Regency Centers Q1 2009 Earnings Call Transcript

May. 8.09 | About: Regency Centers (REG)

Regency Centers Corp. (NYSE:REG)

Q1 2009 Earnings Call

May 07, 2009 10:00 AM ET

Executives

Lisa Palmer - Senior Vice President, Capital Markets

Martin "Hap" Stein, Jr. - Chairman and Chief Executive Officer

Bruce Johnson - Executive Vice President and Chief Financial Officer

Mary Lou Fiala - Vice Chairman and Chief Operating Officer 2008 ICSC Chairman

Brian Smith - President and Chief Investment Officer

Analysts

Jeffrey J. Donnelly - Wachovia Securities

Quentin Velleley - Citigroup

Jay Habermann - Goldman, Sachs & Co.

Paul Morgan - Morgan Stanley

Michael W. Mueller - JPMorgan

Nathan Isbee - Stifel Nicolaus

Alex Barron - Agency Trading Group

David Einhorn - Greenlight Capital

Jim Sullivan - Green Street Advisors, Inc.

Christopher Lucas - Robert W. Baird & Co.

Operator

Good morning. My name is Jennifer and I will be you conference facilitator today. At this time, I would like to welcome everyone to the Regency Centers Corporation First Quarter 2009 Earnings Conference Call. All lines have been placed on mute, to prevent any background noise. After the speakers' remarks, there will be a question-and-answer period. (Operator Instructions) Please limit yourself to two questions. If you have any follow-up questions please re-prompt.

I would now like to turn the conference over to Lisa Palmer, Senior Vice President Capital Markets. Please go ahead, ma'am.

Lisa Palmer

Thank you and good morning. On the call this morning I have Stein, Chairman and CEO, Mary Lou Fiala, Vice Chairman and COO, Bruce Johnson, Chief Financial Officer, Brian Smith, President and Chief Investment Officer, Chris Leavitt, Senior Vice President and Treasurer and Mr. Jamie Shelton, Vice President of Real Estate Accounting.

Before we start, I'd like to address forward-looking statements that maybe addressed on the call.

Forward-looking statements involve risks and uncertainties. Actual future performance, outcomes, and results may differ materially from those expressed in these forward-looking statements. Please refer to the documents filed by Regency Centers Corporation with the SEC. Specifically, the most recent reports on Form 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. I'll now turn the call over to Hap.

Martin "Hap" Stein, Jr.

Thank you, Lisa. Good morning. I have to admit that my future outlook for the capital markets, the economy in general, and Regency in particular, has become more optimistic. Some of my cautious optimism, ironically as a result that I, like many of us on the call, have now been acclimated to the shock and awe of the financial panic that has descended upon the world.

My views may also be the result of my hope that we are... what we are experiencing now is the beginning of the end of the crisis.

That does not say that any month now, the sun will break out from the storm clouds, start shining brightly on the economy and the shopping center business.

Economy still has a long, long way to go before we're able to enjoy any semblance of a meaningful recovery, and the new norm will not look anything like to 2004, 2007 drain (ph) years.

Regency has obviously not been immune to the adverse impacts from the extremely difficult conditions in the capital markets and the economy.

For the first time in over 11 years, same property net operating income will be less than the prior year. The high probability development pipeline is dramatically less in what has been, and what seems like well over 10 years. The increase in cap rates together with slower lease of developments has also caused a major reduction in development profits.

The organization especially development group has been significantly right-sized to reflect the current environment. In spite of the challenges that we face and all things considered, there were several key reasons that I feel good about Regency's future... Regency's position for the future, including signing 230,000 square feet of new leases, and 826,000 square feet of renewals in the toughest operating environment that I had ever experienced.

This is evidenced that retailers still want to operate in well-located, quality necessity oriented shopping centers, which are anchored with our best-in-class retailers, especially grocers and discount department stores like Target and Wal-Mart.

Approximately $600 million of capital from a combination of the recent equity offering and the dividend cut, as well as the committed mortgage financing will be available to fund a very significant portion of Regency's financial commitments through 2012.

As a result, we expect that our debt-to-asset level will be reduced to less that 45% by the end of this year. By maintaining a close relationship with Regency's banking group, Regency should be able to extend a vast majority of the $940 million of bank facilities on reasonable terms well before they expire in 2011 and 2012.

Negotiating favorable terms in the co-investment partnerships especially, distribution and time provisions, will continue to work to our benefit and enable us to weather partner issues on a positive basis.

Although, the 100 person plus reductions in force have been extremely painful, G&A before capitalization has been reduced by $27 million since 2007. Even after reduction force, I believe that Regency still has an exceptional, talented and deep team in all key facets of the business.

And lastly, phasing of developments are putting the brakes on the pace of new developments through evermore stringent underwriting, has preserved precious capital. Now, Bruce, Mary Lou and Brian will provide color regarding results for the quarter and future outlook.

Bruce Johnson

Thank you, Hap, and good morning. FFO per share for the first quarter of 2009 was $0.78 per share, down 10% from this period in 2008, due primarily to a higher G&A and higher interest expense.

Gross G&A for the first quarter of 2009 was $7 million lower than the first quarter of 2008, following a reduction in force and lower incentive compensation accruals.

However, these savings were offset by a $2.2 million severance charge associated with the reduction, as well as the decline in capitalized overhead given the decrease development activity.

Net interest expense was also nearly $4 million higher, primarily resulting from less capitalized interest also related to lower development activity. On April 20, in conjunction with our equity raise, we released preliminary results and revised FFO per share guidance for the remainder of the 2009.

The main drivers behind this revision were, decline in capitalized interest resulting from a significantly lowering our development stats (ph) guidance. Secondly, decreased transaction profits. And thirdly, a reduction in same-store NOI expectations. These factors combined with the offering resulted updated guidance for 2009 of $3.03 to $3.28 per share.

Regency's number one focus and priority continues to be strengthening and protecting the balance sheet. I mentioned on our recent equity offering of our 10 million shares of common stock, which included the full exercise of the over allotment option by NOI writers.

In this very difficult period and uncertain economic and financial environment, we felt it was important to Regency's strategy to provide a source of funds for all of our obligations through 2012. This offering was key in meeting that goal.

The net proceeds of approximately $311 million, combined with a recent commitment for a $106 million 10 year mortgage that we rate locked at 7.75% represents substantial progress in securing reliable sources of capital.

In addition to this equity offering, Regency also reduced the dividends to $1.85 per share saving $200 million in 2012.

And finally, we are in discussions with prospective co-investment partners for them to acquire approximately a 75% interest in some of our properties that will provide roughly a $150 million in cash to Regency.

The combination of these four sources, plus our unfunded line of credit balance, will provide almost $1.3 billion, which is more than our obligations for the next three and a half years. And in fact, it is likely to allow Regency to take advantages of some opportunities in the future.

