Regency Centers Corp (REG) 2012 Q1 法說會逐字稿

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.

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, I'm sorry. Hap.

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 by more than 4%. Move-outs and bad debts are at pre-recession 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 is 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 reestablish Regency's long-term NOI growth rate at 3% or more.

We're gaining traction on the sale of targeted non-strategic 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 two dozen 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 are 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 our preferred stock transactions, almost $600 million of capacity on the line of credit and term loan, and mortgage refinancings, and our co-investment partnerships, we have the capability to take advantage of all facets of the capital market spectrum, and we will continue to opportunistically improve upon a balance sheet that is already in solid shape. Now I'll turn it over to you, Bruce.

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 one-time charges associated with the preferred stock offering, offset slightly by gains on our parcel sales, total FFO per share is $0.55.

Same-property NOR growth, excluding termination fees, was positive 4.2%. There were two 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 totaled year-end results.

We expect NOI growth to stabilize during the last half of the year, putting us in the 2% to 3.25% for the year. Additionally, our new percent leased 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 (inaudible) insurance company to end in April. As a result, this year we expect to recognize income from our (inaudible) 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 I have incorporated this into our second quarter FFO guidance.

From the capital market's perspective, there are a couple transactions that I would like to highlight. In January we drew $150 million of our available $250 million term loan. Proceeds were used to retire maturing unsecured bonds.

The remaining $100 million is available at our option into July of this year. Then in February, as previously mentioned, we completed a preferred stock offering that resulted in gross proceeds of $250 million and an attractive 6 5/8%. Proceeds form the offering were used to redeem an equal amount of outstanding preferred issuances. This redemption and new issuance will save nearly $2 million of preferred dividend payments per year.

Please note that we have increased the high end of the 2012 dispositions guidance. In part, this is due to a recent decision by our fund investors to commence marketing the entire portfolio for sale.

You may recall that the fund was converted to a closed-end vehicle in early 2011, and given current investment sales conditions, combined with the overall stability assets, now appears to be a favorable time to exit. With these transactions, we've further strengthened our balance sheet, evidenced by a well-laddered maturity profile and recent affirmations of our BBB credit rating.

Looking ahead, we will continue to opportunistically improve our balance sheet in a way that also enhances our financial ratios, which includes being a net seller of $50 million to $150 million as indicated by our capital recycling guidance. Brian?

Thank you, Bruce. Good morning. As Bruce pointed out, the steady improvements in operating fundamentals are finally translating into positive headline results. Our teams have been grinding it out since recession began and are working tirelessly to lease space and upgrade tenancy, and it's starting to pay off, resulting in the kind of NOI growth that we expect.

Let me highlight some key operating results. In total, we signed almost 1.3 million square feet this quarter, of which roughly 1/3 was new leases. Move-outs, which usually peak in the first quarter of the year, remained lower than expected. Further, nearly half of these move-outs were planned or strategic. For example, the center in the DC market, we terminated Blockbuster and replaced them with Petco Unleashed and Starbucks. This is the kind of upgrade in tenancy that we're after.

In terms of absorption, this was one of the best first quarters we've had, as the first quarter traditionally has a high level of move-outs following the holiday season. In fact, first quarter absorption for spaces less than 5,000 square feet was positive for the first time going back as far as we can calculate.

Operating percent leased increased for the fourth consecutive quarter to 93.6%, and gains continued in almost all size ranges. Using the same pool of properties, same-store percent leased increased 10 basis points over the fourth quarter, and spaces less than 5,000 square feet have gained nearly 300 basis points to 85.6% since first quarter 2011.

The strong leasing demand and better occupancy are paying dividends in two critical ways. The first is rent growth. As our centers and the markets around them lease up, we gain purchasing power. This is evident in both our rent growth, which was improved at positive 3%, and in our average shop rents, which have been increasing slowly since the end of 2009. This rent growth is even more notable when we consider the fact that nearly half of the renewals were of leases signed at the peak of the market.

The second way that leasing demand and occupancy benefit us is by enabling the leasing teams to increase their focus on merchandising. Our strong pipeline is comprised of successful national, regional and unique local operators who enjoy strong followings and bring a special dynamic to our shopping centers.

