The operator introduces the Regency Centers Corporation Third Quarter 2023 Earnings Call and Webcast, and Christy McElroy, Senior Vice President, Capital Markets, takes over. Lisa Palmer, President and CEO, along with other executives, are present. The discussion may contain forward-looking statements and non-GAAP financial measures, and caution is advised when interpreting them. A presentation with additional information is available on the Investor Relations website. Lisa thanks Christy and greets the audience.

The company had another strong quarter with positive momentum in their business, supported by healthy tenant demand and rent growth. They have also made progress in their development program and successfully closed a merger with Urstadt Biddle. Despite a thin transaction market, they were able to acquire 2 shopping centers with high total return potential. The macroeconomic environment continues to show positive trends, with solid sales performance for tenants and high consumer spending power in their trade areas. There has not been a significant deceleration in these trends.

The company is encouraged by the current supply and demand trends in the retail industry, with tenants investing in brick-and-mortar stores and suburban trade areas thriving. However, increased interest rates and borrowing costs may have an impact on future earnings. Despite this uncertainty, the company remains well positioned due to intentional portfolio composition and a strong balance sheet. They have the flexibility to make capital allocation decisions and continue to play offense, as evidenced by maintaining and raising their dividend.

The retail environment remains strong and there is high demand for space in our centers. Despite some impact from bankruptcies, our lease rates have increased and we have had record shop leasing activity. Our re-leasing spreads and straight-line rent spreads have also been positive. This leasing progress has contributed to a 3% growth in same-property base rent and we have a full pipeline of executed deals and negotiation activity. Tenant demand is strong across all regions and categories, with one of our former Bed Bath locations experiencing a rapid absorption rate.

The company has had success in backfilling rejected leases and expects rent spreads above 30%. They have a small exposure to the recent Rite Aid bankruptcy and are confident in the quality of their locations. The integration process with Urstadt Biddle has been successful. There has been $210 million in development and redevelopment activity, including a $15 million project at Circle Marina Center in Southern California.

In 2019, the company acquired a center with plans to redevelop it, including replacing the existing Staples with a new Sprouts Farmers Market and making extensive site improvements. The company has seen strong leasing momentum and has acquired two new properties with high potential returns. They also plan to start over $1 billion in development and redevelopment projects in the next 5 years.

In the third quarter, demand for high-quality retail centers has been strong, leading to growth opportunities for developers like the company. The company has a strong development team and is able to self-fund its growth without raising equity. They are sourcing projects through redevelopment and partnerships and are mindful of the current cost of capital. The company is excited about their investments and the opportunities ahead. In the third quarter, the company reported NAREIT FFO of $1.02 per share and core operating earnings of $0.97 per share, with $0.01 of EDP merger transition expenses. Changes to guidance for the rest of the year will be discussed, along with comments on 2024 and the company's balance sheet position.

In the third quarter, same-property NOI grew by 2.9%, driven mainly by base rent increases and successful leasing efforts. The company has revised its current year guidance, expecting to finish with a 3.5% growth in same-property NOI. They have also raised their per share core operating earnings guidance, but only slightly increased their NAREIT FFO per share range due to merger transition costs. The company has also provided forward-looking considerations for nonrecurring items and details on the Urstadt Biddle merger accretion and transition expenses. They encourage investors to review this information as there are many factors to consider for next year, including potential refinancing plans in a higher interest rate environment.

Regency has plans to refinance debt and strengthen their balance sheet through an unsecured bond offering. They are proud of their strong balance sheet and low leverage, which helps mitigate the impact of higher rates. They will generate significant free cash flow and have access to liquidity. The Urstadt Biddle transaction will have a positive impact on both FFO and core operating earnings next year. Page 8 of the supplement provides more details on their guidance for next year.

The speaker agrees with the questioner's assessment of the positive contribution of the merger, which will result in a 1.5% increase in core perspective. They also mention the estimated costs of merger transition and confirm that there will be no impact in 2024 from noncash accounting. The speaker also takes the opportunity to reiterate their excitement about the merger and the successful integration so far. The questioner also asks about lease escalators and the speaker confirms that they are getting 3% or more in an elevated escalator environment, with the most exposure to small shops.

The company is focused on increasing earnings growth by cycling through older leases and implementing higher escalators. They recently acquired Old Town Square, an asset they had been targeting for a long time due to its high-quality grocer and strong performance. The previous owner was looking to liquidate the asset.

The company gained control of a property and a partner took an 80% stake in it. They are looking for investment opportunities in major markets, and they have a pipeline of $36 million, with $1.5 million coming from Bed Bath. 80% of the pipeline will come online by the end of next year. Lizzy Doykan asks about the cap rate for the Chicago asset and the pricing for Nohl Plaza.

The company recently gained control of a property and a partner took an 80% stake in it. They are actively seeking investment opportunities in major markets and have a pipeline of $36 million, with a portion coming from Bed Bath. Lizzy Doykan asks about the cap rate for a recent acquisition in Chicago and the pricing for another property, Nohl Plaza.

The speaker, Lisa Palmer, responds to a question about the Chicago and Nohl Plaza deals. She explains that the Chicago deal was a unique opportunity and that the company's excess cash flow allows them to be opportunistic. Nick Wibbenmeyer then discusses the backstory of the Nohl Plaza deal, stating that it was owned by a tick for decades and requires reinvestment. Despite the lower initial cap rate, the company expects a higher IRR due to planned redevelopment.

