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REGCO earnings / call

REGCO Q3 2026 earnings call transcript, November 6, 2026

Regency Centers Corporation Third Quarter 2026 Earnings Conference Call

ReplayOfficial webcast
  • Management 31%
  • Nick Wibbenmeyer 12%
  • Alan Ross 7%
  • Analysts 25%
  • Operator 5%

Management

  • Nick Wibbenmeyer

    Chief Investment Officer

    5 min

  • Alan Ross

    Chief Operating Officer

    3 min

Analysts · 12

Transcribed automatically by Lician from the company's public webcast; it can contain errors and speaker names are best effort.

  1. Prepared remarks9:52
  2. Operator

    Ladies and gentlemen, thank you for your patience and please remain on the line. Today's Regency Centers Corporation Conference will be beginning shortly. Again, we thank you for your patience and ask that you please remain on the line. Today's Regency Centers Conference will be beginning shortly.

  3. Q&A11:42
  4. Operator

    Welcome to Regency Centers Corporation third quarter 2026 earnings call. At this time, all participants are on a listen-only mode. A question and answer session will follow the formal presentation. If anyone requires operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Catherine McKee, Vice President, Investor Relations. Thank you. Please go ahead.

  5. Good morning, and welcome to Regency Center's third quarter 2026 earnings conference call. Joining me today are Lisa Palmer, President and Chief Executive Officer, Mike Moss, Chief Financial Officer, Alan Ross, Chief Operating Officer, and Nick Wibbenmeyer, Chief Investment Officer. As a reminder, today's discussion may contain forward-looking statements about the company's views of future business and financial performance. including forward earnings guidance and future market conditions. These are based on the current beliefs and expectations of management and are subject to various risks and uncertainties. It is possible that actual results may differ materially from those suggested by these forward-looking statements we may make. Factors and risks that could cause actual results to differ materially from these statements may be included in our presentation. today and are described in more detail in our filings with the SEC, specifically in our most recent Form 10-K and 10-Q filings. In our discussion today, we will also reference certain non-GAAP financial measures. The comparable GAAP financial measures are included in this quarter's earnings materials, which are posted on our Investor Relations website. Please note that we have also posted a presentation on our website with additional information, including disclosures related to forward earnings guidance. Our caution on forward-looking statements also applies to these presentation materials. As a reminder, given the number of participants we have on the call today, we respectfully ask that you limit your questions to one. Please rejoin the queue if you have any additional follow-up questions. Lisa?

  6. Thank you, Catherine.

  7. Good morning, everyone, and thank you for joining us. Our team delivered another great quarter. We generated strong, same-property NOI and FFO growth, driven by solid operating fundamentals and accretive capital allocation. Demand for space remains robust, and our tenant base is strong, supported by the resiliency of consumers in the communities surrounding our centers. Our ground-up development platform remains a key differentiator for region. We have been expanding our pipeline for years, and our team continues to build on that momentum, sourcing high-quality projects across the country. We remain disciplined in the current higher interest rate environment, focused on investments that create meaningful earnings growth and long-term value for our shareholders. Our sector-leading national development platform provides us with a visible source of investment opportunities outside of the transaction markets. Our strong growth so far this year has allowed us to once again increase our full-year outlook. We raised our dividend this quarter by 6%, a meaningful increase that extends our long track record of dividend growth, reflecting our performance and the confidence we have in the durability of our cash flows. Looking more broadly and ahead to 2027 and beyond, the fundamentals of our business remain strong. The performance of our portfolio continues... ...to demonstrate sustained strength in tenant demand. Our neighborhood and community centers, anchored by top grocers and focused on necessity, service, convenience, and value, are well positioned to continue thriving. Our development platform remains the driving force behind our external growth. And we're investing in and leveraging new technologies across our organization, making our team more productive and effective.

