Regency Centers Corporation (REG) Q2 2014 Earnings Report, Transcript and Summary

Michael Mas - Martin E. Stein - Chairman, Chief Executive Officer, Chairman of Executive Committee and Member of Investment Committee Lisa Palmer - Chief Financial Officer and Executive Vice President Brian M. Smith - President, Chief Operating Officer and Director

Christy McElroy - UBS Investment Bank, Research Division Christy McElroy - Citigroup Inc, Research Division James W. Sullivan - Cowen and Company, LLC, Research Division Michael W. Mueller - JP Morgan Chase & Co, Research Division Juan C. Sanabria - BofA Merrill Lynch, Research Division Jay Carlington Ki Bin Kim - SunTrust Robinson Humphrey, Inc., Research Division Haendel Emmanuel St. Juste - Morgan Stanley, Research Division Richard C. Moore - RBC Capital Markets, LLC, Research Division Nathan Isbee - Stifel, Nicolaus & Company, Incorporated, Research Division Jonathan Pong - Robert W. Baird & Co. Incorporated, Research Division Christopher R. Lucas - Capital One Securities, Inc., Research Division Vincent Chao - Deutsche Bank AG, Research Division

Greetings, and welcome to the second quarter 2014 earnings conference call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mike Mas. Thank you. You may now begin.

Good afternoon and welcome to our second quarter 2014 conference call. Joining me today are 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. [Operator Instructions] I will now turn the call over to Hap.

Thanks, Mike. Good afternoon, everyone, and thank you for joining us. Before discussing our results for the quarter, I want to briefly address our proposal to acquire AmREIT and reaffirm our interest in pursuing a combination of our companies. As you know, on July 10, we publicly announced Regency's proposal to acquire AmREIT for $22 per share in cash or stock. At the time of the announcement, our proposal represented a 20% premium based upon the average closing price of AmREIT's common stock over the 30-day prior period and was 10% above AmREIT's all-time high. The combination would offer significant benefits to shareholders of both companies, including an opportunity to leverage synergies to grow same property NOI, a robust balance sheet with readily available capital for growth and a strong platform to realize additional value through development and densification. We were pleased when last week on July 29, AmREIT confirmed it will commence the process to explore strategic alternatives. We expect that this process will be fair, open and robust. We look forward to participating and receiving adequate information to make this compelling combination a reality. That being said, I would like to stress that we will be highly disciplined and, as always, shareholders' capital will only be deployed if we are confident that the opportunity meets our stringent investment criteria and creates value for Regency shareholders. This process will not divert our team's focus on growing that operating income, delivering high-quality developments and redevelopments and maintaining a rock-solid balance sheet. With that, let's turn to the purpose of this call and discuss our extremely gratifying quarter and Regency's strategy for continuing the success. As you'll hear from both Brian and Lisa, Regency's team is truly firing on all cylinders, executing our strategy and making progress toward our goals. First, the occupancy, pricing and merchandising power of Regency's high-quality portfolio continues to gain momentum. As evidenced by strong NOI growth, double-digit rent growth and a portfolio that is more than 95% leased, the underlying operating fundamentals are very strong and still improving across our attractive target markets. And the team has been successful not only in driving rents, but also with contractual increases. Looking forward, we expect to continue to benefit from the historically low level of new supply, robust tenant demand for premium spaces and, particularly, the inherent quality of the portfolio, including the potential for redevelopments enabling us to achieve annual NOI growth of 3% over the long term, even as we remain above 95% leased. Second, the outstanding characteristics of the developments we started since the downturn clearly demonstrate Regency's best-in-class development expertise and disciplined focus. We are delivering these projects at meaningful margins to the cost of acquiring centers of comparable quality. The reputation we crafted as the leading developer and the relationships we've long held with players in our target markets position us to continue to win an outsize share of the limited number of development opportunities that will meet our stringent criteria. Third, this quarter's capital markets activity is aligned with our goal of maintaining and opportunistically strengthening an already strong balance sheet that measures up to other blue chip REITs. Lisa will describe our recent activity in greater detail, but it's clear that our balance sheet provides us with the capital sources and flexibility to astutely and cost effectively take advantage of attractive opportunities. Looking forward, we will continue to keep our eye on executing the fundamentals while evaluating compelling opportunities to generate shareholder value and to remain at the forefront of our industry. We are constantly exploring ways to enhance our leading edge and our teams are very focused and very engaged. Lisa?

