Regency Centers Corporation (REG) Q1 2014 Earnings Report, Transcript and Summary

Greetings, and welcome to the Regency Centers Corporation First Quarter 2014 Earnings Results Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. (Operator Instructions) As a reminder, this conference is being recorded. I will now like to turn the conference over to your host, Mr. Mike Mas, Senior Vice President, Capital Markets. Thank you, sir. You may now begin.

[Indiscernible] 2014 Conference Call. Joining me today is Hap Stein, our Chairman and CEO; Brian Smith, our President and COO; Lisa Palmer, our Chief Financial Officer; and Chris Leavitt, Senior Vice President and Treasurer. Before we start, I would like to address forward-looking statements that may be discussed on the call. Forward-looking statements involve risks and uncertainties. Actual future performance, outcomes and results may differ materially from those expressed in forward-looking statements. Please refer to the documents filed by Regency Centers Corporation with the SEC, specifically the most recent reports on Forms 10-K and 10-Q, which identify important risk factors that could cause actual results to differ from those contained in the forward-looking statements. I will now turn the call over to Hap.

Thanks Mike. Good morning, everyone, and thank you for joining us. Regency's talented team continues to perform well, executing our strategy. First, building on the enhanced and intrinsic quality of the portfolio in its better pricing, occupancy and merchandising power to sustain annual average NOI growth of 3%, even as we've achieved 95% leased. Second, profiting from our expertise to deliver annual average starts of $200 million of high-quality developments and redevelopments at attractive returns on invested capital. And third, maintaining a strong balance sheet that now compares favorably to other blue-chip companies, but costs effectively match-funding investments. As we have shared with you the positive condition of the portfolio, development program and balance sheet has allowed us to pivot from being a net seller. Any further enhancements to the portfolio and balance sheet will be achieved organically and opportunistically. The progress on sustaining 3% NOI growth at 95% leased is evidenced by this quarter’s double-digit rent growth. The underlying fundamentals not only remain strong, but are continuing to gain momentum. Our team is keenly focused on increasing the frequency and amount of rent steps, growing rents and moving the percent leased beyond 95%. Their efforts in achieving NOI growth in excess of 3% for the third consecutive year and in the future of being aided by the historically low level of new supply, robust tenant demand and health and particularly the inherent quality of the portfolio. The development results in prospects continue to exceed our high expectations. Regency’s ability to create exceptional centers in our target markets at meaningful margins to the cost of acquiring centers of comparable quality is a driver of significant value. Despite an environment that remains supply constrained and intensely competitive we continue to win more than our fair share of a limited number of development opportunities that meet our high standards. Our success has allowed us to increase development start guidance for 2014. It is also worth noting that we have nearly $90 million of redevelopments in process and the potential to commence more than $50 million next year. I now want to share some thoughts on how we are addressing the changing retail environment due to technology driven shifts in consumer behavior, demographics and alternative delivery channels, most particularly the rise of millennials, social networking and e-commerce. Due to the strength of the portfolio, particularly its demographics and anchor tenant sales, the recent elimination of virtually all of our weaker centers, the addition of many fabulous new centers including a meaningful amount now anchored by specialty grocers, like Whole Foods and Trader Joe’s, and the necessity convenience orientation of the tenant mix, there are many reasons to believe that the portfolio should perform well in the changing environment. At the same time, given the dramatic changes that are taking place, we’re not going to stand still. We need to continually take a fresh look at our shopping centers and operating systems to ensure that we will have a portfolio that not only survives, but more importantly, thrives. Future developments, redevelopments, acquisitions and sales will continue to play a role in keeping our portfolio relevant. But also, key to this is Fresh Look, our three-pronged initiative that includes merchandising to best-in-class retailers and restaurants that are injecting more energy into our centers. And these retailers and restaurants are also effectively utilizing social media Internet strategies to drive sales, adding place-making features using architectural and design elements to make centers more inviting that increases the shopper dwell-time and connecting our retailers and our centers to our surrounding neighborhoods and communities. While we are still in the early innings with much to be accomplished our teams have really embraced this critically important issue. Brian will offer some examples of how Fresh Look has already positively impacted the portfolio. Lisa?

Thank you Hap and good morning everyone. Financial results exceeded our expectations for the first quarter with core FFO of $0.69 per share and FFO of $0.71 per share. Operating percent leased declined by only 20 basis points since the end of the year as a result of lower than normal seasonal move-outs and it is up 60 basis points when compared to this time last year. Same-property NOI growth excluding termination fees was 2.9% for the quarter, driven primarily by higher base rent. This was achieved despite the increase in snow removal costs, resulting from that never ending winter which many of you experienced firsthand. But fortunately this increase in expenses was mostly offset by a resulting increase in tenant recoveries. However, without the resulting increase, net expense, it’s important to note that same-property NOI growth would have been above 3%. Quickly on G&A, the first quarter was slightly below expectations, due to the timing of capitalization related to development starts. We continue to anticipate finishing 2014 within our full year guidance range of $57.5 million to $60.5 million, which we initially introduced to you back in December. This implies a quarterly run rate of approximately $15 million. Turning to full year guidance, we increased core FFO per share by $0.02 on both ends. This change is primarily attributed to the delayed timing of dispositions. We also increased FFO per share guidance to a new range of $2.68 to $2.74. It now mirrors the range for core FFO per share as we recognized a gain in the first quarter on the sale of a parcel of land. This gain effectively offsets the other reconciling items between the two measures. Operating results were generally in line with expectations for the first quarter, causing percent leased and full year NOI growth guidance to remain unchanged. As Hap said, due to the progress we made converting our development pipeline into starts and the heightened visibility of additional targeted developments and redevelopments, we increased our guidance for 2014 by $40 million. Consequently, we also increased disposition guidance by the same amount. We are highly confident that we will successfully execute match-funding of our development spend with dispositions of non-core assets. And as a reminder, our guidance doesn’t assume any acquisitions should we acquire any additional centers, they will be done on a basis that is accretive to NOI growth and these will be funded with additional sales of lower growth assets with roughly comparable cap rates. And as always, equity issuances will be considered as an alternative when our equity is favorably priced in relation to our view of NAV. Lastly, we plan to capitalize of what continuous to be a borrowers market, as we address our outstanding line balance in the April bond maturity. Included in our current projections is a $250 million bond issuance on which we have already hedged our base rate exposure. Brian?