  8. And allowing us to make better, faster decisions. As I close, what sets Regency apart hasn't changed. A high-quality portfolio in strong suburban trade areas, a leading national development platform, a fortress balance sheet, and the best team in the business. We are executing on our strategy and have confidence in our ability to drive growth and sustained long-term value for our shareholders in 2020. and beyond. Alan? Thank you, Lisa, and good morning, everyone. The strength of our results in the third quarter and throughout 2026 reflects the hard work of our team and robust operating fundamentals across our portfolio. Same Property NOI increased 5.1% in the third quarter and 4.4% year-to-date, supported by continued occupancy gains, strong rent growth, and disciplined execution. Our same property portfolio reached a new historic high of 97% least, with shop occupancy also reaching a record 94.6%, driven by broad-based tenant demand. Equally encouraging, commenced occupancy increased to 95.1%, yet another historic high, as we continue converting our S&O pipeline into rent-paying tenants. Combination of strong retailer demand, as well as ongoing scarcity of both high-quality space and new supply, continues to bolster our negotiating position across our portfolio. Cash rent spreads were 12% in the quarter, including negotiated renewal spreads at 15%, while gap rent spreads reached 22%.

  9. Nearly all of our new shop leases now include annual rent steps of 3% or higher, strengthening our... contractual rent growth well into the future. And importantly, we are capturing this rent growth while remaining disciplined with our leasing capital spend. Overall, our tenants remain healthy and the underlying indicators remain encouraging. Collections are strong, receivables remain below historic levels, bankruptcy impacts have been minimal this year, and both foot traffic and tenant sales performance remain solid. And while we have continued visibility... to the benefit of commenced occupancy into 2027, growth opportunities extend well beyond the remaining vacancy in our portfolio. We're leasing space earlier, often while it's still occupied, reducing downtime between tenants and accelerating rent commencement. We're capitalizing on mark-to-market opportunities as leases roll, taking advantage of supply-demand dynamics through negotiated renewals and embedding strong contractual rent steps into our lease. And we will continue to unlock redevelopment opportunities that improve merchandising, strengthen the competitive positioning of our centers, and create value. Our team continues to deliver, and I'm excited about the runway we have to keep driving NOI growth. With that, I'll hand it over to Nick.

  10. Nick WibbenmeyerChief Investment Officer

    Thank you, Alan, and good morning, everyone. We continue to see significant positive momentum across our investments platform. During the third quarter, we started several new development and redevelopment projects, made great progress executing on our in-process pipeline, sourced new opportunities, and acquired high-quality properties. Year-to-date through October, we've started more than $280 million of projects, including more than $100 million in the third quarter alone, and we continue to expect starts to approach $400 million by year-end. Our ground-up starts in the quarter, including those. Whole Foods-anchored project in Southern California, and shortly after quarter end, we broke ground on a Sprouts-anchored project in Northern California. Each of these developments pairs a leading grocer with a premier suburban location, which are exactly the types of projects our platform is designed to deliver. Our in-process pipeline currently stands at approximately $680 million, with expected blended returns of 9%. We continue to have great momentum leasing up these projects. Which is allowing us to bring Project NOI online and driving the significant total NOI growth we've seen this year. This success can be seen in the $158 million of projects we've completed so far this year, including the shops at SunVet on Long Island in the third quarter. This Whole Foods Anchored Center has been met with tremendous enthusiasm from both retailers and the community, with a merchandising mix that includes Nordstrom Rack, Sephora, Shake Shack, and Warby Parker, among them.

  11. On the transaction side, we acquired more than $100 million of properties in the third quarter, bringing our year-to-date total through October to over $170 million. These included a stop-and-shop anchored center in northern New Jersey and a market basket anchored property in suburban Boston. We funded several of these acquisitions with joint venture capital alongside a longstanding partner with whom we have additional capacity to invest. We continue to source attraction.

  12. and today's rising interest rate environment creates additional challenges. That said, because we don't exclusively rely on acquisitions to drive our external growth, we can remain patient and selective, pursuing only the opportunities that truly meet our standards for quality and accretion. In closing, I'm confident in our ability to keep building and delivering accretive developments and sourcing high-quality acquisitions. that create meaningful growth and value for our shareholders, based on our deep-grocer relationships, a proven track record, ample access to capital, as well as sustained, strong demand. Mike?

