Regency Centers Corporation (REG) Earnings Call Transcript & Summary

Greetings, and welcome to the Regency Centers Corporation Second Quarter 2026 Earnings Call. [Operator Instructions] Please note, this conference is being recorded. I will now turn the conference over to your host, Christy McElroy. Please go ahead.

Good morning, and welcome to Regency Centers' Second Quarter 2026 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. 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 the current beliefs and expectations of management and are subject to various risks and uncertainties. It is possible that actual results may differ materially from those suggested by these forward-looking statements we may make. 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. 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 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. Our caution 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 one. Please rejoin the queue if you have additional follow-up questions. Lisa?

Thank you, Christy. Good morning, everyone, and thank you for joining us. Our team delivered another excellent quarter, extending the positive momentum we've built over the past several years. We generated strong NOI and earnings growth driven by sustained operating fundamentals and a disciplined capital allocation strategy. These results reflect the quality of our portfolio, the strength of our platform and most importantly, the remarkable execution of our team. Across our portfolio, leasing demand trends remain robust, supported by the strength of our tenant base and their continued expansion plans. Our grocery-anchored neighborhood and community centers continue to benefit from a durable tenant mix of necessity, service, convenience and value retailers. While the resilience of our consumer base is supported by the compelling demographic profile of the suburban trade areas we serve. We believe this positions us well to perform consistently through shorter-term periods of macro uncertainty as well as longer term across all economic cycles. We also continue to execute on our capital allocation strategy with momentum across our entire investments platform, including development, redevelopment and acquisitions. Our national ground-up development program is one of Regency's most important differentiators in an environment of continued low new supply and a scarcity of high-quality available space, our ability to source execute and deliver successful projects across our target markets is not only a driver of meaningful NOI growth, it also creates value in ways that no one else in our sector is replicating. Rather than relying solely on acquiring centers at market prices to drive external growth, we are building premier shopping centers and yields that represent substantial spreads to market cap rates. This platform and our ability to consistently drive value above our cost to build allows us to generate earnings accretion while also growing NAV. Mike will go into more detail, but our favorable year-to-date performance and enhanced visibility into the second half of the year gives us the confidence to raise our full year forecast for same property and total NOI growth and we now expect core operating earnings per share growth to exceed 5%. Before I close, I'd also like to briefly mention our recently released corporate responsibility report, which highlights meaningful progress across our priorities. Corporate responsibility has long been a foundational strategy for our company. Its principles are deeply ingrained in our culture and day-to-day operations and the initiatives continue to generate real cost savings and ancillary revenue growth. In summary, I'm energized by our business today and the opportunities ahead. Our high-quality portfolio located in the strongest suburban trade areas, our leading national development platform, our fortress balance sheet, and most importantly, again, the best team in the business all set us apart. I'm confident in our ability to deliver durable, sustainable growth and long-term value for our shareholders. Alan?

Thank you, Lisa, and good morning, everyone. We delivered another outstanding operating order, driving overall leased and shop occupancy to new highs, while maintaining robust rent growth, reflective of the fundamental strength across our portfolio. These positive results collectively contributed to same-property NOI growth of 3.8% in the quarter with base rent reserving as the primary driver. Our same-property lease rate is now nearly 97% and as we are pushing both anchor and shop leasing higher, supported by continued strong tenant demand and a retention rate of 84%. This is a direct reflection of the favorable leasing environment coupled with limited availability of high-quality space. Commenced occupancy was also up 20 basis points in the quarter as we continue to successfully convert our SNO pipeline into rent-paying tenants. Our pipeline of newly executed leases provides us with visibility of further upside in commenced occupancy, which will remain an important component of future same-property NOI growth. Leasing is active and broad-based across nearly every category and region in which we operate. Grocers, health and wellness concepts restaurants, personal services and value-oriented retailers continue to expand. At the same time, quality space is in short supply, both within our portfolio and throughout our markets. providing our teams significant leverage in lease negotiations, and they are doing an excellent job capturing that opportunity. This is translating into strong rent growth with cash rent spreads above 10% in the quarter, and GAAP spreads of nearly 20%. We also continue to successfully embed annual rent escalators into nearly all of our newly executed leases, one of the primary drivers of sustainable base rent growth well into the future. This fundamental backdrop is also supporting our ability to boost expense recoveries. We are seeing our recovery rate benefit significantly from higher commenced occupancy as well as improved lease terms. We saw the power of this in the second quarter as we completed our expense reconciliations for the prior year, with market conditions and the quality of our leases driving success. Building on some of Lisa's comments, our centers benefit from both trade up and trade down behavior, sitting at the intersection of convenience, offering value and everyday essentials. Tenant sales growth is widespread throughout the portfolio. Foot traffic is showing steady increases and accounts receivables remain below historical averages, confirming a very healthy tenant base. Our team remains focused on catalyzing on strong tenant demand and favorable supply dynamics, creating opportunities to drive NOI higher, while further strengthening the merchandising quality in our portfolio. That combination of strong fundamentals and disciplined execution gives us confidence in our ability to continue driving NOI growth. With that, I'll hand it over to Nick.

