Welcome to the Regency Centers Corporation Second Quarter 2016 Earnings Conference Call. [Operator Instructions]. I would now like to turn the conference over to your host, Mike Mas, Senior Vice President of Capital Markets for Regency Centers Corporation. Thank you, Mr. Mas, you may begin.

Good morning and welcome to Regency's second quarter 2016 earnings conference call. Joining me today are Hap Stein, our Chairman and CEO; Lisa Palmer our President and Chief Financial Officer; Mac Chandler, Executive Vice President of Development; Jim Thompson, Executive Vice President of Operations; and Chris Leavitt, Senior Vice President and Treasurer. Before we begin, I'd 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. In addition, on today's call we will reference certain non-GAAP financial measures. More information regarding these non-GAAP measures can be found in Company documents filed with the SEC. [Operator Instructions]. I'll now turn the call over to Hap.

Thank you, Mike. Good morning and thank you for joining us on the call. Our talented team continues to deliver impressive results in each of the key aspects of the business. The underlying fundamentals of Regency's high-quality portfolio remain strong. The portfolio is distinguished by sustainable advantages from locations and desirable trade areas and by merchandising to highly productive grocers and best-in-class retailers and restaurants. And we're continuing to find value-add developments and acquisitions with superior growth prospects. In addition and as we have clearly stated, having a fortress balance sheet is integral to our strategy to provide the financial flexibility to efficiently capitalize on compelling investment opportunities and profitably weather future storms that may arise. With that in mind, just a few weeks ago we successfully raised $400 million of equity capital which further strengthen our balance sheet by reducing leverage on an earnings accretive basis and creating additional capacity to fund a growing investment pipeline. I want to stress that we will remain disciplined and selective to ensure that any allocation of capital is consistent with the high quality of our existing collection of grocery-anchored neighborhood and community shopping centers and offers attractive prospects for growth and/or value creation. Finally and n most important of all, I want to emphasize how well positioned Regency is for the future. First, our portfolio which by all measures of quality is among the top in the sector, is poised to sustain 3% NOI growth. Second, our development program which is widely recognized by key anchors, retailers and restaurants and by the important market players as best in class, will enable us to start and deliver $200 million of premier centers at attractive returns. Third, our balance sheet which is one of the most pristine in the whole REIT sector, provides an incredible amount of flexibility to cost effectively fund compelling investment opportunities. And our team which is guided by Regency's special culture, is in my mind without peer in terms of talent, depth and engagement. These distinguishing features ensure we're better positioned than ever to compound future core earnings per share growth that should average 6% to 7%. This, together with consistent gains in NAV and accelerated dividend increases, will be our recipe to sustained growth and shareholder value. Mac Chandler, our Executive Vice President of Development, will now provide an update on investments. Mac?

Thanks, Hap. Good morning. On our last call we shared with you our plans for two pending acquisitions. Mid quarter we closed on the retail portion of Market Common Clarendon in Metro DC. This iconic mixed-use project anchored by a high-volume Whole Foods and a strong mix of exceptional retailers including Apple boosts upside from redevelopment which will be expertly mined by our DC team. Subsequent to quarter we acquired Klahanie Shopping Centers in Seattle for $36 million. Anchored by Krogers QFC banner, Klahanie is located in a very affluent community where we already own several high-performing centers. These two new acquisitions will enhance Regency's portfolio with trade areas benefiting from high income [indiscernible], productive grocers, best-in-class retailers and the opportunity to capitalize on below market rents. The centers are projected to generate substantial NOI growth and IRRs that roughly average in the mid-6% range. With respect to our development program, our capabilities positioned Regency to profitably enhance portfolio quality and generate premium returns to comparable acquisitions. Take our La Floresta Whole Foods development in Orange County which we completed this quarter. It's a great example of superb execution of Regency's fresh look merchandising and design. And it's already at 99% leased to a fabulous lineup of local, regional and national retailers and restaurants. The returns reflect a spread to market cap rates of over 300 basis points. Our in-process developments are also performing extremely well and are approaching 90% leased. More specifically, our Springwoods development in Houston represents further evidence of the combination of well-conceived development and fresh look. Although we just broke ground, more than 80% of the Center is leased and committed, including a top-notch set of retailers to complement our best-in-class grocer. While there's still a good bit of work to be done, we remain confident in our ability to start an average of $200 million of developments and redevelopments annually and maintain our full-year guidance range. Our expectation is that the vast majority will begin in the fourth quarter. Lisa?