  13. Management

    Thank you, Nick, and good morning, everyone. As you've heard from the team, Regency delivered exceptional results in the third quarter, reflecting the continued fundamental strength of our portfolio and the accretive impact of differentiated capital allocation. Year-to-date, same-property NOI growth is 4.4%, driven by continued growth in occupancy, robust new and renewal leasing, high tenant retention, and strong tenant health. Beyond the same-property pool, year-to-date total NOI growth is 7.6%, with this metric capturing NOI from our ground-up development projects. The strength of our operating results and our ability to accelerate development NOI allows us to once again raise our current-year guidance. We've increased the midpoint of our same-property NOI growth rate to 4.25% or higher, and we've also raised the midpoint of core operating earnings per share, which now calls for full-year growth of 5.7% at the midpoint. Looking ahead to next year, while we'll hold full guidance for our fourth-quarter call, I do want to share a couple of early indications. following two outstanding years of same-property NOI growth, we expect 2027 to be another great year for internal growth, as our portfolio is well-positioned to benefit from continued strong fundamental trends. As we sit here today, we anticipate next year's same-property NOI growth to be in the mid-3% area, reflecting continued high levels of occupancy, strong rent growth benefiting from our pricing power, steady tenant health,

  14. Management

    and positive contribution from redevelopment. With respect to our long-term target earnings growth rate, we anticipate the refinancing of our maturing debt early next year will have an impact of somewhere in the area of 150 to 200 basis points. Rates have certainly shown some volatility recently, but given where borrowing costs are today, our bias would be towards the lower end of this range. Again, much more to come on 2027. earnings with our full suite of guidance in February. Moving to our capital and liquidity position, in an environment where balance sheet strength matters more, we are comforted to be in a position of financial strength. Our total leverage currently stands just below our target range, and we have A ratings from both Moody's and S&P. We have substantial availability in our $1.5 billion credit facility and continue to generate strong free cash flow, allowing us to fund our growing external growth pipeline without the need to issue equity or sell properties. We also benefit from additional investment capacity available to us through our long-tenure joint venture partner relationships. This flexibility allows Regency to continue investing accretively and remain opportunistic. In summary, we have had an exceptional year. Our operating fundamentals are very strong. Evidenced by our same property and NOI growth rate. Our development pipeline is providing new, sustained, total NOI growth, and our balance sheet supports the flexibility to continue investing accretively, even through a more uncertain rate environment. We look ahead with confidence in the underlying strength of Regency's portfolio and in our team's ability to deliver attractive, durable growth over the long term. With that, we'd be happy to take your questions.

  15. Management

    Thank you. The floor is now open for questions. If you would like to ask a question, please press star 1 on your telephone keypad at this time. A confirmation tone will indicate that your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. As previously mentioned, we do ask that you please limit yourself to one question and then re-queue up for any follow-ups. Today's first question is coming from Michael Goldsmith of UBS. Please go ahead.

  16. Question · UBS

    Michael GoldsmithAnalyst · UBS

    Good morning.

  17. Thanks a lot for taking my questions. I appreciate the early indication of the 2027 growth numbers. Right now, you just took your 26 same-property NOI growth to more than four and a quarter percent, and for next year, you're pointing at the mid-threes. So, are there any factors that are in play that would suggest that? Do you suggest that same-property NOI would decelerate? Maybe you can talk through the puts and takes on the same-property NOI for next year. Sure.

  18. Management

    Hey, Michael.

  19. Management

    Good morning.

  20. Management

    Appreciate the question. So, I think I'll start with occupancy, which is where you should start anytime you're talking about the direction of our same-property growth. As I mentioned on the call and my prepared remarks, we will continue to expect to maintain this very high level of occupancy that we've taken. So far this year. But the increases will be moderating. It's just kind of natural to expect that to occur. Just as a real brief reminder, and I think to congratulate the Regency team, 2025, we've moved our average commenced occupancy by about 150 basis points. We moved it again this year, and we expect to move it by about 80 basis points. And I would say that leaves about, I don't know. Somewhere in the area of 40 to 50 basis points to move it next year. More to come on the details of that, but that is kind of a natural occurrence of our portfolio as you reach these historical highs that we find ourselves in. Together with that, you benefit from expense recoveries. So we have been benefiting from higher levels of expense recovery rates in 25 and now into 26, and we'll continue to have some of that pop in 27 as well. We are calling for an 87% or 88% recovery rate going forward, which is, again, kind of matching our historical highs. And then the only other kind of on the downside I would highlight is we are about 25 basis points on bad debt expense this year, incredibly low.

  21. Management

    In the third quarter, we had a very low bad debt expense rate. I would say as we sit here today and it's early, I would plan for something more in the historical averages, which is very soon. You know, something approximating or approaching 50 basis points. So, that would be incorporated into that 3.5% area that I identified for next year.