Thank you, Lisa. Good morning everyone. As Lisa and Hap both said, momentum continued to accelerate through the first quarter of the year. What stands out most this quarter is that rent growth returned to double-digits at nearly 12%, moreover the strength was broad-based with positive growth in every market and with both anchors and shops contributing in a meaningful manner. This strength reinforces the fact that leasing leverage is in our favor and not only allows us to push starting rents but also to increase the amount and frequency of embedded rent steps. It also reflects our changing perspective on the move-outs, more than ever we welcome them as an opportunity to both upgrade our tenant mix and to drive rents. While we did experience a seasonal decline in occupancy for the first quarter, it was well below historic norms especially for shop tenants whose move-outs were particularly low for a first quarter. This follows the record low level of shop move-outs for both the fourth quarter and for all of 2013. This trend has also continued into April and exemplifies the improvement of both the quality of the portfolio and the tenant base. And given the limited supply environment and robust demand for space, I am optimistic about the team’s ability to drive the same-property portfolio beyond 95% leased. As Hap indicated, our Fresh Look initiative, which includes aggressive asset management focused specifically on merchandising, design and place making the shopper experience in connecting our centers to their communities, is starting to gain traction throughout the portfolio. Our teams continue to find ways to improve our centers, making them unique and more exciting places to shop, thus enhancing the customer draw and resulting in better sales for our tenants. We have had much success adding best-in-class retailers, restaurants and high-end fitness facilities. For example, we are bringing Mendocino Farms, a highly successful gourmet sandwich and salad restaurant that currently has seven locations within the Los Angeles area for a center in West Lake Village, California. Mendocino Farms is not your typical sandwich shop, the restaurant offers farm to table seasonal… [Technical Difficulty] (Operator Instructions) During the first quarter, we opened Juanita Tate Marketplace in Los Angeles. The center's grocer, Northgate Gonzalez, described the store as an incredible success with the highest sales for first 10 days in their chain’s history, the center is 98% leased. Finally all the recent development projects continue to demonstrate impressive results. Of the 11 projects started as of 2009 is since completed, seven are 100% leased and collectively the projects are more than 98% leased. This tremendous leasing progress combined with compelling returns reinforces our belief that right size and focused development makes a lot of sense, Hap?

Thank you, Brian, thanks Lisa. I am extremely excited about the positive momentum being created from the underlying fundamentals, together with the quality of our portfolio, our value-add developments and redevelopments, the strength of our balance sheet, the talent and engagement of our management team and the industry leading operating systems like Fresh Look and Greengenuity. We thank you for your time and we now welcome your questions.

and:

Thank you. We will now be conducting a question-and-answer session. (Operator Instructions) Our first question is coming from Christy McElroy of Citi. Please proceed with your question.

Hi. Good morning, everyone. Now that you closed on the Fairfield portfolio, can you talk about possible additional investment opportunities with Clayban? I know they own a lot in Fairfield County which is a target market for you for acquisitions. Citi: Hi. Good morning, everyone. Now that you closed on the Fairfield portfolio, can you talk about possible additional investment opportunities with Clayban? I know they own a lot in Fairfield County which is a target market for you for acquisitions.

Well we’re all set up to do a lot more with them in a sense that on our existing properties we have a right of first refusal for the shopping centers that are up there, so if anything happens there, there is an opportunity for you to take advantage of that. In addition we are looking at various ways to add additional value to what we’ve already done. We have, we know that in one of the centers there is an opportunity to eventually put together some space to create a specialty grocer who has been looking in that market for a long time. We can add -- we’re looking to buy an adjacent property to one of the centers that would allow us to increase the density. And then there is some densification which we can do on the existing centers, including buying a pad, turning into a multi-tenant pad and adding to what we’ve already got. And then to the extent they find that they’re completely unrelated opportunity -- development opportunity we’ve spoken about doing it together but we don’t have anything lined up right now.

And then Lisa, I'm not sure if I heard you correctly. I think you said that you would think about issuing equity if it was viewed favorably to NAV. What is your view of NAV today versus where the stock is? Citi: And then Lisa, I'm not sure if I heard you correctly. I think you said that you would think about issuing equity if it was viewed favorably to NAV. What is your view of NAV today versus where the stock is?

Christy that’s not, that’s a question you know that -- and the way we would think about it is, should we’ve got nearly 20 plus analysts that cover us. And I would say consensus cap rate is sub six, so I think that that’s probably a fair way to -- that certainly gets in the ballpark.

So you would think about issuing equity today where your stock is today or you would wait? Citi: So you would think about issuing equity today where your stock is today or you would wait?

If it was in -- with an applied cap rate of sub six, we certainly would be considering it and everybody is going to have different methods of valuing our developments and process and our third-party fees, but the majority of it is going to come from NOI.

Thanks Lisa. Citi: Thanks Lisa.

And it once again depends on use of funds and alternative sources.

Got you. Citi: Got you.

We haven't issued equity to-date.

Thank you. (Operator Instructions) We ask that in the interest of time that you please also limit yourself to two questions before rejoining the queue to give everyone a chance to ask their questions. Our next question is coming from Jake Harlington of Green Street Advisors. Please proceed with your question.

Great, thank you. Brian, you are one of the most active developers out there. And I wanted to get your thoughts on how you think about what type of grocer you are slotting in some of these new centers? And I ask because there is a ton of dislocation in the food retail market with traditional players and even some of the specialties. What drives your decision there? Is it primarily local demographics? Is it minimum productivity levels? And has that changed over last five years? Green Street Advisors: Great, thank you. Brian, you are one of the most active developers out there. And I wanted to get your thoughts on how you think about what type of grocer you are slotting in some of these new centers? And I ask because there is a ton of dislocation in the food retail market with traditional players and even some of the specialties. What drives your decision there? Is it primarily local demographics? Is it minimum productivity levels? And has that changed over last five years?