Thank you, Hap, and good afternoon, everyone. Financial results for the second quarter exceeded our expectations with core FFO per share of $0.71, representing a 6% increase over the second quarter of last year. And further on a year-to-date basis, core FFO per share has increased by nearly 7% over last year. Same property percent lease reached 95.3% and same property NOI growth excluding termination fees was 3.8% for the quarter and most importantly, the primary driver of the same property NOI growth was an increase in base rent. In April, we issued a $250 million Green Bond, making Regency the first U.S. REIT to issue this type of security. We are extremely proud of this accomplishment, as we believe it reflects the quality of our industry-leading sustainability program. And at closing, just a reminder, we settled our previously executed forward-starting swaps. And with these swaps, we will recognize interest expense at an effective rate of 3.6% for the life of the bonds. During the quarter, we also modified our term loan providing us with an additional $90 million of capacity and bringing the total commitment to $165 million. We have the ability to draw these additional proceeds through August of 2015 coinciding with our next unsecured bond maturity. The spread over LIBOR was reduced by 30 basis points and the term was extended to June of 2019. As Hap said, these and prior transactions have shown that our balance sheet provides us with multiple sources of capital, allowing us substantial flexibility to fund future opportunities. Through the second quarter, we've outperformed on many components of the plan and as a result, we increased full year guidance for core FFO per share to a new range of $2.75 to $2.80. There are multiple drivers of this increase and I'll quickly run through a few of them. First and foremost, because of our consistently positive operating results, strong leasing and low levels of moveouts, we're benefiting from higher NOI in the same property pool, as well as in our in-process developments. This impact is evidenced by our increase in guidance ranges for both same property NOI growth and percent leased. We now expect same property NOI growth in the range of 3% to 3.7% and we expect the same property pool to finish the year in the range of 95% to 96% leased. Second, third-party fees and commissions are also outpacing expectations, a result of the continued strength of the leasing environment. And finally, the timing of dispositions is tracking behind our original plan so we are seeing a small benefit from that standpoint, as well. Specifically on dispositions, we raised guidance and reduced the projected cap rate. These changes reflect the combination of increased visibility for development starts, as well as our most recent acquisition, which Brian will describe in more detail. This is consistent with our matched funding capital strategy, whereby we match development spend with dispositions of noncore assets and we match acquisitions with dispositions at roughly comparable cap rates of lower growth assets. Brian?

Thank you, Lisa, and good afternoon, everyone. This quarter, we saw the hard work, the experience and the creativity of our teams continue to translate into strong operating results. We think volume remains very healthy as we take advantage of the high demand for prime space. This coupled with historically low levels of moveouts, drove same property percent leased above 95%. Small shops led the way gaining 60 basis points over the prior quarter to 90.3% leased. Given retailers' appetite for expansion in the high-quality shopping centers like ours, we still have room to run to push percent lease even further. The caliber of our properties, the demand for quality space, the lack of new supply, and our high level of occupancy, these are powerful forces for driving rents, and our local teams are taking full advantage of this environment. Rent growth in the second quarter was 15%, representing the 13th consecutive quarter of positive rent growth. And midterm rent steps from leases signed in the quarter, exceed the portfolio average, both in terms of annual growth and a percent of leases from which we get these increases. We recently started ground-up development on a Publix-anchored center in the Charlotte market. Willow Oaks Crossing will be Regency's first ground-up development in Charlotte and we're excited to expand our footprint in the Carolinas as Publix enters this market. We also started redevelopment work in Westchester Commons, which is an affluent suburb of Chicago where Mariano's is taking the former Dominick's space plus an additional 30,000 square feet of adjacent space and there's no downtime involved. Additionally, we'll be redeveloping our Brighten Park center in Atlanta. As part of the process, we'll replace Loehmann's with a fresh market, which is a great outcome and will inject new vitality and generate increased daily traffic for the center. We completed our Juanita Tate development near downtown Los Angeles. By every measure, this project has outperformed, not only do we complete it at a high return of nearly 10%, but it reached 100% leased in only 14 months from groundbreaking. This project exemplifies our market base development expertise and our disciplined approach. Since 2009, we started 19 projects, representing an investment of nearly $500 million. 12 of these projects have been completed and average 98% leased with a combined incremental return that is greater than 9%. The demographics, excellent locations and merchandising make these centers outstanding additions to our portfolio. Although new development competition is heating up, particularly in areas where we compete with high-rise, multifamily developers, I continue to believe that Regency's experience, our well-connected local development teams, with our strong retailer relationships, the credibility we have in the markets and the inherently redevelopment potential within the operating portfolio will yield an ample amount of compelling future value-add opportunities. The combination of these factors, along with the progress we've made on projects in the pipeline, enabled us to increase the low end of guidance for 2014 development and redevelopment starts. Turning to acquisitions. We continue to see very limited amounts of A quality assets coming to market. And when they do, pricing is hypercompetitive with some centers trading well below 5% cap rates. We successfully acquired properties off market, as we did most recently with our Clybourn Commons acquisition. Clybourn Commons is located in Lincoln Park, which in our view is one of Chicago's most attractive submarkets. It boasts a 3-mile daytime population of nearly 1 million people and a combined purchasing power that exceeds $600,000, placing it among the top assets in our portfolio on this measure. The center is 100% leased and provides plentiful on-site surface parking that is rarely found in dense urban locations. We're really excited about the long term upside potential of this center. As Lisa noted, Clybourn Commons and the earlier acquisition of Mira Vista are being match funded with the sale of 3 properties that will be sold in an average cap rate in the upper 5% range. The slightly lower acquisition cap rates for Clybourn and Mira Vista will be more than made up by their superior NOI growth profile and upside, compared to less than 1% growth that is projected from the centers being sold. As far as dispositions go, while timing is slower than expected, demand is strong with multiple offers on many properties. As a result, we are confident we'll reach our full year guidance and achieve better pricing, which is reflected in the 50-basis-point reduction in our cap rate guidance for dispositions. Our better cap rates reflect not only a strong transaction market, but also the fact that the assets we are selling are of better quality than in previous years as a result of the substantial progress made in eliminating low-quality properties from the portfolio. Looking forward, as we move beyond 95% leased, I can assure you, there's not a trace of complacency. I'm gratified by the results, but even more excited about our prospects, and the team is intently focused on finding opportunities to add value to NOI growth, redevelopments and new developments. Hap?