  22. Management

    Thank you very much.

  23. Management

    Thank you, Michael.

  24. Management

    Thank you.

  25. Operator

    The next question is coming from Jamie Feldman of Wells Fargo. Please go ahead.

  26. Question · Jamie

    J
    Connor onAnalyst · Jamie

    Hi, this is Connor on with Jamie.

  27. Thank you for taking my question. Maybe on ground-up development, can you talk about yields and the... The next wave of opportunities relative to the 7% plus on the recently announced projects. Are stronger rents and faster leasing creating room for yields to improve, or are higher land costs kind of absorbing that upside? Yeah, good morning, Connor. Appreciate the question. This is Nick. You're absolutely right. I mean, let's just start with the tremendous work our team's been doing over the last several years building this just unbelievable development pipeline. That we're now seeing come online and build our end process to now approaching $700 million. And so, as you articulated, our end process are 7% plus on our ground up developments. And our teams have been pushing hard to try to get toward the higher end of that 7% plus. And they're continuing to push. Do I think we're going to see them gap out at 8% plus? No. I think the 7% to 8% range is where they're landing because, to your point, there's a lot of inputs. land costs. But at 7% plus, we still feel really good with that spread compared to, one, our cost of capital to create real accretion, and two, compared to what those assets would be worth on the private market from an NAV standpoint. So, feel really good about those assets. Also, feel really good about how we de-risk those. I just want to remind everybody, we have a lot of pre-leasing done on those assets before we close. We're fully entitled, and we have construction bids in hand.

  28. You've seen us bring these projects online. Our teams have done an amazing job holding those yields and improving on the margin in many cases compared to what we thought when we closed on those transactions. I'd love to just come over the top, and as Mike complimented the operating team, to compliment our development team. Our conviction in development is as strong as it's been. It remains a key differentiator for us, and it is an important part. And driver of long-term growth, and Nick hit on that in terms of the spreads over market cap rates. And we are mindful of our cost of capital. Our head is not in the sand on that, and we'll remain disciplined in what we pursue. But the fundamentals supporting development today are still really constructive, as Nick said.

  29. Management

    Thank you, Connor.

  30. Management

    Thank you.

  31. Operator

    The next question is coming from Samir Kunal of Bank of America. Please go ahead.

  32. Question · BofA Securities

    Samir KunalAnalyst · BofA Securities

    Good morning, everybody. I guess maybe, Mike, if you can provide an update, expand a little bit on your comments about the transaction market, kind of what are you seeing broadly given the volatility in rates, where are unlevered IRRs today, and any comments on pricing or cap rates would be helpful. Thanks. Yes, Samir.

  33. Management

    Good morning.

  34. Nick WibbenmeyerChief Investment Officer

    This is Nick. You know, as Mike alluded to in his opening comments, it's volatile out there. There's no question about that. And so we're still in the early innings of, you know, what does that kind of mean for the transaction market? As you can appreciate, many deals that are closing now were priced, you know, 60, 90 days ago. But early indications are, and this is what you always see in volatility, quality matters. And so early indications are really core grocer anchored assets with good growth profiles continue to have. A lot of demand as there is fund flow into our asset class. And it does appear those assets that did have a little bit more challenges. Potentially, we're going to have a little bit more leverage. Those may be getting retraded in the market from a pricing standpoint. But again, early innings and all indications are our asset classes are still very much in high demand. And so, but more to come over the next, you know, 90 days as assets reprice here.

  35. Management

    Thanks, Samir.

  36. Management

    Thank you.

  37. Operator

    The next question is coming from Todd Thomas of KeyBank Capital Markets. Please go ahead.

  38. Question · KeyBanc Capital Markets

    Todd ThomasAnalyst · KeyBanc Capital Markets

    Yeah. Hi. Thanks. Good morning. I just wanted to follow up on your comments around the early indication for 2027 same property NOI growth in the 3.5% range. Base rank contribution continues to improve. That was up 4% from 3.7 last quarter. And you talked. You talked about the runway from converting the S&O pipeline to rent paying tenants. So, you know, are you anticipating any known vacates or occupancy pressure in 27? And then related to your comments on bad debt, is the assumption simply a normalization from current levels? Or is there anything specific, any specific tenant issues or anything like that that you're contemplating?

