Regency Centers Corp (REG) Q2 2026 Earnings Call Transcript

being certainly step one, a lot of our developments were incorporating that into right out of the ground, whether some municipalities requiring it or others that are not. And then also thinking about it from an ancillary income perspective, and not just solar, but there's a various amount of things that we're thinking about. It's not a small part of our business. I mean, it's nearly $35 million a year of ancillary income, and it is growing. And it's beyond just the solar, it's the EV revenues, it's fees, it's temp deals, it's different various marketing events. And so I think it's checking a lot of boxes and something that we remain keenly focused on.

And I'll just add, we do continue to invest in our solar program. You see that in the growth that's within our corporate responsibility report. We are adding new projects this year. We're underwriting new projects for future years. We're having the most success in states like Connecticut and Massachusetts and California. So we continue to grow that program. Thanks, Mike.

And we have a follow-up question from Flores Van Dykem with Lattenberg-Solman.

Hey, thanks for taking my added question. More on the capital allocation front, and development is really, you know, your unique sauce in some ways, I would say, about Regency. And I think, Lisa, you mentioned that a couple of times on the call as well. Maybe talk about you don't seem to have a big land pipeline. How do you tie up land? Because when you do development, land presumably is one of the biggest swing factors in whether project pencils or not. Can you maybe talk about your strategy regarding getting access to land And how do you how do you look at that as you build your future pipeline going forward?

I'm going to I will let Nick answer the question, but I just love that you open the door for me to just say it one more time that it really is a differentiator because we are allocating and investing our free cash flow in shopping centers that you would otherwise need to buy at market cap rates. And we're developing them and at returns that are substantial spread to that. So it really provides us that visibility to future growth as we deliver these. So appreciate you recognizing it and giving me another opportunity to say it.

Yeah, and I'll just add to that, Flora, specifically to your question. I appreciate you focused on that because if you do look at our land held, it's actually shrunk over the last couple of years as we've grown our development program. And that's really because we brought some land in that we had legacy land into production and we haven't had to speculatively purchase land to grow the program. And so specifically, we're being very, very efficient in our ability to, more times than not, not close until the project, from our perspective, is very effectively de-risked. And so that means entitlements in hand. That means pre-leasing with our anchor, especially, and even shops in many cases, hard bids in hand. And so that we feel really, really good, not only about our going-in yield, as Lisa alluded, and you can see our ground ups are 7% plus, but also delivering them at those yields. So it's one thing to plan them at those yields. It's another thing to bring them online, which we're doing very effectively. And so to your point, we have to work with a seller and control the real estate through contracts. And so that's how we continue to work with master plan developers and other sellers. We explain it in the process and they share in some of that risk, so to speak, to maximize their land value and put it into production. So I'm really proud of the team. And, again, it goes back to Lisa reiterated just those relationships, you know, the success we have in the market, the relationships we have with the grocers. When we sit down with the seller, we're transparent. We tell them what's ahead of us collectively, and our track record speaks for itself.

Thanks, Loris.

Thanks.

And we have another follow-up question from Jamie Feldman with Wells Fargo.

Great. Along those lines, just thinking about some of the other construction costs, can you just give us the state of affairs of, you know, what construction costs are doing across your markets for the major pieces of your projects? And then if you don't mind, medical and fitness, you know, has been growing in the portfolio. What are your thoughts on how large that could get in terms of total ABR and the credit quality of those types of tenants?

Thank you, Jamie. We're going to sneak in two questions. I'll take the first and I'll help Alan take the second. So, the first in terms of cost, as you've alluded to, look, it's volatile. There's no question. Fuel prices today are very volatile. You know, at the time we've been on this call, I haven't checked, but for all I know, they've gone up or down 10%. But the really good news about our team, and as I just talked about in the previous question, our de-risking of these projects is, look, we've been doing this for a very long time, forget about even decades. Just look over the last five or six years, and we've dealt with major supply chain issues as we were building shopping centers coming out of COVID. Then came the tariff impact and the potential impact of that on our projects, and now here we are dealing with fuel price volatility. And so it's not a fun part of the construction business, but it is just the reality of the construction business. The volatility is always part of it. And so our teams do an excellent job of, again, bidding the majority of these costs before we even start to try to de-risk it. but then carrying appropriate contingencies and cost escalation to deal with the unknowns. They always happen. We don't know what they are. That's why they are unknowns, but we have appropriately underwritten contingencies, which is why you've seen the vast majority of our projects come in on time and on budget. And we're not going to bat a thousand. And so every now and then there's a little bit of an impact, but if you look at a blended basis, we're winning more than we're losing in terms of our underwriting and why we continue to feel confident as much as it's not fun dealing with volatility that even through volatility we can perform at the numbers we're showing you all?

Jamie, on your medical and fitness question, we are at about 12% of ABR, and that is up 200 basis points over the last roughly five years. So we certainly are leaning in more. I would tell you the medical tenants certainly tend to be stickier, and it's something that has become a bigger part of the open-air shopping center arena from a fitness standpoint, look, healthy living is a very real mindset in today's environment. And so, again, we feel really comfortable and really confident in having fitness as something that the consumer and our communities want. And it's just really about aligning with the right operators. So, again, I don't have a specific target, but it is something that we are clearly leaning a bit more into.

Thanks, Jamie. And our next question will come from Teo Atusanya with Deutsche Bank.

Good morning, everyone. Lisa, while I recognize that the focus from an external growth perspective is on the development side, I'm curious how you're thinking on the acquisition front. It's been a while since you've done a large deal. So I'm curious how you're thinking about further consolidation amongst the public names in the space or if the strategy there is really more to be selective, finding kind of onesies and twosies where they kind of fit your bill.

I appreciate the question, Ty. We are always active, and I will remind you that last year it wasn't a merger, but we did acquire a large portfolio in Southern California, which was funded very accretively. So we are constantly evaluating the entire market, and it's just that we approach it the same way. And we've always said that, whether it's a single asset, a portfolio of assets like we acquired last year, or whether we're looking at a company. And we have the balance sheet to act, and we have the team to capitalize on those opportunities. When they're presented, we will be aggressive and we will act offensively.

Thanks, Tyra.

And this now concludes our question and answer session. I would like to turn the floor back over to Lisa Palmer for closing comments.

Thank you all for your time today, and happy Thursday.

Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. You may disconnect your lines and have a wonderful day.