To give you an update, Macquarie CountryWide has stated that they are actively pursuing... improving our liquidity on a basis that makes sense to them and to us. And we feel that good progress has been made. Mary Lou.

Mary Lou Fiala

Thank you Bruce and good morning. Same-store NOI was down by 2% in the first quarter, primarily due to tenant bankruptcies, move outs and slower lease out.

Occupancy at quarter end was 93.3%. We leased our renewed 1.1 million square feet through 324 transactions. Our renewal rate was 77%, and rent growth was slightly positive at 0.9%. Although these results are well below anything we've experienced over the last 10 years, from my perspective the portfolio is holding up pretty well in this difficult environment. These times are challenging and our strategy has been to maximize cash flow at all of our properties by emphasizing occupancy over short-term rent growth.

In order to maintain our flexibility to return to rent to higher levels in the future, in those select cases where newer renewal lease needed to be in the lower rent, we are keeping the majority of these leases to a term of less than three years.

Close to 80% of the 251 renewals signed in the first quarter had flat to positive rent growth. The remaining renewals had negative rent growth, but nearly all of these had terms less than three years.

This is also a trend with new lease activity. In fact, its very important to note that all new leases, with a term greater than three years, had double-digit rent growth. Mid-term rent release is being granted on a very selective basis.

The evaluation process that's been instituted as I talked about last quarter, is extremely rigorous. Rent relief was granted to only 22 of our 7200 tenants in the first quarter. And that's only 3/10 of 1% of our tenants.

All of these tenants were local tenants, and the rent release is typically for 90 days, an incorporated favorable terms such as recapture rights and termination rights, and enhanced guarantees.

So, what we are actually getting is better leases and improving the quality of the lease document with non-monetary clauses.

The point that I want to make is that we're conceding some, but we're getting more in return. And especially more for the long run. As we reported earlier, we've lowered our guidance for the remainder of the year.

Same-store NOI growth is expected to be in a minus 5 to minus 3% range, which equates to a $6.5 million reduction in net operating income.

We're projecting a high amount of unplanned move outs, slower leasing activity and reduced rent growth.

But, given the quality of our real estate, we expect the portfolio to recover from the short-term pay in the not too distant future. What I'd like addressing some type as practice, to give you an example. And I want to talk about one of our shopping centers, and it's called Powell Street Plaza. And that one shopping center accounts for 25% of the 6.5 million projected decline in NOI.

Powell Street is a irreplaceable dent into our asset in the East Bay area of San Francisco, with absolute exceptional demographics and tenants sales.

Circus City and Shannon & Company moved out unexpectedly as a result of these bankruptcies. But within 90 days, we had letters of intent from two nationally recognized retailers. And they're really strong players.

But given the timing to work with these deals, these factors will not be ramping for the remainder of the year.

Another thing I think is really for you to understand is that we believe that our negative rent growth is going to be short-term in nature. And we have 10 LOIs for 15 of our vacant spaces and our portfolio over 15,000 square feet.

The LOI rent averages 31% higher than previous rents, and then with great retailers such as David Brothers, Walgreens, Jenson Hofu (ph).

However, it is important to reiterate that these transaction are absolutely taking longer, and have a direct impact to the bottom-line. We have a number of initiatives, initiatives aimed to improve our operating income.

We have an even greater focus on expenses by renegotiating vendor contracts. So, we see a lot of success with that. We've focused on all aspects of marketing, co-calling, web-based marketing, broker events and even a new short form lease that makes it quicker for our brokers to get paid, and therefore makes Regency deals a priority.

And more importantly than probably all this, we continue to leverage our PCI relationships. We've had 23 meetings in Vegas with our national PCI retailers. This is fewer than our previous years. But the difference this year is that each meeting will be focused on specific deals at specific properties rather than some of the meetings in the past been kind of a broad state of the union discussion.

The team has already completed portfolio reviews with a majority of these PCI retailers and some materials in advance for identifying transactions. So now, we are sitting down at the table with these guys at ICSE. Both sides are ready to make deals.

In summary, this is a difficult time. Our real estate is strong, our team is focused and working diligently. And we've positioned ourselves to emerge from this recession with the best-in-class retailers, and solid centers that will enable us to grow rent and same-store NOI in the future. Brian?

Brian Smith

Thank you, Mary Lou, and good morning. I'd like to open my remarks by expanding on perhaps Bruce comments about the company's G&A.

As we said before, we are keenly focused on right sizing the organization. We're striving to maintain what is a delicate balance, between the realities of the business environment today, and our desire to keep in place, extremely talented team that not only can effectively execute our business plan, but also take advantage of the incredible opportunities that will be available to those companies that are positioned to thrive.

We took steps last year and early in the first quarter 2009, to meaningfully reduce overhead. We eliminated a 141 positions from the plan that existed at the beginning of 2008, which resulted in a savings of $15 million to what was our original staffing plan in 2008, prior to the onset of the recession.

About 80% of the savings came from the investment group and investment support function. While that's a lot, we'll continue to explore additional cost reductions going forward. Before the capitalization of costs related to our development and leasing operations, we expect our G&A to be $15 million lower than 2008, which reflects the savings from the reductions in force already completed.

However, because we are capitalizing a much smaller percentage of our development group as compared to 2008, our net G&A for 2009 will be approximately 4 to $8 million higher than 2008, subject to the range to new developments starts, this guidance is 10 to $50 million.

This reduction is a result of our having significantly tightened our requirements as the kind of developments, we think make sense in the current environment of capital constraints and reduced retailer demand. For us to move forward on a new development, we have to check several boxes.

Returns on rigorous underwriting have been further increased to the 11 to 12% range, with one exception being a commitment to a value banker that we feel would be wrong not to honor.

When evaluating existing land investments, we'll look at the incremental return on costs, which we need to exceed this higher return threshold. We'll be focusing on developing shopping centers with market-leading, dominant grocers in affluent markets with limited shop space.

The development would need to be significantly pre-leased and have strong indications of retailer demand, so as to have excellent visibility to 95% lease up. And we'll not take any entitlement risk.

In short, there'll be little difference between these types of developments and buying 95% leased operating centers, other than completing the construction, leasing a limited amount of space and the expected returns.

In that sense there are almost what we call acquisition plus opportunities. While our guidance reflects our cautious approach to development, and our belief that there will be very select number of opportunities that can meet these stringent requirements, any project that can clear this far in the current environment is truly a gem, will enhance intrinsic value and should be pursued.

Probably the best way to illustrate what I'm talking about is to give you an example of such a project we're working on that does check all these boxes.

In Los Angeles, there is a very dense... there is a site in a very dense area, 450,000 people in three miles, and well over a million in five miles.

To put that in perspective. This is almost six times the average population density in our operating portfolio, and represents the kind of densities retailers' dream of. But historically, it has been almost impossible to assemble urban parcels in a manner that allows for traditional retail to be built with acceptable levels of risk in return.

