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Regency Centers Corporation (NYSE:REG)

Q3 2011 Earnings Call

November 4, 2011 10:00 am ET

Executives

Lisa Palmer - SVP, Capital Markets

Hap Stein - Chairman and CEO

Brian Smith - President and COO

Bruce Johnson - CFO

Chris Leavitt - SVP and Treasurer

Analysts

Nathan Isbee - Stifel Nicolaus

Quentin Velleley - Citi

Craig Schmidt - Bank of America Merrill Lynch

Christy McElroy - UBS

Jay Habermann - Goldman Sachs

Paul Morgan - Morgan Stanley

Michael Mueller - JPMorgan

Jeff Donnelly - Wells Fargo

Rich Moore - RBC Capital Markets

Chris Lucas - Robert Baird

Cedrik Lachance - Green Street Advisors

R.J. Milligan - Raymond James

Ari Friedman - Cobalt Capital

Operator

At this time, I would like to welcome everyone to the Regency Centers Corporation third quarter 2011 earnings conference. (Operator Instructions) I would now like to turn the conference over to Ms. Lisa Palmer, Senior Vice President, Capital Markets.

Lisa Palmer

Good morning, everyone. On the call this morning are Hap Stein, Chairman and CEO; Brian Smith, President and COO; Bruce Johnson, CFO; and Chris Leavitt, Senior Vice President and Treasurer.

Before we start this morning, I'd like to address forward-looking statements that may be discussed on the call. Forward-looking statements involve risks and uncertainties. Actual future performance, outcomes and results may differ materially from those expressed in these forward-looking statements. Please refer to the documents filed by Regency Centers Corporation with the SEC, specifically the most recent reports on Forms 10-K and 10-Q, which identify important risk factors that could cause actual results to differ from those contained in the forward-looking statements.

Bruce?

Bruce Johnson

Thank you, Lisa, and good morning. Since the SEC recently advised NAREIT that it now takes no position on the inclusion or exclusion of impairments in FFO. NAREIT reiterated this week that in accordance with the definition of FFO, impairment charges should be excluded. As such, we have begun excluding impairment charges from FFO this quarter.

Recurring FFO for the third quarter was $0.61 per share. Total FFO was $0.62 per share for the quarter. Third quarter's same-property NOI growth was a minus-0.2%. Excluding termination fees, this growth was a positive 0.2%. Same-property percent leased increased 80 basis points to 93%. Likewise, non-rent pay in pre-leased GLA increased by about the same amount, delaying some of the benefit from leasing activity in NOI growth.

Other income increased by $2.5 million over the second quarter. As we've always reported in the past, our captive insurance profits are recognized in the third quarter based upon the claims experienced from the prior year. This is not considered the same-property income, but is included in other income and impacts NOI.

Account receivable continued to improve with a total on pro rata basis down nearly $5 million from the second quarter as tenants continue to pay real estate tax and CAM balances built in the prior quarter. Total AR over 90 days is now 0.7% of revenues compared to 1.1% at September 2010.

Our liquidity position remained strong. In September, we closed on the refinancing of $600 million credit facility. The facility has a four-year term with a one year extension option. The interest rate is LIBOR plus 125 with the facility fee of 25 basis points.

We are currently documenting a $250 million term loan to refinance December and January bond maturities. The loan will carry a five-year term at attractive pricing similar to that of our recently closed credit facility.

As we execute our capital recycling plan, this term loan will provide the flexibility to buy assets or pay down debt. Loan execution is anticipated in November with funding in January.

In August, we locked rate on a $193 million of mortgage debt to refinance the maturities in our GRI partnership. The refinanced debt matures in 2022 and carries an interest rate of 4.5%. With this refinancing and the term loan, we have handled essentially all of our 2012 maturities.

Looking ahead for the year, we have tightened guidance range of recurring FFO to $2.34 to $2.40 and total FFO per share to $2.45 to $2.51. For the fourth quarter, we expect recurring FFO to be in a range of $0.58 to $0.64 per share.

Brian?

Brian Smith

Thank you, Bruce, and good morning. We continue to experience robust leasing activity which points to future improvement in fundamentals. Total leasing for the operating portfolio was 2.1 million square feet.