It really, it's always been who is we think is the dominant grocer in the market as well as simply do the best leasing of first site shop tenants. So, if you look at what we've got this year, we may do, we're going to do seven or eight new developments, and I think we got five Whole Foods, two Trader Joe's and one Publix. so, there's a heavy spend this year towards Whole Foods and the specialty grocers, and I think that is a growing trend. If you look at our, excuse me, our portfolio since beginning of 2009, and you look at the rent that comes from shopping centers, anchored by specialty grocers it's gone from less than 10% to over 20%. However, there are certainly markets where we would default to a non-specialty grocer or you look at Texas if you could Kroger or HEB. So, it really kind of depends, but at least, right now, we're doing more in the way of specialty grocers. In terms of all the developments, the redevelopments, that we either have under construction right now, or we have signed leases, but not yet under construction or that are in the pretty high probability pursuit category. There is about 29 grocers, and just a breakdown of those would be about nine Whole Foods, six Publix, four Kroger’s and then some other smaller specialty grocers, like Fresh Market, Trader Joe’s and alike.

Okay. And maybe just another development question, the East San Marco project -- I don't know if you talked about that one. But where does that one stand and have you said what the size of that one could be? Green Street Advisors: Okay. And maybe just another development question, the East San Marco project -- I don't know if you talked about that one. But where does that one stand and have you said what the size of that one could be?

Well, we control the property, we have for some time, and the retail has been ready to go. It would be a smaller version of Publix with some side shops, and what we're just waiting for is the residential which was originally planned to be condos and then of course that market tanked in late ’08, and so now we're out vetting different residential developers for multi-family residential. We expect that that would start next year.

Okay. And just lastly on the acquisition in Austin, 5.2 cap rates for it looks like a stabilized asset was that an off market purchase or was that a competitive bid process? Green Street Advisors: Okay. And just lastly on the acquisition in Austin, 5.2 cap rates for it looks like a stabilized asset was that an off market purchase or was that a competitive bid process?

That was fairly competitive. I would not call that one an off-market bid. No.

And the thought process is low five as you may have indicated is low five cap rate with significant growth in that -- projected growth in excess of 3.5% and we're financing a significant portion of it by the sale of a CVS that has very-very flat rent and cap rate is going to be -- we think it's going to be sub five.

Right. Green Street Advisors: Right.

If you just put that perspective in that market, there was an HEB Steinmart property that traded about six months before or a few months before us in Austin and that was at a six, five IRR and this IRR was a growth, Hap just mentioned is north of seven.

Okay, thank you. Green Street Advisors: Okay, thank you.

Thank you, Jake.

Thank you. Our next question is coming from Haendel St. Juste of Morgan Stanley. Please proceed with your question.

Yes. Hi, guys. It is actually Albert Lin for Haendel. Following up on the development question, some of your peers have mentioned that overall rents haven't quite gotten up to the level to justify new development. So it seems like it would be even more important to pick your spots. You have a couple in California, a couple in Florida. So just wondering if there are any other locations you were looking at? Morgan Stanley: Yes. Hi, guys. It is actually Albert Lin for Haendel. Following up on the development question, some of your peers have mentioned that overall rents haven't quite gotten up to the level to justify new development. So it seems like it would be even more important to pick your spots. You have a couple in California, a couple in Florida. So just wondering if there are any other locations you were looking at?

Well, we just finished a very large one up in the Pacific Northwest in Seattle. We're active in Northern California. We're active in Southern California. We're very active in Texas. We're active in the Carolinas. We're active in Florida and we're active in Chicago.

But as you said, you got to pick your spot and have the right corner with the right anchor tenant, that's going to, as Brian answered to attract the best-in-class side shop retailers, that'll make the developments pencil out as are the last 400 million that have been started have very well.

Okay. And then a question on dispositions, we have heard the assets are getting better pricing than expected. But looks like dispositions were a little lighter this quarter for you guys. Curious on the strategy, if this a function of being a little bit aggressive and looking for the best price, which might be a change in mindset after all the assets that you already sold and you were more pressed to sell in the past? Morgan Stanley: Okay. And then a question on dispositions, we have heard the assets are getting better pricing than expected. But looks like dispositions were a little lighter this quarter for you guys. Curious on the strategy, if this a function of being a little bit aggressive and looking for the best price, which might be a change in mindset after all the assets that you already sold and you were more pressed to sell in the past?

Well, let's start with your strategy question. So, we are pretty much through as we have talked about before, the sale of our lower-quality properties. But we still have a base plan of about $120 million, $125 million that we plan to sell this year, and the cap rates there are going to be in the 7% to 7.5% range. Now, we did not do very much first quarter, but that's not unusual at all. If you look at last year at this time, we had zero sales, and we ended that year greater than $300 million. So, we feel very confident that we're going to be within the range that we've set forth in our guidance. The second prong of that strategy is to do the match-funding for acquisitions and there what we're going to do is take the, whatever we're buying, we want to go ahead and do dispositions of lower growth assets Hap alluded to a little bit earlier that would narrow the spread between the acquisition cap rates and the disposition cap rates. So, right now, with the property I mentioned that's under contract as well as Mira Vista, we've got about $45 million worth of match-funding to do and in one of the ones that would be a match-funding asset is that CBS and Washington DC, at sub 5%.

Okay, thanks. Morgan Stanley: Okay, thanks.

Thank you.

Thank you. Our next question is coming from Vincent Chao of Deutsche Bank. Please proceed with your question.

Hi. Good morning, everyone. Sticking with development, last quarter you had talked about seeing some modest increases in develop -- competition for developments. I'm curious how that has trended over the last quarter? And then the other question is just on land side of things, just curious how big a barrier land availability is becoming for the types of developments that you are trying to accomplish? Deutsche Bank: Hi. Good morning, everyone. Sticking with development, last quarter you had talked about seeing some modest increases in develop -- competition for developments. I'm curious how that has trended over the last quarter? And then the other question is just on land side of things, just curious how big a barrier land availability is becoming for the types of developments that you are trying to accomplish?

