Regency Centers' CEO Discusses Q1 2012 Results - Earnings Call Transcript

Regency Centers (REG)

Q1 2012 Earnings Call

May 03, 2012 10:00 am ET


Lisa Palmer -

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

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

Brian M. Smith - President, Chief Operating Officer and Director


Quentin Velleley - Citigroup Inc, Research Division

Michael W. Mueller - JP Morgan Chase & Co, Research Division

Samit Parikh - ISI Group Inc., Research Division

Jeffrey J. Donnelly - Wells Fargo Securities, LLC, Research Division

Paul Morgan - Morgan Stanley, Research Division

Nathan Isbee - Stifel, Nicolaus & Co., Inc., Research Division

Craig R. Schmidt - BofA Merrill Lynch, Research Division

Omotayo T. Okusanya - Jefferies & Company, Inc., Research Division

James W. Sullivan - Cowen and Company, LLC, Research Division

Cedrik Lachance - Green Street Advisors, Inc., Research Division

Richard C. Moore - RBC Capital Markets, LLC, Research Division

Vincent Chao - Deutsche Bank AG, Research Division

Paula J. Poskon - Robert W. Baird & Co. Incorporated, Research Division



Good day, everyone, and welcome to the Regency Centers Corporation First Quarter 2012 Earnings Conference. Today's call is being recorded. At this time, I would like to turn the conference over to your moderator, Senior Vice President, Capital Markets, Lisa Palmer. Please go ahead.

Lisa Palmer

Thank you, Kim. Good morning, everyone. Thank you for joining us. On the call this morning are Hap Stein, Chairman and CEO; Brian Smith, President and COO; Bruce Johnson, CFO; 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 Forms 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.

Bruce -- oh, sorry, Hap?

Martin E. Stein

Thank you, Lisa, and good morning. As Brian and Bruce will discuss in more detail, we made significant progress during the first quarter toward achieving our key objectives in all aspects of the business. Operating fundamentals are definitely trending positively. We ended the quarter at 93.6% leased. Same property net operating income was up more than 4%. Move-outs and bad debts are at prerecession levels. Leasing demand remains robust, including small shop space, and we're starting to experience some pricing power.

While we're gratified by these results, it's still early in the year. We are keenly focused on building on this positive momentum especially growing base rent and doing the heavy lifting needed to firmly re-establish Regency's long-term NOI growth rate at 3% or more.

We're gaining traction on the sale of targeted nonstrategic assets and the potential progress is encouraging.

Regarding recycling that capital into acquisitions, we're seeing some opportunities to buy dominant centers with excellent growth prospects in Regency's 2,000 target markets. Given the intense amount of competition, buying great assets is one of the most challenging aspects of our plan.

In any event, as we've shared with you, we intend to be a net seller in 2012 in order to modestly reduce leverage and increase financial flexibility.

Our post-recession developments -- redevelopments and expansions are performing well. As a matter of fact, in excess of our underwriting. We're on track to achieve returns in excess of 9.5% on the $200 million of incremental capital for the projects started after January 2009. As supported by preferred stock transactions, almost $600 million of capacity on the line of credit in term loan and mortgage refinancings in our co-investment partnerships, we have the capability to take advantage of all facets of the capital markets spectrum. And we will continue to opportunistically improve upon our balance sheet that is already in solid shape.

Now I'll turn it over to you, Bruce.

Bruce M. Johnson

Thanks, Hap, and good morning to everyone. I think I speak for all of us here when I say that this quarter's results are encouraging. To recap, recurring FFO per share was $0.62. When you include the onetime charges associated with the preferred stock offering, offset slightly by gains on our parcel sales, total FFO per share is $0.55.

Same property NOI growth, excluding termination fees, was positive 4.2%. There were 2 primary drivers. First, increased base rent from occupancy gains and contractual rent steps, contributed approximately 200 basis points; and second, increased net recoveries resulting from better occupancy and lower expenses contributed approximately 150 basis points.

It should be noted that a portion of the expense recovery was caused by timing differences, which could reverse in the second quarter when we complete our tenant reconciliation process, bringing the second quarter growth rate closer to 2%.

That being said, we are in fact raising guidance for the 2012 year-end results. We expect NOI growth to stabilize during the last half of the year, put us in the 2% to 3.25% for the year. Additionally, our new percent lease guidance is 93.25% to 94.25% and recurring FFO per share guidance is $2.42 to $2.54.

It is also worth mentioning that we changed the fiscal year of our capital insurance come made to end in April. As a result, this year we expect to recognize income from our cap rate [ph] in the second quarter rather than in the third quarter. As you may recall, this income is not included in the same property NOI. We expect the income to be approximately $0.03 to $0.04 per share and incorporate this into our second quarter FFO guidance.

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