In context, you could look back over the past six years and not see a quarter with close to 2 million square feet of leasing. The 590,000 square feet of new leasing was the most ever registered and only the second time we've leased over 500,000 square feet with last quarter being the first time.

Move-outs have been improving since mid-2009 and are still above historic norms, an encouraging sign that move-outs are trending toward pre-recession levels as small shut move-outs were meaningfully lower than recent quarters. Additionally, we released every one of the five largest anchor move-outs we experienced. The strong leasing resulted in positive absorption of 140,000 square feet. It means two consecutive quarters of positive absorption.

The 1.5 million square feet of renewal leasing was more than we've even in a quarter. As a result of this leasing progress and a favorable impact on occupancy from dispositions, we're now 93% leased on a same property basis. We had occupancy gains in all size ranges. Spaces less than 5,000 square feet registered a 50 basis point increase or total of a 100 basis points over the past two quarters, and we're 85% leased in that section.

And spaces larger than 20,000 square feet improved to 99% leased. Although total rent growth was negative 1.6%, when we exclude spaces vacant for more than 12 months, rent growth was slightly positive. I want to point out that it will take a few more quarters for these leasing gains to positively benefit NOI growth.

The full NOI benefit is delay due to two factors. First, is taking longer per tenants to move from lease execution to rent paying due to staffing issues in local governmental offices. The delay was further impacted by the large amount of leasing volume that occurred in second and third quarters.

As a result, our pre-leasing increased from a 150 basis points to 225 basis points. Second, move out from like new leases have an immediate negative impact on NOI, encouraging signs related to tenant health merit being highlighted. Retailers are renewing in the rate above historic norms. As a result of actively calling weak tenants from the portfolio and replacement with stronger operators, accounts receivable greater than 90 days are now below pre-recession levels.

Rent relief requests are almost non-existing and defaults a one-third of what they were year ago. And habitually, delinquent tenants that have not yet moved out have decreased from 42 basis points to 28 basis points over the past year. These metrics along with the notable decrease in small-shot move-outs all point to a healthier tenant base.

Looking forward, our current leasing pipeline remains robust with nearly 1.3 million square feet of leases or LOIs under negotiation. Leasing the development portfolio has been encouraging as well. On an apples-to-apples basis, our percent leased at 87% increased 480 basis points compared to the fourth quarter of 2010, and based on the recent activity and momentum, we believe we would finish the year 98% leased.

We disposed four truly sealed quality properties that we believe had significant NOI risk. And we acquired four premier operating properties. Tech Ridge Center located in Austin, Texas, in anchored by highly predictive H-E-B with a potential to expand centers demand allows. Oakshade Town Center located in the high barrier Northern California market is anchored by the highest volume safeway in its trade area. Center is 93% leased and remaining anchor leases are below market.

Calhoun Commons, the whole foods-anchored center we discussed on the prior call, is purchased with (inaudible) and is located in an upscale neighborhood near downtown Minneapolis, Minnesota. And Rockridge Center which is also Minneapolis is anchored by a market leading Cub Foods with extremely high sales volume.

As we continue to execute our recycling strategy, the resulting impact on the quality of our portfolio will enhance the future sustainability of NOI growth. Since the beginning of last year, we sold nearly $140 million of at-risk properties and acquired nearly $256 million of extremely high quality centers.

In terms of key indicators, the 3-mile household income of the acquired properties is nearly $100,000 and at nearly $700 per square foot, the average grocery sales are two times the average of those we disposed. This is the kind of upgrade in real estate and tenancy that we'll continue to pursue.

Given the positive momentum we are experiencing with so many assets that don't meet our standards, we're accelerating the rate at which we bring dispositions to market. As our capital recycling program picks up, we look to reinvest the proceeds into premium real estate that will enhance Regency's portfolio and drive reliable NOI growth.

Also our six months recent development starts are already 93% leased. We are currently projected to produce an average return on invested capital of 9.5%. And I'm encouraged by the depth and quality of the shadow pipeline for future developments and redevelopments which now exceeds $325 million.

The vast majority of these opportunities represent expansions and renovations to better positions assert already owned or the development of prime shopping centers that we look forward to on in long term.