Thanks, Brian, and thanks, Lisa. In closing, we are pleased with our results this quarter, highlighted by strong NOI and developments that are translating into growth in core FFO and NAV. At Regency, we have the right strategy, the right balance sheet and especially the right team and our quality portfolio and development capabilities position us well to deliver for our shareholders. We remain committed to enhancing value by executing our proven business strategy and capitalizing on compelling opportunities. We really appreciate your time. We thank you for it, and will now turn the call over to the operator.

[Operator Instructions] And our first question comes from the line of Christy McElroy with Citi.

Can you provide your expectations for timing of the remaining dispositions for the balance of the year, sort of the volume that's in the guidance range right now in each of Q3 and Q4? And how much did the change in timing actually contributed to the guidance increase, the FFO included?

I'll handle the -- I'll answer the second part first and then I'll let Brian to add some color on the disposition market in general. But the earnings increase is really related -- so dispositions are a piece of that and depending on the timing and when we close, if we assume that we close all of them by September 1, it could be up to $0.03, really kind of a drag or dilutive for the remainder of 2014. But it's sort of depending again on when they actually close. It's going to be anywhere from $0.01 to $0.03 for the deceleration of 2014. And then the rest of the increase is related to, as we've noted on the call, third-party fees and commissions have come in above our expectations, and that's our Retailer Services group, as well as leasing commissions from our co-investment partnerships. And then we are also favorable on interest expense. We had projections in for our bond offering and it wasn't until we closed that we knew exactly what that spread would be, and that came in tighter than we had expected and then the rest is really just driven by the increases in same property NOI and development NOI, as well.

Christy, in terms of the timing, the reason for the delay is so far is just that in the pool properties we're planning on selling this year, 7 of those properties are joint ventures, so it's taken longer than we expected to go to them and in the case where they have right of first offers actually come back to us whether they want to take advantage of those and also whether they wanted to buy out our shares. So we've since gotten past that, we've closed one of the properties since the end of the quarter and we've got a total of almost $100 million that are either under contract with our deposits or in negotiated contracts. So we feel really good about getting to the $170 million, $175 million by year end.

And then, Lisa, just following up on that increase in same store NOI guidance. I'm assuming that it would have been an even greater increase if you haven't had the weather related impacts in Q1. I know you tend to start out with more conservative expectations, but can you just provide a little bit more color around sort of specifically what's occurred that's been better then you expected when you first gave guidance?

