Regency Centers Corp (REG) 2014 Q2 法說會逐字稿

Greetings. Welcome to the second-quarter 2014 earnings conference call.

(Operator Instructions)

As a reminder, this conference is being recorded.

I would now like to turn the conference over your host, Mike Mas. Thank you, you may now begin.

Good afternoon, and welcome to our second-quarter 2014 conference call. Joining me today ares Hap Stein, our Chairman and CEO; Brian Smith, our President and COO; Lisa Palmer, our Chief Financial Officer; and Chris Leavitt, Senior Vice President and Treasurer.

Before we start, I would 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 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 the forward-looking statements.

We also request that callers observe a two-question limit during the Q&A portion of our call in order to give everyone a chance to participate. If you have additional questions, please simply rejoin the queue.

I will now turn the call over to Hap.

Thanks, Mike. Good afternoon, everyone, and thank you thank you for joining us.

Before discussing our results for the quarter I want to briefly address our proposal to acquire AmREIT and reaffirm our interest in pursuing a combination of our companies. As you know, on July 10 we publicly announced Regency's proposal to acquire AmREIT for $22 per share in cash or stock.

At the time of the announcement our proposal represented a 20% premium based upon the average closing price of AmREIT's common stock over the 30-day prior period and was 10% above AmREIT's all-time high. The combination would offer significant benefits to shareholders of both companies, including an opportunity to leverage synergies to grow same property NOI, a robust balance sheet with readily available capital for growth and a strong platform to realize additional value through development and densification.

We were pleased when last week on July 29 AmREIT confirmed it will commence the process to explore strategic alternatives. We expect that this process will be fair, open and robust. We look forward to participating and receiving adequate information to make this compelling combination a reality.

That being said, I would like to stress that we will be highly disciplined, and as always, shareholders' capital will only be deployed if we are confident that the opportunity meets our stringent investment criteria and creates value for Regency's shareholders. This process will not divert our team's focus on growing net operating income, delivering high-quality developments and redevelopments and maintaining our rock-solid balance sheet.

With that, let's turn to the purpose of this call and discuss our extremely gratifying quarter and Regency strategy for continuing this success. As you'll hear, from both Brian and Lisa, Regency's team is truly firing on all cylinders, executing our strategy and making progress toward our goals.

First, the occupancy, pricing and merchandising power of Regency's high-quality portfolio continues to gain momentum. As evidenced by strong NOI growth, double-digit rent growth and a portfolio that is more than 95% leased, the underlying operating fundamentals are very strong and still improving across our attractive target markets. The team has been successful not only in driving rents but also with contractual increases.

Looking forward, we expect to continue to benefit from the historically low level of new supply, robust tenant demand for premium spaces, and particularly the inherent quality of the portfolio, including the potential for redevelopments, enabling us to achieve annual NOI growth of 3% over the long term, even as we remain above 95% leased. Second, the outstanding characteristics of the developments we started since the downturn, clearly demonstrate Regency's best-in-class development expertise and disciplined focus. We are delivering these projects at meaningful margins to the cost of acquiring centers of comparable quality. The reputation we crafted as a leading developer and the relationships we've long held with players in our target markets position us to continue to win an outsize share of the limited number of development opportunities that will meet our stringent criteria.

Third, this quarter's capitals market activity is aligned with our goal of maintaining and opportunistically strengthening an already strong balance sheet that measures up to other blue chip REITs. Lisa will describe our recent activity in greater detail, but it's clear that our balance sheet provides us with the capital sources and flexibility to astutely and cost effectively take advantage of attractive opportunities.

Looking forward, we will continue to keep our eye on executing the fundamentals, while evaluating compelling opportunities to generate shareholder value and to remain at the forefront of our industry. We are constantly exploring ways to enhance our leading edge and our teams are very focused and very engaged.

Lisa?

Thank you, Hap. Good afternoon, everyone.

Financial results for the second quarter exceeded our expectations, with core FFO per share of $0.71, representing a 6% increase over the second quarter of last year. Further, on a year-to-date basis, core FFO per share has increased by nearly 7% over last year. Same property percent leased reached 95.3% and same property NOI growth excluding termination fees was 3.8% for the quarter. Most importantly, the primary driver of this same property NOI growth was an increase in base rent.