Working with these best-in-class retailers and restaurants is a mutually beneficial relationship in which their loyal customer bases further invigorate our centers, while our productive grocery anchors help drive additional traffic to their businesses. This reinforced our viewpoint that side-shop space, when appropriately sized to fit demand, is an asset rather than a liability and represents an opportunity to create real value and base-rent growth, and the local operators we are working with are well capitalized with access to capital for expansion.

The health of our existing tenants also continues to improve. Perhaps the best indicator of this is our AR balance, which is below pre-recession levels. Another telling indicator is tenant sales. Anecdotally, the feedback we are receiving from our property managers is that strong holiday sales have carried over into the first quarter, even in spite of high gas prices. This is true for anchors as well as local retailers and restaurants.

Many of the grocery stores in our portfolio continue to experience positive sales growth. This top-line growth has infused a palpable sense of optimism on the part of our tenants who are now more confident about expanding into multiple locations.

Furthermore, as you know, a few big-box operators have recently announced store closings. None of these have affected our portfolio. We rigorously analyze our big-box space on an ongoing basis and feel really good about our exposure.

Let me now turn to development. We started two projects this quarter. The first, South Bay Village, in essence was income-producing land held we purchased seven years ago. South Bay Village is located on true infield real estate in the Los Angeles area, with more than 240,000 people earning average household incomes above $90,000 within three miles.

We are replacing a dark K-Mart with Orchard Supply Hardware, a Walmart Neighborhood Market, and HomeGoods. It is adjacent to a highly-trafficked center, anchored by Ross, Marshalls, and Trader Joe's. This project is 100% leasing-committed with an incremental return north of 13%.

We also started Cinco Ranch, which is located in Houston, Texas, within one of the country's most active master-planned communities that has barriers to entry and an average household income of $120,000. The shopping center will be anchored by Kroger and Academy Sports. We have signed leases or LOI activity on nearly 80% of the shop square footage at rents averaging $2 a foot above our underwriting. The projected ROI is approaching 9% with additional land available for future development.

Finally, I would like to provide an update on capital recycling. During the quarter we closed on the acquisition of Lake Grove Commons, which is located on Long Island. We discussed this entry in New York on the prior call. We also sold two wholly-owned properties for $23 million at a combined cap rate of 7.4%.

Subsequent to quarter end, we sold two co-investment properties at a pro rata weighted average cap rate of 5.9%, generating $20 million of proceeds to Regency.

As we stated in the past, we continue to pursue an expansion of our recycling program above and beyond our revised guidance. This could happen in the near future, but until there is more certainty, the modest impact to RFFO will not be included in guidance.

In summary, while a quarter certainly doesn't make a year, I am pleased with the first quarter results. We look forward to seeing what our team can do during the remainder of 2012. Hap?

Thank you, Brian, and thank you, Bruce. Before I close I would like to take a moment and comment on Regency Centers' new brand.

You may have noticed the new logo and brand identity when you opened the press release and supplemental. When I boil it down, the new brand is centered around Regency Centers' core beliefs that have been part of our DNA for 50 years, particularly two of Regency's key advantages. First and foremost are people, a talented team of professionals that is endeavoring to create value for our customers and investors; and secondly, and second, the portfolio of dominant shopping centers that are merchandised to our customers, high-performing grocery anchors and best-in-class local, regional and national retailers.

I believe that it is these advantages, along with our other core values, that will enable Regency to be a preeminent company and industry leader for the next 50 years.

In closing, while it is still early in the year and much still needs to be accomplished, it certainly feels like we are on track to meet our objectives for 2012 and, as important, position Regency to sustain profitable future growth.

We appreciate your time and will now take your questions.

Thank you. (Operator Instructions). Our first question today is from Quentin Velleley from Citi.

Hey, good morning. Just in terms of the same-store NOI number of 4.2% for the first quarter, Bruce, in your remarks I think you said there were some timing differences on billings. Could you maybe just comment, if you strip those out, what the same-store NOI number would have been?

It's really hard to know until we know what happens in the second quarter.

Right.

Maybe 10 to 15 basis points max I think at this point, but until we see the full numbers I'm not sure we'd know exactly what would have -- the number would have been.