Well, in terms of the environment, Hap said it best we are getting more than our fair share of opportunities. We've got a big pipeline for this year. There is no reason to think that we won't continue to average somewhere in the neighborhood of $200 million a year, developments, redevelopments. I do think the environment meet the competition for land seems to have picked up. We haven't seen a whole lot more of the ground, but you're seeing the return of retailers like Target on more site plans. As we compete for properties, especially if there are mixed used sites, you see a lot of competition for them and that competition is getting more aggressive in terms of willing to close with a very short due diligence period, perhaps to that entitlement without an anchored tenant. But we haven't had to go there. We don't plan to go there, for whatever reason we're finding the opportunities. And in terms of the availability, where we've been looking, the more urban infill areas, that land has always been hard to find. And I think that really is one of the benefits and differentiating aspects of our team is the experience and the amount of time they have spent looking for those kind of assets and the relationships they have developed to get them.

And can you just comment on how land prices in those kinds of markets have trended? Over the past year, say? Deutsche Bank: And can you just comment on how land prices in those kinds of markets have trended? Over the past year, say?

The only place where we've seeing really significant increases in land prices would be in those markets that are very high and could go for any use and the two that come to mind would be Houston and San Francisco Bay Area, where to be able to do a single storey retail development is tough just given the land price and therefore instead you'll see a lot of multi-families. We're incredibly fortunate to have been able to develop the only two single storey retail properties in the Bay area that I know of with our Petaluma project which completed last year and in the double home we just announced this year. I mean, but those are the markets where land prices are really high because of the residential demand.

Okay. Thank you. Deutsche Bank: Okay. Thank you.

Thank you.

Thank you. Our next question is coming from Ki Bin Kim of SunTrust. Please proceed with your question.

Just a quick one here, if I look at your total base rent, it is about $17.75. Could you provide an update on where you think that portfolio mark-to-market is today? And also how much TI/leasing commission dollars per square foot do you project in your guidance for ’14? SunTrust: Just a quick one here, if I look at your total base rent, it is about $17.75. Could you provide an update on where you think that portfolio mark-to-market is today? And also how much TI/leasing commission dollars per square foot do you project in your guidance for ’14?

See in terms of the rents, it's all going to depend on the mix whether it's the anchors or whatever, but if I look at the expiring rents and compare that to what we've signed in this past quarter, it would imply that in the anchors we could see about 40% growth on the stock much more reasonable more like 5%, 6%, 7%. So, just depending on what the mix is of anchors versus shops will depend, will dictate what that growth is, but the trend in rent growth as well as just the trend in the average base rents, both of them continue to be positive and we think that trend will continue.

And the other thing that will have an impact on how much we can harvest is whether the anchor tenants, when their lease expires, even though they may be meaningfully below market, where they have additional term or additional options and unfortunately in often case they do have that.

And then just that second part of that question was your TIs. They seem to bounce around a little bit quarter-to-quarter which is completely understandable. What is embedded in your guidance, your TIs and estimated dollar per square foot prospectus? SunTrust: And then just that second part of that question was your TIs. They seem to bounce around a little bit quarter-to-quarter which is completely understandable. What is embedded in your guidance, your TIs and estimated dollar per square foot prospectus?

I'll let Brian just comment on the trends on TIs. I mean leasing commissions will be completely dependent on how much leasing we do. And I mean you can estimate that based on our percent lease guidance. From a TIs perspective we don't provide specific guidance for it, we obviously of course plan for it internally and we plan for it based on trends we're seeing. I'll let Brian talk to that.

Yes, if you just kind of look at the page 21 of our supplemental in terms of the committed TIs, they were down significantly and the total TIs were down over 30% and the new TIs really drove it being down 50%. Now, while the TIs remained below historical average or near it, the reason really for that big decrease is because we're giving it less often than we used to. I think we gave it 24% of the time versus 57% of the time this quarter, but what was really lying underneath that is that our redevelopments in Hinsdale in Chicago area, that was one of the Dominick's that left. And they sold that lease to Whole Foods which was great upgrade for us. But in that particular case, Whole Foods wanted to downsize, they didn't want to take the full size of that space. So what they ended up doing is, keeping the rents where it was and they put in all the capitals. They put in the capitals to demise the space, to do new facades to separate utilities from mechanical systems. So we're basically getting a brand new Whole Foods space and we're getting a brand new 12,500 square foot space we can lease and probably rents would be twice as high as what they were and we're not putting a dollar into it. So I think that kind of drag that number down. Renewals, same thing, they're low, they're up a little bit this quarter but that was really due to just one lease and that was a 24 Hour Fitness in Southern California, it was only $10 square foot of TI. But because it such a large building, it really drove it up. If you subtract it out that one lease and you go to your supplemental page of $0.73 a square foot for renewals, that one lease taking out will reduce it to $0.41, so both all TIs are inline.

Okay, thank you. SunTrust : Okay, thank you.

Thank you.

Our next question is coming from Juan Sanabria of Bank of America. Please proceed with your question.

Hi, good morning. Thank you. Lisa, I think you mentioned earlier you're capitalizing more interest through G&A, at least through the first quarter. Can you talk a little bit about your expectations for capitalized interest for the year? And how you think about allocating that capitalized interest in between G&A and interest expense? Bank of America: Hi, good morning. Thank you. Lisa, I think you mentioned earlier you're capitalizing more interest through G&A, at least through the first quarter. Can you talk a little bit about your expectations for capitalized interest for the year? And how you think about allocating that capitalized interest in between G&A and interest expense?

First, let me clarify the prepared remarks. I was talking about capitalized development overhead not capitalized interest. And the development overhead, although it also relate to interest being a little bit early with the start of [indiscernible] place in the first quarter. That was what caused us to -- from a timing perspective, capitalized more earlier than originally planned. And in terms of the actual capitalized interests go back to our December guidance presentation; we actually did give guidance on what we expect to capitalize interest to be for the year. And that was 7 million to 8.5 million. And that simply just netted out of our growth interest expense.

Okay, great. And can you just comment a little bit about the Fresh Look initiative and kind of how we should be thinking of that in terms of dollar spend and returns? And is it essentially just going into the redevelopment spends or how should we be think manager that from a dollars perspective and return perspective? Bank of America: Okay, great. And can you just comment a little bit about the Fresh Look initiative and kind of how we should be thinking of that in terms of dollar spend and returns? And is it essentially just going into the redevelopment spends or how should we be think manager that from a dollars perspective and return perspective?