In April, we issued a $250 million Green Bond, making Regency the firsts US REIT to issue this type of security. We are extremely proud of this accomplishment as we believe it reflects the quality of our industry-leading sustainability program. At closing, just a reminder, we settled our previously executed forward starting swaps, and with these swaps we will recognize interest expense at an effective rate of 3.6% for the life of the bonds.

During the quarter we also modified our term loan, providing us with an addition $90 million of capacity and bringing the total commitment to $165 million. We have the ability to draw these additional proceeds through August of 2015, coinciding with our next unsecured bond maturity. The spread over LIBOR was reduced by 30 basis points and the term was extended to June of 2019. As Hap said, these and prior transactions have shown that our balance sheet provides us with multiple sources of capital, allowing us substantial flexibility to fund future opportunities.

Through the second quarter, we have outperformed on many components of the plan. As a result, we increased full-year guidance for core FFO per share to a new range of $2.75 to $2.80. There are multiple drivers of this increase, and I'll quickly run through a few of them.

First and foremost, because of our consistently positive operating results, strong leasing, and low levels of move outs, we're benefiting from higher NOI in the same property pool, as well as in our in-process developments. This impact is evidenced by our increase in guidance ranges for both same property NOI growth and percent leased. We now expect same property NOI growth in the range of 3% to 3.7%, and we expect the same property pool to finish the year in the range of 95% to 96% leased.

Second, third-party fees and commissions are also outpacing expectations, a result of the continued strength of the leasing environment. Finally, the timing of dispositions is tracking behind our original plan, so we're seeing a small benefit from that standpoint as well.

Specifically on dispositions, we raised guidance and reduced the projected cap rate. These changes reflect the combination of increased visibility for development starts, as well as our most recent acquisition, which Brian will describe in more detail. This is consistent with our match-funding capital strategy whereby we match development spends with dispositions of non-core assets and we match acquisitions with dispositions at roughly comparable cap rates of lower growth assets.

Brian?

Thank you, Lisa. Good afternoon, everyone.

This quarter we saw the hard work, experience and the creativity of our teams continue to translate into strong operating results. Leasing volume remains very healthy as we take advantage of the high demand for prime space. This coupled with historically low levels of move outs drove same property percent leased above 95%.

Small shops led the way, gaining 60 basis points over the prior quarter to 90.3% leased. Given retailer's appetites for expansion into high-quality shopping centers like ours, we still have room to run to push percent leased even further.

The caliber of our properties, the demand for quality space, the lack of new supply, and our high level of occupancy, these are powerful forces for driving rents and our local teams are taking full advantage of this environment. Rent growth in the second quarter was 15%, representing the 13th consecutive quarter of positive rent growth. Mid-term rent steps, from leases signed in the quarter, exceed the portfolio average, both in terms of annual growth and the percent of leases from which we get these increases.

We recently started ground-up development on a Publix anchor center in the Charlotte market. Willow Oaks Crossing will be Regency's first ground-up development in Charlotte. We are excited to expand our footprint in the Carolinas as Publix enters this market. We also started REIT development work at Westchester Commons, which is an affluent suburb of Chicago, where Mariano's is taking the former Dominick's space plus an additional 30,000 square feet of adjacent space and there's no down time involved.

Additionally, we'll be redeveloping our Brighten Park center in Atlanta. As part of the process, we'll replace Loehmann's with The Fresh Market, which is a great outcome and will inject new vitality and generate increased daily traffic to the center.

We completed our Juanita Tate development near downtown Los Angeles. By every measure this project has outperformed. Not only do we complete it at a high return of nearly 10%, but have reached 100% leased in only 14 months from ground-breaking. This project exemplifies our market-based development expertise and our disciplined approach.

Since 2009, we've started 19 projects, representing an investment of nearly $500 million. 12 of these projects have been completed and average 98% leased, with a combined incremental return that is greater than 9%. The demographics, excellent locations and merchandising make these centers outstanding additions to our portfolio.

Although new development competition is heating up, particularly in areas where we compete with high-rise multi-family developers, I continue to believe that Regency's experience, our well connected local development teams, with their strong retailer relationships, the credibility we have in the markets and the inherent redevelopment potential within the operating portfolio will yield an ample amount of compelling future value-add opportunities. The combination of these factors along with the progress we've made on projects in the pipeline enabled us to increase the low end of guidance for 2014 development and redevelopment starts.

Turning to acquisitions. We continue to see very limited amounts of A-quality assets coming to market. When they do, pricing is hyper-competitive with some centers trading well below 5% cap rates. We successfully acquired properties off market, as we did most recently with our Clybourn Commons acquisition.