Generally speaking, urban sites are very expensive. So, the only way to make them pencil traditionally, was to build mixed used projects with multiple stories, charge top of the market rents and take enormous entitlement and leasing risks.

Not surprisingly, that is why we've shied away from these projects in the past.

In this case however, it appears that we can assemble all the property for about $0.11 on the $1, and thereby built prototypical single-storey retail.

We can achieve an 11% return on costs while charging rents that work for retailers even with today's very conservative sales forecast. In short, the current environment is creating a rare opportunity to develop a low-risk urban end fill (ph) project, with most of the traditional development risks stripped out of it, and return 300 basis points higher than previously would have been possible.

There are a few reasons we can do this. A large bank has a loan on the property with a developer who can't perform. It appears that we will be able to buy the property through a deed in lieu of foreclosure transaction in which the bank will write-down the value of the land by 50%, plus storing for free, an additional seven adjacent anchors secured by the same note.

In addition, Citi is going to give us at no cost, properties crucial to the assemblies. All in all, the land concessions have worked about $45 million. Finally, the Citi has tentatively agreed to further subsidize the project by agreeing to pay for the cost of a theater to go in the property.

The demand for the project scheme, all the top retailers were at the site and is far more interest that we can accommodate. This kind of potential investment represents a once in a generation opportunity. But let me reiterate that our basic mood on developments is that we are extremely cautious and in the short-run see limited opportunities to make any sense.

When we see ones like this, we are prepared to seize the opportunity. As always, the balance sheet will come first and any such opportunities will need to be funded through property sales, contributions to co-investment partnerships or by other means.

During the quarter, we did make some modest leasing progress on the in-process portfolio. Its important to remember though that these projects are 85% leased, and when you include anchor spaces... and when you include anchor spaces, and 75% leased on Regency's company on portions. So, we are starting in a good place.

For the first time in several quarters, our team in the field are seeing a definite increase in activity. More retailers are showing interest in the spaces and are actively negotiating terms.

In the past, given the steep decline and volatility of their sales, junior anchors could not even run sales models, which were necessary to determine the economics of any lease transaction.

Now, sales have stabilized to the point that retailers are comfortable running sales forecast and again, for the first time in many months, they are willing to present the projects to their real estate communities.

One of our largest retail customers recently expressed that he is now considering opening as many as three times the number of stores in 2010, and 2011, than it had previously expected to open. This is all good and welcome news that knock-on (ph) will continue and translate into actual lease transactions.

Martin "Hap" Stein, Jr.

Thanks Brain. Thanks Mary Lou, and thank you, Bruce. You've heard from the team what has been accomplished in the first quarter, and some of the strategies that are being employed to position Regency for the future.

Let me review very briefly the key elements of that strategy. First, we're committed to preserving Regency's strong balance sheet and access to reliable, external sources of capital, maintaining a large unencumbered pool of assets which currently approximates $3 billion.

Second is to protect and grow net operating income, apart from the operating portfolio and developments. Third is to cautiously and selectively invest in compelling opportunities like the opportunity that Brian just described what we call, gems.

And finally to proactively manage G&A costs as the business environment dictates.

By achieving these objectives Regency will be positioned to cost effectively fund our obligations, take advantage of what should be outstanding future opportunities, enhance our position as the premier national shopping center, owner, operator and developer.

Grow per share intrinsic value and generate total shareholder returns that exceed the FTSE (ph) shopping centre index. At this time, we do appreciate your time, and we'll now answer any questions that you may have.

Question-and-Answer Session

Operator

Thank you. The question-and-answer session will be conducted electronically. (Operator Instructions) We'll take our first question from Jeff Donnelly with Wachovia.

Jeffrey Donnelly - Wachovia Securities

Good morning guys. Just a question to the revisions in your guidance. You talked to your revenue growth and NOI growth expectations really sharply from the past. And I guess I'm having a little bit of a difficult time reconciling that decline from the prior quarter, because much of your revenue is in place and generally speaking you haven't been granting a lot of rent relief, and we seem to be over the hump.

At least for the time being, retailer bankruptcies. I guess I'm wondering what specifically your are seeing, perhaps in the back half of the year that leads you to be more cautious. Or is it just that you are baking in more conservatism in light of the lack of visibility?

Mary Fiala

It's a combination of a couple of things. Our new leasing in the first quarter was behind plan. And so, we think that even though we are starting to see some pick up in the last month that that's one thing that's going to effect the second half of the year.

The second is the fact that we're having high move outs, and they have pretty strong as you know. A lot of that was incorporated into our budget. But we think, and we've got our list of, our watch list to retailers. And you sit down and you look at that list, and you look at the potential bankruptcies out there Jeff, and this is the majority of it. We think a lot of those things are going to happen.

And so, as you know, we've always been I am just being realistic, not conservative. And I don't think when you stand back and look at where we're today, what we know has been there, which is I think is baked into kind of the middle of our guidance, and where we think potentially things could get bad, based on some potential bankruptcies.

I hope it doesn't get there. But, that's why we took our time, because we're not a annoying the fact there's people out there today, that could probably go bankrupt and they probably will. And we've put that at the low end of our guidance. Now, we hope we don't get there. But, it's a potential.

Jeffrey Donnelly - Wachovia Securities

That's helpful. And maybe this plays into the second question. But, looking at your acquisition and disposition guidance cap rates, at the low end they rose 25 to 50 basis points to about 8.5 to 9%. Is that generally where you see pricing today I guess, overtime better than average assets in your core markets. Or is that just where you think its going?

Brian Smith

I think it Jeff pretty conservative. I think we see for cap price with the A properties and top markets would be about 8.25%. If you go to secondary market, or you go to B property try at 50 basis points. If you get a combination of both maybe a 100. But, what we've done so far has been better than that. The three sold to date in the operating and development side have been averaged to about 7.6%. And we are working on six others that pricing right now looks to be in the 8% range. But I think we're just allowing for the environment to surprise us.

Martin Stein, Jr.

I would also just reiterate that the pricing that Brain went over, reflects one-off pricing. And there is a probably 50 to 100 basis point difference between, where pricing is occurring on a one-off basis, and where it maybe occurring on a portfolio basis.

Operator

We'll take our question Quentin Velleley with Citigroup.

Quentin Velleley - Citigroup

Good morning, everyone. Just the first question in relation to Macquarie CountryWide. I know they've been looking at potentially getting third party equity into the joint venture. Is that... could you give us an upside on whether that's progressing?

And the second point on that I guess is, given your liquidity position has improved so much, and given the high quality of the first Washington portfolio in particular, does the likelihood of you increasing your ownership stake in MCW, has that increased?

Bruce Johnson

I think with respect to your first question, I'll answer about what I can answer is that we believe they are making good progress with the initiatives that they've announced publicly to the markets, in terms of either selling off individual properties in the joint ventures, and/or a combination of selling their interest in the joint venture to somebody else.