We started one new value add redevelopment this quarter located in Boynton Beach, Florida. We replaced a dark Winn Dixie with a public's relocation from a near-by center and filled the vacant blockbuster space with Chase Bank. The incremental return on the new façade and redevelopment cost is 8% before taking into considerations, significant increase and high quality shop space demands since the redevelopment was announced.

To conclude, in spite of the slow and fragile recovery and the uncertainty caused events in Washington and Europe, we are encouraged that many key measures are moving in the right direction and are starting to have a positive impact on NOI and recurring FFO.

Martin Stein

Thank you, Brian, and thank you, Bruce. I likewise and encouraged by the improvement we are making on key aspects of the business. Also, like Brian and Bruce, while I appreciate the groundwork that is being laid for future growth and NOI and recurring FFO, I'm ready for these improvements to start having a larger impact.

This will occur sooner if leasing momentum continues especially with small tenant leasing that we're experiencing. We returned to more normal pre-leasing levels and the improving trends that Brian described in tenant health and move-outs reached pre-recession norms.

I do want highlight what is being accomplished, most important of all the continued tenant demand coupled with the intense focus of leasing team and the attributes of the portfolio. We signed roughly 590,000 square feet of new leases and nearly 1.4 million square feet of renewals during the third quarter and increased occupancy at 93%.

In addition to the fee and non-strategic properties that we sold in the first nine months of the year, over $150 million of assets are in the market or about to get a market.

We acquired the terrific shopping centers that Brian describes that means we're consistent with our proven strategy of earning dominant grocery-anchored shopping centers and infill trade areas meaningfully above average household income and supermarkets sales in excess of $25 million. As a matter of fact, the grocery anchors in these centers have average sales of over $40 million. Our experience shows that these are the types of the centers in our portfolio that enjoy sustainable NOI growth.

We're positioned to start over $100 million of new developments and redevelopments this year along with building new and improved core assets to enhance the overall quality of Regency's portfolio while achieving attractive risk-adjusted returns.

In addition, we're continuing to convert our inventory of land in the sales or developments. We won the $35 million of sales contracts, LOIs and land in probably development closes. We will have effectively converted a quarter of our own land into cash or attractive new developments.

As Bruce described with the new line of credit term loan and mortgage REIT financing, we've improved our maturity profile and at the same time provided significant flexibility as we executed our capital recycling.

As Brian said, we all recognize that we are operating in an uncertain world with sluggish economic growth and volatile capital markets for the foreseeable future. And we pointy realize more than anyone else that Regency is not yet where we want to be in relationship in relation to our high absolute and relative standards and goals.

At the same time, I am gratified with the straight progress that is being made toward achieving Regency strategic objectives. Attaining 95% occupancy and 3% NOI growth, growing the development program to $150 million of development and redevelopment starts of core shopping centers, recycling the reminder of our C assets and potentially some of our non-strategic assets and A centers, and continuing cost effectively and opportunistically enhance an already solid balance sheet.

Most important of all, I appreciate the focused efforts of the team in executing our strategy to position Regency for meaningful and reliable long-term growth in recurring FFO and NAV.

We thank you for your participation and welcome any questions you may have.

Question-and-Answer Session

Operator

(Operator Instructions) Our first question is from Nathan Isbee from Stifel Nicolaus.

Nathan Isbee - Stifel Nicolaus

I'm just focusing on the leasing done during the quarter. Clearly, occupancy has had a nice ride last two quarters, especially on the new leases still trending down about double-digits. Can you just talk about that? When could we expect to see that change? Or is that just a function in some part of above market leases? Or as your occupancy goes up, would you expect that to change near term?

Hap Stein

First of all, its really coming down to supply/demand right. So if you look at our centers, we're already 95% leased. We have about 400 basis points better rent growth in those that are less than 95% leased. And for the same reasons if you're seeing renewals, we've got positive rent growth.

So how do we get the rest of it up there? I think a combination of the improving tenant health we talked about should lead to lower move-outs. We are getting rid of the worst properties in the portfolio, which should help us there. The continued the move-out lease up. I think all of those things and the lack of supply coming on to the market should benefit us. And you'll start seeing better rent growth.

Nathan Isbee - Stifel Nicolaus

You haven't issued guidance for '12 yet, but can you give any sort of color on what would you expect on that line item for next year?