Thank you, Alan, and good morning, everyone. During the second quarter, we continued to build on the success of our investments platform, further extending our external growth trajectory. We made meaningful progress across development, redevelopment and acquisition activity in addition to identifying future opportunities. Our new project pipelines remained particularly strong, providing a clear path to future growth. As a result, we've raised our eye level on new development and redevelopment projects and now expect starts in 2026 to approach $400 million. This truly is a unique story to Regency. We have a visible external growth pipeline that results in real value creation on top of earnings accretion. It also allows us to approach acquisitions as opportunistic and strategic rather than as a required deployment of capital. This is especially valuable in environments like today with transaction markets that are extremely competitive and continue to compress cap rates. Year-to-date, we've started more than $140 million of new projects. One of the highlights of which was the start of the Berkeley at Durbin Park during the second quarter. This $55 million ground-up project will be anchored by Whole Foods and T.J. Maxx located within a vibrant master plan community and a strong suburb of Jacksonville. We're also making great progress executing on our $680 million in-process pipeline, for which we continue to expect blended returns of 9%. Leasing momentum for these projects has been outstanding with in-process development nearly 80% leased. Beyond accelerated leasing, our team continues to partner with anchors to efficiently get stores open ahead of schedule and accelerate rent commencements. This includes the recent early openings of Trader Joe's at Golden Hills in Central California and Kroger at Westchester Plaza in Cincinnati. These are just a few great examples of the success and positive trends across our pipeline. In closing, our ability to increasingly source new and exciting projects is a testament to the flywheel effect I've referred to in the past. We are excited about the opportunities in front of us as our recent successes, retailer relationships, development expertise and access to capital allow us to continue to be confident in our ability to drive sustainable and attractive external growth, creating significant value for our shareholders. Mike?

Thank you, Nick, and good morning, everyone. As you've heard from the team, Regency delivered impressive financial results in the second quarter, supported by execution across our operating and investment platforms. We now have enhanced visibility into the second half of the year. And as you heard from Nick, we continue to grow our investment opportunity set and in-process development pipeline. All of this speaks to the power and durability of Regency's growth algorithm. . We combined the strong, stable organic performance of our high-quality portfolio with accelerating contribution from accretive capital allocation, focused on successful development and redevelopment projects and operating property acquisitions. As a result, we are raising our full year outlook. We've increased same property NOI growth by 40 basis points at the midpoint, primarily due to higher commenced occupancy expectations supported by greater clarity around tenant activity in the second half in addition to higher expense recoveries following the completion of our annual reconciliation process. Our revised outlook now reflects total NOI growth in the mid-6% area as well as core operating earnings per share growth exceeding 5%. I also want to highlight a few atypical items within NAREIT FFO, which are largely offsetting each other within our guidance ranges. These include a singular lease termination fee that will contribute to a higher level of term fees in the third quarter as well as a reduction to our noncash revenue outlook, largely related to lower below-market rent amortization and higher straight-line rent reserves. Our A-rated balance sheet remains a competitive advantage with leverage comfortably within our target range of 5 to 5.5x, along with strong and growing free cash flow and nearly full availability on our $1.5 billion revolving credit facility. This flexible financial and liquidity position provides us with attractive access to low-cost capital and supports our ability to fully fund our investment pipeline and pursue additional growth opportunities. Stepping back, everything that drives value for Regency is working in concert. Strong leasing fundamentals, consistent embedded rent growth and unmatched development-led external growth strategy, a healthy balance sheet and disciplined value-creating capital allocation position us for durable and attractive growth ahead. With that, we welcome your questions.

