Greetings, and welcome to the Regency Centers Corporation Fourth Quarter 2022 Earnings Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Christy McElroy, Senior Vice President, Capital Markets. Thank you, Christy, you may begin.

Good morning, and welcome to Regency Centers' fourth quarter 2022 earnings conference call. Joining me today are Lisa Palmer, President and Chief Executive Officer; Mike Mas, Chief Financial Officer; Alan Roth, Executive Vice President, National Property Operations and East Region President; Nick Wibbenmeyer, Executive Vice President, West Region President; and Chris Leavitt, SVP and Treasurer. As a reminder, today's discussion may contain forward-looking statements about the company's views of future business and financial performance, including forward earnings guidance and future market conditions. These are based on management's current beliefs and expectations and are subject to various risks and uncertainties. It's possible that actual results may differ materially from those suggested by the forward-looking statements we may make. Factors and risks that could cause actual results to differ materially from these statements may be included in our presentation today and are described in more detail in our filings with the SEC, specifically in our most recent Form 10-K and 10-Q filings. In our discussion today, we will also reference certain non-GAAP financial measures. The comparable GAAP financial measures are included in this quarter's earnings materials, which are posted on our Investor Relations website. Please note that we have also posted a presentation on our website with additional information, including disclosures related to forward earnings guidance. Our caution on forward-looking statements also applies to these presentation materials. Lisa?

Thank you, Christy, and good morning, everyone. Thank you for joining us. 2022 was a really good year for Regency, and we ended it on a high note with solid fourth quarter results on all fronts. Our strong performance is a testament to the quality of our shopping centers, the health and resiliency of our tenants and the hard work of our team. We enter 2023 with great momentum in our leasing pipelines fueled by strong tenant demand as we continue to have success growing rents across our portfolio. This persistent strength in the operating environment also continues to support the economics of our development and redevelopment projects. We look forward to further growing that pipeline over the next several years. At the same time, it is important to acknowledge that the challenging macroeconomic backdrop is bringing with it more tenant bankruptcies and early store closures, which have been relatively light for the last couple of years. But importantly, our exposure to at-risk tenants is limited. This is not by accident. It is a product of many years of intentionally cultivating our portfolio of neighborhood centers and strong suburban trade areas. And where we do have exposure, we see upside opportunities in getting spaces back and taking advantage of the strong leasing environment. Additionally, with inflation moderating, along with some stabilization in the capital markets, we believe we have more clarity on the impacts to our business from the economic environment than we did three months ago. These factors underscore our conviction in our 2023 outlook. Shifting to the private transaction markets, we are starting to see increased activity. Transaction volumes remain thin, but with financing markets stabilizing and treasuries reversing course, competitive bidding situations are returning for high-quality grocery-anchored centers. We believe this validates our portfolio and our investment strategy as shopping centers with a focus on necessity, convenience and value are more resistant to impacts from economic cycles. A couple of final thoughts before I turn it over to Alan. In addition to the stability and steadiness of grocery-anchored shopping centers, the open-air sector generally has really benefited from structural tailwinds coming out of the pandemic, lifting all boats with the rising tide. While we do expect those tailwinds to continue, we believe that 2023 can really shine a spotlight on Regency's attributes, allowing us to separate from the pack. These attributes include the quality and locations of our real estate, our tenant credit, our balance sheet strength and liquidity and the hard work and dedication of our amazing team. In our business, you win on the meaningful margin by making solid operating and investment decisions every day that generate steady and sustainable growth. It's how we create value for our shareholders, and this is reflected in Regency's long track record of outperformance in cash flow and dividend growth. Alan?