Bruce Johnson

We'll give you that guidance, but I'd say it's going to be in the flat range for overall rent growth between renewals and new leases. More to come in December.

Operator

And moving on, our next question is from Quentin Velleley from Citi.

Quentin Velleley - Citi

I'm here with Michael as well. Just in terms of the disposition activity in some of the weaker assets you're trying to sell, I noticed that your guidance came down for this quarter. But it sounds like you've got $150 million assets you're trying to get ready for marketing. I'm just curious, given what sort of happened over last few months in capital markets? Whether on of this being a change in pricing of lease assets and whether the same debts of buys there?

Brian Smith

There has been a change Quentin, when the CMBS market softened we saw right after that a softening in the pricing for some of the BNC quality centers. But I'd say overall is that the A centers the demand continues to exceed the supply, so the pricing has gotten extremely aggressive.

I'd say that the typical A now is five and three quarters and you're going to see well below that in California at the low fives and there's a couple of comps below five, actually 4.6 to 4.75. After that you got the Bs and Cs and what's happening there is, if you have a B market with an A tenant roster or you have a B market who doesn't have upside, there is not as much demand for that. Interestingly there is more demand for the C properties, where there is upside.

And I think what we're selling would be a combinations of those. We got some 100% leased assets that we would consider Bs that were moving out the door, and then we've got the Cs that have upside are being priced on the current occupancy. So it hasn't really impacted the pricing as seen so far.

And where we are, you mentioned about $150 million worth of properties get ready to go to market. The vast majority of those are actually on the market and we've already gotten about $40 million to $50 million worth of offer, so a good momentum on that.

Bruce Johnson

And we really are encouraged by the momentum. And especially, given the fact that some of the assets that we're trying to sell is easier said and done, but we really are selling those assets that we really want to sell. Not from so to speak the middle of our portfolio, but in effect from the lower part of the portfolio. And we're encouraged by the progress we are making. So knock-on we're hopeful that it continues.

Operator

Our next question today is from Craig Schmidt from Bank of America Merrill Lynch.

Craig Schmidt - Bank of America Merrill Lynch

I just wondered what you specifically saw between the second and third quarter that resulted in the adjusted same-store NOI? Whether that was geographical or type of shops or anything?

Hap Stein

It is primarily this increased act that Bruce mentioned in the amount of pre-leased that jumped up from a 150 basis points to 225 basis points, and Brian kind of amplified on it, the time it's taking to get from in effect LOI to lease to rent paying. And some of that has to do with the large amount of volume of leasing that we're doing. Some of that has to do, which is the time it's taking to get approvals and some under staffing on the tenant side.

Craig Schmidt - Bank of America Merrill Lynch

So my sense is that it was actually getting worse and then that gave you pause for looking at your NOI. Is that the case?

Bruce Johnson

Yes, I mean it's taking more time. And we did not have the up tick in 225 basis points in pre-leased until this quarter.

Brian Smith

And basically all of the occupancy increase is equal to the increase in the pre-leasing.

Operator

Our next question today is from Christy McElroy from UBS.

Christy McElroy - UBS

I am just following-up on the pre-leasing question at the 225 basis points. Does that mean that your commenced occupancy rate is just above 90%? And sorry if I missed this in opening remarks, but with regard to your small-shop occupancy, what was the commenced occupancy versus the leased percentage?

Brian Smith

On less than 10,000 square feet that 250 basis points would be 375 basis points.

Christy McElroy - UBS

So what was the lease rate?

Brian Smith

Well, 81.5% essentially would be rent paying occupancy versus 85.3% leased.

Christy McElroy - UBS Investment Bank

And then following up on Nathan's question, just directionally market rent growth between big box versus small shop. Can you talk about what that look like in 2011 versus what you're sort of projecting for 2012?

Brian Smith

We've don't have any big box going into 2012. I don't know if it's broken down by rent growth. But if you look at the average leases, the average rent signed in the third quarter compared to the second quarter our anchors were up 12%. Does that answer Christy.

Christy McElroy - UBS Investment Bank

And then, sort of small shop directionally. Just looking at kind of a market rent growth, given where occupancy is?

Brian Smith

It was the same thing, the exact same numbers. So the average rent again was up 12% for both the small shops and for the anchors. And that represents two quarters in a row that they've been up.

