The 1:40 P.M. session at Citi's 2023 Global Property CEO Conference. I'm Craig Mailman, accompanied by Nick Joseph with the Citi Research. We are pleased to have with us Regency Centers and CEO Lisa Palmer. This session is for Citi clients only. If media or other individuals are on the line, please disconnect now. Disclosures are available on the webcast and at the AV desk. For those in the room or the webcast, you can sign on to liveqa.com and enter code GPC23 to submit any questions if you do not want to raise your hand. Lisa, we'll turn it over to you to introduce your company and any members of management that are with you today. Provide any opening remarks. Then we'll get into some Q&A. Thank you, Craig. You feel so far away. For those of you that are online, you can't see how big the room is. Good afternoon, everyone, to everyone that is here. With me today, directly to my right here is Mike Mas, our CFO. Christy McElroy, who has been on that side of the table for many years, but with us for the last three years, which is hard to believe, SVP of Capital Markets, and Kathryn McKie, our Director of Investor Relations. Just before I do provide some overview, Regency overview, I just want to say thank you to the Citi team for providing this forum. It is a really efficient and effective conference, and we really appreciate the opportunity to be here. Thank you. Thank you. Just some brief remarks before we turn it over to Q&A. Hopefully you had the opportunity, all of you, to listen to our recent earnings call. We have been in many meetings for the past two days and have been saying not much has really changed since February tenth, which was the day of our earnings call. I happen to know that because it was the day before the Virginia Duke basketball game. Hopefully you heard on that call that across our portfolio, which is comprised of over 400, mostly grocery-anchored neighborhood and community shopping centers, that we continue to see really strong operating trends. We are still experiencing robust, really healthy tenant demand, and this was reflected in record shop leasing and tenant retention rates last year. It's also reflected in what is still a really strong leasing pipeline as we head into 2023. When we talk about it, our portfolio really continues to benefit from post-pandemic structural tailwinds. We are benefiting from positive suburban migration patterns, flexible work trends. Yes, we're all here, but hybrid work is here to stay. People are spending more time in their homes and a renewed appreciation for the importance of a physical presence and brick-and-mortar retail, both among our tenants as well as all of us as shoppers. We also continue to see great success in our what I really believe is the best platform in the business and a sector leading development and redevelopment program. Our teams completed over $120 million of projects last year. We ended 2022 with another $300 million in process. Importantly, we're really focused on continuing to build that future pipeline, we have the capability to completely self-fund that. We generate approximately $130 million of annual free cash flow. When you lever that on a leverage neutral basis, it provides more than $200 million of investment capacity. We can take that over $200 million of investment capacity and invest it in development and redevelopment, which we believe is the best and most accretive use of those funds. We expect that this activity will continue to drive sustainable external growth going forward. We're also really proud of our balance sheet. Those of you that have known us have heard us say that quite a bit. We ended 2022 with leverage of 5x Net Debt to EBITDA. Our commitment to our balance sheet and strong liquidity position enabled us to maintain our dividend payment throughout the entire pandemic. We just increased the dividend again by 4% in the Q4 of 2022. Finally closing out before we turn it over to Q&A. In 2023, Regency is celebrating its 60th year of operations, 30th year as a publicly traded REIT. I've been with them for a long part of that, and we are really proud of our track record of growth and value creation for our shareholders. As we enter what is still a somewhat uncertain environment, we believe we are really positioned well, given the quality and locations of our real estate, our tenant health and credit, our balance sheet strength and liquidity, and the hard work and dedication of our Regency talented team, that this will continue to deliver that growth and value creation for our shareholders, 2023 and beyond. With that, I'll open it up to questions. Great. Thank you, Lisa. Kind of touched on your opening remarks, but we are kind of thinking about the go forward for at least the next 12 months, asking every company what are the top three reasons an investor should buy your stock today? very much. I think I touched on a lot of them. I'll start with, I wish I had three Ps, but it's two Ps and I think an F maybe. Product. Our product type is really resilient with regards to the fact that it's mostly grocery anchored, necessity, convenience and value. As I said, I've been with the company and I'm sorry, I'm gonna be a long-winded answer, but so I'm getting to the three. That resiliency of our product type, I've been with the company for a long time, and we grow through cycles. We are able to continue to grow our cash flows. I think that's really important. We had negative Same-Property NOI Growth in the global financial crisis for one year and in COVID. Beyond that, as we have been able to have positive cash flow growth. I think our product type and that product type, we're able to continue to build quality new shopping centers with our cash flow. Second P would be people. I do believe that we have the best team in the business, and that team will continue to create value in our operating properties and also in our development program. Then the