Regency Centers' CEO Discusses Q2 2012 Results - Earnings Call Transcript

Regency Centers Corporation (REG)

Q2 2012 Earnings Call

August 1, 2012 12:00 PM ET

Executives

Lisa Palmer – SVP, Capital Markets

Martin Stein – Chairman and CEO

Bruce Johnson – EVP and CFO

Brian Smith – President and COO

Analysts

Paul Morgan – Morgan Stanley

Michael Mueller – JP Morgan

Quentin Velleley – Citi

Tayo Okusanya – Jefferies

Jim Sullivan – Cowen & Company

Samit Parikh – International Strategy & Investment Group

Rich Moore – RBC Capital Markets

Cedrik Lachance – Green Street Advisors

Vincent Chao – Deutsche Bank

Tom Lesnick – Robert W Baird

Andrew Rosivach – Goldman Sachs

Michael Bilerman – Citi

Presentation

Operator

Please standby. Ladies and gentlemen, good day. Welcome to the Regency Centers Corporation Second Quarter 2012 Earnings Conference Call. Please note, today’s conference 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, Peter. Good afternoon everyone. Good morning to those of who are on the West Coast. Thank you for joining us. On the call this afternoon are Hap Stein, Chairman and CEO; Brian Smith, President and COO; Bruce Johnson, CFO; and Chris Leavitt, Senior Vice President and Treasurer.

As always 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. Hap?

Martin Stein

Thank you Lisa and good afternoon and good morning to those, not on the East Coast. I’m extremely encouraged by the continued and significant progress that is been made towards the key objectives in all aspects of our business. We realized another quarter of improving operating fundamentals. It is gratifying that these results are meeting Regency’s higher performance standards. While Brian will spend more time in this area, I want to highlight a few key accomplishments that are evidenced of the quality of the portfolio and the focus of Regency’s management team. Leasing volumes remain robust. We continue to strengthening of our smaller shop spaces. Percent leased reached 94% for the first time since 2008.

Bad debt expense is still trending towards pre-recession levels. And pricing power well uneven is steadily moving in our favor. These improved underlined fundamentals translated in the same property NOI growth on a year-to-date basis of 3.8%.

In addition to the positive operating results of our portfolio, the $300 million of developments started since the beginning of 2009, continue to register impressive performance. Currently they are more than 90% leased with projected average returns on the incremental basis of 9.3%. I really like the four developments started this year, which will ultimately represent an investment of close to $150 million and create meaningful value for our shareholders.

These new developments reflect latencies narrowed focus on building and redeveloping dominant in field shopping centers with demonstrated demand from best-in-class retailers. Substantial progress was made on executing our clearly articulated capital recycling strategy; it has also enabled us to further strengthen the balance sheet. Last week, we closed on the $321 million portfolio sale. Bruce and Brian will describe this in more detail as well as how this and other recent impending recycling transactions are enhancing what was already a higher quality portfolio and its future NOI growth.

Together with acquisitions to date and those in our pipeline, we will have meaningfully increase the allocation of capital to dominant centers with good prospects in core markets while lowering our exposure to nonstrategic assets and markets, and reducing debt. We think caution with the balance sheet to lower leverage makes sense given the uncertainty that we are all experiencing and seeing in today’s world.

Most important of all, despite the dilutive impact from the portfolio sale being a significant net seller and operating at a lower level of leverage we will be even better positioned the compound per share Core FFO including moderate growth in 2013 by sustaining growth 2.5% to 3.5% from our portfolio of dominant centers with annual gross or anchor sales averaging more in $26 million and $500 per square foot and Trade area household incomes of approximately $100,000 in average population densities of 100,000 people and those aren’t future targets that’s the existing portfolio and a key metrics of full network portfolio.

Bi-annually developing a $150 million to $200 million of dominant shopping centers at compelling returns on invested capital brings a unique combination of in house capabilities, presence in key markets, anchoring retailer relationships, an impressive track record. And opportunistically enhancing and already solid balance sheet in excess to capital and lastly by continuing the focus energy from our dedicated and talented team towards achieving these critical goals and objectives. I also want to note that since the portfolio sale was at a minimum NAV neutral in the short term the growth we are generating NOI and the value being created from developments should translate into 5% plus growth in per share NAV this year and into the future. Bruce.

Bruce Johnson

Thank you Hap good afternoon everyone. From our financial results perspective we had a really good second quarter. Core FFO per share was $0.69 which was higher than our stated guidance range. Continued improvement in operating fundamentals was a principal driver with same property NOI growing by 3.6% this quarter – 85% of the same property growth came from increased space rent and the remainder was mostly lower bad debt expense.

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