REGENCY CENTERS CORP (REG)·Q1 2014 Earnings Summary

Executive Summary

• Q1 2014 Core FFO was $0.69 per share and FFO was $0.71 per share; management raised full‑year Core FFO guidance by $0.02 at both ends and matched FFO to the same range ($2.68–$2.74), citing delayed dispositions and a land gain offsetting reconciling items .
• Same‑property NOI growth was 2.9% ex‑termination fees (3.0% on a pro‑rata basis per 10‑Q), driven primarily by higher base rent and robust tenant recoveries despite elevated snow removal costs; operating percent leased dipped only ~20 bps seasonally from year‑end and was up ~60 bps YoY .
• Leasing momentum was strong with “nearly 12%” rent growth and broad‑based strength across anchors and shops; management increased 2014 development start guidance by $40M (with dispositions raised by the same amount to match‑fund) and highlighted a deep specialty‑grocer pipeline (Whole Foods, Trader Joe’s, Publix) .
• Stock catalysts: double‑digit rent growth resumption, guidance raise, and visible development/redevelopment pipeline; risks include competitive land markets (Houston, Bay Area) and grocery consolidation (Safeway/Albertsons) creating potential store churn but also re‑tenanting upside with specialty grocers .

What Went Well and What Went Wrong

• What Went Well

  • Double‑digit rent growth returned (“nearly 12%”), broad‑based across markets and categories; management emphasized increased frequency/amount of embedded rent steps and proactive tenant mix upgrades .
  • Guidance raised: Core FFO per share +$0.02 at both ends; FFO guidance aligned to $2.68–$2.74; development starts guidance +$40M with matching disposition guidance; plan to capitalize on a borrower’s market with a hedged $250M bond issuance .
  • Development/redevelopment execution: seven of eleven post‑2009 projects are 100% leased (portfolio >98% leased), and specialty‑grocer‑anchored developments/redevelopments generating compelling returns and merchandising uplift (e.g., Whole Foods downsize/re‑facade at Hinsdale with landlord capex minimized) .

• What Went Wrong

  • Weather‑related expense headwinds: “never ending winter” increased snow removal costs; while largely offset by higher tenant recoveries, net expense still pressured reported SPNOI ex‑term fees to 2.9% (would have been >3% absent weather) .
  • Competitive land markets and rising costs in select MSAs (Houston, San Francisco Bay Area) increase the bar for ground‑up returns; management flagged more aggressive competitors (short diligence, entitlement risk) though REG is avoiding such risk profiles .
  • Dispositions were light in Q1 (seasonality), and grocery consolidation (Safeway/Albertsons) poses isolated overlap risks; management expects to stay within full‑year disposition targets and sees re‑tenanting opportunities where overlap might force closures .

Financial Results

KPI and Occupancy

• Percent Leased – Operating Portfolio: 93.9% (Mar 31, 2013) vs 95.0% (Dec 31, 2013) vs 94.9% (Mar 31, 2014) .
• Weighted Avg Annual Effective Rent ($/sf): Consolidated $17.40 (Dec 31, 2013) → $17.86 (Mar 31, 2014); Unconsolidated $17.34 → $17.94 .
• Leasing Velocity/Spreads: “Rent growth returned to double digits at nearly 12%,” positive across all markets and both anchors and shops .

Guidance Changes

Earnings Call Themes & Trends

Management Commentary

• “Financial results exceeded our expectations for the first quarter with core FFO of $0.69 per share and FFO of $0.71 per share… Same‑property NOI growth excluding termination fees was 2.9%… without the resulting increase [from winter], same‑property NOI growth would have been above 3%.” — Lisa Palmer, CFO .
• “Rent growth returned to double‑digits at nearly 12%… strength was broad‑based… allowing us to push starting rents and increase the amount and frequency of embedded rent steps.” — Brian Smith, President & COO .
• “We increased our guidance for 2014 [development starts] by $40 million… also increased disposition guidance by the same amount… highly confident we will successfully execute match‑funding.” — Lisa Palmer, CFO .
• “We’re addressing the changing retail environment… ‘Fresh Look’… merchandising to best‑in‑class retailers, place‑making, and connecting our centers to their communities.” — Hap Stein, Chairman & CEO .

Q&A Highlights

• Capital strategy: Will issue equity only if favorably priced to NAV; otherwise prioritize match‑funding acquisitions/development via dispositions of lower‑growth assets at comparable cap rates .
• Development returns and competition: Urban infill can underwrite to mid‑7s on a risk‑adjusted basis; more aggressive bidding/short diligence by competitors in hot markets, which REG avoids .
• Land/market dynamics: Significant land price increases in Houston/SF Bay Area driving mixed‑use density; REG fortunate to secure rare single‑story retail sites in Bay Area .
• Rent growth potential: Anchors could see ~40% growth on expirations (depending on mix); shops ~5–7% with variability by lease mix; large individual leases can swing quarterly averages .
• Specialty grocer exposure: 29 grocers across pipeline (9 Whole Foods, 6 Publix, 4 Kroger, plus Fresh Market, Trader Joe’s); specialty mix rising as share of rent .

Estimates Context

• We attempted to retrieve Wall Street (S&P Global) consensus for Q1 2014 EPS and revenue; data was unavailable due to provider daily request limits at time of query, so we cannot quantify beats/misses versus consensus. Values would normally be sourced from S&P Global. Management stated results exceeded internal expectations and raised FY guidance .
• Disclaimer: Consensus estimates were unavailable from S&P Global at time of analysis; no comparison to sell‑side consensus is provided.

Key Takeaways for Investors

• Leasing leverage returning: double‑digit rent growth, rising embedded step‑ups, and very low small‑shop move‑outs support sustained SPNOI growth trajectory around 3%+ in a supply‑constrained backdrop .
• Visible capital deployment: 2014 development starts raised by $40M with match‑funded dispositions; specialty‑grocer‑anchored projects and targeted redevelopments provide durable, above‑average growth .
• Balance sheet optionality: Planned $250M unsecured issuance (hedged) and ample revolver capacity underpin funding while maintaining conservative metrics .
• Grocery consolidation is a catalyst, not a threat: Rights to recapture and strong interest from Whole Foods/Mariano’s and others turn overlap risk into re‑tenanting upside at select centers .
• Competitive land dynamics favor REG’s discipline and relationships (off‑market sourcing, joint ventures) over riskier bidding, preserving return thresholds .
• Near‑term trading: Guidance raise and rent growth momentum are positive catalysts; watch for execution on dispositions, development starts, and re‑tenanting wins in overlap markets .

References: Q1 2014 earnings call transcript (May 8, 2014) ; 8‑K (May 8, 2014) noting call transcript availability ; Q1 2014 10‑Q (filed May 8, 2014) ; Q4 2013 and Q3 2013 earnings call transcripts for trend/background .