last P would be our financial strength. Our balance sheet is so well positioned to help us not just, as I said, grow through this cycle, but really positioned well to capitalize on opportunities and play offense as well. Lisa, you know, you echoed a lot of the commentary that we're hearing here just on positive fundamentals. At the same time, the Fed's out today with, again, hawkish commentary. Even as hard as they try, they can't seem to get unemployment up and consumer spending significantly down. I mean, from your perspective, we all know leasing can't continue unabated through real soft economic times. From maybe your property type, which is a little bit more defensive, a little more differentiated, I mean, do you feel like the market is overreacting to the potential slowdown in leasing, especially relative to what you're seeing on the ground in the pipeline? Yeah. With regards to leasing, again, I'll just reiterate the pipeline is really healthy. It's full. Also again, when you think about our product type and the types of users that we are leasing to, we are very necessity and convenience and value driven. There continues to be... The difference with this cycle, so I told you that there were two years, so 2009, 2020, when we did lose occupancy, as a result of the economic environment, and that created a negative Same-Property NOI Growth. The difference with this one is we are entering it sounds like it's, we have it backwards, but we're entering in a position of strength because of 2020 and the pandemic. We lost 200 basis points of occupancy in 2020 as a result of the extremely challenging environment. The health of our existing tenants is really strong because the weaker operators essentially were unable to survive through that time. We are now entering, we're filling that space. When you think about the years where we have lost occupancy, it's the move-outs. It's not necessarily the new leasing that was adding to that. We feel that we are entering this with, in a position of strength. That should enable us to kind of stem that move-out beyond what is typical for our business. At the same time, we still have that visibility to the new leases that we've already signed and will be executed, signed, but not rent paying. That will come online this year. With what we're doing today, will impact next year. We feel really good about the operating environment, regardless of where interest rates land. You know, the tailwind from prior period collections as the offset to bad debt is expected to tail off this year. I don't know, maybe, Mike Mas, you want to run through just for everyone where you guys are on that bad debt for this year and how that stacks up to a more normalized environment and maybe differentiate your portfolio from a watchlist perspective, maybe relative to some of the power center type portfolios that are out there. Good question. Thank you. From an exposure perspective, to your point, we have far less exposure to maybe some of the more challenged retailers that are out there today. I won't walk through the list, but from a watchlist perspective, we feel very comfortable from an exposure standpoint. As we thought about building our credit loss provision for 2023 guidance, we attacked it in two ways. One, just traditional bad debt expense. We, in the best of years, we're about a 50 basis points of total rent company loss to credit loss. We didn't think 2023 was setting up to be a historically average year, so we bumped that up on the margin as precautionary reasons looking into 2023. We added to that a bankruptcy provision. As we thought about building that credit loss reserve, the next aspect was identifying those tenants and going through scenario planning. When might those tenants file bankruptcy, and how might they file bankruptcy? From liquidation to reorganization and from near term to late in the year. We believe that ultimately now we're adding up to a 75 basis point- 100 basis point credit loss provision in our 2023 guidance that encompasses all of those various scenarios. From, you know, the offset to that, right, can we just talk about how we think the SNO pipeline is an indication of occupancy trajectory and strength in 2023? Sure. That's a really good question because I like to think of it in two. The SNO pipeline, our signed not occupied pipeline, and then the question, how do we think about that with respect to a year-end occupancy, maybe from this point forward? We're gonna deliver 230 basis points of that SNO pipeline over the course of 2023. About 80% of that should be online by the Q3, 90% by year-end. Feel really good about that. Absent or in a vacuum, and absent what we would think of from a bankruptcy perspective, that should imply growth in commenced occupancy. In 2022, we moved commenced occupancy by about 100 basis points positive. That level of absorption is about as high as we can move our portfolio, historically speaking. Feel really good about that tailwind. Importantly, where bankruptcies at shakeout and Bed Bath is the most uncertain at this point in time. Where that shakes out will determine where we end up from a top-line percent lease perspective. We have communicated that subject to bankruptcies. And if bankruptcies were to occur for the watchlist tenants we've identified, we could end the year flat to maybe even slightly negative. Although that isn't, in my mind, an indication of the underlying health of base rent growth and of NOI growth going forward. If we think about, you know, the anchor versus shop continues to be the better opportunity from a rent growth perspective, given the rents there. I mean, as we think about that SNO pipeline and backfilling that over time from, you know, percentage of ABR, even as you guys get better lease, can that still stay pretty healthy given the makeup of that pipeline being more shop versus anchor? I think so. I mean, let's talk about it top line. Like, we