So that's different in the rent growth, because we certainly have some tenants that if they have a different space, let's say, we subdivided a space, whatever the rent growth is associated with those two spaces would be, are not counted in our rent growth, so a little bit different numbers. But using average rent signs for proxy that was going on in the market, it's been up two quarters in a row, 12% in the most recent quarter.

Hap Stein

Just space-to-space, but it is a pretty good proxy as Brian indicated for directionally what's happened.

Brian Smith

See only thing we have Christy is that we breakout the rent growth above 6,500 square feet and less than 6,500 square feet. And for less than 6,500 square feet in the third quarter, we were negative almost 6%. And for those over 6,500 square feet, we're actually positive about 5%.

Operator

And our next question today comes from Jay Habermann from Goldman Sachs.

Jay Habermann - Goldman Sachs

Just a question, I guess, on the accelerating paces of assets sales. And can you give us some sense of perhaps what you're thinking as you look out to 2012. I know you mentioned obviously the disruptions in the capital markets recently, but would you plan to sort of match those proceeds with new acquisitions. And perhaps even some sense of what you think as sort of the bottom-tier I guess at this point as a percentage of total portfolio?

Brian Smith

Bottom-tier as percentage of total portfolios is in the 5% range. And I think it's a realistic objective that we can sell those within the next three years. We're not ready to sell right now. And we are being able to achieve that in our strategy. And we may accelerate that kind of more on at Investor Day.

And yes it is our intent to obviously to match those sales and effectively trade those proceeds, and the shopping centers that have the attributes that we just talked about that we found in our portfolios that are continuing to generate the highest level of NOI growth, strong anchor sales and strong demographics with good purchasing power. Now as Bruce mentioned, to the extent that we sell more properties than we're able to buy, we do have the flexibility with our term loan to pay down the term loan with excess proceeds.

Operator

(Operator Instructions) We'll move onto Paul Morgan from Morgan Stanley.

Paul Morgan - Morgan Stanley

Just there on the acquisition strategy, you've talked about focusing more on in-sales. And maybe you could give a little color on the deal and give us the 58 cap rate, which doesn't seem kind of at first blush to be in-sales certainly. And also at a relatively low cap rate kind of below, which you've been looking for. So maybe is there a upside or is that driven more by kind of just the dominance in the market even though it's a small market?

Bruce Johnson

Well, the worse thing about in-sale is that it implies a lack of new supply coming on the market. If ever there's a market that checks that box would be Davis. I mean I personally in California tried for a good 15 years to develop something in Davis and you just can't do it.

Any new development in the Davis literally has to go before the voters and the referendum to get approval. So that's why you see no new supply in that market. That's why you've also seen vacancy rates of about 1% even through the recession, so high constraints and low vacancies is what was attracted to us.

Then you've got this property that has the highest volume, Safeway, in the market and for safely dominance in Northern California. And then there is potential growth, it's like I always like to say, I'd like to buy the centers where any bad news translates into good news. In this case there's two other anchors that are the weak players within their segment, you've got Rite Aid and OfficeMax.

Rite Aid is the only entitled drug store in that market that has a drive-throughs and they're below markets. So if they were to leave, but we have interest from the other two players, and they would pay us a lot more rent. The same thing with OfficeMax is the only office supply store in that market. And you've got the University of California sitting on your doorstep. So we really like that property. It's one where you just don't see a way you can go wrong on it.

Operator

Our next question today is from Michael Mueller from JPMorgan.

Michael Mueller - JPMorgan

I was wondering if you could talk about some of the drivers in the Q4 range, which is kind of wide and at this point where does it look like you're going to end your occupancy guidance, I think it's 92 to 93.5?

Bruce Johnson

Well I mean that is our guidance. So however, you want to look at that. I mean right now the number is pretty much where we are right now is where kind of we expect to end up at the end of the day.

Lisa Palmer

And I think my further range of FFO per share, if you'll do the math, the driver really is equal to the same property NOI growth range. So it will depend on where we fall within that range.

Bruce Johnson

And in closing a development that we're getting real close to which impacts our capitalization rent for that project.

Operator

Jeff Donnelly from Wells Fargo has our next question.