Thank you, Lisa, and good morning, everyone. The retail operating environment remains healthy, and we ended the year with another strong quarter. I'm really proud of our 2022 results. We had an exceptional year in leasing, helping to drive strong occupancy gains with our leased rate up 80 basis points and our commenced rate up 110 basis points over levels one year ago. Notably, our year-end 2022 same-property lease rate is back to our 2019 level of 95.1%. But make no mistake, we still have room to run, and we aim to ultimately get back closer to peak levels of 96% or higher. The primary driver was our record year for shop space leasing, ending the year up 200 basis points with our shop lease rate now 70 basis points above 2019. I am especially proud of the shop occupancy recovery considering the many challenges we faced during the pandemic. Our tenant retention rate remains above historical averages, and bad debt as a percent of revenues is back to pre-COVID levels. Importantly, our GAAP and net effective rent spreads were in the mid-teens for the year due to our team's accomplishments of achieving initial cash rent spreads north of 7%, embedding contractual rent steps in the majority of our leases and maintaining our track record of judicious leasing capital spend. All of these positive trends and the progress we've made contributed to another strong year of same-property NOI growth of 6.3%, excluding COVID-related reserve collections and term fees. At year-end, our signed but not occupied pipeline of 230 basis points represents more than $34 million of annual base rent, giving us positive momentum into 2023. Importantly, as leases commence, we continue to replenish this pipeline with newly executed leases. We have seen strong tenant demand continuing in the New Year, and our LOI and lease negotiation pipelines remain full. Our most active categories include restaurants, health and wellness, veterinary, grocers and off-price. We are hearing from top national retailers that their appetite to expand outpaces the quality inventory available today, which bodes well for Regency's high-quality portfolio. As we all know from recent headlines, tenant bankruptcies and early store closures will be more impactful as we think about move-outs in 2023. Among retailers that have recently filed for bankruptcy, Party City comprises only 20 basis points of ABR over 6 stores, and we have only one Regal Cinema, which is less than 10 basis points of ABR. In the context of Bed Bath & Beyond's recently announced store closures, at year-end, we had 11 stores comprising 60 basis points of ABR. We had one of those expire naturally in January, and of the closures announced last week, we had five locations on the list. Within our 2023 guidance range, we've embedded assumptions for credit loss associated with these bankruptcy filings and store closure announcements, which Mike will discuss in more detail. But all of that said, we believe our overall exposure to at-risk tenants is relatively limited. Our current tenant base is healthier than ever as a result of being intentional in the centers that we own and thoughtful in our merchandising process. And whatever the outcome of the at-risk tenants, we feel really good about the quality of our real estate. Tenant bankruptcies are a normal part of our business. And to the extent we get stores back from underperforming retailers, we have opportunities to mark-to-market rents and upgrade the merchandising mix at our centers. To that end, our teams are already negotiating with replacement tenants at higher rents for all of the known closures. In summary, our strong Q4 results and the trends we are experiencing today provide positive momentum into 2023. Nick?

Thank you, Alan. Good morning, everyone. Last year, we successfully executed on our development and redevelopment strategy. Even with pressures from rising construction costs, we continue to achieve solid returns on our investments that will provide earnings accretion in years to come. To that end, we completed more than $120 million of projects, with over $100 million of those completions in the fourth quarter. These include East San Marco, our public-anchored ground-up development here in Jacksonville. The property is 100% leased and outperformed original expectations on all metrics, including timing, cost, and rents. Carytown Exchange in Richmond, Virginia is another public-anchored ground-up development. We split this project into two phases during the pandemic and recently completed construction on the second phase. We've had great leasing success at Carytown with tenants such as Torchy's Tacos, Jenny's Ice Cream, Burton's Grill, and Starbucks. Preston Oaks is the redevelopment of an HEB-anchored center in Dallas. We were able to significantly upgrade the center in the merchandising mix by adding vibrant new shop tenants, including Mendocino Farms, Heyday, and Everybody, and the property is now 100% leased. Out at Serramonte Center, we completed the first two phases of our redevelopment project during the fourth quarter. These phases included the interior mall renovation as well as the addition of Chick-fil-A and Starbucks outparcels. Future phases of this project, including the addition of two exterior buildings and the redevelopment of the former JC Penney space, are expected to start in the second half of 2023. In addition to our completions, we've also made great progress on our in-process development and redevelopments, which totaled $300 million at year-end. Highlights include our Whole Foods-anchored Town & Country redevelopment in Los Angeles. We discussed this project in detail a quarter ago, but construction has commenced in the fourth quarter, and demolition of the former Kmart building is nearly complete. Additionally, at our Glenwood Green development in Old Bridge, New Jersey, construction is on schedule, with Target's anticipated opening later this year, and we expect Shoprite to open in early 2024. The team continues to do an excellent job of managing costs and keeping our projects on time and on budget. In total, we believe our accretive development and redevelopment program remains on track to deliver $15 million of incremental NOI in 2023 and 2024. Beyond our in-process projects, I'm really encouraged by the progress we're making growing our shadow pipelines. We're focused on building our pipelines through sourcing new ground-up development projects, new redevelopment projects through value-add acquisitions, as well as continuing to unlock redevelopment opportunities in our existing portfolio. We also continue to engage meaningfully with developers that are facing financing challenges, which could create additional joint venture opportunities. In totality, we have the key ingredients necessary to grow our program, including robust tenant demand, long-standing retailer relationships, experienced development teams in top markets around the country. Importantly, we have the ability to self-fund this growth with free cash flow. We believe the combination of these capabilities is unequaled, and we look forward to sharing additional details as we advance these opportunities. Mike?