Clybourn Commons is located in Lincoln Park, which, in our view, is one of Chicago's most attractive sub markets. It boasts a three-mile daytime population of nearly 1 million people and a combined purchasing power that exceeds $600,000, placing it among the top assets in our portfolio on this measure. The center is 100% leased and provides plentiful on-site surface parking that is rarely found in dense urban locations. We're really excited about the long-term upside potential of this center.

As Lisa noted, Clybourn Commons and the earlier acquisition of Mira Vista are being match funded with the sale of three properties that will be sold at an average cap rate in the upper 5% range. The slightly lower acquisition cap rates for Clybourn and Mira Vista will be more than made up by their superior NOI growth profile and upside, compared to the less than 1% growth that is projected from the centers being sold.

As far as dispositions go, while timing is slower than expected, demand is strong with multiple offers on many properties. As a result, we are confident we'll reach our full-year guidance and achieve better pricing, which is reflected in the 50 basis point reduction in our cap rate guidance for dispositions. The better cap rates reflect not only a strong transaction market, but also the fact that the assets we are selling are a better quality than in previous years as a result of the substantial progress made in eliminating low-quality properties for the portfolio.

Looking forward, as we move beyond 95% leased, I can assure you there's not a trace of complacency. I'm gratified by the results, but even more excited about ours prospects. The team is intensely focused on finding opportunities to add value through NOI growth, redevelopments and new developments. Hap?

Thanks, Brian. Thanks, Lisa.

In closing, we are pleased with our results this quarter, highlighted by strong NOI in developments that are translating into growth in core FFO and NAV. At Regency, we have the right strategy, the right balance sheet and especially the right team. Our quality portfolio and development capabilities position us well to deliver for our shareholders. We remain committed to enhancing value by executing our proven business strategy and capitalizing on compelling opportunities.

We really appreciate your time. We thank you for it. We'll now turn the call over to the operator.

Thank you. We will now be conducting a question-and-answer session.

(Operator Instructions)

Our first question comes from the line of Christie McElroy with Citi. Please proceed.

Hi. Good afternoon everyone. Can you provide your expectations for timing of remaining dispositions for the balance of the year?

The volume that's in the guidance range right now in each of Q3 and Q4? How much did the change in timing actually contribute to the guidance increase, the FFO increase?

I'll handle -- I'll answer the second part first and then I'll let Brian add some color on the disposition market in general. The earnings increase was really related -- the dispositions are a piece of that and depending on the timing and when we close, if we assume that we close all of them say September 1, that could be up to a $0.03 really of a drag of dilutive for the remainder of 2014. Depending, again, on when they actually close, it's going to be anywhere from $0.01 to $0.03 for the deceleration of 2014.

Then the rest of the increase is related to, as we've noted on the call, third-party fees and commissions has come in above our expectations. That's our retailer services group as well as leasing commissions from our co-investment partnerships. Then, we're also favorable on interest expense.

We had projections in for our bond offering and it wasn't until we closed that we knew exactly what that spread would be. That came in tighter than we had expected. The rest is really just driven by the increase in same property NOI and development NOI as well.

Christie, it's in terms of the timing. The reason for the delay so far, just that in the pool of properties we're planning on selling this year, seven of those properties are joint ventures.

So, it's taken longer than we expected to go to them, and in the case where they have rights of first offers, actually come back to us, whether they want to take advantage of those and also whether they wanted to buy out our shares. We've since gotten past that.

We closed one other property since the end of the quarter, and we've got a total of almost $100 million that are either under contract with hard deposits or negotiating the contract. We feel real good about getting to the $170 million, $175 million by year end.

Lisa, just following up on the increase in same store NOI guidance. I'm assuming that it would have been an even greater increase if you hadn't the weather related impacts in Q1? I know you tend to start out with it more conservative expectations, but can you just provide a little bit more color around specifically what's occurred that's been better than you expected when you first gave guidance?

It's actually really related mostly to lower move outs than what we expected. Then also, just a more -- the spread between percent rent paying and percent leased has narrowed more quickly, really not related to expenses or reimbursements.

Our reconciliations are done in the first half of the year and we did have approximately, it rounds up to around $2 million of prior year net recovery income, but that's almost exactly what we had last year. That's not contributing to our growth.

Are the lower move outs, lower early move outs or lower move outs on lease expiration?