[Operator Instructions] And our first question will come from Michael Goldsmith with UBS.

Can you provide a little bit more clarity on the term fees. It looks like you're now expecting a larger one in the back half. So can you provide some more details around that -- how is that impacting your revised outlook? And then is that included or excluded from your same-property NOI guidance.

Michael, it's Alan Roth. I'll let Mike answer the guidance side of it. Let me just start with one of our major EV operators decided that they were not going to open 11 of our locations as part of a package deal. Great operator financially sound. They're going to continue to operate about 15 units within our portfolio. And importantly, we are collecting rent through the end of this year. We got a termination fee of 4 years of rent out of that, and we are already engaged on 8 of those 11 locations for a backfill. So it was overall an exceptional transaction in terms of what's impacting the numbers. Guidance I'll let.

Sure. Michael, it's a good opportunity to highlight the excellent disclosure on the reconciliation. If you look at Page 6, our of our slides, where you can see lease termination fees is not part of Regency's same-property NOI metric. So that healthy $0.015 guide raise in the same property NOI line is excluding the positive deal that Alan just described. So the $0.015 is incorporated into our core operating earnings raise and FFO raise for the quarter. But what I would like to highlight is that the raise in same property growth of 40 basis points at the midpoint, raising both the low and high end is really the material driver to our enhanced outlook. Great leasing activity enhanced visibility into average commenced occupancy going north from this point forward. And we had a great recovery season in the second quarter, and we think that, that expense recovery ratio will hold for the balance of the year.

Our next question will come from Jamie Feldman with Wells Fargo. .

So you walked through a wide range of capital options to fund new investment you're comfortably in your target range for leverage. Can you just talk about how you do think about the different sources of capital, including OP units as we've seen some of your peers start to use a little bit more and especially as you find larger deals or if you want to find larger deals, how you think about the mix of capital sources? .

You, Jamie. So everything here starts with free cash flow. And we were very consistent with how we think about sources and uses. Free cash flows in the area of $180 million, $190 million this year. We will leverage that neutral to our balance sheet. I appreciate you noting where we are. We are at the lower end of our targeted range, 5 to 5.5x. So we have some capacity there. And that levered free cash flow is the fundamental source for -- and driving our development business. So we can go confidently into that business and make commitments and deliver upon those commitments. We do have excess levered free cash flow that we can deploy into acquisitions, -- and to the extent we find bigger transactions beyond that or to the extent we grow our development platform, we will consider other sources of capital. We are very fortunate to have access to all types -- that could be JV capital, which we've deployed, and you can see in our results, that can be more debt capital. Again, I said we're at the low end of our leverage range, and that could be equity and we've raised equity in the past, and we will raise equity wisely going forward. Rest assured, what you'll see us acquire will be accretive to consistent growth, accretive to consistent quality and most importantly, accretive to our -- whatever source of capital we deploy at that point in time.

Our next question will come from Andrew Reale with Bank of America.

I guess just to go back to the FFO reconciliation. You moved a small number of leases to cash basis in the first half. Just any color on what type of tenants those were -- and maybe if you're anticipating any more cash basis conversions in the back half?