want 96% leased for our entire portfolio, shop and anchor. That's where our eye level is. We're at 95.1% today. From a percent commenced perspective, traditionally it's 150 basis points or so spread, 94.5% commenced. We're at 92.8% today. Again, compressing that SNO pipeline, a lot of ground to make up. We feel, you know, when I look out at the leasing pipelines, and to Lisa's point, they're full, they're full of both shop and anchor activity. We're seeing equal activity across the landscape. Again, absent maybe a temporary fallback because of a bankruptcy filing, we're gonna continue to march forward to those higher levels of occupancy. It's difficult for me to say SNO. Typical SNO is 150 basis points- 180 basis points when you think about our business. That's part of our business. One of the things in retail and in open air shopping centers is constant change. We love to own shopping centers where bad news is good news, right? Where we do get space back in the case of, you know, Bed Bath & Beyond of that, where we're able to then enhance the merchandising, improve it, improve the overall traffic flow in the shopping center. The same is true even in small shops. You know, if a healthy retention rate in our business is a really healthy retention rate is 75%. We hit 80% in 2022. That means one tenant out of every four tenants is gonna change at their lease expiration. That's okay because that gives us the opportunity again to put in a new, better operator. That is part of the business. It's what helps fortify future NOI growth and really keep the quality of the shopping center at premier. We're getting a question, and it kind of dovetails what you just talked about. Just what do you think the mark-to-market opportunity is on some of these watchlist tenants if you were able to get them back sooner rather than later? Maybe translate that also into a net effective, because there is CapEx that goes into retenanting that. Is it normal CapEx for these type of spaces, or is it, you know, a little bit higher? To kind of walk through that. I'll give some of the metrics, and Lisa will provide the color. We have communicated that we see about a mid-teen, 15% plus or minus mark-to-market opportunity on those spaces that you've mentioned, particularly the Bed Bath opportunities. Interestingly, Alan mentioned this on our call, I think it's important to repeat, our exposure to that tenant happens to be in about the 30,000 sq ft range on a per box basis, which is really a nice sweet spot with respect to re-leasing. 40,000+, now you're talking about, to your point, Craig, the potential to split that space for two users, which will drive up higher capital requirements and drive down the net effective rent. We think these properties, not by accident, by design, we do a really nice job of not only selecting properties, but ensuring that we're leasing to tenants within flexible spaces that can have multiple users to minimize that re-leasing costs. We've been producing net effective rent growth in the mid-double digit at, you know, 15% area for some time now. I think these spaces won't dilute nor maybe even add to that, we'll continue to deliver that level of net effective rent growth. We have another question here. How are you helping to mitigate shrink for your tenants? Are there areas, for example, Portland, I think it's referencing Walmart's decision to leave, that have been more problematic than others that you might want to avoid? You said that shrink from the tenants? Yeah. I guess voluntary market move-outs or store closures. I think I'm trying to make sure that I understand the question. Is it more from a security standpoint? Okay, that's. When we think about Regency's portfolio and our investment thesis in terms of where we want to own and operate shopping centers, we tend to be in trade areas with compelling demographics. Not to say that we're completely immune from any security or crime or theft issues that have been occurring, but we're a little bit more resistant to it. In the areas where there have been increased concerns of that, we have increased our security. That does come through as an operating expense at the property. We've done a really good job generally of managing operating expenses across our entire portfolio, and have seen any increases in that well above, inflationary, you know, inflation rates. We also do have triple net leases as well. While again, it's not something that we're completely immune to, we've seen little impact to our shopping centers across the country. Maybe one last one on the rent growth inflation piece of things. You know, the retail apocalypse, one of your peers described as sort of more a disinflation problem and occupancy cost pressures for tenants versus today, the Fed's clear trying to get inflation under control, but inflation's helping tenant sales, right, above and beyond the bumps that you have in leases. As you guys think about, you know, the longer-term rent growth trends for retail real estate, given more limited supply and the fact that, you know, occupancy costs could ease over the life of the lease if there is some inflation that helps the sales of these tenants, kind of what are your thoughts about any kind of longer-term re-rating or trends in that the rent dynamic? Your words in the beginning about retail apocalypse. The retail apocalypse and retail Armageddon, they were the headlines that we were seeing in 2018. I do wanna, I wanna address that first. I do think that when we think about the environment that we were in 2018, 2019, there was a lot of concern. It was more about how was e-commerce going to impact the physical shopping center. Retailers were being much more cautious in new store growth and also much more concerned about the ability to raise rents. We hit 2020 and the pandemic. The pandemic really did, and I said this in my opening remarks, create a renewed appreciation for