliation process impact the growth rate trajectory. The first half was strong, and they look to continue momentum.

Q: Michael Goldsmith with UBS asked about the shift away from occupancy into other components of same property NOI growth algorithm and contractual rent steps.

A: Michael J. Mas said there's runway on commenced occupancy, redevelopments have been and will continue to be positive to same property NOI growth. Alan Todd Roth added the SNO pipeline is compressing positively with percent commenced going up. Alan also spoke to the strong contractual rent steps in leases.

Q: Viktor Fediv with Scotiabank asked about competing for the SoCal acquisition and competitive edge.

A: Nicholas Andrew Wibbenmeyer said the deal was off-market, and the seller chose Regency due to quality of currency (UPREIT transaction for tax optionality), quality of operations, and future development opportunities. Lisa Palmer added pride in the team's work to make the transaction happen.

Q: Stephen Thomas Sakwa with Evercore ISI asked about development opportunities and discussions with national retailers.

A: Nicholas Andrew Wibbenmeyer said there's active dialogue with best-in-class grocers about partnering for new developments, expect to start $250 million or more this year with majority in ground-up developments, and expect to maintain 7% plus yields.

Q: Nick with Craig Mailman asked about sustainability of better expense recovery rates.

A: Michael J. Mas said expense recovery rates will decelerate as the one-time annual reconciliation process impact fades, but average in-place occupancy increase is driving the fundamental increase in expense recoveries.

Q: Todd Michael Thomas with KeyBanc Capital Markets asked about future growth in the SoCal portfolio and participation in future developments.

A: Nicholas Andrew Wibbenmeyer said there's upside in rents and small redevelopment opportunities in the portfolio, expecting growth north of 3%. No ability to acquire more in the master planned community currently, but there are future development discussions for retail.

Q: Haendel Emmanuel St. Juste with Mizuho Securities asked about plans for settling $100 million forwards and acquisition appetite.

A: Michael J. Mas said the capital will be used for development, accretive acquisitions, and rolling up smaller joint ventures. They are bullish on acquisition opportunities when they make sense.

Q: Nick with Craig Mailman asked about sustainability of better expense recovery rates.

A: Michael J. Mas said expense recovery rates will decelerate from the second quarter's level as the one-time annual reconciliation process impact fades. - Q: Juan Carlos Sanabria with BMO Capital Markets asked about tenant health on small shop side and tariffs.

A: Alan Todd Roth said tenant health is strong with positive foot traffic, low ARs, and strong sales. Tenants are agile and evaluate levers to handle tariffs. - Q: Wesley Keith Golladay with Baird asked about earlier commencements of tenants.

A: Alan Todd Roth said it was due to accelerating openings of a couple of anchor tenants through efficient partnership. - Q: Ki Bin Kim with Truist Securities asked about renewal spread including options and elasticity of occupancy costs.

A: Alan Todd Roth said renewal spread includes options, and negotiated renewal rates are higher excluding options. Lisa Palmer said limited supply and win-win with tenants who invest in their business to afford higher occupancy costs. - Q: Michael William Mueller with JPMorgan asked about development mix and redev pipeline elasticity.

A: Nicholas Andrew Wibbenmeyer said majority of starts expected to be in ground-up developments, and redevelopments are a core part of the business with elasticity due to limited supply. - Q: Paulina Alejandra Rojas-Schmidt with Green Street Advisors asked about strategic plans for market exposure.

A: Lisa Palmer said they like the markets they operate in, invest incrementally in markets that check boxes of accretive earnings, growth, and quality. - Q: Michael Patrick Gorman with BTIG asked about disposition guidance and asset quality.

A: Michael J. Mas said $75 million in dispositions, including a flattish grocery-anchored shopping center with lower growth potential relative to the portfolio. Lisa Palmer added they capitalize on opportunities that are nonstrategic or not on par with portfolio growth. - Q: Ronald Kamdem with Morgan Stanley asked about acquisition environment and cap rates.

A: Nicholas Andrew Wibbenmeyer said there's more activity with demand for core grocery-anchored shopping centers, and expects more opportunities after Labor Day. Lisa Palmer added they look for accretive transactions that check boxes of earnings, growth, and quality.