  39. Management

    Hey, Todd.

  40. Management

    Appreciate the follow-ups. I would characterize the plan. As we sit here today, again, as being kind of occupancy neutral. We have done an incredible job, and I congratulate the team again on raising our eye level on where occupancy can be in this portfolio, which, by the way, also includes delivering an incredible amount of redevelopment activity. And I would characterize next year as being kind of occupancy neutral, but opportunity to continue to compress that S&M. So I do think we can continue to move commenced occupancy closer to percent lease. I would characterize the ULI change as a normalization. We are not seeing any evidence of tenant health concerns at all. I just can't help but look over my shoulder at a historical average and compare that to where we are today and not at least think that it could normalize back. to historical levels. The teams are doing an incredible job on the leasing front, pushing rate, using their leverage where we have it, and we have a lot of it today, given the tailwinds in the marketplace, given the lack of availability in high quality centers. And that could evidence itself in a little bit of pressure on bad debt expense. And we'll just be prudent and plan for that. But to this point, haven't seen a rapid, you know, impairment of tenant.

  41. Management

    Thanks, Todd.

  42. Management

    Thank you.

  43. Operator

    The next question is coming from Ronald Camden of Mork & Stanley. Please go ahead.

  44. Question · Mork & Stanley

    M
    Ronald CamdenAnalyst · Mork & Stanley

    Hey, great.

  45. Just following up on that, but going more into the portfolio, just wondering if you could talk a little bit about just what you're seeing in terms of foot traffic and then some of the categories that are outperforming and updated thoughts on categories that you're reducing exposure to. at this point. Thanks.

  46. Management

    Hey, Ronald.

  47. Management

    Good morning.

  48. Question · Mork & Stanley

    M
    Ronald CamdenAnalyst · Mork & Stanley

    Thank you for the question.

  49. Alan RossChief Operating Officer

    It's Alan. So when I look back at the quarter, there's some really great retailers that we signed multiple leases with. And I think, as you know, the food category tends to be sort of a leader in transactions quarter over quarter. But Cava, Paris Spaghetti, Chipotle, just to sort of name a few on that front. Health and wellness is a key sort of sector that we've been talking a lot about for the last number of years. And we continue to lean into that with 13% of our ABR combined on fitness and medical. And so when you look back at that quarter, again, where were there multiple transactions signed, Sweathouse, IVX Health, Jet Set Pilates, all really just great small shop retailers that are filling the portfolio. And then from a milestone perspective, we signed our 75th lease with TJX. Again, another phenomenal retailer. So there's just a lot of really great operators that are out there. As Mike had mentioned, we are leasing a lot of occupied space right now. The pipeline is deep. It's healthy. And at these occupancy levels, that is another certainly key focus that we continue to drive rents on some of that occupied.

  50. Management

    Thanks, Ron.

  51. Management

    Thank you.

  52. Operator

    The next question is coming from Michael Griffin of Evercore ISI. Please go ahead.

  53. Question · Evercore ISI

    Michael GriffinAnalyst · Evercore ISI

    Great. Thanks. So, I saw that Kroger announced plans to expand their store fleet pretty notably over the next couple of years. And as a key partner of theirs, I'm wondering how Regency could stand to benefit from this? Could this be incremental ground-up developments, redevelopments of existing? And then as you look at kind of the grocery landscape broadly, I realize that being with the right grocer in the right market is really paramount. But, you know, does the environment feel better for openings there into the next few years? And then how can Regency benefit as a result? Thank you.

  54. Management

    Hey, Nick, I'll just take – I'm going to address the latter and then let you finish with the beginning of the question. I appreciate you answering. The question yourself, in your question, we certainly always pay attention to the grocers. They're an important part of our business. And as many of you know, because you probably did see it on social media, I've been with the company for 30 years now. And for all of those 30 years, grocery – the grocery business is extremely competitive. And that environment just becomes more and more so. And the traditional grocers are facing – more competition from the specialty grocers, from different means of customers getting their groceries delivered to them as well. So the competitive pressures are not being reduced in any way, and we never minimize that. But I think it's really important, because it's something that we always talk about, to really distinguish between the performance of the grocer chains and the underlying value of their best-performing stores. And our strategy is to focus on, to own, to develop the stores that will be the best-performing stores in their portfolio. And we continue to believe, and grocers continue to believe, that a physical presence is important for them to be successful across all delivery of their goods to the consumers, whether they walk in the store, order online and pick up, or have it delivered. Yeah, Michael.