It's just lower move outs in general. We had this quarter 294,000 square feet in the operating portfolio, and it's pretty rare to have less than $300,000, yet three of the last four quarters have been averaging about $300,000. In particular, our small shop move outs, first half was the best half we've ever had and that follows the best year in 2013, so we're off to an even stronger start than our best year.

If you put it in context, it's amazing how little moves the needle. 50 BPs of same property NOI growth on a portfolio of our size, which is only 26 million square feet pro rata, is only 130,000 square feet of space.

Thank you, guys.

Thanks, Christie.

Thank you. The next question comes from the line of Jim Sullivan with Cowen and Company. Please proceed.

Thank you. Two questions from me, guys. First of all, you've obviously done a great job in terms of the occupancy rate with the increase in the guide this quarter for the full year. Thinking about that on a regional basis, two of the more important states in the portfolio in terms of percentage of annual base rent are below that midpoint in the occupancy guide, and obviously, Florida very important, as well as Colorado.

I'm just curious as you think about the strength or weakness for the portfolio, what's your outlook for Florida and Colorado? Those are two states with sub par occupancies. Are you optimistic that you can raise the rate of the overall average?

Especially when you talk about Colorado, Colorado is one of our stronger markets in terms of rent growth and that seems to be the one market that stands out where there's no correlation between pricing power, which we have there, and occupancy, which is low. The reason for that really is just we have that one vacancy at south Lowry, where Safeway went dark. But other than that, the occupancy is good and we do have pricing power in that market.

In terms of other markets that have lagged in the past, we're starting to see a lot of improvement. We don't yet have pricing power there, but if you look at, for example, Arizona, we had 770 basis point increase in occupancy this quarter and over 1,100 basis points year to year. We're seeing activity. We're growing occupancy, and with that will come pricing power, which hasn't come yet.

Then Florida's pretty much the same story. We were up 210 basis points in north Florida, which has been the weaker part. That's a quarter-to-quarter number.

A lot more activity than we've seen in the past. Then, we're even seeing -- I think we saw 180 basis points increase in the Inland Empire.

The only market that we didn't have rent growth was the central valley of California. We have very little presence there. We're starting to see contributions from markets we haven't seen in the past.

Okay. Second question from me, and I guess primarily this would be for Hap. Hap, in your letter to AmREIT you talked about looking forward to working with that Company on the densification of a couple of their projects. I'm just curious about the appetite on the part of Regency for more urban or in-fill locations where densification would be a bigger part of the value creation than maybe what you guys have been doing in the past?

I'll make my comments in general rather than specifically as it relates to AmREIT. Based upon where our developments are taking place and our acquisitions, including the Clybourn Commons acquisitions in Lincoln Park, there is a tremendous amount of focus, or greater emphasis as far as our strategy relates to investing in more near urban locations like Lincoln Park. A number of our developments for those of you that have been to Cameron Village, we have mixed-use components.

That will continue to be mining that part of our existing portfolio and being involved in developments like Glen Gate, which is in Chicago, where we bought the whole property and sold off a portion to an apartment developer. The Riverside development near downtown Jacksonville is also adjacent to apartment buildings. We view that as being a growing component of our investment strategy, both within the existing portfolio and where we look for new developments.

Most of what we've done to date have been, what I call, horizontal mixed use, horizontal densification. We have a couple of projects where it's more vertically oriented, but that involves a lot more cost, a lot more complication. Not that we wouldn't be embracing that, but we are cognizant of the issues related to, what I would call, vertical integration on projects.

Okay. Then, actually if I could, a third question? This might be more appropriate for Brian.

With the Safeway/Albertson's transaction now having been approved by Safeway's shareholders, as we think about the end game there and what might have to happen in terms of either store closings or dispositions of assets. I'm just curious if you anticipate any risk or opportunity in your portfolio from the fallout that might result from that transaction?

It's hard to tell at this point, Jim. I just found out a couple minutes ago that they're apparently going to announce it in the next couple days, the store closures. Our view on it, having gone space by space through the portfolio, is that there's more opportunity than there is risk. We think that, by and large, they'll continue to operate the vast majority of the properties.

Several of our markets, we don't have any overlap, so we don't he see much risk there. They're good assets.

Where we do have significant overlap, the perfect example really is San Diego and that part of Southern California. In that area, I think we'll probably get some help from the FTC because both of those companies have significant market share there. So, they're not going to be able to just close stores.

