Regency Centers Corporation

Good afternoon and welcome to Regency Center's fourth quarter 2020 earnings conference call. Joining me today are Lisa Palmer, President and Chief Executive Officer, Mike Moss, Chief Financial Officer, Matt Chandler, Chief Investment Officer, Jim Thompson, Chief Operating Officer, and Chris Levitt, SVP and Treasurer. As a reminder, today's discussion contains forward-looking statements about the company's future business and financial performance, as well as future market conditions. These are based on management's current beliefs and expectations and are subject to various risks and uncertainties. It is possible actual results may differ materially from those suggested by the forward-looking statements we may make. Factors and risks that could cause actual results to differ materially from these statements are included in our presentation today and in our filings with the SEC. The discussion today also contains non-GAAP financial measures. The comparable GAAP financial measures are included in this quarter's earnings materials, all of which are posted on our investor relations website. Please note that we have again provided additional disclosures in this quarter's supplemental package related to COVID-19 and its impact on the company's business, and have also posted a presentation on our website with additional information. Lisa?

Thank you, Christy. Good afternoon, everyone, and morning for those of you out in the West Coast. First, I'd like to begin our call by again thanking the Regency team for It's hard to believe that almost a year has passed since this pandemic started to meaningfully impact our daily lives. Collectively and individually, we are presented with challenges and we continue to be that I don't think any of us could have ever imagined. And in the face of that, I'm so proud of how our team has navigated this very different environment with a revised and even more demanding set of expectations. We have worked harder than ever during this time to serve our tenants, our customers, our communities, and our shareholders. And while Regency does enjoy the advantages of our size, scale, and national presence, it's the people in our 22 offices across the country that have been the keys to our resiliency. Our local presence provides us close proximity to our properties, which enables us to act small and to take a personalized, relationship-driven approach with our tenants. So once again, thank you all. In the fourth quarter, despite a rise in cases in most markets and increased restrictions in some, we have been encouraged by continued improvement in our operating results, and this is driven by further meaningful progress on rent collections. The hardest hit categories, however, especially in the more restricted markets, are still lagging. Many entertainment, fitness, sit-down restaurant, and personal service tenants are still either not allowed to open or are operating with severe capacity restrictions. This has had the greatest impact on our local small shop operators. But even in these categories and markets, we've still seen improvement in collection rates compared to where we were three months ago. We also remain encouraged by momentum in our leasing efforts as execution volumes picked up in the fourth quarter and our pipelines continue to grow. This is a testament not only to a greater willingness among tenants to do new deals, but also to the strength of our locations, our tenant relationships, and our experienced team. So despite the setback we saw in the health crisis in certain markets in the fourth quarter, Regency still moved forward, and we see green shoots as well. The vaccines helped to at least provide some light at the end of the tunnel, and additional federal stimulus could help to support our local tenants and consumers at the margins. The worst of the restrictions are hopefully behind us, knock on wood, as we've seen some of the most restrictive states like California start to ease up a bit. But with that said, we still have reasons to be cautious given the meaningful uncertainty that remains. While many businesses may technically be open, the inability to operate at full capacity can be a major obstacle. The vaccines are definitely a positive, but distribution will take time, and the presence of additional variants is certainly a wild card. The ultimate impact of this on the consumer and, in turn, the resulting impact on tenant fallout remains unknown. And our 2021 outlook reflects that uncertainty. In fact, we've chosen to use a scenario approach rather than a traditional guidance framework, and Mike will discuss that in more detail in just a bit. In light of the current environment, we firmly believe that being careful and transparent, as we always are, is the most prudent approach to setting expectations. While we do have a greater sense of optimism, and that is inherent in our continued improvement scenario, it is still too early in the year to eliminate our reverse course scenario. As we do move through the year, we will have a lot more clarity and visibility, and we will refine our expectations accordingly. Today, our team in the field continues to aggressively but thoughtfully pursue recovery of cash flows. As I've discussed previously, We've taken a targeted, strategic approach with our tenants throughout the pandemic, especially for our local tenants, waiting until they're able to reopen and then working with them on a plan for the future. We believe that this approach will help to ensure the long-term success of our tenants, which should in turn put Regency in the best position for recovery. The quality and locations of our assets have allowed us to choose our tenants over time, to fill our portfolio with great operators. We've already vetted these merchants. And we still want most of them in our centers when this is all over. Same time, we're not afraid to get space back. We have great space and we will release it. This is what we do and we do it really well. But in many cases, when factoring in the economics of re-tenanting, making the conscious decision to work through it with a proven business operator is often the wisest choice. We always have to keep in perspective that these are people just like us that we're working with. And importantly, I also want to reemphasize the strength of our balance sheet. This has provided us with the financial flexibility to maintain our quarterly dividend throughout the pandemic, which we are really proud of, given our long-term commitment to driving total shareholder returns. It has also enabled us to continue committing capital to new investments, as well as in operating and maintaining our existing centers. While we know that we still have a long road ahead of us, the substantial progress that we've made toward recovery this far really has provided renewed energy among our team members. As I reflect back on the last year, my confidence in the longer-term trajectory for Regency has only solidified. We are on the right side of a structural growth trend in strong suburban markets. Our high-quality, well-located, geographically diverse portfolio of grocery-anchored, open-air centers is well-positioned to continue serving the essential needs of our communities. Jim?

