Michael Mas - Martin E. Stein - Chairman, Chief Executive Officer, Chairman of Executive Committee and Member of Investment Committee Lisa Palmer - Chief Financial Officer and Executive Vice President Brian M. Smith - President, Chief Operating Officer and Director.

Jay Carlington Christy McElroy - Citigroup Inc, Research Division Christopher R. Lucas - Capital One Securities, Inc., Research Division.

Greetings, and welcome to the Regency Centers Corporation Third Quarter 2014 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to our host, Mr. Mike Mas, Senior Vice President, Capital Markets for Regency Centers Corporation. Thank you. Sir, you may begin..

Good morning, and welcome to our third quarter 2014 conference call. Joining me today is Hap Stein, our Chairman and CEO; Brian Smith, 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. [Operator Instructions] I will now turn the call over to Hap..

Thank you, Mike. Good morning, everyone, and thank you for joining us. I'll be brief. Our results are excellent in all facets of the business.

And I know that Lisa and Brian are looking forward to walking you through the details of the impressive performance of the operating portfolio, development program and the cost-effective execution of our match-funding strategy. We expect this positive momentum to continue into next year.

As you'll hear from Brian, our results to date and my optimism about future NOI growth prospects are indicative of the health of the portfolio, which by all objective measures, is one of the industries' best. We are also benefiting from the favorable supply environment and continuing strong demand for better centers from expanding retailers.

I'm especially proud of our disciplined development and redevelopment program that is also performing exceptionally well in spite of increased competition.

I believe that our market teams and their relationships, their local knowledge and experience should allow us to continue to win more than our fair share of the opportunities to develop great shopping centers at compelling profit margins.

Before I turn the call over to Lisa, I want to congratulate Kerr Taylor and the AmREIT board for achieving an exceptional result for their shareholders.

Lisa?.

Thank you, Hap, and good morning, everyone. The positive underlying fundamentals produced strong financial results in the third quarter with core FFO per share of $0.71, representing a 9% per share increase over the third quarter of last year.

Same property percent leased increased 50 basis points from the prior quarter to 95.8%, and same property NOI growth, excluding termination fees, was 4.1% for the quarter and 3.6% year-to-date. As in prior quarters, and importantly, base rent growth was the largest contributing factor to overall NOI growth.

I would also note that redevelopments had a positive impact of 70 basis points on year-to-date growth. With these strong results, we are raising the midpoint for core FFO per share by $0.04 to a new range of $2.80 to $2.83. I will quickly run through the drivers of this increase.

First, NOI from the same property pool and developments continues to exceed our expectations. We now expect same property NOI growth in the range of 3.5% to 3.8%, and we expect the same property pool to finish the year in the range of 95.5% to 96% leased.

Second, the robust leasing volume that we've experienced has also outpaced projections and is favorably impacting G&A through higher capitalization than originally planned.

Lastly, the timing of dispositions in 2014 has continued to become more back-end loaded, and while this benefits earnings for 2014 by approximately only $0.01 per share, it will slightly dampen 2015 FFO growth.

That being said, and as Hap indicated, early projections are showing that same property NOI growth next year should meet and possibly exceed our long-term growth target of 3%. We currently plan to release more detailed 2015 guidance in December through a press release.

In terms of capital markets activity, during the quarter, we raised nearly $50 million using our ATM at a weighted average share price of $57.35. This will fund a portion of this year's and next year's development spend.

As a consequence, we lowered the top end of 2014 disposition guidance by $35 million and now intend to sell $15 million less next year than would have otherwise been the case. This is consistent with our match-funding strategy that we've shared with you in the past.

We have and will continue to fund our visible development pipeline with property sales, but will also be opportunistic and use equity when it make sense to us.

Brian?.

Thank you, Lisa. Good morning, everyone. For some time now, we've been confident that the steps we've taken to enhance our portfolio in terms of quality, location, grocer sales and demographics as well as our efforts to upgrade our merchandising, will begin to take our operational results to an even higher level.

Since the beginning of 2012, we've really seen that unfold and continue to gain momentum. It's worth repeating that the same property portfolio is now 95.8% leased with small shops exceeding 91%, which represents a gain of 200 basis points year-over-year.

As occupancy levels heighten, we continue to benefit from limited new supply, giving us even more purchasing power and allowing us to achieve double-digit rent growth in every quarter of this year.

In addition, contractual rent steps have been a significant area of focus, and we're making great strides, receiving better midterm increases from both national and small shop tenants. In fact, rent steps for all leases signed year-to-date have averaged nearly 2%. This represents a meaningful increase over the current portfolio average of 1.3%.