I don't know what's going to happen there, but overall we see more opportunity than we do risk. The rents in Safeway portfolio are pretty low. What I think will happen is, if we get any of those spaces back, it's likely we'll have the same kind of outcome we had when we released Dominick's to Mariano's with 160% rent growth or the Randalls down in Houston, we released at 150% rent growth.

To clarify the comment about us getting help from the FTC, what Brian is referring to is that they won't be able to basically prevent us from re-leasing that space. If they're forced to close it, they can't keep out another grocer. That's the way we'd be able to recapture the space and then capitalize on the opportunity to re-lease it.

Very good. Thanks, guys.

Thanks, Jim.

Thank you. The next question comes from the line of Mike Mueller with JPMorgan. Please proceed.

Hi. On the leasing spreads, was wondering if you can give us a sense as to where you see them trending as you move into 2015? Because they've been heading up every quarter, it seems like.

Well, they have been heading up every quarter. I think there's no reason why that can't continue to happen. It's, obviously, being driven by fundamentals, which remain strong.

The lack of supply is obviously some wind in our back. Our pipeline of leasing right now is higher, as a percentage of vacant space, than it has been at any time in the last five quarters.

Our occupancy is continuing to grow, we're well over 95% now. We know that, in our portfolio, those centers that are leased greater than 95% enjoy 600 basis point higher rent growth than those that were less than 95%. I see no reason why this can't continue to happen.

We just learned in July of a very significant rent growth that we're getting from an anchor that renewed that we actually hadn't counted on. I don't see anything right now that's going to slow it down. We're just going to continue to mine the portfolio for opportunities and use some aggressive asset management to get back spaces where we think we can create some more value through rent growth.

Do you think you can be in the high teens in 2015?

The trend over -- what we're basically talking about is, hopefully, continuing the double-digit rent growth we've experienced the last couple quarters.

Okay. Then I forget, do we get a second question or no?

Sure.

Yes, Mike.

There you go. Brian, you were talking about new development heating up in markets where you're seeing high-rise being built for multifamily. Was that a comment about the competition for land versus those developers, or just about retail supply coming on?

We're seeing increased competition everywhere. In terms of other players that we're running into competing for sites, it has definitely grown. That is particularly true in the urban areas.

When you look at the pricing in urban areas where the really hot markets, could be on the peninsula in the San Francisco area, if you're competing against people who can take that land and go vertical with office or multifamily, then we don't stand a very good chance. Unless we control the site first, which is exactly what happened in the situation Hap mentioned at Glen Gate in Chicago.

Overall, there's more competition. It's very heated and it's tough to compete with when it's urban and there's other uses.

I'd also say that it's happening in the suburb, particularly in markets like Houston where you're seeing things that frankly we haven't seen since 2006, 2007, where people are putting up hard deposits day one. They're closing in 60 days where they've got entitlements or anchor tenants or not.

In cases of suburbs, actually doing land banking. It hasn't had an impact yet on supply because this -- it's still not even close to the amount of development we saw in the heyday. There is more competition.

Got it. Okay. Thank you.

Thanks, Mike.

Thank you. The next question comes from the line of Juan Sanabria with Bank of America. Please proceed.

I was just hoping you could elaborate a little on the potential longer-term plans for the newly acquired Lincoln Park assets? If you have any sense of scope, dollar size or square footage, of any redevelopment work that you could potentially do there?

We don't have any plans for anything right now. It's one of those sites that has endless possibilities. We like it the way it is.

It's got it all, the density, the affluence, the education, the great streets, the walk-ability through the neighborhoods there. It clearly could go vertical. What it has is a tremendous competitive advantage in that it has a lot of ample surface parking that you traditionally find in the suburbs and not in these urban areas.

This is going to be one of those things where should any bad news happen it's going to translate into good news and into opportunities for us. Until those things happen, we're just content with the asset the way it is.

Is there any near- or medium-term lease maturities that could spark a redevelopment at that asset that you could take advantage of?

Not enough to do a whole redevelopment.

Okay. On the small-shop space, you noted an improvement there sequentially and year over year. What should we be thinking about over the next 12 or 18 months and where is that demand coming from? Is it a pick up in the mom-and-pops type tenants that are getting better access toes financing or is it the regional and national tenants still driving that?