Sure. Thanks, Andrew. Yes, so the noncash line item, we did revise down this quarter, and there's really a couple of things going on there. As you mentioned, we -- this is a normal part of the business. Tenants will move from accrual accounting to cash accounting. As we know, what happens when that occurs is that whatever straight-line rent you've accrued to that point in time gets reversed, and that is what is occurring in this quarter. To highlight that, there is one lease in particular. -- that had an outsized impact on that outcome this quarter, and that's what we're -- that's really what's kind of driving our revised outlook for the year. By the way, just as an aside, at least to convert to cash is is current on their cash payments. So we're not losing any cash flow in our core operating earnings guidance. The second element that's going on in the noncash line item is accelerated below market rent. So pardon me for getting technical. But the good news of retaining more tenants that were on our watch list that we had provisioned for them departing or moving out is not occurring. What that also means is the below market rent that you would have accelerated the income is also not occurring. So that is revised out of our noncash outlook this quarter. What does that really mean when you zoom out, Cash earnings are growing at Regency. We are retaining more tenants, average commenced occupancy continues to increase. That is also translating and amplifying through recovery income, and that is what's driving our core operating earnings guide increase of $0.03 at the midpoint. All of those indications are very positive for our outlook, the noncash items are NFFO. And unfortunately, they have moved in the wrong direction on us. But those, again, are not impacting our net free cash flow number I mentioned earlier.

Moving next to Ronald Kamdem with Morgan Stanley.

Staying on the presentation, the 94.5% sort of commenced occupancy, I think we've talked about sort of further upside from here. Just can you just tell us in terms of how high you think occupancy can go specifically in line occupancy and how you guys are sort of incentivizing the team to sort of keep driving that higher?

Ron, it's Alan. I appreciate the question. I've had the luxury of saying records are meant to be broken for many quarters. So I've stopped saying that and really not guiding to any how far that runway can go. Our teams are focused on great operators on quality merchandising and they're going to continue to keep that pedal down. When I look back at the last quarter of deals that were completed, there's a number of just great users out there that the power of the platform has come into fruition. -- sour doing company. We signed 4 deals with them. in Oregon, Colorado, Georgia, sort of around the country where our teams are banding together on a great use there [indiscernible], a couple of deals in North Carolina and California. That great concept that I say is new, maybe it's not that new, as pop-up bagels, again, multiple deals with them. And then if you transition into like the fitness sector, you've got solid core who's been a strong staple for us and Pilates addiction owned by the Sequel brands. There's just some great retailers that the teams are executing on multiple deals around the country, leveraging the platform. So they're going to continue to press forward on great users without any expectation of where ultimately it can go. From a commenced occupancy to answer that question, we're at roughly 240 basis point SNO spread today. And if you just look back at that sort of stabilized number, it's 180 basis points-ish. So that gives a little bit of context in terms of where we think that can go in terms of future runway, which we certainly have.

And Greg McGinnis with Scotiabank.

I was hoping you could give us some -- maybe a little bit of color on the acquisition environment, the availability of shopping centers that kind of fit your underwriting criteria cap rate trends and then your use of JVs to acquire those. Is there a dry capital in these structures or mandates to spend where we could see you continue to invest there? .

Greg, this is Nick. We'll start first with just what we're seeing in the market. The market's very active in the transactions world, and we continue to see, especially private capital allocate towards [indiscernible] shopping centers for the same reason we're attracted to them. And so as I said in my opening remarks, that is continuing to quarter-over-quarter compressed cap rates. And so I believe when we talked about this last quarter, I was talking mid-5s plus or minus, and we're now seeing some things trade starting with a 4 and so very aggressive capital from a core acquisition standpoint. The blessing that we have given our business plan, as Mike already talked about, is First and foremost, we're focused on growing our development and redevelopment platform given the yields you can see that we're accomplishing there and feel really confident in our visibility to continue and execute the in process one and continuing to grow that pipeline. But then as Mike also said, we do have excess capital, as you alluded to, one part of that is our JV capital. And so very proud of our long-term partnership with State of Oregon. They have re-ups, so to speak, that capital commitment. And so there is quite a bit of availability still within that partnership. And we still have capacity on our balance sheet, as Mike talked to. And so -- as you can see this quarter, we're still active in the transaction market, but we're going to be picky. We're going to make sure that they check all the boxes Mike spoke about earlier, which is we can fund them accretively, whether that's on balance sheet or with our partnerships and make sure that we like the quality of the asset from quality of the trade area, the quality of the tenants and importantly, the quality of the future growth. And so when we see those opportunities, and again, we're very active in that world. We're just very particular to only found on those that check that box, and we're doing that very, very effectively.

