Regency Centers at Nareit REITweek: Strategic Growth and Resilience

On Tuesday, June 3, 2025, Regency Centers (NASDAQ:REG) presented its strategic vision at the Nareit REITweek: 2025 Investor Conference. The company emphasized its commitment to partnering with top-tier grocery operators and investing in store experiences. Despite industry challenges, Regency reported positive developments, including growth in rent-paying occupancy and a solid development pipeline.

Key Takeaways

• Regency targets a 3% annual growth in same-property portfolio NOI, leveraging its balance sheet and development programs.
• The company achieved a $250 million target in development starts for two consecutive years.
• Regency’s rent-paying occupancy grew in Q1, setting it apart from peers.
• The firm is well-positioned for either outcome of the Kroger and Albertsons merger.
• Drugstore tenant exposure is reduced, with strategic locations offering good prospects.

Financial Results

• Regency aims for a 5% algorithmic growth, combining a 3% increase in same-property NOI and additional growth from leveraging its balance sheet and development programs.
• The company maintains a 300 basis point spread between leased and commenced occupancy, indicating potential for further growth.
• Development targets include a minimum threshold spread of 150 basis points over market cap rates.

Operational Updates

• Regency’s tenant health is stable, with a watch list in the normal range of 150 to 200 basis points.
• The company focuses on high-quality acquisitions with accretive growth profiles, observing cap rates from the low fives to low sixes.
• Drugstore ABR exposure is approximately 2.5%, down from nearly 5%.

Future Outlook

• Regency prioritizes development and redevelopment, using free cash flow to drive growth.
• Dividend growth is expected to align with earnings growth.
• The company leverages its development platform to source acquisition opportunities.

Q&A Highlights

• Regency’s experience and relationships provide a competitive edge in sourcing ground-up developments.
• The firm highlighted the cost-effectiveness of physical stores over e-commerce fulfillment centers.
• CVS’s acquisition of Rite Aid stores continues the trend of drugstore consolidation, with Regency’s locations well-positioned for backfill.

For a complete understanding of Regency Centers’ strategic initiatives and financial performance, please refer to the full transcript below.

Full transcript - Nareit REITweek: 2025 Investor Conference:

Unidentified speaker: start, Alan can color it up when I finish it. For as long as that I’ve been at Regency, which is I’ll round up, nearing three decades. The grocery business is a really tough business, right? It’s low margin business and our strategy has been consistent over those three decades, partner with the best operators. And the best operators continue to not just survive but thrive.

And investing in the store experience, investing in servicing their customer online, buy online, pick up in store, and investing in delivery. Again though, I will tell you that they understand from the cost structure that it is more profitable for them to bring the customer into the store and let the customer do their own picking and putting in the cart. So the physical bricks and mortar presence of the grocer is vitally important to their success, and they understand that. And as a result of that, they are continuing to expand nearly every grocer.

Alan: I would just add that I think given that there are so many that are expanding and the intense competition within that space, they are all having to elevate their game to provide a better experience for the consumer or they will become irrelevant. And specific to Regency, we generally are aligned with the number one or two grocer in a trade area or a specialty grocer that provides a special offering. As we look at year to date data from a foot traffic perspective, it’s up specific to the grocers as well. And so for us, within our portfolio, we’re proud of the volumes that they generate and the quality of the operators that are within the portfolio, giving us the ability to really merchandise with some exceptional adjacent retailers in that space.

Unidentified speaker: With some of the you know, you talked about some of the secular drivers or tailwinds that you’re seeing to the business, good leasing environment. Sounds like not a lot has changed since April 2 with regard to tenant demand. Mean, how how do you think about the growth algorithm for the portfolio? Mike, maybe this is for you. How can can you talk a little bit about some of the drivers of growth and how that’s evolved over the last few years to what you’re seeing today and what you’re expecting for this year?

Mike: Sure. So let me start just from a steady state algorithm basis, then I’ll distill it down to this year. So just business model, steady state, we aspire to grow the same property portfolio by 3% plus or minus every year. That’s our objective strategically. I would call that occupancy neutral.