Jeff Donnelly - Wells Fargo

First of just a follow-up to Quentin's earlier question about cap rates, can you tell us where pricing is on B and C assets that I think you referenced, Brian. And the second part of my question is this pertains also to dispositions. One of your competitors pulled the trigger on $0.5 billion portfolio sale. What's you're thinking on executing a transaction of that nature to sort of pull back the band-aid, if you will, a little bit more quickly on your non-core assets rather than holding on them for the next few years. Is that a pretty deep market in your view?

Brian Smith

I'll start with the first one, Jeff. I'd say that the B market is again depending on whether there is any upside or not. It could be 8% to 9.5%. So obvious if you got more growth and you're talking 8% is not then you're going to go higher than that.

In terms of the portfolio, what I can tell you, I think you've seen two things going on out there. Where people try to sell portfolios that included properties kind of from all over, they have been pretty unsuccessful. There was one out in California, one of our peers had one. People basically want to cherry pick those. So they want to take the good properties and not take the bad one. So those have not been successful.

I think what is a successful strategy is if you package a portfolio to exit a market. And within that portfolio, you have some higher quality ones and some lower quality ones.

Hap Stein

I think that portfolio that was sold was from what I understand may have been cherry picked and in pretty consistent quality, as far as strong anchor tenant, long-terms left on leases happen to be in secondary markets. But what we're selling is stuff typically from the bottom part of our portfolio or as not strategic. We would look and we'll look at, it doesn't make sense to sell a portfolio, as you said the quick in the pace, but more to come on in that regard.

Operator

We'll take our next question from Rich Moore from RBC Capital Markets.

Rich Moore - RBC Capital Markets

I wondered if you could give us a little color on what's going on in the development pipeline, especially the pre-2009 are there stuff that started in the past three years or older than three years. Specifically, I see interesting things in there like Waterside for example leasing fell, but yield expectations went higher. So I'm wondering exactly how much effort is being put in here and what you guys are thinking?

Hap Stein

Let me just say, there is a focus on leasing all of our vacant space. That's where we can really, so to speak, move the needle, and whether those spaces are operating properties or properties that we developed within the last few years. So I will just assure you that there is a tremendous amount of focus in that regard.

Rich Moore - RBC Capital Markets

I thought some of these interesting, there were others as well besides Waterside. It looks like there is activity or actually a thinking that some of the yields are changing, which tells me that there is activity going on there, but yet leasing doesn't change that. I'm just curious how much activity goes on in the pipeline here in the older stuff?

Brian Smith

I'm not sure what you are talking about exactly. Where you will see some kind of movement typically would be in the completion yield, because that's just a date and time. And what we will do is we'll make changes to underlying assumptions. For example, in any give quarter, it often happens that we may delay the sales and push it back to the quarter after the completion date.

So that still keeps our stabilized yield where it was. That should not move very much. But the completion date will yield change, just because you had some movement of space as to when it either leases or in the case of the pad sale as that transaction takes places.

Unidentified Analyst

Just to understand, make sure I realize and understand what you guys are doing, all of these will move into the completed bucket by the end of next year pretty much, right? I mean we have four years from the start and you show that as your date. So basically this pipeline will be gone as a development pipeline, so to speak, by the end of next year?

Brian Smith

That's correct.

Operator

We move on to Chris Lucas from Robert Baird.

Chris Lucas - Robert Baird

Brian, I guess could you give us a little bit more color on the renewals, meaning how much of the 1.4 million feet that you did in the quarter was related to sort of this year versus next year renewals? And then could you give us the specific tenant retention rate and how that compares to sort of last four to eight quarter has been.

Brian Smith

The retention rate was 78%, which is exactly same rate it was last quarter when we had some higher renewals as well. The long-term rate was 68% last quarter. In fact, during last quarter, it takes up to about 69%, 69.5%. In terms of renewals, when they're taking place, if you will, the way most of our leases are structured particularly with the national tenants is they actually give us anywhere from six months to 12 months notice.

So if you actually measure when the renewals take place versus when the leases expire, you'll find that for this quarter about 90% of the leases were set to expire either in the current quarter or the next three. So within the next 12 months, that's when 90% of our renewals are taking place.

Chris Lucas - Robert Baird

I think I know the answer of this, but I'm going to ask it anyways. Any exposure to either A&P or CIMS filings??