It's actually really related mostly to lower moveouts than what we expected and then also just a more -- the spread between percent rent paying and percent leased had narrowed more quickly, really not related to expenses or reimbursements. We do have -- our reconciliations are done in the first half of the year and we did have approximately -- it rounds up to about $2 million of prior year net recovery income, but that's almost exactly what we had last year. So that's not contributing to our growth.

Is it lower moveouts, lower early moveouts or lower moveouts on the lease expiration?

It's just lower moveouts in general. We had this year or this quarter 294,000 square feet in the operating portfolio and it's pretty rare to have less than 300, yet 3 in the last 4 quarters have been averaging around about 300,000. And in particular, our small shop moveouts, first half is the best half we've ever had and that follows the best year in 2013, so we're off to an even stronger start than our best year.

And so -- I mean, if you put it in context, it's amazing how kind of little it moves the needle, right? 50 bps of same property NOI growth on a portfolio of our size, which is only 26 million square feet pro rata, is only 130,000 square feet of space.

And the next question comes from the line of Jim Sullivan with Cowen and Company.

Two questions for me, guys. First of all, you've obviously done a great job in terms of the occupancy rate with the increase in the guide this year for the -- or this quarter for the full year. Looking at or thinking about that on a regional basis, 2 of the more important states in the portfolio in terms of the percentage of annual base rent are below that midpoint in the occupancy guide and obviously Florida is very important, as well as Colorado. And I'm just curious, as you think about the strength or weakness for the portfolio, what's your outlook for Florida and Colorado? Those are 2 states that set up occupancies. Are you optimistic that you can raise the rate to the overall average?

Yes, especially when you talked about Colorado, Colorado is one of our stronger markets in terms of rent growth and you -- I think it's the one market that stands out where there's no correlation between pricing power, which we have there and occupancy, which is low. And the reason for that this really is just we have that one vacancy in South Lowry where Safeway went dark. But other than that, the occupancy is good and we do have pricing power in that market. In terms of other markets that have lagged in the past, we're starting to see a lot of improvement, we don't yet have pricing power there, but if you look at for example, Arizona, we had 770-basis-point increase in occupancy this quarter and over 1,100 basis points year-to-year. So we're seeing activity, we're growing occupancy and with that, will come pricing power, which hasn't come yet. And then Florida's pretty much the same story. We're up 210 basis points in North Florida, which has been the weaker part, that's a quarter-to-quarter number. A lot more activities you've seen in the past and then we're even seeing, I think, some 180 basis points increase in the Inland Empire. The only market that we didn't have rent growth was the Central Valley, California. We have very little presence there. So we're starting to see contributions from markets we haven't seen in the past.

Okay, then the second question for me and I guess, primarily this would be for Hap in your -- Hap, in your letter to AmREIT, you talked about working -- looking forward to working with that company on the densification of a couple of their projects. And I'm just curious about the appetite on the part of Regency for more urban or infill locations where densification would be a bigger part of the value creation than maybe what you guys have been doing in the past?

And I'll make my comments in general rather than specifically as it relates to AmREIT. Based upon where our developments are taking place and our acquisitions, including the Clybourn Commons acquisitions in Lincoln Park, there is a tremendous amount of focus or greater emphasis as far as our strategy relates to investing in more near-urban locations like Lincoln Park. And at a number of our developments, for those of you that have been to Cameron Village, we have mixed-use components. And that will continue to be -- mining that part of our existing portfolio and being involved in developments like Glen Gate, which is in Chicago, which -- where we bought the whole property and sold off a portion to an apartment developer. The Riverside development near downtown Jacksonville is also adjacent to 2 apartment buildings. So we view that as being a growing component of our investment strategy, both within the existing portfolio and where we look for new developments. Most of what we've done to date have been what I call horizontal, mixed-use horizontal densification. Obviously, and we have a couple of projects where it's more vertically oriented, but that involves a lot more costs, a lot more complication, not that we wouldn't be embracing that, but we are cognizant of issues related to what I would call vertical integration on projects.

Okay. Then actually, if I could, a third question and this might be more appropriate for Brian. But with the Safeway-Albertsons transaction now having been approved by Safeway shareholders, as we think about the endgame there and what might have to happen in terms of either store closings or dispositions of assets, I'm just curious if you anticipate any kind of risk or opportunity in your portfolio from a fallout that might result from that transaction?