You lever that modestly as we do with our balance sheet as Lisa alluded to earlier, that’s going to get you another point of earnings growth. And then you add to that this best in class development program where you’re adding new NOI, you’re manufacturing new reinvesting your free cash flow, you’re gonna generate another 100 basis points of growth in that area. So you’re at a 5% kind of algorithmic growth story plus or minus. Then you find yourself within the business cycle with rising and falling occupancy, which can either detract from or in this case as we currently sit in ’25 and looking into ’26, we’re adding occupancy. Have hit peak percent leased, we aspire to maybe even blow through that, but we have not hit peak commenced occupancy yet.

We still have room to run. We are 300 basis points spread between top line percent leased and commenced occupancy. Steady state run rate is a 80 basis points plus or minus. So that tells us that we have room to continue to commence occupancy while minimizing tenant fallout and tenant risk, which could be another question that we could dive into. To Lisa’s point on the strategic initiatives on development, $250,000,000 or more of starts per year, we have achieved that for two consecutive years, so that starts in ’23 and ’24.

I like our setup and I like our prospects to do that again in ’25, that NOI will also begin to come online comparatively, it has in ’25 more importantly, it’ll continue to come online in ’26. So I think we’re set up pretty well here from an earnings growth perspective. And then going forward as we achieve steady state, I think we’re also set up very well to perform on a relative basis.

Unidentified speaker: And on top of, and I should say a result of that performance on the earnings growth, the dividend growth as well.

Mike: Yeah, we’ll replicate that with the dividend

Unidentified speaker: So we have the, and I know it’s getting to be a little bit more in the distant past, but it’s still something that we are very proud of. The fact that, you know, through the pandemic, we did not cut our dividend. We maintained our dividend. We paid it every quarter, and then we we grew it two years past. And as we grow earnings, the dividend growth should match that.

Unidentified speaker: Maybe we can talk real quick about the tenant watch list a little bit. Mike, you mentioned that we might talk about it and maybe we can get out of the way real quick. But what’s the watch list look like? It is retail. The business is always evolving.

There’s always some tenant churn and turnover. But how do you feel about the health of the tenant base today?

Mike: We feel great about the health of the tenant base. I think we feel as good as we have felt in a rounded thirty year kind of look back period. It always, but to your point, it’s evolutionary, it’s gonna hover in the 150 to 200 basis point range, generally speaking. Tenants are going to evolve, tenants are gonna fail, it’s part of our business. But as far as we look across our watch list, it’s the same as it has been.

But other factors, post COVID recovery, COVID isn’t that far away. COVID cleared out much of the weaker retailers. So we were growing off of a very strong base. Post GFC, this company has recycled a tremendous amount of assets. Recycling, the recycling days are long behind us, but we’re very proud of the quality of shopping centers that we currently own.

So that combination of owned assets and hand selected tenants that are currently occupying our assets gives us the comfort that we will be pretty resilient on the move out front.

Unidentified speaker: And the results speak for themselves. And I saw Alan reaching for the microphone, so I’m going to let I’m going to let This is exactly

Alan: what I’m gonna say.

Unidentified speaker: I I know exactly what you’re gonna say. I’m gonna let you say it.

Alan: So I would tell you that durability of occupancy is something we are very proud of. We’re very intentional in how we merchandise our assets. And when you think about the watch list, look, bankruptcies are a normal part of the industry. It happens. But when you look at Q1 results, Regency is the only one in our peer sector that actually grew rent paying occupancy in the first quarter.

And that’s not an accident. And that really is largely driven by the limited exposure that we have had to a lot of the names we all know that are out there that have been filing have recently filed for bankruptcy and how we’re very intentional in how we qualify our operators. And look, we’re not immune certainly to bankruptcies. We’re not immune to store closures, but I was very proud to see that our rent paying occupancy actually increased while I think that the sector was facing a little bit of headwinds in first quarter.

Unidentified speaker: Does anybody have any questions? All right. Maybe we can talk a little bit about the development platform. You talked about targeting $250,000,000 of starts a year. You have a pretty healthy pipeline today.

There hasn’t been a lot of new construction though across the retail industry for a number of years now. How are you sourcing deals? How are you making deals pencil today?