Okay. But it's only a small amount?

Yes, a small amount.

And then just secondly --.

I'm sorry, Quentin. Very quickly on the adds, the timing difference in terms of why the growth end may be much less or lower in the second quarter is the fact that more of our reconciliations had been completed, and so it's just the reconciliation timing difference is what's going from the 4% to the 2%. It's over the comps of last year.

Okay. And then just the last quarter you moved almost $450 million of development completions into the operating pool. I think that was at about a 5% yield, stabilized yield of 6.6%, so there is some NOI upside there. How should we be thinking about that NOI upside? How have you been progressing with some of the leasing on those assets, and when do you expect the timing of that additional NOI to start coming through?

I can talk to the progress, Quentin. If you look at the same properties that were in process of last quarter and compare them with this quarter, we gained 220 basis points. If you look at the same properties that were in process a year ago to now, it's up 570 basis points.

So I think we are making really good progress. We expect that the ones for this year that are currently in process will get to 91% by the end of the year. So, generally, by the time we sign leases on the development properties that have moved into the operating portfolio, you're talking really three to six months before that NOI starts coming in.

And I think also if you'll recall back in December at our investor day, we did get that question, and we moved several into the same property pool that, to your point, Quentin, had a bit of upside left in it, and we estimate that it contributes approximately 25 basis points to same-property NOI growth. And, as Brian said, those are -- everything's on track.

Thank you.

Thank you, Quentin.

Our next question comes from Michael Mueller from JPMorgan.

Yes, hi. A couple questions. First of all, what's driving the decision to increase the capital recycling, and assuming it does happen should we expect more of just a pickup in dispositions, or a pickup of dispositions and in acquisitions as well?

Our plan, in answer to your second question, our plan would be to be a net seller in the $50 million to $150 million range, so to the extent that we pick up or sell more dispositions than in is in current guidance, we would try to increase the amount of properties that we're buying, so we're actively out there looking to find opportunities that meet our criteria and are in our two dozen markets and are great shopping centers with excellent growth prospects. I think we've mentioned in the past to the extent that we can effectively and efficiently accelerate and expand our disposition program in a way that makes sense, we would do that, and I think there's reasonable prospects that that might occur.

Okay. But it sounds like it's going to be -- the plan would be to offset that with a complementary amount of acquisitions.

Yes.

Okay. And the second question, I'm not sure if you touched on this. If you did, I apologize, but I think, Brian, you mentioned small-shop leasing was about 83.25%. How did that compare to yearend, and then what's your expectation for the balance of 2012?

The small-shop leasing was up across the board. I think I mentioned in the comments that it was up 50 basis points for the quarter and almost 300 basis points for the year. We had occupancy gains in all the sectors, but the small shops I think outperformed.

I think the small shops in general, no matter what metric you look at, they're strong and they are better than last year. The tenants are experiencing sales increases across the board. As a result, we're hearing from our leasing people and property managers that they are more confident, they are expressing long-term optimism, which we hadn't heard before, and that there's now a sense of urgency.

The move-outs are baiting. I mentioned in the comments that they are largely strategic. About 50% of the move-outs we're doing now is because we've got multiple retailers in line for spaces, we can terminate the weaker tenants and start moving them in. Rent growth is positive for small shops, so all in all it's looking good.

And just to clarify, I thought I heard that you might have said, maybe I misunderstood, that 83%, but we're over 85% in spaces under 5,000 feet.

Okay, yes. Okay, great. Thank you.

Thank you, Michael.

Our next question today is from Samit Parikh from ISI Group.

Good morning. I know that you said subsequent to quarter end you had a couple of assets you that you sold, cap rates in the 5%s, and one of them was an asset I believe in San Pedro, which is a pretty good asset. I know it's in a JV. I'm just curious about your disposition strategy for this year and you're increasing it. Are you going to have a mix of sort of stronger-quality assets along with some of your weaker ones to capitalize on maybe pricing today?

Our primary focus is on selling non-strategic assets. There were partnership reasons that made it make sense to sell the San Pedro asset, but it'll be across the board centers that we don't feel are strategic that meet, that are consistent with our strategy long-term. We're going to be trying to sell.