Thank you, Nick, and good morning, everyone. I'll take you through some highlights from our Q4 and full year results, then walk through our 2023 guidance and assumptions before ending with some color on our balance sheet position. Our strong performance last year was underpinned by growth in NOI and more specifically from base rent growth. Excluding the collection of 2020 and 2021 reserves, which I'll refer to today as COVID collections, we delivered same-property NOI growth of 5.8% in the fourth quarter and 6.3% for the full year. Again, most importantly, we saw a 3.6% contribution from base rent growth in 2022, accelerating to 4.8% in the fourth quarter. This growth in base rent over the last year has been driven by contractual rent steps, mark-to-market on re-leasing, increases in occupancy, and commencement of rent from redevelopment projects. As Alan mentioned, our leased occupancy rate is now back to pre-pandemic levels, but our eyes are set even higher. COVID collections were about $2 million in the fourth quarter and totaled $20 million for the year. That's down from $46 million in 2021. During the fourth quarter, we converted another 2% of our tenants back to an accrual basis of accounting from cash, and as a result, recognized nearly $5 million of non-cash income from the reversal of straight-line rent reserves. We ended the year with 7% of our tenants remaining on a cash basis of accounting. For uncollectible lease income, in 2022, we were close to our historical average of 50 basis points on current year billings by nearly all metrics, but for some limited exposure to higher profile potential bankruptcies, our in-place tenancy is about as strong as it's ever been. Looking ahead to 2023 and after excluding COVID collections, we are guiding to core operating earnings per share growth of close to 4% year-over-year at the midpoint. We'd like to point you to Slides 5 through 8 in our earnings presentation, which I'm certain you'll find extraordinarily helpful as you work through our outlook. We expect same-property NOI growth, excluding COVID collections, of 2% to 3%, which is the largest positive driver of earnings into 2023. The primary contributor continues to be base rent growth, driven by embedded rent steps, rent growth from new leasing and shop space commencement, as well as the delivery of completed redevelopment projects. Importantly, our same-property NOI guidance range also assumes a credit loss impact of roughly 75 to 100 basis points from anticipated tenant bankruptcies and early store closures, including from those tenants that Alan discussed. This credit loss impact includes an assumption that current year uncollectible lease income will be modestly above our pre-pandemic average of 50 basis points as well as the potential for occupancy to end the year flat to lower should bankruptcy-driven move-outs occur. Again, this range excludes any impact from COVID collections, which I'll discuss in a minute. As you think about reconciling NAREIT FFO of $4.10 last year to a guided midpoint of $4.07 in 2023. Remember that this metric continues to be significantly impacted by COVID-era accounting adjustments, including the collection of rents previously reserved as well as the impact on non-cash revenues from converting tenants from cash to accrual. Our operating fundamentals continue to strengthen, as they have in 2022 and as they are expected to continue this year. And these pandemic-related items can mask our true growth in cash earnings. It's important to take this a step further this morning as these two items meaningfully impact year-over-year comparability. First, we are anticipating lower COVID collections of $3 million in 2023 compared to $20 million last year. And second, we are also anticipating lower non-cash revenues of $36 million at the midpoint in 2023 compared to $47 million in 2022. Please note that we increased our full year non-cash revenue guidance from $30 million a quarter ago to account for new information, including an assumption that we will continue converting tenants to accrual accounting in 2023, as well as the likelihood that we will recognize accelerated below-market rent amortization triggered by the potential for bankruptcy-related store closures. This is why we focus on core operating earnings, which strips out the noncash adjustments and also why we provide same-property NOI excluding COVID collections. With this added transparency, you can better see the underlying positive growth. Again, I encourage you to use the materials in our earnings presentation, as I'm certain you'll find it very helpful in evaluating these impacts. The good news is that we are fast approaching the point where these COVID-related impacts will no longer create meaningful noise in our reported results. To finish and to pivot from guidance, we feel great about how we are positioned from a balance sheet perspective with one of the strongest in the REIT sector at a time when it matters most. Our leverage is at the lower end of our targeted range of 5 times to 5.5 times debt-to-EBITDA. And we expect to generate free cash flow north of $140 million this year, self-funding our development and redevelopment commitments. While the financing markets have moved in our favor over the last three months, we have no need to access the capital markets this year. Our revolving credit line was undrawn at year-end, and we have no unsecured debt maturities until mid-2024. Our liquidity position and maturity profile provide us the ability to remain patient and act when we need to. With that, we look forward to taking your questions.

Thank you. We'll now be conducting a question-and-answer session. Thank you. Our first question is from Michael Goldsmith with UBS. Please proceed with your question.

Good morning. Thanks for taking my questions. You have this nice chart in your presentation where you outlined the factors that drive your long-term organic same-property NOI growth algorithm of 2.5% to 3% to your 2023 guidance of same-property NOI growth without termination fees or collections of reserves 2% to 3% is generally consistent with that. So maybe you can reconcile your long-term algorithm with what you're expecting this year. Where are the moving pieces? And does that mean that 2023 is setting up as a Regency average year? Thanks.