That would be satisfactory to us. Our view is that it has to work for us. And that's the direction we're going with them in that regard. With respect to our interest in potentially buying some of that, we'll have to look at that down the road.

We're focused today on the first thing, focused on protecting the balance sheet and preserving what we currently have, and making sure that we see the light of telling (ph) you. That maybe an opportunity. We'll just have to see if it fits in that arena.

Martin Stein, Jr.

Hey Quentin, we could be part of that. But, the vast majority is going to come from a third party source, if it happens.

Quentin Velleley - Citigroup

Okay.

Bruce Johnson

We would say, we're cautiously optimistic. It appears like they are making very good progress.

Quentin Velleley - Citigroup

That's good. The second question is I mean I guess, there's more of hint now potential acquisitions and sort of forth (ph) from yourselves and competitors and so forth. I guess, I just wanted to ask how do you view your longer term ideal leverage levels, relative to making decisions on acquisitions and so forth?

Martin Stein, Jr.

Well, number one and Bruce please provide some revision, Lisa is needed here. But, we don't just look at our debt to cost level or debt to market level. Especially don't look at debt to market, because you may remember that I think our debt to market at one time in the not too distant future, was well below 30%.

Bruce Johnson

And so in addition to debt to asset at cost, we're going to look at our fixed charge covered ratio and our debt to EBITDA. In both those ratios, we'll be looking on a recurring earnings from a recurring earnings standpoint. And we're very comfortable with the current leverage position that we are in right now.

And we would figure out the best way to cost effectively finance any new opportunities whether that's on balance sheet or an off balance sheet basis. And that's the reason why... one of the reasons why we're talking about expanding our co-investment partnership program. But in event, we would not be increasing our leverage other than on a short-term basis.

Martin Stein, Jr.

Let me just add to that in addition, Quentin. I think its important to note that in any acquisitions we do that's I mean to the extent that we're going to use third party financing for that, joint venture kind of structure. That joint venture financing is typically only available at like a 50% level. So, that's kind of max number we're looking at today. And whether we do less than that, I think its going to depend upon what the venture itself wants to do.

Quentin Velleley - Citigroup

Okay

Martin Stein, Jr.

We're certainly not going to increase leverage.

Operator

We'll take our next question from Jay Habermann with Goldman Sachs

Jay Habermann - Goldman, Sachs & Co.

Hey good morning everyone, here with Johan as well. Passing your comments you did sound more optimistic, and I know you caveat it saying it's certainly fairly in this process of recovery. I guess specifically in terms of the new leases versus renewals and clearly the existing assets you guys have been willing to make those concessions on rent. Can you talk about the new developments, probably not as much progress in the last few months but just curious, are you doing shorter-term deals there and what sort of concessions you are making?

Unidentified Company Speaker

Jay, as I mentioned, we made modest progress. You saw a 38,000 square feet of net leasing. The number is actually a bit higher than that in terms of the gross leasing. There are several things going on. First of all, we had one project in Oregon where there was an existing tenant was already signed up. And we terminated that lease in order to make room for to bring in Trader Joe's which would not only be a huge boost to the driver at that center but also brought that center to a 100% lease level.

Well there's some leasing that was done at Deer Springs for example in Las Vegas where this leasing took place in a section of the project which side to face. So we took that out of the gross numbers and so forth. But I think where we are right now as I mentioned---we're much more optimistic there's a lot more activity.

People are actually negotiating with you, show willingness to enter into new leases. I do think where the risk is in the junior anchors, because there is a lot of space available on the market. Fortunately for us it's only about 19% of our vacancy in the development portfolio, is greater than 15,000 square feet.

So we don't have much exposure there. I think the juniors recognize it, that leverage we're trying to take advantage of where they can. We're not giving much of the way concessions. TIs in particular are up very, very modestly but still less than what we have in the budget. And rents as I can say it is still a function of the strength of the size and where they can do and they will.

Well one thing that we are seeing there is an improvement in the development portfolio is that the junior anchors and national retailers are aware that we cannot give the co-tenancies and the lack of opening covenants they used to try to get and now on new projects going forward, we're not seeing that. So it's very positive.

Martin Stein, Jr.

Before Jay, Mary Lou wants to add a comment as it relates to the operating portfolio, I want to say that we're looking at each development on a case by case basis. And where we are giving lower rents today and we think the market's going to -- it's just a temporary dip in the marketplace. We're doing, we are taking shorter term leases. And in a few cases we so to speak produced the rent for longer period of time.

Mary Fiala

Vice Chairman and Chief Operating Officer:} And Jay, I just to comment, you mentioned the operating portfolio and really tried to explain our philosophy behind lower rent growth, because we've been focused more on occupancy and revenues flowing. And I thought it might be good if I look at a month, just one month, we had six flats that were over 12000 square feet. One was at a strong center in California, Barnes & Noble that we did have a 30% rent reduction, but it's only a 12 month lease.

We had another center with Jo-Ann Fabrics that we kept the rents flat and again 12 month lease. But there we had four other leases that are five years, that had anywhere from 8 to 12% increase at rental rate growth. So our philosophy has been in these good centers and good market is to keep the anchors, keep the cash flow and give us 12 months to figure out can we do something with that retailer or do we have guest by this time to replace it. And then in the meantime we think it protects us from our inline tenants to not have that big dark box in there.

So our rent growth hasn't been as strong as certainly history has shown, but that's in our philosophy. So we think overall and again they're short-term leases where we have given it. And so I think it's really going to help us going forward.

Jay Habermann - Goldman, Sachs & Co.

And just following on the theme of development I think Brian, you mentioned looking at incremental return on costs. So on page 17 of the supplemental where you show the land held for future development or sale, I guess in cases maybe where the land costs -- certainly that land cost might be lower today if you looked at those investments. Do you still plan to move forward? Do you think with some where you might see returns of say maybe 6 to 8% or it's below your sort of threshold?

Brian Smith

I don't think it will be 6 to 8%, what we did Jay is took a look at the land held. And we think about 30% of that, we can sell and probably come out close to breakeven. The other 70% we would see developing. Of that 70% we kind of looked at and said what would it take to get the land price? How much reduction will it take to land price in order to get those returns, overall to about 10.5%? And it looks like about say 24% is the number we came up with.

And then if you look at the incremental return, if you strip out just the land, it's north of 15%, if you subtract out all of the cost to-date, that we've been incurred including pre-development costs, the incremental returns would be up in the 16% range.

I don't know if they would stay there, but the fact is that they're going to be highly accretive on a go forward basis.

Jay Habermann - Goldman, Sachs & Co.

Okay, thanks. That's helpful.

Martin Stein, Jr.

And I see -- the projected, once again, projected return on costs, this is the projection even on current -- on total current cost is 9.5% range.