And you took down your cap rate assumptions for the dispositions. What does that tell us about sort of the demand for second tier, the players coming into the market and sort of what IRRs they're looking for right now?

I think I mentioned that subsequent to quarter end we closed on the sale of two properties, sub 6%, or about 5.8%, 5.9% cap, so that was part of the reason, but I think there is a strengthening market. It has been strong and remains very strong for the institutional-quality A properties, and there's always been demand for the Cs where there's a lot of upside. Where we are seeing a change this quarter is that in the mid-tier, the B-level properties, there's much more demand than there was in the past there. I think in those kind of properties, our buyers are looking for about a 150-basis-point lift, so if they buy it at a 9% cap, they want to get that down to 7.5% or so. But there is increased demand, and we did have those two sales which lowered the cap rates.

And, also, by adding the fund assets to the disposition plan, although they're not on the market yet, our hope would be that they would trade even below the range that we've disclosed, so that had a little bit of influence in bringing it down as well. They're pretty high-quality assets.

And moving on, we'll hear from Jeffrey Donnelly from Wells Fargo.

Good morning, guys. Just the first question actually is about general market trends. Maybe you could just talk about some of your top cities because I'm interested in knowing what you're showing accelerating growth and absorption, or just beginning to maybe see some firming and concession in rents, and, conversely, which ones maybe are proving stubborn or even going the other way on you.

Hap mentioned our top 24 markets, and of those 24 markets we had 15 of them that experienced same-store NOI growth greater than 4.5%, and we experienced 11 that had same-store NOI growth greater than 7%, and those would include markets like Chicago, Miami, Los Angeles, Orange County, DC, Atlanta, Dallas, Denver, so pretty much most of our top markets were experiencing that kind of growth.

We had a couple markets in our top 24 that did not perform that well. For example, Palm Beach, Portland, and Raleigh, but in those cases there was something going on. In the case of Palm Beach, we have a redevelopment where we took our Winn-Dixie-anchored center, we terminated the lease with Winn-Dixie, so we botched all the NOI, but we did that because we're moving Publix from across the street in a brand-new store, so that's going to be long-term very good news. And then in Portland it was really driven by one large vacancy of Sports Authority, which we have subsequently released to Best Buy.

Okay. Just as maybe a follow-up question, if I look at your lease expirations for 2012, '13, '14, the rent that's expiring obviously has been above what you've been signing of late, but the year-over-year growth in that expiring rent, seems like it's rising faster than the market rents have been rising. I guess I'm just wondering, do you think that the current rent spreads that you've been posting are going to be sustainable the next few quarters? I guess ultimately what I'm asking is, what do you think about market rent growth going forward?

Yes. The average rents that we've got there of course include anchors, which may have long term and you don't know if they're going to be actually rolling. When I looked at the average leases signed in the quarter, the shop space was about $25 and the anchors about $11. If you take our historic 70/30 blend on that, that's about $21 a foot, and if you compare that to the expiring leases for this year, 2012, they're in the mid-$19 range.

So I think overall we're in pretty good shape, and, again, if you look at what was mentioned in the earlier comments, if you look at our rent growth, a significant amount of the leasing came from the 2007, late 2006, early 2008 era, and those rents were all positive.

So the fact that we're getting through this period with positive rent growth, and the fact that our average rents have been increasing and are now on a blended basis higher than our expiring, feel pretty good. You never know what's going to happen on an individual deal, which as we saw with the Kimco results, one deal can move the needle, but over all feel pretty good.

We'll go next to Paul Morgan from Morgan Stanley.

Hi, good morning. On development, this one element of your guidance that really didn't change, and yet you have started a couple of projects and you're getting good yields relative to the sub-6% cap rates on acquisitions, and given that the tightness that you're starting to see in more markets, and open to buys that are out there, I mean is there a reason not to think you could kind of do at least a high end of your guidance, or what's the development landscape that you're seeing right now?

Well, two questions. Regarding the guidance, something can always knock these projects off, but I think we will be at the high end of the guidance for the developments. One of the large ones that we're working on just received its entitlement approval yesterday, so I think we will be there.