Good question, Michael. Thank you for that. Let me color that up, and I think you'll find that the algorithm still is intact. We are anticipating north of 3% growth this year and the also important base rent line item. That's largely being driven by the tremendous activity that the leasing team delivered, and we highlighted on the call, 200 basis points of percent lease coming out of the small shop arena total, 110 basis points of commenced occupancy increases really driving good solid base rent growth. Rent steps are playing a contribution there. Rent spreads from 2022 into 2023 redevelopment contribution. So all of those elements as you highlighted in our algorithm are there. That being said, there are some items that are dragging us down in 2023, one of which is our credit loss reserve. So a touch higher on a sequential basis, 2023 over 2022. I spoke to that in the prepared remarks. We are accounting for and providing for the potential for bankruptcies, which would be in excess of what we experienced last year. And then there is a slight drag coming from the net recoveries line item as well. You may have noticed that, that spiked in the fourth quarter. It's been a little bit elevated for the year, and some of that won't recur going into next year. So on balance, I feel like the algorithm is still in place. Regency has set up extraordinarily well to deliver upon that growth profile. And we still have room to run from a leasing perspective and seeing that north of 3% base rent growth in '23 is a real positive identifier.

And my follow-up is on the pipeline. Are you able to quantify how much is in there? And is that going to be realized by the end of 2023? Or is that a 2024 type of event?

Let me start, and if Alan wants to add anything, he can. It's about $35 million of Annual Base Rent, which is approximately 4% of our current rents. Regarding the 230 basis points of Space Not Occupied from a timing perspective, around 75% to 80% of that should be operational by the third quarter of this year. Almost all of it should be ready by year-end, likely around 90%.

Our next question is from Ki Bin Kim with Truist. Please proceed with your question.

Thanks. Good morning. When considering the available inventory across your portfolio, how would you evaluate the quality or leasability compared to the currently occupied spaces? There's typically always some harder-to-lease areas in every center, so I'm trying to gauge our expectations moving forward.

It's Alan. I would look to our pipeline to answer that question and tell you that it's still full with a tremendous amount of activity following a really strong 2022 year. By and large, as we mentioned, at 95.1% leased, we're aiming higher, and we believe we can and will get back to over 96%. The quality space that remains will certainly allow us to achieve that, along with the great merchandising activity still in our pipeline.

And as you've reached 95% and on your way to 96%, like you mentioned, what do you think that means for lease spreads going forward? I know it's not always linear, meaning the more you're occupied, the higher spreads you get, but just trying to understand that dynamic a little better.

Yeah. I think we're shooting for high single digits is kind of how we look at that, Ki Bin. Feel again, really confident in doing that. But as you know, there's a lot of levers that also go into that cash rent spread and that includes embedded rent steps as well as our approach to how we spend our capital. And so collectively, again, I think we feel confident with the trajectory and the path that we're going down.

Thank you. Our next question is from Greg McGinniss with Scotiabank. Please proceed with your question.

Good morning. I know it hasn't been long since the Bed Bath store closure announcement, but I'm hoping you can provide some clarification. One question is regarding the higher rents you mentioned; could you specify how much higher they are? Additionally, how many backfills are you considering compared to demising, and what kind of downtime should we anticipate for those?

Yeah, Greg. No fun to be talking about bankruptcies again. But we have 10 stores that do remain that represent 50 basis points of ABR. We have five stores that were on the closure list. And again, we feel really good not only about those five stores, but the totality of whatever may come of the Bed Bath portfolio. From a mark-to-market perspective, we think we're in the 15% to 20% range. And I think when you think about bankruptcies that have happened in the past such as Sports Authority, Toys 'R' Us, and Stein Mart, those were 40,000 to 45,000 square foot stores, and the Bed Bath stores are generally in the 30,000 square foot range. And so that really provides a much wider pool of interested users that, for the most part, will not require downsizes or splits, which again, I think will play a part in your capital question. We are negotiating deals for all of our known closures. And in some instances, we're even running what I'll call an RFP in the interest of appropriately managing demand and relationships. But time will tell. They obviously just recently announced that equity raise. So we're staying close to it, and we're staying active and aggressive on all of our spaces.

Okay. And one follow-up on you mentioned the developers facing financing challenges and those who might end up doing deals with. I'm just curious kind of how big of an investment are you looking at on some of those assets? And how close are you to getting any of those deals done?

Great question. This is Nick. As you can imagine, it's a wide range of investment. As you guys have seen the capital markets, especially for construction debt for local developers, is effectively frozen. And so we are very well situated, as I mentioned in our prepared remarks, with our retailer relationships, combined with our impressive team around the country and clearly our available capital. We are, I would say, moving from coffee conversations that started 90 days ago into real dialogue and real negotiations and analysis of these opportunities. And so I do feel like it's the early stages, but the early stages are very important to growing a meaningful pipeline. And some of these projects that you could appreciate when you look at our historical development program of scale. So excited about it.

Thank you. Our next question is from Floris Van Dijkum with Compass Point. Please proceed with your question.