It's hard to tell at this point, Jim. We -- I just found out a couple of minutes ago that they're apparently going to announce it in the next couple of days the store closures. But our view on having gone space by space through the portfolio is that there's more opportunities than there is risk. We think that, by and large, they'll continue to operate a vast majority of the properties. Several of our markets we don't have any overlaps, so we don't see much risk there but good assets. Where we do have significant overlap, an example -- the perfect example, really, is San Diego and that part of Southern California. In that area, I think, we'll probably get some help from the FTC because both of those companies have significant market share in that -- there. So they're not going to be able to just close stores. So I don't know what's going to happen there, but overall, we see more opportunity than the rest of the -- the rents in Safeway portfolio are pretty low. They're -- and what I think will happen is, if we get any of those spaces back, it's likely we'll have the same kind of outcome we had when we released Dominick's to Mariano's with 160% rent growth or the Randalls down in Houston when we released at 150% rent growth.

And then to clarify, the comment about getting help from the FTC, what Brian is referring to is that they won't be able to basically prevent us from re-leasing that space. So if they're forced to close it, they can't keep out another grocer. And that's why we would be able to recapture the space and then capitalize on the opportunity to re-lease it.

And the next question comes from the line of Mike Mueller with JPMorgan. Michael W. Mueller - JP Morgan Chase & Co, Research Division: On the leasing spreads, I was wondering if you could give us a sense as to where you see them trending as we move into 2015, because they've been heading up every quarter, it seems like?

Well, they have been heading up every quarter, I think, that there's no reason why that can't continue to happen. It's obviously being driven by fundamentals, which remain strong. The lack of supply is obviously some wind in our back. Our pipeline of leasing right now is higher as a percentage of vacant space than it has been in any time in the last 5 quarters. Our occupancies continue to grow. We're well over 95% now. And we know that in our portfolio, those centers that are leased greater than 95% enjoyed 600-basis-point higher rent growth than those that were less than 95%. So I see no reason why this can't continue to happen. We just learned in July of a very significant rent growth we're getting from anchor that renewed that we actually hadn't counted on. So I don't see anything right now that's going to slow it down. We are just going to continue to mine the portfolio for opportunities and use of aggressive asset management, get back spaces where we think we can create some more value through rent growth. Michael W. Mueller - JP Morgan Chase & Co, Research Division: Do you think you could be in the high-teens in 2015?

The trend over -- that we're basically about is continuing -- hopefully continuing to double-digit rent growth that we've experienced the last couple of quarters. Michael W. Mueller - JP Morgan Chase & Co, Research Division: Okay. Brian, you talked about new developments heating up where end markets where you're seeing high-rise being built for multifamily. Was that a comment about the competition for land versus those developers or just about retail supply coming on?

Well, we're seeing increased competition everywhere. In terms of the north players that we're running into competing for size, it has definitely grown. But that is particularly true in the urban areas and when you look at the pricing in urban areas where the really hot markets could be in the peninsula in the San Francisco area, if you're competing against people who can take that land and go vertical with office or multifamily, then we don't stand a very good chance, unless we control the site first, which is exactly what happened in our situation, Hap mentioned Glen Gate in Chicago. So overall, there's more competition, it's very heated and it's tough to compete with when it's urban and there's other uses. But I'd also say that it's happening in the suburbs, particularly in markets like Houston, where you're seeing things that frankly we haven't seen since 2006, 2007, where people are -- they're putting up hard deposits day 1. They're closing in 60 days where they got entitlements or anchored tenants or not and in the case of suburbs, actually doing land banking. It has to have an impact yet on supply because this isn't -- it's still not even close to the amount of development we saw in the heyday. But it is -- there is more competition.

And the next question comes from the line of Juan Sanabria with Bank of America.

I was just hoping you could elaborate a little bit on the potential longer-term plans for the newly acquired Lincoln Park assets and if you have any sense of scope, dollar size or square footage of any redevelopment work that you could potentially do there?

We don't have any plans for anything right now. It's one of the sites that has endless possibilities, but we like the way it is. It's got it all, whether -- density, the affluence, the education, the great streets, the walkability to the neighborhoods there. It clearly could go vertical. What it has is a tremendous competitive advantage and it has a lot of ample surface parking that you traditionally find in the suburbs and not in these urban areas. This is going to be one of those things where should any kind of bad news happen, it's going to translate into good news and the opportunities for us, but until this thing happen, we're just content with the asset where it is.

Is there any sort near- or medium-term lease maturities that could spark a redevelopment at that asset that you could take advantage of?