Let me stress the philosophy you are asking about, first don't kind of get to the cost of newness. It's really just the philosophy of what we're doing. And that is -- as Hap mentioned, the world is rapidly changing, I read a quote that said, customers live in an ever-increasing sensory-stimulating world that elevates their requirements for uniqueness. And basically the millennial today are just saying, we hear this when we sit down with the retailers and we talk to them that newness is important, they want exciting, they want updated brand. They just don't want the same old, and they are impatient. They want immediate gratification, which includes customer service and just the whole experience they get. They are not anti bricks and mortar, they are comfortable in both the real world, additional world, but if you're going to bring them to your centers, you got to make it as fresh and exciting as you can. So with that in mind, there is three prongs to get to improving that experience. One is the merchandising where we want to attract, really we want to attract the best tenants we can for the center whether that's one of our higher end centers or our bread and butter, expand the trade area with them, and therefore attract other better retailers, attract more traffic, which would grow sales, which would create a virtuous cycle that'll lead to higher NOI. And we've got lots of examples of that; we got in our Westlake development, Le Pain Quotidien, Pitfire Pizza there, Mendocino Farms we talked about. We talked about in the call Bartaco. So part of part of this merchandising, the second part is twice making it. We just want to make it a more inviting experience. You know this was a center you like to go to, you like to kind of just hang out there versus the ones you can't wait you to kind of get in and out because shopping done. And then the third thing we just speak connecting to the community and that can be technology with a social media the like, or it can just having the kind of tenants and having the kind of design that allows for things like sponsoring a 5K race. One of our tenants at Cameron Village is a fitter store, and they work these post work up pub crawlers with all of the restaurants and everything, so that's kind of theory. In terms to the cost the cost really having proving to be an issue yet. If you look at that Bartaco deal that we talked about in Atlanta, the return cost for doing that deal was over 10%, about 10.5%. If you look at Westlake village there is really four of these transformational tenants that we brought and the TIs are $25 to $30 per square foot. But including that $25 to $30 per square foot are money there are going to have to spend to do work that we would normally do. For example, we did not deliver restrooms or lighting. The restaurants want to provide their own restrooms and lighting. So that brings your TIs down to more like the $15 square foot range, which is very, very typical of what we do. I do think with these kinds of attention you can expect that TIs will go up somewhat, but again we're not going to do it unless we think the overall impact is going to be raise NOI for the entire center. And then I would say in terms of cost for each individual center, if it is a redevelopment, it's going to be part of redevelopment cost, where it's no part of redevelopment, I think expense on the centers, some centers might be $100,000 and others it could be as low as $10,000. So it's really going to depend on which profits we are talking about.

Thanks for that color. I appreciate it. Bank of America: Thanks for that color. I appreciate it.

Thank you. Our next question is coming from Jim Sullivan of Cowen. Please proceed with your question.

Good morning. Thank you. Hap, this is really a question for you, I think. The spread between your stabilized development yield and acquisition cap rate is pretty wide. And is suggesting that the margin, in terms of value creation in the development pipeline is maybe as wide as it has ever been for Regency, I don't know. Strikes me that over 30% is a pretty wide margin. I'm just curious as you think about that, are you tempted to drop the hurdle rate on development? I know that you haven't done so far. It has been pretty disciplined. How do you think about the potential for doing that, given the demand for quality product in the investor market? Cowen: Good morning. Thank you. Hap, this is really a question for you, I think. The spread between your stabilized development yield and acquisition cap rate is pretty wide. And is suggesting that the margin, in terms of value creation in the development pipeline is maybe as wide as it has ever been for Regency, I don't know. Strikes me that over 30% is a pretty wide margin. I'm just curious as you think about that, are you tempted to drop the hurdle rate on development? I know that you haven't done so far. It has been pretty disciplined. How do you think about the potential for doing that, given the demand for quality product in the investor market?

Obviously, if we can -- developing in a urban infill location, the going in return maybe justified at a lower rate than if you're developing what I might call a suburban infill or part of the planned unit development. And that spread could be, you know were supposed to in this more suburban location, like Cinco Ranch, which has been a highly successful, Kroger anchor development in the fastest growing planned unit development in the country, that's going to end up being a 9% initially underwrote it to 8%. We can get into the mid sevens, possibly even a little bit lower on a risk adjusted basis for the right kind of development in the right location, where we do think that we're creating substantial value Jim. So that is, that does from risk, location, market comes into the equation as we look at trying to evaluate, which appropriate as far as developing a shopping center with the returns that we need and the margins we like to have.

Joe, if I can just amplify in that, we had discussions within the last couple of days about mix used project, where we'd be -- we'd have to retail to ground floor of multi-family. In that particular case, you're talking urban as you can get, downtown of a major city and the multi-family developer would deliver the completed shell, have taken all the risks on the entitlements. Basically it's an acquisition with you just finishing up the small shops, which aren't that great. In that case, we view this having, it is being very desirable with the lot less risk, in that case we would go to a lower cap rate.

Interesting. Looking at your tenant list, obviously your combined exposure to Safeway and Albertsons is very significant. And assuming the transaction that has been where the pricing has been agreed to, when it goes through at the end of the year. I would assume given the significant overlap between the two retailers, particularly in the West Coast markets, I'm assuming there would we be the likelihood of significant divestitures or store closings assumed. You are coming up to the ICSC later this month. Is this a topic of conversation with those specialty grocers who are looking to break in and expand in those markets and might not have any choices? Is there a buzz out there, that there is going be some significant opportunity space opening up as a result of that merger? Cowen: Interesting. Looking at your tenant list, obviously your combined exposure to Safeway and Albertsons is very significant. And assuming the transaction that has been where the pricing has been agreed to, when it goes through at the end of the year. I would assume given the significant overlap between the two retailers, particularly in the West Coast markets, I'm assuming there would we be the likelihood of significant divestitures or store closings assumed. You are coming up to the ICSC later this month. Is this a topic of conversation with those specialty grocers who are looking to break in and expand in those markets and might not have any choices? Is there a buzz out there, that there is going be some significant opportunity space opening up as a result of that merger?