Jay Habermann - Goldman, Sachs & Co.

Great, thanks.

Unidentified Company Speaker

Thanks Jay.

Operator

We'll take the next question from Paul Morgan with Morgan Stanley.

Paul Morgan - Morgan Stanley

Good morning. Just to little bit focus more on development pipeline, I mean you had phased a number of the projects that were in some of the housing bust market. And I'm wondering I guess first of all, whether that you basically kind of trimmed down as much as what you've got in development right now, as much as you can and what -- there is lot basically stuff that you have to complete? Or is there more potential? And then on the leasing specifically, are some of these ones that are only 50-60% leased. I mean how long over might there be to co-tenancy triggers and some of those stores that are leased going darker taking out?

Brian Smith

I think the phasing is pretty good. We spent a lot more time on it over the last quarters scrubbing those costs. And so I think what you see right now is about a $125 million worth of costs we've pulled out of the development pipeline process to move to future phases.

I don't think you are going to see any more than that, and we'll bring that online as the demand picks up. There are some of the large projects that are not -- have not leased too well in the growth areas. They do have co-tenancy risk most of that we've already seen triggered and are in the numbers. And the other ones we're negotiating with them right now. We'll handle the same way Mary Lou discussed, any concession we give them, we will get something in return, but we do have some exposure on those projects. A handful of the large community centers.

Paul Morgan - Morgan Stanley

Okay, and then going to Mary Lou's comment about the short-term leases that you are doing, I mean are those local tenants primarily and what's the typical kind of rent roll down that you're seeing for the short term renewals or the national as well?

Mary Fiala

Paul for the most part, they are all locals. And when we are doing rapidly part of those 22 that we talked about and I think in the last quarter we had 34. So we're actually seeing rent lease going down than what we're getting. But for the most part it's all locals and we're doing 90 day re-lease and then looking at it again. And if I can kind of reiterate what I said the last time, our plan was that we looked at what kind of sales information they have, we expect income statements, credit applications, and then their recovery plan, look at rent to sales ratio and to determine what we think that we can do.

We're seeing a decline but it's interesting when you dig into this and look at more specific, in the new leases, there were three deals that we did last quarter, that were anywhere from 30 to 50% down without those, only those three deals we would had a 11.5% increase on new leases. So sometimes, that big number especially on a quarter basis can skew it because there could be a couple of big deals that so -- overall it's very healthy. We're seeing high renewals and we're really minimal rent reductions but where you have a couple of these big deals that really steals the numbers.

Paul Morgan - Morgan Stanley

Were they shorter? Were those shorter term deals that you're talking....

Mary Fiala

In every case all those were under a year.

Paul Morgan - Morgan Stanley

Okay. Thanks.

Martin Stein, Jr.

Thanks Paul.

Operator

We'll take our next question from Michael Muellerwith with JPMorgan.

Michael Mueller - JPMorgan

Hi I guess maybe it's a question again for Mary Lou, but when you're thinking about 2010 and I knows it's quarters away at this point it seems even longer. But what sort of assumptions are you operating under with respect to occupancy? Do you think occupancy is going to be down on an average year-over-year at this point? Does it feel like? Do you think, it's seems like rent spreads could still be in negative territory. Just wondering what the early read is on '10 at this point?

Mary Fiala

This is -- it's hard. I'll be honest with you. We're seeing it. If I could look at '10 and say everything was stable. And that we didn't have more bankruptcies and second, third, fourth quarter, I sit here saying that I think that occupancy is going to stabilize. And as I touch with them the 10 deals, 15,000 LOIs and assets should come into play in '10 which is a $4 million increase.

So, I am thinking at 10 overall. And if you look at year-end, occupancy 10 versus year-end of '09, I think its going to be stable to maybe even slightly positive. I think that rent growth in the second half of '10, you are going to see some really some positive numbers.

I think the big question that we are trying to get on arms wrapped around, and trying to plan '10 is what happens to those retailers who are on our watch list and everybody else's and do they declare bankruptcy in third... second, third and maybe even some of fourth quarter. And what does that do to the numbers.

So, I wish I could give you. We are working on that. And Hap quite frankly asks me that question pretty much every day. And so, we are working on that to try to get a better handle of that. And if I didn't have that caveat out there, I feel like could sit there and lay out a little bit scenario. But, we're hoping in this next quarter to do a better job get our arms around them, it wouldn't give you better direction.

Martin Stein, Jr.

I will add, Michael, that as Mary Lou indicated earlier, and our current projections, we have incorporated a good amount of what we call a reserve rent plan move outs. Whether its going to be adequate is once again... even as the economy starts stabling out, you could have a continued period of increasing unemployment for the next several quarters. And what impact that's going to have on retailers is just hard to tell. I think that the... what's encouraging to me is it just appears like it doesn't feel like we are anymore going off the edge of the cliff right now.

But, that means... and that's to a large extent having that... not going where level of comfort is encouraging. But, it doesn't mean that we're not going to have a number of quarters of slag like in the economy, and then its impact on the shopping center business, even when you've got strong anchors and great locations.

Mary Fiala

I would tell you the things that's most encouraging to me is that we had over million square feet in the first quarter. And that trend I mean, really is still like its continuing. We have a lot of leasing that we're doing. And also as I stated, the rent reductions are all short-term. So, I think its going to impact us probably through '09 and part into '10 and I'm really optimistic.

Michael Mueller - JPMorgan

Okay. Great. And a follow-up for that watch list that you're talking about. Can you give us a sense as to what does that representing in terms of occupancy percentages that a percent of total square footage is it 2%, 3%, or how big is that list?

Mary Fiala

It's not a huge list. It ended up when I looked at it, it ended up taking occupancy down to about another 1% at the most over and above what's in our move out reserves, if everything happened. So that's really ugly.

And so obviously, we don't think all of that's going to occur. So, I think that is kind of the negative news. But, that's incorporated in our lower end of the guidance, that's a 92%. So, we feel our guidance covers really all of that, the minus 5 NOI and the 92%.

Michael Mueller - JPMorgan

So the 92% factors that in or its 1% below that?

Mary Fiala

No, no that's it.

Michael Mueller - JPMorgan

Okay. Great, thank you.

Operator

We'll take our next question from Nathan Isbee with Stifel Nicolaus.

Nathan Isbee - Stifel Nicolaus

Yeah, just circling back to the same-store NOI question again. The guidance when originally issued was negative 1 to negative 3.5. You spoke at that time of it being a very conservative look at the portfolio lease bringing spaces.

And I guess it's a two part question. I mean are you actually even more pessimistic now than you were two and a half months ago, about the bankruptcies and when you talk about the guidance of occupancy, that hasn't changed even as you take your same-store NOI guidance down, and you've increased...