Good morning, guys. Thanks for taking the question. Maybe, I guess, I've got two for you. Number one, maybe if we can get a little bit more detail on the $0.21 nonrevenue mark-to-market. And presumably, some of that is related to some of your troubled retailers. If you can give us a little bit more color on that and also in particular, what sort of mark-to-market opportunities would you have if you get some of the space back, and I'm particularly thinking about properties such as Buckhead Station, South Beach, University Garden, some of your properties that have some of this Bed Bath exposure.

Sure, Floris. I believe you’re inquiring about the accelerated below-market rent linked to the potential recovery of anchor spaces. We have included a portion of that income in our forecasts. As you know, it’s a dynamic situation. What we have factored into our guidance is approximately $3 million of expected accelerated amortization. This is connected to our expectations regarding the Bed Bath & Beyond situation, where we may regain those spaces. Reflecting on Alan’s earlier point, there is about a 15% mark-to-market opportunity for those units, which suggests that this below-market rent could exist. These original amounts were established during the acquisition of the shopping centers, and only time will reveal the actual economic outcomes.

Great. As a follow-up, I noticed that not all spaces are the same. Typically, your small shop rents are double the anchor rents. I see that your small shop leased occupancy increased by 60 basis points. Can you provide some insights into your physical occupancy? Additionally, could you elaborate on your expectations for small shop occupancy? You mentioned that total occupancy in the portfolio is aiming for 96%. What do you believe the small shop occupancy could reach, and what was the peak in the past?

Before Alan answers this question, I feel like I have to jump in and say I appreciate that you recognize that all space is not equal. And I would say it's not just from small shop and anchor; all retail is not created equally, and high-quality space actually is very different and command, but much different rents than those of lesser quality. So I appreciate you making that recognition, Floris. I'll let Alan answer your question more specifically.

Yeah. Really well said, Lisa. I think the only thing left to answer there, Floris, is where is the peak occupancy? And that's at 93% historically. And so we are at 92% on a shop occupancy perspective right now, and again, as I said, we feel really good about kind of where our pipeline is and what remains in our ability to not only get there, but hopefully we can exceed that.

Thank you. Our next question is from an unidentified analyst with Bank of America. Please proceed with your question.

Hi, thanks for taking my question. I was wondering if you could walk through the assumptions behind base rent growth, seeing that as the primary driver of 23% same-store NOI guidance. What exactly are you assuming for contractual rent in-place rents and then the commencement of rent from redevelopment? Or if you could just talk about your strategy on how you're balancing the Street?

Sure. I'll walk through the components, and Lisa or Alan may provide some color from a strategy perspective. North of 3% base rent growth, you got it right, and we're excited about that opportunity in 2023. It's really coming from a combination of several things, as I talked about earlier with Michael's question with respect to our NOI growth algorithm. So rent steps, that's the bread and butter of our growth profile. It's been a positive contribution in the 140 basis point range for a long time, and we're trying with every lease to move that needle as we continue to embed higher and higher contractual rent increases. Rent spreads continue to be a positive contribution. You saw a 7%-plus outcome in 2022. That will translate to growth in '23. That will be in that call it, 75 basis point area. It depends on timing from that perspective on rent commencement from a delivery perspective. What we're really excited about is now that we're starting to contribute from a redevelopment perspective. We've talked about this $15 million of NOI that's coming online from our redevelopment and development pipeline. A lot of that is from the redevelopment pipeline. It will come through our same-property NOI growth line item. We strategically try to deliver 25 to 75 basis points of impact to NOI growth. I will say with this pipeline that we are delivering at this point in time, we should be at the upper end of that range. And then I made some comments in the remarks around our outlook for occupancy. We've made tremendous strides in moving that commenced rate in 2022. We will continue to deliver our SNO pipeline, hopefully, maybe even a little sooner in 2023. But now we're getting into the impact of the credit loss and the BK reserve. So that could be a bit of a dampening impact depending on how the bankruptcies play out over the course of '23. Those would be the contributing factors to face rent growth.

Thank you. I have a follow-up question regarding the $65 million in dispositions mentioned in your guidance at a 7% cap rate. Is this based on current market observations, or is it more of an initial estimate? Thank you.

It's specifically identified projects that come from one of our larger joint venture portfolios. We have always believed in trimming the bottom of our portfolio, whether through wholly-owned assets or joint venture properties. This strategy contributes to our minimal exposure to risk. Our commitment involves selectively addressing lower-quality, nonstrategic, and lower-growth assets. The $65 million refers to these specifically identified projects. It's important to note that the timing expectations are merely assumptions and could change, so it's just a placeholder for now regarding those identified projects.

And I'll just add. I appreciate Mike's comments about that. We really do believe that a year like 2023 may really shine a spotlight on that in terms of making sure that we are proactively managing the quality of our portfolio. And we believe that, that really does fortify sustainable NOI growth over the long term. So while that disposition guidance did come with a 7% cap rate that, as Mike said, that's a placeholder. We looked at last year's transactions and just added a little bit of perhaps market movement to that. But more to come, and we'll have more clarity as we move through the year with regards to that market. But again, it's an important part of our strategy and one that we remain committed to, and I believe has enabled us to deliver same-property NOI growth at the higher end of the industry.