Unidentified speaker: Yeah. It’s development’s not easy. And there’s no question that there has been limited new supply. Again, I said over the last fifteen years, which is benefiting our operating metrics and fundamentals. Development is not something that you can turn on and off.

You can’t build something overnight. And Regency has always been in the development business beyond my thirty years going back to, you know, Todd said, we’ve been a company since 1963, public since 1993. It’s in the DNA. And as a result of that, the experience, the the team is who it starts with. So the team, the experience of the team, the track record of the team and the company, the reputation matters.

The rep so the reputation then builds with builds with the relationships. So the relationships with the grocers, which you’ve heard Alan talk about, the relationships with master plan community developers, the relationships with home builders, That same team again that is across the country has relationships with local people in the business, land sellers, that really provide that source of opportunities. And again, it’s and our cost of capital. And it’s a recipe of the combination of all. It’s not necessarily just one individual thing.

You need them all and again cannot build it overnight. So we’ve we have been successful in sourcing those opportunities as Mike said, $250,000,000 each of the past two years with visibility to doing it again this year. Not easy, really proud of the team. And because of all of those relationships and the ability to source the land, we target a spread over what we would consider market, it’s a minimum threshold, market cap rates of 150 basis points for ground up new development. There have been times, there have been periods of time during my tenure with the company where that has really expanded.

When we were developing to 7% returns on invested capital and market cap rates were four. Today, for the quality, let’s say, of what we would buy and develop, say five to five and a half, And that 150 basis point, if you take the top end of the five and a half, 7%. So that’s a threshold, but we’ve been doing better than that. And again, it’s someone called it today in an earlier meeting our secret sauce. I just gave you the recipe for it, but the recipe is really hard to copy.

Unidentified speaker: Why are we not seeing more development really start to pick up in in the open air shopping center space? The grocer demands pretty healthy. Their demand small shops is seems pretty healthy. You know, what are the challenges to really, you know, getting development off the ground here? Why are not why are others not, you know, doing more ground up development?

Unidentified speaker: Again, I’ll just go back to exactly what I just said. Those are things that you can’t build overnight and it’s what has taken decades of our track record and experience to build. And as a result of that, we have been successful. You could say that lower interest rates might drive more people into the business, higher rents could drive more people into the business, and there would be more competition. But even if those things do happen, I would still say we have the best platform in the business and we will get more than our fair share and continue to be able to achieve our goals.

Unidentified speaker: What about acquisitions? Where do acquisitions stack up today in terms of your capital deployment initiatives and how do the returns compare to what you’re seeing for development?

Mike: I’ll take it. Yeah, so the priority is going to continue to be development and redevelopment. And the way we’ve organized our investment thesis is that the free cash flow on a leverage neutral basis will be prioritized for our development business. That being said, we will have excess free cash flow, leverage neutral free cash flow that can be deployed into acquisitions. What we are looking for on acquisitions are definitive, consistent quality, consistent to accretive growth profiles, and thirdly and most importantly, we wanna make sure we’re allocating capital on accretive to earnings basis.

And the third one is where it becomes more difficult. And the third one is all the pricing of real estate has become so efficient commercial real estate, grocery anchored commercial real estate that our ability to drive earnings growth there can be more limited, which is why we’re so grateful and appreciative of this development business that we’ve built over many decades of time. We have a prioritized earnings definitive earnings accretive place to invest our free cash flow. That being said, our track record would tell you that we will find opportunities in the acquisitions market. We are leveraging the same dispersed platform that we do on development to source acquisitions.

We will find the needles in the haystack across the country where we can make that those three we can meet those three objectives and we can deploy our capital accretively and add high quality grocery shopping centers to the portfolio.

Unidentified speaker: I think that clarifying what Mike said, the third only is difficult if you check the first two first. It’s easy to go find a six plus

Mike: Lower quality.

Unidentified speaker: Lower quality shopping center acquisition. But we consistent with quality and consistent to accretive to our future growth rate. Once you check those boxes, that’s when third becomes a little bit more challenging.

Mike: Let me add, let me just add some color because I’m sure people are interested. We are often asked where do we see cap rates today in the private market and maybe you were alluding to that. We’re easily seeing cap rates range from the low fives to the low sixes kind of all day every day for the quality that Lisa described. And especially if there’s a grocery anchor component there, making that you know, it’s a highly efficient transactions market right now, private and public. We had a hand up over here.

