Regency Centers Corporation Q2 FY2025 earnings call

Key Points

• Lisa Palmer highlighted strong operating fundamentals and accretive capital allocation, with phenomenal year-to-date results including strong same property NOI and total NOI growth, successful leasing activity, and $600 million+ capital deployment year-to-date.
• Alan Roth noted same property NOI growth exceeding 7%, driven by robust leasing, record low shop move-outs, favorable bankruptcy outcomes, accelerated rent commencement, and meaningful expense recovery rate improvement. Commenced occupancy rate increased by 40 basis points, and cash rent spreads were 10% with GAAP spreads nearly 20%.
• Nick Wibbenmeyer discussed robust investment activity with over $600 million capital deployment, recent acquisition of a 5-asset portfolio in Southern California, and ongoing success in development and redevelopment with a $500 million in-process pipeline and strong interest from grocers and retailers.
• Mike Mas mentioned raising full-year earnings guidance, with same property NOI growth range 4.5%-5%, NAREIT FFO range increased by $0.06 per share, core operating earnings per share up $0.05, and narrowing credit loss guidance to 75-85 basis points. Also, successful bond offering in May and strong balance sheet position.

In the second quarter, Regency Centers achieved same property NOI growth exceeding 7%, with base rent being the largest contributor at 4.5%. Robust leasing activity, record low shop move-outs, favorable bankruptcy outcomes, accelerated rent commencement timing on key anchor tenants, and meaningful improvement in expense recovery rates contributed to this. The SNO pipeline had $38 million of incremental base rent, with leased and commenced occupancy spread at 260 basis points at quarter end. Cash rent spreads were 10% and GAAP rent spreads nearly 20%. Revenue contribution details were not explicitly broken down into distinct product segments but focused on overall operating performance.

Guidance Points

• Raised same property NOI growth range to 4.5% to 5%, up 115 basis points at the midpoint.
• Increased NAREIT FFO range by $0.06 per share at the midpoint, now representing full year growth of more than 7%.
• Raised core operating earnings per share by $0.05 at the midpoint, representing growth north of 6%.
• Narrowed credit loss guidance to 75 to 85 basis points.
• Substantial derisking of capital raising plan following successful $400 million bond offering in May.

Risks

• Factors that could cause actual results to differ from forward-looking statements, including market uncertainties, tenant bankruptcies, and potential impacts of policy changes on tenants. Also, the element of bankruptcy filings and tenant failures, though Regency performs better than most in such outcomes but it remains a risk.

Q: Samir Khanal asked about the contribution from various components into the second half for same-store NOI cadence.

A: Michael J. Mas responded that base rent is the largest contributor, but there are biases in the second half due to credit loss elements, uncollectible lease income comps, and one-time elements from the annual reconciliation process. However, the first half was strong and momentum is expected to continue.

Q: Michael Goldsmith inquired 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 continued runway on commenced occupancy, redevelopments are positive to same property NOI growth, and Alan Roth added that the team is making progress with the SNO pipeline, with commenced occupancy rate increasing and backfilling the pipeline with signed leases.

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

A: Nicholas Andrew Wibbenmeyer replied that the deal was off-market, and the seller chose Regency due to quality of currency (UPREIT transaction), quality of operations, and future development opportunities. Lisa Palmer added pride in the team's efforts and the company's strategy.

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

A: Nicholas Andrew Wibbenmeyer said there are active conversations with best-in-class grocers, bullish on finding opportunities, and expect to start $250 million+ in development this year with majority in ground-up developments, maintaining 7%+ yield.

Q: Nick Gregory Joseph asked about sustainability of better expense recovery rates.

A: Michael J. Mas stated the recovery rate will decelerate as it had a one-time element from the annual reconciliation process, but average in-place occupancy driving higher recoveries is expected to change by over 100 basis points in 2025.

Q: Todd Michael Thomas asked about SoCal acquisition's future developments and growth upside.

A: Nicholas Andrew Wibbenmeyer said there's upside in rents, small redevelopment opportunities, no ability to acquire more in the master planned community but potential for future development, and growth rate expected north of 3%.

Q: Haendel Emmanuel St. Juste asked about settling $100 million forwards and acquisition appetite.

A: Michael J. Mas said the capital is fungible for development pipeline and accretive acquisitions, with potential for DownREIT transactions and joint ventures.

Q: Cooper R. Clark asked about portfolio style deals and cap rates.

A: Nicholas Andrew Wibbenmeyer said there's demand for grocery-anchored assets, cap rates in low 5s to low 6s, and Regency is competitive, ready to move on accretive opportunities like the SoCal acquisition.

Q: Juan Carlos Sanabria 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 evaluating levers to address tariffs if needed. Lisa Palmer added confidence in the high-quality portfolio and resilient consumer.

Q: Richard Allen Hightower asked about tightening credit loss assumption and troubled tenants for 2026.

A: Michael J. Mas said credit loss outlook improved due to clarity on bankruptcy outcomes, tenants are healthy with low ARs, and while there will be bankruptcy filings, Regency retains tenancies well and re-leases quickly at higher rents.

Q: Wesley Keith Golladay asked about earlier commencements of tenants.

A: Alan Todd Roth said it was due to accelerating openings with partners, aligning interests to get tenants open sooner for mutual benefit.

Q: Ki Bin Kim asked about renewal spread including options and occupancy cost elasticity.

A: Alan Todd Roth said renewal spread includes options and negotiated rates are higher excluding options; Lisa Palmer added that limited supply and win-win with tenants allow pushing occupancy costs as tenants are resilient and find ways to afford higher costs.

Q: Michael William Mueller asked about development mix and redev pipeline depth.

A: Nicholas Andrew Wibbenmeyer said majority of starts expected to be in ground-up development this year, with redevelopments always a core part of the business and pruning portfolio for accretive investments.

Q: Floris Gerbrand Hendrik Van Dijkum asked about peak occupancy and room to push higher.

A: Lisa Palmer said thinking has changed to continue pushing higher, with percent lease correlated to portfolio quality and ability to surpass prior peaks; Alan Roth added there's no ceiling and commitment to redevelopments when accretive.

Q: James Colin Feldman asked about large-scale OP unit deals and balancing portfolio transactions.

A: Michael J. Mas said it's an M&A mindset, balancing value and cash flows, with the transaction being accretive to earnings and growth; Lisa Palmer added transaction is accretive to earnings, growth, and portfolio quality if it checks those boxes.

Q: Paulina Alejandra Rojas-Schmidt asked about strategic plans for U.S. markets.

A: Lisa Palmer said they like current markets, diversify, and will invest incrementally in markets that are accretive to earnings, growth, and quality, with no outsized exposure to one MSA.

Q: Michael Patrick Gorman asked about disposition guidance and asset quality.

A: Michael J. Mas said $75 million disposition guidance, including a flattish grocery-anchored center with lower growth potential and nonstrategic assets; Lisa Palmer added they don't need to sell but capitalize on accretive opportunities to fortify NOI growth.

Q: Ronald Kamdem asked about acquisition environment and cap rates.

A: Nicholas Andrew Wibbenmeyer said sellers come out with demand, some pickup in activity, and Regency will chase accretive opportunities, not needing acquisitions for growth but liking to execute on compelling ones.