Mary Fiala

No, what we did is... we adjust the high end of the guidance down from 93.5 to 93. And we think 92 to 93% is the same. And I think the things that have... are we more conservative, Yeah. And some of it has to do with the facts that the move outs. Although, we had a reserve, we are hitting that number.

It's definitely... that's the big issue that's occurred as longer lease of time. And the fact that in new leases for the first quarter; we had significantly less leases now. We're seeing some of that is timing. And we are very encouraged in the month of April that we had 476,000 square feet of leasing.

So, I'll tell you some of it is timing. It's taking longer to lease out, and move out our current... stronger than we expected. On the flip side we're doing a heck of lot of leasing. But, a lot of our low end of the guidance, absolutely has to do with the fact like I mentioned these bankruptcies that are out there that we are taking into consideration. And you look at them and leasing for them, it happen. And so, some of them, not all of them but some of them. And it is incorporated to in both their low end of NOI and our low end in terms of occupancy.

Nathan Isbee - Stifel Nicolaus

Okay. Now, when you've talked about the 92 - 93 at the occupancy at the period end. Is that the lowest it will get during the year, or do you expect it to below?

Mary Fiala

To be honest... I don't see think today that we expected to get is 92.3%. And we think that's was happened in late in second quarter, beginning of third quarter. And that'll be a point in time exit, because that's the lowest percent we think hit this year.

Nathan Isbee - Stifel Nicolaus

Okay. Thank you.

Operator

We'll take our next question from Alex Barron with Agency Trading Group.

Alex Barron - Agency Trading Group

Yeah, hi. And good morning. I was wondering, as far as the change in occupancy from this quarter to last quarter, how much of that is attributed to small tenants versus larger tenants?

Mary Fiala

Yeah, I just think for the most part 60% of it, it comes from the large tenants, and 40% comes from the smaller tenants. So, that's... it's a blend. But, it's a typical blend of what you see.

Alex Barron - Agency Trading Group

Okay. And then, are you finding basically that as far as the smaller tenants that had... for every one you loose, it's just kind of you are just basically backfilling another one. Is that generally what's happening?

Mary Fiala

I'm not sure exactly. It's just taking longer to fill those spaces.

But yeah, we're... and we're doing a lot of things trying to be a little bit more creative, trying to sell those spaces. We have had a focus because our promoter is high quality and our anchors are still performing extremely well across the board.

So, when you have this normal path that fails, there are guys around that are now going to be sellers with a retailers, and bringing them in to our reach, our sight as a retailer. But, it's taking longer. And we also have been pretty creative in terms of trying to go after a more service tenants, the dentists and the chiropractors, and spending doing marketing to people who aren't graduating from universities starting their own practice. So, it's just taking more work and it's taking more time.

Alex Barron - Agency Trading Group

Okay. Now, as far as the grocery anchored centers versus the ones that aren't. What typical, if or have you measured what the difference is between occupancy of those centers?

Mary Fiala

I have. If you look at grocery anchored centers, we've been looking at under 125,000 feet. And you look at that and our same-store NOI in those would be a minus 1.4%. Our rent growth would be a positive 1%. And our occupancy would be 93.5%.

Then you look at the community centers, our same-store NOI is minus 2.7%, rent growth is 0.8%, and occupancy is 93.1. And then that gives us the total. So, we have looked at that, because I do think, if you look at regions and then you got grocer anchor is high quality. Why... it's really in more of the community centers, and a lot of these big boxes that are taking longer to replace.

But again, I'll reiterate, if you look the 15 big spaces that we have available, we got LOIs out there. And the fact is that 31% increase in rents, it's just not going to hit in '09, and it maybe into '010 we probably start seeing the revenue commence.

Martin Stein, Jr.

Now, I just think it's important to note that, yes, the cup is not full. But, the half full portion, when you consider that in the first quarter, we signed a million square feet of leases, 800,000 square feet of renewals, and 200,000 square feet of new leases.

And really, our activity in April was an acceleration of what we experienced in the first quarter. Obviously, even as the economy starts bottoming out, there is still going to be some additional fall out. And I think we're incorporating that into our projections.

Mary Fiala

One thing I'd mentioned too is that part of what impacted this quarter was the fact that, in aggregate there were 19 retail bankruptcies in the first quarter. And for those impacted regency, was risk came (ph), Shannon & Company was just discount jewelry store, SNK and everything about water.

That was a 1.5 million of revenue on an annual basis. But, that was a 1.5 million of revenue. So, those are the things that... we think those kinds of things that may not take that many retailers. The good news about our portfolio is, we didn't get impacted by all 19, we only got impacted by four, but it still hurt.

Martin Stein, Jr.

And we're inline with that. And our reserve in that so far is covered the bad news to date.

Mary Fiala

Yes.

Operator

We'll take our next question from David Einhorn with Greenlight Capital.

David Einhorn - Greenlight Capital

Yeah. Can you talk a little bit about the temporary rate reductions? Who they're being offered to? How temporary they are? What the amounts might be? And what the policy is? It sounded like last quarter you were sort of resisting that?

Mary Fiala

Well, when you look it, we are resisting it. But, it takes it's kind of like I said, if you look at it, and a couple days examples. The one that I mentioned was the Barnes & Noble. And it's in a really strong center in California. It's a negative 30% fixed days. But, it's only 12 months. And then the JoAnn's which was the flat. And again, it was 12 months.

And then rest of them for the most times, we've got a few big bags retailers, the rest of them are a lot of local tenants. And a lot. I mean, but local tenants that we've done in the 90 days and their mid-term leases they are 90 days that we've given the rent release to.

And again I think the key is that there were 34 in the fourth quarter and only 22 in the first quarter. So, it's just that our... and our process what's going...

Bruce Johnson

I think you're confusing from what Mary Lou is talking about. She used the Barnes & Noble example, that was at least exploration.

Mary Fiala

Right, right.

Bruce Johnson

It's not... that is not a mid-term risk reduction.

Mary Fiala

So that's mainly a...

David Einhorn - Greenlight Capital

Okay. Only 22 mid...

Mary Fiala

Yeah, only 22 mid-term and some of these are rent at the time. Every time, the bags that I gave you were all renegotiations at time of renewal. Maybe, a little bit of a confusion.

David Einhorn - Greenlight Capital

Right. And what's your annualized amount of rate reduction and how... what is duration of the reduction? And how much has already flown?

Martin Stein, Jr.

We've indicated it was like that it's like in the case Barnes, maybe it was a year or for some of these reductions, the mid-terms are only 90 days.

Mary Fiala

Yeah. All that local rent for 90 days. So, if it's a short-term. Its not...

Unidentified Analyst

Its 22, 3/10ths of 1% of the 7100 tenants.

David Einhorn - Greenlight Capital

Okay.

Unidentified Analyst

Thank you.

David Einhorn - Greenlight Capital

Thanks.

Mary Fiala

Thanks.