Not enough to do a whole redevelopment.

Okay. And then just on the small shop space, you noted an improvement there, I guess, sequentially and year-over-year. What should we be thinking about over the next, I guess, 12 or 18 months? And where is that demand coming from? Is it a pickup in the mom-and-pops type tenants that are getting better access to financing? Or is it the regional and national tenants still driving that?

It's still predominantly the national and regional tenant's, franchises. A lot of expansion that we're starting to see from restaurants and retailers that maybe had 1 or 2 or just a handful of locations who were more cautious in years past are now willing to expand in the new markets, oftentimes new states and increase their store count. A lot of the new concepts coming up particularly in the restaurant category. And we're starting to hear about funding from that hasn't been available in the past, but again, that's never been a big focus for us since the downturn.

The next question comes from the line of Jay Carlington with Greenstreet Advisors.

Great. Hap, just to circle back on AmREIT. Have you had any direct conversations with their board? And can you give us some insight in how positive or receptive they've been? And then maybe as a follow-up, can you give us an update on your current ownership in their stock and how do think that could change?

I think that we've been pretty clear, Jay, as far as what public information is out there, and I guess, because I indicated. We're pleased that they're proceeding -- or based upon what they've said on the call and what they said in the press release that there proceeding with a process, that based upon those words, it's going to be open, robust and fair, and we're very happy about that. And our ownership that we announced at the time was 4.2% and obviously to the extent we would exceed 5% in ownership, we'd have to make a public announcement about that.

And then, Brian, maybe just switching over to, I guess, the match funding that you've talked about lining your acquisitions with dispositions of similar cap rates and lower growth profiles. Can you kind of give us a sense of how big a pool of assets that could be? And is there a common denominator between them, whether it's property type or location?

Well, the pool, frankly, because we sold 5 of our higher-risk assets this year-to-date. It's really the pool would be any of the disposition candidates are out there, which would be -- could be high -- for the match funding would be high quality, but low growth assets, for example, we sold 5 Points this quarter. We sold the title [ph] to CVS. Those are both really good assets, but they were low growth. So the pool, I think, would -- say, the opportunity is there.

I think we identified about $250 million worth. So I mean, it's not a huge pool and what I think what you're going to begin to see, Jay, is the kind of the 2 pools that we talked about. So we -- the one that funds the development and what's going to fund our acquisitions that they're going to start to merge as we sell our lower kind of noncore -- our lower quality noncore assets, we have very, very, very little of that left. And so now the focus is really just going to be on those lower growth assets and many of them have lower cap rates.

And I think, the discipline that this match funding strategy, as it relates to acquisitions, what we're basically saying to our team is that if you want buy an asset, you've got to come up with an asset that we can sell at a roughly comparable cap rate and with as visibility if the NOI growth rate is significantly lower in what we want to sell and what we're looking to buy.

And the next question comes from the line of Ki Bin Kim with SunTrust, Robinson, Humphrey.

Just first quick question on your FFO guidance. I don't like to focus on too much just given that there's many moving parts to it, but I just trying to reconcile, particularly $1.42 per share you've earned this first half and then just kind of used simple dumb math and doubled it, it still is above your guidance of $2.775 [ph]. What are the pieces that can take that $2.84 or projected number down to a $2.77?

Again, it's part of what I answered in the earlier call is the reimbursement income, it's heavy in the first half of the year. So that's about $0.02 that does not recur in the first half of the year. It recurs annually in the first half. It's just part of the seasonal variations in our income. And then the fact that the question that Christy asked at the very beginning, how much is the timing of the dispositions, our disposition guidance has actually been increased, yet we've sold very little here today. So with that being back-end loaded, that's going to have a drag of $0.01 to $0.03. And then G&A could potentially, the run rate for G&A could potentially be $500,000 to $1 million higher per quarter for filling open positions.

Sorry about that. I guess, I missed that part. And then just second question on AmREIT, if I go back to your opening remarks and you said you expect to receive adequate info, would it be correct to categorized the current situation as you haven't gotten much live dialogue with the company, just based on your kind of commentary? And tied to that is, obviously the upside of AmREIT, lot of it stems from their redevelopment or development potential. When you guys walk around AmREIT's assets, especially like uptown park, do you see a different vision from those types of assets and at least what they lay out in their public information?