The company is excited to use its redevelopment expertise to improve and add a valuable asset to its portfolio for the long term. The composition of new leases signed for small shops has trended down quarter-to-quarter, but this is not indicative of any market noise and is more a result of a higher number of anchor transactions. The company is confident in its ability to push small shop lease rates even further, as the demand for physical retail space remains strong due to post-pandemic trends.

The operator asks a question about the impact of the merger on occupancy rates in the next 6-12 months. Michael Mas responds by saying that the merger is a leasing exercise and they expect to close the 200 basis points gap in lease rates between the two portfolios. He also mentions that they have seen a good start in integration efforts and Alan Roth adds that their main goal is a deliberate approach to leasing.

The company is considering future redevelopment opportunities and has already executed a Dunkin ground lease and replaced vacant spaces with new tenants. The team is focused on shop leasing and bringing in new operators. The integration of new people and the development platform will likely pay off in the long term. The company acknowledges its increased cost of capital, but believes its free cash flow and strong development track record will continue to create value.

Nick and Lisa both reiterated the company's strategy to invest in shopping centers that will be beneficial to their growth and earnings. They plan to continue being opportunistic and taking advantage of their competitive advantage. In response to a question about development, Nick mentioned that the company is focused on derisking their pipeline and finalizing leases and costs before moving forward with projects. Some deals are in the final stages of entitlements.

The company is excited about the opportunities in their pipeline and will continue to use all of their tools to their advantage. The speaker also addresses the question about bad debt and interest costs for 2024, stating that their outlook for the current year has not changed and they will provide more information in their full guidance package in February. The company expects to do better than their historical run rate of 50 basis points for bad debt in 2023.

The company's historical run rate is lower than average, but is expected to return to normal levels in the second half of the year. The company plans to refinance a bond and mortgages next year, and they feel confident in their ability to efficiently execute in the capital markets. A question is raised about the potential for rent increases on anchor properties.

The speaker, Alan Roth, is answering a question about the progress of conversations with anchors. He says that they have over 50 anchor leases expiring in the next 3 years and they are focused on getting market rent and upgrading tenants. Demand for anchors is strong due to a lack of supply, and they have already signed deals with retailers like REI and Restoration Hardware Outlet. The speaker also mentions that they have been able to achieve rent increases of over 30% on deals, showing that the industry is ready to pay higher market rents. When asked about the CapEx involved, the speaker says that it has stayed neutral in relation to shop leasing.

The speaker discusses the company's approach to investing in real estate assets, emphasizing the importance of achieving a strong return on investment and considering factors such as cost of capital and risk. They mention a recent redevelopment project that was deemed accretive and profitable for the company.

Craig Mailman asks Lisa Palmer about the company's threshold for unlevered returns and their confidence in retailers' expansion plans. Lisa Palmer responds by saying that they look for deals that exceed their cost of capital and have not seen a slowdown in demand. She also notes that they focus on high-quality real estate and are confident in their ability to capture new stores and expansion plans. Alan Roth adds that they have a proactive and intentional approach to managing their assets and consider factors such as operating experience and creditworthiness when signing leases.

The speaker believes that their business strategy is effective in both good and bad times. They mention several retailers they work with, such as TJX, Burlington, and Five Below, who are performing well. They also mention franchise concepts like Sam Hound and Stretch Zones, who are seeing success with strong operators. The speaker believes that these retailers are making the right decisions and that their team is also making the right decisions in partnering with them. They have not seen any negative trends from their consumers, and believe that their sector is more resistant to economic downturns. They acknowledge that some grocers have experienced weaker sales, but overall the sector is doing well.

The company's growth has slowed from 8% to 3%, but they are still performing well due to the type of properties they operate in. They are monitoring the market for opportunities to raise bonds at a good rate. Their retention rates are slightly above average, around 80%.

During the Q&A portion of the earnings call, Linda Tsai asked about the impact of purchase accounting on noncash revenues and expenses in the next few years. Michael Mas responded that these impacts will balance each other out in 2025, but the debt mark will burn off before the leases do. The next question, asked by Mike Mueller, was about the leasing of smaller centers in the portfolio. Alan Roth answered that the integration process has been successful and there have been no challenges or successes based on the asset. The commenced shop rate for these smaller centers was 89.5% at the end of the quarter. The next question, from Paulina Rojas, was not included in the summary.

Lisa Palmer, CEO of Regency Centers, discusses the company's exposure to Ride Aid and the overall pharmacy industry. She mentions that the company has seen a shift in the industry, with drug stores moving out of line and onto outparcels. This has allowed Regency to replace them with better tenants and higher rents. She also notes that the company's high-quality real estate allows them to easily re-lease spaces left by closed stores. Alan Roth, COO, adds that the company is aware of two locations that are closing, but they have a strategy in place to replace them with strong tenants.

The speaker discusses the team's proactive approach to filling vacant spaces in their real estate portfolio and mentions a recent lease with a hardware store at a significantly higher rent. They also mention potential tenants such as home improvement, cosmetics, and grocers, and the various options for utilizing the space. The speaker also mentions the current state of the transaction market and how it has not changed much since last quarter, with a disconnect between public and private market pricing.

The speaker discusses the continued volatility in interest rates and borrowing costs and their impact on finding successful investments. They express pride in their ability to find good investments in this environment and state that the dynamic has not changed. The speaker then thanks the participants and concludes the call.

This summary was generated with AI and may contain some inaccuracies.