Unidentified speaker: Yeah, sure.

Unidentified speaker: I think the question is how we value retail investments with this shift to online? Yeah. So the percentage of retail sales for e commerce has certainly grown and we were that was happening pre COVID and there’s no question we saw a step up like an acceleration of that market the market share of retail sales moving to online. But I’ll go back to what I said earlier. What we also all learned, and I say all, the owners of shopping centers as well as the customers as well as the retailers and service providers is it’s that renewed appreciation for the physical presence.

And I said this before, you can you can buy anything you want from your home, but what people learn, what the customer learned during COVID is they actually like to shop. So there’s a difference between buying and shopping. And so that’s the renewed appreciation for the customer and it’s why when we talk about how we how we operate our shopping centers, it’s not just leased to anybody that’s gonna fill the space. We think about merchandising, we think about place making, we wanna make sure that that our shopping centers are an inviting place for people to shop. They wanna come there.

They have so many choices. So that’s the that’s the consumer, that’s the shopper. And then on the retailer side, again, learned very very quickly through COVID how expensive it is to fulfill the orders from a distribution center home delivery. And, you know, Target is the one that is probably most transparent with the percentage of their online sales that they fulfill from their stores. It’s north of 95%.

So there’s still an incredible value to be being close to the customer and servicing the customer from the four walls of a physical store.

Unidentified speaker: Any other questions?

Alan: Yes, that’s a great question, certainly in light of Rite Aid filing for a second time. So we have not signed a new drugstore lease in nearly ten years. There’s obviously been some significant consolidation. We had nearly 5% of our ABR was in the drugstore sector. At one point, we’re 2.5% -ish now.

So consolidation continues. I think you probably read that CVS, through this bankruptcy, is acquiring 60 stores from Rite Aid in the Pacific Northwest, notably Washington and Oregon, to expand their footprint in that market. But beyond that, again, I think you’re going to start to see further consolidation of closed stores. And those remaining stores, although still need to go to auction, it will be some grocers that take the larger footprint ones. It’s going to be the Five Below’s, the Altas, the Sephoras.

There’s going to be a whole lot of different concepts that are going to step in and take those. I would tell you that consolidation will continue. TBD on Walgreens, right? Sycamore Partners announced that acquisition that will close Q3, Q4. But at the end of the day, it’s something that you got to keep a watchful eye on as you do sort of a lot of the sectors that seem to be contracting a little bit, and we’ll see where it takes.

But at the end of the day, I will also say ours are end caps. They have drive throughs, and they’re highly sought after real estate. So I can speak for the drugstore locations within our portfolio. We feel really good about the backfill prospects of those spaces just given where they’re located both in the trade areas, but also where they’re located within our assets.

Unidentified speaker: Any other questions? Time for one more maybe.

Unidentified speaker: Staying with the tenant theme. I guess among your largest tenants are Kroger and Albertsons. Their merger agreement was called off last year based on the resistance by the antitrust regulators. We’ve got a new administration, new regulators. Recently, we saw Nippon Steel pull their deal with US Steel together.

Do you see any likelihood of a reignition of the Albertsonskroger deal, and what you might be doing to prepare for that if there is?

Unidentified speaker: I don’t know that I can predict that. I think think it’s unlikely. But if it were, just as we talked about it, while they were in negotiation, there are there were benefits to to both outcomes, either the merged company or two separate companies, and that would still be the same. And go very similar answer to the drugstore question, the real estate in which we own feel really comfortable. We have the the grocery locations of both of those tend to be in the higher, you know, they’re in the upper quartile of productivity in their chains.

So if you hadn’t heard my answer before, merged company, more powerful, stronger operator. And we would have they would have become our largest tenant and feel really good about that. Separately, we have two strong operators that are able to provide even more expansion and competition within the market. So I think it’s unlikely, but if it were to if they were to come back together and try again, we again would be comfortable with either outcome.

Unidentified speaker: Thank you. All right. I think that concludes the panel. Thank you everyone for joining.

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