Total and small-shop moveouts have also trended very positively over the last 5 quarters and continue to be well below historic norms despite our proactive efforts to terminate leases where we have the opportunity. For these reasons, as Hap and Lisa both indicated, the outlook for 2015 operating fundamentals is looking really good.

Turning to development. Competition is increasing, but today, we fared well in this competitive landscape due in large part to our experience, local presence, credibility and strong retailer relationships.

We've also been successful in leveraging our relationships with residential and office developers to become a retail developer of choice in many master-planned communities. This was the case with our 2 third quarter starts, which I'd like to further describe.

The first, CityLine Market, will be an 80,000 square-foot shopping center anchored by Whole Foods. CityLine Market will be part of a 186-acre mixed-use project in suburban Dallas.

The initial phase of the project is currently underway, with 2 million square feet of office space that will be occupied by nearly 10,000 State Farm and Raytheon employees, along with 1,000 multifamily units in an Aloft Hotel, all having walkable access to our center.

Construction on this phase of the project will be complete prior to CityLine's opening in early 2016. And that's just the beginning. Subsequent phases will triple the build-out I just mentioned.

Because of the premier location and consistent with our fresh-look branding, we're focused on ways to increase connectivity between retailers and customers, enhance the walkability of the community and incorporate large open spaces into the design to encourage customers to come, shop and stay.

To date, we've had overwhelming interest in this project, with quality prospects for more than 95% of the space. Some exciting restaurant concepts and premier health and wellness-focused service providers round out the current lineup. Our second development start, Belmont Shopping Center, is equally impressive.

Belmont will benefit from a very affluent trade area, boasting the highest median income in the country. It is well located at the entrance of Toll Brothers' master-planned community of Belmont at the interchange of a major east-west thoroughfare linking the community to Tysons Corner and downtown Washington D.C.

The Belmont residential component is fully built out and consists of nearly 2,200 homes and townhomes, with the highest price point of any community in the Toll Brothers portfolio. It also includes the Belmont Executive Center, which is approved for 1.4 million square feet of other uses.

Belmont Center will also be anchored by Whole Foods and already has an outstanding lineup of restaurant operators, including West Coast-borne MOD Pizza and The Habit Burger Grill, each choosing Belmont as their first location in the region.

Despite having just started construction, this center is quickly approaching 85% leased, and along with CityLine Market, is a stacking up to be an exceptional addition to the portfolio. Turning to dispositions. During the quarter, we sold 5 assets for a net pro rata proceeds of nearly $60 million.

Interest has been strong and our assets marketed for sale. We're seeing improved pricing and often receiving multiple offers. This, combined with the fact that we're taking better properties to market given the overall quality of the portfolio, is allowing us to match fund acquisitions with dispositions at comparable cap rates.

As a result, I'm confident in our ability to continue to cost-effectively fund developments and acquisitions with property sales.

Hap?.

Think you, Brian, and thank you, Lisa. To close, I'm extremely gratified by the positive results that Regency's dedicated and talented team continues to produce.

In addition, I'm excited about Regency's future prospects to sustain growth in net asset value and earnings per share through our formula of NOI growth from a high-quality portfolio, value-creating development and redevelopments and a strong balance sheet. We look forward to seeing many of you in Atlanta for NAREIT's annual REITWorld conference.

We thank you for your time, and we'll now turn the call back to the operator for your questions..

[Operator Instructions] Our first question comes from the line of Jay Carlington with Green Street Advisors..

Brian, you hinted that that 2% contractual rent number for leases signed. It was -- I guess, that's kind of above your 1.5% long-term goal.

Is that kind of a good run rate to think about? And what does that imply to your longer-term NOI growth?.

Well, our goal is to get this up to 1.5% for the whole portfolio from the 1.3%. I think the run rate for the leases that are signed each quarter in the 1.8% to 2% range is about right. But given that that's still is a small percentage of the whole portfolio, it's just going to take a while to lift the entire portfolio..

Okay.

So does it feel like that's something that's sustainable through '15, that kind of 2% type number with new leases signed?.

Yes. I think, it's like 2% for the quarter and 1.8% year-to-date. But if anything, we're getting more momentum in that regard, so I think it is a good run rate..

But [ph] over it. Okay, and [indiscernible] period, the number could exceed 1.5% to 2 -- go, of course to 2%. In effect, we're turning about 10% of the space a year, so think about it that way. So to get it to 1.5% will take us a few years to get that, but I think the run rate beyond that is pretty encouraging..