  55. Management

    I'll just add to that the specifics regarding Kroger. Without a doubt, look, we love when important relationships we have double down on what Lisa just said and reinforce that net new stores and brick and mortar is important to them. We believe that as well as just Lisa articulated. And so when you think about Kroger, yes, we've had a longstanding relationship and a lot of development and redevelopments with Kroger. And so any incremental demand they have is a benefit for Regency. And you just look, as we talk right now, we just reopened a teardown rebuild store in Westchester, Ohio with Kroger. Phenomenal redevelopment. We're building a King Soopers, which is a Kroger brand in Colorado, new development in Lone Tree Colorado. And so we are very engaged with Kroger. We're excited to see them ramp back up their store program. And I think incrementally, again, if you just look over our shoulder, look, we started, you know, just over $250 million of developments and redevelopments in 24. In 25, we started over $300 million. We've given a head nod this year. It should be in the $400 million range. And so, incrementally, as these grocers lean back into store programs, it is beneficial to our development and redevelopment programs. So, we're appreciative of those relationships. They're very important to us. And that's why I'm excited about our future investment program.

  56. Management

    Thank you, Griff.

  57. Management

    Thank you.

  58. Operator

    The next question is coming from Greg McGinnis of Scotiabank. Please go ahead.

  59. Question · Scotiabank

    Greg McGinnisAnalyst · Scotiabank

    Hey, good morning.

  60. I want to keep on the grocers. We've strengthened Kroger, but that's kind of offset potentially a bit by Albertson talking about reviewing its real estate. I'm just curious if you can touch on how your banners with them are performing, whether you see that as any risk or not, just given the quality of your assets. Thank you. Greg, thank you for the question. I think Lisa did a really nice job articulating the fact that our stores, when we look at their performance, are trending above what the banners' average volumes are. And again, I think that's a testament to the markets that we're operating in, how we deliberately think about merchandising and operating these assets. And we feel really, really good about the overall health of our supermarkets. You know, some of them, as we talked about, Albertsons came out and said they're working to improve their stores, recognizing that grocery competition is, in fact, fierce. But again, we would bring it back to the overall quality of our real estate. It's great. They, too, are also an important relationship, not just Kroger. Certainly Whole Foods, Publix, there's a whole host of them, Sprouts, et cetera. And we're staying close to all of them, as we do with all of our key retailers, not just the grocers. So, um, we certainly remain very encouraged, uh, by the locations, uh, and performance of, of those stores.

  61. Management

    Thanks, Greg.

  62. Management

    Thank you.

  63. Operator

    The next question is coming from Juan Sanabria of BMO Capital Markets. Please go ahead.

  64. Question · BMO Capital Markets

    Juan SanabriaAnalyst · BMO Capital Markets

    Hi, good morning.

  65. Um, just hoping to maybe shift gears a bit, um, thinking about some of the trends, uh, across retail real estate more broadly. It seemed that landlords are trying to take advantage of eyeballs and foot traffic across, uh, their platforms. So just curious on your latest initiatives, latest initiatives on, uh, media or advertising opportunities, uh, that, uh, I think would be pretty unique giving, uh, daily and weekly traffic to your centers.

  66. Management

    Uh, Juan, thank you for the question. Uh, I think I, I love it. Media or advertising capabilities, because I know Eric Davidson, our group would love to have the shout out to his white box series. Um, look, there, there is certainly an environment, uh, of landlord, um, leverage in today's environment at 97%. Uh, we are leaning in and there's a lot of things that, um, you know, certainly we're doing, uh, there's a transition more to, uh, fair market value options. There's a transition. In addition to no options in many instances, um, a lot of non-monetary provisions that, uh, there's an opportunity to certainly, uh, improve, uh, that gives more flexibility for, uh, leasing decisions and redevelopment decisions in our assets. Um, but again, I think one important thing that ReCity has always done is we're very deliberate in how we think about merchandising our assets, uh, how we think about placemaking, connecting with the community, uh, and in today's environment. Um, again, we try to, uh, hone in on everything that can really make that asset, you know, sustainable, uh, in the long term. And so, uh, continue to feel, feel really good about how the teams are focused on, on various things. And, you know, I think that that's evidence, uh, in the results. I appreciate the question. Thank you.