Brian Smith

A&P, we had three A&Ps. One was already dark. And then when they went bankrupt, they rejected one and they sold the other, and we have released both of those.

Operator

Our next question is from Cedrik Lachance from Green Street Advisors.

Cedrik Lachance - Green Street Advisors

You've sold so far this year about $17 million versus, but you required about $100 million. There is obviously a gap there in terms of you being a net investor. If we think about the next three years or so, is your goal still to be a substantial net investor or do you really want to recycle the capital fully?

Bruce Johnson

Our goal is to be a net zero investor from an acquisition standpoint. Some of this is just a matter of timing. And there is good chance, like I've indicated earlier, that we may be a net seller. And if that is the case, then the term loan fits very, very well, because if we can match our acquisitions with dispositions and affect trade-up and quality, that's obviously our objective.

But to the extent that we're unable to find acquisitions that meet our standards, then we're in a position to in effect pay down the term loan or to finance our development program.

Cedrik Lachance - Green Street Advisors

And just going back to the gap between the lease space and the occupied space, so you're about 225 basis points in present. What's the historical gap that you've maintained over time?

Bruce Johnson

It's been about 150 basis points for the last five, six quarters. This 75 base point jump again pretty much reflects the increase in occupancy.

Cedrik Lachance - Green Street Advisors

And how long do you think it will take to go back to about 150 basis points?

Bruce Johnson

I don't know. Right now from the time a lease is signed until a tenant opens could be as short as three months, could be as long as nine months. So it's going to depend on the new volume. If we continue to keep leasing at the pace we've been doing, it's going to stay high to the extent we start filling up all these vacancies and we can get through the permitting process. That's when it's going to come down quicker.

Operator

We'll go next to R.J. Milligan from Raymond James.

R.J. Milligan - Raymond James

I was just curious if you're seeing a difference in leasing spreads for small-shop space between the more national retailers and the smaller mom and pops for those deals that you're signing with the smaller mom and pops.

Brian Smith

We've not tracked that. I don't have any good data on that.

Hap Stein

Nothing discernible.

R.J. Milligan - Raymond James

I am just wondering if maybe the national retailers, knowing that there is a lot of space out there, are squeezing the landlords more than, say, mom and pop who just wants the demand there or just want the space in the demand there in that particular market.

Brian Smith

It depends on the center, depends on the market and even then depends on the negotiation. I think we may have talked about in the past there is a good example down in (Damper) where we've got a weak market, but we've got some real experienced people, we've got some good assets.

And in that one particular center, we had two national tenants come to us with our offer in hand from a competitive landlord and with full build-out and lower rents. And we knew they are doing quite well in our center. And we know also that it's really operations that makes that decision, not real estate. And for them to give up a very successful store, there is a lot more risk in that than there is in trying to build up a new one. So in that case, we said no, and we actually released both of them and at some rent growth.

Hap Stein

That is one of the things that is talking a lot of time to convert from the leasing pipeline and design leases is national tenants and local tenants were pushing and we are pushing back.

Operator

Next question is from Ari Friedman from Cobalt Capital.

Ari Friedman - Cobalt Capital

Can you guys please provide some color on the type of tenants you're seeing for that small-shop space and what the average rent is for some of these new leases versus some of the move-outs?

Bruce Johnson

There is really nobody that's not actively seeking space. But I tell you that the highest demand is coming from all types of restaurants, the burgers, the coffee stores, the yogurt stores. We're all seeing good demand from pet stores, lots of services. And I'd say the average rents for the last quarter for the small shops is a little bit north of $25 a square foot. That's down the peak that was about $29 on average, and it got down as low as a little bit about $21. So we're kind of halfway between the peak and the trough right now in terms of last quarter.

Ari Friedman - Cobalt Capital

And is this tenant mix materially different from what you've seen over the past couple of years?

Bruce Johnson

No, it's not. It's very similar. In terms of the use, there is very little difference. But in terms of the caliber of the operator, the credit and everything, it's a much better mix.

Operator

(Operator Instructions)

Bruce Johnson

There appears to be no further questions. We appreciate your interest and time, involvement, anticipation. Everybody, have a great day and a great weekend. Thank you.

Operator

And that does conclude our conference for today. Thank you all for your participation.

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