Regency Centers' CEO Discusses Q2 2011 Results - Earnings Call Transcript

Regency Centers (REG)

Q2 2011 Earnings Call

August 04, 2011 10:00 am ET

Executives

Martin Stein - Chairman, Chief Executive Officer, Chairman of Executive Committee and Member of Investment Committee

Bruce Johnson - Chief Financial Officer, Executive Vice President and Director

Brian Smith - President, Chief Operating Officer and Director

Lisa Palmer - Senior Vice President, Capital Markets

Analysts

Christy McElroy - UBS Investment Bank

Richard Moore - RBC Capital Markets, LLC

Quentin Velleley - Citigroup Inc

Michael Bilerman - Citigroup Inc

Albert Lin - Jefferies & Company, Inc.

Vincent Chao - Deutsche Bank AG

Craig Schmidt - BofA Merrill Lynch

Presentation

Operator

Good morning. My name is Holly, and I will be your conference facilitator today. At this time, I'd like to welcome everyone to the Regency Centers Corporation Second Quarter 2011 Earnings Conference Call. As a reminder, this call is being recorded. [Operator Instructions] I would now like to turn the conference over to Ms. Lisa Palmer, Senior Vice President, Capital Markets. Please go ahead, ma'am.

Lisa Palmer

Thank you, Holly. Good morning, everyone. On the call this morning are Hap Stein, Chairman and CEO; Brian Smith, President and Chief Operating Officer; Bruce Johnson, Chief Financial Officer; and Chris Leavitt, Senior Vice President and Treasurer.

Before we start, 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 these forward-looking statements.

Please refer to the documents filed by Regency Centers Corporation with the SEC, specifically the most recent reports on Form 10-K and 10-Q, which identify important risk factors that could cause actual results to differ from those contained in these forward-looking statements.

I would now like to turn the call over to Bruce.

Bruce Johnson

Thank you, Lisa, and good morning. As we reported, recurring FFO for the second quarter was $0.56 per share. Total FFO was $0.61 per share. As Brian will discuss later, tenant health continues to improve. Rent relief requests and tenant defaults are approaching prerecession levels. That being said, our provision for doubtful accounts was higher than what was recorded in the first quarter and also higher than the second quarter of 2010. The majority of that increase was due to expense reconciliations being built in the second quarter this year versus the first quarter last year. This year, we reserve a higher month relating to the reconciliations as we experienced abnormally high expenses in 2010, much of it related to the slow removal costs in the Northeast and the mid-Atlantic.

During the quarter, we renewed our property insurance policies early in an attempt to get in front of expected increases resulting from the recent catastrophes, including the Japan earthquake. Although we mitigated some of the impact, we still experienced higher-than-expected premium increases of 12% or approximately $2 million over the prior policy period.

As a result of the higher reconciliation billings and the recently completed renewal of our insurance, we have lowered guidance for the expense recovery rate to the range of 76% to 78%. Primarily because of the slightly higher-than-expected provision for doubtful accounts and the reduction in recovery rate related to insurance increases, we reduced the high end of our guidance for same-property NOI growth by 50 basis points to 1%.

Our liquidity position is in great shape, with almost full availability of our $600 million line of credit. We held our annual bank meeting last Thursday to discuss the recast of the line, which is set to expire in February 2012. We have an extremely positive response. We're seeing commitments in excess of our requested level prior to the meeting. We expect the new facility to carry a 4-year term with a 1-year extension option and market-leading pricing. Closing is anticipated in late August or early September.

We further improved our debt maturity profile, particularly in our core investment partnerships. During the quarter, we closed $340 million in secured financings in a weighted average term of 11 years and an interest rate of 4.87%. We also infused with our partners nearly $120 million in equity, which is part of our plan to delever the GRI partnership. This eliminate all 2011 maturing debt in our partnerships, which has allowed us to focus on 2012 maturities and take advantage of still historically low rates. We have just over $200 million in consolidated unsecured debt maturing at the end of 2011 and at the beginning of 2012.

Looking ahead for the year, we have tightened guidance range of recurring FFO per share to $2.33 to $2.43. For the third quarter, we expect recurring FFO to be in the range of $0.57 to $0.62 per share.

Brian?

Brian Smith

Thanks, Bruce, and good morning. Things aren't perfect, but the positive underlying trends we experienced last quarter continued. With spaces greater than 5,000 square feet, nearly 96% leased, small shop leasing is the key to restoring occupancy to historic levels. This category led the way during the second quarter with occupancy in spaces less than 5,000 square feet increasing 50 basis points to 84.3%.

Overall, operating occupancy increased by 10 basis points to 92.1%. This is despite a 30-basis-point negative impact from 19 Blockbuster move-outs and a 10-basis-point impact from development completions. We signed over 500,000 square feet of new leases, significantly more than prerecession times. Notably, 90% of these new leases were with retailers less than 5,000 square feet, and they represented over 60% of the GLA line.

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