Operator

We'll take our next question from Jim Sullivan with Green Street Advisors.

Jim Sullivan - Green Street Advisors, Inc.

Thanks. I wanted to follow-up on the leverage question that was asked earlier, you talked about a number of different ways to measure leverage one way that you did not mention is debt divided by the market value of your assets. And if we were to use say an 8.75 type cap rate, to value your portfolio, your leverage on that measure is somewhere around 50% plus or minus.

And on the Kimco's kind of Mil Cooper (ph) said that the right sort of right leverage level for Kimco as he looks out a couple of years is in the 25% range.

Martin Stein, Jr.

Right.

Jim Sullivan - Green Street Advisors, Inc.

Is that a number, or is that a target that makes sense for your company? You said, specifically you don't intend to increase leverage, but you didn't say that you specifically intend to reduce it.

Bruce Johnson

Jim, I want to reiterate that I do think that just looking at debt to market cap can be... is not... it has certain flaws. As you may remember, I think in 2007, our debt to market cap was well below 30%.

Jim Sullivan - Green Street Advisors, Inc.

Yeah. And just to make it clear, I am talking about the debt to the market value of your assets as opposed to...

Bruce Johnson

If were to take Green Street's analysis of what our market value of the assets was at that time I think that the number would've been real close to that number. It would certainly be well below, it would certainly be well below 35%. So, that's number one.

So, in mind, or in our mind there's a couple of other metrics that we think or we're going to look at as closely if not more closely than that. And that's a fixed charge coverage ratio and debt to EBITDA using recurring earnings. And I just said that we are comfortable with our current debt level at this point in time. And we'll analyze future opportunities to potentially reduce debt on a cost effective or opportunistic basis in the future.

Jim Sullivan - Green Street Advisors, Inc.

You want to talk about targets based on the measures that you think are the most appropriate ones?

Bruce Johnson

I would say that, once again, that we're... the debt-to-EBITDA is in fixed range. And that our fixed charge coverage ratio on a recurring earnings standpoint is in the 22 (ph) range. And I think that's within the range. Could those coverage levels get higher? If there's a way to opportunistically do that on a cost effective basis, we would certainly give strong consideration to so.

Operator

We'll take our follow-up question from Quentin Velleley with Citi.

Quentin Velleley - Citigroup

(inaudible). I just want to sort of follow-up on your comment on the current investment essential for more time investment. In terms of at least... are there likely to be new relationships or existing relationships I don't know whether you could give sort of any idea of the quantum of capital sort of assets the basic kind income relationships. And also, whether there is a preference to investment into grocery anchored assets.

Martin Stein, Jr.

I think, number one, Quentin, there is, to your second question, there is a preference to investing in grocery anchored assets. That's also reflected on the mortgage financing side, because of the necessity kind of more stable asset class. And I think that we're seeing that on the investment side.

And one of the reasons that we are cautiously optimistic about MCW's ability to execute their plan is, because of interest on grocery anchored shopping centers. And then lastly, I'll say that we are in as anchor, as Bruce has indicated, we are in active discussions with prospective co-investment partners -- doing a co-investment partnership, and I think that the primary interest is on grocery anchored assets.

Quentin Velleley - Citigroup

Is that have -- you are trying to get partners to buy out the existing joint venture or you're finding partners to buy new grocery anchored centers?

Martin Stein, Jr.

I think that you are talking about expanding our co-investment partnerships that would be to -- as we stated is part of our plan that we would like to generate about 100 to $150 million from the sale of an interest in so to speak existing Regency assets to create a new co-investment partnership. And then we also whoever to do that, we would also like to feel that new partner would be a reliable partner on a go forward basis.

Quentin Velleley - Citigroup

Right.

Martin Stein, Jr.

So either continue to, in theory, fund new investments. Either new balance sheet investments that Regency has slash developments, slash take out of that or secondly to make third party acquisitions.

Quentin Velleley - Citigroup

And sort of follow up question, just regarding guidance. At the time of the equity offering, one of the key drivers of the reduction had been an increase in net interest expense going from 12 million to 19 million. And I was curious how much of that is related to a potential bond offering versus higher cap interest, or lower cap interest from the development, not tapping development. That was just one specifically on guidance. And then the other two on guidance was, I think it's just very clear. Your same store NOI is down because your weighted average occupancy for the year is probably down 100 to 150 basis points from your prior guidance because it's taking longer time to leasing your higher move out.

Martin Stein, Jr.

That's correct.

Quentin Velleley - Citigroup

So that's what you sort of verify that. And then the last thing on guidance was just on the transaction profits, the 15 to 20 million effectively with 4 million booked. And I think you had anticipated about 12 million mcguire (ph) promote in the third quarter. Is that effectively how you get, four plus twelve gives you the 16 so just some...

Martin Stein, Jr.

The answer is yes on that. Yes on the lower average occupancy and it is lower capitalized interest. Almost 100% of that.

Operator

Okay. The next question from Chris Lucas with Robert W. Baird and Company.

Christopher Lucas - Robert W. Baird & Co.

Good morning everyone. Just a quick follow up question on the watch list. Mary Lou, just your thought process how much sort of percentage wise of that watch list would be a Chapter 7 versus Chapter 11 risk?

Mary Fiala

It's hard to say but if I look at it, I think there's probably just a three Chapter 7 and the rest of them would be 11.

Christopher Lucas - Robert W. Baird & Co.

And then Bruce, a quick detailed question on bad debt expense for the quarter?

Bruce Johnson

Your question is?

Christopher Lucas - Robert W. Baird & Co.

How much was it?

Bruce Johnson

It's been running about same bad debt expense -- it's been running pretty much of where we've been for the last year. And I just want to reiterate rate of the bag debt expense, watch list et cetera that in our projections we have incorporated what we think is a reasonable estimate for reserve for unplanned move-outs, whether that reserve and we think it's going to be adequate. And just we tried in a very limited team trying to incorporate that into our projections. This is the best I can.

Mary Fiala

What we do want to do is every quarter staying back and have a number, if we took our first quarter and even if we want to look at last year and then we came back and revise it. We don't want to get these bankruptcies -- this happens. And we put as a pricing in a downward guidance. So, we literally took the whole year, laid back and said what could happen if we get what we felt was reasonable and potentially probable.

Christopher Lucas - Robert W. Baird & Co.

Is there a number for the first quarter?

Mary Fiala

What do you mean, is there a number?

Christopher Lucas - Robert W. Baird & Co.

What was the bad debt expense for the quarter?

Unidentified Company Speaker

In line with what we had last year.

Mary Fiala

Well, because I don't think we know that exactly, I'll get back to you.

Christopher Lucas - Robert W. Baird & Co.

That's fine, okay.

Unidentified Company Speaker

That was added to our reserve, the first quarter was $500,000. Your question is how much we pulled off of that, I guess.

Christopher Lucas - Robert W. Baird & Co.