Thank you. Our next question is from Craig Mailman with Citi. Please proceed with your question.

Good morning. Just want to follow up on the transition of tenants back to accrual accounting from cash. I'm just kind of curious, as we sit here today. I mean, could you just give a little bit of color on what types of tenants you guys move back in the fourth quarter? And of the 7%, maybe what's the probability of moving more and where you think that 7% to move to by the end of the year or what's a more normalized level?

Sure. We're currently at 7% at year-end, which is a significant decrease. The peak back in 2020 was 27% of our adjusted base rent. The tenants in this situation are mostly small, local businesses in personal services, with a bias towards the West Coast since those tenants were affected later. We have established specific internal requirements for conversion, such as being current on all rent, no deferred billings, and maintaining that status for about nine months. They are meeting quite stringent criteria. I mentioned that we are very pleased with the quality and stability of our tenants right now. For 2023, we have factored in around $2.5 million in expected conversions, which amounts to about 2% of adjusted base rent. This would bring us down to around 5%, which we believe is where we will stabilize from a cash basis tenancy perspective. This is slightly higher than what we observed in previous years, but considering the new accounting standards, 5% seems like a reasonable estimate for where we'll land.

That's helpful. Lisa, could you provide some insight into the areas of the business where you feel you have better visibility today compared to three months ago? This could include aspects such as leasing, the transaction market, or tenant credit. Additionally, if you were to compare your guidance from three months ago to today, how would you describe the direction we're heading in now?

It's all of the factors you mentioned. We have another three months of developing our leasing pipeline and observing the performance of our tenants, with sales continuing to increase in our restaurants and grocery stores. Three months ago, we experienced virtually no activity in the transaction markets, but now that's changing, and we're seeing high-quality properties being listed. As I noted earlier, there are competitive bidding situations for the properties we want to acquire. This collective progress gives us confidence. If I had to provide guidance three months ago, I would have said it would be similar to what we just reported, but I feel significantly more confident and assured today due to all the reasons I've outlined.

Thank you. Our next question is from Juan Sanabria with BMO Capital Markets. Please proceed with your question.

Hi, thank you. Maybe a question for Mike. I was just hoping you could maybe delve a little bit into the expense recoveries that you noted were elevated in the fourth quarter and for the year and how that changes or morphed a bit into '23?

Sure. You can see the impact in the supplemental report, and I appreciate the question. There was about a 160 basis point positive impact in the quarter alone, which dilutes to 30 basis points for the full year due to some seasonality in that line item in the fourth quarter. The billings from a recovery standpoint in that quarter tend to be higher on the recovery ratio side. Expenses like snow removal and real estate taxes have a slightly elevated collection rate. There are numerous smaller factors at play, but one major factor is related to the Equity One merger and the impacts from Prop 13. It took a significant amount of time for the municipality to process the supplemental tax billings, which were expensed as they were incurred but were collected later. We are now seeing some cash basis tenancy impacts as well. Fortunately, we successfully collected all of it in 2022, with some of it being accelerated into the fourth quarter, hence the noticeable increase. The combination of these factors drove the notable impact in the fourth quarter. I am very confident in our collection rate, sitting above 85% from a recovery rate perspective, and I expect that to remain stable into 2023 as you model it.

Great. And then just maybe a sensitive question, but on Amazon, what do you guys think from them across Whole Foods and their other brick-and-mortar concepts with regards to demand for space, appetite for new stores the lack thereof and how you're using your space? And is there any signs of weakness there with regards to foot traffic versus other grocery concepts?

Juan, I appreciate the question. So look, they're still performing really strong in our portfolio. We have a great relationship, given the abundance of Whole Foods stores that we have in the portfolio. They're expanding, as maybe Nick can touch on a bit in terms of his discussions on new stores and how they're looking at that with our conversations. But foot traffic is certainly coming back with them, and they remain a great retailer that we really love merchandising around in terms of the totality of our assets.

I would just add that there is significant demand from many of our grocers right now for expansion across the country. This is a key factor driving our excitement about future development opportunities. Major grocers like Whole Foods are looking to grow, and they are performing exceptionally well. We are eager to continue expanding our portfolio with them and other partners.

Thank you. Our next question is from Anthony Powell with Barclays. Please proceed with your question.

Good morning. I guess a question on the bad debt assumptions for the year. How much of the 75 to 100 basis points is tied to known situations like Bed Bath & Beyond? And how much more cushion is there in that number?