Just in terms of the environment, there is more development starting to surface, more opportunities. I wish that it was limited to the stronger markets, kind of the gateway markets, and where there are legitimate projects with the kind of anchors and everything that we're looking for, and the kind of markets, we are seeing increased competition from well-established private companies. And it really comes down to the demand from the small shops and the rents that they can project.

If you look at our property at Northgate up in Oregon, our second phase that we have tremendous demand from more anchors than we can possibly accommodate, the problem is we are not comfortable adding anymore, not very much more, shop space there, and, therefore, we're having trouble making it pencil. But in your gateway markets, we're definitely seeing more opportunities.

But in those markets they're typically in-fill, and the time to get entitlements can be lengthy.

Next we'll take a question from Nathan Isbee from Stifel Nicolaus.

Hi, good morning. Brian, you pointed out again that the move-outs were below budget. Can you just mention what your expectation was for the full year at 2012? How much did you budget in 1Q versus where it ended up?

We were about -- in first quarter I think we ended up about 110,000 square feet fewer move-outs than what we had budgeted. Frankly, in going into the second quarter in the first month, we're seeing about the same amount of reduced move-outs.

So we go through this on a reforecast process and go tenant by tenant, and, whereas, we think these things are going to move out, we're getting some positive surprises. So I don't know if that's just a delay or if in fact we are going to see fewer move-outs at the end of the year.

In your same-store NOI guidance change, was that included? Did you change your assumptions of move-outs?

No. Just the (inaudible - multiple speakers).

Just the timing.

Yes, just the timing. The range for move-outs that basically coincides with the 2% to 3.25% is 1.4 million to 1.6 million square feet, and that's on a 100% basis.

To the extent that you would actually end up below that range, there would be further upsides to NOI?

Correct.

But just as Brian has pointed out, the good and the bad, a meaningful portion of those projected move-outs are planned in strategic. I mean we're talking 50% to 60%, so they're known. So I'd be surprised if there was much (inaudible - multiple speakers).

To the extent that we do better than that and to the extent that we hit our leasing objectives, yes.

All right.

We need both.

I'm sorry?

I said you need both.

Especially as it relates to future.

And then I guess then just focusing on the leasing volumes, they have been trending down the last few quarters. Is that a function of just taking a harder line on rents?

Well, I might take a little exception there. If you look at the last few quarters, 2011, the last three quarters of leasing were the three highest ever we've had, so even though the four quarter was lower than second and third, it was still in the top three of anything we've ever signed.

And then this quarter, it would look -- it is lower. It looks kind of like an average quarter when you go back historically, but, again, the first quarter is the weakest quarter we always have in terms of move-outs, absorption new leasing, or total leasing, and if you look at this quarter compared to prior first quarters, we are ahead in all those categories. We're way ahead in move-outs, we're way ahead in absorption, and we're ahead in total leasing.

Craig Schmidt from Bank of America Merrill Lynch has our next question.

Thank you. My understanding was heading into the quarter, I think the anchors were 99% leased and the small shop under 10,000, about 86%. If those are right, where do you think you can take the small-shop space to by the end of the year , and what's the highest that small-shop occupancy number has been in the company?

91% is where the -- 91%, 92%, is where it's been, and I think we've been pretty straightforward that our objective is 90% in order to get to 95%, and I think that we're going to progress, we're making progress. I don't think we'll get there by the end this year.

Okay. Thank you.

Our next question is from Tayo Okusanya from Jefferies.

Yes, good morning. Just a quick question on the acquisition side. I know class A shopping centers, and I've seen these sub-6% cap rates, but I'm just curious what exactly do you have to underwrite in order to kind of to make those deals pencil out, and, specifically, what kind of IRRs you're also expecting on those type of deals?

For something to have to pay less than a 6% cap rate, it better have a very nice growth profile, and that's the key thing, is what's the total return of going in, plus growth.

And the growth profile you're underwriting is, what, 4%, 5%?

As far as defined, unless you got a redevelopment and a lot of shopping centers with that kind of growth profile. We're looking for growth rates that are going to average in the 2.5% to 3% range.

Okay.

Under very vigorous underwriting.

Great. And then just in regards to the asset sales and you guys bumping up your projections, are you still kind of looking roughly at about the same type of cap rates for those deals, or are they even coming better now as evidenced by some other deals you did quarter?