Yeah, absolutely, and it's not just because of this. I mean, we've all known for a long time that certainly Albertsons and Safeway have had their struggles, and I know probably two years ago, we talked to a one of the specialty grocery chains about all of our Albertsons Holdings in Southern California, and at that time they said that they would be definitely interested in taking a couple and probably interested in taking several more. So, we know that interest is there, the specialty grocers are having a tough time finding opportunities and this will be good way to do it. In terms of the potential closures, following along that theme that we have been anticipating it, since 2009, we have 28 -- we disposed of our released 28 Albertsons and Safeway across the country. So, I think we’ve gotten out ahead of it. And those that we’ve kept are the kind we think we can replace with our better operators as we did with the five Dominick's in Chicago and they ran as you may recall in our redevelopment in Huston where we got a 150% rent growth, with Whole Foods and then Mariano taking with the Roscoe in Chicago. So short-term, we don't expect there's going to be much change. Some of markets, where we have no overlap really to speak of, when you think about Washington DC and the Northern California and Texas and where we do have stores in those markets, we've got replacements already calling us. We are very interested in going. If Southern California was really your question and set Northwest for this overlap, we went through them space by space and we feel really good about our real estate, particularly, I think, Safeway. We think there may be a handful of the stores where because of overlap they could close. We certainly don't know, but it is just a handful and of the ones we think there is some potential risk, which really key is, you have a right to recapture the space and looking at both the Safeway and the Albertsons similar situations, there is only one lease where we don't have the right to recapture. So we think bad news will turn into good news.

Great. Okay, guys. Thanks. Cowen: Great. Okay, guys. Thanks.

Thank you. Our next question is coming from Mike Mueller of JPMorgan. Please proceed with your question.

Hi, when you are looking at this quarter leasing spreads, just wondering, were there any significant geographical variances? And how sticky to you think they will be as you move throughout the year? JPMorgan: Hi, when you are looking at this quarter leasing spreads, just wondering, were there any significant geographical variances? And how sticky to you think they will be as you move throughout the year?

Well, it's not so much the geographical differences as it is big leases drive. So if you look at our rent growth, it was good and that was despite the fact we had two anchored tenants that were new -- one was the new, one was the renewal lease at zero rent growth. So and we have one that was renewal to almost 30% down. So, despite those three drags, it was still good rent growth. On the other hand, we did have a large tenant in Washington DC as part of redevelopment, there was an old-old lease for carrying down or expanding it and there is about 240% rent growth from that one and we had another one in the Pacific Northwest. So, we had two leases that really drove it to the positive and then we had two that held it flat and one that drove it down. And that's really summarizing it.

Okay, so nothing really -- if you are saying the Southeast compared to the West Coast or anything like that? JPMorgan: Okay, so nothing really -- if you are saying the Southeast compared to the West Coast or anything like that?

I guess, Brian indicated, we had good rent growth throughout in every market and small shop and anchor tenants.

Yes, I mean it really was broad-based, all markets had rent growth, I think ten of them had double-digit rent growth and then the shops rent growth was almost double-digits too it was 9.8%.

Got it. Okay, great. Thank you. JPMorgan: Got it. Okay, great. Thank you.

Thank you, Mike.

Thank you. Our next question is coming from Rich Moore of RBC Capital Markets. Please proceed with your question.

Hi, guys. Good morning. I wanted to make sure I understood from your earlier comments in your prepared remarks. It sounds like the bankruptcy outlook for the year is pretty benign? And with that the outlook for bad debt expense probably pretty benign as well? RBC Capital Markets: Hi, guys. Good morning. I wanted to make sure I understood from your earlier comments in your prepared remarks. It sounds like the bankruptcy outlook for the year is pretty benign? And with that the outlook for bad debt expense probably pretty benign as well?

Bankruptcies have been partly anything, this quarter we had the Quiznos and the Dots and Ashley Stewart, Ashley Stewart really had one of them and that is one of our premier properties in Northern California. We've already got two tenants to take that space, the Dots is only six locations and Quiznos we've known for some time, and have been working to release those. And in both cases the Dots and the Quiznos, the vast majority, vast majority of those are A properties and we've already released the lowest quality of each one of those. So, we just don't see any issue there at all.

Okay. And then the same thing, go ahead sorry. RBC Capital Markets: Okay. And then the same thing, go ahead sorry.

I was just going to average for the actual bad debt expense. I mean last year was a pretty healthy year for bad debt expense as well and we would expect that to continue. I think we finished the year in less than 50 basis points and gave guidance that this year should be at least equal or better to that. And when you look at our accounts receivable that are outstanding greater than 90 days we're at 0.5% of revenues, which is the lowest that we've been for as long as I can remember, I mean even going back to 2007 we're 0.7, 0.8, 0.9.

Great. Thanks Lisa. And then as you guys think about the other side, the store closing side, you’re talking a little bit about small shop closings being, small shop move-outs being very light. I mean, do you see the retention, I guess, you want to call it that retention ratio of guys who's leases are expiring, staying high where it is or getting some deterioration there? RBC Capital Markets: Great. Thanks Lisa. And then as you guys think about the other side, the store closing side, you’re talking a little bit about small shop closings being, small shop move-outs being very light. I mean, do you see the retention, I guess, you want to call it that retention ratio of guys who's leases are expiring, staying high where it is or getting some deterioration there?

Well, the move-outs as I said in the prepared remarks are remarkably note that the best first quarter we've ever had for shop move-outs following fourth quarter being the best quarter ever of all quarters and 2013 being the lowest of any year. So, we're feeling really good about that and that's despite some pretty aggressive proactive move-outs that we've been, we've got. If you think about some of the aggressive things we're doing, one of them is we're not renewing a lot of tenants. I mean if you think about some of the ones we did this year, this last quarter, we've got that for Taco deal that was previously leased by a national tenant, who wanted to renew, but we had built into their lease, and clause require them to renovate their space, when they didn't do it, we refuse to renew them. We had another situation, we've got Loehmann's Plaza up in Atlanta, where we're doing a complete renovation, we are replacing Loehmann's with a specialty grocer. We're replacing OfficeMax with a really neat tenant, it's not signed yet, so I won't mention who it is. So, with that in mind, we had a tenant that want to renew and we said no. We know we can do better. They actually hired an attorney, try to find a landlord default to force us to, to keep them and they couldn't do it. So we got rid of that. So, we've got lots of these examples of being very aggressive in terms of our asset management and not allowing tenants to renew or terminating them when we see the AR start to increase.