Sure. Anthony, it's Mike. Let's discuss the different scenarios by looking at the midpoint, low-end, and high-end. It's important to keep in mind that the credit loss reserve consists of uncollectible lease income or bad debt expense, along with the possible impact on base rent from a lease rejection due to bankruptcy. This includes both base rent and asset considerations, as well as expenses. Starting with the midpoint, we are anticipating a classic reorganization scenario at the midpoint of our range, which is around 75 to 100 basis points. This range encompasses the full spectrum of possibilities. A classic reorganization has been discussed, and Alan has provided some insight into which stores might face closure, though they have not yet been confirmed for rejection. This scenario represents our midpoint. Conversely, the low end of our guidance would capture a full liquidation scenario. We are confident that, even with a potentially rapid filing and liquidation process, the low end of our range would account for that situation. Furthermore, I would extend the midpoint scenario towards the upper end, which represents a less likely but optimistic situation where Bed Bath continues its operations without any closures, providing some upside to our guidance. Remember, this involves credit loss, meaning there is bad debt expense to consider. I mentioned that we are slightly increasing our outlook for 2023 compared to the actual performance of 2022, adding some cushion to our plans regarding bad debt expense. We'll monitor how the year unfolds. I feel very positive about our tenancy and the quality of our merchandising, while also acknowledging the potential headwinds we may face.

And maybe one more on acquisitions. I think, Lisa, you mentioned that you're seeing more bidding processes play out. How do you view your potential to be acquired this year of assets, given what you see in cap rates, transaction volume, and your own cost of capital?

I'll just point to our balance sheet and the fact that we're generating $145 million of free cash flow. We do have development spend. But even we are able to access the debt markets, and to the extent that we leverage that cash flow, even staying leverage neutral within our strategic net debt-to-EBITDA targets, that gives us investment potential north of $200 million. So we are positioned to be active. It has to be the right opportunity, and you all probably get tired of hearing me say this, right? If it checks the three boxes, we will be active. If it's accretive to earnings, accretive to our future growth rate, and accretive to our quality, we're poised to act.

Thank you. Our next question is from Mike Mueller with JPMorgan. Please proceed with your question.

Hi. In your slides, you talked about five redevelopments that could start over the next, I think, it's like 12 or 12 to 18 months. Just wondering, how should returns on those look compared to what's already in process today?

Thank you for the question, Mike. The simple answer is very similar to what we've seen historically. And so our target returns on redevelopments have not changed materially. And so when you look at our ones that we've recently completed and our ones that are in process, we're targeting similar returns for our future redevelopments.

Got it. Okay. And then, Mike, I know there are a lot of moving parts with the ins and outs of occupancy. But what does guidance assume for the year and commenced occupancy level?

I like to think about it in two layers, Mike. I'll summarize what I mentioned during the call as being flat to slightly negative if bankruptcies were to occur. However, when I consider our base leasing plan and the SNO pipeline, which we are set to deliver, there is an increasing percentage of commenced leases driving that billable base rent line item. Yet, if we factor in the possibility of bankruptcies, my midpoint scenario leads me to anticipate a flat to slightly negative outlook for the percentage leased. There is certainly positive news regarding occupancy, but there is also the risk of some vacancies arising. I'm not concerned about it; in fact, I am quite eager and actively working on re-leasing that space. That would represent the most optimistic outlook on occupancy.

So the midpoint, we should think of it as roughly flattish?

Including the scenario I outlined with respect to a reorganization scenario of the tenant in question.

Thank you. Our next question is from Tayo Okusanya with Credit Suisse. Please proceed with your question.

Hi, good morning, everyone. Lisa, thanks for your comments around how you're thinking about acquisitions. You guys also made some comments about the redevelopment pipeline. I'm just curious, just kind of given freshness cost of capital today. How do you guys kind of think about prioritizing or accelerating one versus the other acquisitions, development, redevelopment and as well as share repurchases?

That prioritization has not changed. The best use of our capital has been and will continue to be developments and redevelopments because we achieve the best returns from them. We have a strong track record of meeting our underwriting and the returns we shared with you, which are clearly superior to what we see in the competitive bidding acquisition market. At the same time, we do have the capital available for investment. If we find opportunities that enhance earnings, improve quality, and contribute to our future growth rate, we will invest in high-quality shopping centers as well. We have been successful in that area, especially over the past two years, successfully closing deals on shopping centers that meet all those criteria, including some off-market deals and a few through competitive bidding. Regarding share repurchases, we've had the chance to capitalize on what we believe to be significant market dislocations at various times in our history, and we will continue to pursue this strategy when the right opportunities arise.

Thank you. Our next question is from Paulina Rojas with Green Street. Please proceed with your question.

Good morning, and so transactions are sparse and having a retool on pricing, it's more difficult than it was before, but there are still hundreds of millions of dollars of exchanging hands. So what is your assessment of how pricing for your product has changed since, let's say, the peak last year?

I'm going to let Nick handle this since we haven't been active, as you've seen from the results. The market is declining, and transaction activity is still quite limited. However, Nick's team, along with Barry Argos, is actively pursuing those opportunities. So I'll let Nick address that.