I think we revised the range for the cap rates on what we expect to sell downward.

Okay. That's helpful. Thank you.

Thank you very much.

We'll go next to James Sullivan from Cowen and Company.

Good morning, guys. Given the strength and demand in pricing in the leasing that you've shown here in the first quarter that's really been underway for a couple of quarters and given the -- I think the word urgency was used in some of the negotiations with some the prospective tenants. Just trying get a handle on how soon and how strong a recovery in development starts can be. I know, Brian, I think you touched on this earlier when you talked about obviously the yields on some of the most recent starts and some of the problems with other projects that may not pencil out.

And I guess the question I'm trying to get to is that we've been hearing now for awhile that retailers have opened to buy, they need locations, and yet there's not a lot of development taking place, and they've been unwilling to commit to the rental levels that will make the developments work. But your comments earlier suggested that it's really kind of a small-shop issue that's holding back and preventing projects from penciling out.

So I guess my question is, it's really two-part, number one, when you think about your kind of three- to five-year plan, what kind of an annual development starts number would you, do you, have in mind? Number one, and, number two, how close are we to the point where you can really start ramping that up and getting the small-shop pricing and demand in place to have that happen?

The example I gave was kind of unique to Medford because that's a market where we aren't comfortable putting in a lot more small shops, but I would say as we look for developments, more of the urban kind of gateway markets, we don't have that same kind of problem with the small shops.

I think when you start developing, or as we do developments in those markets, you're probably going to see a lot more competition and you're going to see returns a little bit lower. But in terms of the three- to five-year plan, we are looking for -- we're staffed to do anywhere between $150 million to $200 million a year, and as I look at our pipeline, you know what the guidance is right now. I think we're going to be at the high end of that, and we have projects in the works for next year that would take us potentially a lot higher than that.

In terms of how close we are to really seeing it ramp up, I think we are starting to see it. As I mentioned, we're starting to see more competition. We're not seeing it from your new small intercapitalized developers. You are seeing it from the guys who are private who have been around a long time. On the east coast it's Edens, it's JBG. On the west coast it's the Irvine Company, those kind of companies, and they're aggressively competing with us right now for the best projects.

And is it your feeling that the anchor retailers have accepted the numbers that you guys need in order to have these projects pencil out now?

I think the anchors are, especially for the kind of locations we're talking about. For example, Dick's has historically been a second-generation space user, and we're doing multiple projects with them with brand-new developments. So I think that's an example of where, to your point, Jim, they can't get the stores that got the open-to-buys, and they are going with new developments and paying the rent they need to.

And next we'll go to Cedrik Lachance from Green Street Advisors.

Thank you. Brian, you were talking about regaining a little bit of pricing power in the market and small-shop market as well. When you look out over the next two years and you think about further increase in pricing power, do you think you're going to primarily see it in the headline rent, or do you think you'll be able to also reduce the CapEx packages you provide to tenants?

I think it's in the headline rents. I don't think that our cap -- our white boxes and our TIs are out of whack. We look at that every quarter, and while our total TIs are up, although I think they're down this quarter, it's because of the increase in leasing, but if you look at it on a per-square- foot basis for just the tenants that we're giving TI packages, it's very consistent. In fact we've been in a several-quarter downtrend on it to the point where I was wondering if we were being a little bit stingy, but historically we're right in line so I don't think you're going to see packages coming down materially.

Okay.

And rates are moving. It's just they aren't back to where they were at the peak.

Sure. And in terms of the gap between lease space and occupied space, what's that gap as of the end of the first quarter?

It's 220 basis points. So we've got I think -- what is it? Yes, it's 220 basis points, so I think 170 of that is tenants that haven't moved into space, and 50 of it is tenants who have moved in and waiting to pay rent. They're doing their build-out and everything and it will soon start.

Moving on, we'll hear from Rich Moore from RBC Capital Markets.

Hi. Good morning, guys. On the development front, again, are you seeing more opportunities for land you already have, which is, I guess basically what South Bay Village is, versus brand-new opportunities where you're going out and tying up the land and then I guess having to compete more with other developers?