Thanks, Lisa. and good afternoon all. I would like to echo Lisa's comments and thank the Regency team. Our people have worked tirelessly over the last year to maintain the lines of communication with our tenants. We are doing everything we can to enable them to open and operate safely and successfully. I'm proud of what we've accomplished during a very tough year and of how far we've come since last spring. As of the end of January, the vast majority of our tenants are open and operating, And that hasn't changed much from a quarter ago. But a subset of our tenants are still operating under government mandated capacity restrictions. And those restrictions increased in certain categories and markets during the fourth quarter, given the rise in COVID cases. Despite this, our cash collections continue to show improvement, reaching 92% in the fourth quarter and 89% in January as of Monday. We're still receiving rent payments for January, and the collection trajectory is tracking in line with prior months. In fact, as of today, it's already up to 90%. Even in our West Coast markets, despite the greater restrictions during the fourth quarter, we still improved our collection rates from a quarter ago. They still meaningfully lag our other regions, but we are encouraged that California appears to be easing some of these restrictions, which should help narrow that gap. As we've seen in markets that are more open and less restrictive, consumers have returned to engaging with our retailers. This is encouraging and is an opportunity for continued improvement. Lisa discussed our strategic approach with our tenants, and we've designed deferral plans that are realistic. We expect the majority of our deferred rent to be collected in 2021. Beyond those with deferral agreements, tenants that are still in still uncollected, generally fall into three categories. There are those we believe in, but are still waiting to engage, predominantly in the West Coast markets operating under closure or capacity restrictions. There are those we are aggressively pursuing for rent. And there are those who are struggling pre-pandemic that we see as closure risk. We continue to see impact from tenant fallout in the fourth quarter, and expect 2021 will likely remain challenged from a tenant fallout perspective. The seasonal dip that we typically see in the first quarter could be more meaningful as a result. Elevated tenant failures are factored into our guidance with the uncertainty around move outs contributing to the wider range. I want to provide some added color on our leasing activity in the fourth quarter. We are encouraged by the strength in our leasing volumes, which have continued to show improvement throughout the year. The demand is real and the retailers are active. We are seeing the greatest new leasing activity in the markets that are more open with the least restriction. Our future deal pipeline is also strong with categories including grocery, off-price, banks, medical, auto parts, and service users, but also, and most encouragingly, fitness and restaurants. So where our tenants can operate, leasing feels closer to normal. Total rent growth for the quarter was slightly positive, weighed down by renewal activity. For our renewal deals, volumes have remained consistent throughout the pandemic. But in the fourth quarter, we did see some pressure on our renewal leasing spreads. One-third of our renewal leases signed during the quarter averaged 18 months in duration. And these deals had negative spreads averaging more than 5%. Our longer-term renewal deals had positive spreads of over 2%. Some of the short-term deals are rent relief negotiations with tenants in bankruptcy, as well as others that have been significantly impacted by the pandemic. Those deals primarily consist of shop tenants, because conversely, we saw positive spreads of nearly 7% for anchor renewal deals in a quarter. Importantly, our teams are managing this space in the right way. We're being thoughtful when making leasing decisions with an eye towards the longer term. We believe that rents for much of this space will be right-sized at higher levels post-pandemic, and by signing shorter-term deals, we'll have another bite at the apple in the near future. To sum up, we remain impressed by the resiliency and creativity of our tenants in this environment and the willingness of consumers to adapt to the new normal and re-engage with our merchants. Most importantly, We are encouraged by the improving operating trends as we continue to see a flight to quality and believe our portfolio is well positioned to benefit from this.