I'm not going to respond to the second part of it -- that question. The first part, I just -- basically, what we said is that they made an announcement both on the press release and their earnings call and we take those words to be sincere that they're going to run a robust process. And we based our comments both in our press release and in my prepared remarks that, that's the case. And how we continue to evaluate the portfolio and we'll continue to do that at the process and we get the additional information that we expect to get to the -- up to the process unfolds.

The next question comes from the line of Haendel St. Juste with Morgan Stanley.

So you've identified a portfolio in the marketplace and AmREIT, which meets a number of the criteria you're looking for, that's income, density, future development opportunities. I guess I'm curious if in your preliminary thoughts on potential funding of an acquisition of AmREIT, how that perhaps might have changed, how you look at your own assets today. Have you identified incrementally more assets in your portfolio that you would potentially look to sell that you may otherwise have sold further down the road beyond the $250 million that you've talked about on today's call?

We said that we'll look at -- I think we have a lot of flexibility, both on our line of credit, both on the debt that would be available to us, so we wouldn't be suffering from maturity risks, both from selling assets in the portfolio and other balance sheet steps that we could take. If we consummate any transaction, we will consider all the alternatives that are out there to cost effectively and astutely finance that transaction.

Okay. So it sounds like you do a portfolio review, if in the case you were successfully able to consummate transactions down the road at some point. Another question on ground-up development, the Charlotte deal here. We've heard consistently from -- I mean, it appears that rents aren't quite necessarily where they need to be for a new development to pick up in a meaningful way. So curious what about the market or submarket location that appeal to you. And curious perhaps what other markets of opportunities you are looking at today in terms of development?

Well, we've heard that for quite some time that the rents are just fine, but I guess all I can point to, again, with this $500 million of starts that we've done since the downturn and the fact that we had development in terms about 9% and the ones that have been completed average 98% leased. So we've proven that there's demand, and proven that the demand is at good returns. In terms of this particular property, we just like the fact that we like Charlotte. We like the Carolinas in general. It's performed very well for us. The -- it's under retailed there. If you can measure the GLA per capita in terms of the national average and we are very fond of Publix. It's one of the great restaurants in the country and this should be a Publix-anchored center in a very high growth area of Charlotte. It's at the corner of main on main of the new extension of George Liles Parkway and it's rightsized and has a possibility to expand it and it's also an excellent return in the mid 80s. So there's a lot of things that we do like about it.

Just to further amplify on Brian's comments is that, as he indicated and as I indicated, the opportunity set of developments that check the boxes from a quality, from a criteria standpoint and from return standpoint is very limited. We just think we are well positioned to get more than our fair share of those developments that we check the boxes, including returns.

Okay. Fair enough. Maybe [indiscernible] quickly, Lisa, with your recent Green Bond issuance, I guess I can understand the social value, but can you perhaps quantify any discount in pricing or any other benefits that may not be, well, as apparent to that type of observer?

It so difficult to really quantify if there is any benefit at all. It certainly didn't hurt us, but I don't believe that there's any pricing advantage as a result of it. We did have a number of SRI investors in the book, but I don't think that it narrowed the spread at all.

And the next question comes from the line of Rich Moore with RBC Capital Markets.

Lisa, I don't usually see a half full term loan. So I'm guessing you guys are going to -- because I realized it's new, the increase capacity. But I'm guessing you guys are going to fill that term loan as a first source of capital and a run to 19, is that probably accurate?

I think the key thing and it was in my prepared remarks, so it's just that we have the ability as a delayed draw up until August of next year, which coincides with our bond maturity in 2015. We have a pretty -- we have a large maturity next year of $350 million. And thinking about staggering our debt maturities, we would likely do 2 different tenors to refinance that. So this is a means of doing that.

Okay, okay, I got you. And then as you look at the mortgages that you have coming due, would you ever encumber anything else at this point, I mean, or re-encumber any of these assets? Or as these mortgages mature, do you plan to take them off and always replace with some sort of unsecured instrument?

That certainly would be in the plan except in our coinvestment partnerships. We would continue to refinance with mortgages.

And the next question comes from the line of Nathan Isbee with Stifel. Nathan Isbee - Stifel, Nicolaus & Company, Incorporated, Research Division: Hap, as the news of the AmREIT proposal, the amount, I think the collective reaction was, "Wow, that's pretty un-Regency like." And I guess, are we witnessing a change in strategy or DNA? Or was there something about this deal, specific, that set it apart?