Correct. Okay, that's fine. I'll talk to Lisa offline.

Mary Fiala

Okay, thanks.

Christopher Lucas - Robert W. Baird & Co.

Thank you.

Unidentified Company Speaker

Thanks Chris.

Operator

We'll take our next question from Jim Sullivan with Green Street Advisors.

Jim Sullivan - Green Street Advisors, Inc.

Wanted to follow-up on that bankruptcy issue. Lou can you comment on the bankruptcies that have occurred so far and the pace relative to your expectation?

Mary Fiala

As I said, that the four bankruptcies that affected us so far were with camera but that's also with camera and photo as well, to date owned by the same entity, same company S&K and everything but water. The ones that were incorporated into our prime quite frankly, as we thought the risk was going to happen, then we really bought the Shade company was the S&K and everything but water, we didn't have that incorporated into our plan. It doesn't mean it's kind of go back and okay, we need to sit down and really look at this and see what's out there, where do we think our risk is, and who do we think to the question, and you got to balance this in terms of sharing information with respect to our retailers, but which ones do we think are really going to go to Chapter 7, how does that impact and which ones are going to go 11, and then which then go property-by-property, space-by-space and go to 11, which ones do we think are going to be either renegotiated balance down-sized or rejected and let that out. So, that's the process that -- it was big process this quarter going through that.

Jim Sullivan - Green Street Advisors, Inc.

And as you do look forward, what's your expectation as to what the key trigger will be on putting those on your watch list actually into bankruptcy, is it looming debt maturities of these retailers out of the corporate level? Is it your concern that you're going to have trouble perhaps securing inventory financing as it gets towards the middle of the year or is it the expectation of continued deterioration in their operating fundamental?

Mary Fiala

Yeah, I mean, I'll tell you in every case it starts with deterioration in operating fundamentals. And then when you start looking at somebody's cash in the balance sheet it's really they have problems. So you're looking at deteriorating fundamentals, problems on their balance sheet and you sit down and go okay, do they have a plan and this is where I think it's great having the people obviously working with those. And I think we'll get more color even after I see after that, we can share with some in their rate, what is their plan to turn their operating fundamentals? And is it a solid one or if they don't have a plan and they have just this, that's going to repatriate where we think they're going to end that. So it's a work in progress but it all starts in everyone at least -- starts with cooperating fundamentals.

Unidentified Company Speaker

But I'll also say it's important note that retailers aren't sitting back and assuming that all of a sudden the operating environment is going to get any better and they are taking significant and meaningful measures to be able to in effect survive and even go cash flow positive in today's low sales levels.

Jim Sullivan - Green Street Advisors, Inc.

Thank you.

Unidentified Company Speaker

Thank you.

Operator

We'll take our next question from Michael Collin with Aerohawk (ph) Capital.

Unidentified Analyst

Hi. Thanks for taking my question. Sort of a little bit of philosophical question or maybe if you could talk about the rationale that went in sizing the offering at the level that it was sized, it would seem to me that given sort of the availability of capital right now and the window that's opened, I might have chosen a more conservative approach in terms of raising many multiples of what you've raised in the context of one, it delevers you, two it provides liquidity and three if the world turns out to be okay, it gives you the flexibility to put for capital to work when a lot of the private real estate begins to move its way back to the market, and be sort offset if you will. So it helps you defensively and offensively it would be the way I would I think about it. How did you think about it and why didn't you do more?

Unidentified Company Speaker

There were a lot of considerations there, I think what we wanted do was to make basically number one address a significant, very significant portion of our capital requirements through 2012, that was number one issue that we looked at. Secondly, we didn't totally take out the ball on two other issues. Number two, we felt like we were able to raise capital, if you look at our analyst views of what the implied cap rate was on a minimally diluted or maybe even accretive basis to our per share NAV. Thirdly we did look at overall dilution and we felt that we could accomplish what we accomplished. It was a multi pronged approach. Remember Michael we raised, I think that the reduction in the dividend through the current $6 million of committed mortgage financing through the equity offering and through where we think we're going to be able achieve the sale to the co-investment partnership.

I think the number is $700 million and I think that it puts the balance sheet in good shape and I think that we're positioned, we feel that we still have all of those elements. We still have a close to $3 billion unencumbered pool available to us. We have on balance sheet opportunities available to us and to the extent they are compelling opportunities. We can finance those in a way and they may be done in the way that will further enhance the balance sheet over time.

Unidentified Analyst

Right, I mean I guess that's a little bit mixing issues in terms of liquidity and capital levels, but just in terms of any desire to kind of de-leverage the balance sheet you could sort of de-lever at certain point if the world decides 50% is not the right level and it might be 52 or something like that, that gives you the flexibility when maybe some of the distressed sellers come to market. How did you weigh that opportunity in your equation?

Unidentified Company Speaker

Well, what we did was we felt regard our balance sheet in a very comfortable position and I will say that in 35 years that I've been in the business, there has never been a position where somebody with the balance sheet of where Regency is today where you were in a position to raise capital, to take advantage of compelling opportunities. And we feel comfortable that we can pull a modest amount of offense today and to the extent that they are compelling opportunities of larger scale will be in the position to take advantage of those in the future.

Operator

We'll take our next question from Chris Summers with Greenlight (ph).

Unidentified Analyst

Hey guys, I just wanted to talk about some of the lease tenant improvement trends. I know this in the quarter that, on the new leases tenant improvements picked up quite a bit. And if I subtract that from the base rents looks like rents fell to the ballpark of like 22% from the fourth quarter. Is that trend kind of continuing and is that the right way to think about this?

Mary Fiala

Well let me talk about TIs to begin with. We had one deal this quarter which was grocery Delphos (ph) and without that one deal it would be $1.47. So it is we are really seeing that TIs are going to be right in line with historical levels maybe a little higher but not much.

Unidentified Analyst

Say $1.70 that's when you divide...

Mary Fiala

$1.47 without that one deal. So...

Unidentified Analyst

And now if you were to annualize it as opposed to...

Mary Fiala

I'm not understanding what you're asking.

Unidentified Analyst

So the tenant improvements in the quarter on new leases was like $18.31?

Unidentified Company Speaker

I believe so.

Mary Fiala

No, $1.47

Unidentified Analyst

That's a one deal.

Unidentified Company Speaker

Right but on the new leases. Was that a new lease or renewal lease?

Mary Fiala

That was a new lease.

Unidentified Analyst

Got it.

Mary Fiala

Okay.

Unidentified Analyst

Okay and then, all right. I thank you.

Operator

And we have no further questions at this time. I would like to turn it back over to Hap Stein for any additional comments.

Martin Stein, Jr.

Again we appreciate your time and interest in Regency and wish that you enjoy the rest of week and have a great weekend. Thank you very much.

Operator

That does concludes today's conference. Thank you for your participation.

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