that physical presence from both consumers as well as from the retailers. People like to go out. They want to have a good experience. They want to stay close to their home, all of which are tailwinds for our business. The retailers realized the real benefit from a cost effectiveness standpoint of being close to homes and having that physical store for last mile fulfillment. Also the fact that people were coming back and wanted to shop in the store. Retailer service providers investing in the in-store experience, the at location experience, it's a benefit for us. With that, the successful operators are driving sales. I think that you can't isolate just inflation. It's also a strength in our business that is creating a better operating environment and enabling us to get better rents. Inflation then also plays a role. With that, with increased sales, I think we do have a little bit more pricing power. We at Regency are very focused on contractual rent steps, have been for some time. We've been getting annual contractual rent steps. For our small shops, on an annual basis, and I wanna make sure that I quote it right, 2.6% in 2022, and that is up slightly from where we were historically, when we were closer down in the lower twos to 2%. That means we're already if a five-year lease, you're already marking that lease to market, and then we're able to get high single digits upon expiration on a blended basis. I think we are capturing some of that inflation. I do believe that if it continues, I'm hoping that inflation doesn't stay as high as it is, as sticky as it is for that very long, that we will be able to capture some of that as a result of the tenants increasing their sales. Because it does come down to occupancy cost and their ability to produce sales at those locations. Great. Maybe shifting a little bit to capital deployment. You know, you'd mentioned you guys are throwing off $130 million of free cash flow. You can lever that up on a levered neutral basis. At the same time, the transaction market remains a little bit disjointed, right? And your ability to get that full $300 out, $250-$300 that you guys talked about the last couple of years has been a little bit tougher. Can you, I guess, two-prong. Number one, talk about how you guys think about your cost of capital, given that, you know, almost 50% of your deployment comes from free cash flow relative to raising equity or levering up. And what the opportunity set looks like out there for the quality of product that you guys typically would wanna own. I'm gonna sound like a broken record because what I'm gonna say is the strength of our sector is important and the opportunity set from a development standpoint. When we take our $130 million and we lever it, and we get to north of $200 million, our first use for that capital is in development. We are extremely focused on continuing to grow that pipeline so that we can fill it, so that we can use All of that levered free cash flow into our developments, 7% north returns. It's an accretive use of our capital. It is great value creation for our shareholders. That opportunity set had been limited, and part of it was the caution and the conservatism in 2018, 2019 as retailers were concerned about the headwinds that they, you know, were facing. We now have tailwinds, and that pipeline is growing, and I expect we will be able to get we will get back to that north of $200 million in the near term. In 2023, no. That development spend at this point in time is estimated to be about $130 million. That does leave us excess investment capacity. To your point, Craig, we are evaluating all opportunities. The transaction market is still really thin. We are not seeing a lot come to the market of the quality that we would like to buy. If it does, we will evaluate, we'll be patient, and we will think about the other opportunities that are out there. Again, at this time, there's not a whole lot coming to market on the transaction market. What we are hopeful is that perhaps our phone will continue, and we said this on our earnings call as well. Our phone will continue to ring more for the local developers who tend to be some of our toughest competitors in the market that are facing challenges in getting financing for themselves on land that they already own for the development of shopping centers. Are you seeing any of that distress come through yet? We've seen it one-offs in every property type, but, I mean, are you guys in any serious discussions with, you know, something of a serious amount that would be beneficial to you guys down the road? Are these just conversations at this point? They're still conversations, and I would say distress is still too strong of a word. I think it's concern from some of the developers. It'll become distress when they actually have some liquidity event or something that they need, when they really need to tap the financing market or need to do something with the development. We've had success in the past with opportunities like that and expect that we'll have more in the future, but nothing of significance at this point. We're mining those opportunities. I recognize the transaction market's very thin right now, but where do you think cap rates are? Then as you think about development, where are those yields on a stabilized basis? It is very thin, so it's hard to have a lot of conviction. I said not much has changed from our earnings call which was February 10th. What I would say has changed in terms of how I'm thinking about the business, so I think for those of you that did listen to the call, we talked about the transaction market thawing. Had it continued on that pace, I would say, sitting here today, I would've expect to see more product. Because inflation was stickier than was expected, and I think that there's more the uncertainty as to where interest rates are gonna stabilize and when they reach that has been introduced