Thank you, Mac. Good morning, everyone. I am again pleased with the results this quarter. As Hap mentioned, the critical ingredient of our winning strategy is the quality of our portfolio. Highly productive anchors and great locations together with the team's focus enable us to merchandise to best-in-class retailers. This proven combination drives pricing power, percent leased and in turn, NOI and earnings growth. The result of our efforts are evident in our numbers again this quarter. Same-property NOI grew by 3.4%, with base rent once again as the primary contributing factor. Full-year same-property NOI guidance remains unchanged, though, as we do expect growth to moderate throughout the second half of the year as we face higher comps from rent-paying occupancy and as we begin to feel the impact of previously announced bankruptcies. Regarding these bankruptcies, our leasing teams are working diligently on replacing these tenants with more productive operators. We already have some good news to report at our location in Northern California where Target has acquired the former Sports Authority space, resulting in no down time and no loss of rent. We're excited about this clear upgrade for the center. Another factor expected to impact the second half of the year is the large-scale transformation of one of our centers near Aventura Mall in Miami. Most of the tenants at this location will be offline as we scrape and rebuild the center which will feature a podium format Publix with parking underneath. Although we will experience loss of NOI in the near term, this renovation will add substantial value and future NOI growth to our portfolio in the long run. The leasing environment continues to be robust with shop spaces in the same property portfolio at 92.4% leased, an increase of 40 basis points sequentially. In fact, shop…

[Operator Instructions]. Our first question comes from the line of Jay Carlington from Green Street Advisors. Please proceed with your question.

Lisa, just to touch on your balance sheet comments there. I guess, has the decision to maybe redeem your notes and the recent equity offering indicate you guys are going to pursue a more conservative balance sheet? And maybe as a follow-up, can you remind us what your long-term debt targets are?

Sure. I think that pursuing a more conservative balance sheet isn't new. I hope that we've been delivering that message for the past several years, that we've really worked towards improving the balance sheet. The most important thing is to ensure that we have a well laddered profile. And we now don't have any significant maturities until 2020. So that's really important, but then secondly, to maintain a net debt to EBITDA below 5 times throughout the cycle. So when we can take advantage of being much lower than that so that we have the flexibility to really be offensive and act on opportunities if they present themselves at a time when the markets aren't as open and aren't as cheap, then that's the position we want to be in. And as we're today. So we absolutely want to be conservative. And long term we'd like to average around 5 times.

Okay. Maybe just changing gears on your guidance page for your NAV disclosure. I guess there's an additional color on undeveloped land or land held for future development. Is that just fine tuning or is there land that was reclassified there?

That's just fine-tuning of the disclosure, Jay. And there's no change to any of that from a strategy sampling, just trying to make it a little more prominent for the users.

Our next question comes from the line of Christine McElroy from Citigroup. Please proceed with your question.

Lisa, sorry if you mentioned this. Just looking ahead to further use of this capital. When do you expect to settle the remaining forward equity? Is that in your 2016 guidance?

No, Christine. We actually don't have a set time. We would like to use that for new investments. We have until June of next year to settle it. It is not incorporated into our guidance.

Okay, got that. And then in terms of acquisitions and new investments, just realizing that's not in the guidance. But what are you sort of seeing in terms of the pipeline? Are there more opportunities today? And how do you think about -- how are you thinking about acquisitions and investment differently as your cost of equity continues to decrease with the strength in your stock price?

I think that we've been active over the past two years with acquisitions. So there has been more opportunities than meeting our investment criteria. We certainly haven't been successful on every opportunity that we've pursued. And in fact I think probably for every 10 we may underwrite and look at, we're probably successful in 1 or 2 of them. So we continue to see opportunities, although there's no guarantee that we will be the successful bidder. To the extent that we can get --

Or decide to buy.

Or decide to buy. To the extent that we can see off-market opportunities which are really hard to come by, they typically come through relationships. So for every maybe 50 we look at, 1 is a true off-market opportunity. Those are the best. And we will continue to try pursue those. The way we think about our cost of capital, especially now that we've already raised some and we have -- we do have capital available to buy, we're targeting unlevered IRRs in the 6% to 6/2% range which is lower than it was three years ago.

And in addition to that, we only want to buy centers that are going to be accretive to our long-term growth rate and meet our quality standards.

Our next question comes from the line of Tayo Okusanya from Jefferies. Please proceed with your question.

Just a couple from me, first of all, could you quantify the NOI loss you do expect from scraping the asset that's right next to the Aventura Mall? Just want to make sure we have that in our numbers

I'm not sure. I think of bps in terms of same-property NOI growth. And Jim may have the actual NOI number. But I think it's about 15 basis point impact to same-property NOI. So it's significant.

In 2016.

So that's helpful.

For one property, that's significant.

Okay. And then second of all, could you just give an update in regards to Sports Authority and kind what's happening with those boxes within your portfolio?

Let me answer kind of big picture and how it's impacting our numbers. And then I'll let Jim talk about the actual real estate. So we did have one move out. And again, he can add color to this. We had move one out the end of the quarter. So, that impacted our percent leased as of period end. We hadn't experienced any NOI loss yet year to date. So we do expect bankruptcies to have a negative 50 basis point impact to our same-property NOI growth in the second half of the year. So when you weigh that with the Sports LA, Eastern Mountain Sports bankruptcies and other smaller ones, the impact of bankruptcies on the full year, on same-property NOI percent growth is about 40 basis points. I'll let Jim actually talk about the real estate. But that's the impact to the numbers and the guidance.

Yes. As Lisa indicated, Target assumed our Northern California lease which is a huge merchandising upgrade for us. Our two remaining other leases, both stores are closed today. We expect a slight discount to in-place rents with 12 to 18 months of downtime associated with those. But we're actively engaged with -- in dialogue with replacement retailers. So we feel pretty good about the replacement prospect at this point. Obviously, a upgrade to quality of the retailer.