  67. Management

    Thanks, Lon.

  68. Management

    Thank you.

  69. Operator

    The next question is coming from Handel St. Just of Mizuho Securities. Please go ahead.

  70. Question

    ?
    Handel StAnalyst

    Hi, good morning.

  71. This is Ravi Vedi on the line for Handel. Hope you guys are doing well. Uh, I wanted to ask about your capital deployment optionality. Uh, with leverage below your long-term range of five to five and a half, and what appears to be a, you know, a disconnect from private market cap rates of maybe 100, 150 bps, uh, why not buy back stock here? How should we think about your capital deployment optionality, particularly for larger portfolio deals, uh, with your peers doing some larger deals, such as the summit and slate?

  72. Management

    Thanks so much.

  73. Management

    Uh, appreciate the question. We've, we have leveraged free cash flow that, as Nick said, still have really great opportunities to put into our development pipeline, um, and into our in-process developments as well as redevelopments. And those returns are still greater than the returns we would receive buying back stock. Stock buybacks have been and will always continue to be a tool in our toolbox. And when we do have the availability of capital to use it, and when the returns are more attractive than what they would be for, for our develop versus our developments and or acquisitions, we will utilize it. Um, that's not the case today.

  74. Management

    Thanks, Robbie.

  75. Management

    Thank you.

  76. Operator

    Our next question is coming from Sid.

  77. Roam of Barclays. Please go ahead.

  78. Question

    ?
    SidAnalyst

    Hi, thank you so much for taking the question. I've got kind of a bigger picture one on supply. For a developer that's starting from scratch today and buying land and building at current costs, what rent does a new center need to make sense for the roughly $38 per foot you're getting on new leases? And how long does that gap sort of keep new supply out, in your opinion?

  79. Nick WibbenmeyerChief Investment Officer

    Yeah, Sydney, I appreciate the question. This is Nick. I hope you can appreciate it. It's difficult to answer because it's so market-specific and site-specific. And so it is our job, as our teams do a tremendous job around the country, sourcing these land deals. Our job is to put all the inputs into the pro forma to make sure it's a risk-adjusted return we're comfortable with. And so certain markets have higher land costs, as you can appreciate, higher construction costs. And so there is no unfortunate easy. But in the head of what the rent needed to make those deals pencil, it really is market by market. But as you can see, I'm comfortable saying both are true. We are getting more than our fair share of development opportunities. Our teams are doing a tremendous job putting all those inputs into the pro forma, making sure we're getting a risk-adjusted return of north of 7%, which we articulated we're very comfortable with in this environment. But at the same time, we also know how extremely difficult those opportunities are. And to make pencil, and that is why even with all of our relationships, even with all of our knowledge, we do believe we are the best in the business at it. We know how difficult it is. And so we don't see a massive amount of supply coming online. I do think there's a pretty material delta from those economics making sense for a massive amount of supply to come online. So we're confident on both ends. We're confident on our ability to grow our development pipeline like we have been, and we're confident on the operating.

  80. We've decided that we're going to continue to have leverage given the limited amount of overall supply coming into the market.

  81. Management

    Thanks, Sydney.

  82. Management

    Thank you.

  83. Operator

    The next question is coming from Michael Mueller of JPMorgan. Please go ahead.

  84. Question · J.P. Morgan

    Michael MuellerAnalyst · J.P. Morgan

    Hi, thanks for taking the question. This is Jacob on for Mike. Keeping on the development theme, some of your recent activity has been tied to master plan communities. Can you tell us if working with these developers gives you more visibility? And it starts three or five years out. And does it give you any more visibility in the shadow pipeline as well? Yeah, I really appreciate the question, Jacob. You're absolutely right. We've had a tremendous amount of success working with master plan developers just for the reason you articulated. Number one is they are planning years in advance, which works to our benefit to work with them as a partner to plan. Arguably, their most important amenity in many of these projects is what is their retail center going to be. And as you're well aware, new home owners. Really want to know where they're going to grocery shop is an important part of our everyday lives. And so being able to work with what they see as, you know, best in class developer grocery anchor centers is an important attribute that they are selling to their future home buyers. And so also, given the previous question Sydney asked, you know, they're a little less concerned about the specific land value on that one parcel of land when they're working with thousands of acres. And so they are a little more realistic on land value to make sure. Bringing in the absolute best in class grocery operator. And so it's a win-win scenario from our perspective. They know we're going to bring the best operator possible to their development. They know we're going to develop it all cash and they know we're going to own it and care about it long term. And so if you're a master plan developer, I say it all the time. I don't know how you wouldn't pick us to be your retail partner. And so very important part of our development program. We take those relationships very, very serious. And to your point, it gives us the confidence.