Thank you for the question, Paulina. I don't have much to add. As Lisa mentioned, we don't have specific data points to share at this time. However, we anticipate that in the next 60 to 90 days, as some of these transactions that have entered the market are finalized, we will see real competition for them. There is strong demand for our type of asset, particularly high-quality grocery-anchored properties across the country, which will continue to attract investors. Therefore, we expect to have some specific data points in the coming 60 to 90 days as these deals close, and we believe these will underscore the quality of our assets.

And can you characterize point to a specific segment of investors that are back at the table that have regained confidence? Because we also hear a lot of institutional investors that are selling product and need to sell product today. So how can you characterize the demand at the margin that you are seeing coming back?

Again, great question. And again, as these deals close, we'll be able to point to specifically who the buyers were, but what we're seeing and hearing as our team continues to underwrite and talk about specific transactions is it's really broad-based. And so it's institutional investors around the country. And so as much as we're seeing broad-based in the sellers, we're seeing broad-based in the buyers. And so I can't point to a single institution that's the buyer or the seller right now. It's broad-based in both respects.

And if I can, last one, hopefully short. Where do you think that the CMBS market is for grocery-anchored centers today?

Paul, it's Mike. It's hard for us to provide an answer because we're not really involved in the CMBS market, so I'm not particularly familiar with it on a day-to-day basis. However, for our product, which consists of grocery-anchored neighborhood shopping centers that demonstrate strong resilience and have excellent rent rolls with tenants that have solid credit, I would assume that market would be accessible to us. I’m not certain about the pricing of that product. But like many credit markets, especially now, it's somewhat restricted. Borrowers are facing decreased access to debt capital currently, but borrowers like Regency, known for their strong reputation in the credit market, their scale, quality, and strong relationships, will have better access compared to most.

Thank you. Our next question is from Linda Tsai with Jefferies. Please proceed with your question.

Hi. Just one quick one. With treasuries reversing course and inflation starting to abate a little bit, is this showing up in terms of more traffic or transactions at your centers?

Linda, we're basically flat to 2019. And so we feel really good about the traffic that's there right now. Again, necessity-based retail, and they're performing really well. Our restaurants are performing exceptionally well, as are others. So I think we're back to a pretty steady state right now from a traffic perspective.

Thanks. That's it for me.

Thank you. Our next question is from Ronald Kamdem with Morgan Stanley. Please proceed with your question.

Hey. Just two quick ones from me. Just going back to the 96% potential leasing targets. Just curious what we need to see for that to happen. Is that just the current run rate you are seeing? Limit sort of move outs? Just trying to figure out the building blocks, the breadcrumbs to get to that 96% and how achievable that is?

We believe it is attainable based on our past experiences, and we have greater confidence in the quality of our assets today compared to when we last reached that benchmark. That's how we gauge its achievability and set our targets. You've highlighted some key factors, and the third element I would mention is time. We've discussed our capability to lease space at competitive rates, and we demonstrated that in 2022 by increasing occupancy by 100 basis points. Additionally, I noted a 200 basis point increase in leasing from our small shops. Time, along with the persistent efforts of our leasing team, will help us address the challenges posed by significant bankruptcies, which could create gaps we need to manage. Ultimately, it's a matter of when we can lease that space, not if. We're not expecting to reach those targets in 2023, and I want to emphasize that we have more than 12 months ahead of us to accomplish this. We will get there in due course.

And I would just add, and setting the bar high, as I expect that our team would deliver that, if not for those bankruptcies, as Alan talked about, our leasing pipeline is really strong. We have a lot of momentum. And my expectation, if we didn't have the hole in the bucket from those store closures and bankruptcies that we know are coming, we have visibility to it. We'd be able to increase occupancy in 2023.

Great. And then if I could just sneak in a quick one because I haven't heard it. Just any updated thoughts on this, the Kroger Albertsons, how you guys are thinking about the deal and as it relates to Regency?

Not much has changed. There was a report this morning indicating that they are looking to sell 250 to 300 stores, but that's not really any different; it's just a more specific range than what was initially shared when they announced the transaction. We're taking a wait-and-see approach. We have strong relationships with both companies, but they can't provide us with any nonpublic information, so we're aware of the same information you are. However, we are confident in the quality of our real estate and the grocery stores we have with Kroger and Albertsons. Both are leading grocers, and we believe that if they combine, it would enhance their scale and their capacity to invest in both physical stores and technology. On the other hand, if the deal gets blocked, we still feel very positive about our real estate and the presence of these top grocers as anchors in our centers.

Great. Appreciate the disclosures. Thanks.

Thank you. There are no further questions at this time. I'd like to turn the floor back over to Lisa Palmer for any closing comments.

Just want to thank you all for being with us this morning, and I also want to once again thank the Regency team for a really good 2022. And we look forward to further conversations and great results this year. Thank you all.

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.