It's still predominantly the national and regional tenants, franchises, a lot of expansion that we're starting to see from restaurants and retailers that maybe had one or two or a handful of locations who were more cautious in years past, are now willing to expand into new markets, oftentimes new space and increase their store count. A lot of new concepts coming out, particularly in the restaurant category. We're starting to hear about funding from -- that hasn't been available in the past, but again, that's never been a big focus of ours since the downturn.

Okay. Great. Thank you.

Thank you, Juan.

Thank you. The next question comes from the line of Jay Carlington with Green Street Advisors. Please proceed.

Just to circle back on AmREIT, have you had any direct conversations with their Board and can you give us some insight on how positive or receptive they've been? Maybe as a follow up, can you give us an update on your current ownership in their stock and how you think that could change?

I think that we've been pretty clear, Jay, as far as what's public information that's out there. As I indicated, we're pleased that based upon what they said on the call and what they said in their press release, that they're proceeding with a process that based upon those words that's going to be open, robust and fair, and we're very happy about that. Our ownership that we announced at the time was 4.2% and obviously to the extent we would exceed 5% in ownership, we'd have to make a public announcement about that.

Okay. Brian, maybe just switching over to the match funding that you've talked about aligning your acquisitions with dispositions of similar cap rates and lower growth profiles. Can you give us a sense of how big a pool of assets that could be? Is there a common denominator between them, whether it's property type or location?

The pool, frankly, because we sold five of our higher risk assets this year to date, really the pool would be any of the disposition candidates throughout there, which could be high, match funding would be high-quality but low-growth assets. For example, we sold Five Points this quarter. We sold the Tysons CVS.

Those are both really good assets, but they were low growth. The pool -- how big would you say the opportunity is there?

I think we identified about $250 million worth. It's not a huge pool.

I think what you're going to begin to see, Jay, is the two pools that we talk about, the one that funds the developments and what's going to be funding acquisitions are going to start to merge. As we sell our lower-quality, non-core assets, we have very, very little of that left. Now, the focus is really just going to be on those lower-growth assets and many of them have lower cap rates.

I think the discipline that this match-funding strategy, as it relates to acquisitions, what we're basically saying to our team is if you want to buy an asset, you've got to come up with an asset that we can sell at a roughly comparable cap rate. Where there's visibility that the NOI growth rate is significantly lower in what we want to sell and what we're looking to buy.

Okay. Great. Thank you.

Thank you. The next question comes from the line of Ki Bin Kim with SunTrust Robinson Humphrey. Please proceed.

Thank you. First quick question on your FFO guidance. I don't like to focus on it too much, just given there's many moving parts to it. I'm just trying to reconcile.

If I take the $1.42 per share you've earned this first half and just use simple-dumb math and double it, it still is probably above your guidance of $2.77 and a half. What are the pieces that can take that $2.84 projected number down to $2.77?

Again, it's part of what I answered in the earlier call, is the reimbursement income is heavy in the first half of the year. That's about $0.02 that does not recur in the first half of the year, it recurs annually in the first half. It's just part of the seasonal variation in our income.

Then, the fact that the question that Christie asked in the very beginning, how much the timing of the dispositions, our disposition guidance has actually been increased, yet we've sold very little year to date. So, with that being back-end loaded, that's going to have a drag of $0.01 to $0.03. Then, the run rate for G&A could potentially be $500,000 to $1 million higher per quarter for filling open positions.

Sorry, about that. I guess I missed that part. Second question on AmREIT. If I go back to your opening remarks, when you said you expect to he receive adequate info. Would it be correct to categorize the current situation as you haven't gotten much live dialogue with the Company, just based on your commentary?

Tied to that is, obviously, the upside of AmREIT, a lot of it stems from their redevelopment or development potential. When you guys walk around AmREIT's assets, especially like Uptown park, do you see a different vision for those type of assets than, at least, what they lay out in their public information?

I'm not going to respond to the second part of that question. The first part, I think, basically, what we've said is that they made an announcement, both in the press release and in their earnings call, and we take those words to be sincere that they're going to run a robust process.

We based our comments, both in our press release and in my prepared remarks, that's the case. How we continue to evaluate the portfolio, and we'll continue to do that as the process and we get additional information that we expect to get through the process unfolds.

Okay. That's it from me. Thank you.

Thank you.

Thank you. The next question comes from the line of Haendel St. Juste with Morgan Stanley. Please proceed.

Close enough. Thanks for taking my questions. You've identified a portfolio in the marketplace in AmREIT, which meets a number of the criteria you're looking for, that's income, density, future development opportunities.