I guess we indicated in our letter that we made public that we tried to negotiate with them. We ask for information and then when they decided not to provide us with that information and sit and negotiate with us, we decided in May that it was too compelling of an opportunity for their shareholders and for Regency's shareholders and that prompted us to go public. And I just -- I'll leave it at that.

And the next question comes from the line of Jonathan Pong with Robert W. Baird. Jonathan Pong - Robert W. Baird & Co. Incorporated, Research Division: Just following up on Jim's question earlier. You guys have always been very prolific developers and looks like that's playing out again this cycle. A question is how do you account with growing that development risk further as percentage of your offering portfolio, particularly if you close on deal like AmREIT, given how much of that -- how much value in that story depends on development upside?

I think that, as we've said, we're going to be...

Let me first -- I'm going to say he's answering this, strategically, as a Regency generic, nothing to do with the AmREIT.

At least we said that we're going to look at that investment on a very disciplined basis and what makes compelling sense for our shareholders. And I think we've said, and I think we demonstrated since the downturn and we're committed to a very disciplined development program of developing those assets that meet our criteria and also limiting that as a percentage, how much balance sheet exposure that we're going to -- in terms of -- as a multiple of EBITDA. And I don't see anything that's going to change that because I got the strategy and the guideline that makes compelling sense and it's going to make sure that we're making the right investments for the right reasons.

And the next question comes from the line of Chris Lucas with Capital One.

Hap, actually, could you just remind us what that percentage or multiple approach is right now for the company, as it relates to the development risk exposure?

It's 2x EBITDA, which translates into approximately, today, about $850 million and that is the amount that we have under construction plus future commitments and we're a little bit less than half of that right now.

Okay. Great. Brian, just I guess I'm trying to understand on the tenant moveout issue, maybe if you could put it in a context of tenant retention rates, how -- what you're seeing, say the last couple of quarters compares to the 2005, 2006 sort of top of market environment?

Well, in terms of moveouts, whether you look at it -- it's a mix, less than $300,000. It's just really unusual. You can go back to 2006 or any of those years and still $300,000 was very low and yet ours has been averaging that for 3 of the last 4 quarters. Maybe it's the small shop. It's the best first half we've had following the best second half. So that's takes into consideration all those quarters back then, and it's just -- and you got to remember, too, that we're doing a lot of strategic moveouts where we're trying to get space back, we want to move the tenants out. We've had multiple examples recently of names you'd recognized whether it's Outback Steakhouse or Dunkin' Donuts or others who want to renew, and we're saying, "no," and you'd think that would elevate the moveouts. So it's a very healthy portfolio right now. We just put a survey of all our tenancy and we have 1,250 responses and less than 4% came back and said that they were likely not to renew. So there's not only strong external demand, but the returns of those portfolio wouldn't stay.

[Operator Instructions] Thank you.

We thank everyone for their time. It does appear that there is a question, which I'd be happy to answer or pass along to Brian or Lisa.

The next question comes from the line of Vincent Chao with Deutsche Bank.

Just a quick question, just on the development side of things. Again, I appreciate all the commentary about increasing competition and that kind of thing. I'm just curious, though, are you seeing an increase in breadth of demand from sort of traditional anchored tenants to take space? Or are these competition, are they moving forward without sort of that anchor backing?

Yes, we're seeing -- as I mentioned earlier, we are seeing a lot of people, a lot of developers taking down land where they don't have the anchor in place at all. Whether that's a land bank or they're just going to -- they just want to be able to compete, get the property and they have confidence they'll be able to do something. We particularly see that, again, would be in the urban areas, in markets like the Bay Area, in Houston where things are so hot that if they can't make it work as retail, there's alternative uses in offices or residential.

And a lot of the competition is non-retail.

Okay. Got you. And then just a question, a clarifying point on the $250 million secured. So obviously you have the flexibility to draw down the term loan, all the way out to debt maturity, but just curious, given where rates are today and your expectations about rates over the next -- until that maturity comes due, I'm just curious if it would make any sense to pull that forward?

I will remind you that we actually hedged $250 million already of our 2015 by [indiscernible] at a treasury plus swap rate of 2.67%. So that is our interest rate other than the term loan is obviously is floating over LIBOR.

And it appears there are no other questions in the queue at this time. Would you like to proceed with any closing comments?

Yes. We appreciate everybody's participation in the call. Thank you and everybody have a great day and into the weekend, have a great weekend. Thank you.

This does conclude today's teleconference. We thank you all for your participation and we wish you a very wonderful day.