Okay. And Lisa, I think you've said in the past, you consider equity issuances as a financing alternative when the stock was trading favorably in relation to your NAV. So curious how you view the recent share issuance of the ATM this quarter..

I would again just reiterate that the use of equity is consistent with our articulated match-funding strategy to fund our development.

We, first, look to property sale, low growth assets, but as you said, Jay, to the extent that equity is trading within -- each quarter, what we do is we establish -- or not even each quarter, it's really daily, we think about equity and we establish a relatively narrow-range view of NAV based on current private market pricing.

And when we believe that equity is trading within that range, we will cap the ATM program..

But not all the time, as -- but as a component of our match-funding strategy..

And as I mentioned in my prepared remarks, the extent that we do raise equity, it will be replacing property sales. It's not in addition to it..

Our next question comes from the line of Michael Bilerman with Citi..

And this is Christy here for Michael. Brian and Lisa, you both touched on this in your remarks.

But I'm just wondering, as the external NOI growth expectations have continued to be revised higher throughout the year, what would you say has been the biggest positive surprise to internal growth in 2014? Your -- some of your comments would suggest occupancy, but you also talk a lot about the contractual rent, so just looking for more color on that.

And the occupancy, would you say that incremental leasing or fewer moveouts was the greatest factor?.

It's all that. The -- it was driven by base rent. And so it's all the components of the base rent. We had strong leasing. I think overall, it's about 10% for the pro rata basis, higher than it was the same quarter last year. Our rent steps are higher, our rent growth continues to trend up and we've also had very, very favorable moveout.

I think I mentioned last quarter that's it's rare that the moveouts get to 300,000 square feet per quarter, and that 3 of the 4 quarters, we're at or below 300,000. This quarter, it was 224,000. So it just shows you the continued positive surprise on the moveouts, but also strongly seeing rent steps and rent growth..

Okay, and then I'm not sure if you're able to comment on this, regarding the bidding process for AmREIT and sort of how you thought about value, the assets and the context of what your maximum bids be, and maybe what you think about the ultimate deal price as about the frothiness in the market..

Well, we have work as -- I'm not going to comment on the process. I will comment from the standpoint as we think that -- as I said, I think the company achieved great pricing and a great result for their shareholders. And being a shareholder, we're very happy with the outcome.

I'll also note that as you, Christy, know, and others on the call may know, we've already got a wonderful platform in Houston that we feel really good about and we're happy to have that..

Can you say what your total costs were associated with the pursuit of AmREIT?.

No..

[Operator Instructions] Our next question comes from the line of Chris Lucas with Capital One Securities..

Just a quick question, Brian or Hap. On the escalators, I guess, really just in terms of your leasing approach right now, how do you balance out your opportunities to push escalators versus control of the space versus the TI dollars.

How are you thinking about your leasing approach to tenants at this point?.

Well, the #1 thing we're looking at is the quality of the user. So first and foremost, that's what we want. Market rents continue to go up and we expect to get at least market rents. And then from that point on, it's the escalator.

So it's really all of the above to the extent you got an incredible retailer that provides some kind of a wow factor with a center, we think would enhance the leasability of that center and the overall -- I think, the overall NOI growth, then we may work with them on the steps versus the initial rent. But what we found so far is that's not the case.

On the -- if you look at kind of the Fresh Look tenants we've been putting in, we've not only been getting the high initial rent, but we've been getting consistent steps and the build-outs have been very modest. So we look at the mall. It's a lease-by-lease situation but right now, they all seem to be going in our favor..

And then just on the shadow development pipeline of things that you're looking at, is that getting incrementally larger? Or how are you thinking about that over the long haul, over the next sort of 3 years? Is that -- what's the outlook for that pipeline?.

Well, first and foremost, we are very focused on the developments because we think developing these quality centers in strong protected market is an important driver of NAV and it's a differentiating competitive advantage for us. We have the desire and the capability to do more but it's pretty tough out there.

So for 2014, we expect we'll be at the high end of the guidance range, about $240 million. After that, we're looking at $150 million to $200 million and that could be lumpy, just -- that's the nature of development.

And as much as we'd love to do more, we are limited by the opportunity set, given the discipline that we're showing in terms of what kind of properties, what kind of markets we want to pursue. And then, as you are aware, we're also restricted by the limit that we put on it of no more than 2x EBITDA for total commitments..

[Operator Instructions].

For those of you all that took time away from NAREIT, it's greatly appreciated and we'll let you go back to whatever you do related to NAREIT. Thank you very much for your time on the call. And everybody, have a great day, and look forward to seeing a lot of you, as I indicated earlier, in Atlanta. Thank you..

Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day..