I'm curious if, in your preliminary thoughts on potential funding of an acquisition of AmREIT, how that perhaps might have changed how you look at your own assets today? Have you identified incrementally more assets in your portfolio that you would potentially look to sell that you may otherwise have sold further down the road, beyond the $250 million that you've talked pout on today's call?

We've said that we'll look at -- I think we have a lot of flexibility, both in our line of credit, both on the debt that would be available to us, so we wouldn't be suffering from maturity risk, both from selling assets in the portfolio, and other balance sheet steps that we could take. If we consummate any transaction, we will consider all the alternatives that are out there to cost effectively and astutely finance that transaction.

Okay. Sounds like you'll do a portfolio review if, in the case you were successfully able to consummate the transaction, down the road at some point. Another question on ground-up development, the Charlotte deal here. We've heard consistently from many of your peers that rents aren't quite necessarily where they need to be for new development to pick up in a meaningful way.

Curious what about the market or sub-market location that appeal to you? Curious what other markets or opportunities you're looking at today in terms of development?

We heard that for quite some time that the rents don't justify it. All I can point to, again, would be the $500 million of starts that we've done since the downturn and the fact that we've had developer returns about 9% and the ones that have been completed average 98% leased.

We've proven that there's demand. We've proven that the demand is at good returns.

In terms of this particular property, we just like the fact that -- we like Charlotte. We like the Carolinas in general, it's performed very well for us. It's under-retailed there, if you mention the GLA per capita and compare it to the national average.

We are very fond of Publix, one of the great restaurants in the country. This will be a Publix anchored center in a very high-growth area of Charlotte. It's at the corner of Main on Main of the new extension of George Lile's Parkway and it's right-sized.

It has the possibility to expand it. It's also at an excellent return in the mid 8%s. There's a lot of things we do like about it.

Just to further amplify on Brian's comments is that, as he indicated and as I indicated, the opportunity set of developments that check the boxes from a quality, from a criteria standpoint and from a return standpoint is very limited. We just think we're well positioned to get more than our fair share of those developments that do check the boxes, including returns.

Okay. Fair enough. Maybe if I can try and slide one in here quickly? Lisa, with your recent Green Bond issuance, I can understand the social value. Can you perhaps quantify any discounted pricing or any other benefits that may not be as apparent to an outside observer?

It's so difficult to really quantify if there was any benefit at all. It certainly didn't hurt us. I don't believe that there was any pricing advantage as a result of it. We did have a number of SRI investors in the book, but I don't think that it narrows the spread at all.

Alright, guys. Thank you.

Thank you.

Thank you. The next question comes from the line of Rich Moore with RBC Capital Markets. Please proceed.

Hi, guys. Good afternoon. Lisa, I don't usually see a half-full term loan. So, I'm guessing you guys are going to -- I realize it's new, the increased capacity, but I'm guessing you guys are going to fill that term loan as a first source of capital and then let it run to 2019? Is that probably accurate?

I think the key thing, and it was in my prepared remarks, Rich, is that we have the ability -- it's a delayed draw up until August of next year, which coincides with our bond maturity in 2015. We have a large maturity next year, $350 million.

In thinking about staggering our debt maturities, we would likely do two different tenors to refinance that. This is a means of doing that.

Okay. I got you. As you look at the mortgages that you have coming due, would you ever encumber anything else at this point, re-encumber any of these assets, or as these mortgages mature do you plan to take them off and always replace with some unsecured instrument?

That certainly would be the plan, except in our co-investment partnership, where we would continue to refinance with mortgages.

Great. Thanks very much.

Thanks, Rich.

Thank you. The next question comes from the line of Nathan Isbee with Stifel. Please proceed.

Hi, good afternoon. Hap, as the news of the AmREIT proposal came out, I think the collective reaction was, wow, that's pretty un-Regency-like. Are we witnessing a change in strategy or DNA, or was there something about this deal specific that set it apart?

As we indicated in our letter that we made public that we tried to negotiate with them. We asked for information. Then, when they decided not to provide us with that information and sit down and negotiate with us, we decided that it was too compelling of an opportunity for their shareholders and for Regency's shareholders and that prompted us to go public. I'll leave it at that.

Okay. Thank you.

Thank you, Nate.

Thank you. The next question comes from the line of Jonathan Pong with Robert W. Baird. Please proceed.