And could you just touch on the difference in kind of acquisition cap rate .

Sorry, requeue for a second question. . And moving on to Todd Thomas with KeyBanc Capital Markets.

I wanted to ask about the Kroger Ahold Delhaize merger. I was wondering, first, can you just discuss whether there's any geographic overlap across the banners there and if any, potential formats, I guess, could be at risk longer term? And then second, a combination there would create a new top tenant for the company, almost 150 basis points more rent exposure than public. Just any considerations around that larger concentration. And whether that creates any asset management sort of needs or opportunities?

Todd, it's Lisa. I think that you might be confusing giant of Ahold, the Giant Eagle, -- the merger is actually Kroger, which enable -- and I'll let Alan touch on that. .

Yes.Todd, Giant Eagle is Pittsburgh based, and that is the announcement with Kroger, of which we don't own any Giant Eagles in our portfolio. And when you think about the 500 assets, the only overlap for us from a market perspective would be Columbus, Ohio. And again, so it's super de minimis. I think there's maybe 3 Kroger centers that have sort of some trade area overlap there. But you're not the first. There's a lot of people that see giant and assume the giant that's in Maryland, which is the Ahold as you mentioned, versus the Giant Eagle out of Pittsburgh. So again, I don't think it's not much of a material thing for Regency.

We'll go next to Michael Griffin with Evercore ISI. .

Great. Maybe sticking on that vein of grocers. One of your larger tenants had some cautious commentary in their recent earnings report around consumer sentiment and I think it's maybe the lower end consumer is getting squeezed. Maybe that's not applicable within your footprint in Regency's portfolio, but -- do you have a sense as either grocer health or the outlook changed at all or occupancy costs stable? And if you could just give us any insights there, that would be helpful.

Of course, it -- thank -- this is Lisa. Obviously, I appreciate the question. I know you've heard me say this before. I've been in the business for a really long time, and the grocery business has always been extremely competitive through decades of my experience, and it continues to be so. And even more so today. And the best physical locations with the better operators are going to continue to be critical to the entire grocery sector. And you see that through all of their expansion plans, which both Alan and Nick talked about. We're seeing it in our development pipeline with those expansion plans. I'll remind you that there was even more concern pre-COVID and then coming through COVID, a renewed appreciation for that physical location and the grocers understand that they need to invest in every aspect of the business from an omnichannel standpoint, and we're seeing that happen. We -- so from our perspective, specifically, we haven't seen anything in our portfolio or in our close relationships and conversations with our grocers that would give us any pause or change our view of grocery whatsoever. We are in active dialogue. And while it is a really, really competitive environment, we believe that operating with owning the best real estate, operating with the best grocer banners in those markets is a winning long-term strategy.

Our next question will come from Floris Van Dijkum with Ladenburg Thalmann.

Congrats, solid quarter again. Maybe if you could you mentioned your fixed rent bumps that you're getting, I would imagine all your shop tenants have 3% or greater. Maybe talk a little bit about what you're seeing on the anchor side. How successful are you in getting annual rent bumps for your anchor tenants? And are even grocers now willing to contemplate those leases. Obviously, those don't come up very often. But maybe if you can talk a little bit about your -- what's happening also on the anchor front in terms of in pushing those escalators through to your tenants?

Appreciate the question. So yes, you're right. More than 80% of our new shop leases did have 3% or more importantly because we're leaning into the or more component for the quarter. Things have also certainly improved to your point on the anchor side. Is it having success on the annual escalators that we would all like to? No, I don't think the anchor side has transitioned as much as the -- certainly, as the shop world has. However, what we are experiencing is larger rent spreads than we were seeing before. And then there's many anchor tenants that may have had 10-year even up to 20-year term flat rents. And in today's environment, you're getting those escalators and maybe 5-year increments. So there's certainly improvement. We are leaning in where we can appropriately lean in, but also being mindful of we want the best operator that is going to be right for our asset, right for the community and right for further merchandising.