back into the market. As a result of that, we haven't seen the property come into the transaction market that I would expect. With that said, you know, there are a couple data points. One we did actively bid on, and we were outbid. While it hasn't been announced that it's traded yet, based upon what I know what we did, I would say that the cap rate's gonna be in the mid-fives for a quality grocery-anchored shopping center in a primary market. Is that different than it was 12 months ago? Yes. It's probably up 20 basis points, 50 basis points. I don't know that we've seen the last of where cap rates are gonna stabilize. There's still a lot of uncertainty. From a development standpoint? Development. Development is in the development business, right? You can't turn it on or off. The projects that we start today aren't gonna be delivered for another couple of years. It tends to be a little bit stickier, and we've had success in achieving development returns approximately 7%. I expect that we'll continue to be able to achieve that and hopefully do a little bit better. That still has a good spread where I would expect that quality grocery anchored shopping centers cap rates will stabilize. You guys have always had a good balance sheet here, and you're at the low end of the target leverage range today. I mean, to the extent the market does improve, you're able to find some interesting development sites, how much capacity or how much development at any point would you feel comfortable undertaking given sort of the market, your balance sheet, your just internal risk appetite if things were back to a more normalized environment? Lease's objective is to grow to $250 million a year. For our current size, our current balance sheet, our current portfolio, that feels right. I also think that that also fits with the opportunity set that I believe is out there for us in terms of when we think about grocer expansion and quality. We want to make sure that we maintain the quality threshold as well. Going beyond that, in today's world, things can change. I think that that feels like that is the right amount. Just to be clear, is that a start number? Is that a delivery number? All of the above. Right. In a stabilized world, it should be $250 million starting, $250 million delivering, $250 million of spend. We should be able to do that on an annual basis. I mean, there'll be some lumpiness, but, you know, smoothing it over time. Maybe to tie that to the balance sheet to your related to your question. We kind of look at it from multiple perspectives. One, the reach of our leverage free cash flow can support that level of development on an annual basis, so we're fully internally funded. As we think about safety and preparation, we size our revolver so that about half of our revolver balance is also about basically 2+ years of potential commitments in our development business. Just very cautious of how we're funding it with free cash flow and how we're protecting ourselves on the back end through that revolver capacity. Then in virtuous cycles, when the equity market is available to us at attractive pricing, we can then hopefully participate in the acquisition market and continue to grow accretively that way as well. To Mike's point, if the free cash flow is self-funding our development program, we do not need to access the equity markets at all to continue to grow the company. If you had to hit the debt market, I know it's to say today, given the volatility of the 10-year, but where do you think you price maybe from a spread over the 10-year today is maybe a better way to think of that? Say what it was yesterday. Yeah. It was yesterday. My comments are limited to yesterday. It would have been in a, you know, sub 200 area, 190 area, 195 area. Just on the ESG front, kind of what's the number one goal for 2023? It's difficult for me to pick one as a, as a number one goal. You can pick two. It's okay. Yeah. I mean, what I would say, 20% of my annual cash compensation, incentive compensation is tied to the achievement of our ESG goals, our corporate responsibility. I wanna achieve all of them. We actually have four pillars. We add communities as a third pillar to ES& G. Again, achieving our goals in each one of those pillars is really my number one goal. If you force me, I would say, greenhouse gas emissions reduction, we did set a goal for 28% reduction, SBTi endorsed by 2030, then DEI and really increasing and improving diversity and inclusion at Regency and as chair of Nareit in the industry. We'll move over to the rapid fires now. Same store NOI growth for the strip group overall, not Regency in 2024. You can say Regency too, if you want to give guidance. In 2024, 2.5%, Regency will be at least 50 basis points better. best real estate decision today: buy, sell, build, redevelop, or hold? Build. Disciplined build. In the strip centers, more, fewer or same number of public companies a year from now? Same. Thank you. We got time for one more, if there's anything. Just quickly in the a minute and twenty seconds, with your grocery anchors that you deal with, is there any new news from the old school about Amazon and their thinking there? Has there been anything new there that we haven't heard about maybe? No. I mean, you're gonna read everything. We have good relationships. I think, I wouldn't bet against them. They've been testing, they've been reiterating, trying to make their in-store experience of the Amazon Fresh better. They have Whole Foods. They have a platform that they can learn from, I believe they're finally going to start to do that and structure the company so that they are able to learn from what Whole Foods does well and apply it how they can apply it to Amazon Fresh. I anticipate that they're gonna continue store expansion, and that they will figure it out. I think that that's good for our industry. Great. Well, thank everybody. Have a great conference.