Good afternoon, guys. Just following up on Jim's question earlier, you guys have always been very prolific developers, it looks like that's playing out again this cycle. Question is how do you get comfortable with growing that development risk further as a percentage of your operating portfolio, particularly if you close on the deal with AmREIT, given how much value in that store is dependent on development upside?

I think that as we said, we're going to be --

Let me first -- I'm going to say -- he's answering this as Regency, strategically as Regency generic, nothing to do with the AmREIT.

We said we're going to look at that investment on a very disciplined basis and what makes compelling sense to our shareholders. We've said and I think we've demonstrated since the downturn and we're committed to a very disciplined development program of developing those assets that meet our criteria and also limiting that as a percentage how much balance sheet exposure that we're going to, in terms of as a multiple of EBITDA, and I don't think anything that's going to change that. Because I think that's a strategy and a guideline that makes compelling sense, and it's going to make sure that we're making the right investments for the right reasons.

All right, thanks a lot.

Thank you. The next question comes from the line of Chris Lucas with Capital One. Please proceed.

Good afternoon, everyone. Hap, actually, could you just remind us what that percentage or multiple approach is right now for the Company as it relates to the development risk exposure?

It's 2 times EBITDA, which translates into approximately, today, about $850 million. That is the amount that we have under construction plus future commitments. We're a little bit less than half of that right now.

Okay. Great. Thanks. Brian, just I'm trying to understand on the tenant move-out issue, maybe if you could put it in the context of tenant retention rates, what you're seeing, say the last couple of quarters, compares to the 2005, 2006 top-of-market environment?

In terms of move outs, whether you look at it -- as I mentioned, less than $300,000 is just really unusual. You can go back to 2006 or any of those years and still $300,000 was very low, and yet ours has been averaging that for three of the last four quarters.

It's the small shops. It's the best first half we had following the best second half. That takes into consideration all those quarters back then.

You've got to remember, too, that we're doing a lot of strategic move outs where we're trying to get space back. We want to move the tenants out.

We've had multiple examples, recently, of names you'd recognize whether it's Outback Steakhouse or Dunkin Donuts or others who want to renew, and we're saying no. You would think that would elevate the move outs.

It's a very healthy portfolio right now. We just did a survey of all of our tenancy.

We had 1,250 responses and less than 4% came back and said that they were likely not to renew. There's not only strong external demand, but the retailers within the portfolio want to stay.

Okay. Great. Thank you.

Thank you.

(Operator Instructions)

Thank you.

We thank everyone for their time. It does appear that there is a question, which I'll be happy to answer or pass along to Brian or Lisa.

Thank you. The next question comes from the line of Vincent Chow with Deutsche Bank. Please proceed.

Hey, good afternoon, everyone. Sorry about that. I thought I had queued up earlier. Just a quick question, just on the development side of things again.

Appreciate all the commentary about increasing competition and that kind of thing. I'm just curious, though, are you seeing an increase in breadth of demand from traditional anchor tenants to take space or are these, the competition, are they moving forward without that anchor backing?

Yes, we're seeing, as I mentioned earlier, we are seeing a lot of people, a lot of developers taking down land where they don't have the anchor in place at all, whether that's a land bank or they're just want to be able to compete, get the property and they have confidence they'll be able to do something. Where you particularly see that, again within the urban areas, in markets like the Bay Area in Houston where things are so hot that if they can't make it work as retail, there's alternative uses in office or residential.

A lot of the competition is non retail.

Okay. Got you. Just a question, clarifying point on the $350 million of unsecured. Obviously, you have the flexibility to draw down the term loan all the way out until that maturity. Just curious, given where rates are today and your expectations about rates over the next, until that maturity comes due, I'm just curious if it would make any sense to pull that forward?

I'll remind you, we actually hedged $250 million already of our 2015 planned issuances at a Treasury plus swap rate of 2.67%.

Right idea, Vincent.

(laughter) Right, I guess bad memory but good idea.

That's if our interest rate is fixed, other than the term loan is obviously is floating over LIBOR.

Got it. Okay. Thanks.

Thank you.

Thank you. It appears there are no other questions in the queue at this time. Would you like to proceed with any closing comments?

Just we appreciate everybody's participation in the call. Thank you, and everybody have a great day and into the weekend, have a great weekend. Thank you.

This does conclude today's teleconference. We thank all of you for your participation, and we wish you a very wonderful day.