  85. Management

    We are working on our shadow pipeline that we're going to be able to continue to have our development start to be in the same zip code that we're seeing this year.

  86. Management

    Thanks, Jacob.

  87. Management

    Thank you.

  88. Operator

    The next question is coming from Craig Mailman of Citi. Please go ahead.

  89. Question · Citi

    Craig MailmanAnalyst · Citi

    Hey, Marty.

  90. I just want to go back to the comments just on the forward demand pipeline, even for spaces that are leased. I just kind of want to see if there's any takeaways. That you could give on where spreads are trending. Are they strengthening or kind of staying the same? And then just kind of longer term. I know we chatted a little bit on this call about just the vertical makeup in the portfolio. Like long term, are there any changes that you would like to see from a re-merchandising standpoint to just bolster the sustainability cash flows or bring down bad debt long term? As you look to replace some of these tenants who are maybe struggling or just overall strengthen the center?

  91. Alan RossChief Operating Officer

    Craig, good morning. It's Alan. I appreciate the question. So from a forward demand perspective, look, our pipeline remains very strong and merchandising, as I said, has always been a deliberate strategy. I think what I would look to maybe a bit first is the retention rate. Again, and this sort of ties into the supply-demand dynamic that we're in right now, but we were at 84%, and that's a peak. And we do not manage to a number on a retention basis. It's really more of just an outcome. And I would say that, you know, I'm very comfortable and it is healthy to take some space back. And we do that intentionally via this. Sort of proactive leasing some occupied space. And I don't want to make this such a huge prevalent theme, but it's an important one in that we have $2 million incremental signed snow pipeline that is on space that is occupied right now. And so that ties directly into your point of why are we doing it? We're doing it because we believe we can get a better operator that should drive better foot traffic, which will drive higher sales, which will drive higher rent for the rest of the asset. And it's an accretive. Transaction, hence the incremental add to our ABR. So it's a key focus. It's something we've done in the past. And we will certainly continue to do it in the future, particularly at 97% least, where we'll take advantage of that tailwind of driving revenue.

  92. Management

    Thanks, Craig.

  93. Operator

    Thank you. Once again, ladies and gentlemen, that is star one if you would like to register any questions at this time.

  94. Our next question.

  95. It's coming from Linda Tsai of Truist. Please go ahead.

  96. Hi.

  97. Thanks for the time.

  98. Do you view pricing power as more concentrated in the starting rent or higher contractual escalators? Linda, no, I appreciate that question. It's all about gap rent from my perspective. And I think, look, it is an art, not a science. There are instances where you're driving a higher initial rent spread, but at the end of the day, on a collective basis. Uh, we're focused on both. And I think when you look at our new deals for the quarter, we were at, uh, what, just north of 30% in terms of gap rent spreads. Um, you know, when you look at our shop embedded rent steps, 100% of our new shop deals did include rent steps. And, you know, we're at that point where 90% of them are over 3%, 20% of them are over 4%. Um, and so the teams are really, uh, clicking on all cylinders in terms of the combined long-term sustainable growth, uh, in both.

  99. Thanks, Linda.

  100. Thank you. Thank you. At this time, I'd like to turn the floor back over to Ms. Lisa Palmer for closing comments. I think, uh, yeah, we thought, we thought that maybe perhaps someone else was trying to, trying to ask. Um, I appreciate everyone. come in, but they removed themselves. Okay. Perfect.

  101. Thank you so much.

  102. Operator

    Uh, appreciate everyone's time today. Have a, uh, we'll met, we'll see many at Nary, um, in just a couple of weeks and, uh, enjoy the weekend. Thank you. Ladies and gentlemen, this concludes today's event. You may disconnect your lines or log off the webcast at this time and enjoy the rest of your day.

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