Just one more for me. The Clarendon asset that was acquired close to a 4% cap, could you talk a little bit about what ultimate stabilized yields would be after all the mark-to-market and as well as the redevelopment of the adjacent parcel? Like, what could that number look like and how soon could you get there with that?

In terms of how soon we could get there, the way we took, I believe, a conservative approach to underwriting the redevelopment opportunity of, really, the vacant building and don't expect to receive any income from that parcel until 2018. So we do have time. I'd also like to point out, we've already outperformed our initial underwriting with some tenants -- a tenant exercising a renewal option and then also we had projected the sports club that there's to move out. And they've actually -- they're still paying rent as well. In terms of stabilized yield, it's in the same ballpark as all the others. And we're looking at our acquisitions that with going-in cap rates of a 5% to a 5.5% and stabilizing near 6%. Market Common Clarendon will not be any different than that which is evidenced by the north of 5% NOI growth that we're projecting there.

Our next question comes from the line of Floris van Dijkum with Boenning. Please proceed with your question.

I had one question for Lisa in terms of -- and obviously you guys have done a great job on the balance sheet. I noticed you got -- as you think about terming out your debt, are you going to be looking to -- for any new bond offerings, et cetera to look to extend the maturity on your existing debt outstanding?

Floris, it will really depend on if we have -- if any other investment opportunities. We still have some equity to put to use. But to the extent that can find acquisitions or increase the size of our development pipeline and we would think about funding that not with -- just not just with equity but potentially with new debt and also potentially with property sales. And it will depend on really the capital markets at that time because right at this moment, there's no need for additional debt.

Tremendous amount of flexibility, as both Lisa and I indicated.

Right. And then the other question is more of a strategic question in terms of Clarendon. And I know, Lisa, you and I've probably talked about this over the past couple of years. But as you look out 2 to 3 years, do you expect that Regency is going own more of these kinds of big, dominance sort of lifestyle centers? Or do you think this is sort of a one-off?

We'll be on several larger community shopping centers. We have a great property in Raleigh, North Carolina, kind of shopping center that we've owned for well over 10 years. We redevelop an iconic property, made it iconic, in Westlake in Southern California. So community shopping centers, some of whom -- some of which have some lifestyle components has been a part of our strategy long term and will continue to be. But I would still say that it's in the 20%-plus percent range today as a percentage of NOI. And it may go up some, but not substantially. As we said often, our strategy is community and neighborhood shopping centers and will continue to be so.

[Operator Instructions]. Our next question comes from the line of Craig Schmidt from Bank of America. Please proceed with your question.

I guess my question is also on the Market Common Clarendon. You mentioned near-term expiring. And it sounded like in Tayo's question you mentioned the Washington Sports Club maybe leaving. Are there any other anchor or junior anchors leaving? Or is the rest of the near-term lease expiring in line shops?

We don't -- the renewal also was the bittersweet. It was actually Barnes & Noble. So we did -- there is significant upside in that rent, even after. Renewal option was even a large increased. What we had underwritten was that it was going to be down for little while, while we replaced it with a better operator. Such that it was bittersweet. We kept the income at a higher rent, but now we have to wait, I believe, the renewal was for five years. So now we have to for another five years in order to replace that tenant. Beyond that, we do have -- so Washington Sports Club is also a short-term renewal. And we anticipate that we will have the opportunity to replace that as well at a higher rent

And we have the right to terminate when we find a replacement later.

And then the other upside is really -- it comes from smaller spaces and then the redevelopment of the vacant parcel.

The vacant parcel, is it eat or west of the center? Does it have Clarendon exposure?

I'm a female. We don't think north, south, east, west. It actually -- so the front door today actually comes out to Clarendon Boulevard. So it's facing the Barnes & Noble. We could potentially reconfigure that so that that the door could face the Whole Foods and do ground-floor retail so that it is -- it does have Clarendon exposure. We think that there's incredible amount of upside there.

It really does sit on the pin corner of the property.

Okay. I notice you have a Cheesecake Factory. In the renovation of that out-parcel -- I'm sorry, parcel, would you be adding maybe more restaurants?

So Cheesecake Factory is down the other -- I guess that would be, it's toward DC, I know that -- no, it's the other way. It's opposite DC. It's down the other end. Very well could be restaurants. But I wouldn't anticipate it being a large-use restaurant like that. I would anticipate smaller and have some outdoor seating because there is a little bit of a courtyard there. But again, we're in the really early stages. We did give ourselves some time to really explore what would be the best long-term use

Throughout the project we expect to be able to add some additional excellent restaurant operators. We think that's a real opportunity there. And just to note, the parcel that's available is an old Sears which is, as Lisa and Jim indicated, is strategically located on the site.

There are no other questions in queue. I'd like to hand the call back over to management for closing comments.

We appreciate your time and interest in Regency. Thank you very much. And everybody have a great day and the rest of the week. And if you're in hot weather, stay cool.

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