Great thank you, guys. RBC Capital Markets: Great thank you, guys.

Thank you, Rich.

Thank you. Our next question is coming from Samir Khanal of ISI Group. Please proceed with your question.

Hey, good morning. I know we've talked quite a bit about traditional specialty grocers but just want to get your view on something here. How much of a cap rate differential do you think there is between centers with traditional grocers today versus one with maybe a specialty grocer and it's sort of all else being equal, I just want to kind of get your thoughts on that. ISI Group: Hey, good morning. I know we've talked quite a bit about traditional specialty grocers but just want to get your view on something here. How much of a cap rate differential do you think there is between centers with traditional grocers today versus one with maybe a specialty grocer and it's sort of all else being equal, I just want to kind of get your thoughts on that.

I don't think it's necessarily whether it's specialty or not, it's how good the grocer is. I mean, if you got a Kroger on a lease, you got Publix, you got a H.E.B, you're going to have good cap rate. But I will say that, for example, our Shops on Main outside of Chicago, in fact we're adding a Whole Foods to that center, I think it's going to change the cap rate probably 50 basis points across the whole center. So, the specialty grocers particularly the Whole Foods, just have so much cache, there is a lot for your properties but really high a quality traditional grocery well as well.

The issue is though is they typically Trader Joe's and Whole Foods productivity is so high. So we do have a lot of number of H.E.Bs that are doing comparable quality, comparable sales in Publix's and Kroger's. And when that is the case, that shows the strength of the location and as Brian indicated, you'll get the comparable cap rate.

Great, thanks. ISI Group: Great, thanks.

Thank you. Our next question is coming from Ross Nussbaum of UBS. Please proceed with your question.

Hi. Jeremy Metz on for Ross. Can you guys just talk about what kind of growth or value add and redevelopment opportunities you're underwriting right now that gives you comfort buying at these peak evaluations we're seeing? UBS: Hi. Jeremy Metz on for Ross. Can you guys just talk about what kind of growth or value add and redevelopment opportunities you're underwriting right now that gives you comfort buying at these peak evaluations we're seeing?

Well the redevelopment we separate from the decision to buy some of these acquisitions we're doing. The acquisitions what we're looking for would be best infill markets with the dominant grocers, high barriers to entry, excellent demographics that provide superior growth. If you've looked at the Fairfield portfolio or Mira Vista, there's good growth in there, and they check all the boxes on everything else I just mentioned. The redevelopments are generally within our operating portfolio and there we, there is a couple things going on, we can take a center that where we may tear down the whole center and go ahead, or part of it, and rebuild and expand the anchors like we did in Village centers in Tampa where we built a brand new expanded Walgreens and brand new expanded Publix. Or it could just a renovation of the entire center where you may replace the grocer as we're going to do with whole foods, replacing a Dominick's or Mariana's replacing a Dominick's. Or they could just be Phase IIs or expansions of GOA, or previously developed properties. So one way or another, we are adding values to a center that's already there versus the acquisitions where we're buying the value based on growth.

And I would add that, Jeremy. I think that, what you've probably seen over the past year or so for the assets that are being competitively bid, with Mira Vista being an exception. Assets that are being competitively bid, not only Regency, but many of our publicly traded peers aren't necessarily winning those. For those that don't have some type of value add opportunity. And because the pension funds cost of capital and the other private equity is just a lot more aggressive right now. But for those opportunities, where there is a value ad, I think you're seeing Federal and Equity One and Regency be a more often successful on those. And then it maybe our relationships that come into play, that one might get the edge over the other and to give the example of -- it was a couple of years ago at this point. But Balboa is a San Diego acquisition. And we had a relationship with CBS and we're able to have a conversation prior to going higher on the contract that gave us the comfort that we were going to be able to complete that redevelopment, whereas a private equity buyer was not able to do that. So I do think that there's some of that happening and that we are looking at acquisitions that way as well.

But in acquisition that doesn't have a redevelopment opportunity. We are not doing unless the growth is substantial, 3% plus and unless we're confident that we can do a trade and a roughly comparable cap rate and the asset that we're selling as meaningfully flatter growth profile. So that is -- in our view is a good trade. The IRR on what we're buying because of the growth is going to be higher than the IRR in what we're selling.

Yes. And then I think that's right. If you're buying a 97% leased asset, kind of five cap I mean, they are just getting much embedded, you only have what's embedded there. So there just stays in a high growth pro forma necessarily. As a second question, just wondering on the selling side, have you seen any change in the buyer pool for non-core assets you're selling, more private equity institutional interest driving tighter pricing as some of the As become harder to acquire? UBS: Yes. And then I think that's right. If you're buying a 97% leased asset, kind of five cap I mean, they are just getting much embedded, you only have what's embedded there. So there just stays in a high growth pro forma necessarily. As a second question, just wondering on the selling side, have you seen any change in the buyer pool for non-core assets you're selling, more private equity institutional interest driving tighter pricing as some of the As become harder to acquire?

Yes. I mean, I'd say again that the average cap rate out there is, for A quality properties in the good markets with growth and all is low to mid 5s, but I think your -- I've seen another transcripts, there's the property that we looked at and actually try to buy long ago, 10 years ago in Reston, Virginia, that thing set a new low in terms of cap rates. My understanding is, it's somewhere in the low-fours with IRR about six. So the -- but the end pricing has been tight and it's because we all know there's very, very, very little product that comes to market, and there's huge demand. The C market, there's always been an interest in that, because there's a lot of people, who believe the dream that they can create the value to turn that thing around. It's the B pricing, I think, where we've seen the most tightening, and I think that's mostly spill-over for the lack of products available for the As. So I think the cap rates are tightening for the B property, although, that's being offset little bit by the fact that there's quite a bit of product available there. So that's sort of holding in the check.