A little bit of both. We are making good progress on our land held. I think since first quarter of 2011, we've gotten rid of 120 -- either sold or put into production 120 acres. As I look at our pipeline for the rest of this year and even for next year, it is mostly new properties.

Okay. And, Brian, where is that South Bay Village just out of curiosity exactly?

It's in Torrance.

So Torrance of (inaudible)?

Yes, so it's south of the airport west of the 405 freeway.

Okay. Great, great. Thank you.

Thanks, Rich.

And Vince Chow from Deutsche Bank has our next question.

Hi, everyone. Sorry to kill the development questions here, but just in terms of the competitive landscape, the well-capitalized guys are the ones you're competing against, but just wondering if you are seeing any change at all in the financing for maybe some other guys in end market. Is there any increase in financing for construction?

We are hearing that there is. I don't know the terms, but I definitely know that a lot of smaller developers who've been out of the game for the last few years, depending on the property, depending on what's behind their guarantees and all, can get financing.

Okay. And is that something that's just kind of happened over the last, say, three, four months, or has it been in progress for longer?

I'd say there's been a noticeable pickup in the last six months.

Okay. And then just sorry if I missed this from earlier, but on a term loan is there anything that would cause you not to draw down the remaining amount, or is it tied to sort of your investment activities in any way?

You're exactly right, it would be tied to our investment activities.

Okay. But if the opportunities don't materialize by the time you have to draw down, you would take the money, though, or?

No, we would not.

You would not. Okay.

We potentially, for our banks that are on the line -- we would have already discussed this with them. We could potentially extend the delay withdrawal feature.

In case there were timing differences we expected.

Yes, as we add more visibility for the rest of the year for the execution of the capital recycling, as I believe Brian or Hap mentioned, we would expect, given our guidance, to be a net seller of somewhere between $50 million to $150 million. If we're in that range, then it's likely that we would draw down the term loan at some point before the end of the year. If dispositions get much further ahead of acquisitions, then we would not.

(Operator Instructions). We'll go next to Paula Poskon from Robert W. Baird.

Thank you. Good morning. Just a question on back to the small-shop tenants and your comment that they're looking better. What do you think is driving that? Are they getting better access to credit, or are they feeling more confident thus are more willing to dip into the cash reserves? And, also, how would their health vary across your markets?

Well, a couple things there. So we're talking how are they doing and how are they feeling versus financing. I'll start with the financing. We said for some time, and it remains true, that our leasing is not anybody that is putting financing contingencies on there. They are well-capitalized. We're hearing there's plenty of private equity out there for them. So all these tenants that we're dealing with are well-capitalized.

In terms of why they're doing better, why they're more optimistic, it really comes down to I think several things. First of all, we have been over a three-year period consistently moving out our weaker players and putting in strong operators. I think you have a higher-quality tenant across the board. Second of all, there is less competition out there.

Third, you are seeing much better sales, and I think it's the sales more than anything, and the margins, that are making these guys bullish. We've heard over the last six months, they're actually able to start raising prices now.

So it's really the fundamentals of their business, the fact that these are the tested operators, and that there's just not that much competition, and, finally, there's not any -- there's very little new growth out there. So it's not like they're having new competitors pop up all around them.

And then just to characterize their health across your markets, is it pretty consistent, or is there a big variance? Is one market weaker than another?

I think they way we look at it is on a portfolio basis we measure not only ARs greater than 90 days as a percent of revenue, and that has really fallen, continues to fall. It's now below 0.4%, whereas, before it was up around 0.5% -- I mean it was about 1.5% at one point; wasn't it? So we're seeing it across the board. We also measure just people who are delinquent in various different categories. Those have all been declining. Certainly, if you go to different markets, you're going to find that not to be the case. We're going to find more stress in markets like Arizona, in Phoenix, whereas if you go to Houston, we had zero move-outs last year. I mean, sorry, last quarter. So I think we can generalize that they're healthy all the way across the board, but it's going to depend on individual tenants and individual markets.

Thank you very much.

And that's all the time we have for questions today. Speakers, I'll turn the conference back over to you.

We appreciate your time and wish everybody have a great rest of the week and great weekend. Thank you very much.

And that does conclude our conference for today. Thank you all for your participation.