Okay, thanks. UBS: Okay, thanks.

Thank you. Our next question is coming from Tammi Fique of Wells Fargo. Please proceed with your question.

Hi. Most of my questions have been answered, but last quarter you mentioned comfort that leased rates at the end of the year would be towards the high-end of the guidance range. Are you still comfortable with that today? Wells Fargo: Hi. Most of my questions have been answered, but last quarter you mentioned comfort that leased rates at the end of the year would be towards the high-end of the guidance range. Are you still comfortable with that today?

Sure. I'll take it. I mean, we did not change our guidance. And as we mentioned earlier on the call, our seasonal move-outs were the lowest that they've been in quite some time. So we are still very comfortable with our guidance, and would expect that we should end the year towards the higher end of the range.

Okay. And then with regard to acquisitions, maybe just turning back to that for a minute; you have identified a couple of acquisitions that you are looking at today. But maybe beyond that, do you have a pipeline of opportunities? Are there any portfolios or opportunities within your existing JV's to acquire those interests? Wells Fargo: Okay. And then with regard to acquisitions, maybe just turning back to that for a minute; you have identified a couple of acquisitions that you are looking at today. But maybe beyond that, do you have a pipeline of opportunities? Are there any portfolios or opportunities within your existing JV's to acquire those interests?

We're always looking at everything, but I would say right now the pipeline is fairly thin as I mentioned about it. About a $100 million we've identified is having a reasonable chance of seeing them happen. And again that's going to depend on our ability not only to negotiate a favorable deal for us, but also to be able to match funded. There is plenty of other things we're looking at, but most of them just don't meet our criteria for growth.

And on the partnership side, there's really very little opportunity. There are partners, are generally either at or under allocated to core retail. If anything they'd probably like to add to that? Okay, yes, disposing of property doesn't necessarily fit their objectives?

Okay and then maybe just one last one, sort of turning back to the decisions to sell assets versus issue equity. Is that just really dependant on where the stock is, when you're finding acquisition opportunities or is there one you'd be more inclined to do versus the other? Wells Fargo: Okay and then maybe just one last one, sort of turning back to the decisions to sell assets versus issue equity. Is that just really dependant on where the stock is, when you're finding acquisition opportunities or is there one you'd be more inclined to do versus the other?

We balance what we want to -- when we think about selling, with where the stock pricing might be trading and with the investment opportunity might be, and we look at all those considerations, all I can say is that to date, first part of the year we haven't -- we were basically relying to date totally on our asset sales. We just -- last year we did a mix.

Okay, thank you. Wells Fargo: Okay, thank you.

Thank you. (Operator Instructions) Our next question is coming from Chris Lucas of Capital One. Please proceed with your question.

Lisa and Mike, thank you very much for the enhanced presentation and disclosure detail in the supplement; that’s very helpful. First question really relates to just the leasing environment. Brian, I guess just thinking about how you have described the activity between the better lease-spreads and just a larger development redevelopment pipeline that you guys are envisioning, in terms of the starts for this year. The question I'm wondering about is, is there a tangible change in the retailers perspective? Is there a greater sense of urgency to get deals done now, and say, even 90 days ago. Are you getting that feeling? Capital One: Lisa and Mike, thank you very much for the enhanced presentation and disclosure detail in the supplement; that’s very helpful. First question really relates to just the leasing environment. Brian, I guess just thinking about how you have described the activity between the better lease-spreads and just a larger development redevelopment pipeline that you guys are envisioning, in terms of the starts for this year. The question I'm wondering about is, is there a tangible change in the retailers perspective? Is there a greater sense of urgency to get deals done now, and say, even 90 days ago. Are you getting that feeling?

I think we’ve felt that for a while. There is clearly a sense of urgency. I think -- whatever thing I am hearing, I was on the phone speaking with Michael Niemira, the Chief Economist for ICSC and he was talking about factors. The reason I called him, there is so many studies out there on move outs and store closings and everything, what was his take on it. And his view is that, while the store closings have hedged up that the new demand from the retailers up in more stores is outpacing it and the debt trend is widening. So there is just a real difficulty in the retailers getting quality stores in the kind of locations they want. I think you've seen in our development pre-leasing. So there is a sense of urgency, because they're just not finding the stores.

And then, Lisa, a question for you related to real estate expenses, the tax side. Are you seeing pressure now in some of the states that have seen a significant rebound in value like Texas, Florida, and California in your portfolio in terms of the real estate taxes that you're being assessed? Capital One: And then, Lisa, a question for you related to real estate expenses, the tax side. Are you seeing pressure now in some of the states that have seen a significant rebound in value like Texas, Florida, and California in your portfolio in terms of the real estate taxes that you're being assessed?

I mean, obviously, as you know they were much lower last year. So, anything we would see increases, but nothing that would materially affect our numbers, not yet anyway.

Okay, great thank you. Capital One: Okay, great thank you.

Thank you. Our next question is coming from Tayo Okusanya of Jefferies. Please proceed with your question.

Most of my questions have been answered. I just wanted to add my appreciation, as well, for the improved disclosure. One more question. On the in-process developments, when you say it’s 86% leased and committed, does that mean the rents associated with that are already in our numbers? Or the rents are still yet to come when the centers open up? Jefferies: Most of my questions have been answered. I just wanted to add my appreciation, as well, for the improved disclosure. One more question. On the in-process developments, when you say it’s 86% leased and committed, does that mean the rents associated with that are already in our numbers? Or the rents are still yet to come when the centers open up?

It's generally. They would generally fall in the prelease bucket. Part of our disclosure we did actually, we're now disclosing, we call that percent comment. And that's kind of the proxy if you will between what's the difference between those that are rent paying versus not rent paying. And a lot of that prelease will fall in as a result of our ground-up developments as well as our redevelopments.

Okay. That's helpful. Thank you very much. Jefferies: Okay. That's helpful. Thank you very much.

Thank you. At this time, I like to turn the floor back over to management for any additional or closing comments.

We appreciate everybody's participation in the call. I apologize for any technical difficulties that occurred, and wish that you have a great rest of the week. Thank you.

Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. You may disconnect your lines at this time. And have a wonderful day.